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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2009
 or
 o
    
    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(Incorporation or Organization)
    
    75-2057054(I.R.S. Employer
Identification No.)650 South Royal Lane, Suite 100
Coppell, Texas(Address of Principal Executive Offices)
    
    75019(Zip Code)
 (972) 393-3800  (Registrants Telephone Number, Including Area Code)
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of each exchange on which registeredCommon Stock, par value $0.01
    
    NASDAQ Global Market
 Securities registered pursuant to Section 12(g) of the Act:
 None
 Yes o No þ
 Yes
o No þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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Disclosure Regarding Forward-Looking Statements
   
    
    Revenues and profits;
    
    Gross margin;
    
    Customer concentration;
    
    Customer buying patterns;
    
    Sales and marketing expenses;
    
    General and administrative expenses;
    
    Pricing and cost reduction activities;
    
    Income tax provision and effective tax rate;
    
    Realization of deferred tax assets;
    
    Liquidity and sufficiency of existing cash, cash equivalents, and investments for
near-term requirements;
    
    Purchase commitments;
    
    Product development and transitions;
    
    Competition and competing technology;
    
    Outcomes of pending or threatened litigation; and
    
    Financial condition and results of operations as a result of recent accounting
pronouncements.




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TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    10Item 1B. Unresolved Staff Comments
    
    
    16Item 2. Properties
    
    
    16Item 3. Legal Proceedings
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    18Item 6. Selected Financial Data
    
    
    18Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    20Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 8. Financial Statements and Supplementary Data
    
    
    38Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    38Item 9A. Controls and Procedures
    
    
    38Item 9B. Other Information
    
    
    39PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    39Item 11. Executive Compensation
    
    
    39Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    40Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    40Item 14. Principal Accounting Fees and Services
    
    
    40PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    40Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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PART I
 
 Item 1. Business.
 (a)
    
    General Development of BusinessCurrent Market ConditionsAt the beginning of the 2007 fiscal year, the slowing of housing-related demand affected our
business, and this impact continued through the 2008 and 2009 fiscal years. The decline in
housing turnover was compounded by a broad economic downturn which began in 2008 and has
continued into 2009, which negatively impacted both consumer confidence and discretionary
spending. This economic downturn is widely viewed as one of the worst since the Great
Depression, and its impact has affected all sectors of the economy. This economic environment
and the corresponding decline in home-related spending have significantly impacted both our
Specialty and Mass retail segments. In addition to historically low levels of new home
construction, management believes that consumers also chose to delay home improvement projects
and renovations due to well-publicized reports of economic weakness, job losses and declining
home values.Despite the housing-related pressures, the Company has continued to introduce innovative and
distinctive products that reflect emerging consumer trends, including new lines of interior and
exterior lighting fixtures, ceiling fans and vent fans. The 2008 acquisition of certain assets
of Woodard, LLC has also broadened the Companys offering to include outdoor patio furniture,
opened up new channels and outlets for existing Craftmade products, and created avenues for
cross selling both existing and new products to our customers. Following this acquisition, the
Company has also focused on the design and development of new and innovative outdoor furniture
lines, and has expanded the distribution of clocks and weather gauges through the new
distribution channel of independent lawn and garden retailers.Additional information regarding current market conditions are detailed in Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operation.Acquisition of Certain Assets of Woodard, LLC .On January 2, 2008, Woodard-CM, LLC, a wholly owned subsidiary of Craftmade (Woodard),
completed the purchase of substantially all of the net assets of Woodard, LLC, a leading
Chicago-based designer, manufacturer and distributor of a broad line of outdoor furniture
products and related accessories (the Woodard Asset Acquisition) pursuant to the Asset
Purchase Agreement, dated as of December 18, 2007 (the Woodard Agreement), among Craftmade,
Woodard and Henry Crown and Company d/b/a CC Industries, Inc. In the acquisition, the Company
initially paid Woodard $19,265,000 plus a working capital adjustment of $954,000 and warrants
(the Warrants) to purchase up to 200,000 shares of common stock, $0.01 par value per share,
of the Company (the Common Stock) for 10 years from the date of issuance at a purchase price
of $8.10 per share, valued at $279,000. The purchase price consideration included 500,000
shares of Common Stock valued at $8.10 per share based on the average closing price of the
Common Stock for the three days prior to signing the Woodard Agreement for an aggregate price
of $4,050,000 (purchase price per share of Common Stock for financial reporting is $8.00 based
on the average closing price of the Common Stock on the two days prior, two days after and day
of the announcement of the signing of the Woodard Agreement, for an aggregate price of
$4,000,000), with the remaining purchase price paid in cash at closing. The Woodard Agreement
allowed the parties to adjust the purchase price to accurately reflect the working capital up
to 60 days after the closing of the acquisition, resulting in a working capital adjustment of
$1,272,000, which was due to the Company. Including the working capital adjustment, the total
adjusted cash consideration for the acquisition was $14,896,000.Acquired assets included $23,370,000 in current assets, a long-term receivable valued at
approximately $1.5 million, manufacturing equipment and Woodards 306,000 square foot facility
in Owosso, Michigan. Craftmade also assumed certain payables and other liabilities totaling
$7,396,000. Additionally, the Company incurred approximately $655,000 in professional fees
associated with the transaction and has reserved $692,000 for expected restructuring expense.
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Relationship with Mass MerchandisersThe Company sells its products to mass merchandisers including but not limited to Bed, Bath and
Beyond, Costco, Lowes and Wal-Mart, through the Companys subsidiaries Woodard and Prime/Home
Impressions, Inc. (PHI) and through Design Trends, LLC (Design Trends), the Companys
50%-owned subsidiary.Lowes remains the Companys largest customer, and management believes that, based on the
amount of product currently shipped to Lowes, the Company continues to be a primary vendor for
Lowes mix and match portable lamps, lamp accessory and ceiling medallion programs. The
Woodard Asset Acquisition also significantly increased the Companys presence at Lowes. While
management believes that Craftmade will continue to be invited to participate in each of Lowes
scheduled line reviews for its existing and new product lines, the Company has no long-term
supply contracts with Lowes and vendor commitments are revisited at each line review. The line
reviews occur approximately on an annual basis for each product category and give Craftmade the
opportunity to add new SKUs to the Lowes program. However, participation in line reviews could
also result in a partial or complete reduction of existing SKUs in the product lines currently
offered to Lowes.In addition to Lowes, the Company sells a variety of products to many other mass retailers and
continues to focus its efforts on this channel in order to grow sales and diversify its
customer base. Management believes that the future growth of the Mass segment (as described in
Section (b) below) is contingent upon the success of the Companys ongoing efforts to introduce
new products, product lines and marketing concepts to existing customers and the expansion of
the business to new customers.(b)
    
    Financial Information About Reportable SegmentsThe Company is organized by customer base into two operating segments referred to as Specialty
and Mass. Prior to June 30, 2008, these segments were referred to as Craftmade and TSI,
respectively. Subsequent to that date, Craftmade International, Inc. and Craftmade refer to
the Company and Craftmade ceiling fans refers to ceiling fan products sold primarily within
the Specialty segment under the Craftmade trade name. TSI now refers specifically to the
Trade Source International subsidiary rather than the entire Mass segment.The Specialty segment primarily derives its revenue from home furnishings, including ceiling
fans, light kits, bath-strip lighting, lamps, light bulbs, door chimes, ventilation systems,
outdoor patio furniture and other accessories offered primarily through lighting showrooms,
patio dealers, hospitality customers and catalog houses. The Mass segment derives its revenue
from outdoor lighting, outdoor patio furniture, portable lamps, indoor lighting and fan and
lamp accessories marketed solely to mass retailers and certain major retail chains.The additional sales that have resulted from the Woodard Asset Acquisition come from
independent patio dealers, hospitality customers and mass retailers. Sales with the independent
patio dealers and hospitality customers are included in the Specialty segment and sales to mass
retailers are included in the Mass segment.The Company evaluates the performance of its segments and allocates resources to them based on
their income from operations and cash flows. Financial information with respect to the
Companys segments is found in Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations and Note 10  Segment Information in the Companys
Consolidated Financial Statements. All prior year financial information has been renamed to be
consistent with the current year disclosure.(c)
    
    Narrative Description of BusinessCraftmade International, Inc. was incorporated in the state of Texas in 1985 and reincorporated
in the state of Delaware in 1991. Based in Coppell, Texas, the Company has expanded over the
years through a combination of organic growth and acquisition of new product lines and
customers. The Company currently sells a wide variety of home-related furnishings and products
to both specialty retailers and mass merchandisers.Specialty Specialty is the reporting segment for the portion of the Companys business
principally engaged in the design, distribution and marketing of ceiling fans, light kits,
bath-strip lighting, interior lighting fixtures, light bulbs, door chimes, ventilation systems,
outdoor patio furniture and related accessories to a nationwide
network of over 2000 lighting showrooms, patio dealers, and electrical wholesalers specializing
in sales to the remodeling, new home construction and replacement markets.
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The Specialty ceiling fan product line consists of over 60 premium-priced to lower-priced
ceiling fans and is distributed under the Craftmade® trade name. The combination of
design and functional features which characterize Craftmade ceiling fans have made them, in
managements judgment, one of the most reliable, durable, energy efficient and cost effective
ceiling fans in the marketplace.The Specialty segment also includes nearly 80 light kit models in various colors for attachment
and use with its ceiling fans or other ceiling fans, along with parts and accessories for its
ceiling fans and light kits. In addition, the Company offers nearly two dozen styles of
bath-strip lighting and over 40 designs of outdoor lighting to its Specialty customers.The Specialty segment also includes sales of over 100 families of outdoor patio furniture under
the Woodard, Woodard Landgrave and Lyon Shaw trade names to independent patio dealers,
hospitality customers and catalogue houses. The Company offers molded aluminum, extruded
aluminum, wrought iron and woven furniture lines in a wide variety of styles, finishes and
fabrics, which can be produced in a significant number of combinations for the end consumer.Mass Mass is the reporting segment for the portion of the Company that is principally engaged
in the design, distribution and marketing of outdoor and indoor lighting, outdoor patio
furniture, various fan accessories and lamp parts, and home décor items to mass merchandisers.
The Mass segments outdoor lighting consists of numerous lighting programs distributed to mass
merchandisers in a variety of designs and decorative finishes. The indoor lighting product
line primarily includes portable lamps. Craftmade strives to offer its Mass customers high
quality products at value prices, and these products are typically sold under the retailers
own trade names.The Mass segment includes sales from four Craftmade subsidiaries: Trade Source International
(Trade Source or TSI), PHI, Design Trends and Woodard. Trade Source, PHI and Woodard are
wholly-owned subsidiaries and Design Trends is 50% owned by Craftmade.50% Owned Limited Liability Company The Company has a 50% ownership interest in Design
Trends, a Delaware limited liability company, which is part of the Mass segment. Design Trends
was formed in 1999 to market indoor lighting, including portable table lamps, floor lamps,
chandeliers and wall sconces designed by Patrick Dolan of Dolan Northwest, LLC, an unaffiliated
Oregon limited liability company, which owns the remaining 50% of Design Trends. Substantially
all of Design Trends sales are to mass merchandisers. As a part of the operating agreement,
Patrick Dolan is responsible for designing and sourcing Design Trends products and the Company
is responsible for sales, distribution and accounting for Design Trends.
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ProductsThe following table summarizes net sales by product category (defined below) as a percentage of
consolidated net sales:
 Net Sales by Product Category
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007SpecialtyCeiling fans, light kits and blades
    
    
    16
    %
    
    
    23
    %
    
    
    37
    %Outdoor patio furniture
    
    
    20
    %
    
    
    16
    %
    
    
    0
    %Ventilation, chimes and bulbs
    
    
    4
    %
    
    
    6
    %
    
    
    10
    %Clocks and weather gauges
    
    
    1
    %
    
    
    2
    %
    
    
    3
    %Bath and outdoor lighting
    
    
    5
    %
    
    
    7
    %
    
    
    8
    %46
    %
    
    
    54
    %
    
    
    58
    %MassIndoor lighting
    
    
    10
    %
    
    
    13
    %
    
    
    23
    %Outdoor lighting
    
    
    1
    %
    
    
    2
    %
    
    
    2
    %Outdoor patio furniture
    
    
    37
    %
    
    
    22
    %
    
    
    0
    %Accessories
    
    
    6
    %
    
    
    9
    %
    
    
    17
    %54
    %
    
    
    46
    %
    
    
    42
    %100
    %
    
    
    100
    %
    
    
    100
    %
 Specialty Segment ProductsThe Specialty segment is made up of products organized around two distinctive brands, each of
which have numerous product offerings:
 Craftmade Family of Products
 Craftmade®
    
