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| CRFT > SEC Filings for CRFT > Form 10-Q on 15-May-2009 | All Recent SEC Filings |
15-May-2009
Quarterly Report
appropriate Weighted Average Cost of Capital. While this analysis inherently
entails a degree of subjectivity and potential variability, management looked at
a variety of scenarios and sensitivities related to each of these areas and
determined that given reasonable and probable assumptions regarding these future
variables, no goodwill impairment existed at December 31, 2008.
The Company will continue to engage in interim testing for goodwill impairment
if events or circumstances exist that create a significant likelihood that the
fair value of a reporting unit has declined below its carrying amount. In doing
so, the Company will follow the guidance given in paragraph 28 of Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, to
help determine if such an event is likely. Based on this guidance the Company
does not believe that an event has occurred since December 31, 2008 that creates
a significant likelihood that the fair value of a reporting unit has declined
below its carrying amount, therefore no additional evaluation has been
performed.
Results of Operations
Management reviews a number of key indicators to evaluate the Company's
financial performance, including net sales, gross profit and selling, general
and administrative expenses by segment.
This discussion and analysis includes references to historical Craftmade.
Historical Craftmade consists of ceiling fans, lighting, door chimes and
pushbutton sales and related operations that have historically comprised the
Company's operations prior to the acquisition of certain net assets of Woodard,
LLC.
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
An unaudited, condensed overview of results for the three months ended March 31,
2009, and the corresponding prior year period is summarized as follows:
Three Months Ended Three Months Ended
March 31, 2009 March 31, 2008
Specialty Mass Total Specialty Mass Total
Net sales $ 15,170 $ 36,830 $ 52,000 $ 23,146 $ 31,772 $ 54,918
Cost of goods sold (11,004 ) (32,403 ) (43,407 ) (16,818 ) (27,408 ) (44,226 )
Gross profit 4,166 4,427 8,593 6,328 4,364 10,692
As a % of net sales 27.5 % 12.0 % 16.5 % 27.3 % 13.7 % 19.5 %
Selling, general and
administrative (4,092 ) (3,794 ) (7,886 ) (5,697 ) (3,151 ) (8,848 )
As a % of net sales 27.0 % 10.3 % 15.2 % 24.6 % 9.9 % 16.1 %
Depreciation and
amortization (229 ) (65 ) (294 ) (145 ) (65 ) (210 )
Total operating
expenses (4,321 ) (3,859 ) (8,180 ) (5,842 ) (3,216 ) (9,058 )
Income (loss) from
operations $ (155 ) $ 568 413 $ 486 $ 1,148 1,634
Interest expense, net (333 ) (524 )
Other income
(expense) (125 ) 139
Income (loss) before
income taxes and
minority interest (45 ) 1,249
Income taxes expense (1 ) (343 )
Income (loss) before
minority interest (46 ) 906
Minority interest (89 ) (267 )
Net income (loss) $ (135 ) $ 639
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Net Sales. Net sales for the Company decreased $2,918,000 or 5% to $52,000,000
for the quarter ended March 31, 2009, from $54,918,000 for the quarter ended
March 31, 2008. The decrease is due to the reduced sales in the Specialty
segment, offset by an increase in sales in the Mass segment.
Management believes that the decline in the housing market and the overall
economic downturn will
continue to negatively impact the sales of the Company's various product lines,
particularly in the Specialty segment which is more closely correlated to new
home starts. The Company continues to pursue its strategic growth plans, while
increasingly focusing on developing and implementing more immediate plans to
mitigate the impact of the current economic downturn.
Net sales from the Specialty segment decreased $7,976,000 or 34% to $15,170,000
for the quarter ended March 31, 2009, compared to $23,146,000 for the quarter
ended March 31, 2008, as summarized in the following table.
