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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-13970
CHROMCRAFT REVINGTON, INC.
(Exact name of registrant as specified in its charter)
Delaware 35-1848094
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1100 North Washington Street, Delphi, IN 46923
(Address, including zip code, of registrant's
principal executive offices)
(765) 564-3500
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each
Title of each class exchange on which registered
- ---------------------------- ----------------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
As of February 11, 2005, there were 5,998,202 shares of the registrant's common
stock ($.01 par value) outstanding. The aggregate market value of the voting
stock held by nonaffiliates of the registrant as of July 3, 2004 was $49.4
million (based upon the closing price of the registrant's common stock, as
reported by the American Stock Exchange).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the annual meeting of stockholders to be
held May 4, 2005 are incorporated by reference into Part III of this Form 10-K.
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INDEX
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Page Number
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PART I
Item 1. Business ...................................................................... 2
Item 2. Properties .................................................................... 6
Item 3. Legal Proceedings ............................................................. 6
Item 4. Submission of Matters to a Vote of Security Holders ........................... 6
PART II
Item 5. Market for the Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities ................. 7
Item 6. Selected Financial Data ....................................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................................... 9
Item 7A. Quantitative and Qualitative Disclosures about Market Risk .................... 13
Item 8. Financial Statements and Supplementary Data ................................... 14
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ...................................................... 14
Item 9A. Controls and Procedures ....................................................... 14
Item 9B. Other Information ............................................................. 14
PART III
Item 10. Directors and Executive Officers of the Registrant ............................ 15
Item 11. Executive Compensation ........................................................ 15
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters ........................................................... 15
Item 13. Certain Relationships and Related Transactions ................................ 15
Item 14. Principal Accountant Fees and Services ........................................ 15
PART IV
Item 15. Exhibits and Financial Statement Schedules..................................... 16
Signatures ............................................................................... 20
PART I
Item 1. Business
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General
Chromcraft Revington, Inc. ("Chromcraft Revington"), incorporated in 1992 under
the laws of Delaware, is engaged in the design, manufacture and sale of
residential and commercial furniture through its wholly-owned subsidiaries,
Chromcraft Corporation ("Chromcraft Furniture"), Peters-Revington Corporation
("Peters-Revington Furniture"), Silver Furniture Co., Inc. ("Silver Furniture"),
Cochrane Furniture Company, Inc. ("Cochrane Furniture") and Korn Industries,
Incorporated ("Korn Industries"). Chromcraft Revington is headquartered in
Delphi, Indiana.
In 1992, Chromcraft Revington acquired Chromcraft Furniture and Peters-Revington
Furniture and concurrently completed its initial public offering. Silver
Furniture, Cochrane Furniture and Korn Industries were acquired in 1995, 1996
and 1999, respectively. Chromcraft Revington had no operations prior to 1992.
In March 2002, Chromcraft Revington and its newly formed Employee Stock
Ownership Trust ("ESOP Trust") purchased 5,695,418 shares of Chromcraft
Revington common stock, which represented approximately 59% of Chromcraft
Revington's then outstanding shares of common stock from Court Square Capital
Limited ("Court Square") for a total purchase price of $60,529,000. The ESOP
Trust purchased 2,000,000 of the shares from Court Square for $20,000,000, using
funds borrowed from Chromcraft Revington, with the remainder of the shares
purchased by Chromcraft Revington. The loan to the ESOP Trust provides repayment
to Chromcraft Revington over a 30-year term at a fixed interest rate of 5.48%.
The transaction was financed with available cash and bank borrowings. At
December 31, 2004, the ESOP Trust held approximately 33.2% of the issued and
outstanding shares of Chromcraft Revington's common stock.
Chromcraft Revington and its subsidiaries (collectively, the "Company") have
several operating segments which are aggregated into one reportable segment, in
accordance with Financial Accounting Standards Board Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information.
Products
Occasional Furniture
Peters-Revington Furniture manufactures coffee tables, end tables, sofa tables
and storage tables in collections that incorporate the same design and styling
themes. Occasional table collections may include other furniture pieces such as
bookcases, entertainment storage units, library and modular wall units and curio
cabinets, thereby enabling consumers to coordinate furniture for the same room.
Occasional furniture is sold in traditional, contemporary and country styles
primarily at medium price points. Occasional furniture is manufactured using
hardwoods, veneers and printed fiberboard. Also, Peters-Revington Furniture
imports a limited number of occasional tables to broaden its price points and
styling.