    Woodard®Decorative ceiling fans
    
    Wrought iron patio furnitureBuilder ceiling fans
    
    Aluminum patio furnitureLight kits and blades
    
    All seasons wicker patio furnitureChandeliers and flushmounts
    
    Patio umbrellasCeiling fan accessories
    
    Outdoor lightingBath-strip lighting
    
    Outdoor ClocksOutdoor lighting
    
    Weather gaugesInterior lighting fixturesDoor chimesSmoke alarmsVentilation systemsLight bulbs
 During fiscal 2009 the Company re-branded many of its product lines to leverage on its two
flagship trademarks. Prior to this time the Companys bath-strip lighting, outdoor lighting and
much of its interior lighting were branded under the Accolade® trade name, and its
door chimes, smoke alarms, ventilation systems
and light bulbs were branded as Teiber, all of
which now bear the Craftmade brand. The Companys outdoor lighting, outdoor clocks and weather
gauges were sold under the Durocraft® brand name, and are now sold under the Woodard
brand name.
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Craftmade®  The Craftmade ceiling fan product line consists of over 70 premium fan
series for sale to the new home construction, remodeling and replacement markets.  These series
are differentiated on the basis of cost, air movement and appearance.  Craftmade ceiling fans
are manufactured and assembled in a variety of colors, styles and finishes and can be used
either in conjunction with or independent of Craftmades light kits. Series lines include
Causal, Modern, Outdoor, Traditional and Youth, depending on the size, finish and other
features, and range in price from the premium Chalice, Constantina, Quest and Amphora series
to various lower-end builder series.Craftmade ceiling fans come in five motor sizes, five blade sizes and over two dozen different
decorative finishes. The range of styles and colors gives consumers the ability to select
ceiling fans for any style of house, interior decoration or living and working area, including
outdoor patios.  Craftmade also markets nearly 80 light kit models in various colors for
attachment and use with its ceiling fans or other ceiling fans, along with parts and
accessories for its ceiling fans and light kits.The Specialty segment includes more than 30 series of bath-strip lighting in different lengths
and decorative finishes now sold under the Craftmade® trade name (formerly
Accolade®).  In addition, Craftmade offers more than 30 designs of outdoor lighting
in different decorative finishes, and adds new finishes and designs from time to time based on
customer demand.The Company also offers 2,000 different light bulbs and complementary lighting products as well
as an extensive line of door chimes, pushbuttons, ventilation systems and smoke alarms, which
were formerly sold under the Teiber name.  These products are typically offered via a
proprietary display that displays numerous Craftmade products and consumes a minimal amount of
floor space.Woodard®As a result of the Woodard Asset Acquisition, the Company
offers a wide range of outdoor patio furniture and related products such as umbrellas and patio
lighting. Product lines include approximately 20 cast iron, over 30 cast and extruded aluminum
and several collections of all-weather wicker products, and they range from the premium Woodard
Landgrave collection to the more affordable Lyon Shaw series. Woodard items are primarily
distributed to independent patio and garden retailers.The Company also cross-markets numerous decorative clocks and weather gauges, mini-post
lanterns, tabletop and freestanding candle lanterns, oil lanterns and special order items under
the Woodard and Lyon Shaw names, which were formerly branded as Durocraft.Mass Segment ProductsThe Mass segments products are organized into three groups: lighting, patio furniture, and
accessories.Lighting The Company markets floor and table lamps, chandeliers and wall sconces designed by
Patrick Dolan to various mass merchandisers through its Design Trends subsidiary. Design
Trends portable lamp program, which is a significant part of the Mass indoor lighting program,
is merchandised in a mix and match system that enables the consumer to customize a lamp base
and shade combination. Selections of lamp bases include large, medium, buffet, small and mini
lamps and are offered in a variety of styles and finishes. The Company also markets outdoor
lighting in a variety of decorative finishes, colors and sizes to various mass merchandisers
under the TSI Prime brand, as well as the retailers private label brands.Patio Furniture The Company offers a broad line of patio furniture, tables, and umbrellas
under Woodard Worldwide, Carolina Forge and various private label trade names. Product
categories include cast iron, extruded aluminum and all-weather wicker furniture, as well as
patio umbrellas and lighting.Accessories The Mass segment also markets programs of fan accessories and lamp parts,
including universal down rods, pull-chains and ceiling medallions, to various mass
merchandisers through PHI. Accessories also include non-core products such as decorative
ceiling medallions and adjustable window cornices.
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Product SourcingSpecialty.Craftmade ceiling fans, bath-strip lighting, substantially all light kits and
certain accessories are produced by multiple manufacturers in China. Light kit and other
product orders are typically placed independently of ceiling fan orders, and all are received
in container-sized lots. The Specialty segment includes a variety of light kits in various
finishes and colors, as well as a variety of fixtures designed for ceiling fans. The Company
also offers a variety of glass selections for the various light fixtures, including blown
glass, beveled glass and crystal. Fixtures and glass are shipped in the light kit containers.
Wall controls, timers and switches are manufactured by companies based in the United States.
The Company also offers a variety of custom blade sets in various sizes and finishes. The
finished products are packaged and labeled under the Craftmade brand name.Woodard® branded outdoor patio furniture sold in the Specialty segment is sourced
primarily from the Woodard manufacturing facility in Owosso, Michigan and consists primarily of
wrought iron and extruded aluminum styles. These products are sold through specialty outdoor
patio dealers, catalogue houses and hospitality suppliers. The Woodard Landgrave line is
sourced through an exclusive relationship with the Mexican producer of Landgrave outdoor patio
furniture and is only offered in the United States through Woodard.The Specialty segment also includes light bulbs, door chimes, pushbuttons, ventilation systems,
smoke alarms and complementary lighting products as well as clocks and weather gauges sourced
from several manufacturers located in China and the United States. The Company also offer a
wide variety of outdoor lighting styles in various finishes, colors and sizes and are designed
for either wall mounting or as post-mounted fixtures.The Specialty and Mass segments purchase outdoor lighting from several manufacturers located in
China. All of the Companys foreign vendors require payment 30 to 60 days after notification of
shipment of product from Asia. While the Company does not typically sign long term supply
contracts, it works closely with its vendors and attempts to foster long lasting supply
partnerships.Mass.The Mass segment purchases indoor lighting products, including flush mounts and
bath-strip lights from many of the same manufacturers that produce outdoor lighting for
Specialty.PHI purchases most of its ceiling fan accessories and all of its lamp replacement parts from
multiple manufacturers located in China, with the exception of ceiling medallions, which are
purchased from a distributor located in the United States.Design Trends purchases its lamps and shades from multiple manufacturers located in China.
Design Trends offers several different styles and sizes of table and floor lamps, either
pre-packaged with shades or glass, or with shades sold separately, allowing customers to mix
and match components. These products are also shipped on containers, either to the Companys
facility in Coppell, Texas or directly to the customer.The Company purchases much of its outdoor patio furniture for the Mass segment from a Chinese
factory that is 50% owned by CCI, Inc., former owners of the Woodard line, and the remainder is
purchased from various other Chinese manufacturers.DistributionSpecialty.The Specialty segment includes ceiling fans, light kits and accessories which are
primarily sold through more than 1,600 lighting showrooms and electrical wholesaler locations
specializing in sales to the new home construction, remodeling and replacement markets. The
segment also includes outdoor patio furniture sold primarily through more than 500 specialty
patio and garden dealers. Craftmade and Woodard products sold to catalogue houses and
hospitality accounts are also included in the Specialty segment.The Companys ceiling fans, light kits, bath strips, outdoor lighting and accessories are sold
through 35 independent sales groups on a national basis. Each sales group is selected to
represent Craftmade in a specific market area. The independent sales groups comprise a sales
force of approximately 54 sales representatives, who represent Craftmade exclusively in the sale of ceiling fans in return for commissions on
such sales. During each of the three fiscal years ended June 30, 2009, no single lighting
showroom or electrical wholesaler accounted for more than 3% of Specialty segment net sales or
1.5% of consolidated net sales.
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The Companys outdoor patio furniture products are distributed on a national basis and are
represented by a network of independent sales representatives. Each sales representative is
selected to cover a specific market area and represents the Company exclusively in the sale of
outdoor patio furniture in return for commissions on such sales. During the fiscal year ended
June 30, 2009, no single patio dealer, hospitality customer or catalogue house accounted for
more than 3% of Specialty segment net sales or 1.5% of consolidated net sales.Sales representatives are carefully selected and continually evaluated in order to promote
high-level representation of our products. Craftmade employees provide initial field training
to new sales representatives covering features, styles, operation and other attributes of
Craftmade products to enable representatives to more effectively market them. Additional
training, especially for a new product series, is provided on a regular basis at semi-annual
trade shows held at the Companys showrooms. Management believes that it has assembled a
highly motivated and effective sales representative organization that has demonstrated a strong
commitment to the Company and its products. Management further believes that the strength of
its sales representative organization is primarily attributable to the quality and competitive
pricing of our products, as well as the ongoing administrative and marketing support that the
Company provides to its sales representatives.Mass.Substantially all of the Mass segments sales are to mass merchandisers, with Lowes
comprising 44% and 24% of the sales of the Mass segment and the Companys net sales,
respectively, and Costco Wholesale Corporation (Costco) comprising 9% and 5% of the sales of
the Mass segment and the Companys net sales, respectively.Mass sales are primarily delivered to customers through a mixture of direct shipment and
shipments from the Companys 378,000 square foot warehouse and distribution facility in
Coppell, Texas. The Mass segment utilizes an internal sales force to market its products to
service specific mass merchandiser locations.In general, the Company has a 48-hour product shipment policy for products warehoused at its
Coppell facility. In order to meet these policy delivery requirements and to ensure that it
has sufficient goods on hand from its overseas suppliers, the Company maintains a significant
level of inventory. See Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations  Liquidity and Capital Resources.MarketingSpecialty.  Craftmade relies primarily on the reputation of its products for high quality and
competitive prices, and the efforts of its sales representative organization in order to
promote the sales of its products in the Specialty segment.  The principal markets for our
ceiling fan and lighting products are the new home construction, remodeling and replacement
markets.  The principle markets for our outdoor living products are retail outlets. Craftmade
utilizes advertising in home lighting magazines and outdoor living magazines, and broadly
distributes its product catalogs.Woodard introduced its first hand-crafted wrought iron furniture collection in the 1930s. It
been noted for superior craftsmanship and a high standard of excellence in design ever since.
Like Craftmade, Woodard also utilizes the efforts of its sales representative organization to
promote its products in the Specialty segment. Key placement for outdoor furniture can occur
along with new construction or when the consumer moves their living space outdoors. Woodard
places advertisements in outdoor living and décor magazines along with various trade
publications.Craftmade and Woodard also promote the lighting and outdoor product at semi-annual trade shows
in Dallas (in January and June) and Chicago (July and September) respectively at company
maintained showrooms. The Craftmade showroom is at the Dallas Trade Mart, and the Woodard
showroom, which is open year-round, is at the Chicago Merchandise Mart.
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Craftmade provides warranties ranging from 10 years to lifetime on the fan motor of its ceiling
fans, and includes a one-year limited warranty against defects in workmanship and materials to
cover the entire ceiling fan.  Craftmade provides a limited lifetime warranty on its higher-end
series of fans.  The Company offers up to a 15-year warranty on its outdoor patio furniture
lines.  The Companys management believes these warranties are highly attractive to both
dealers and consumers.Mass.The Mass segment relies primarily on the reputation of its products, merchandising
concepts and the relationships it has with mass merchandisers with respect to its sales. From
time to time the Company participates in advertising programs and special promotions conducted
by its customers. The Company also promotes its product line at select trade shows and line
reviews held by its customers.Product ExpansionCraftmade continually expands its product lines, providing proprietary products to its customer
base in order to meet current and anticipated demands for unique, innovative products.  During
the fiscal year ended June 30, 2009, the Company introduced 14 new ceiling fans and 5 complete
interior lighting families of products, including chandeliers, pendants and sconces, as well as
6 new outdoor lighting collections and 9 new families of outdoor furniture. Each lighting
family consists of 6 to 11 individual fixtures and outdoor patio furniture families generally
consist of 5 to 12 pieces. Management believes that these new offerings have been well accepted
by the Specialty dealers.  In addition, the Company increased its selections of complementary
products such as specialty light fixtures, including bath bars and outdoor lighting, as well as
outdoor accessories such as clocks and gauges.  The Companys management will continue to
search for opportunities for product expansion that it considers complementary to the Companys
existing product lines.SeasonalityHistorically, sales of the Companys products, particularly ceiling fans and lighting kits,
have been somewhat seasonal with sales in the warmer first and fourth quarters being higher
than in the two other fiscal quarters. The acquisition of the Woodard furniture line has
shifted the overall seasonality of the business, as the majority of outdoor furniture sales
occur between January and April. Woodard customers also are allowed to participate in an early
buy program, which allows them to purchase and take receipt of product in the fall but provides
extended payment terms allowing them to pay during the selling season. This program is
intended to help offset the Woodard production peak, and take advantage of production capacity
during the off-season.BacklogBacklog is not a significant issue to the Companys operations. Substantially all products
distributed from the Coppell, Texas facility are shipped to customers within 48 hours following
receipt of orders. While lead times are longer in relation to outdoor furniture distributed
from the Owosso, Michigan production facility, many orders are shipped within two weeks of
being placed and the vast majority ship within six weeks.CompetitionThe markets for ceiling fans, lighting fixtures and outdoor patio furniture are highly
competitive at all levels of operation and across both mass and specialty retailers. Some of
the major companies in the ceiling fan industry include Casablanca, Hunter, Minka, Generation
Brands companies, Quorum, Litex Industries, Emerson Electric and Taconi. Some of the major
companies in the lighting fixture industry include Designers Fountain, Generation Brands,
Catalina, Jimco Lamps, J. Hunt, Westinghouse, Kichler and Minka. Some of the many patio
furniture competitors include Agio, Brown Jordan and Tropitone. A number of other
well-established companies also are currently engaged in activities that compete directly with
Craftmade. In addition, mass merchandisers themselves will, at times, compete with the Company
by purchasing private label products directly from Asian factories.Some of the Companys competitors are better established and have longer operating histories,
substantially
greater financial resources or greater name recognition. However, the Companys management
believes that the quality of our products, the strength of our marketing organization and the
growing recognition of our brands will enable Craftmade to compete successfully in these highly
competitive markets.
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More detail on the impact of competition on the Companys business is set forth in Item 1A.
Risk Factors.`Product WarrantiesCraftmades products are warranted against defects in workmanship and materials under
warranties of various lengths and terms dependent on the product. Provisions for estimated
expenses related to product warranties are made at the time products are sold. These estimates
are established using historical information on the nature, frequency, and average cost of
warranty claims.
 Product Warranty Costs
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007Ceiling Fans & Lighting
    
    $
    980
    
    
    $
    1,179
    
    
    $
    1,147Outdoor Patio Furniture
    
    
    910
    
    
    
    541
    
    
    
    $
    1,890
    
    
    $
    1,720
    
    
    $
    1,147
 Research and DevelopmentResearch, development and engineering expenditures for the creation and application of new
products and processes, are summarized in the following table (excluding related salaries and
legal expenses):
 Research and Development
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007Research and development
    
    $
    221
    
    
    $
    184
    
    
    $
    265
 Independent Safety TestingAll of the ceiling fans, outdoor lighting, light kits and lamps sold by the Company in the
United States and Canada are tested by independent laboratories such as Underwriters
Laboratories (UL) and Intertek ETL (ETL), which are independent corporations that test
consumer products, including ceiling fans and lighting fixtures, for public safety. Under its
agreement with these labs, the Company voluntarily submits its products for testing, and the
labs test the products for safety. If the product is acceptable, the testing lab issues a
listing report that provides a technical description of the product. These labs also provide
the manufacturers with procedures to follow in manufacturing the products. Electrical products
that are manufactured in accordance with the designated procedures display a listing mark from
the lab, which is generally recognized by consumers as an indication of a safe product and
which is often required by various governmental authorities to comply with local codes and
ordinances.Product LiabilityThe Company is engaged in businesses that could expose it to possible claims for injury
resulting from the failure of its products. While no material claims have been made against
the Company since its inception and the Company maintains product liability insurance, there
can be no assurance that claims will not arise in the future or that the coverage of the policy
will be sufficient to pay any claims.
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Patents and TrademarksThe Company has patented certain of its product designs and the functional features of some of
its products. The expiration dates of Craftmades patents (excluding pending applications)
currently range from 2009 to 2024. From time to time, the Company also enters into license
agreements with various designers of the Companys products, including license agreements
concerning licenses on patents for certain fans and certain other license agreements entered
into in the ordinary course of its business. The Company has registered the trademarks
Craftmade®, Woodard®, Accolade® and Durocraft®,
along with the product names of certain of its designs, with the United States Patent and
Trademark Office.EmployeesAs of June 30, 2009, the Company employed a total of 255 full-time employees, compared to 320
employees as of June 30, 2008. Substantially all employees are based in the United States and
are located primarily at the Companys headquarters and distribution center in Coppell, Texas,
and at the Woodard factory in Owosso, Michigan. During fiscal 2009, the Company transitioned
many functions previously performed at the former Woodard headquarters in Chicago, Illinois to
other Company locations, primarily Coppell, Texas. This transition resulted in a significant
net reduction of employees and the elimination of the Woodard headquarters in Chicago.
Currently, four key sales and marketing personnel remain based in a satellite office in
Chicago. As of June 30, 2009, two employees were based in Hong Kong. The Company believes that
its relationship with its employees is excellent. None of the Companys employees is
represented by a labor union or is a member of a collective bargaining unit.(d)
    
    Financial Information by Geographic AreaNet sales are attributed to geographic areas based on the location of the customer to which
products are shipped. Substantially all of the Companys net sales are to customers in North
America, principally the United States. In addition, substantially all of the Companys assets
are attributable to its operations in the United States with the exception of a small product
sourcing and international sales office in Hong Kong.(e)
    
    Available InformationOur Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K
and amendments to those reports filed with or furnished to the Securities and Exchange
Commission (the SEC) pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934, as amended (the Exchange Act), are available on the Investor Relations section
of our website at www.craftmade.com under the caption SEC promptly after we electronically
file such materials with, or furnish such materials to, the SEC. The Investor Relations
section of our website also contains corporate governance documentation, including the Audit
Committee Charter, Compensation Committee Charter, Disclosure Review Committee Charter,
Nominating and Corporate Governance Committee Charter, and our Business Ethics Policy.We will provide a copy of our Annual Report on Form 10-K annual report upon written request of
any stockholder. The SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with
the SEC at www.sec.gov. The public may read and copy any materials we file with the SEC at the
SECs Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
 
