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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-13970
CHROMCRAFT REVINGTON, INC.
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(Exact name of registrant as specified in its charter)
Delaware 35-1848094
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1100 North Washington Street, Delphi, IN 46923
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(Address, including zip code, of registrant's principal executive offices)
(765) 564-3500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding for each of the registrant's classes of common
stock, as of the latest practicable date:
Common Stock, $.01 par value -- 6,030,790 shares as of October 25, 2002
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INDEX
Page Number
-----------
PART I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Earnings (Loss) - Three and Nine
Months Ended September 28, 2002 and September 29, 2001........................... 3
Condensed Consolidated Balance Sheets - September 28, 2002,
September 29, 2001 and December 31, 2001......................................... 4
Condensed Consolidated Statement of Stockholders' Equity - Nine
Months Ended September 28, 2002.................................................. 5
Condensed Consolidated Statements of Cash Flows - Nine
Months Ended September 28, 2002 and September 29, 2001........................... 6
Notes to Condensed Consolidated Financial Statements............................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................ 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................... 14
Item 4. Controls and Procedures............................................................ 14
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K................................................... 15
Signatures....................................................................................... 15
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act................................. 16
2
PART I
Item 1. Financial Statements
- -----------------------------
Condensed Consolidated Statements of Earnings (Loss) (unaudited)
Chromcraft Revington, Inc.
(In thousands, except per share data)
Three Months Ended Nine Months Ended
---------------------- -----------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2002 2001 2002 2001
--------- --------- --------- ---------
Sales $ 49,676 $ 55,046 $ 165,150 $ 174,733
Cost of sales 38,416 43,882 128,586 137,507
--------- --------- --------- ---------
Gross margin 11,260 11,164 36,564 37,226
Selling, general and administrative expenses 7,141 7,212 22,909 22,969
--------- --------- --------- ---------
Operating income 4,119 3,952 13,655 14,257
Interest expense 525 127 1,194 631
--------- --------- --------- ---------
Earnings before income taxes and cumulative
effect of a change in accounting principle 3,594 3,825 12,461 13,626
Income tax expense 1,366 1,491 4,735 5,314
--------- --------- --------- ---------
Earnings before cumulative effect of a
change in accounting principle 2,228 2,334 7,726 8,312
Cumulative effect of a change in accounting
principle (net of tax benefit) -- -- (26,727) --
--------- --------- --------- ---------
Net earnings (loss) $ 2,228 $ 2,334 $ (19,001) $ 8,312
========= ========= ========= =========
Earnings per share of common stock
before cumulative effect of a change
in accounting principle
Basic $ .55 $ .24 $ 1.39 $ .87
Diluted $ .53 $ .24 $ 1.37 $ .86
Earnings (loss) per share of common
stock after cumulative effect of a
change in accounting principle
Basic $ .55 $ .24 $ (3.43) $ .87
Diluted $ .53 $ .24 $ (3.43) $ .86
Shares used in computing earnings per share
Basic 4,059 9,573 5,547 9,573
Diluted 4,167 9,674 5,655 9,691
See accompanying notes to condensed consolidated financial statements.
3
Condensed Consolidated Balance Sheets (unaudited)
Chromcraft Revington, Inc.
(In thousands)
Sept. 28, Sept. 29, Dec. 31,
2002 2001 2001
--------- --------- ---------
Assets
Cash and cash equivalents $ -- $ -- $ 8,207
Accounts receivable 24,030 27,291 21,025
Inventories 43,745 47,691 43,595
Other assets 5,308 3,336 5,112
-------- -------- --------
Current assets 73,083 78,318 77,939
Property, plant and equipment, net 39,586 42,705 42,107
Goodwill -- 28,506 28,180
Other long-term assets 2,022 597 842
-------- -------- --------
Total assets $114,691 $150,126 $149,068
======== ======== ========
Liabilities and Stockholders' Equity
Accounts payable $ 6,457 $ 6,669 $ 5,600
Accrued liabilities 15,927 14,342 12,068
Current portion of bank debt 5,000 -- --
-------- -------- --------
Current liabilities 27,384 21,011 17,668
Bank debt 35,050 -- --
Other long-term liabilities 9,861 10,558 10,656
-------- -------- --------
Total liabilities 72,295 31,569 28,324
Stockholders' equity 42,396 118,557 120,744
-------- -------- --------
Total liabilities and stockholders' equity $114,691 $150,126 $149,068
======== ======== ========
See accompanying notes to condensed consolidated financial statements.
