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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
--------- ---------
Commission File Number
000-26667
CRAFTMADE INTERNATIONAL, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2057054
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
650 South Royal Lane, Suite 100, Coppell, Texas 75019
----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's 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 .
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5,887,058 shares of Common Stock were outstanding as of February 9, 2001.
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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 and six months ended December
31, 2000 and 1999.
Condensed Consolidated Balance Sheets as of
December 31, 2000 and June 30, 2000.
Condensed Consolidated Statement of Changes
in Stockholders' Equity for the six months
ended December 31, 2000.
Condensed Consolidated Statements of Cash
Flows for the six months ended December 31,
2000 and 1999.
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
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2000 1999 2000 1999
-------- -------- -------- --------
Net Sales $ 19,183 $ 18,167 $ 43,464 $ 39,821
Cost of goods sold 12,033 11,858 27,814 25,407
-------- -------- -------- --------
Gross profit 7,150 6,309 15,650 14,414
-------- -------- -------- --------
Selling, general
and administrative
expenses 4,739 4,108 9,807 8,873
Interest expense, net 525 368 1,114 706
Depreciation and amortization 230 219 455 430
-------- -------- -------- --------
Total expenses 5,494 4,695 11,376 10,009
-------- -------- -------- --------
Income before income taxes
and minority interest 1,656 1,614 4,274 4,405
Provision for income taxes 544 511 1,364 1,396
-------- -------- -------- --------
Income before minority interest 1,112 1,103 2,910 3,009
Minority interest (311) (195) (685) (539)
-------- -------- -------- --------
Net income $ 801 $ 908 $ 2,225 $ 2,470
======== ======== ======== ========
Basic and diluted
earnings per
common share $ .14 $ .13 $ .37 $ .35
======== ======== ======== ========
Cash dividends
declared per
common share $ .07 $ .02 $ .11 $ .04
======== ======== ======== ========
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
2000 June 30,
(Unaudited) 2000
--------- --------
(In thousands)
Current assets:
Cash $ 2,175 $ 1,171
Accounts receivable - net of
allowance of $150,000
and $236,000, respectively 11,814 17,610
Income taxes receivable 414 --
Inventory 15,114 15,322
Deferred income taxes 462 462
Prepaid expenses and other
current assets 1,220 918
-------- --------
Total current assets 31,199 35,483
-------- --------
Property and equipment, at cost:
Land 1,535 1,535
Building 7,784 7,784
Office furniture and equipment 2,639 2,297
Leasehold improvements 274 257
-------- --------
12,232 11,873
Less: accumulated depreciation (2,654) (2,410)
-------- --------
Total property and equipment, net 9,578 9,463
Goodwill, net of accumulated
amortization of $1,018,000
and $808,000, respectively 4,921 5,131
Other assets: 40 24
-------- --------
Total other assets 14,539 14,618
-------- --------
$ 45,738 $ 50,101
======== ========
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
2000 June 30,
(Unaudited) 2000
--------- --------
(In Thousands)
Current liabilities:
Note payable - current $ 491 $ 470
Revolving lines of credit 16,000 17,600
Accounts payable 2,280 4,179
Commissions payable 233 422
Income taxes payable -- 10
Accrued liabilities 1,618 1,540
-------- --------
Total current liabilities 20,622 24,221
Other non-current liabilities:
Deferred Income taxes 88 88
Note payable - long term 8,338 8,588
Derivative financial instrument 2 --
Minority interest 658 245
-------- --------
Total liabilities 29,708 33,142
-------- --------
Stockholders' equity:
Series A cumulative, convertible,
callable preferred stock, $1.00
par value, 2,000,000 shares
authorized; 32,000 shares issued 32 32
Common stock, $.01 par value,
15,000,000 shares authorized,
9,316,535 shares issued 93 93
Additional paid-in capital 12,616 12,453
Unearned deferred compensation (125) --
Retained earnings 24,248 22,654
Accumulated other comprehensive loss (2) --
-------- --------
36,862 35,232
Less: treasury stock, 3,429,477
and 3,116,177 common shares at
cost, respectively, and 32,000
preferred shares at cost (20,832) (18,273)
-------- --------
Total Stockholders' Equity 16,030 16,959
-------- --------
Commitments and contingencies
$ 45,738 $ 50,101
======== ========
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
FOR THE SIX MONTHS ENDED DECEMBER 31, 2000
(in thousands)
ACCUMULATED
VOTING COMMON STOCK SERIES A ADDITIONAL UNEARNED OTHER COMPRE- TREASURY STOCK
------------------- PREFERRED PAID-IN DEFERRED RETAINED HENSIVE ------------------------
SHARES AMOUNT STOCK CAPITAL COMPENSATION EARNINGS LOSS SHARES AMOUNT TOTAL
---------- -------- --------- -------- ------------- -------- ------------ ------ ------- -----
Balance as of June 30,
2000 9,317 $93 $32 $12,453 $ -- $22,654 $ -- 3,148 ($18,273) $16,959
Comprehensive Income:
Net Income for the six
months ended
December 31, 2000 2,225 2,225
Loss on derivative
financial instrument,
net of tax of $1 (2) (2)
--------- --------- ----------- ---------- ----------- --------- ------------ ------ -------- --------
Total comprehensive
income 2,225 (2) 2,223
Stock Option Grants 163 (163) --
Deferred Compensation
Earned 38 38
Stock repurchase 313 (2,559) (2,559)
Cash Dividends (631) (631)
--------- --------- ----------- ---------- ----------- --------- ------------ ------ -------- --------
Balance as of
December 31, 2000 9,317 $93 $32 $12,616 ($125) $24,248 ($2) 3,461 ($20,832) $16,030
========= ========= =========== =========== =========== ========= ============ ====== ======== =======
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE SIX MONTHS ENDED
------------------------
December 31, December 31,
2000 1999
--------------------------
(In Thousands)
Net cash provided by
operating activities $ 6,655 $ 3,517
------- -------
Cash flows from investing activities:
Net additions to equipment (360) (143)
------- -------
Net cash used for investing activities (360) (143)
------- -------
Cash flows from financing activities:
Net proceeds from (payments to)
lines of credit (1,600) 2,750
Principal payments on note payable (229) (386)
Stock repurchase (2,559) (5,101)
Cash dividends (631) (283)
Distributions to minority interest members (272) (552)
------- -------
Net cash used for financing activities (5,291) (3,572)
------- -------
Net increase in cash 1,004 (198)
Cash at beginning of period 1,171 $ 1,563
------- -------
Cash at end of period $ 2,175 $ 1,365
======= =======
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF CRAFTMADE INTERNATIONAL, INC.