 Item 1A. Risk Factors.
 Described below are certain risks that we believe are applicable to our business and the
industry in which we operate. There may be additional risks applicable to our business that
are not presently material or known. There are also risks within the economy and the capital
markets, both domestically and internationally, that affect business generally, including us
and other companies in our industry, such as: the effects of terrorist attacks or other acts of
war, including conflicts or war involving the United States or its allies or trading partners;
the general strength of the economy, levels of consumer spending and consumer confidence;
inflation; higher interest rates; higher fuel and other energy costs; higher transportation,
fuel and utility costs; higher costs of labor, insurance and healthcare; labor strikes, weather
conditions or natural disasters; foreign exchange rate fluctuations; and higher levels of
unemployment, which have not been described. You should carefully consider each of the
following risks and all other information set forth in this Annual Report on Form 10-K.
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If any of the events described below occur, our business, financial condition, results of
operations, liquidity or access to the capital markets could be materially adversely affected.
The following risks could cause our actual results to differ materially from our historical
experience and from results predicted by forward-looking statements made by us related to
conditions or events that we anticipate may occur in the future. All of the forward-looking
statements made by us are qualified by the risks described below. The following should not be
construed as an exhaustive list of all factors that could cause our actual results to differ
materially from those expressed in our forward-looking statements.
 Strategic Risks and Strategy Execution Risks
 Our primary markets, particularly the housing, home construction, and remodel sectors, and
retail business are subject to business cycles which could lead to reduced short and long-term
demand for our products.General economic conditions in the United States, including the housing and home construction
sectors, are affected by, among other things, consumer spending habits, levels of employment,
salary and wage rates, prevailing interest rates, income tax rates and policies, consumer
confidence and consumer perception of economic conditions. A decline in general economic
conditions in the United States could lead to a reduced demand for our products. The United
States has experienced a historic downturn in both new home construction and existing home
sales in the past 36 months, and over the past 12 months the entire global economy has suffered
a historic downturn. This recent broad downturn and the longer term housing collapse has
negatively affected the Companys business.The industries we operate in are highly competitive, and we may not be able to compete
successfully.We compete with numerous companies, including several major manufacturers and distributors.
Some of our competitors have greater financial and other resources than we have, which could
allow them to compete more successfully than us. Most of our products are available from
several other sources, and our customers tend to have relationships with several distributors.
Manufacturers could also increase their efforts to sell directly to our customers and end-users
and bypass distributors like us. To address these challenges, we must be able to successfully
respond to competitive factors, including pricing, promotional incentives and trade terms. In
the future, we may be unable to compete successfully, and competitive pressures may reduce our
revenues.If we fail to gain customer acceptance of our existing and new products, our operating results
could suffer.We sell our products primarily to specialty showrooms and mass merchandisers. If we fail to
successfully introduce new products that are accepted by our customers, our operating results
may be adversely affected.Our failure in pursuing or executing any of our new business ventures, strategic alliances and
acquisitions could have a material adverse impact on our business.Our growth strategy includes expansion through new business ventures, strategic alliances and
acquisitions. While we employ several different valuation methodologies to assess a potential
growth opportunity, and structure favorable payout strategies to lower risk, we can give no
assurance that any of our new business
ventures and strategic alliances will positively affect our financial performance. Any
acquisitions that we make may result in difficulties in assimilating acquired companies, and
may result in the diversion of our capital and managements attention from our other business
issues and opportunities. We may not be able to successfully integrate companies that we
acquire, including their personnel, financial systems, distribution, operations and general
operating procedures. If we fail to successfully integrate companies that we acquire, our
business could suffer materially. We may also encounter challenges in achieving appropriate
internal control over our financial reporting in connection with our integration of an acquired
company. In addition, our efforts to integrate any acquired company, and its financial
results, into the Company may have a material adverse effect on our operating results.
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Our revenues depend on our relationships with capable sales personnel as well as key customers,
vendors, and manufacturers of the products that we distribute to our customers.Our future operating results depend on our ability to maintain satisfactory relationships with
qualified sales personnel as well as key customers, vendors and manufacturers. Given the
importance of a strong sales team to our success, we endeavor to hire capable sales people,
compensate them appropriately and provide them with the training and tools necessary for them
to succeed in their roles. If we fail to maintain our existing relationships with these parties
or fail to acquire relationships with others like them in the future, our business may suffer.Our future success is substantially dependent upon our senior management and retention of key
personnel.Our success depends upon our ability to attract, motivate, and retain key management and
personnel. We depend upon the continued services of our key executive officers, including our
chief executive officer. The loss of services of any of our key personnel could have a
negative impact on our business.
 Risks Associated with International Trade
 As we do not manufacture most of the products that we distribute, we are dependent upon third
parties for the manufacture and supply of high quality competitive products on a timely basis.We obtain over 80% of our products from third-party suppliers in China and Mexico with the
remainder supplied from vendors, or self-manufactured in the United States. We do not have any
material long-term contracts with our suppliers committing them to supply products to us. Most
of our products are imported from suppliers under short-term purchase orders that we place with
them. Therefore, our suppliers may not provide us with the products we need in the quantities
that we request. Because we do not control the actual production of the products that we sell,
we may be subject to delays caused by interruption in production based on conditions outside of
our control. Political or financial instability, merchandise quality issues, trade
restrictions, tariffs, currency exchange rates, transportation capacity and costs, inflation,
outbreak of pandemics and other factors relating to foreign trade are beyond our control. In
the event that any of our third-party suppliers become unable or unwilling to continue to
provide us with products in the volumes that we require, we would need to identify and obtain
acceptable replacement sources on a timely basis. There is no guarantee that we will be able
to obtain such alternative sources of supply on a timely basis, if at all, or at costs
acceptable to us. An extended interruption in the supply of our products would have a
materially adverse effect on our results of operations, which most likely would adversely
affect the value of our Common Stock.
 Risks Related to Profitable Growth
 A decline in our customers willingness or ability to pay for goods in a timely manner, or at
all, could lead to increased working capital costs, higher bad debt expense or lack of
liquidity.All segments of our business are highly competitive and the extension of credit terms to our
customers is a critical part of our business offering, and must compare favorably with our
competitors. The need to extend credit in order to gain sales must constantly be balanced with
the risk of slow payments or payment defaults. Although the Company employs a credit team with
years of experience in credit and collections, who carefully
weigh all credit decisions, it is not possible to completely mitigate all credit risk. Should
we experience a significant increase in late payments or bad debt write offs, it could
materially impact our cash flow, ability to borrow against receivables and net income.The loss of certain of our customers that represent a significant percentage of our net sales
could adversely affect our results of operations.All of the Mass segments net sales, including the net sales of Woodard, TSI, PHI and Design
Trends, are made to mass merchandisers, with Lowes comprising the most significant portion of
Mass net sales. The loss of or reduction in our orders with this customer, or any other
significant customer, could have a material adverse effect on our business and financial
results, as could disputes with our customers regarding shipments, fees, product condition or
related matters. Our inability to collect accounts receivable from any of these customers also
could have a material adverse affect on our financial condition and results of operations.
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If net sales to these customers were at levels significantly lower than currently anticipated,
we would be required to find other customers for existing inventory on hand. There can be no
assurances that we would be able to obtain additional customers for this inventory or that any
alternative sources would generate similar sales levels and profit margins as anticipated with
our current mass merchandise customers.We do not have long-term sales agreements with or other contractual assurances as to future
sales from any of our customers. Our customers make purchase decisions based on a combination
of price, product quality, consumer demand, customer service performance and their desired
inventory levels. Changes in our customers strategies, including a reduction in the number of
brands they carry or a shift of shelf space to private label products (unless we provide such
products) may adversely affect our net sales. Additionally, our customers may face financial
or other difficulties that may impact their operations and their purchases from us, which could
adversely affect our results of operations. If net sales to one or more of our customers are
reduced, this reduction may have a material adverse effect on our business, financial condition
and results of operations.Our mass merchandise customers may pressure us to lower our prices or take other actions that
may adversely impact our results of operations.Our mass merchandise customers may pressure us to lower our prices in addition to requiring
various stipulations from us related to inventory practices, product reset costs, logistics or
other aspects of the customer-supplier relationship. For example, Wal-Mart and other customers
have indicated a desire to utilize Radio Frequency Identification (RFID) technology in an
effort to improve tracking and management of product in their supply chain. Large-scale
implementation of this technology would significantly increase our product manufacturing and
distribution costs. Meeting these types of demands of customers may adversely affect our
margins and results of operations. If we fail to effectively respond to these types of demands
of our customers, our sales and profitability could be materially adversely affected. In
addition, our mass merchandise customers hold line reviews throughout the year for each product
category. Even though line reviews give us the potential to add new SKUs, participation in
line reviews could result in a partial or complete reduction of our existing SKUs in the
product lines currently offered which could have a materially adverse effect on our results of
operations.Our mass merchandise customers may choose to directly source many of the products we currently
provide.We compete against a wide variety of global and local competitors. As a result, there
are ongoing competitive product and pricing pressures in the environments in, which we operate,
as well as challenges in maintaining profit margins. To address these challenges, we must be
able to successfully respond to competitive factors, including pricing, promotional incentives
and trade terms. In particular, our mass merchandise customers may choose to source directly
from manufacturers in Asia many of the products we currently provide.To the extent our mass merchandise customers purchase products in excess of consumer
consumption in any period, our net sales in a subsequent period may be adversely affected as
mass merchandisers seek to reduce their inventory levels.From time to time, our mass merchandise customers may purchase more products from us than they
expect to sell to consumers during a particular time period. If mass merchandisers increase
their inventory during a particular reporting period, then our sales during the subsequent
reporting period may be adversely impacted as these mass merchandisers seek to reduce their
inventory to usual levels. To the extent our customers seek to reduce their usual or customary
inventory levels, the adverse impact of such de-inventorying on our sales and profitability
would be even greater.Increases in our shipping costs or service trouble with our third-party shippers could harm our
business.Shipping is a significant expense in our business for the products we import from manufacturers
and the products we ship to customers. Any significant increase we experience in our shipping
rates could have an adverse effect on our operating results. Similarly, strikes or other
service interruptions by those shippers could cause our operating expenses to rise and
adversely affect our ability to deliver products on a timely basis.
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Risks Associated with Being Publicly Traded
 Our Common Stock may be affected by limited trading volume and price fluctuations, each of
which could adversely impact the value of our Common Stock.There has been limited trading in our Common Stock and there can be no assurance that an active
trading market in our Common Stock will exist. Our Common Stock has experienced, and is likely
to experience in the future, significant price and volume fluctuations, which could adversely
affect the market price of our Common Stock without regard to our operating performance. In
addition, we believe that factors such as quarterly fluctuations in our financial results and
changes in the overall economy or the condition of the financial markets could cause the price
of our Common Stock to fluctuate substantially. These fluctuations may also cause short
sellers to enter the market from time to time in the belief that we will have poor results in
the future. We cannot predict the actions of market participants and, therefore, can offer no
assurances that the market for our stock will be stable or that the price per share of the
Common Stock will appreciate over time.
 Risks Relating to Liquidity
 Our inability to meet financial covenants contained in our credit facilities could adversely
impact our ability to fund our operations.Our ability to make payments on and to refinance our indebtedness and to fund our working
capital needs, planned capital expenditures, acquisitions, and dividends on our Common Stock
will depend on our ability to generate cash in the future. This, to some extent, is subject to
general economic, financial, competitive, legislative, regulatory and other factors that are
beyond our control.We cannot provide assurance that our business will generate sufficient cash flow from our
operating activities or that future borrowings will be available under our credit facility in
amounts sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.
We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot
provide assurance that we would be able to refinance any of our indebtedness on commercially
reasonable terms or at all.Our credit facility contains restrictive covenants that can require us to maintain specified
financial ratios. Our ability to satisfy those financial ratios can be affected by events
beyond our control, and we cannot provide assurance that we will satisfy those ratios. A
breach by us of any of these financial ratio covenants or other covenants could result in our
being in default under our credit facility. Upon the occurrence of an event of default by us,
our lenders could elect to declare the applicable outstanding indebtedness immediately due and
payable and terminate all commitments to us to extend further credit. We can offer no
assurances that our lenders would waive a default or that we could pay the outstanding
indebtedness in full under our credit facility if it were accelerated by our lenders.We are exposed to the risk of an increase in interest rates.We do not have any agreements with third parties to hedge against the potential rising of
interest rates. The variable rates of interest on our credit facility are based on various
index rates, including LIBOR and the Prime Rate, plus the spread as defined by the loan
agreements. As a result of our existing variable rate credit lines and loan agreements, we are
exposed to risk from fluctuations in interest rates.We are exposed to the risk of foreign currency appreciation.Generally, we purchase our products in U.S. dollars. However, we source substantially all of
our products from manufacturers in the Peoples Republic of China. As a result, our costs for
these products may be affected by changes in the value of the U.S. dollar against the Chinese
yuan. We cannot be assured that foreign currency fluctuations will not have a material adverse
impact on our financial condition and results of operations. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations  Liquidity and
Capital Resources.
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Risks Associated with Dependence on Technology
 We rely heavily on our management information systems for manufacturing, inventory management,
distribution and other functions. If our systems fail to perform these functions adequately or
if we experience an interruption in our operations, we could be materially adversely affected.The efficient operation of the Company is dependent on our management information systems. We
rely heavily on our management information systems to manage our order entry, order
fulfillment, pricing, point-of-sale, and inventory replenishment processes. The failure of our
management information systems to perform as anticipated could disrupt our business and could
result in decreased revenue, increased overhead costs, and excess or out-of-stock inventory
levels, causing us to suffer materially.
 Regulatory Risks
 Tax legislation initiatives could adversely affect our net earnings and tax liabilities.We are subject to the tax laws and regulations of the United States, state and local
governments, as well as foreign jurisdictions. From time to time, various legislative
initiatives may be proposed that could adversely affect our tax positions. There can be no
assurance that our effective tax rate will not be adversely affected by these initiatives. In
addition, tax laws and regulations are extremely complex and subject to varying
interpretations. Although we believe that our historical tax positions are sound and
consistent with applicable laws, regulations and existing precedent, we cannot give assurance
that our tax positions will not be challenged by relevant tax authorities, or that we would be
successful in any such challenge.We are subject to increasingly complex corporate governance, public disclosure, accounting, and
tax requirements that have increased our costs and the risk of our not being in compliance with
these requirements.We are subject to rules and regulations of federal and state government as well as the stock
exchange on which our Common Stock is listed. These entities, including the Public Company
Accounting Oversight Board (PCAOB), the SEC, the Internal Revenue Service, and the NASDAQ
Stock Market, have issued a significant number of new and increasingly complex requirements and
regulations over the course of the last several years and continue to develop additional
regulations and requirements in response to laws enacted by Congress, most notably the
Sarbanes-Oxley Act of 2002. Our efforts to comply with these requirements have
resulted in, and are likely to continue to result in, increased expenses and a diversion of our
managements time and attention from revenue-generating activities to compliance activities.We also are subject to periodic audits or other reviews by these governmental agencies and
external auditors. These examinations or reviews frequently require managements time and
diversion of internal resources and, in the event of an unfavorable outcome to us, may result
in additional liabilities or adjustments to our historical financial results.Changes in accounting rules could have a material impact on our reported business and financial
results.U.S. generally accepted accounting principles are subject to interpretation by the Financial
Accounting Standards Board (FASB), the American Institute of Certified Public Accountants,
the PCAOB, the SEC, and various governmental and regulatory bodies that promulgate and
interpret appropriate accounting principles. A change in these principles or interpretations
could have a significant effect on our reported financial results.
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Risks Associated with Insurance / Product Liability
 Failure or flaws in our products could lead to product liability claims and payment of
associated financial damages or penalties.The Company goes to great length to ensure that its products meet the highest standard for
reliability and consumer safety. We work closely with our contract manufacturers to design,
develop and produce products that are both attractive and highly functional, and that pose no
threat to our customers when used in an appropriate manner. In the current highly litigious
environment, any flaw or failure in our products that causes harm to an individual, property
damage or simply consumer dissatisfaction could become the source of legal action, either on an
individual or class action basis. Such legal actions could have wide ranging impact including
distraction of senior management, adverse publicity, legal fees and financial damages or
penalties. While no material claims have been made against the Company since its inception, and
the Company maintains product liability insurance, there can be no assurance that claims will
not arise in the future or that the coverage of our policy will be sufficient to pay any
claims.
 Risks Associated with Balancing Inventory
 The Company could suffer financial losses due to carrying excessive inventory, or conversely
due to having insufficient inventory on hand to meet the needs of our customers.Since over 80% of our sales are sourced from China, the Company has to maintain high levels of
inventory in order to meet customer needs and our own delivery policies. The Company seeks to
minimize inventory levels wherever possible because of the significant expense associated with
the purchase, shipping and warehousing of our products.In order to gain and retain distribution of our products, we often need to produce specific
product lines under customer-owned (Private Label) brands, which legally cannot be sold in
any outlets other than those owned by that customer. Discontinued or overstocked products from
the Private Label segment generally have to be destroyed or liquidated at highly discounted and
unprofitable prices. Management believes that competing in the Private Label segment is
essential to gaining market share and sales in the Mass segment and, therefore, is willing to
increase the Companys inventory risk by producing and selling Private Label products.Our design, sales, marketing and manufacturing teams have years of experience in each of the
segments we operate in and work to maintain a strong knowledge of current consumer and retail
trends, customer buying habits, and the general economic environment to ensure that we are
ordering and stocking products that will sell through at a reliable and consistent rate. We
also leverage our internal systems, policies and controls to maintain the proper level of
inventory, balancing economic cost with customer needs. We cannot ensure that this balance is
always maintained, and any misjudgment in inventory management can have an adverse impact on
the Companys financial statements and results of operations.
 
 Item 1B. Unresolved Staff Comments.
 None.
 
 Item 2. Properties.
 The following table sets forth information with respect to the Companys key properties:
 Summary of Properties
 CurrentApproximate
    
    
    LeaseSquare
    
    
    TermLocation
    
    Use
    
    Feet
    
    
    ExpirationCoppell, Texas
    
    Headquarters, warehouse and distribution facility
    
    
    378,000
    
    
    OwnedOwosso, Michigan
    
    Manufacturing and warehouse facility for Woodard
    
    
    306,000
    
    
    OwnedOwosso, Michigan
    
    Warehouse storage for manufacturing facility
    
    
    24,885
    
    
    Month to monthDallas, Texas
    
    Dallas Trade Mart Showroom  Fans & Lighting
    
    
    5,656
    
    
    April 30, 2012Chicago, Illinois
    
    Chicago Merchandise Mart  Outdoor Furniture
    
    
    11,000
    
    
    August 31, 2013Chicago, Illinois
    
    Woodard Sales and Marketing office space
    
    
    1,989
    
    
    August 14, 2009Kowloon, Hong Kong
    
    Product sourcing and international sales office
    
    
    1,147
    
    
    October 14, 2010
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The Companys headquarters facility is located in Coppell, Texas. The facility consists of
approximately 378,000 square feet of general office and warehouse space, is owned by the
Company and is used by both Specialty and Mass segments. The Companys management believes
that this Company-owned facility is well maintained, in good operating condition and will be
sufficient to support operations for the near term.See Note 4  Long-Term Obligations in the notes to the consolidated financial statements for
a discussion of the Companys term loans used to refinance the Coppell, Texas and Owosso,
Michigan facilities.As part of the Woodard Asset Acquisition, the Company acquired a 306,000 square-foot
manufacturing and warehouse facility in Owosso, Michigan, that is engaged in the manufacture
and distribution of its outdoor furniture lines. The Company currently has no plans to relocate
or discontinue use of this facility. As part of the Woodard transaction, the Company also
gained 20,000 square feet of office space in Chicago, Illinois, which had been the headquarters
of Woodard, LLC, and was leased under terms that ended in February 2009. Upon integration of
most Woodard functions in the Coppell headquarters, and expiration of the former Woodard
headquarters lease, the Company leased a small office in Chicago for certain sales and
marketing roles that remained in Chicago.The Company also formerly had sales offices in Bentonville, Arkansas and Dedham, Massachusetts
which were closed in fiscal 2009.
 
 Item 3. Legal Proceedings.
 The Company is involved in various claims, lawsuits and proceedings arising in the ordinary
course of business. There are uncertainties inherent in the ultimate outcome of such matters
and it is difficult to determine the ultimate costs that we may incur. We believe the
resolution of such uncertainties and the incurrence of such costs will not have a material
adverse effect on our consolidated financial position, results of operations or cash flows.
 
 Item 4. Submission of Matters to a Vote of Security Holders.
 No matters were submitted to a vote of stockholders during the fourth quarter of fiscal year
2009.
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PART II
 
 Item 5.

    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 The Common Stock trades on the NASDAQ Global Market under the symbol CRFT.The following table sets forth, for the periods indicated, the high and low sales price per
share of Common Stock on the NASDAQ Global Market, and dividends paid per share of Common
Stock:
 DividendsSales Price
    
    
    PerHigh
    
    
    Low
    
    
    ShareFiscal Year Ended June 30, 2009Fourth Quarter
    
    $
    2.86
    
    
    $
    1.20
    
    
    $
    Third Quarter
    
    
    2.20
    
    
    
    0.89
    
    
    
    Second Quarter
    
    
    4.21
    
    
    
    1.32
    
    
    
    First Quarter
    
    
    6.51
    
    
    
    2.77
    
    
    
    Fiscal Year Ended June 30, 2008Fourth Quarter
    
    $
    8.34
    
    
    $
    6.24
    
    
    $
    Third Quarter
    
    
    9.99
    
    
    
    7.33
    
    
    
    0.12Second Quarter
    
    
    12.18
    
    
    
    7.11
    
    
    
    0.12First Quarter
    
    
    17.63
    
    
    
    11.52
    
    
    
    0.12
 The Company announced in May of 2008, that it had suspended its quarterly dividend. Any
decision to declare and pay dividends in the future will be made at the discretion of the
Companys Board of Directors and will depend on, among other things, the Companys results of
operations, cash requirements, financial condition, availability of funds under its line of
credit and other factors that the Board of Directors may deem relevant. In addition, the
Companys current credit facility restricts dividend payments in certain circumstances.Computershare Investor Services, 2 North LaSalle Street, Chicago, Illinois 60602, is the
transfer agent and registrar for the Common Stock.HoldersThere were 77 holders of record of the Common Stock on August 31, 2009. A number of the
Companys stockholders hold their shares in street name; therefore, the Company believes that
there are substantially more beneficial owners of Common Stock.Issuer Purchases of Equity SecuritiesThere were no purchases of equity securities during the fiscal year ended June 30, 2009.Equity Compensation PlansSee Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
 
 Item 6. Selected Financial Data.
 The selected financial data in the tables below are for the five fiscal years ended June 30,
2009. The data should be read in conjunction with Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations, and the Consolidated Financial Statements
included herein.
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##### Table of Contents



Summary of Selected Financial Data
(In thousands, except percentage and per share data)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(1)
    
    
    (2)
    
    
    
    
    
    
    (3)Selected Operating ResultsNet sales
    
    $
    149,692
    
    
    $
    137,590
    
    
    $
    103,350
    
    
    $
    118,054
    
    
    $
    118,806Gross profit
    
    
    32,220
    
    
    
    34,913
    
    
    
    32,291
    
    
    
    35,469
    
    
    
    35,446Gross profit as a percentage of net sales
    
    
    21.5
    %
    
    
    25.4
    %
    
    
    31.2
    %
    
    
    30.0
    %
    
    
    29.8
    %Selling, general and administrative
    
    
    30,340
    
    
    
    28,117
    
    
    
    21,151
    
    
    
    19,895
    
    
    
    20,503Income from operations
    
    
    804
    
    
    
    5,927
    
    
    
    10,341
    
    
    
    14,980
    
    
    
    14,362Income (loss) before minority interest
    
    
    (367
    )
    
    
    3,404
    
    
    
    7,418
    
    
    
    7,418
    
    
    
    10,530Minority interest
    
    
    721
    
    
    
    1,292
    
    
    
    1,507
    
    
    
    3,430
    
    
    
    3,775Net income (loss)
    
    
    (1,088
    )
    
    
    2,112
    
    
    
    5,911
    
    
    
    7,100
    
    
    
    6,427Income from operations per share
    
    
    0.14
    
    
    
    1.09
    
    
    
    1.99
    
    
    
    2.88
    
    
    
    2.82Income (loss) before minority interest
    
    
    (0.06
    )
    
    
    0.62
    
    
    
    1.43
    
    
    
    1.43
    
    
    
    2.07Basic earnings (loss) per common share
    
    
    (0.19
    )
    
    
    0.39
    
    
    