4
Condensed Consolidated Statement of Stockholders' Equity (unaudited)
Chromcraft Revington, Inc.
(In thousands, except share data)
Capital in Unearned Unearned Total
Common Excess of ESOP Stock Option Retained Treasury Stockholders'
Stock Par Value Shares Compensation Earnings Stock Equity
-------------------------------------------------------------------------------------------------
Balance at January 1, 2002 $ 112 $ 11,908 $ - $ - $ 126,844 $ (18,120) $ 120,744
Repurchase and cancellation
of common stock
(3,695,418 shares) (37) - - - (40,576) - (40,613)
ESOP stock purchase
(2,000,000 shares) - - (20,000) - - - (20,000)
Exercise of stock options
(89,080 shares) 1 654 - - - - 655
ESOP compensation expense - 140 364 - - - 504
Unearned stock option
compensation - 754 - (754) - - -
Stock option compensation
expense - - - 107 - - 107
Net loss - - - - (19,001) - (19,001)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at September 28, 2002 $ 76 $ 13,456 $ (19,636) $ (647) $ 67,267 $ (18,120) $ 42,396
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
5
Condensed Consolidated Statements of Cash Flows (unaudited)
Chromcraft Revington, Inc.
(In thousands)
Nine Months Ended
----------------------
Sept. 28, Sept. 29,
2002 2001
--------- ---------
Operating Activities
Net earnings (loss) $(19,001) $ 8,312
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities
Depreciation and amortization 3,621 4,514
Loss on disposal of property, plant and equipment 97 --
Deferred income taxes 525 443
Non-cash goodwill impairment loss 26,727 --
Non-cash ESOP expense 504 --
Stock option compensation expense 107 --
Changes in assets and liabilities
Accounts receivable (3,005) (1,739)
Inventories (150) 7,688
Accounts payable and accrued liabilities 4,165 1,000
Other (692) 35
-------- --------
Cash provided by operating activities 12,898 20,253
-------- --------
Investing Activities
Capital expenditures (1,321) (1,509)
Proceeds from disposal of property, plant and equipment 124 15
-------- --------
Cash used by investing activities (1,197) (1,494)
-------- --------
Financing Activities
Net borrowing (repayment) under revolving line of credit agreements 16,300 (19,200)
Proceeds from bank term loan 25,000 --
Principal payments on bank term loan (1,250) --
Purchase of common stock by ESOP (20,000) --
Stock repurchase and related costs (40,613) --
Proceeds from exercise of stock options 655 --
-------- --------
Cash used by financing activities (19,908) (19,200)
-------- --------
Decrease in cash and cash equivalents (8,207) (441)
Cash and cash equivalents at beginning of period 8,207 441
-------- --------
Cash and cash equivalents at end of period $ -- $ --
======== ========
See accompanying notes to condensed consolidated financial statements.
6
Notes to Condensed Consolidated Financial Statements (unaudited)
Chromcraft Revington, Inc.
September 28, 2002
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statement presentation.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended September 28, 2002
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2002.
The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in Chromcraft Revington's annual report on Form 10-K
for the year ended December 31, 2001.
Note 2. Goodwill Impairment Loss
Chromcraft Revington adopted Financial Accounting Standards Board Statement No.
142, Goodwill and Other Intangible Assets ("Statement 142") effective January 1,
2002 and recorded a non-cash transition charge of $26,727,000 (net of tax
benefit), or $4.82 loss per share, for the nine months ended September 28, 2002,
for impairment of goodwill. The charge was recorded as a cumulative effect of a
change in accounting principle.