AND SUBSIDIARIES
DECEMBER 31, 2000
(Unaudited)
Note 1 - BASIS OF PREPARATION AND PRESENTATION
The accompanying unaudited condensed 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, 2000. The financial data for the interim periods may
not necessarily be indicative of results to be expected for the year.
Note 2 - STOCK REPURCHASE
During the years ended June 30, 2000 and 1999, the Company's Board of Directors
authorized the Company's management to repurchase up to an aggregate of
2,350,000 shares of the Company's outstanding common stock. At June 30, 2000 and
1999, the Company had repurchased 1,198,500 and 177,500 shares, respectively, at
an aggregate cost of $10,012,000 and $2,548,000, respectively, related to these
plans.
During the first six months of fiscal 2001 the Company repurchased 313,300
shares at an aggregate cost of $2,559,000.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF CRAFTMADE INTERNATIONAL, INC.
AND SUBSIDIARIES
DECEMBER 31, 2000
(Unaudited)
(In Thousands)
Note 3 - EARNINGS PER SHARE
The following is a reconciliation of the numerator and denominator used in the
basic and diluted EPS calculations:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
December 31, December 31, December 31, December 31,
2000 1999 2000 1999
------ ------ ------ ------
Basic and
Diluted EPS
Numerator: Net
Income $ 801 $ 908 $2,225 $2,470
------ ------ ------ ------
Denominator:
Common Shares
Outstanding 5,903 6,937 5,980 7,094
------ ------ ------ ------
Basic EPS $ .14 $ .13 $ .37 $ .35
====== ====== ====== ======
Denominator:
Common Shares
Outstanding 5,903 6,937 5,980 7,094
Options 13 0 6 0
------ ------ ------ ------
Total Shares $5,916 $6,937 $5,986 $7,094
====== ====== ====== ======
Diluted EPS $ .14 $ .13 $ .37 $ .35
====== ====== ====== ======
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF CRAFTMADE INTERNATIONAL, INC.
AND SUBSIDIARIES
DECEMBER 31, 2000
(Unaudited)
Note 4 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company adopted Statement on Financial Accounting Standards No. 133 (FAS
133), Accounting for Derivative Instruments and Hedging Activities, on July 1,
2000. FAS 133 requires that all derivative instruments be recorded on the
balance sheet at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, depending on the type of hedge transaction. For fair-value hedge
transactions in which the Company is hedging changes in an asset's, liability's,
or firm commitment's fair value, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes in the
hedged item's fair value. For cash-flow hedge transactions in which the Company
is hedging the variability of cash flows related to a variable-rate asset,
liability, or a forecasted transaction, changes in the fair value of the
derivative instrument will be reported in other comprehensive income. The gains
and losses on the derivative instrument that are reported in other comprehensive
income will be reclassified as earnings in the periods in which earnings are
impacted by the variability of the cash flows of the hedged item. The
ineffective portion of all hedges will be recognized in current-period earnings.
During the first quarter of fiscal 2000, the Company entered into an interest
rate swap agreement, with a maturity of December 26, 2003, to manage its
exposure to interest rate movements by effectively converting its long-term
facility debt from fixed to variable rates. The notional amount of the interest
rate swap subject to variable rates as of December 31, 2000 was $3,719,000,
which decreases as payments are made on the long-term note payable. Under this
agreement, the Company has contracted to pay a variable rate equal to LIBOR plus
2.43% (8.99% at December 31, 2000) and receive a fixed rate of 8.125%. In
accordance with the transition provisions of FAS 133, the Company recorded a
net-of-tax cumulative-effect-type adjustment of $2,000 in accumulated other
comprehensive loss on the accompanying condensed consolidated statement of
changes in stockholders' equity to recognize at fair value the interest rate
swap agreement which management designated as a cash-flow hedging instrument. As
the critical terms of the interest rate swap agreement and the interest-bearing
debt are the same the Company has assumed that there is no ineffectiveness in
the hedge relationship.
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Note 5 - SEGMENT INFORMATION
The Company has two reportable segments, Craftmade and Trade Source
International, Inc. ("TSI"). The Company is organized on a combination of
product type and customer base. The Craftmade segment primarily derives its
revenue from home furnishings including ceiling fans, light kits, bathstrip
lighting and lamps offered primarily through lighting showrooms, certain major
retail chains and catalog houses. The TSI segment derives its revenue from
lighting and fan accessories marketed solely to mass merchandisers.