    1.14
    
    
    
    1.37
    
    
    
    1.26Diluted earnings (loss) per common share
    
    
    (0.19
    )
    
    
    0.39
    
    
    
    1.14
    
    
    
    1.36
    
    
    
    1.26Cash dividends declared per common share
    
    
    
    
    
    
    0.36
    
    
    
    0.48
    
    
    
    0.48
    
    
    
    0.40Basic common shares outstanding
    
    
    5,705
    
    
    
    5,450
    
    
    
    5,204
    
    
    
    5,201
    
    
    
    5,095Diluted common shares outstanding
    
    
    5,705
    
    
    
    5,451
    
    
    
    5,206
    
    
    
    5,211
    
    
    
    5,115Summary Balance SheetCurrent assets
    
    $
    51,827
    
    
    $
    52,724
    
    
    $
    41,216
    
    
    $
    45,291
    
    
    $
    50,595Total assets
    
    
    80,868
    
    
    
    81,960
    
    
    
    64,751
    
    
    
    65,061
    
    
    
    70,815Current liabilities
    
    
    10,203
    
    
    
    12,429
    
    
    
    8,687
    
    
    
    15,020
    
    
    
    39,714Long-term debt
    
    
    29,886
    
    
    
    27,759
    
    
    
    18,938
    
    
    
    16,204
    
    
    
    1,551Total liabilities
    
    
    41,211
    
    
    
    41,305
    
    
    
    28,732
    
    
    
    32,362
    
    
    
    42,351Stockholders equity
    
    
    36,125
    
    
    
    37,093
    
    
    
    32,524
    
    
    
    29,037
    
    
    
    24,373Book value per common share
    
    
    6.33
    
    
    
    6.81
    
    
    
    6.25
    
    
    
    5.58
    
    
    
    4.78
 (1)
    
    Effective January 2, 2008, Woodard-CM, LLC, a wholly owned subsidiary of Craftmade
(Woodard), completed the purchase of substantially all of the net assets of Woodard, LLC.
Fiscal year 2008 financial data includes results of operations of Woodard for the period
subsequent to the acquisition date.(2)
    
    Effective July 1, 2006, the Company acquired Marketing Impressions, Inc., a Georgia
corporation (Marketing Impressions). This acquisition increased the Companys effective
ownership of PHI to 100%. The results of operations of PHI have always been included in
the consolidated income before minority interest of the Company. Prior to the acquisition,
the minority interest in PHI income was excluded from the Companys consolidated net
income. Since the effective date of the acquisition on July 1, 2006, no minority interest
exists in PHI, and accordingly, the consolidated net income will include the full amount of
PHI results from this date.(3)
    
    Fiscal year 2005 results include net assets acquired and four months of the results of
operations of Bill Teiber Co., Inc. effective March 1, 2005.
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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation.
 The following discussion should be read in conjunction with the information contained in our
consolidated financial statements, including the notes thereto. Statements regarding future
economic performance, managements plans and objectives, and any statements concerning
assumptions related to the foregoing contained in Managements Discussion and Analysis of
Financial Condition and Results of Operation constitute forward-looking statements. Certain
factors, which may cause actual results to vary materially from these forward-looking
statements, accompany such statements or appear elsewhere in this Form 10-K, including the
factors disclosed under Item 1A. Risk Factors.Critical Accounting Policies and EstimatesManagements discussion and analysis of the Companys financial condition and results of
operations are based upon the Companys consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires the Companys management to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. The Companys
estimates are based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for the Companys
conclusions. The Company continually evaluates the information used to make these estimates
as its business and the economic environment changes. The Companys management believes that
the estimates, assumptions and judgments involved in the accounting policies described below
have the greatest potential impact on its financial statements, so the Company considers these
to be its critical accounting policies.Revenue RecognitionRevenue is recognized as product is shipped and related services are performed in accordance
with all applicable revenue recognition criteria. For these transactions the Company applies
the provisions of SEC Staff Accounting Bulletin No. 104 Revenue Recognition. The Company
recognizes revenue when there is persuasive evidence of an arrangement, title and risk of loss
have passed, delivery has occurred or the services have been rendered, the sales price is
fixed or determinable and collection of the related receivable is reasonably assured. Title
generally transfers upon shipment of goods from the Companys warehouse. The Company does not
have an obligation or policy of replacing customer products damaged or lost in transit. In
some instances, the Company ships product directly from its suppliers to the customers. In
these cases, the Company recognizes revenue when the product is accepted by the customers
representative. For certain products, the Company offers preseason early-order programs that
carry extended terms whereby customers may order and take delivery of products prior to the
selling season. Products sold under preseason programs have no right of return.The Company applies the provisions of Emerging Issues Task Force (EITF) Issue No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an Agent. The Companys application of
EITF 99-19 includes evaluation of its terms with each major customer relative to a number of
criteria that management considers in making its determination with respect to gross versus
net reporting of revenue for transactions with its customers. Managements criteria for
making these judgments place particular emphasis on determining the primary obligor in a
transaction and which party bears general inventory risk. The Company records all shipping and
handling fees billed to customers as revenue, and related costs as cost of sales, when
incurred, in accordance with EITF 00-10, Accounting for Shipping and Handling Fees and
Costs.As part of its revenue recognition policy, the Company records an accrual of estimated
incentives payable to its customers as a reduction of revenue at the time the related revenues
are recorded. The Company bases its estimates on contractual terms of the programs and
estimated or actual sales to individual customers. Actual incentives payable in any future
period are inherently uncertain and, thus, may differ from its estimates. If actual or
expected incentives were significantly greater than the reserves the Company had established,
the Company would record a reduction to net revenues in the period in which the Company made
such determination.
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In addition to various incentive programs, from time to time, the Company is required to
provide mark-down funds to certain of its mass retail customers to assist them in clearing
slow-moving inventory. These mark-down funds are accrued as a reduction of revenue at the
time that the related revenues are recorded.The Company is also required to provide for the cost of labor associated with resetting store
displays. Resets involve removing slow-moving inventory and replacing it with new products.
Although reset costs are paid to third parties who perform the services, they are considered an
incentive to our mass merchandise customers. For existing products that are replaced, the
Company accrues an estimate for the cost as in increase to cost of goods sold in advance of the
reset at the time that the related revenues are recorded. The Company bases its estimates on a
number of factors, including information obtained from our customers about their future plans.
The cost for any new products or space that is gained is expensed as incurred as an increase to
cost of goods sold.Allowance for Doubtful AccountsThe Company regularly analyzes significant customer balances, and, when it becomes evident a
specific customer will be unable to meet its financial obligations to the Company, such as in
the case of bankruptcy filings or deterioration in the customers operating results or
financial position, a specific allowance for doubtful account is recorded to reduce the
related receivable to the amount that is believed reasonably collectible. The Company also
records allowances for doubtful accounts for all other customers based on a variety of factors
including the length of time the receivables are past due, the financial health of the
customer and historical experiences. If circumstances related to specific customers change,
estimates of the recoverability of receivables could be further adjusted.InventoriesThe Companys inventories are primarily composed of finished goods and are recorded at the
lower of cost or market using the average cost method. For inventory shipped out of the
Woodard facility in Owosso, Michigan, inventories are stated at the lower of cost, determined
principally by the use of the standard cost method which approximates first-in, first-out
(FIFO), or market. The Company provides estimated inventory allowances for excess,
slow-moving and obsolete inventory as well as inventory whose carrying value is in excess of
net realizable value. These reserves are based on current assessments about future demands,
market conditions and related management initiatives. If market conditions and actual demands
are less favorable than those projected by management, additional inventory write-downs may be
required.GoodwillThe Company assesses the carrying values of goodwill annually as of June 30 or when
circumstances dictate that the carrying value might be impaired. Impairment testing for
goodwill is analyzed at the reporting unit level, which for Craftmade has been defined as Mass
and Specialty. An impairment loss generally would be recognized when the carrying amount of
the reporting units net assets exceeds the estimated fair value of the reporting unit. In
the event that an impairment is determined to have occurred, the Company will reduce the
carrying value of the asset in that period.The estimated fair value of reporting unit as of June 30, 2009 was determined using a
combination of the income approach (discounted cash flow or DCF analysis) and the market
approach (application of relevant revenue or income multiples, based on comparable companies).The discounted cash flow method calculates the present value of future cash flows of each
reporting unit. In
order to determine the present value of these future cash flows for each reporting unit, it
was necessary to forecast future revenues, cost of revenues, other operating expenses and
capital expenditures. Management based these forecasts on current information and expectations
about our operations, activities and strategies, as well as the impact of the economic
environment and actions or our suppliers, customers and competitors. It should be noted that
any such forecasts are subjective and inherently uncertain. Each DCF was prepared on an
invested capital basis. Invested capital refers to the aggregate of all classes of debt and
equity invested in the business. In preparing a DCF analysis on an invested capital basis,
forecasted debt-free cash flow is
discounted to present value at the reporting units respective weighted average cost of
capital (WACC). Interest expense is excluded from the forecast as debt-free cash flow
represents an economic benefit
that is available to all capital holders of an enterprise. The result of this analysis is to
develop a measure of invested capital value.
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The market approach involves gathering information about comparable publicly traded guideline
companies. Guideline companies provide a reasonable basis for comparison to the relative
investment characteristics of the entity being valued. For our analysis, we were able to
select representative publicly traded companies that operate in similar industries as
Craftmade. We analyzed the latest financials and operating statistics of each of these
publicly traded companies. We calculated the high, low, mean, and median for the invested
capital to revenue and the invested capital to EBITDA multiples. From this analysis, we
selected the appropriate multiple and applied it to Craftmades reporting units associated
figure. We then weighted the resulting values based on our assessment of the credibility and
appropriateness of the given multiple, resulting in a market based measure of invested
capital.We believe that both of these approaches have strengths and drawbacks. The DCF analysis
captures Managements best estimates of earnings potential for the Companys reporting units
from a detail level although numerous educated estimates are required throughout the process,
which come with an inherent level of uncertainty. The market approach incorporates results of
operations for several comparable companies in determining the Revenue and EBITDA multiples
applicable, but it can be difficult to find appropriate comparable companies and this approach
ignores specific information about future strategies and actions that can be explicitly
factored into the DCF approach. Our final valuation took into consideration both approaches,
although we placed more weight on the DCF analysis versus the publicly traded guideline
approach. We also applied a working capital adjustment to the concluded present value of
invested capital for each reporting unit to normalize the surpluses or deficits in working
capital at the reporting unit level.In order to assess whether or not goodwill was impaired at the reporting unit level, the
values developed in this process were compared with the book value of total equity of each
reporting unit. If the reporting units fair value of total equity is greater than the book
value of total equity, then goodwill is not impaired and no further undertakings are required.Income TaxesThe Company accounts for income taxes under an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Companys financial statements or tax returns. In
estimating future tax consequences, all expected future events other than enactments of
changes in the tax law or rates are considered. Deferred income taxes have been provided on
unremitted earnings from foreign investees. The Company reviews its deferred tax assets for
ultimate realization and will record a valuation allowance to reduce the deferred tax asset if
it is more likely than not that some portion, or all, of these deferred tax assets will not be
realized. Tax authorities may not always agree with the tax positions taken by the Company.
The Company believes it has adequate reserves in the event that a taxing authority differs
with positions taken; however, there can be no assurance that the Companys results will not
be affected adversely. See Note 2  Summary of Significant Accounting Policies in the notes
to the consolidated financial statements for additional information.Variable Interest EntitiesVariable interest entities (VIEs) are primarily entities that lack sufficient equity to
finance their activities without additional financial support from other parties or whose
equity holders lack adequate decision making ability. All VIEs with which the Company is
involved must be evaluated to determine the primary beneficiary of the risks and rewards of
the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting
purposes.The Company has a 50% ownership interest in Design Trends, a limited liability company. In
connection with the adoption of FIN 46R, the Company concluded that Design Trends is a VIE and
that the Company is the primary beneficiary. Pursuant to the provisions of FIN 46R, the
Company consolidates Design Trends.Prior to the acquisition of Marketing Impressions, which became effective on July 1, 2006, the
Company had a 50% ownership interest in PHI. The Company also concluded that PHI was a VIE
and that the Company was the primary beneficiary. Pursuant to the provisions of FIN 46R, the
Company consolidated PHI. Accordingly, the results of operations of PHI have historically
been included in the consolidated income beforeminority interest of the Company. Prior to
the acquisition, the minority interest in PHI income was excluded from the Companys
consolidated net income. Since the effective date of the acquisition on July 1, 2006, no
minority interest exists in PHI, and accordingly, the consolidated net income includes the
full amount of PHI results from this date.
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OverviewManagement 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.
A condensed overview of results for the fiscal year ended June 30, 2009, and the
corresponding prior year period is summarized in the table that follows (in thousands, except
percentage data).Fiscal year ended June 30, 2009 compared to fiscal year ended June 30, 2008
 Income Statement by Segment  (Dollars in thousands)
 Fiscal Year Ended
    
    
    Fiscal Year EndedJune 30, 2009
    
    
    June 30, 2008Specialty
    
    
    Mass
    
    
    Total
    
    
    Specialty
    
    
    Mass
    
    
    TotalNet sales
    
    $
    68,951
    
    
    $
    80,741
    
    
    $
    149,692
    
    
    $
    74,878
    
    
    $
    62,712
    
    
    $
    137,590Cost of goods sold
    
    
    (47,688
    )
    
    $
    (69,784
    )
    
    
    (117,472
    )
    
    
    (51,203
    )
    
    
    (51,474
    )
    
    
    (102,677
    )Gross profit
    
    
    21,263
    
    
    $
    10,957
    
    
    
    32,220
    
    
    
    23,675
    
    
    
    11,238
    
    
    
    34,913Gross profit as a % of net sales
    
    
    30.8
    %
    
    
    13.6
    %
    
    
    21.5
    %
    
    
    31.6
    %
    
    
    17.9
    %
    
    
    25.4
    %Selling, general and administrative expenses
    
    
    (19,316
    )
    
    
    (11,024
    )
    
    
    (30,340
    )
    
    
    (19,539
    )
    
    
    (8,578
    )
    
    
    (28,117
    )As a % of net sales
    
    
    28.0
    %
    
    
    13.7
    %
    
    
    20.3
    %
    
    
    26.1
    %
    
    
    13.7
    %
    
    
    20.4
    %Depreciation and amortization
    
    
    (815
    )
    
    
    (261
    )
    
    
    (1,076
    )
    
    
    (600
    )
    
    
    (269
    )
    
    
    (869
    )Total operating expenses
    
    
    (20,131
    )
    
    
    (11,285
    )
    
    
    (31,416
    )
    
    
    (20,139
    )
    
    
    (8,847
    )
    
    
    (28,986
    )Income (loss) from operations
    
    
    1,132
    
    
    
    (328
    )
    
    
    804
    
    
    
    3,536
    
    
    
    2,391
    
    
    
    5,927Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (1,438
    )
    
    
    
    
    
    
    
    
    
    
    (1,489
    )Other income (expenses)
    
    
    
    
    
    
    
    
    
    
    (142
    )
    
    
    
    
    
    
    
    
    
    
    140Income (loss) before income taxes
and minority interests
    
    
    
    
    
    
    
    
    
    
    (776
    )
    
    
    
    
    
    
    
    
    
    
    4,578Provision for income tax (expense) / benefit
    
    
    
    
    
    
    
    
    
    
    409
    
    
    
    
    
    
    
    
    
    
    
    (1,174
    )Income (loss) before minority interests
    
    
    
    
    
    
    
    
    
    
    (367
    )
    
    
    
    
    
    
    
    
    
    
    3,404Minority interests
    
    
    
    
    
    
    
    
    
    
    (721
    )
    
    
    
    
    
    
    
    
    
    
    (1,292
    )Net income (loss)
    
    
    
    
    
    
    
    
    
    $
    (1,088
    )
    
    
    
    
    
    
    
    
    
    $
    2,112
 Net Sales.Net sales for the Company increased $12,102,000 or 8.8% to $149,692,000 for the
fiscal year ended June 30, 2009, compared to $137,590,000 for the fiscal year ended June 30,
2008, primarily from the inclusion of two additional quarters of outdoor furniture sales
stemming from the Woodard Asset Acquisition. Due to the timing of the acquisition, fiscal
2008 only included two quarters of Woodard furniture sales, while fiscal 2009 included four
quarters. This increase is partially offset by declines in sales of ceiling fans, lighting and
accessories.Management believes that the decline in the housing market and the overall economic downturn
will continue to create a difficult sales environment, particularly in the Specialty segment,
which more closely correlates to new home starts. The Company continues to pursue its
strategic growth plans, while also focusing on developing and implementing more immediate
plans to mitigate the impact of the current economic downturn.Net sales from the Specialty segment decreased $5,927,000 or 7.9% to $68,951,000 for the
fiscal year ended June 30, 2009, compared to $74,878,000 for the fiscal year ended June 30,
2008, as summarized in the following table. The inclusion of two additional quarters of
outdoor furniture sales was more than offset by a decrease in fans, lighting and accessories.
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Net Sales of Specialty Segment
(Dollars in thousands)
 Fans
    
    
    WoodardLighting &
    
    
    Outdoor
    
    
    SegmentFiscal Year Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalJune 30, 2009
    
    $
    38,156
    
    
    $
    30,795
    
    
    $
    68,951June 30, 2008
    
    $
    50,768
    
    
    $
    24,110
    
    
    $
    74,878Dollar increase (decrease)
    
    $
    (12,612
    )
    
    $
    6,685
    
    
    $
    (5,927
    )Percent increase (decrease)
    
    
    (24.8
    %)
    
    
    27.7
    %
    
    
    (7.9
    %)
 The sales of all Specialty products continue to be affected by the extremely weak overall
economy, reduced consumer spending and a historically low housing market. Specialty retailers
tend to be small independent businesses, and have suffered disproportionately as cash strapped
consumers cut spending and alter their buying habits. Many of these Specialty retailers are
economically distressed and a small but growing number have either shut their doors or sought
protection under federal bankruptcy laws since the beginning of the broad economic downturn.Management continues to focus on introducing new products, expanding accounts and developing
cross-selling opportunities for its various product lines to offset the weak housing market.
Management believes that long-term growth will be favorably affected by additional product
offerings through enhanced product development efforts, as well as selling outdoor furniture
products to lighting showrooms and selling outdoor lighting and ceiling fans to patio dealers,
and focusing efforts on the hospitality markets.Net sales of the Mass segment increased $18,029,000 or 28.7% to $80,741,000 for the fiscal
year ended June 30, 2009, compared to $62,712,000 for the fiscal year ended June 30, 2008,
primarily from the inclusion of two additional quarters of outdoor furniture sales related to
the Woodard Asset Acquisition. Net sales from the Mass segment are summarized in the following
table:
 Net Sales of Mass Segment
(Dollars in thousands)
 WoodardLighting &
    