On January 1, 2002, the Company's fair value (based on quoted market prices) was
less than the carrying value of its net assets, including goodwill, which
indicated an impairment of goodwill. Under Statement 142, fair value was
allocated to the assets and liabilities of the Company based on the purchase
accounting method. This calculation indicated that the full amount of goodwill
was impaired at the date of adoption of Statement 142.
7
The following table presents earnings before the cumulative effect of a change
in accounting principle for the three and nine months ended September 28, 2002
as compared to the prior year periods, after adjustment for goodwill
amortization.
(in thousands, except per share amounts)
----------------------------------------------------
Three Months Ended Nine Months Ended
----------------------------------------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2002 2001 2002 2001
--------- --------- --------- ---------
Earnings before cumulative effect of a
change in accounting principle
As reported $ 2,228 $ 2,334 $ 7,726 $ 8,312
Goodwill amortization
(net of tax benefit) -- 288 -- 866
--------- --------- --------- ---------
Adjusted $ 2,228 $ 2,622 $ 7,726 $ 9,178
========= ========= ========= =========
Basic earnings per share before
cumulative effect of a change
in accounting principle
As reported $ .55 $ .24 $ 1.39 $ .87
Goodwill amortization
(net of tax benefit) -- .03 -- .09
--------- --------- --------- ---------
Adjusted $ .55 $ .27 $ 1.39 $ .96
========= ========= ========= =========
Diluted earnings per share before
cumulative effect of a change in
accounting principle
As reported $ .53 $ .24 $ 1.37 $ .86
Goodwill amortization
(net of tax benefit) -- .03 -- .09
--------- --------- --------- ---------
Adjusted $ .53 $ .27 $ 1.37 $ .95
========= ========= ========= =========
Note 3. Stockholders' Equity
On March 15, 2002, Chromcraft Revington and the Chromcraft Revington Employee
Stock Ownership Trust (the "ESOP Trust"), which forms a part of the Chromcraft
Revington Employee Stock Ownership Plan (the "ESOP"), completed the purchase of
5,695,418 shares of common stock of Chromcraft Revington, comprising
approximately 59% of Chromcraft Revington's issued and outstanding shares of
common stock on such date, from Court Square Capital Limited ("Court Square"),
an affiliate of Citigroup Inc. With respect to the shares of common stock
purchased from Court Square, 3,695,418 shares were repurchased by Chromcraft
Revington (the "Company Stock Transaction") and 2,000,000 shares were purchased
by the ESOP Trust (the "ESOP Stock Transaction" and together with the Company
Stock Transaction being referred to herein as the "Transaction"). Chromcraft
Revington and the ESOP Trust each paid $10 per share for the shares acquired
from Court Square for a total purchase price of $56,954,180. In addition,
Chromcraft Revington paid Court Square and its designee an aggregate transaction
fee of $2,800,000.
The funds required to pay the total consideration and certain related expenses
of the Transaction were obtained using available cash and borrowings of
approximately $45,000,000 under bank financing. Chromcraft Revington loaned
$20,000,000 to the ESOP Trust to finance the ESOP Stock Transaction. Immediately
following consummation of the Transaction, the ESOP Trust held approximately
8
33.6% of the issued and outstanding shares of Chromcraft Revington's common
stock. See Notes 4 and 5, "Bank Debt" and "Employee Stock Ownership Plan," for
additional information on the Company's bank financing and the ESOP.
Note 4. Bank Debt
On March 12, 2002, Chromcraft Revington entered into a $75,000,000 bank credit
agreement (the "Credit Facility") with a group of banks. The Credit Facility
provided for a $25,000,000 term loan and a $50,000,000 revolving credit line.
The term loan has a five-year term and is payable in quarterly installments of
$1,250,000. The revolving credit line expires on March 13, 2007. The interest
rate under the Credit Facility is determined at the time of borrowing at either
the prime rate or LIBOR plus a spread based on a leverage ratio. At September
28, 2002, the Company had approximately $30,300,000 in unused availability under
the revolving credit line portion of the Credit Facility. The weighted average
interest rate on borrowings outstanding as of September 28, 2002 was 3.58%. The
Credit Facility requires compliance with certain financial loan covenants
related to net worth, fixed charge coverage and debt leverage. The Company has
granted a security interest in all of its assets to the banks under the Credit
Facility. The Company also has pledged to the banks the shares of common stock
owned by the ESOP Trust and pledged by the ESOP Trust to the Company.