Fans Woodard
Lighting & Outdoor Segment
Three Months Ended Accessories Furniture Total
March 31, 2009 $ 7,800 $ 7,370 $ 15,170
March 31, 2008 11,627 11,519 23,146
Dollar increase (decrease) $ (3,827 ) $ (4,149 ) $ (7,976 )
Percent increase (decrease) (33 %) (36 %) (34 %)
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Sales of fans, lighting related products and outdoor furniture continue to be
affected by the extremely weak overall housing market, a difficult credit
environment and reduced consumer spending. Management continues to focus on
introducing new products and expanding accounts to offset the weak housing
market and economic downturn. Management believes that long-term growth will be
favorably affected by additional product offerings through enhanced product
development efforts, as well as cross-selling outdoor furniture products to
lighting showrooms and outdoor lighting and ceiling fans to patio dealers, and
focusing efforts on the hospitality markets.
Third quarter net sales of Woodard outdoor furniture increased marginally versus
the second quarter primarily due to normal seasonality. Historically, sales of
outdoor furniture to patio dealers are seasonally higher during the third and
fourth quarters of the Company's fiscal year, with the first and second quarter
being considered the off-season for outdoor furniture sales.
Net sales of the Mass segment increased $5,058,000 or 16% to $36,830,000 for the
quarter ended March 31, 2009, from $31,772,000 for the quarter ended March 31,
2008, as summarized in the following table:
Net Sales of Mass Segment
(Dollars in thousands)
Fans Woodard
Lighting & Outdoor Segment
Three Months Ended Accessories Furniture Total
March 31, 2009 $ 5,062 $ 31,768 $ 36,830
March 31, 2008 7,445 24,327 31,772
Dollar increase (decrease) $ (2,383 ) $ 7,441 $ 5,058
Percent increase (decrease) (32 %) 31 % 16 %
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The decrease in net sales of fans, lighting and accessories was primarily the result of a decline in: (i)
orders from Lowe's for indoor lighting and outdoor lighting; (ii) non-core drop
shipped products; (iii) sales of fan accessories; and (iv) sales of the mix and
match portable lamps through Lowe's.
Increased Woodard sales were primarily due to higher shipments to its various
mass merchant customers. Most of its products are shipped directly from China.
Due to the seasonal nature of outdoor furniture, the majority of sales to mass
merchants occur from December to April each year.
Based on the most recent annual product line reviews, management believes that
Lowe's plans to continue the respective programs it currently has with the
Company. Management believes that, based on the amount of product currently
shipped to Lowe's, the Company remains a primary vendor for Lowe's mix and match
portable lamp and fan accessory/ceiling medallion programs. Management has no
reason to believe that the Company will not continue to be invited to
participate in each of Lowe's scheduled reviews for its existing and new product
lines. The line reviews occur on an annual basis for each product category
throughout the year and give us the potential to add new SKUs to the Lowe's
program. However, participation in line reviews could also result in a partial
or complete reduction of the existing SKUs in the product lines currently
offered by the Company to Lowe's.
While competitive pricing is essential in the Mass segment, management believes
that future growth is contingent upon the success of the Company's ongoing
efforts to introduce new products, styles and marketing concepts to existing
customers and the expansion of the business to new customers.
Gross Profit. Gross profit of the Company as a percentage of net sales decreased
3.0% to 16.5% for the quarter ended March 31, 2009, from 19.5% for the quarter
ended March 31, 2008, primarily due to a relative increase in the proportion of
sales in the lower-margin Mass segment.
Gross profit as a percentage of net sales of the Specialty segment increased
0.2% to 27.5% for the quarter ended March 31, 2009, from 27.3% in the quarter
ended March 31, 2008. The increase is summarized in the following table.
Gross Profit as a Percentage of Net Sales of Specialty Segment
Fans Woodard
Lighting & Outdoor Segment
Three Months Ended Accessories Furniture Total
March 31, 2009 33.8 % 20.7 % 27.5 %
March 31, 2008 33.1 % 21.5 % 27.3 %
Percent increase (decrease) 0.7 % (0.8 %) 0.2 %
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The gross margin for ceiling fans and lighting was up slightly due to sales mix,
while outdoor furniture margins saw a slight decrease due to inefficiencies
created by lower utilization of production facilities.