    
    Outdoor
    
    
    SegmentFiscal Year Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalJune 30, 2009
    
    $
    25,135
    
    
    $
    55,606
    
    
    $
    80,741June 30, 2008
    
    
    31,461
    
    
    
    31,251
    
    
    
    62,712Dollar increase (decrease)
    
    $
    (6,326
    )
    
    $
    24,355
    
    
    $
    18,029Percent increase (decrease)
    
    
    (20.1
    %)
    
    
    77.9
    %
    
    
    28.7
    %
 Sales of lighting products and fan and lamp accessories to the Mass segment are primarily from
the Companys TSI and Design Trends subsidiaries, both of which experienced declines in the
fiscal year ended June 30, 2009. The decrease in net sales of lighting and accessories was
primarily the result of: (i) a decline in orders from Lowes related to indoor lighting; (ii)
lower sales of non-core drop shipped products; and (iii) lower sales of fan accessories.The decline in lighting net sales was primarily due to reduced retail sales of the mix and
match portable lamp program through Lowes. Currently, Design Trends supplies mix and match
portable lamps to all 13 Lowes regional distribution centers.
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Woodard sales were primarily composed of direct import sales to its various mass merchant
customers. Most of its products are shipped directly from China. Due to the seasonal nature
of outdoor furniture sales, most sales to mass merchants occur from January to April each year.Management believes that sales to Lowes will increase in the coming fiscal year. Based on
various line reviews, management believes that it will continue to be a primary vendor for
Lowes mix and match portable lamps through Design Trends, and for Lowes lamp
accessory/ceiling medallion programs through PHI, although based on feedback from Lowes the
Company expects to see a reduction in the number of fan accessory SKUs it provides. Based on
the number of outdoor furniture SKUs the Company has placed with Lowes for the upcoming year,
the Company expects to see growth in this segment.The Company believes that it will continue to be invited to participate in each of Lowes
scheduled line reviews for its existing and new product lines. The line reviews occur on
approximately 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 either subsidiarys existing SKUs in the
product lines currently offered to Lowes.Management believes that the future growth of the Mass segment 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 3.9% to 21.5%
for the fiscal year ended June 30, 2009, compared to 25.4% for the fiscal year ended June 30,
2008 primarily due to the inclusion of two additional quarters of sales of Woodard products
that carry a lower gross profit, as well as decreased margins in the traditional fan and
lighting business in the Specialty segment.Gross profit as a percentage of net sales of the Specialty segment decreased 0.7% to 30.9% for
the fiscal year ended June 30, 2009, compared to 31.6% for the fiscal year ended June 30, 2008.
The decrease is summarized in the following table:
 Gross Profit as a Percentage of Net Sales of Specialty Segment
 Fans
    
    
    WoodardLighting &
    
    
    Outdoor
    
    
    SegmentFiscal Year Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalJune 30, 2009
    
    
    33.8
    %
    
    
    27.2
    %
    
    
    30.8
    %June 30, 2008
    
    
    35.2
    %
    
    
    24.2
    %
    
    
    31.6
    %Percent decrease
    
    
    (1.4
    %)
    
    
    3.0
    %
    
    
    (0.8
    %)
 The decrease is due to the inclusion of an additional two quarters of the lower margin outdoor
furniture lines that carry lower gross profit than lighting and furniture, as well as a
decrease in margins realized on the traditional fan and lighting business. Fan and lighting
margins in the Specialty segment were down from the results generated in the fiscal year ended
June 30, 2008, as the economic downturn made it difficult for the Company to pass all cost
increases to its customers. Gross profit as a percent of net sales on the outdoor furniture
business increased year over year, as higher pricing was locked in prior to the onset of the
broader economic slump late in 2008.
  25




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##### Table of Contents



Gross profit as a percentage of net sales of the Mass segment decreased 4.4% to 13.5% of net
sales for the fiscal year ended June 30, 2009, compared to 17.9% 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 Segment
 WoodardLighting &
    
    
    Outdoor
    
    
    SegmentFiscal Year Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalJune 30, 2009
    
    
    22.8
    %
    
    
    9.4
    %
    
    
    13.6
    %June 30, 2008
    
    
    26.2
    %
    
    
    9.6
    %
    
    
    17.9
    %Percent decrease
    
    
    (3.4
    %)
    
    
    (0.2
    %)
    
    
    (4.3
    %)
 Gross profit as a percentage of net sales for lighting products and ceiling fan accessories in
the Mass segment decreased as a result of changes in vendor programs. Outdoor furniture gross
profit as a percent of net sales in the Mass segment is traditionally low as all sales are
direct import, and remained relatively flat to those achieved in fiscal 2008.For fiscal year 2010, gross profit as a percentage of net sales of lighting products and
ceiling fan accessories in the Mass segment is expected to increase over the fiscal year ended
June 30, 2009, as the Company has been working to gain cost concessions from its key vendors
and transition to lower cost vendors where possible. Management believes that the gross
profit as a percentage of net sales for Woodard will show slight improvements over fiscal year
2009 as a result of selective price increases used to offset material costs.Selling, General and Administrative Expenses.Total selling, general and administrative
(SG&A) expenses of the Company increased $2,223,000 to $30,340,000 or 20.3% of net sales for
the fiscal year ended June 30, 2009, compared to $28,117,000 or 20.4% of net sales for the
same period last year. This increase was primarily due to inclusion of two additional quarters
of expenses related to the Woodard outdoor furniture business. The expenses for the historical
Craftmade business decreased by $1,350,000 during fiscal 2009, and Woodard expenses were added
at a much lower rate than achieved in fiscal 2008.Woodard expenses for all four quarters of fiscal 2009 were $10,474,000 compared to $6,901,000
for two quarters that were reported in fiscal 2008. This indicates, on average, quarterly
expenses of $2,619,000 for Woodard for fiscal 2009 compared to average quarterly expenses of
$3,451,000 for fiscal 2008, a decrease of 24%. This reduction is due to the completion of the
integration of the Woodard business into Craftmade, as well as broad cost cutting efforts
across the board.
 Selling, General and Administrative Expenses
(Dollars in thousands)
 Increase/Fiscal Year Ended
    
    
    (Decrease)June 30,
    
    
    June 30,
    
    
    Over Prior2009
    
    
    2008
    
    
    Year PeriodHistorical Craftmade
    
    $
    19,866
    
    
    $
    21,216
    
    
    $
    (1,350
    )Woodard Incremental
    
    
    10,474
    
    
    
    6,901
    
    
    
    3,573$
    30,340
    
    
    $
    28,117
    
    
    $
    2,223
  26




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##### Table of Contents



The historical Craftmade expenses were primarily impacted by lower variable costs, and
reductions across the board, offset only slightly by an increase in salaries and property
taxes, as summarized below:
 Historical Craftmade
Selling, General and Administrative Expenses
(Dollars in thousands)
 Increase/Fiscal Year Ended
    
    
    (Decrease)June 30,
    
    
    June 30,
    
    
    Over Prior2009
    
    
    2008
    
    
    Year PeriodSalaries & Wages
    
    $
    7,278
    
    
    $
    7,170
    
    
    $
    108Commissions
    
    
    2,259
    
    
    
    2,754
    
    
    
    (495
    )Accounting, Legal And Consulting
    
    
    2,331
    
    
    
    2,468
    
    
    
    (137
    )Advertising
    
    
    1,654
    
    
    
    2,079
    
    
    
    (425
    )Health Insurance
    
    
    864
    
    
    
    1,102
    
    
    
    (238
    )Property Taxes
    
    
    472
    
    
    
    339
    
    
    
    133Warehouse Expense
    
    
    389
    
    
    
    512
    
    
    
    (123
    )Trade Shows
    
    
    169
    
    
    
    289
    
    
    
    (120
    )Other
    
    
    4,450
    
    
    
    4,503
    
    
    
    (53
    )$
    19,866
    
    
    $
    21,216
    
    
    $
    (1,350
    )
   Depreciation and Amortization.
 Interest Expense.
 Other income and expense.
 Minority interest.
 Provision for Income Taxes.
  27




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##### Table of Contents



Fiscal year ended June 30, 2008 compared to fiscal year ended June 30, 2007
 Income Statement by Segment
(Dollars in thousands)
 Fiscal Year Ended
    
    
    Fiscal Year EndedJune 30, 2008
    
    
    June 30, 2007Specialty
    
    
    Mass
    
    
    Total
    
    
    Specialty
    
    
    Mass
    
    
    TotalNet sales
    
    $
    74,878
    
    
    $
    62,712
    
    
    $
    137,590
    
    
    $
    59,925
    
    
    $
    43,425
    
    
    $
    103,350Cost of goods sold
    
    
    (51,203
    )
    
    
    (51,474
    )
    
    
    (102,677
    )
    
    
    (38,745
    )
    
    
    (32,314
    )
    
    
    (71,059
    )Gross profit
    
    
    23,675
    
    
    
    11,238
    
    
    
    34,913
    
    
    
    21,180
    
    
    
    11,111
    
    
    
    32,291Gross profit as a % of net sales
    
    
    31.6
    %
    
    
    17.9
    %
    
    
    25.4
    %
    
    
    35.3
    %
    
    
    25.6
    %
    
    
    31.2
    %Selling, general and administrative expenses
    
    
    (19,539
    )
    
    
    (8,578
    )
    
    
    (28,117
    )
    
    
    (14,900
    )
    
    
    (6,251
    )
    
    
    (21,151
    )As a % of net sales
    
    
    26.1
    %
    
    
    13.7
    %
    
    
    20.4
    %
    
    
    24.9
    %
    
    
    14.4
    %
    
    
    20.5
    %Depreciation and amortization
    
    
    (600
    )
    
    
    (269
    )
    
    
    (869
    )
    
    
    (548
    )
    
    
    (251
    )
    
    
    (799
    )Total operating expenses
    
    
    (20,139
    )
    
    
    (8,847
    )
    
    
    (28,986
    )
    
    
    (15,448
    )
    
    
    (6,502
    )
    
    
    (21,950
    )Income from operations
    
    
    3,536
    
    
    
    2,391
    
    
    
    5,927
    
    
    
    5,732
    
    
    
    4,609
    
    
    
    10,341Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (1,489
    )
    
    
    
    
    
    
    
    
    
    
    (1,441
    )Other expenses
    
    
    
    
    
    
    
    
    
    
    140
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
and minority interests
    
    
    
    
    
    
    
    
    
    
    4,578
    
    
    
    
    
    
    
    
    
    
    
    8,900Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    (1,174
    )
    
    
    
    
    
    
    
    
    
    
    (1,482
    )Income before minority interests
    
    
    
    
    
    
    
    
    
    
    3,404
    
    
    
    
    
    
    
    
    
    
    
    7,418Minority interests
    
    
    
    
    
    
    
    
    
    
    (1,292
    )
    
    
    
    
    
    
    
    
    
    
    (1,507
    )Net income
    
    
    
    
    
    
    
    
    
    $
    2,112
    
    
    
    
    
    
    
    
    
    
    $
    5,911
 Net Sales.
  Net Sales of Specialty Segment
(Dollars in thousands)
 Fans
    
    
    WoodardLighting &
    
    
    Outdoor
    
    
    SegmentFiscal Year Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalJune 30, 2008
    
    $
    50,768
    
    
    $
    24,110
    
    
    $
    74,878June 30, 2007
    
    
    59,925
    
    
    
    
    
    
    
    59,925Dollar increase (decrease)
    
    $
    (9,157
    )
    
    $
    24,110
    
    
    $
    14,953Percent increase (decrease)
    
    
    (15.3
    %)
    
    
    100.0
    %
    
    
    25.0
    %
  28




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##### Table of Contents



Net Sales of Mass Segment  (Dollars in thousands)
 WoodardLighting &
    
    
    Outdoor
    
    
    SegmentFiscal Year Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalJune 30, 2008
    
    $
    31,461
    
    
    $
    31,251
    
    
    $
    62,712June 30, 2007
    
    
    43,425
    
    
    
    
    
    
    
    43,425Dollar increase (decrease)
    
    $
    (11,964
    )
    
    $
    31,251
    
    
    $
    19,287Percent increase (decrease)
    
    
    (27.6
    %)
    
    
    100.0
    %
    
    
    44.4
    %
    Gross Profit.
  Gross Profit as a Percentage of Net Sales of Specialty Segment
 Fans
    
    
    WoodardLighting &
    
    
    Outdoor
    
    
    SegmentFiscal Year Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalJune 30, 2008
    
    
    35.2
    %
    
    
    24.2
    %
    
    
    31.6
    %June 30, 2007
    
    
    35.3
    %
    
    
    
    
    
    
    35.3
    %Percent decrease
    
    
    (0.1
    %)
    
    na
    
    
    
    (3.7
    %)
   29




---



##### Table of Contents



Gross Profit as a Percentage of Net Sales of Mass Segment
 WoodardLighting &
    
    
    Outdoor
    
    
    SegmentFiscal Year Ended
    
    Accessories
    
    
    Furniture
    
    
    TotalJune 30, 2008
    
    
    26.2
    %
    
    
    9.6
    %
    
    
    17.9
    %June 30, 2007
    
    
    25.6
    %
    
    
    
    
    
    
    25.6
    %Percent increase/(decrease)
    
    
    0.6
    %
    
    na
    
    
    
    (7.7
    %)
  Selling, General and Administrative Expenses.
 Selling, General and Administrative Expenses
(Dollars in thousands)
 Increase/Fiscal Year Ended
    
    
    (Decrease)June 30,
    
    
    June 30,
    
    
    Over Prior2008
    
    
    2007
    
    
    Year PeriodHistorical Craftmade
    
    $
    21,216
    
    
    $
    21,151
    
    
    $
    65Woodard Incremental
    
    
    6,901
    
    
    
    
    
    
    
    6,901$
    28,117
    
    
    $
    21,151
    
    
    $
    6,966
  30




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##### Table of Contents



Historical Craftmade
Selling, General and Administrative Expenses
(Dollars in thousands)
 Increase/Fiscal Year Ended
    
    
    (Decrease)June 30,
    
    
    June 30,
    
    
    Over Prior2008
    
    
    2007
    
    
    Year PeriodCommissions
    
    $
    2,754
    
    
    $
    3,326
    
    
    $
    (572
    )Bad Debt Expense
    
    
    329
    
    
    
    33
    
    
    
    296Accounting, legal and consulting
    
    
    2,468
    
    
    
    2,237
    
    
    
    231Health Insurance
    
    
    1,102
    
    
    
    789
    
    
    
    313Rent
    
    
    246
    
    
    
    393
    
    
    
    (147
    )Other
    
    
    14,317
    
    
    
    14,373
    
    
    
    (56
    )$
    21,216
    
    
    $
    21,151
    
    
    $
    65
  Depreciation and Amortization.
 Interest Expense. ,
 Other income.
 Minority interest.
 Provision for Income Taxes.
  31




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##### Table of Contents



Liquidity and Capital Resources
 Fiscal year ended June 30, 2009
    .
   Fiscal year ended June 30, 2008
    32




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##### Table of Contents



Fiscal year ended June 30, 2007
    Contractual Obligations
   33




---



##### Table of Contents



Summary of Contractual Obligations
At June 30, 2009
(Dollars in thousands)
 Payments Due By PeriodLess than
    
    
    1 to 3
    
    
    3 to 5
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 year
    
    
    Years
    
    
    Years
    
    
    5 yearsLines of credit(1)
    
    $
    20,042
    
    
    $
    20,042
    
    
    $
    
    
    
    $
    
    
    
    $
    Note payable
    
    $
    10,317
    
    
    $
    494
    
    
    $
    1,089
    
    
    $
    1,240
    
    
    $
    7,493Operating lease obligations
    
    $
    2,461
    
    
    $
    727
    
    
    $
    1,239
    
    
    $
    495
    
    
    $
    Capital lease obligations
    
    $
    69
    
    
    $
    48
    
    
    $
    21
    
    
    $
    
    
    
    $
    Guaranteed royalties
    
    $
    199
    
    
    $
    90
    
    
    $
    109
    
    
    $
    
    
    
    $
    Assumed interest(2)
    
    $
    4,716
    
    
    $
    1,017
    
    
    $
    1,211
    
    
    $
    1,060
    
    
    $
    1,428Woodard Restructuring
    
    $
    155
    
    
    $
    155
    
    
    $
    
    
    
    $
    
    
    
    $
    Teiber consulting agreement
    
    $
    67
    
    
    $
    67
    
    
    $
    
    
    
    $
    
    
    
    $
    Contingent consideration(3)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Liability for uncertain tax
positions(4)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Total
    
    $
    38,025
    
    
    $
    22,639
    
    
    $
    3,669
    
    
    $
    2,795
    
    
    $
    8,921
 (1)
    
    Based on Frost line of credit in place at June 30, 2009. As of July 10, 2009 Frost
line of credit has been replaced with a new line of credit with Bank of America providing up to
$40,000,000 in revolving loans, supplemented by a $3,500,000 note with Frost.(2)
    
    Assumed interest calculated at the interest rate in effect at June 30, 2009 for each
obligation.(3)
    
    The Company is contractually obligated to pay contingent consideration based on
future levels of adjusted gross profit in connection with its acquisition of Marketing Impressions.
We have not estimated the amounts of these payments given their
contingent nature.(4)
    
    The Company has accrued certain liabilities related to
uncertain tax positions, per FIN 48. Given the contingent amouts and timing of these liabilities, we have not included them here. Lines of Credit and Notes Payable
  Summary of Long Term Obligations
(Dollars in thousands)
 Outstanding
    
    
    OutstandingBalance
    
    
    Balance
    
    
    CurrentCommitment
    
    
    June 30, 2009
    
    
    June 30, 2008
    
    
    Interest Rate
    
    
    MaturityRevolving line of credit(1)
    
    $
    50,000
    
    
    $
    20,042
    
    
    $
    17,374
    
    
    LIBOR plus 1.50%
    
    December 31, 2009Note payable  facility
    
    
    n/a
    
    
    
    10,317
    
    
    
    10,779
    
    
    
    6.5
    %
    
    December 10, 2017Capital lease obligation
    
    
    n/a
    
    
    
    69
    
    
    
    113
    
    
    
    7.6
    %
    
    November 5, 2010Sub-total
    
    
    
    
    
    
    30,428
    
    
    
    28,266Less: current amounts due
    
    
    
    
    
    
    (542
    )
    
    
    (507
    )Long-term obligations
    
    
    
    
    
    $
    29,886
    
    
    $
    27,759
 (1)
    
    Based on Frost line of credit in place at June 30, 2009. As
of July 10, 2009 Frost line of credit has been replaced with a new line of
credit with Bank of America providing up to $40,000,000 in revolving loans,
supplemented by a $3,500,000 note with Frost.   34




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##### Table of Contents



Operating and Capital Lease Obligations
   35




---



##### Table of Contents



Guaranteed Royalties
  Inflation
  Effects of Recent Accounting Pronouncements
      36




---



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Related Party Transactions
     37




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 Foreign Currency Risk
  Interest Rate Exposure
  
 Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A(T). Controls and Procedures.
 (a)
    
    Evaluation of Disclosure Controls and ProceduresAs of the end of the period covered by this report, the Companys management conducted an
evaluation, under the supervision and with the participation of the principal executive
officer and principal financial officer, of the Companys disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).Based on this evaluation, the principal executive officer and principal financial officer
concluded that, as of the end of the period covered by this report, the Companys
disclosure controls and procedures are effective. Notwithstanding the foregoing, a control
system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that it will detect or uncover failures within the Company to disclose
material information otherwise required to be set forth in the Companys periodic reports.
  38




---



##### Table of Contents



(b)
    
    Managements Annual Report on Internal Control Over Financial ReportingThe Companys management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f).
Under the supervision and with the participation of management, including the principal
executive officer and principal financial officer, the Company conducted an evaluation of
the effectiveness of the Companys internal control over financial reporting based on the
framework in Internal Control  Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.Based on the Companys evaluation under the framework in Internal Control  Integrated
Framework, the Companys management concluded that its internal control over financial
reporting was effective as of June 30, 2009.(c)
    
    This annual report does not include an attestation report of the Companys registered
public accounting firm regarding internal control over financial reporting. Managements
report was not subject to attestation by the Companys registered public accounting firm
pursuant to the temporary rules of the SEC that permit the Company to provide only
managements report in this annual report.(d)
    
    Changes in Internal Control Over Financial ReportingDuring the quarter ended June 30, 2009, there were no changes in our internal control over
financial reporting identified in connection with the evaluation described above that have
materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
 
 Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
  
 Item 11. Executive Compensation.
  