The accounting policies of the segments are the same as those described in Note
2 - Summary of Significant Accounting Policies to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2000. The Company evaluates the
performance of its segments and allocates resources to them based on their
operating profit and loss and cash flows.
The following table presents information about the reportable segments (in
thousands):
Craftmade TSI Total
--------- --- -----
For the three months ended
December 31, 2000:
Net sales from external customers $11,113 $ 8,070 $19,183
Operating profit 1,487 694 2,181
For the three months ended
December 31, 1999:
Net sales from external customers $11,145 $ 7,022 $18,167
Operating profit 1,724 258 1,982
For the six months ended
December 31, 2000:
Net sales from external customers $23,964 $19,500 $43,464
Operating profit 3,346 2,042 5,388
For the six months ended
December 31, 1999:
Net sales from external customers $24,448 $15,373 $39,821
Operating profit 4,072 1,039 5,111
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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 in this
document contain forward-looking statements. There are certain important factors
which could cause results to differ materially than those anticipated by some of
the forward-looking statements. Some of the important factors which would cause
actual results to differ materially from those in the forward-looking statements
include, among other things, changes from anticipated levels of sales, whether
due to future national or regional economic and competitive conditions, changes
in relationships with customers, TSI's dependence on select mass merchandisers,
customer acceptance of existing and new products, pricing pressures due to
excess capacity, cost increases, changes in tax or interest rates, unfavorable
economic and political developments in Asia, the location of the Company's
primary vendors, declining conditions in the home construction industry,
inability to realize deferred tax assets, and other uncertainties, all of which
are difficult to predict and many of which are beyond the control the Company.
RESULTS OF OPERATIONS
Three Months Ended December 31, 2000 Compared to Three Months Ended December 31,
1999
Net Sales. Net sales increased 5.6% or $1,016,000 to $19,183,000 for the three
month period ended December 31, 2000 from $18,167,000 for the same three month
period last year. Net sales from the Craftmade division decreased slightly to
$11,113,000 for the three months ended December 31, 2000 compared to $11,145,000
for the same three month period last year. Average daily sales increased 1.3% to
$182,200 compared to $179,800 per day in the year ago period. The number of
business days in the quarter ending December 31, 2000 was 61 compared to 62
business days for the same period in the previous year. Net sales of the TSI
division increased 14.9% or $1,048,000 to $8,070,000 for the quarter ended
December 31, 2000 from $7,022,000 for the same period in the previous year. The
increase was primarily attributable to sales generated by Design Trends, LLC,
the Company's 50% owned subsidiary which introduced a new line of portable lamps
in March 2000. The continued roll out of Design Trends generated $2,296,000 in
incremental revenue during the quarter ended December 31, 2000. These sales were
partially offset by a $1,358,000 decline in Trade Source sales attributable to a
decline in purchasing from one of its major customers.
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Gross Profit. Gross profit of the Company increased to $7,150,000 or 37.3% of
net sales, from $6,309,000 or 34.7% of net sales, for the three months ended
December 31, 2000 compared to the same period of 1999. The gross profit of the
Craftmade division increased to $4,853,000 or 43.7% of sales, from $4,843,000,
or 43.5% of sales, in the year ago period. Gross profit from TSI increased to
$2,297,000, or 28.5% of net sales, for the three months ended December 31, 2000
compared to $1,466,000 or 20.9% of sales for the same period in the previous
year. The increase in the gross margin of TSI was primarily attributable to a
shift in the sales mix from direct import sales to domestic sales that have
higher gross profit margins and higher SG&A expenses.
Selling, General and Administrative Expenses. Total selling, general and
administrative ("SG&A") expenses of the Company increased to $4,739,000 or 24.7%
of net sales for the three months ended December 31, 2000 from $4,108,000 or
22.6% of net sales for the same three month period last year. Total SG&A
expenses of the Craftmade division increased to 29.4% of sales compared to 27.1%
for the same period in the previous year. The increase in SG&A expenses as a
percentage of sales was primarily due to an increase in the fixed portion of
SG&A without a corresponding increase in sales to leverage down the expenses.
Total SG&A expense of the TSI division increased to 18.2% of sales compared to
15.5% of sales for the same period in the previous year. The increase in TSI's
SG&A expense as a percentage of sales was consistent with the shift in the sales
mix from direct import to domestic sales as discussed above.
Interest Expense. Net interest expense of the Company increased $157,000 to
$525,000 for the three months ended December 31, 2000 from $368,000 for the same
three month period last year. This increase was primarily the result of an
increase in the Company's note payable in the third quarter of fiscal 2000. The
proceeds were utilized to repurchase the Company's common stock.
Minority Interest. Minority interest of $311,000 and $195,000 for the three
months ended December 31, 2000 and 1999, respectively, represented the 50%
ownership of Prime/Home Impressions, LLC ("PHI") and Design Trends, LLC by
non-Company owned members. The non-Company owned interests have been accounted
for as a minority interest.
Provision For Income Taxes. The provision for income taxes increased to $544,000
or 40.4% of net income before taxes but after minority interest, for the three
months ended December 31, 2000 from $511,000 or 36.0% for the same period of the
prior year. The increase in the effective rate relates to non-deductible
expenses, primarily amortization of goodwill, as a percentage of pre-tax income.