Silver Furniture imports various occasional tables, primarily in contemporary
and traditional styling. Imported tables generally require some assembly by a
retailer or consumer. Some occasional table collections include imported
entertainment storage furniture. Furniture is sold to retailers from Silver
Furniture's warehouse operation or by direct container delivered to the retailer
from an overseas supplier. Silver Furniture's occasional furniture is sold at
entry level-to-medium price points.
Cochrane Furniture imports medium-priced occasional tables to coordinate
primarily with its exposed wood upholstered furniture.
Bedroom Furniture
Bedroom furniture includes bed frames, dressers, night stands, entertainment
armoires and mirrors primarily in traditional styling.
2
Cochrane Furniture and Sumter Cabinet, a division of Korn Industries,
manufacture solid wood bedroom furniture, primarily using American hardwoods.
Sumter Cabinet bedroom furniture is designed in larger scale as compared to
Cochrane Furniture and is sold at mid-to-higher price points. Cochrane
Furniture's bedroom furniture is sold at medium price points.
Peters-Revington Furniture manufactures bedroom furniture constructed of
hardwoods, solids and veneers. Peters-Revington Furniture is sold at medium
price points.
Dining Room Furniture
Chromcraft Furniture manufactures casual dining furniture for use in dining
rooms, great rooms, kitchens and apartments without formal dining areas. The
product line consists primarily of dining tables with laminated, wood or glass
table tops with stationary or tilt-swivel chairs. Certain casual dining sets
have matching barstools and china cabinets. Chairs are upholstered in a variety
of fabrics and vinyls, while tables are manufactured from metal, wood, glass,
faux marble and other materials, and come in a variety of shapes. Most casual
dining furniture is custom ordered by the retailer or consumer. Chromcraft
Furniture imports a variety of casual dining furniture primarily to broaden its
product offerings and price points. Casual dining furniture is designed in
contemporary or traditional styling and sold at medium-to-higher price points.
Cochrane Furniture and Sumter Cabinet manufacture formal and casual dining room
furniture in solid wood, primarily using American hardwoods. Dining room
furniture includes a broad line of tables, armed and side chairs, buffets and
china cabinets mainly in traditional or country styling. Cochrane Furniture also
offers dining room tables with a high pressure laminate table top. Solid wood
furniture is sold at mid-to-higher price points.
In 2004, Cochrane Furniture introduced custom-design wood casual dining room
furniture. Under this program, consumers can personalize their dining tables,
chairs and china cabinets by selecting, from a kiosk unit, various wood finishes
and styling, chair fabrics, hardware, accent finishes and table sizes and
shapes. Custom-design dining room furniture is manufactured in solid wood and
sold at mid-to-higher price points.
Upholstered Furniture
Cochrane Furniture manufactures upholstered fabric sofas, chairs and ottomans
primarily on a made-to-order basis. Upholstered furniture, mainly in traditional
styling, is sold at medium price points.
In 2004, Silver Furniture and Peters-Revington Furniture began importing medium
priced leather sofas and chairs to provide a room package of coordinated
occasional tables and entertainment storage furniture.
Commercial Furniture
Chromcraft Furniture manufactures office chairs, conference and meeting room
tables and lounge-area seating furniture for airports and other public waiting
areas. Chairs are offered in various grades and colors of fabric or leather and
include executive, ergonomic and computer task models. Also, Chromcraft
Furniture imports a limited number of commercial chairs and desks to broaden its
product offerings. Chromcraft Furniture competes primarily at moderate price
points.
Customers and Distribution
There are many channels of furniture distribution including independent
furniture stores, national and regional chains, office furniture stores,
rent/rent-to-own stores, specialty stores, department stores, catalog, wholesale
clubs, and manufacturer dedicated stores. The Company markets and sells its
residential furniture primarily to independent furniture retailers and regional
furniture chains. Chromcraft Furniture's commercial furniture is sold primarily
to office furniture dealers, wholesalers, distributors, furniture rental stores
and contract customers.
The Company has approximately 5,300 active customer accounts. Major customers
include Nebraska Furniture Mart, Jordan's, Cort Furniture and Rooms To Go. No
material amount of Chromcraft Revington's sales is dependent upon a single
customer. Sales outside the United States represents less than one percent of
total sales. Furniture is primarily sold through independent sales
representatives.