  39




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  Equity Compensation Plan Information
 Number ofSecuritiesNumber of
    
    
    
    
    
    
    RemainingSecurities
    
    
    Weighted-
    
    
    Availableto be Issued
    
    
    Average
    
    
    for FutureUpon
    
    
    Exercise
    
    
    IssuanceExercise of
    
    
    Price of
    
    
    Under EquityOutstanding
    
    
    Outstanding
    
    
    CompensationPlan Category
    
    Options (#)
    
    
    Options ($)
    
    
    Plans (#)1999 Stock Option Plan
    
    
    3,500
    
    
    $
    6.75
    
    
    
    2000 Non-Employee Director Plan
    
    
    15,000
    
    
    
    18.48
    
    
    
    2007 Long-Term Incentive Plan
    
    
    140,700
    
    
    
    13.17
    
    
    
    239,500Total
    
    
    159,200
    
    
    $
    13.53
    
    
    
    239,500
  
 Item 13.  Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14. Principal Accounting Fees and Services.
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (a)
    
    The following documents are filed as part of this report:
 1.
    
    Consolidated Financial Statements  The consolidated financial statements
listed in the Index to Consolidated Financial Statements described at F-1 are
incorporated by reference herein.
 2.
    
    Financial Statement Schedule  The financial statement schedule Schedule II
  Valuation and Qualifying Accounts on page F-42 is incorporated by reference
herein. All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
 3.
    
    Exhibits  Certain of the exhibits to this Annual Report are hereby
incorporated by references, as summarized in (b) below.
 (b)
    
    ExhibitsA list of exhibits required to be filed as part of this report is set forth in the Exhibit
Index immediately following the Consolidated Financial Statements filed as part of this
report on Form 10-K and is
incorporated herein by reference.(c)
    
    All other financial statement schedules have been omitted since they are either not
required, not applicable or the required information is shown in the financial statements
or related notes.
  40




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##### Table of Contents



SIGNATURES
   By:
    
    /s/ J. Marcus ScrudderJ. Marcus ScrudderChief Executive Officer
  Signatures
    
    Capacity
    
    Date/s/ James R. Ridings

James R. Ridings
    
    Chairman of the Board
    
    September 28, 2009/s/ J. Marcus Scrudder

J. Marcus Scrudder
    
    Chief Executive Officer
(Principal Executive Officer)
    
    September 28, 2009/s/ C. Brett Burford

C. Brett Burford
    
    Chief Financial Officer

(Principal Financial and Accounting Officer)
    
    September 28, 2009/s/ William E. Bucek

William E. Bucek
    
    Director
    
    September 28, 2009/s/ A. Paul Knuckley

A. Paul Knuckley
    
    Director
    
    September 28, 2009/s/ R. Don Morris

R. Don Morris
    
    Director
    
    September 28, 2009/s/ Lary Snodgrass

Lary Snodgrass
    
    Director
    
    September 28, 2009
  41




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Statements of Operations
    
    
    F-3Consolidated Balance Sheets
    
    
    F-4Consolidated Statements of Cash Flows
    
    
    F-5Consolidated Statements of Changes in Stockholders Equity
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9Financial Statement Schedule:II  Valuation and Qualifying Accounts
    
    
    F-42
  F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 
  F-2




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007Net sales
    
    $
    149,692
    
    
    $
    137,590
    
    
    $
    103,350Cost of goods sold
    
    
    (117,472
    )
    
    
    (102,677
    )
    
    
    (71,059
    )Gross profit
    
    
    32,220
    
    
    
    34,913
    
    
    
    32,291Gross profit as a percentage of net sales
    
    
    21.5
    %
    
    
    25.4
    %
    
    
    31.2
    %Selling, general and administrative expenses
    
    
    (30,340
    )
    
    
    (28,117
    )
    
    
    (21,151
    )Depreciation and amortization
    
    
    (1,076
    )
    
    
    (869
    )
    
    
    (799
    )Total operating expenses
    
    
    (31,416
    )
    
    
    (28,986
    )
    
    
    (21,950
    )Income from operations
    
    
    804
    
    
    
    5,927
    
    
    
    10,341Interest expense, net
    
    
    (1,438
    )
    
    
    (1,489
    )
    
    
    (1,441
    )Other income (expense)
    
    
    (142
    )
    
    
    140
    
    
    
    Income (loss) before income taxes and minority interest
    
    
    (776
    )
    
    
    4,578
    
    
    
    8,900Income tax (expense) / benefit
    
    
    409
    
    
    
    (1,174
    )
    
    
    (1,482
    )Income (loss) before minority interest
    
    
    (367
    )
    
    
    3,404
    
    
    
    7,418Minority interest
    
    
    (721
    )
    
    
    (1,292
    )
    
    
    (1,507
    )Net income (loss)
    
    $
    (1,088
    )
    
    $
    2,112
    
    
    $
    5,911Earnings (loss) per share data:Basic weighted average common shares outstanding
    
    
    5,705
    
    
    
    5,450
    
    
    
    5,204Diluted weighted average common shares outstanding
    
    
    5,705
    
    
    
    5,451
    
    
    
    5,206Basic earnings (loss) per share
    
    $
    (0.19
    )
    
    $
    0.39
    
    
    $
    1.14Diluted earnings (loss) per share
    
    $
    (0.19
    )
    
    $
    0.39
    
    
    $
    1.14Cash dividends declared per common share
    
    $
    
    
    
    $
    0.36
    
    
    $
    0.48
   F-3




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share data)
 June 30,
    
    
    June 30,2009
    
    
    2008ASSETSCurrent assetsCash
    
    $
    384
    
    
    $
    1,269Accounts receivable, net
    
    
    25,290
    
    
    
    23,644Inventories, net
    
    
    20,563
    
    
    
    22,420Income taxes receivable
    
    
    1,780
    
    
    
    1,485Deferred income taxes
    
    
    1,367
    
    
    
    1,332Prepaid expenses and other current assets
    
    
    2,443
    
    
    
    2,574Total current assets
    
    
    51,827
    
    
    
    52,724Property and equipment, net
    
    
    11,141
    
    
    
    11,060Goodwill
    
    
    14,947
    
    
    
    14,419Other intangibles, net
    
    
    1,097
    
    
    
    1,300Other assets
    
    
    1,856
    
    
    
    2,457Total non-current assets
    
    
    29,041
    
    
    
    29,236Total assets
    
    $
    80,868
    
    
    $
    81,960LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS EQUITYCurrent liabilitiesBook overdrafts
    
    $
    8
    
    
    $
    182Accounts payable
    
    
    7,231
    
    
    
    8,411Other accrued expenses
    
    
    2,422
    
    
    
    3,329Current portion of long-term obligations
    
    
    542
    
    
    
    507Total current liabilities
    
    
    10,203
    
    
    
    12,429Non-current liabilitiesLong-term obligations
    
    
    29,886
    
    
    
    27,759Deferred income taxes
    
    
    1,122
    
    
    
    1,117Total non-current liabilities
    
    
    31,008
    
    
    
    28,876Total liabilities
    
    
    41,211
    
    
    
    41,305Minority interests
    
    
    3,532
    
    
    
    3,562Stockholders equityCommon stock, $0.01 par value, 15,000,000 shares authorized;
10,204,420 and 10,204,420 shares issued, respectively
    
    
    102
    
    
    
    102Additional paid-in capital
    
    
    22,335
    
    
    
    22,215Retained earnings
    
    
    51,814
    
    
    
    52,902Less: treasury stock, 4,499,920 common shares at cost
    
    
    (38,126
    )
    
    
    (38,126
    )Total stockholders equity
    
    
    36,125
    
    
    
    37,093Total liabilities, minority interests and stockholders equity
    
    $
    80,868
    
    
    $
    81,960
   F-4




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    (1,088
    )
    
    $
    2,112
    
    
    $
    5,911Adjustments to reconcile net income (loss) to net
cash provided (used in) by operating activities:Depreciation and amortization, including amounts in Cost of Sales
    
    
    1,341
    
    
    
    953
    
    
    
    799Provision for bad debt and inventories
    
    
    488
    
    
    
    203
    
    
    
    136(Gain) / loss on sale of property and equipment
    
    
    32
    
    
    
    (6
    )
    
    
    7Stock compensation expense
    
    
    120
    
    
    
    110
    
    
    
    64Deferred income taxes
    
    
    (30
    )
    
    
    (71
    )
    
    
    763Minority interest
    
    
    721
    
    
    
    1,292
    
    
    
    1,507Change in assets and liabilities, net of a business
acquired, providing/(using) cashAccounts receivable
    
    
    (1,979
    )
    
    
    6,924
    
    
    
    1,854Inventories
    
    
    1,703
    
    
    
    3,888
    
    
    
    2,908Prepaid expenses and other current assets
    
    
    732
    
    
    
    460
    
    
    
    (300
    )Accounts payable
    
    
    (1,249
    )
    
    
    (3,316
    )
    
    
    (2,882
    )Other accrued expenses
    
    
    (1,200
    )
    
    
    (771
    )
    
    
    (3,725
    )Net cash provided by (used in) operating activities
    
    
    (409
    )
    
    
    11,778
    
    
    
    7,042Cash flows from investing activities:Acquisition of assets of Woodard, LLC
    
    
    
    
    
    
    (15,498
    )
    
    
    Acquisition of Marketing Impressions, Inc.Initial payment and acquisition related costs, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (1,507
    )Additional contingent consideration
    
    
    (619
    )
    
    
    (698
    )
    
    
    (1,601
    )Additions to property, equipment and tooling
    
    
    (1,094
    )
    
    
    (655
    )
    
    
    (499
    )Net cash used in investing activities
    
    
    (1,713
    )
    
    
    (16,851
    )
    
    
    (3,607
    )Cash flows from financing activities:Cash dividends
    
    
    
    
    
    
    (2,560
    )
    
    
    (2,498
    )Distributions to minority interest members
    
    
    (750
    )
    
    
    (1,225
    )
    
    
    (1,674
    )Proceeds from note payable  facility
    
    
    
    
    
    
    11,000
    
    
    
    Payments on notes
    
    
    (459
    )
    
    
    (443
    )
    
    
    (1,134
    )Increase/(decrease) in book overdrafts
    
    
    (174
    )
    
    
    134
    
    
    
    (22
    )Proceeds from exercise of employee stock options
    
    
    
    
    
    
    
    
    
    
    10Principal payments on capital lease
    
    
    (48
    )
    
    
    (41
    )
    
    
    (24
    )Proceeds from lines of credit
    
    
    98,419
    
    
    
    73,355
    
    
    
    18,252Payments on lines of credit
    
    
    (95,751
    )
    
    
    (74,806
    )
    
    
    (17,581
    )Net cash provided by/(used in) financing activities
    
    
    1,237
    
    
    
    5,414
    
    
    
    (4,671
    )Net increase/(decrease) in cash
    
    
    (885
    )
    
    
    341
    
    
    
    (1,236
    )Cash at beginning of year
    
    
    1,269
    
    
    
    928
    
    
    
    2,164Cash at end of year
    
    $
    384
    
    
    $
    1,269
    
    
    $
    928
   F-5




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  CONTINUED
(In thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007Supplemental disclosures of cash flow information:Cash paid during the fiscal year for:Interest
    
    $
    1,484
    
    
    $
    1,557
    
    
    $
    1,316Income taxes
    
    
    353
    
    
    
    1,518
    
    
    
    2,719Supplemental disclosures of non-cash investing and financing activities:Additional contingent consideration not paid
    
    $
    90
    
    
    $
    77
    
    
    $
    Dividends declared but not paid
    
    
    
    
    
    
    
    
    
    
    625Property and equipment financed under capital lease
    
    
    
    
    
    
    
    
    
    
    177Common stock and warrants
issued in conjunction with acquisition
    
    $
    
    
    
    $
    4,279
    
    
    $
    
   F-6




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 FOR THE THREE YEARS ENDED JUNE 30, 2009
 (In thousands)
 Series A
    
    
    AdditionalCommon Stock
    
    
    Preferred
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury StockShares
    
    
    Amount
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    TotalBalance as of June 30, 2006
    
    
    9,703
    
    
    $
    97
    
    
    $
    
    
    
    $
    17,757
    
    
    $
    49,309
    
    
    
    4,500
    
    
    $
    (38,126
    )
    
    $
    29,037Comprehensive income:Net income for the fiscal year ended June 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,911
    
    
    
    
    
    
    
    
    
    
    
    5,911Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,911
    
    
    
    
    
    
    
    
    
    
    
    5,911Exercise of stock options, net of tax benefit
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Stock-based compensation charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,498
    )
    
    
    
    
    
    
    
    
    
    
    (2,498
    )Balance as of June 30, 2007
    
    
    9,704
    
    
    $
    97
    
    
    $
    
    
    
    $
    17,831
    
    
    $
    52,722
    
    
    
    4,500
    
    
    $
    (38,126
    )
    
    $
    32,524Comprehensive income:Net income for the fiscal year ended June 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,112
    
    
    
    
    
    
    
    
    
    
    
    2,112Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,112
    
    
    
    
    
    
    
    
    
    
    
    2,112Stock and warrants issued to Forwoodco, LLC
    
    
    500
    
    
    
    5
    
    
    
    
    
    
    
    4,274
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,279Stock-based compensation charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,932
    )
    
    
    
    
    
    
    
    
    
    
    (1,932
    )Balance as of June 30, 2008
    
    
    10,204
    
    
    $
    102
    
    
    $
    
    
    
    $
    22,215
    
    
    $
    52,902
    
    
    
    4,500
    
    
    $
    (38,126
    )
    
    $
    37,093
   F-7




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY  CONTINUED
FOR THE THREE YEARS ENDED JUNE 30, 2009  CONTINUED
(In thousands)
 Series A
    
    
    AdditionalCommon Stock
    
    
    Preferred
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury StockShares
    
    
    Amount
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    TotalBalance as of June 30, 2008
    
    
    10,204
    
    
    $
    102
    
    
    $
    
    
    
    $
    22,215
    
    
    $
    52,902
    
    
    
    4,500
    
    
    $
    (38,126
    )
    
    $
    37,093Comprehensive loss:Net loss for the fiscal year ended June 30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,088
    )
    
    
    
    
    
    
    
    
    
    
    (1,088
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,088
    )
    
    
    
    
    
    
    
    
    
    
    (1,088
    )Stock-based compensation charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120Balance as of June 30, 2009
    
    
    10,204
    
    
    $
    102
    
    
    $
    
    
    
    $
    22,335
    
    
    $
    51,814
    
    
    
    4,500
    
    
    $
    (38,126
    )
    
    $
    36,125
   F-8




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 1
 Organization and Nature of the Company
    Note 2  Summary of Significant Accounting Policies
 Basis of presentation 
 Accounts receivable 
 Summary of Accounts Receivable
(Dollars in thousands)
 June 30,
    
    
    June 30,2009
    
    
    2008Accounts receivable
    
    $
    23,062
    
    
    $
    21,623Other receivables
    
    
    2,769
    
    
    
    2,405Allowance for doubtful accounts
    
    
    (541
    )
    
    
    (384
    )Net accounts receivable
    
    $
    25,290
    
    
    $
    23,644
   F-9




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Concentration of credit risk 
 Lowes
    
    
    CostcoPercent of
    
    
    Percent of
    
    
    Percent of
    
    
    Percent ofMass
    
    
    Consolidated
    
    
    Mass
    
    
    ConsolidatedFiscal Year Ended
    
    Net Sales
    
    
    Net Sales
    
    
    Net Sales
    
    
    Net SalesJune 30, 2008
    
    
    44
    %
    
    
    24
    %
    
    
    9
    %
    
    
    5
    %June 30, 2008
    
    
    41
    %
    
    
    19
    %
    
    
    14
    %
    
    
    6
    %June 30, 2007
    
    
    70
    %
    
    
    29
    %
    
    
    0
    %
    
    
    0
    %
 Inventories 
 Summary of Inventory
(Dollars in thousands)
 June 30,
    
    
    June 30,2009
    
    
    2008Raw materials
    
    $
    5,728
    
    
    $
    6,212Work in process
    
    
    622
    
    
    
    936Finished goods
    
    
    14,213
    
    
    
    15,272Total
    
    $
    20,563
    
    
    $
    22,420
  F-10




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Property and equipment 
 (Dollars in thousands)
 June 30,
    
    
    June 30,2009
    
    
    2008Land
    
    $
    1,761
    
    
    $
    1,761Buildings
    
    
    10,499
    
    
    
    10,341Office furniture and equipment
    
    
    5,184
    
    
    
    4,841Leasehold improvements
    
    
    440
    
    
    
    211Gross property and equipment
    
    
    17,884
    
    
    