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Six Months Ended December 31, 2000 Compared to Six Months Ended December 31,
1999
Net Sales. For the six months ended December 31, 2000, net sales increased 9.2%
or $3,643,000 to $43,464,000 from $39,821,000 for the same period last year. Net
sales from the Craftmade division decreased 2.0% or $484,000 to $23,964,000 for
the six months ended December 31, 2000 from $24,448,000 in the prior year
period. The decline in sales of the Craftmade division was due to a decline in
the number of business days to 122 business days in the six month period ended
December 31, 2000 from 125 business days in the same period last year. Average
daily sales remained flat compared to the year-ago period at $196,000 per day.
Net sales of the TSI division increased 26.9% or $4,127,000 to $19,500,000 for
the six month period ended December 31, 2000 compared to $15,373,000 for the
same period in the previous year. The increase was primarily attributable to
incremental revenue of $2,800,000 generated by the roll out of the Design Trends
program.
Gross Profit. For the six month period ended December 31, 2000, gross profit of
the Company increased to $15,650,000 or 36.0% of sales from $14,414,000 or 36.2%
of sales for the same period in the previous year. The gross profit of the
Craftmade division declined to $10,338,000 or 43.1% of sales from $10,717,000 or
43.8% of sales for the six months ended December 31, 2000 and 1999,
respectively. The decline was primarily due to discounted pricing and
promotional programs that occurred in the initial part of the six month period
ended December 31, 2000. Gross profit of the TSI division increased to
$5,312,000 or 27.2% of sales compared to $3,697,000 or 24.0% of sales for the
same period in the previous year. The increase was primarily attributable to a
shift in the sales mix from direct import sales to domestic sales that carry
higher gross profit margins and higher SG&A expenses.
Selling, General and Administrative Expenses. For the six month period ended
December 31, 2000, total SG&A expenses of the Company increased to $9,807,000 or
22.6% of sales compared to $8,873,000 or 22.3% of sales for the same period last
year. SG&A expenses of the Craftmade division increased to $6,800,000 or 28.4%
of sales compared to $6,453,000 or 26.4% of sales for the same period last year.
The increase in SG&A expenses of Craftmade as a percentage of sales was
primarily due to the decline in sales during the fiscal year 2000 period, which
resulted in the de-leveraging of SG&A expenses compared to the same period in
the previous year. For the six month period ending December 31, 2000, SG&A
expenses of the TSI division decreased as a percentage of sales to 15.4% of
sales or $3,007,000 compared to 15.7% of sales or $2,420,000 for the same period
in the previous year. The increase in SG&A expenses was attributable to
increased advertising and salary expense to support the introduction of new
products.
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Interest Expense. For the six-month period ended December 31, 2000, net interest
expense increased to $1,114,000 compared to $706,000 for the same period in the
previous year. This increase was primarily the result of an increase in the
Company's note payable in the third quarter of fiscal 2000. The proceeds were
utilized to repurchase the Company's common stock.
Minority Interest. Minority interest of $685,000 and $539,000 for the six months
ended December 31, 2000 and 1999, respectively, represented the 50% ownership of
PHI and Design Trends, LLC by non-Company owned members. The non-Company owned
interests have been accounted for as a minority interest.
Provision for Income Taxes. The provision for income taxes decreased to
$1,364,000 or 38.0% of net income before taxes but after minority interest, for
the six months ended December 31, 2000 from $1,396,000 or 36.1% for the same
period of the prior year. The increase in the effective rate relates to
non-deductible expenses, primarily amortization of goodwill, as a percentage of
pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash increased $1,004,000 to $2,175,000 at December 31, 2000 from
$1,171,000 at June 30, 2000. The Company's operating activities provided cash of
$6,655,000, primarily attributable to the Company's net income from operations
and collections on customer accounts.
The $360,000 of cash used for investing activities related to the purchase of
general warehouse, office and computer equipment.
The $5,291,000 of cash used for financing activities was primarily the result of
(i) the repurchase of 313,300 shares of the Company's common stock in connection
with the Company's stock repurchase plans, at an aggregate cost of $2,559,000,
(ii) distributions to PHI's minority interest members of $272,000, (iii)
principal payments of $229,000 on the Company's note payable,(iv) cash dividends
of $631,000, and (v) principal payments of $1,600,000 on the Company's lines of
credit.
At December 31, 2000, subject to continued compliance with certain covenants and
restrictions, the Company had $17,500,000 available on its line of credit of
which $14,000,000 had been utilized. In addition, PHI had $3,000,000 available
on its line of credit, of which $2,000,000 had been utilized. The Company's
management believes that its current lines of credit, combined with cash flows
from operations, are adequate to fund the Company's current operating needs,
make annual payments approximating $1,200,000 under the note payable, fund the
Design Trends new product roll-out of approximately $3,500,000, fund anticipated
capital expenditures, as well as fund its projected growth over the next twelve
months.
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At December 31, 2000, $8,829,000 remained outstanding under the twelve year note
payable for the Company's 378,000 square foot operating facility. The Company's
management believes that this facility will be sufficient for its purposes for
the foreseeable future.