Long-term bank debt consisted of the following at September 28, 2002:
(In thousands)
--------------
Term loan $ 23,750
Revolving credit line 16,300
------------
40,050
Less current portion of term loan 5,000
------------
$ 35,050
============
Note 5. Employee Stock Ownership Plan
Chromcraft Revington sponsors a leveraged employee stock ownership plan that
covers substantially all employees who have completed six months of service.
Chromcraft Revington makes annual contributions to the ESOP Trust equal to the
ESOP Trust's repayment of its loan to the Company. Chromcraft Revington loaned
$20,000,000 to the ESOP Trust to finance the ESOP Stock Transaction. The loan to
the ESOP Trust provides for repayment to Chromcraft Revington over a 30-year
term at a fixed rate of interest of 5.48% per annum. The shares of common stock
owned by the ESOP Trust are pledged to the Company as collateral for the
Company's loan to the ESOP Trust. As the ESOP loan is repaid, shares are
released from collateral and allocated to ESOP accounts of active employees
based on the proportion of debt service paid in the year. Chromcraft Revington
accounts for its ESOP in accordance with Statement of Position 93-6.
Accordingly, unearned ESOP shares are reported as a reduction of stockholders'
equity as reflected in the Condensed Consolidated Statement of Stockholders'
Equity of the Company. As shares are committed to be released, Chromcraft
Revington reports compensation expense equal to the current market price of the
shares, and the shares become outstanding for earnings per share computations.
9
ESOP compensation expense, a non-cash charge, for the three and nine months
ended September 28, 2002 was $224,000 and $504,000, respectively. The ESOP
shares as of September 28, 2002 were as follows:
(In thousands)
--------------
Allocated shares -
Committed to be released shares 36
Unearned ESOP shares 1,964
-----------
Total ESOP shares 2,000
===========
Unearned ESOP shares, at cost $ 19,636
===========
Fair value of unearned ESOP shares at September 28, 2002 $ 25,998
===========
Note 6. Earnings per Share of Common Stock
Weighted average shares used in the calculation of diluted earnings per share
included dilutive potential common shares (stock options) of approximately
108,000 and 108,000 for the three and nine months ended September 28, 2002,
respectively, and 101,000 and 118,000 for the three and nine months ended
September 29, 2001, respectively.
Certain stock options to purchase shares of common stock were outstanding during
the third quarter and first nine months of 2002 and 2001, but were not included
in the computation of diluted earnings per share because the options' exercise
prices were greater than the average market price of the common shares during
those periods and, therefore, their effect would be antidilutive. Options
excluded from the computation of diluted earnings per share and their weighted
average exercise prices were as follows:
2002 2001
---------------------- ----------------------
Average Average
Exercise Exercise
Shares Price Shares Price
------- --------- ------- ---------
Third quarter 138,900 $ 16.61 462,160 $ 12.74
First nine months 138,900 $ 16.61 376,060 $ 13.48
Note 7. Inventories
The components of inventories consisted of the following:
(In thousands)
------------------------------------
Sept. 28, Sept. 29, Dec. 31,
2002 2001 2001
-------- -------- --------
Raw materials $ 13,256 $ 14,701 $ 13,334
Work in process 7,292 8,383 8,194
Finished goods 25,431 27,177 24,110
-------- -------- --------
Inventories at FIFO cost 45,979 50,261 45,638
LIFO reserve (2,234) (2,570) (2,043)
-------- -------- --------
$ 43,745 $ 47,691 $ 43,595
======== ======== ========
10
Note 8. Accrued Liabilities
Accrued liabilities consisted of the following:
(In thousands)
----------------------------------
Sept. 28, Sept. 29, Dec. 31,
2002 2001 2001
-------- -------- --------
Employee benefit and incentive plans $ 4,011 $ 2,391 $ 2,704
Salaries, wages and commissions 1,650 1,688 1,379
Vacation and holiday pay 1,343 1,411 1,005
Workers' compensation plans 1,571 1,134 1,203
Other accrued liabilities 7,352 7,718 5,777
-------- -------- --------
$ 15,927 $ 14,342 $ 12,068
======== ======== ========
Note 9. Reclassifications
Certain amounts for 2001 have been reclassified to conform to the current year
presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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General
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Chromcraft Revington designs, manufactures and sells residential and commercial
furniture through its wholly owned subsidiaries Chromcraft Corporation,
Peters-Revington Corporation, Silver Furniture Co., Inc., Cochrane Furniture
Company, Inc. and Korn Industries, Incorporated.