For fiscal year 2009, we expect gross profit as a percentage of net sales of
ceiling fans and lighting in the Specialty segment to be down slightly versus
the results generated in the fiscal year ended June 30, 2008, as the current
economic downturn makes it more difficult for the Company to increase pricing to
its customers. Gross profit as a percentage of net sales of Woodard outdoor
furniture in the Specialty segment is expected to increase slightly over fiscal
2008, as the Company has implemented higher pricing for the 2009 season, to
offset cost of goods increases from its suppliers.
Gross profit as a percentage of net sales of the Mass segment decreased 1.7% to
12.0% of net sales for the quarter ended March 31, 2009, from 13.7% of net sales
in the same prior year period, as summarized in the following table:
Gross Profit as a Percentage of Net Sales of Mass
Fans Woodard
Lighting & Outdoor Segment
Three Months Ended Accessories Furniture Total
March 31, 2009 19.6 % 10.8 % 12.0 %
March 31, 2008 24.7 % 10.4 % 13.7 %
Percent increase (decrease) (5.1 %) 0.4 % (1.7 %)
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Gross profit as a percentage of net sales for lighting and accessories in the
Mass segment decreased partially due to higher material costs experienced in our
Design Trends subsidiary. Mass gross profit as a percent of net sales for
Woodard outdoor furniture is low relative to other channels as all sales are
direct import. Although outdoor furniture gross margin was slightly up in the
third quarter of fiscal 2009 compared to the same period in the prior year, an
increase in the relative mix of outdoor furniture led to a significant decrease
in weighted average gross margin for the segment.
For fiscal year 2009, gross profit as a percentage of net sales of fans,
lighting and accessories is expected to decrease versus the fiscal year ended
June 30, 2008, as a result of higher material and shipping costs, and difficulty
in passing along pricing increases.
Selling, General and Administrative Expenses. Total selling, general and
administrative ("SG&A") expenses of the Company decreased $962,000 to $7,886,000
or 15.2% of net sales for the quarter ended March 31, 2009, from $8,848,000 or
16.1% of net sales for the same period last year.
Increase/
Three Months Ended (Decrease)
March 31, March 31, Over Prior
2009 2008 Year Period
Commissions 1,260 1,872 (612 )
Advertising $ 900 $ 1,148 $ (248 )
Accounting, legal and consulting 1,027 1,100 (73 )
Travel 142 208 (66 )
Contract labor 210 265 (55 )
Bad debt 118 66 52
Salaries and wages 2,471 2,394 77
Other 1,758 1,795 (37 )
$ 7,886 $ 8,848 $ (962 )
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The decrease in expenses was primarily due to lower commissions and a reduction in advertising spending offset by an increase in salaries and wages and incremental bad debt expense. The increase in
salaries and wages was due to one-time restructuring costs of approximately
$250,000 related to a company-wide reduction in force that was implemented in
February of 2009.
Management is focused on reducing SG&A expenses and anticipates that SG&A
expenses for the fourth quarter of fiscal year 2009 will decrease versus results
generated in the each of the first three quarters of the year. The integration
of the Woodard business has been completed, with most corporate functions having
been relocated from Chicago, Illinois and integrated into the Coppell, Texas
location. As of early February 2009 the former Woodard, LLC offices in Chicago
have been closed, with the few remaining Chicago-based personnel moving into a
much smaller office space, generating significant savings. The Company has also
implemented a company-wide reorganization and reduction in force, impacting all
locations and functions and resulting in a more than 5% decrease in the number
of employees. Management anticipates that these actions will significantly
reduce SG&A in future quarters.
Interest Expense. Net interest expense of the Company decreased $191,000 to
$333,000 for the quarter ended March 31, 2009, from $524,000 for the quarter
ended March 31, 2008. This decrease is primarily due to lower interest rates in
effect as compared to the same period in the previous year, offset by increased
working capital associated with the Mass segment.
Minority Interest. Minority interest expense decreased $178,000 to $89,000 for
the quarter ended March 31, 2009, from $267,000 for the same period in the
previous year. The decrease in minority interest resulted from lower profits at
Design Trends as a result of the decline in net sales.
