-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AnJQLrrgbAQHtYFyWpj+kTeZmZeVw0JsGNSqez23p2g1NXWfI12/IbJ0FzjvQrYW GwRShLhVnvr2/TYQKo4pGg== 0000950134-98-003431.txt : 19980422 0000950134-98-003431.hdr.sgml : 19980422 ACCESSION NUMBER: 0000950134-98-003431 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980421 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRAFTMADE INTERNATIONAL INC CENTRAL INDEX KEY: 0000856250 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRICAL APPLIANCES, TV & RADIO SETS [5064] IRS NUMBER: 752057054 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-33594-FW FILM NUMBER: 98598095 BUSINESS ADDRESS: STREET 1: 2700 112TH ST CITY: GRAND PRAIRIE STATE: TX ZIP: 75050 BUSINESS PHONE: 2146478099 MAIL ADDRESS: STREET 1: 2700 112TH ST CITY: GRAND PRARIE STATE: TX ZIP: 75050 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 31, 1998 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15D OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH, 31 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15D OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO________ Commission File Number - ---------------------- 1-10471 CRAFTMADE INTERNATIONAL, INC. ----------------------------- (Exact name of registrant as specified in its charter) Delaware 75-2057054 -------- ---------- (State or other jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 650 S. Royal Lane, Suite 100, Coppell, Texas 75019 - -------------------------------------------- ----- (Address of principal executive offices) Zip Code Registrants' telephone number, including area code (972) 393-3800 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- 4,375,000 shares of Common Stock were outstanding as of April 10, 1998. 1 2 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES Index to Quarterly Report on Form 10-Q Part I. Financial Information Item 1. Financial Statements (unaudited) Condensed Consolidated Statements of Income for the three months and nine months ended March 31, 1998 and 1997. Condensed Consolidated Balance Sheets as of March 31, 1998 and June 30, 1997. Condensed Consolidated Statement of Changes in Shareholders' Equity for the nine months ended March 31, 1998. Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 1998 and 1997. Notes to Condensed Consolidated Financial Statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Part II. Other Information Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K 2 3 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED --------------------------- -------------------------- March 31, March 31, March 31, March 31, 1997 1998 1997 1998 ------------ ------------ ------------ ------------ Net Sales $ 8,659,979 $ 9,189,898 $ 28,315,470 $ 29,727,351 Cost of goods sold 5,455,095 5,539,644 17,870,768 17,911,962 ------------ ------------ ------------ ------------ Gross profit 3,204,884 3,650,254 10,444,702 11,815,389 ------------ ------------ ------------ ------------ Selling, general and administrative expenses 2,353,463 2,509,707 6,871,236 7,192,313 Interest expense,net 348,482 284,988 996,951 952,710 Depreciation and amortization 97,932 94,414 291,949 283,539 ------------ ------------ ------------ ------------ Total expenses 2,799,877 2,889,109 8,160,136 8,428,562 ------------ ------------ ------------ ------------ Income before income taxes 405,007 761,145 2,284,566 3,386,827 Provision for income taxes 145,802 274,012 843,605 1,217,087 ------------ ------------ ------------ ------------ Net income $ 259,205 $ 487,133 $ 1,440,961 $ 2,169,740 ============ ============ ============ ============ Basic and diluted earnings per share $ .06 $ .11 $ .31 $ .50 ============ ============ ============ ============ Shares outstanding assuming dilution 4,442,579 4,376,199 4,616,452 4,370,609 ============ ============ ============ ============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3 4 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
March 31, June 30, 1998 1997 (Unaudited) ------------ ------------ Current assets: Cash $ 615,173 $ 193,049 Accounts receivable - trade, net of allowance 7,599,775 6,427,799 Inventory 10,925,342 10,594,219 Prepaid expenses and other current assets 1,290,503 1,071,843 ------------ ------------ Total current assets 20,430,793 18,286,910 ------------ ------------ Property and equipment, net 9,531,403 9,358,175 ------------ ------------ Other assets: Goodwill, net 171,571 129,839 Other assets 143,913 91,310 ------------ ------------ Total other assets 315,484 221,149 ------------ ------------ $ 30,277,680 $ 27,866,234 ============ ============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 5 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, June 30, 1998 1997 (Unaudited) ------------ ------------ Current liabilities: Note payable, facility - current portion $ 529,872 $ 607,895 Revolving line of credit 10,000,000 7,000,000 Accounts payable - trade and commissions 510,007 362,933 Income taxes payable 204,191 -- Other accrued liabilities 243,410 296,405 ------------ ------------ Total current liabilities 11,487,480 8,267,233 Note payable, facility - long term portion 7,989,259 6,995,445 Other liabilities 81,205 81,205 ------------ ------------ Total liabilities 19,557,944 15,343,883 ------------ ------------ Shareholders' equity: Series A cumulative, convertible, callable preferred stock, $1.00 par value, 2,000,000 shares authorized; 32,000 shares issued 32,000 32,000 Common stock, $.01 par value, 15,000,000 shares authorized, 6,191,024.5 and 4,110,683 shares issued as of March 31, 1998 and June 30, 1997, respectively 41,107 61,910 Additional paid-in capital 7,095,571 7,184,143 Retained earnings 11,186,507 13,123,747 ------------ ------------ 18,355,185 20,401,800 Less: treasury stock, 1,816,024.5 and 1,178,683 common shares at cost as of March 31, 1998 and June 30, 1997, respectively, and 32,000 preferred shares at cost (7,635,449) (7,879,449) ------------ ------------ Total shareholders' equity 10,719,736 12,522,351 ------------ ------------ $ 30,277,680 $ 27,866,234 ============ ============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5 6 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