The following table sets forth the Condensed Consolidated Statements of Earnings
(Loss) of Chromcraft Revington for the three and nine months ended September 28,
2002 and September 29, 2001 expressed as a percentage of sales.
Three Months Ended Nine Months Ended
--------------------------------------------------------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2002 2001 2002 2001
--------- --------- --------- ---------
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 77.3 79.7 77.9 78.7
--------- --------- --------- ---------
Gross margin 22.7 20.3 22.1 21.3
Selling, general and
administrative expenses 14.4 13.1 13.9 13.1
--------- --------- --------- ---------
Operating income 8.3 7.2 8.2 8.2
Interest expense 1.1 .3 .7 .4
--------- --------- --------- ---------
Earnings before income taxes and
cumulative effect of a change in
accounting principle 7.2 6.9 7.5 7.8
Income tax expense 2.7 2.7 2.8 3.0
--------- --------- --------- ---------
Earnings before cumulative effect
of a change in accounting principle 4.5 4.2 4.7 4.8
Cumulative effect of a change in
accounting principle -- -- (16.2) --
--------- --------- --------- ---------
Net earnings (loss) 4.5 % 4.2 % (11.5)% 4.8 %
========= ========= ========= =========
11
Three and Nine Months Ended September 28, 2002 Compared to Three and
Nine Months Ended September 29, 2001
- --------------------------------------------------------------------
Consolidated sales for the three months ended September 28, 2002 were
$49,676,000, a 9.8% decrease from sales of $55,046,000 for the three months
ended September 29, 2001. For the first nine months of 2002, consolidated sales
were $165,150,000, a 5.5% decrease from sales of $174,733,000 for the same
period last year. Shipments of occasional, dining room, bedroom and upholstered
furniture were lower for the three and nine months ended September 28, 2002 as
compared to the corresponding periods of 2001. The third quarter sales decrease
was primarily in bedroom furniture and entry-level-priced occasional furniture.
The residential furniture sales decline was mainly due to a weak economic
environment and increased import competition, primarily from the Far East.
Commercial furniture sales for the third quarter were slightly higher as
compared to the reduced sales level last year. Shipments of commercial furniture
for the first nine months of 2002, which were impacted by a downturn in the
office furniture industry, were lower as compared to the prior year period. In
general, selling prices for the first nine months of 2002 were at approximately
the same level as compared to the prior year period.
Gross margin as a percentage of sales was 22.7% and 22.1% for the three and nine
month periods ended September 28, 2002, respectively, as compared to 20.3% and
21.3% for the three and nine month periods ended September 29, 2001,
respectively. The increase in gross margin for the third quarter and nine months
ended September 28, 2002 was primarily due to cost reductions and adjustments to
production and employment levels in line with the slower economy.
Selling, general and administrative expenses as a percentage of sales were 14.4%
and 13.9% for the three and nine months ended September 28, 2002, respectively,
as compared to 13.1% for both the three and nine month periods ended September
29, 2001. The increase for the third quarter and nine month periods ended
September 28, 2002 was primarily due to higher compensation-related expenses.
Interest expense for the three and nine months ended September 28, 2002 was
$525,000 and $1,194,000, respectively, as compared to $127,000 and $631,000 for
the three and nine months ended September 29, 2001, respectively. The increase
in interest expense for 2002 was due to higher average bank borrowings during
the period resulting from the Transaction (as defined below).
