<PAGE> 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, 1997 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 South 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 .
----- -----
2,950,000 shares of Common Stock were outstanding as of April 11, 1997.
<PAGE> 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, 1997 and 1996.
Condensed Consolidated Balance Sheets as of
March 31, 1997 and June 30, 1996.
Condensed Consolidated Statement of Changes
in Shareholders' Equity for the nine months
ended March 31, 1997.
Condensed Consolidated Statements of Cash
Flows for the nine months ended March 31,
1997 and 1996.
Notes to Condensed Consolidated Financial
Statements.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
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
<PAGE> 3
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
------------------------------- ---------------------------------
March 31, March 31, March 31, March 31,
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 8,531,715 $ 8,659,979 $25,662,081 $28,315,470
Cost of goods sold 5,502,073 5,455,095 16,629,932 17,870,768
----------- ----------- ----------- -----------
Gross profit 3,029,642 3,204,884 9,032,149 10,444,702
----------- ----------- ----------- -----------
Selling, general
and administrative
expenses 2,321,541 2,353,463 6,657,734 6,871,236
Interest expense,net 275,965 348,482 574,789 996,951
Depreciation and
amortization 96,784 97,932 182,502 291,949
----------- ----------- ----------- -----------
Total expenses 2,694,290 2,799,877 7,415,025 8,160,136
----------- ----------- ----------- -----------
Income before
income taxes 335,352 405,007 1,617,124 2,284,566
Provision for
income taxes 121,080 145,802 519,300 843,605
----------- ----------- ----------- -----------
Net income $ 214,272 $ 259,205 $ 1,097,824 $ 1,440,961
=========== =========== =========== ===========
Earnings per
common share $ .07 $ .09 $ .34 $ .47
=========== =========== =========== ===========
Weighted average
shares outstanding 3,215,043 2,955,891 3,274,228 3,069,540
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 4
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
June 30, 1997
1996 (Unaudited)
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 663,057 $ 67,397
Accounts receivable - trade,
net of allowance 7,239,457 5,962,254
Inventory 8,680,625 12,192,405
Prepaid expenses and other
current assets 1,252,093 1,120,819
----------- -----------
Total current assets 17,835,232 19,342,875
----------- -----------
Property and equipment, net 9,713,592 9,611,525
----------- -----------
Other assets:
Goodwill, net 227,214 185,481
Other assets 219,570 197,717
----------- -----------
Total other assets 446,784 383,198
----------- -----------
$27,995,608 $29,337,598
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 5
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31,
June 30, 1997
1996 (Unaudited)
----------- -----------
<S> <C> <C>
Current liabilities:
Note payable, facility-
current portion $ 488,656 $ 519,253
Revolving line of credit 7,700,000 9,600,000
Accounts payable - trade and
commissions 465,239 552,391
Other accrued liabilities 144,774 251,250
----------- -----------
Total current liabilities 8,798,669 10,922,894
----------- -----------
Note payable, facility -
long term portion 8,519,131 8,125,776
Other liabilities 44,977 44,977
----------- -----------
Total liablities 17,362,777 19,093,647
----------- -----------
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,
4,110,683 shares issued 41,107 41,107
Additional paid-in capital 7,095,571 7,095,571
Retained earnings 9,224,252 10,573,530
----------- -----------
16,392,930 17,742,208
Less: treasury stock, 1,160,683
and 907,914 common shares at
cost as of March 31, 1997 and
June 30, 1996, respectively
and 32,000 preferred shares at cost (5,760,099) (7,498,257)
----------- -----------
Total shareholders' equity 10,632,831 10,243,951
----------- -----------
$27,995,608 $29,337,598
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 6
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Series A Additional
Voting Preferred Paid-in Retained
Common Stock Stock Capital Earnings Treasury Stock Total
-------------------- -------- ----------- ----------- ------------ -----------
Shares Amount Amount
--------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of June 30, 1996 4,110,683 $ 41,107 $ 32,000 $ 7,095,571 $9,224,252 ($5,760,099) $10,632,831
Cash Dividends - - - - (91,683) - (91,683)
Stock Repurchase - - - - - (1,738,158) (1,738,158)
Net Income for the nine months
ended March 31, 1997 - - - - 1,440,961 - 1,440,961