Voting ----------------------- Common Stock Series A Additional Treasury ----------------------- Preferred Paid-In Retained Stock Total Shares Amount Stock Capital Earnings Amount ----------- ------------ -------- --------- ---------- ------------ ------------ Balance as of June 30, 1997 4,110,683.0 $ 41,107 $ 32,000 $7,095,571 $ 11,186,507 $( 7,635,449) $10,719,736 Stock Repurchase -- -- -- -- -- (244,000) (244,000) Exercise of employee stock options 25,000.0 250 -- 109,125 -- -- 109,375 Cash Dividends -- -- -- -- (232,500) -- (232,500) Stock Split 2,055,341.5 20,553 -- (20,553) -- -- -- Net Income for the nine months ended March 31, 1998 -- -- -- -- 2,169,740 -- 2,169,740 ----------- -------- --------- ---------- ------------ ------------ ----------- 6,191,024.5 $ 61,910 $ 32,000 $7,184,143 $ 13,123,747 $( 7,879,449) $12,522,351 =========== ======== ========= ========== ============ ============ ===========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 6 7 CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED ------------------------------ March 31, March 31, 1997 1998 ------------ ------------ Net cash provided by (used for) operating activities ($ 159,553) $ 3,927,824 ------------ ------------ Cash flows from investing activities: Net additions to equipment (143,508) (67,032) ------------ ------------ Cash flows from financing activities: Note payments on facility (362,758) (915,791) Stock repurchase (1,738,158) (244,000) Net proceeds from (principal payments for) revolving line of credit 1,900,000 (3,000,000) Proceeds from exercise of stock Options -- 109,375 Cash dividends (91,683) (232,500) ------------ ------------ Net cash used for financing activities (292,599) (4,282,916) ------------ ------------ Net decrease in cash (595,660) (422,124) Cash at beginning of year 663,057 615,173 ------------ ------------ Cash at end of period $ 67,397 $ 193,049 ============ ============
Supplemental disclosures of cash flow information:
FOR THE NINE MONTHS ENDED ------------------------------ March 31, March 31, 1997 1998 ------------ ------------ Cash paid during the period for: Interest $ 996,951 $ 952,710 ============ ============ Income taxes $ 913,410 $ 1,436,263 ============ ============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7 8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES March 31, 1998 (Unaudited) Note 1 - BASIS OF PREPARATION AND PRESENTATION The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and include all adjustments which are, in the opinion of management, necessary for a fair presentation. The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures are adequate to make the information presented not misleading; however, it is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto which are incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997. The financial data for the interim periods may not necessarily be indicative of results to be expected for the year. Note 2 - EARNINGS PER SHARE During the three months ended December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, Earnings Per Share. This statement requires interim and annual presentation of basic and diluted earnings per share ("EPS") by all entities that have issued common stock or potential common stock if those securities are traded in a public market. The objective of basic and diluted EPS is to measure the performance of an entity over the reporting period while giving effect to the dilutive potential of all common shares that were outstanding during the period. This statement also requires a reconciliation of the numerator and denominator of the diluted EPS computation. EPS data for the period ended March 31, 1998 and all prior periods have been restated to conform with the provisions of this statement. 8 9 The following is a reconciliation of the numerator and denominator used in the basic and diluted EPS calculation:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED --------------------------- --------------------------- March 31, March 31, March 31, March 31, 1997 1998 1997 1998 ------------ ------------ ------------ ------------ Basic EPS Numerator $ 259,205 $ 487,133 $ 1,440,961 $ 2,169,740 ------------ ------------ ------------ ------------ Denominator: Common Shares Outstanding 4,430,460 4,367,750 4,602,573 4,356,091 ------------ ------------ ------------ ------------ Basic EPS $ .06 $ .11 $ .31 $ .50 ============ ============ ============ ============ Diluted EPS: Numerator $ 259,205 $ 487,133 $ 1,440,961 $ 2,169,740 ------------ ------------ ------------ ------------ Denominator: Common Shares Outstanding Options 4,430,460 4,367,750 4,602,573 4,356,091 3,377 8,449 13,879 14,518 ------------ ------------ ------------ ------------ Total Shares 4,438,837 4,376,199 4,616,452 4,370,609 ============ ============ ============ ============ Diluted EPS $ .06 $ .11 $ .31 $ .50 ============ ============ ============ ============