Chromcraft Revington's effective income tax rate was 38% for the three and nine
months ended September 28, 2002 as compared to 39.0% for the three and nine
months ended September 29, 2001. The decrease in the effective tax rate for 2002
was primarily due to the elimination of non-tax deductible goodwill amortization
expense upon implementation of Statement 142.
The Company adopted Statement 142 effective January 1, 2002 and recorded a one
time non-cash transition charge of $26,727,000 (net of tax benefit) for
impairment of goodwill in the first quarter of 2002. The loss was recorded as a
cumulative effect of a change in accounting principle. See Note 2 "Goodwill
Impairment Loss" to the Condensed Consolidated Financial Statements.
Liquidity and Capital Resources
- -------------------------------
Operating activities provided $12,898,000 of cash during the nine months ended
September 28, 2002, a decrease of $7,355,000 from the amount provided during the
same period last year. Cash flow from operating activities for the nine months
ended September 29, 2001 included $7,688,000 resulting from a decrease in
inventories primarily due to a reduced operating level. Inventories during the
first nine months of 2002 increased $150,000.
Investing activities used $1,197,000 of cash for net capital expenditures during
the first nine months of 2002 as compared to $1,494,000 during the same period
last year. Chromcraft Revington expects capital expenditures in 2002 to be less
than $2,000,000.
12
Financing activities used $19,908,000 of cash during the nine months ended
September 28, 2002 as compared to $19,200,000 of cash used for the prior year
period. On March 15, 2002, Chromcraft Revington and the Chromcraft Revington
Employee Stock Ownership Trust (the "ESOP Trust"), which forms a part of the
Chromcraft Revington Employee Stock Ownership Plan (the "ESOP"), completed the
purchase of 5,695,418 shares of common stock of Chromcraft Revington, comprising
approximately 59% of Chromcraft Revington's issued and outstanding shares of
common stock on such date, from Court Square Capital Limited ("Court Square"),
an affiliate of Citigroup Inc. With respect to the shares of common stock
purchased from Court Square, 3,695,418 shares were repurchased by Chromcraft
Revington (the "Company Stock Transaction") and 2,000,000 shares were purchased
by the ESOP Trust (the "ESOP Stock Transaction" and together with the Company
Stock Transaction being referred to herein as the "Transaction"). Chromcraft
Revington and the ESOP Trust each paid $10 per share for the shares acquired
from Court Square for a total purchase price of $56,954,180. In addition,
Chromcraft Revington paid Court Square and its designee an aggregate transaction
fee of $2,800,000. The funds required to pay the total consideration and certain
related expenses of the Transaction were obtained using available cash and
borrowings of approximately $45,000,000 under Chromcraft Revington's new
$75,000,000 secured bank credit agreement. Of the debt incurred, $25,000,000 was
borrowed under a 5-year term loan and approximately $20,000,000 was borrowed
under Chromcraft Revington's $50,000,000 revolving line of credit agreement. The
term loan is payable in quarterly installments of $1,250,000. The revolving line
of credit expires on March 13, 2007. Chromcraft Revington had $30,300,000 in
unused availability under the revolving line of credit. Interest rates under the
agreement are determined at the time of borrowing at either the prime rate or
LIBOR plus a spread based on a leverage ratio. The weighted average interest
rate on borrowings outstanding as of September 28, 2002 was 3.58%. Chromcraft
Revington loaned $20,000,000 to the ESOP Trust to finance the ESOP Stock
Transaction. The loan to the ESOP Trust provides for repayment to Chromcraft
Revington over a 30-year term at a fixed rate of interest of 5.48% per annum.
As a result of the Transaction, Chromcraft Revington's bank debt and interest
expense are higher in 2002 as compared to 2001 and there are fewer shares of
Chromcraft Revington's common stock outstanding. The lower number of common
shares outstanding as compared to last year has favorably impacted earnings per
share in 2002.