During the first quarter of fiscal 2000, the Company entered into a letter
agreement with Chase Bank of Texas, N.A., pursuant to which the Company
conducted a fixed-to-floating interest rate swap. See Note 4 - Derivative
Financial Instruments in the Notes to Condensed Consolidated Financial
Statements and Item 3 - Quantitative and Qualitative Disclosures about Market
Risk. The Company does not believe that this transaction will have a material
effect on its financial condition.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information set forth below constitutes a "forward looking statement." See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Cautionary Statement."
As a result of the terms of the Company's note payable on its operating
facility, the Company is subject to market risk associated with adverse changes
in interest rates. In an effort to reduce this market risk, the Company entered
into an interest rate swap agreement (the "Swap Agreement") with Chase Bank of
Texas, National Association ("Chase") during the first quarter of fiscal 2000.
The Swap Agreement is held by the Company for non-trading purposes and is
designated as a cash-flow hedging instrument.
The notional principal amount of the Swap Agreement was $3,719,000 at December
31, 2000. During the term of the Swap Agreement, the Company receives a fixed
rate of interest (8.125%) from Chase on such Notional Amount in consideration of
its obligation to pay a floating rate of interest on such Notional Amount. The
floating London Interbank Offered Rate ("LIBOR") plus 2.43%. At December 31,
2000, LIBOR was equal to 6.56%. The Swap Agreement matures on December 26, 2003.
Although the Company entered into the Swap Agreement to reduce its exposure to
changes in interest rates, a sharp rise in interest rates could materially
adversely affect the financial condition and results of operations of the
Company. Under the Swap Agreement, for each one percent (1%) incremental
increase in LIBOR, the Company's annualized interest expense would increase by
approximately $37,190. Consequently, an increase in LIBOR of five percent (5%)
would result in an estimated annualized increase of interest expense for the
Company of approximately $185,950. See Note 4 - Derivative Financial Instrument
to the Notes to Condensed Consolidated Financial Statements.
16
17
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 Stockholders
At the annual meeting of the Company's stockholders on October 27,
2000, the stockholders of the Company (i) elected James R. Ridings, Clifford
Crimmings, Kathleen B. Oher, A. Paul Knuckley, Jerry E. Kimmel, Neall W.
Humphrey, John DeBlois and Lary C. Snodgrass as directors of the company; (ii)
approved the Craftmade International, Inc. 1999 Stock Option Plan; (iii)
approved the Craftmade International, Inc. 2000 Non-Employee Director Stock
Plan; and (iv) ratified the appointment of PricewaterhouseCoopers LLP as
independent auditors for 2001.
The vote in the election of directors was as follows:
Votes For: Withheld:
------- ----------
James R. Ridings 5,552,397 15,691
Clifford Crimmings 5,553,797 14,291
Kathleen B. Oher 5,552,547 15,541
A. Paul Knuckley 5,558,447 9,641
Jerry E. Kimmel 5,557,097 10,991
Neall W. Humphrey 5,559,397 8,691
John DeBlois 5,559,347 8,741
Lary C. Snodgrass 5,556,847 11,241
The vote in the approval of the Craftmade International, Inc. 1999
Stock Option Plan was 3,261,475 for, 150,406 against, and 2,156,207
abstentions and broker non-votes.
The vote in the approval of the Craftmade International, Inc. 2000
Non-Employee Director Stock Plan was 3,211,156 for, 200,277 against, and
2,156,655 abstentions and broker non-votes.
The vote in the ratification of PricewaterhouseCoopers LLP as
independent auditors for the fiscal year ending June 30, 2001 was 5,559,938 for,
4,600 against, and 3,550 abstentions and broker non-votes.
17
18
Item 5. Other Information
not applicable
Item 6. Exhibits and Reports on Form 8-K
a). Exhibits
3.1 Certificate of Incorporation of the Company, filed as
Exhibit 3(a)(2) to the Company's Post Effective
Amendment No. 1 to Form S-18 (File No. 33-33594-FW)
and incorporated by reference therein.
3.2 Certificate of Amendment of Certificate of
Incorporation of the Company, dated March 24, 1992
and filed as Exhibit 4.2 to the Company's Form S-8
(File No. 333-44337) and incorporated by reference
therein.
3.3 Amended and Restated Bylaws of the Company, filed as
Exhibit 3(b)(2) to the Company's Post Effective
Amendment No. 1 to Form S-18 (File No. 33-33594-FW)
and incorporated by reference therein.
4.1 Specimen Common Stock Certificate, filed as Exhibit
4.4 to the Company's Registration Statement on Form
S-3 (File No. 333-70823) and incorporated by
reference therein.
4.2 Rights Agreement, dated as of June 23, 1999, between
Craftmade International, Inc. and Harris Trust and
Savings Bank, as Rights Agent, previously filed as an
exhibit to Form 8-K dated July 9, 1999 (File No.
000-26667) and incorporated by reference herein.
10.1 Earnest Money contract and Design/build Agreement
dated May 8, 1995, between MEPC Quorum Properties II,
Inc. and Craftmade International, Inc. (including
exhibits), previously filed as an exhibit in Form
10-Q for the quarter ended December 31, 1995, and
herein incorporated by reference.
10.2 Assignment of Rents and Leases dated December 21,
1995, between Craftmade International, Inc. and
Allianz Life Insurance Company of North America
(including exhibits), previously filed as an exhibit
in Form 10-Q for the quarter ended December 31, 1995,
and herein incorporated by reference.