3
Competition
The furniture industry is highly fragmented and the Company encounters intense
domestic and import competition in the sale of all its products. The furniture
markets in which the Company participates include a large number of relatively
small domestic and foreign manufacturers. In recent years, low-cost foreign
manufacturers, primarily in China, have significantly increased shipments into
the United States. Many of the Company's competitors, some of which are larger
and have greater financial resources, produce a number of products which are not
competitive with the Company's products. In many cases, such companies do not
disclose the portion of their sales attributable to products similar to those
manufactured by the Company. It is, therefore, impractical to state with any
certainty the Company's relative position in a particular product line.
Competition in the Company's products is in the form of the quality of its
products, service and selling prices.
Manufacturing and Global Sourcing
Chromcraft Revington's operating subsidiaries maintain separate manufacturing
and warehousing facilities. Wood and metal working plants include machining,
finishing and assembly operations. Solid wood furniture manufacturing operations
have rough mill facilities that process green lumber into parts for internal
use. The Company's upholstered furniture operations include chair foam
production, cutting and sewing operations.
In recent years, the Company has increased imports of low-cost labor-intensive
furniture components and finished furniture, primarily from China, to supplement
the Company's domestic furniture manufacturing. Using this blended approach of
domestic manufacturing and selective importing, the Company is better able to
control the quality of furniture and service to its customers.
The Company uses agents and company personnel to purchase furniture parts and
finished furniture from suppliers primarily located in China, the Philippines,
Indonesia and Vietnam. Suppliers are selected for their ability to deliver high
quality products on a timely basis and at competitive prices. Agents and company
personnel perform quality control inspections at supplier locations. The Company
maintains a purchasing and quality control inspection office in Southern China.
Imported furniture is purchased in U.S. dollars and, as a result, Chromcraft
Revington is not subject to foreign currency exchange risk.
Raw Materials
The major raw materials used in manufacturing are wood, steel, fabrics, glass,
chair mechanisms, fiberboard, finishing materials, hardware, cartons and foam
for upholstered furniture. In recent years, more low-cost furniture parts have
been sourced overseas. Chromcraft Revington believes that supplies of raw
materials are available in sufficient quantities from an adequate number of
suppliers. No significant shortages of raw materials were experienced during
2004.
Inventory and Seasonal Requirements
The Company maintains finished goods inventories for occasional, dining room and
bedroom furniture in order to respond quickly to customer delivery needs. Most
custom-design casual dining room furniture, upholstered furniture and commercial
furniture is made to customer specifications and, therefore, not carried in
stock. A limited number of commercial furniture items are maintained for quick
delivery programs.
Over the last several years, the Company has increased its overseas purchases of
furniture parts and finished furniture. As a result, the Company has increased
its raw material and finished goods inventory levels, for certain product lines,
in order to accommodate the longer delivery times and, in some cases, to obtain
quantity price discounts.
Sales have historically not been subject to material seasonal fluctuations.
4
Backlog
The Company's backlog of sales orders was approximately $14.5 million at
December 31, 2004, as compared to approximately $15.8 million at December 31,
2003. Order backlog at any particular time is not necessarily indicative of the
level of future shipments.
Environment
Chromcraft Revington believes it is in compliance in all material respects with
all federal, state and local environmental laws and regulations which impose
limitations on the discharge of pollutants into the environment and establish
standards for the treatment of hazardous wastes.
Patents
The Company has several commercial chair design patents, none of which are
considered material to the business.
Employees
The Company employs a total of approximately 1,400 people. None of the employees
are represented by a collective bargaining agreement.
Additional Information
Chromcraft Revington files annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission
("SEC"). Stockholders may inspect and copy these materials at the Public
Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for more information on the
operation of the Public Reference Room. The SEC maintains an Internet site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of the site
is http://www.sec.gov. Copies of the Company's annual, quarterly and current
reports are available to stockholders without charge upon written request to:
Corporate Secretary, Chromcraft Revington, Inc., 1100 North Washington Street,
Delphi, IN 46923.
5
Item 2. Properties
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The following table summarizes the Company's facilities as of December 31, 2004.