--------- -------- -------- ----------- ----------- ------------ -----------
4,110,683 $ 41,107 $ 32,000 $ 7,095,571 $10,573,530 ($7,498,257) $10,243,951
========= ======== ======== =========== =========== ============ ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 7
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------
March 31, March 31,
1996 1997
----------- -----------
<S> <C> <C>
Net cash provided by (used for)
operating activities $ 945,322 ($159,553)
----------- -----------
Cash flows from investing activities:
Net additions to equipment (9,455,946) (143,508)
----------- -----------
Cash flows from financing activities:
Facility acquisition financing 9,200,000 -
Note payments on facility (76,234) (362,758)
Stock Repurchase (699,955) (1,738,158)
Net proceeds from revolving
line of credit 20,000 1,900,000
Proceeds from exercise of stock
options 5,880 -
Cash dividends (97,639) (91,683)
Other financing activities (595) -
----------- -----------
Net cash provided by (used for)
financing activities 8,351,457 (292,599)
----------- -----------
Net decrease in cash (159,167) (595,660)
Cash at beginning of year 268,703 663,057
----------- -----------
Cash at end of period $ 109,536 $ 67,397
=========== ===========
</TABLE>
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------
March 31, March 31,
1996 1997
-------- --------
<S> <C> <C>
Cash paid during the period for:
Interest $574,789 $996,951
======== ========
Income taxes $775,000 $913,410
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF CRAFTMADE INTERNATIONAL, INC.
AND SUBSIDIARIES
MARCH 31, 1997
(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, these financial statements should 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,
1995. The financial data for the interim periods may not necessarily be
indicative of results to be expected for the year.
Note 2 - STOCK REPURCHASE
The Company's Board of Directors has previously authorized the Company to
repurchase 600,000 shares of its issued and outstanding common stock. From the
initial authorization of January 27, 1995 through March 31, 1997, the Company
has repurchased an aggregate of 551,269 shares at an aggregate cost of
$4,195,431.
<PAGE> 9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
Net sales increased $128,264, or 1.5%, for the three months ended March 31,
1997 to $8,659,979, up from $8,531,715 for the same three month period last
year. For the nine months ended March 31, 1997, net sales were $28,315,470, an
increase of $2,653,389, or 10.3%, over net sales of $25,662,081 for the same
nine month period last year. The third quarter increase was primarily the
result of a 17.8% increase in fan sales attributable to the success of this
division's marketing strategy of selective expansion of its distribution base
and new product introductions. This increase was partially offset by a $1.1
million decrease in lamp sales as orders from this division's major customer
declined due to an internal restructuring by that customer. The Company's
management remains uncertain as to what effect this restructuring will have on
future lamp orders from this customer and is currently evaluating the resources
committed to the lamp division and reviewing several alternatives, including a
restructuring of the current division into a single-customer manufacturer
with limited overhead, a reorientation of this division's customer base to
larger retailers and the dissolution of this division. The Company's management
anticipates that fan sales will continue to experience strong growth consistent
with prior years provided new home construction does not experience a downturn
similar to 1995. In addition, the fan division has entered the bathroom
lighting market by introducing at the January 1997 Dallas market a complete
line of bathstrip lighting to its customers. The Company's management
anticipates that this new product line will be well-received since it
complements the fan division's existing product lines and because it will
utilize the same distribution network and independent sales force that
currently exists with the fan division.
Gross profit for the three month period ended March 31 increased from
$3,029,642, or 35.5% of sales, in 1996 to $3,204,884, or 37.0% of sales, in
1997. For the nine month period ended March 31, gross profit increased from
$9,032,149, or 35.2% of sales, in 1996 to $10,444,702, or 36.9% of sales, in
1997. These increases were primarily attributable to the success of the fan
division's higher end product line and the initial benefit of recent price
concessions from the fan division's overseas supplier.