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19
10.3 Deed of Trust, Mortgage and Security Agreement made
by Craftmade International, Inc., dated December 21,
1995, to Patrick M. Arnold, as trustee for the
benefit of Allianz Life Insurance Company of North
America (including exhibits), previously filed as an
exhibit in Form 10-Q for the quarter ended December
31, 1995, and herein incorporated by reference.
10.4 Second Amended and Restated Credit Agreement dated
November 14, 1995, among Craftmade International,
Inc., Nations Bank of Texas, N.A., as Agent and the
Lenders defined therein (including exhibits),
previously filed as an exhibit in Form 10-Q for the
quarter ended December 31, 1995, and herein
incorporated by reference.
10.5 Lease Agreement dated November 30, 1995, between
Craftmade International, Inc. and TSI Prime, Inc.,
previously filed as an exhibit in Form 10-Q for the
quarter ended December 31, 1995, and herein
incorporated by reference.
10.6 Revolving credit facility with Texas Commerce Bank,
previously filed as an exhibit in Form 10-K for the
year ended June 30, 1996, and herein incorporated by
reference.
10.7 Agreement and Plan of Merger, dated as of July 1,
1998, by and among Craftmade International, Inc.,
Trade Source International, Inc., a Delaware
corporation, Neall and Leslie Humphrey, John DeBlois,
the Wiley Family Trust, James Bezzerides, the Bezzco
Inc. Employee Retirement Trust and Trade Source
International, Inc., a California corporation, filed
as Exhibit 2.1 to the Company's Current Report on
Form 8-K filed July 15, 1998 (File No. 33-33594-FW)
and herein incorporated by reference.
10.8 Voting Agreement, dated July 1, 1998, by and among
James R. Ridings, Neall Humphrey and John DeBlois,
filed as Exhibit 2.1 to the Company's Current Report
on Form 8-K filed July 15, 1998 (File No.
33-33594-FW) and herein incorporated by reference.
10.9 Third Amendment to Credit Agreement, dated July 1,
1998, by and among Craftmade International, Inc., a
Delaware corporation, Trade Source International,
Inc., a Delaware
19
20
corporation, Chase Bank of Texas, National
Association (formerly named Texas Commerce Bank,
National Association) and Frost National Bank
(formerly named Overton Bank and Trust), filed as
Exhibit 2.1 to the Company's Current Report on Form
8-K filed July 15, 1998 (File No. 33-33594-FW) and
herein incorporated by reference.
10.10 Consent to Merger by Chase Bank of Texas, National
Association and Frost National Bank, filed as Exhibit
2.1 to the Company's Current Report on Form 8-K filed
July 15, 1998 (File No. 33-33594-FW) and herein
incorporated by reference.
10.11 Employment Agreement, dated July 1, 1998, by and
among Craftmade International, Inc., Trade Source
International, Inc., a Delaware corporation, and
Neall Humphrey, filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K filed July 15, 1998 (File
No. 33-33594-FW) and herein incorporated by
reference.
10.12 Employment Agreement, dated July 1, 1998, by and
among Craftmade International, Inc., Trade Source
International, Inc., a Delaware corporation, and
Leslie Humphrey, filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K filed July 15,
1998 (File No. 33-33594-FW) and herein incorporated
by reference.
10.13 Employment Agreement, dated July 1, 1998, by and
among Craftmade International, Inc., Trade Source
International, Inc., a Delaware corporation, and John
DeBlois, filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K filed July 15, 1998 (File
No. 33-33594-FW) and herein incorporated by
reference.
10.14 Registration Rights Agreement, dated July 1, 1998, by
and among Craftmade International, Inc., Neall and
Leslie Humphrey and John DeBlois, filed as Exhibit
2.1 to the Company's Current Report on Form 8-K filed
July 15, 1998 (File No. 33-33594-FW) and herein
incorporated by reference.
10.15 ISDA Master Agreement and Schedule, dated June 17,
1999, by and among Chase Bank of Texas, National
Association, Craftmade International, Inc., Durocraft
International,
20
21
Inc. and Trade Source International, Inc., filed as
Exhibit 10.15 to the Company's Quarterly Report on
Form 10Q filed November 12, 1999 (File No. 000-26667)
and herein incorporated by reference.
10.16 Confirmation under ISDA Master Agreement, dated July
23, 1999, from Chase Bank of Texas, National
Association to Craftmade International, Inc., filed
as Exhibit 10.165 to the Company's Quarterly Report
on Form 10Q filed November 12, 1999 (File No.
000-26667) and herein incorporated by reference.
10.17 Fourth Amendment to Credit Agreement, dated April 2,
1999, by and among Craftmade International, Inc., a
Delaware corporation, Durocraft International, Inc.,
a Texas Corporation, Trade Source International,
Inc., a Delaware Corporation, C/D/R Incorporated, a
Delaware corporation, Chase Bank of Texas, National
Association and Frost National Bank, filed as Exhibit
10.17 to the Company's Quarterly Report on Form 10-Q
filed May 15, 2000 (File No. 000-26667) and herein
incorporated by reference.
10.18 Letter Agreement Concerning Fifth Amendment to Credit
Agreement, dated August 11, 1999, from Chase Bank of
Texas, N.A. and Frost National Bank to Craftmade
International, Inc., Durocraft International, Inc.,
Trade Source International, Inc., and C/D/R
Incorporated, filed as Exhibit 10.18 to the Company's
Quarterly Report on Form 10Q filed May 15, 2000 (File
No. 000-26667) and herein incorporated by reference.