Note 3 - STOCK SPLIT On September 26, 1997, the Board of Directors declared a three-for-two split of the Company's Common Stock effected in the form of a 50% stock dividend. New shares were issued November 15, 1997 to holders of record as of the close of business on October 31, 1997. Common Stock issued, additional paid-in capital and treasury stock as of March 31, 1998 have been adjusted to reflect the stock split. In addition, earnings per share and weighted average share data for the three and nine months ended March 31, 1997 have been restated to reflect the stock split. Note 4 - CONTINGENCIES The lamp division is currently pursuing an aggressive strategy of inventory reduction through select "seconds" retailers and overhead reduction. The Company's management believes that this process will be completed by June 1998. Management will continue to closely monitor this division and its financial results to determine the feasibility of this division continuing as a single-customer manufacturer with limited overhead or the dissolution of this division. At the current time, management believes that the continued reduction of inventory can be accomplished without material charges against earnings. 9 10 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Cautionary Statement With the exception of historical information, the matters discussed under "Results of Operations" and "Liquidity and Capital Resources" contain forward-looking statements. There are certain important factors that could cause actual results to differ materially from those anticipated by some of the forward-looking statements. Some of these factors include, among other things, changes in anticipated levels of sales, whether due to future national or regional economic conditions or from competitive conditions, changes in relationships with customers including, but not limited to, the lamp division's relationship with its major customer, customer acceptance of existing and new products, pricing pressures due to excess capacity, raw material cost increases, changes in tax rates, changes in interest rates, unfavorable political or economic developments in the Republic of Taiwan, the location of the Company's principal vendor, declining conditions in the home construction industry, and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company. In addition, the forward-looking statements do not reflect any potential impact the TSI acquisition may have on the Company's operations. Results of Operations Net sales increased $529,919, or 6.1%, for the three months ended March 31, 1998, to $9,189,898, up from $8,659,979 for the same period last year. For the nine months ended March 31, 1998, net sales were $29,727,351, an increase of $1,411,881, or 5.0%, over net sales of $28,315,470 for the same nine month period last year. These increases were primarily attributable to the continued success of the bathstrip product line. In addition, fan sales during the three months ended March 31, 1998 increased 7.8% over fan sales for the same three month period last year, while fan units sold increased 13.4%. This difference was the result of management's decision to pass a portion of the price concessions received from the fan division's overseas supplier to its customers. The Company's management anticipates that this pricing strategy, along with selective expansion of its distribution base and new product introductions, will yield strong growth consistent with prior years, provided that new home construction does not experience a downturn similar to 1995. In addition, the Company's management anticipates that bathstrip lighting will continue to provide an immediate impact to the fan division's sales growth as this product line gains market share. Lamp sales decreased $20,000 for the nine months ended March 31, 1998 compared with the same nine month period last year because orders have failed to recover from the internal restructuring of the lamp division's primary customer. This division is currently pursuing an aggressive strategy of inventory reduction through select "seconds" retailers 10 11 and overhead reduction. The Company's management anticipates that the inventory reduction and overhead reduction process will be completed by June 1998. Management will continue to closely monitor this division and its financial results to determine the feasibility of continuing this division as a single-customer manufacturer with limited overhead or dissolving this division. At the current time, management believes that the continued reduction of inventory can be accomplished without material charges against earnings. Gross profit for the three month period ended March 31, increased from $3,204,884, or 37% of sales, in 1997 to $3,650,254, or 39.7% of sales, in 1998. For the nine month period ended March 31, gross profit increased from $10,444,702, or 36.9% of sales, in 1997 to $11,815,389, or 39.7% of sales, in 1998. The Company's management anticipates that gross margins will continue to improve, provided that the Company continues to benefit from favorable product costs and increasing customer demand and that the aggressive inventory reduction of the lamp division does not adversely affect overall Company margins. Total selling, general and administrative expenses increased $156,244 to $2,509,707, or 27.3% of sales, for the three months ended March 31, 1998, compared to $2,353,463, or 27.2% of sales, for the same three month period last year. Total selling, general and administrative expenses increased $321,077 to $7,192,313, or 24,2% of sales, for the nine months ended March 31, 1998, compared