Total selling, general and administrative expenses increased $31,922 to
$2,353,463, or 27.2% of sales, for the three months ended March 31, 1997,
compared to $2,321,541, or 27.2% of sales, for the same three month period last
year. Total selling, general
<PAGE> 10
and administrative expenses increased $213,502 to $6,871,236, or 24.3% of
sales, for the nine months ended March 31, 1997, compared to $6,657,734, or
25.9% 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 and to an increase in property taxes. The
Company's management anticipates that, in the future, selling, general and
administrative expenses as a percentage of net sales will follow a consistent
trend.
Net interest expense increased $72,517, to $348,482 for the three months ended
March 31, 1997 from $275,965 for the same three month period in 1996. For the
nine months ended March 31, 1997 interest expense was $996,951, an increase of
$422,162 from interest expense of $574,789 for the same nine month period last
year. These increases were primarily the result of increases in the average
outstanding indebtedness this year over last year primarily related to the
Company's growth and treasury stock purchases and interest incurred relating to
the financing of the Company's facility acquired in December 1995. The
Company's management anticipates that the trend of increased interest expense
partially offset by the decrease in operating lease expense will continue. In
addition, management believes the long-term ownership of this facility should
prove advantageous for the Company as future lease arrangements for adequate
facility space would have resulted in an obligation in excess of the current
annual debt requirement under the new facility note payable and related
depreciation and interest expense.
Liquidity and Capital Resources
The Company's cash decreased $595,660, from $663,057 at June 30, 1996 to
$67,397 at March 31, 1997. The Company's operating activities used cash of
$159,553. This cash was primarily used to increase inventory levels, partially
offset by net income of $1,440,961 and decreases in accounts receivable.
The cash used by investing activities of $143,508 related to the purchase of
warehouse equipment.
The cash used for financing activities of $292,599 was primarily the result of
the repurchase of 252,769 shares of the Company's common stock at an aggregate
cost of $1,738,158 and principal payments of $362,758 made towards the facility
note, partially offset by $1,900,000 in additional borrowing from the Company's
line of credit.
At March 31, 1997, pursuant to the continued compliance with certain covenants
and restrictions, the Company had an additional $2,400,000 available on its
$12,000,000 line of credit. The
<PAGE> 11
Company's management believes that its current line of credit, combined with
cash flows from operation, is adequate to fund the Company's current operating
needs, annual payments under the note payable related to the facility
acquisition approximating $1,600,000, introduction of a new product line,
future treasury stock purchases under the current repurchase program and its
projected growth over the next twelve months.
Cautionary Statement
The disclosures under "Results of Operations" and "Liquidity and Capital
Resources" above 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, customer acceptance of existing and new
products, or otherwise, pricing pressures due to excess capacity, raw material
cost increases, change of tax rates, change of interest rates, unfavorable
political 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.
<PAGE> 12
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
not applicable
Item 2. Changes in Securities
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
27 Financial Data Schedule
b). Reports on Form 8-K
none
<PAGE> 13
SIGNATURES
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 11, 1997 JAMES R. RIDINGS
------------------------ ---------------------------------
JAMES R. RIDINGS
President and Chief
Executive Officer
<PAGE> 14
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 67
<SECURITIES> 0
<RECEIVABLES> 5,962
<ALLOWANCES> 0
<INVENTORY> 12,192
<CURRENT-ASSETS> 19,343
<PP&E> 9,612
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,338
<CURRENT-LIABILITIES> 10,923
<BONDS> 8,126
0
32
<COMMON> 41
<OTHER-SE> 17,669
<TOTAL-LIABILITY-AND-EQUITY> 29,338
<SALES> 8,660
<TOTAL-REVENUES> 8,660
<CGS> 5,455
<TOTAL-COSTS> 5,455
<OTHER-EXPENSES> 2,451
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 348
<INCOME-PRETAX> 405
<INCOME-TAX> 146
<INCOME-CONTINUING> 259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 259
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