10.19 Sixth Amendment to Credit Agreement, dated November
12, 1999, by and among Craftmade International, Inc.,
a Delaware corporation. Durocraft International,
Inc., a Texas Corporation, Trade Source
International, Inc., a Delaware Corporation, C/D/R
Incorporated, a Delaware corporation, Chase Bank of
Texas, National Association and Frost National Bank,
filed as Exhibit 10.19 to the Company's Quarterly
Report on Form 10Q filed May 15, 2000 (File No.
000-26667) and herein incorporated by reference.
10.20 Employment Agreement dated October 25, 1999, between
Kathy Oher and Craftmade International, Inc., filed
as Exhibit 10.20 to the Company's Annual Report on
Form 10-K
21
22
filed September 26, 2000 (File No. 000-26667) and
herein incorporated by reference.
10.21 Seventh Amendment to Credit Agreement dated May 12,
2000, by and among Craftmade International, Inc., a
Delaware corporation, C/D/R Incorporated, a Delaware
corporation, Chase Bank of Texas, National
Association and Frost National Bank, filed as Exhibit
10.21 to the Company's Annual Report on Form 10-K
filed September 26, 2000 (File No. 000-26667) and
herein incorporated by reference.
10.22 Craftmade International, Inc. 1999 Stock Option Plan,
filed as Exhibit A to the Company's Proxy Statement
on Schedule 14A filed October 4, 2000 (File No.
000-26667) and herein incorporated by reference.
10.23 Craftmade International, Inc. 2000 Non-Employee
Director Stock Plan, filed as Exhibit B to the
Company's Proxy Statement on Schedule 14A filed
October 4, 2000 (File No. 000-2667) and herein
incorporated by reference.
b). Reports on Form 8-K
None.
22
23
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 February 14, 2001 /s/ James R. Ridings
------------------------------
JAMES R. RIDINGS
President and Chief
Executive Officer
Date February 14, 2001 /s/ Kathleen B. Oher
------------------------------
KATHLEEN B. OHER
Chief Financial Officer
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Index to Exhibits
Exhibit
Number Description
------ -----------
3.1 Certificate of Incorporation of the Company, filed as Exhibit
3(a)(2) to the Company's Post Effective Amendment No. 1 to
Form S-18 (File No. 33-33594-FW) and incorporated by reference
therein.
3.2 Certificate of Amendment of Certificate of Incorporation of
the Company, dated March 24, 1992 and filed as Exhibit 4.2 to
the Company's Form S-8 (File No. 333-44337) and incorporated
by reference therein.
3.3 Amended and Restated Bylaws of the Company, filed as Exhibit
3(b)(2) to the Company's Post Effective Amendment No. 1 to
Form S-18 (File No. 33-33594-FW) and incorporated by reference
therein.
4.1 Specimen Common Stock Certificate, filed as Exhibit 4.4 to the
Company's Registration Statement on Form S-3 (File No.
333-70823) and incorporated by reference therein.
4.2 Rights Agreement, dated as of June 23, 1999, between Craftmade
International, Inc. and Harris Trust and Savings Bank, as
Rights Agent, previously filed as an exhibit to Form 8-K dated
July 9, 1999 (File No. 000-26667) and incorporated by
reference herein.
10.1 Earnest Money contract and Design/Build Agreement dated May 8,
1995, between MEPC Quorum Properties II, Inc. and Craftmade
International, Inc. (including exhibits), previously filed as
an exhibit in Form 10-Q for the quarter ended December 31,
1995, and herein incorporated by reference.
10.2 Assignment of Rents and Leases dated December 21, 1995,
between Craftmade International, Inc. and Allianz Life
Insurance Company of North America (including exhibits),
previously filed as an exhibit in Form 10-Q for the quarter
ended December 31, 1995, and herein incorporated by reference.
10.3 Deed of Trust, Mortgage and Security Agreement made by
Craftmade International, Inc., dated December 21, 1995, to
Patrick M. Arnold, as trustee for the benefit of Allianz Life
Insurance Company of North America
24
25
(including exhibits), previously filed as an exhibit in Form
10-Q for the quarter ended December 31, 1995, and herein
incorporated by reference.
10.4 Second Amended and Restated Credit Agreement dated November
14, 1995, among Craftmade International, Inc., Nations Bank of
Texas, N.A., as Agent and the Lenders defined therein
(including exhibits), previously filed as an exhibit in Form
10-Q for the quarter ended December 31, 1995, and herein
incorporated by reference.
10.5 Lease Agreement dated November 30, 1995, between Craftmade
International, Inc. and TSI Prime, Inc., previously filed as
an exhibit in Form 10-Q for the quarter ended December 31,
1995, and herein incorporated by reference.
10.6 Revolving credit facility with Texas Commerce Bank, previously
filed as an exhibit in Form 10-K for the year ended June 30,
1996, and herein incorporated by reference.
10.7 Agreement and Plan of Merger, dated as of July 1, 1998, by and
among Craftmade International, Inc., Trade Source
International, Inc., a Delaware corporation, Neall and Leslie
Humphrey, John DeBlois, the Wiley Family Trust, James
Bezzerides, the Bezzco Inc. Employee Retirement Trust and
Trade Source International, Inc., a California corporation,
filed as Exhibit 2.1 to the Company's Current Report on Form
8-K filed July 15, 1998 (File No. 33-33594-FW) and herein
incorporated by reference.