Fourth Quarter 2002 Outlook
- ---------------------------
At September 28, 2002, sales order backlog was 11% lower as compared to the
start of the fourth quarter last year. Chromcraft Revington expects that fourth
quarter earnings per share, on a diluted basis, will be between $.40 and $.50,
as compared to $.23 for the prior year period. For the full year 2002, the
Company expects diluted earnings per share, before the cumulative effect of a
change in accounting principle, to be in the $1.75 to $1.85 range as compared to
$1.09 reported for 2001.
Recently Issued Accounting Standards
- ------------------------------------
The Financial Accounting Standards Board recently issued Statement No. 143,
Accounting for Asset Retirement Obligations that establishes accounting
standards for the recognition and measurement of obligations associated with the
retirement of tangible assets. The effective date of Statement No. 143 is
January 1, 2003. The Financial Accounting Standards Board also recently issued
Statement No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, that addresses financial accounting and reporting for costs
associated with exit or disposal activities. The effective date of Statement No.
146 is effective for exit or disposal activities that are initiated after
December 31, 2002. Chromcraft Revington does not expect the adoption of these
Statements to have a significant effect on its results of operations or its
financial position.
13
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
Certain matters included in this discussion may contain forward-looking
statements regarding Chromcraft Revington's future performance. These
forward-looking statements can be generally identified as such because they
include future tenses or dates or are not historical or current facts or include
words such as "believes," "plans," "may," "anticipates," "estimates," "expects,"
or "likely" or words of similar import. These forward-looking statements are
based upon certain assumptions as well as current expectations and projections
about future events and are subject to uncertainties. As a result, the
forward-looking statements contained in this report could turn out significantly
different from expectations and projections or may not occur. Further, actual
results may differ materially from those described in any forward-looking
statements.
Among the risks and uncertainties that could cause actual results or outcomes to
differ materially from those reported, expected or anticipated are general
economic conditions, declining conditions in the furniture industry, new home
construction, cyclical nature of the furniture industry, competition in the
furniture industry, changes from anticipated levels of sales, future domestic or
international economic and competitive conditions, changes in relationships with
customers, customer acceptance of existing and new products, changes in tax
rates, increased bank debt, changes of interest rates, delays and disruptions in
the shipment of Chromcraft Revington's products and other factors that generally
affect business.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
Borrowings under Chromcraft Revington's bank credit facility bear interest at a
variable rate and, therefore, are subject to changes in interest rates. The
Company sources certain raw materials and finished goods inventory from the Far
East and Mexico. These purchases are payable in U.S. dollars and, therefore, the
Company has no material foreign exchange rate risk exposure.
Item 4. Controls and Procedures
- --------------------------------
(a) Evaluation of Disclosure Controls and Procedures. Chromcraft
Revington's principal executive officer and principal financial
officer have concluded that the Company's disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Securities
Exchange Act of 1934, as amended), based on their evaluation of these
controls and procedures as of a date within (90) days prior to the
filing date of this Form 10-Q, are effective.
(b) Changes in Internal Controls. There have been no significant changes
in Chromcraft Revington's internal controls or in other factors that
could significantly affect these controls subsequent to the date of
the evaluation thereof, including any corrective actions with regard
to significant deficiencies and material weaknesses.
14
Part II
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
On August 12, 2002, Chromcraft Revington, Inc. filed with the
Securities and Exchange Commission its Current Report on Form 8-K,
which included the certification by the Registrant's chief executive
officer and chief financial officer required pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Chromcraft
Revington, Inc. has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Chromcraft Revington, Inc.
-------------------------------------
(Registrant)
Date: October 28, 2002 By: /s/ Frank T. Kane
---------------- ---------------------------------
Frank T. Kane
Vice President - Finance
(Duly Authorized Officer and
Principal Accounting and
Financial Officer)
15
CERTIFICATIONS
I, Michael E. Thomas, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Chromcraft Revington,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 28, 2002 /s/ Michael E. Thomas
---------------- -----------------------------------
Michael E. Thomas
Chairman, President and
Chief Executive Officer
16
I, Frank T. Kane, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Chromcraft Revington,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 28, 2002 /s/ Frank T. Kane
---------------- -----------------------------------
Frank T. Kane, Vice President-Finance
Chief Financial Officer and Secretary
17