to $6,871,236, or 24.3% of sales, for the same nine month period last year. These increases were primarily attributable to increases in sales commissions and certain other costs directly correlated to sales. The Company's management anticipates that, in the future, selling, general and administrative expenses as a percentage of net sales will remain fairly constant due to the relatively fixed nature of the majority of the Company's overhead expenses. Net interest expense decreased $63,494, to $284,988 for the three months ended March 31, 1998 for $348,482 for the same three month period in 1997. For the nine months ended March 31, 1998, net interest expense was $952,710, a decrease of $44,241 from the net interest expense of $996,951 for the same nine month period last year. During the nine months ended March 31, 1998, the Company utilized excess cash flow to decrease the outstanding balance on its line of credit by $3,000,000 and to pay down its facility note payable by an additional $500,000. The Company's management intends to continue this strategy of debt reduction as excess cash flow is available. 11 12 Liquidity and Capital Resources The Company's cash decreased $422,124, from $615,173 at June 30, 1997 to $193,049 at March 31, 1998. The Company's operating activities provided cash of $3,927,824. The primary sources of the cash were improved operations and decreases in accounts receivable and inventory. The $67,032 of cash used for investing activities related to the purchase of general warehouse and office equipment. The $4,282,916 of cash used for financing activities was primarily the result of the paydown of $3,000,000 on the Company's line of credit, principal payments of $915,791 made towards the facility note and the repurchase of 32,000 shares of the Company's common stock at an aggregate cost of $244,000 in July 1997. On March 18, 1998, the Company signed a letter of intent to acquire Trade Source International, Inc. ("TSI"), a privately held wholesale distributor of residential interior and exterior lighting fixtures. Under the terms of the agreement, Craftmade will acquire TSI for approximately $11 million, in a combination of cash and approximately 575,000 shares of Craftmade's common stock. The Company's management intends on closing this transaction on or before July 1, 1998, subject to the execution of certain definitive documents and satisfaction of certain conditions. This transaction will be accounted for utilizing the purchase method of accounting. At March 31, 1998, subject to continued compliance with certain covenants and restrictions, the Company had $12,000,000 available on its line of credit of which $7,000,000 had been utilized. The Company's management believes that its current line of credit, combined with cash flows from operations, is adequate to fund the proposed TSI acquisition and its anticipated cash requirements, the Company's current operating needs, annual payments under the facility note payable approximating $1,400,000 and its projected growth over the next twelve months. In addition, the Company has begun to utilize excess cash flow to reduce outstanding indebtedness, decreasing such indebtedness by an additional $3,500,000 during the nine months ended March 31, 1998. It is management's intention to continue this strategy of debt reduction as excess cash flow is made available. The Company has discontinued its stock repurchase program. Pursuant to this program, the Company had purchased a total of 601,269 shares of the Company's Common Stock prior to the Company's three-for-two stock split effective October 31, 1997, at an aggregate cost of $4,576,623. At March 31, 1998, $7,603,340 remained outstanding under the twelve year note payable for the Company's 378,000 square foot operating facility. The Company continues to lease 80,000 square feet of 12 13 this facility to TSI at a lease rate of $20,000 per month, expiring December 1998. The Company's management believes that this facility will be sufficient for its purpose for the foreseeable future. The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company has purchased the upgrade for its current software to resolve this issue, the cost of which was not significant, and plans to implement this upgrade within the next twelve months. The Company also plans to upgrade systems as needed that will already be year 2000 compliant. The Company will investigate its customers and suppliers within the next twelve months in order to insure that their year 2000 issues will not affect the Company's operations. 13 14 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. 14 15 PART II OTHER INFORMATION Item 1. Legal Proceedings not applicable Item 2. Changes in Securities and Use of Proceeds not applicable Item 3. Defaults Upon Senior Securities not applicable Item 4. Submission of Matters to a Vote of Security Holders not applicable Item 5. Other Information not applicable Item 6. Exhibits and Reports of Form 8-K a). Exhibits b). Reports on Form 8-K none 15 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CRAFTMADE INTERNATIONAL, INC. (Registrant) Date April 16, 1998 /s/ JAMES R. RIDINGS ----------------------------------------- JAMES R. RIDINGS President and Chief Executive Officer 16 17 EXHIBIT INDEX
Exhibit No. Description - ------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS JUN-30-1998 JAN-01-1998 MAR-31-1998 193 0 6,428 0 10,594 18,287 9,358 0 27,866 8,267 6,995 0 32 62 20,308 27,866 9,190 9,190 5,540 5,540 2,604 0 285 761 274 487 0 0 0 487 .11 .11
-----END PRIVACY-ENHANCED MESSAGE-----