    17,154Accumulated depreciation
    
    
    (6,743
    )
    
    
    (6,094
    )Net property and equipment
    
    $
    11,141
    
    
    $
    11,060
  Buildings
    
    
    40 yearsOffice furniture and equipment
    
    
    2 to 7 years
   2009
    
    
    2008
    
    
    2007Depreciation of property and equipment
    
    $
    1,139
    
    
    $
    751
    
    
    $
    601Amortization of intangibles
    
    
    203
    
    
    
    202
    
    
    
    198$
    1,342
    
    
    $
    953
    
    
    $
    799
  Impairment of long-lived assets 
  F-11




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Goodwill and other intangible assets 
 Speciality
    
    
    Mass
    
    
    TotalJune 30, 2008
    
    $
    6,745
    
    
    $
    7,674
    
    
    $
    14,419Acquisition of Marketing Impressions
    
    
    
    
    
    
    529
    
    
    
    529June 30, 2009
    
    $
    6,745
    
    
    $
    8,203
    
    
    $
    14,948
       F-12




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    Summary of Intangible Assets
(Dollars in thousands)
 June 30,
    
    
    June 30,2009
    
    
    2008Non-compete covenants
    
    $
    1,020
    
    
    $
    1,020Patents and trademarks
    
    
    720
    
    
    
    720Gross intangible assets
    
    
    1,740
    
    
    
    1,740Accumulated amortization
    
    
    (643
    )
    
    
    (440
    )Net intangible assets
    
    $
    1,097
    
    
    $
    1,300
  Summary of Future Amortization Expense
(Dollars in Thousands)
 Fiscal Year EndingJune 30, 2010
    
    $
    188June 30, 2011
    
    
    188June 30, 2012
    
    
    179June 30, 2013
    
    
    164June 30, 2014
    
    
    47Thereafter
    
    
    331$
    1,097
  F-13




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Other accrued expenses
 Summary of Other Accrued Expenses
(Dollars in Thousands)
 June 30,
    
    
    June 30,2009
    
    
    2008Accrued customer allowances
    
    $
    729
    
    
    $
    834Commissions payable
    
    
    331
    
    
    
    611Accrued payroll
    
    
    555
    
    
    
    752Restructuring reserve, net of taxes
    
    
    97
    
    
    
    443Co-op advertising allowance
    
    
    350
    
    
    
    353Other current liabilities
    
    
    360
    
    
    
    336Other accrued expenses
    
    $
    2,422
    
    
    $
    3,329
 Returns
 Sales Returns Allowance
(Dollars in thousands)
 June 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007Beginning of year balance
    
    $
    77
    
    
    $
    91
    
    
    $
    87Provision for estimated returns
    
    
    941
    
    
    
    909
    
    
    
    1,025Return credits issued
    
    
    (950
    )
    
    
    (923
    )
    
    
    (1,021
    )End of year balance
    
    $
    68
    
    
    $
    77
    
    
    $
    91
 Product warranties 
 Product Warranty Reserves
(Dollars in thousands)
 June 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007Beginning of year balance
    
    $
    774
    
    
    $
    177
    
    
    $
    169Woodard Opening Reserve
    
    
    
    
    
    
    584
    
    
    
    Provision for estimated expenses
    
    
    1,436
    
    
    
    1,720
    
    
    
    1,147Warranty claims paid
    
    
    (1,890
    )
    
    
    (1,707
    )
    
    
    (1,139
    )End of year balance
    
    $
    320
    
    
    $
    774
    
    
    $
    177
  F-14




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Income taxes 
  Revenue recognition 
    F-15




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   Variable interest entities
  before
  F-16




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 2009
(Dollars in thousands)
 Craftmade
    
    
    DesignWholly Owned
    
    
    Trends
    
    
    ConsolidatedTotal assets
    
    $
    62,892
    
    
    $
    17,976
    
    
    $
    80,868Total liabilities
and minority interests
    
    $
    43,112
    
    
    $
    1,631
    
    
    $
    44,743Total stockholders equity
    
    
    19,780
    
    
    
    16,345
    
    
    
    36,125Total liabilities
and stockholders equity
    
    $
    62,892
    
    
    $
    17,976
    
    
    $
    80,868
 AS OF JUNE 30, 2008
(Dollars in thousands)
 Craftmade
    
    
    DesignWholly Owned
    
    
    Trends
    
    
    ConsolidatedTotal assets
    
    $
    65,815
    
    
    $
    16,145
    
    
    $
    81,960Total liabilities
and minority interests
    
    $
    44,346
    
    
    $
    521
    
    
    $
    44,867Total stockholders equity
    
    
    21,469
    
    
    
    15,624
    
    
    
    37,093Total liabilities
and stockholders equity
    
    $
    65,815
    
    
    $
    16,145
    
    
    $
    81,960
  F-17




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Advertising costs 
 Advertising
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007Advertising expense
    
    $
    3,447
    
    
    $
    3,484
    
    
    $
    2,161Prepaid advertising costs
    
    
    920
    
    
    
    699
    
    
    
    407
 Research and development 
 Research and Development
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007Research and development
    
    $
    221
    
    
    $
    184
    
    
    $
    265
 Stock-based compensation
  Stock-Based Compensation Expense
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007Stock-based compensation expense recognized:Selling, general & administrative
    
    $
    120
    
    
    $
    110
    
    
    $
    64
  F-18




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Future Stock-Based Compensation Expense
(Dollars in thousands)
 ExpectedFutureCompensationFiscal Year Ending
    
    CostJune 30, 2010
    
    $
    117June 30, 2011
    
    
    72June 30, 2012
    
    
    17June 30, 2013
    
    
    $
    206
 Use of estimates 
 Subsequent Events 
 Effects of recent accounting pronouncements
    F-19




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      Dividend Policy
   F-20




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Related Party Transactions
     Fair Value of Financial Instruments
   F-21




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Earnings Per Share
  Reclassifications
  Note 3  Acquisitions
 Acquisition of Certain Assets of Woodard, LLC.
    F-22




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 Cash paid at closing
    
    $
    16,168GAAP value of 500,000 shares issued
    
    
    4,000
    (1)Value of 200,000 Warrants
    
    
    279
    (2)Purchase price adjustment (Settled April, 2008)
    
    
    (1,272
    )Total consideration
    
    $
    19,175
 (1)
    
    The value of the 500,000 shares of Common Stock was based on the average closing
prices of the Common Stock, for the two days before, the day of, and the two days after
the date of the announcement of the merger or $8.00 per share.(2)
    
    The 200,000 Warrants were valued using the Black-Scholes calculation at a Warrant
price of $1.39 per share using the following assumptions: Expected volatility
    
    
    33
    %Risk-free interest rate
    
    
    3.81
    %Expected lives
    
    10 yearsDividend yield
    
    
    5.8
    %
    F-23




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Purchase Price Allocation
 Initial estimated purchase price
    
    
    
    
    
    $
    20,168Less: Working capital adjustment
    
    
    
    
    
    
    (1,272
    )Value of warrants
    
    
    
    
    
    
    279Total Purchase Consideration
    
    
    
    
    
    
    19,175Acquired Assets (Adjusted to estimated fair value)Accounts receivable, net
    
    $
    12,708Inventories, net
    
    
    8,212Prepaid expenses and other current assets
    
    
    2,450Plant, property and equipment
    
    
    2,929Other assets
    
    
    1,528Total Assets
    
    
    
    
    
    
    27,827Assumed LiabilitiesAccounts payable
    
    $
    5,852Other accrued expenses
    
    
    1,702Other liabilities incurred during transactionProfessional fees associated with acquisition
    
    
    655Restructuring reserve
    
    
    692Deferred tax asset for restructuring reserve
    
    
    (249
    )Total Liabilities
    
    
    
    
    
    
    8,652Total Purchase Price
    
    
    
    
    
    $
    19,175
    F-24




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Unaudited Pro Forma Results
(In thousands, except per share data)
 Fiscal Year EndedJune 30,
    
    
    June 30,2009
    
    
    2008Net salesAs reported
    
    $
    149,692
    
    
    $
    137,590Pro forma
    
    
    149,692
    
    
    
    164,590Net incomeAs reported
    
    $
    (1,088
    )
    
    $
    2,112Pro forma
    
    
    (1,088
    )
    
    
    860Basic earnings per shareAs reported
    
    $
    (0.19
    )
    
    $
    0.39Pro forma
    
    $
    (0.19
    )
    
    $
    0.14Diluted earnings per shareAs reported
    
    $
    (0.19
    )
    
    $
    0.39Pro forma
    
    $
    (0.19
    )
    
    $
    0.14
   Acquisition of Marketing Impressions, Inc.
   F-25




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  before
  Purchase Price Summary
(Dollars in thousands)
 As of June 30, 2009:Amount paid at closing, net of cash acquired
    
    $
    1,287Contingent payments earned
    
    
    2,954Acquisition-related costs
    
    
    220Total consideration as of June 30, 2009
    
    $
    4,461Percent of Adjusted Gross Profit
July 1, 2006 to August 31, 2011
    
    
    22
    %Additonal Percent of Adjusted Gross Profit
July 1, 2006 to June 30, 2007 (not to exceed $750)
    
    
    15
    %
 Business Combinations
  F-26




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Purchase Price Allocation
(Dollars in thousands)
 Assets:Accounts receivable
    
    $
    368Inventory
    
    
    2Property and equipment
    
    
    214Deferred tax assets
    
    
    70Acquired intangibles
    
    
    1,530Goodwill
    
    
    2,1644,348Liabilities:Accounts payable
    
    
    1,120Note payable and other liabilities
    
    
    241,144Total purchase price as of June 30, 2007
    
    $
    3,204
  Summary of Acquired Intangibles
(Dollars in thousands)
 Life
    
    
    Grossin Years
    
    
    AmountPatents and trademarks
    
    
    15
    
    
    $
    710Non-compete covenants
    
    
    7
    
    
    
    820$
    1,530
   F-27




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 4
 Long-Term Obligations
  Summary of Long Term Obligations  (Dollars in thousands)
 Outstanding
    
    
    OutstandingBalance
    
    
    Balance
    
    
    CurrentCommitment
    
    
    June 30, 2009
    
    
    June 30, 2008
    
    
    Interest Rate
    
    
    MaturityRevolving line of credit (1)
    
    $
    50,000
    
    
    $
    20,042
    
    
    $
    17,374
    
    
    LIBOR plus 1.50%
    
    December 31, 2009Note payable  facility
    
    
    n/a
    
    
    
    10,317
    
    
    
    10,779
    
    
    
    6.5
    %
    
    December 10, 2017Capital lease obligation
    
    
    n/a
    
    
    
    69
    
    
    
    113
    
    
    
    7.6
    %
    
    November 5, 2010Sub-total
    
    
    
    
    
    
    30,428
    
    
    
    28,266Less: current amounts due
    
    
    
    
    
    
    (542
    )
    
    
    (507
    )Long-term obligations
    
    
    
    
    
    $
    29,886
    
    
    $
    27,759
 (1)
    
    Based on Frost line of credit in place at June 30, 2009.
As of July 10, 2009 Frost line of credit has been replaced with a new line
of credit with Bank of America providing up to $40,000,000 in revolving
loans, supplemented by a $3,500,000 note with Frost.     F-28




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       Schedule of Maturities
(Dollars in thousands)
 Line of
    
    
    Note
    
    
    CapitalFiscal Year Ended
    
    Credit(1)
    
    
    Payable
    
    
    Lease
    
    
    TotalJune 30, 2010
    
    $
    20,042
    
    
    $
    494
    
    
    $
    48
    
    
    $
    20,584June 30, 2011
    
    
    
    
    
    
    527
    
    
    
    21
    
    
    
    548June 30, 2012
    
    
    
    
    
    
    562
    
    
    
    
    
    
    
    562June 30, 2013
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    600June 30, 2014
    
    
    
    
    
    
    640
    
    
    
    
    
    
    
    640Thereafter
    
    
    
    
    
    
    7,494
    
    
    
    
    
    
    
    7,494$
    20,042
    
    
    $
    10,317
    
    
    $
    69
    
    
    $
    30,428
 (1)
    
    Based on Frost line of credit in place at June 30, 2009. As of July
10, 2009 Frost line of credit has been replaced with a new line of credit with
Bank of America providing up to $40,000,000 in revolving loans, supplemented by a
$3,500,000 note with Frost.  F-29




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 5
 Income Taxes
  Provision for Income Taxes
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007Current expense/(benefit):Federal
    
    $
    (437
    )
    
    $
    1,246
    
    
    $
    1,003State
    
    
    92
    
    
    
    57
    
    
    
    (427
    )Foreign
    
    
    (33
    )
    
    
    42
    
    
    
    143Total current expense/(benefit):
    
    
    (378
    )
    
    
    1,345
    
    
    
    719Deferred expense/(benefit)
    
    
    (31
    )
    
    
    (171
    )
    
    
    763Provision for income tax
expense/(benefit)
    
    $
    (409
    )
    
    $
    1,174
    
    
    $
    1,482
    F-30




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Summary of Deferred Taxes 
(Dollars in thousands)
 June 30,
    
    
    June 30,2009
    
    
    2008Inventories
    
    $
    347
    
    
    $
    403Investment in 50% owned LLCs
    
    
    178
    
    
    
    186Reserves and accruals
    
    
    194
    
    
    
    216Accounts receivable reserves
    
    
    294
    
    
    
    131State refund claims, net of federal tax
    
    
    19
    
    
    
    100Net operating loss carryforwards
    
    
    77
    
    
    
    24Other
    
    
    102
    
    
    
    83Valuation allowance
    
    
    (78
    )
    
    
    (100
    )Total deferred tax assets
    
    
    1,133
    
    
    
    1,043Depreciation and amortization
    
    
    (771
    )
    
    
    (671
    )Foreign taxes
    
    
    (117
    )
    
    
    (157
    )Total deferred tax liabilities
    
    
    (888
    )
    
    
    (828
    )Net deferred tax asset/(liability)
    
    $
    245
    
    
    $
    215
   Reconciliation of Federal Tax Rate to Effective Tax Rate
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007Tax at the statutory corporate rate
    
    $
    (264
    )
    
    $
    1,557
    
    
    $
    3,026Less: federal income tax attributable to minority interest
    
    
    (242
    )
    
    
    (439
    )
    
    
    (459
    )Foreign tax rate under federal statutory rate(1)
    
    
    31
    
    
    
    (40
    )
    
    
    (905
    )Federal taxes on anticipated repatriation of foreign earnings
    
    
    (31
    )
    
    
    40
    
    
    
    147State income taxes, net of federal benefit(2)
    
    
    74
    
    
    
    28
    
    
    
    (314
    )Other
    
    
    23
    
    
    
    29
    
    
    
    (13
    )Provision for income taxe expense (benefit)
    
    $
    (409
    )
    
    $
    1,174
    
    
    $
    1,482
 (1)
    
    The foreign tax rate under the federal statutory rate for the fiscal
year ended June 30, 2007 includes benefits obtained from a reduction in amounts set
aside for tax contingencies of $793,000 recorded in the quarter ended June 30, 2007
and a lower foreign tax rate of approximately $112,000.(2)
    
    State income taxes, net of federal benefit for the fiscal year ended June
30, 2007, include the benefit resulting from lower state apportionment rates applied
to prior periods as a result of a change in the state tax law totaling $516,000,
offset by increases in amounts set aside for tax contingencies totaling $231,000.  F-31




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   Reconciliation of Unrecognized Tax Benefits
(Dollars in thousands)
 Increases/(Decreases) in UnrecognizedTax Benefits As a Result ofTax Positions from
    
    
    
    
    
    
    Lapse inJuly 1,
    
    
    Prior
    
    
    Current
    
    
    
    
    
    
    Statute of
    
    
    June 30,2008
    
    
    Periods
    
    
    Period
    
    
    Settlements
    
    
    Limitations
    
    
    2009Reserve for state nexus issues
    
    $
    190
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    190Valuation
allowance for Texas franchise tax refunds
    
    
    100
    
    
    
    (81
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19State net operating loss and credit carryforwards
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    
    
    
    
    56Unrecognized tax benefits
    
    $
    290
    
    
    
    (81
    )
    
    
    56
    
    
    
    
    
    
    
    
    
    
    $
    265
     F-32




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 6
 Stockholders Equity
 Stock Option Plans
    Summary of Stock Options
 Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Exercise
    
    
    AverageExercise
    
    
    Price
    
    
    RemainingShares
    
    
    Price
    
    
    Range
    
    
    Life (Years)Outstanding at June
30, 2006
    
    
    19,500
    
    
    $
    15.78Granted
    
    
    85,000
    
    
    
    18.49Exercised
    
    
    (1,000
    )
    
    
    6.75Forfeited
    
    
    (4,400
    )
    
    
    18.85Outstanding at June
30, 2007
    
    
    99,100
    
    
    
    18.06Granted
    
    
    75,500
    
    
    
    8.01Exercised
    
    
    
    
    
    
    0.00Forfeited
    
    
    (12,200
    )
    
    
    14.79Outstanding at June
30, 2008
    
    
    162,400
    
    
    
    13.63Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (3,200
    )
    
    
    18.85Outstanding at June
30, 2009
    
    
    1,59,200
    
    
    $
    13.53
    
    
    $
    6.75-$25.20
    
    
    
    7.6Exercisable at June
30, 2009
    
    
    70,975
    
    
    $
    15.27
    
    
    $
    6.75-$25.20
    
    
    
    6.8
  F-33




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Weighted-Average Stock Option Assumptions
 Fiscal
    
    
    Fiscal
    
    
    Fiscal2009
    
    
    2008
    
    
    2007Expected volatility
    
    
    
    
    
    
    33
    %
    
    
    35
    %Risk-free interest rate
    
    
    
    
    
    
    3.7
    %
    
    
    5.1
    %Expected lives
    
    
    
    
    
    4 years
    
    
    4 yearsDividend yield
    
    
    
    
    
    
    6.0
    %
    
    
    2.7
    %Weighted average fair value of options granted per share
    
    
    
    
    
    $
    1.39
    
    
    $
    4.97Total fair value of options granted
    
    $
    
    
    
    $
    105,000
    
    
    $
    422,000Total intrinsic value of stock options exercised(1)
    
    $
    
    
    
    $
    
    
    
    $
    9,000
 
 (1)
    
    Intrinsic value of stock options is calculated using
the difference between the common share price on the date of
exercise and the strike price times the number of stock options
exercised.   Stock Option Exercise Prices
 Number of SharesUnder Stock Options
    
    
    ExerciseExpiration Date
    
    Outstanding
    
    
    Exercisable
    
    
    Price10/28/2009
    
    
    3,500
    
    
    
    3,500
    
    
    $
    6.752/15/2012
    
    
    3,000
    
    
    