10.8 Voting Agreement, dated July 1, 1998, by and among James R.
Ridings, Neall Humphrey and John DeBlois, filed as Exhibit 2.1
to the Company's Current Report on Form 8-K filed July 15,
1998 (File No. 33-33594-FW) and herein incorporated by
reference.
10.9 Third Amendment to Credit Agreement, dated July 1, 1998, by
and among Craftmade International, Inc., a Delaware
corporation, Trade Source International, Inc., a Delaware
corporation, Chase Bank of Texas, National Association
(formerly named Texas Commerce Bank, National Association) and
Frost National Bank (formerly named Overton Bank and Trust),
filed as Exhibit 2.1 to the Company's Current Report on Form
8-K filed July 15, 1998 (File No. 33-33594-FW) and herein
incorporated by reference.
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26
10.10 Consent to Merger by Chase Bank of Texas, National Association
and Frost National Bank, filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K filed July 15, 1998 (File No.
33-33594-FW) and herein incorporated by reference.
10.11 Employment Agreement, dated July 1, 1998, by and among
Craftmade International, Inc., Trade Source International,
Inc., a Delaware corporation, and Neall Humphrey, filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K filed
July 15, 1998 (File No. 33-33594-FW) and herein incorporated
by reference.
10.12 Employment Agreement, dated July 1, 1998, by and among
Craftmade International, Inc., Trade Source International,
Inc., a Delaware corporation, and Leslie Humphrey, filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K filed
July 15, 1998 (File No. 33-33594-FW) and herein incorporated
by reference.
10.13 Employment Agreement, dated July 1, 1998, by and among
Craftmade International, Inc., Trade Source International,
Inc., a Delaware corporation, and John DeBlois, filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K filed
July 15, 1998 (File No. 33-33594-FW) and herein incorporated
by reference.
10.14 Registration Rights Agreement, dated July 1, 1998, by and
among Craftmade International, Inc., Neall and Leslie Humphrey
and John DeBlois, filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K filed July 15, 1998 (File No.
33-33594-FW) and herein incorporated by reference.
10.15 ISDA Master Agreement and Schedule, dated June 17, 1999, by
and among Chase Bank of Texas, National Association, Craftmade
International, Inc., Durocraft International, Inc. and Trade
Source International, Inc., filed as Exhibit 10.15 to the
Company's Quarterly Report on Form 10Q filed November 12, 1999
(File No. 000-26667) and herein incorporated by reference.
10.16 Confirmation under ISDA Master Agreement, dated July 23, 1999,
from Chase Bank of Texas, National Association to Craftmade
International, Inc., filed as Exhibit 10.165 to the Company's
Quarterly Report on Form 10Q filed November 12, 1999 (File No.
000-26667) and herein incorporated by reference.
26
27
10.17 Fourth Amendment to Credit Agreement, dated April 2, 1999, by
and among Craftmade International, Inc., a Delaware
corporation, C/D/R Inc., a Delaware corporation, Durocraft
International, Inc. a Texas corporation, Trade Source
International, a Delaware corporation, Chase Bank of Texas,
National Association and Frost National Bank, filed as Exhibit
10.17 to the Company's Quarterly Report on Form 10-Q filed May
15, 2000 (File No. 000-26667) and herein incorporated by
reference.
10.18 Letter Agreement Concerning Fifth Amendment to Credit
Agreement, dated August 11, 1999, from Chase Bank of Texas,
N.A. and Frost National Bank to Craftmade International, Inc.,
Durocraft International Inc., Trade Source International,
Inc., and C/D/R Incorporated, filed as Exhibit 10.18 to the
Company's Quarterly Report on Form 10-Q filed May 15, 2000
(File No. 000-26667) and herein incorporated by reference.
10.19 Sixth Amendment to Credit Agreement, dated November 12, 1999,
by and among Craftmade International, Inc., a Delaware
corporation, Durocraft International, Inc., a Texas
corporation, Trade Source International, Inc., a Delaware
corporation, C/D/R Incorporated, a Delaware corporation, Chase
Bank of Texas, National Association and Frost National Bank,
filed as Exhibit 10.19 to the Company's Quarterly Report on
Form 10-Q filed May 15, 2000 (File No. 000-26667) and herein
incorporated by reference.
10.20 Employment Agreement dated October 25, 1999, between Kathy
Oher and Craftmade International, Inc., filed as Exhibit 10.20
to the Company's Annual Report on Form 10-K filed September
26, 2000 (File No. 000-26667) and herein incorporated by
reference.
10.21 Seventh Amendment to Credit Agreement dated May 12, 2000, by
and among Craftmade International, Inc., a Delaware
corporation, Durocraft International, Inc., a Texas
corporation, Trade Source International, Inc., a Delaware
corporation, C/D/R Incorporated, a Delaware corporation, Chase
Bank of Texas, National Association and Frost National Bank,
filed as Exhibit 10.21 to the Company's Annual Report on Form
10-K filed September 26, 2000 (File No. 000-26667) and herein
incorporated by reference.
27
28
10.22 Craftmade International Inc. 1999 Stock Option Plan, filed as
Exhibit A to the Company's Proxy Statement on Schedule 14A
filed October 4, 2000 (File No. 000-26667) and herein
incorporated by reference. .
10.23 Craftmade International Inc. 2000 Non-Employee Director Stock
Plan, filed as Exhibit B to the Company's Proxy Statement on
Schedule 14A filed October 4, 2000 (File No. 000-26667) and
herein incorporated by reference.
28