Provision for Income Taxes. The income tax benefit was $1,000 or 0.7% of loss
before income taxes for the quarter ended March 31, 2009, compared to an income
tax provision of $343,000 or 34.9% of income before income taxes for the quarter
ended March 31, 2008. The effective tax rate is calculated by dividing income
tax expense by income after minority interest and before income taxes. The
effective tax rates presented are weighted averages of our multiple legal
entities with effective income tax rates that differ from the statutory United
States federal income tax rate of 34% due to the impact of state income taxes.
The resulting consolidated effective rate can be significantly different than
the statutory United States federal income tax rate of 34% due to the effect of
operating losses in certain legal entities of the Company being offset by gains
in other entities. The resulting consolidated effective tax rate is not
necessarily representative of the effective tax rate in any of the individual
tax entities of the Company. See Note 6 in the Notes to the Unaudited Condensed
Consolidated Financial Statements for additional detail regarding the Company's
policy for determining the provision for income taxes.
Nine Months Ended March 31, 2009 Compared to Nine Months Ended March 31, 2008
An unaudited, condensed overview of results for the nine months ended March 31,
2009, and the corresponding prior year period is summarized as follows:
Summary Income Statement by Segment
(Dollars in thousands)
Nine Months Ended Nine Months Ended
March 31, 2009 March 31, 2008
Specialty Mass Total Specialty Mass Total
Net sales $ 51,600 $ 67,827 $ 119,427 $ 49,726 $ 48,742 $ 98,468
Cost of goods sold (35,816 ) (58,842 ) (94,658 ) (33,903 ) (39,829 ) (73,732 )
Gross profit 15,784 8,985 24,769 15,823 8,913 24,736
As a % of net sales 30.6 % 13.2 % 20.7 % 31.8 % 18.3 % 25.1 %
Selling, general and
administrative (14,514 ) (8,902 ) (23,416 ) (13,003 ) (6,363 ) (19,366 )
As a % of net sales 28.1 % 13.1 % 19.6 % 26.1 % 13.1 % 19.7 %
Depreciation and
amortization (598 ) (196 ) (794 ) (432 ) (196 ) (628 )
Total operating
expenses (15,112 ) (9,098 ) (24,210 ) (13,435 ) (6,559 ) (19,994 )
Income (loss) from
operations $ 672 $ (113 ) 559 $ 2,388 $ 2,354 4,742
Interest expense, net (1,108 ) (1,144 )
Other income
(expense) (124 ) 139
Income (loss) before
income taxes and
minority interest (673 ) 3,737
Income taxes
(expense) / benefit 307 (929 )
Income (loss) before
minority interest (366 ) 2,808
Minority interest (443 ) (1,069 )
Net income (loss) $ (809 ) $ 1,739
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Net Sales. Net sales for the Company increased $20,959,000 or 21% to
$119,427,000 for the nine months ended March 31, 2009, from $98,464,000 for the
nine months ended March 31, 2008. The increase is due to the acquisition of
certain assets of Woodard, LLC, offset by declines in sales in historical
Craftmade.
Net sales from the Specialty segment increased $1,874,000 or 4% to $51,600,000
for the nine months ended March 31, 2009, from $49,726,000 for the nine months
ended March 31, 2008, as summarized in the following table.
Net Sales of the Speciality Segment
(Dollars in thousands)
Fans Woodard
Lighting & Outdoor Segment
Nine Months Ended Accessories Furniture Total
March 31, 2009 $ 29,295 $ 22,305 $ 51,600
March 31, 2008 38,207 11,519 49,726
Dollar increase (decrease) $ (8,912 ) $ 10,786 $ 1,874
Percent increase (decrease) (23 %) 94 % 4 %
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While the sales of fans and lighting-related products continue to be affected by
the extremely weak overall housing market, a difficult credit environment and
reduced consumer spending, overall segment sales increased due to the addition
of outdoor furniture sales.
Management continues to focus on introducing new products and expanding accounts
to offset the weak housing market and economic downturn. Management believes
that long-term growth will be favorably affected by additional product offerings
through enhanced product development efforts, as well as cross-selling outdoor
. . .
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