    3,000
    
    
    
    14.852/15/2013
    
    
    3,000
    
    
    
    3,000
    
    
    
    14.152/15/2014
    
    
    3,000
    
    
    
    3,000
    
    
    
    25.202/15/2015
    
    
    3,000
    
    
    
    3,000
    
    
    
    20.742/15/2016
    
    
    3,000
    
    
    
    3,000
    
    
    
    17.4811/27/2016
    
    
    49,200
    
    
    
    24,600
    
    
    
    18.852/4/2017
    
    
    20,000
    
    
    
    10,000
    
    
    
    17.622/5/2018
    
    
    71,500
    
    
    
    17,875
    
    
    
    8.01159,200
    
    
    
    70,975
    
    
    $
    13.53
 Retirement of Preferred Stock
   F-34




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Stockholder Rights Plan
    F-35




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 7
 Earnings Per Share
  Earnings Per Common Share
(In thousands, except per shara data)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007Basic and diluted earnings (loss) per share:NumeratorNet income (loss)
    
    $
    (1,088
    )
    
    $
    2,112
    
    
    $
    5,911Denominator for basic EPSWeighted average common shares outstanding
    
    
    5,705
    
    
    
    5,450
    
    
    
    5,204Denominator for diluted EPSWeighted average common shares outstanding
    
    
    5,705
    
    
    
    5,450
    
    
    
    5,204Incremental shares for stock options
    
    
    
    
    
    
    1
    
    
    
    2Potentially dilutive weighted average
common shares
    
    
    5,705
    
    
    
    5,451
    
    
    
    5,206Basic earnings (loss) per common share
    
    $
    (0.19
    )
    
    $
    0.39
    
    
    $
    1.14Diluted earnings (loss) per common share
    
    $
    (0.19
    )
    
    $
    0.39
    
    
    $
    1.14
 Note 8
 Commitments and Contingencies
  Rental Expense Under Operating
Leases 
(Dollars in thousands)
 Fiscal Year Ended
    
    AmountJune 30, 2009
    
    $
    1,164June 30, 2008
    
    
    628June 30, 2007
    
    
    393
  F-36




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 Future Minimum Lease and Royalty Payments
(Dollars in thousands)
 Operating
    
    
    GuaranteedFiscal Year Ended
    
    Leases
    
    
    Royalties
    
    
    TotalJune 30, 2010
    
    $
    727
    
    
    $
    90
    
    
    $
    817June 30, 2011
    
    
    670
    
    
    
    
    
    
    
    670June 30, 2012
    
    
    569
    
    
    
    
    
    
    
    569June 30, 2013
    
    
    430
    
    
    
    
    
    
    
    430June 30, 2014
    
    
    65
    
    
    
    
    
    
    
    65$
    2,461
    
    
    $
    90
    
    
    $
    2,551
    F-37




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note 9
 401(k) Defined Contribution Plan
  Contributions to 401(k) Retirement Plan
(Dollars in thousands)
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007Contributions to 401(k)
    
    $
    247
    
    
    $
    169
    
    
    $
    110
  Note
10  Segment Information
     F-38




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Summary of Reportable Segments
(Dollars in thousands)
 Specialty
    
    
    Mass
    
    
    TotalFiscal year ended June 30, 2009:Net sales
    
    $
    68,951
    
    
    $
    80,741
    
    
    $
    149,692Gross profit
    
    
    21,263
    
    
    
    10,957
    
    
    
    32,220Income from operations
    
    
    1,132
    
    
    
    (328
    )
    
    
    804Total assets
    
    
    62,632
    
    
    
    18,236
    
    
    
    80,868Fiscal year ended June 30, 2008:Net sales
    
    $
    74,878
    
    
    $
    62,712
    
    
    $
    137,590Gross profit
    
    
    23,675
    
    
    
    11,238
    
    
    
    34,913Income from operations
    
    
    3,536
    
    
    
    2,391
    
    
    
    5,927Total assets
    
    
    60,453
    
    
    
    21,507
    
    
    
    81,960Fiscal year ended June 30, 2007:Net sales
    
    $
    59,925
    
    
    $
    43,425
    
    
    $
    103,350Gross profit
    
    
    21,180
    
    
    
    11,111
    
    
    
    32,291Income from operations
    
    
    5,732
    
    
    
    4,609
    
    
    
    10,341Total assets
    
    
    53,579
    
    
    
    11,172
    
    
    
    64,751
  F-39




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Net Sales by Product Category
 Fiscal Year EndedJune 30,
    
    
    June 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2007SpecialtyCeiling fans, light kits and
blades
    
    
    16
    %
    
    
    23
    %
    
    
    37
    %Outdoor patio furniture
    
    
    20
    %
    
    
    16
    %
    
    
    0
    %Ventilation, chimes and bulbs
    
    
    4
    %
    
    
    6
    %
    
    
    10
    %Clocks and weather gauges
    
    
    1
    %
    
    
    2
    %
    
    
    3
    %Bath and outdoor lighting
    
    
    5
    %
    
    
    7
    %
    
    
    8
    %46
    %
    
    
    54
    %
    
    
    58
    %MassIndoor lighting
    
    
    10
    %
    
    
    13
    %
    
    
    23
    %Outdoor lighting
    
    
    1
    %
    
    
    2
    %
    
    
    2
    %Outdoor patio furniture
    
    
    37
    %
    
    
    22
    %
    
    
    0
    %Accessories
    
    
    6
    %
    
    
    9
    %
    
    
    17
    %54
    %
    
    
    46
    %
    
    
    42
    %100
    %
    
    
    100
    %
    
    
    100
    %
  F-40




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Note
11  Quarterly Data (Unaudited)
   Quarterly Data (Unaudited)
(In thousands, except per share data)
 Fiscal Year Ended June 30, 2009
    
    
    Fiscal Year Ended June 30, 2008(1)Fourth
    
    
    Third
    
    
    Second
    
    
    First
    
    
    
    
    
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    FirstTotal
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Total
    
    
    Quarter(2)
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterNet sales
    
    $
    149,692
    
    
    $
    30,265
    
    
    $
    52,000
    
    
    $
    37,262
    
    
    $
    30,165
    
    
    $
    137,590
    
    
    $
    39,122
    
    
    $
    54,918
    
    
    $
    20,812
    
    
    $
    22,738Gross profit
    
    
    32,220
    
    
    
    7,451
    
    
    
    8,593
    
    
    
    7,706
    
    
    
    8,470
    
    
    
    34,913
    
    
    
    10,177
    
    
    
    10,692
    
    
    
    6,534
    
    
    
    7,510Income (loss) from
operations
    
    
    804
    
    
    
    245
    
    
    
    413
    
    
    
    (189
    )
    
    
    335
    
    
    
    5,927
    
    
    
    1,185
    
    
    
    1,634
    
    
    
    1,344
    
    
    
    1,764Net income
    
    
    (1,088
    )
    
    
    (279
    )
    
    
    (135
    )
    
    
    (545
    )
    
    
    (129
    )
    
    
    2,112
    
    
    
    373
    
    
    
    639
    
    
    
    482
    
    
    
    618Basic EPS
    
    $
    (0.19
    )
    
    $
    (0.05
    )
    
    $
    (0.02
    )
    
    $
    (0.10
    )
    
    $
    (0.02
    )
    
    $
    0.39
    
    
    $
    0.07
    
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.12Diluted EPS
    
    
    (0.19
    )
    
    
    (0.05
    )
    
    
    (0.02
    )
    
    
    (0.10
    )
    
    
    (0.02
    )
    
    
    0.39
    
    
    
    0.07
    
    
    
    0.11
    
    
    
    0.09
    
    
    
    0.12Basic shares outstanding
    
    
    5,705
    
    
    
    5,705
    
    
    
    5,705
    
    
    
    5,705
    
    
    
    5,705
    
    
    
    5,450
    
    
    
    5,704
    
    
    
    5,694
    
    
    
    5,205
    
    
    
    5,205Diluted shares outstanding
    
    
    5,705
    
    
    
    5,705
    
    
    
    5,705
    
    
    
    5,705
    
    
    
    5,705
    
    
    
    5,451
    
    
    
    5,705
    
    
    
    5,700
    
    
    
    5,205
    
    
    
    5,206
 (1)
    
    Includes the results of Woodard LLC. effective January 2, 2008. See Note 3 -
Acquisitions.(2)
    
    See Note 5  Income Taxes regarding benefit obtained from a reduction in amounts
set aside for tax contingencies.  F-41




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
 
 Schedule II  Valuation and Qualifying Accounts
 Summary of Allowance for Doubtful Accounts and Inventory Obsolescence
(Dollars in thousands)
 AdditionsBalance at
    
    
    Charged
    
    
    Charged
    
    
    
    
    
    
    Balancebeginning
    
    
    to costs
    
    
    to other
    
    
    
    
    
    
    at end ofDescription
    
    of period
    
    
    and expense
    
    
    accounts
    
    
    Deductions
    
    
    periodAllowance for doubtful accounts as of:June 30, 2009
    
    $
    384
    
    
    $
    333
    
    
    $
    
    
    
    $
    (177
    )
    
    $
    541June 30, 2008
    
    
    251
    
    
    
    329
    
    
    
    
    
    
    
    (196
    )
    
    
    384June 30, 2007
    
    
    293
    
    
    
    32
    
    
    
    
    
    
    
    (74
    )(a)
    
    
    251Allowance for inventory obsolescence
as of:June 30, 2009
    
    $
    423
    
    
    $
    155
    
    
    $
    
    
    
    $
    (369
    )
    
    $
    208June 30, 2008
    
    
    403
    
    
    
    70
    
    
    
    
    
    
    
    (50
    )
    
    
    423June 30, 2007
    
    
    934
    
    
    
    104
    
    
    
    
    
    
    
    (635
    )(b)
    
    
    403
 (a)
    
    Reduction of the allowance for doubtful accounts associated with the write-off
of certain uncollectible accounts receivable balances.(b)
    
    Reduction of the allowance for inventory obsolescence associated with the
disposal or sale of certain inventory items.  F-42




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##### Table of Contents



CRAFTMADE INTERNATIONAL, INC. AND ITS SUBSIDIARIES
EXHIBIT INDEX
 ExhibitNumber
    
    Description2.1
    
    
    Asset Purchase Agreement dated as of December 18, 2007, by and among Woodard, LLC, Henry
Crown and Company d/b/a CC Industries, Inc. and Craftmade International, Inc., previously
filed as Exhibit 2.1 to Form 8-K on January 4, 2008, and incorporated by reference herein.Pursuant to Item 601(b)(2) of Regulation S-K, the Company has not filed herewith the
schedules and exhibits to the foregoing exhibit and agrees to furnish supplementally to
the Securities and Exchange Commission, upon request, any omitted schedules or similar
attachments to the foregoing exhibit.2.2
    
    
    Stock Purchase Agreement between Craftmade International, Inc., Trade Source International,
Inc., and Robert W. Lackey, dated September 15, 2006, previously filed as Exhibit 10.1 to the
Companys Form 8-K on September 18, 2006, and incorporated by reference herein.Pursuant to Item 601(b)(2) of Regulation S-K, the Company has not filed herewith the
schedules and exhibits to the foregoing exhibit and agrees to furnish supplementally to
the Securities and Exchange Commission, upon request, any omitted schedules or similar
attachments to the foregoing exhibit.2.3
    
    
    Agreement for the Purchase and Sale of Personal Goodwill between Trade Source
International, Inc. and Robert Lackey, dated September 15, 2006, previously filed as
Exhibit 10.2 to the Companys Form 8-K on September 18, 2006, and incorporated by reference
herein.2.4
    
    
    Agreement for the Purchase and Sale of Personal Goodwill between Trade Source
International, Inc. and Robert Lackey, Jr., dated September 15, 2006, previously filed as
Exhibit 10.3 to the Companys Form 8-K on September 18, 2006, and incorporated by reference
herein.2.5
    
    
    Intellectual Property Assignment by and between Trade Source International, Inc., Robert W.
Lackey, Robert W. Lackey, Jr., RWL Incorporated f/k/a Robert W. Lackey Corporation and R.L.
Products Corporation, dated September 15, 2006, previously filed as Exhibit 10.4 to the
Companys Form 8-K on September 18, 2006, and incorporated by reference herein.2.6
    
    
    Non-Competition Agreement between Trade Source International, Inc. and Robert W. Lackey,
dated September 15, 2006, previously filed as Exhibit 10.5 to the Companys Form 8-K on
September 18, 2006, and incorporated by reference herein.2.7
    
    
    Non-Competition Agreement between Trade Source International and Robert W. Lackey, Jr.,
dated September 15, 2006, previously filed as Exhibit 10.6 to the Companys Form 8-K on
September 18, 2006, and incorporated by reference herein.2.8
    
    
    Consulting Agreement by and between Craftmade International, Inc., Trade Source
International, Inc. and Imagine One Resources, LLC, dated September 15, 2006, previously
filed as Exhibit 10.7 to the Companys Form 8-K on September 18, 2006, and incorporated by
reference herein.2.9
    
    
    Partially Subordinate Security Agreement among Trade Source International, Inc., Marketing
Impressions, Inc., Prime Home Impressions, LLC, and Robert Lackey, (Lackey), as collateral
agent for Lackey, Robert W. Lackey, Jr., Imagine One Resources, LLC, RWL Corporation and R.L.
Products Corporation, dated September 15, 2006, previously filed as Exhibit 10.8 to the
Companys Form 8-K on September 18, 2006, and incorporated by reference herein.2.10
    
    
    Subordination Agreement by and among Robert W. Lackey (Lackey), as collateral agent for
Lackey, Robert W. Lackey, Jr., Imagine One Resources, LLC, RWL Corporation, R.L. Products
Corporation, and The Frost National Bank, Trade Source International, Inc., Marketing
Impressions, Inc., Prime/Home Impressions, LLC and Craftmade International, Inc., dated
September 15, 2006, previously filed as Exhibit 10.9 to the Companys Form 8-K on September 18, 2006, and
incorporated by reference herein.




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##### Table of Contents



ExhibitNumber
    
    Description2.11
    
    
    Agreement and Plan of Merger by and among Craftmade International, Inc., Bill Teiber Co.,
Inc., Teiber Lighting Products, Inc., Todd Teiber and Edward Oberstein dated March 1, 2005,
previously filed as Exhibit 10.1 to the Companys Form 8-K on March 7, 2005, and incorporated
by reference herein.2.12
    
    
    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 Form 8-K on July 15, 1998 (File No. 33-33594-FW) and
incorporated by reference herein.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-8 (File No. 33-33594-FW), and incorporated by reference
herein.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 herein.3.3
    
    
    Amended and Restated Bylaws of the Company, previously filed as Exhibit 3.1 to the
Companys Form 8-K on June 15, 2009, and incorporated by reference herein.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 herein.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 Exhibit 99.1 to the
Companys Form 8-K on July 9, 1999, and incorporated by reference herein.4.3
    
    
    Amendment No. 1 to Rights Agreement, dated as of June 9, 2009, between Craftmade
International, Inc. and ComputerShare Trust Company, N.A., as Rights Agent, previously filed
as Exhibit 1(A) to Form 8-A/A on June 15, 2009, and incorporated by reference herein.10.1
    
    
    Promissory Note dated November 14, 2007, in the original principal amount of $11,000,000
payable to the order of Allianz Life Insurance Company of North America and executed by CM
Real Estate, LLC., previously filed as Exhibit 10.1 to the Companys Form 8-K on November 20,
2007, and incorporated by reference herein.10.2
    
    
    Deed of Trust, Mortgage and Security Agreement by CM Real Estate, LLC, effective November
14, 2007, previously filed as Exhibit 10.2 to the Companys Form 8-K on November 20, 2007,
and incorporated by reference herein.10.3
    
    
    Guaranty Agreement dated November 14, 2007, by Craftmade International, Inc. in favor of
Allianz Life Insurance Company of North America, previously filed as Exhibit 10.3 to the
Companys Form 8-K on November 20, 2007, and incorporated by reference herein.10.4
    
    
    Lease Agreement dated as of November 14, 2007, between CM Real Estate, LLC and Craftmade
International, Inc., previously filed as Exhibit 10.4 to the Companys Form 8-K on November
20, 2007, and incorporated by reference herein.10.5
    
    
    Loan and Security Agreement dated as of July 8, 2009, among Craftmade International, Inc.
and Bank of America, N.A., previously filed as Exhibit 10.1 to the Companys Form 8-K on July
16, 2009, and incorporated by reference herein.10.6
    
    
    Term Loan Agreement dated as of July 8, 2009, among Craftmade International, Inc.,
WoodardCM, LLC and The Frost National Bank, previously filed as Exhibit 10.2 to the
Companys Form 8-K on
July 16, 2009, and incorporated by reference herein.




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##### Table of Contents



ExhibitNumber
    
    Description10.7
    
    
    Term Loan Note dated July 8, 2009 with the Frost National Bank, previously filed as Exhibit
10.3 to the Companys Form 8-K on July 16, 2009, and incorporated by reference herein.10.8
    
    
    Mortgage dated as of July 8, 2009 by WoodardCM, LLC for the benefit of the Frost National
Bank, previously filed as Exhibit 10.4 to the Companys Form 8-K on July 16, 2009, and
incorporated by reference herein.10.9
    
    
    Craftmade International, Inc. 2006 Long-Term Incentive Plan, previously filed as Exhibit
10.1 to the Companys Form 8-K on December 4, 2006, and incorporated by reference herein.10.10
    
    
    Incentive Stock Option Agreement, previously filed as Exhibit 10.2 to the Companys Form
8-K on December 4, 2006, and incorporated by reference herein.10.11
    
    
    Non-qualified Stock Option Agreement, previously filed as Exhibit 10.3 to the Companys
Form 8-K on December 4, 2006, and incorporated by reference herein.10.12
    
    
    Stock Appreciation Rights Agreement, previously filed as Exhibit 10.4 to the Companys
Form 8-K on December 4, 2006, and incorporated by reference herein.10.13
    
    
    Restricted Stock Award Agreement, previously filed as Exhibit 10.5 to the Companys Form
8-K on December 4, 2006, and incorporated by reference herein.21.1
    *
    
    List of the subsidiaries of Craftmade International, Inc.23.1
    *
    
    Consent of BDO Seidman, LLP.31.1
    *
    
    Certification of J. Marcus Scrudder, Chief Executive Officer of the Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    *
    
    Certification of C. Brett Burford, Chief Financial Officer of the Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    *
    
    Certification of J. Marcus Scrudder, Chairman of the Board, President and Chief Executive
Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    *
    
    Certification of C. Brett Burford, Chief Financial Officer of the Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Each document marked with an asterisk is filed or furnished herewith.