Location Square Type of Owned/
(Subsidiary) Feet Operations Furniture Leased
- ------------------ ------- -------------- -------------------- ---------
Delphi, IN 519,000 Manufacturing/ Occasional/ bedroom/ Owned
(Peters-Revington warehousing upholstered
Furniture)
Knoxville, TN 160,000 Warehousing Occasional/ upholstered Owned
(Silver Furniture)
Lincolnton, NC 368,000 Manufacturing/ Dining room/ bedroom Owned
(Cochrane Furniture) warehousing
Lincolnton, NC 152,000 Manufacturing Upholstered Owned
(Cochrane Furniture)
Lincolnton, NC 159,000 Warehousing Dining room/ bedroom/ Owned
(Cochrane Furniture) upholstered
Warrenton, NC 166,000 Manufacturing Dining room/ bedroom Owned
(Cochrane Furniture)
Senatobia, MS 560,000 Manufacturing/ Dining room/ Leased
(Chromcraft Furniture) warehousing commercial (expires 2061)
Sumter, SC 521,000 Manufacturing/ Dining room/ bedroom Owned
(Korn Industries) warehousing
Chromcraft Revington also leases trucks, trailers and other transportation
equipment and showroom facilities in High Point, North Carolina and Chicago,
Illinois. Management believes the properties and equipment of its subsidiaries
are well maintained, in good operating condition and adequate to support present
operations. The Company is not utilizing all of its productive capacity due to
lower sales volumes. All of the owned properties and equipment are pledged as
collateral under Chromcraft Revington's bank agreement.
Item 3. Legal Proceedings
- --------------------------------------------------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------------------------
None.
6
PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
- --------------------------------------------------------------------------------
Effective June 8, 2004, Chromcraft Revington's common stock began trading on the
American Stock Exchange. Prior to June 8, 2004, the shares were traded on the
New York Stock Exchange. The common stock of the Company is traded under the
ticker symbol "CRC". The following table sets forth the high and low prices of
the common stock, as reported by the stock exchange on which the stock was
traded at the time.
2004 2003
-------------------------- --------------------------
High Low High Low
---------- ---------- ---------- ----------
First quarter $ 15.65 $ 11.28 $ 13.35 $ 12.15
Second quarter 15.30 12.20 13.06 10.76
Third quarter 13.90 12.05 13.61 12.05
Fourth quarter 12.85 11.40 13.05 11.02
As of February 11, 2005, there were approximately 217 security holders of record
of Chromcraft Revington's common stock. The Company has never paid cash
dividends on shares of its common stock. Under its bank agreement, Chromcraft
Revington is not permitted to pay cash dividends. On February 11, 2005, the
closing price of Chromcraft Revington's common stock was $13.13 as reported by
the American Stock Exchange.
Equity Compensation Plan Information
- ------------------------------------
The following table provides certain information as of December 31, 2004 with
respect to the Company's equity compensation plans under which equity securities
of the Company are authorized for issuance.
Number of securities Number of securities
to be issued upon remaining available for
exercise of Weighted future issuance under
outstanding average exercise price of equity compensation
options, warrants outstanding options, plans (excluding securities
Plan Category and rights warrants and rights reflected in the first column)
- --------------------------------- --------------------- ------------------------- ------------------------------
Equity compensation plans
approved by security holders(1) 835,256 $12.11 242,924
Equity compensation plans not
approved by security holders(2) -- -- --
--------------------- --------------------------- ------------------------------
Total 835,256 $12.11 242,924
===================== =========================== ==============================
(1) Includes the Chromcraft Revington, Inc. 1992 Stock Option Plan, as amended
and restated effective March 15, 2002, and the Directors' Stock Option Plan
of Chromcraft Revington, Inc., effective January 1, 2002.
(2) The Company has no equity compensation plan that has not been authorized by
its stockholders.
Purchases of Equity Securities by the Issuer
- --------------------------------------------
Chromcraft Revington did not purchase any shares of its common stock in 2004.
7
Item 6. Selected Financial Data
- --------------------------------------------------------------------------------
Year Ended December 31,
(In thousands, except per share -------------------------------------------------------------------
and employee data) 2004 2003 2002 2001 2000
--------- --------- --------- --------- ---------
Operating Results
Sales $ 172,393 $ 184,228 $ 214,186 $ 228,492 $ 270,555
Cost of sales 132,979 145,592 164,745 180,434 208,056
--------- --------- --------- --------- ---------
Gross margin 39,414 38,636 49,441 48,058 62,499
Selling, general and administrative expenses 26,279 27,263 30,364 30,087 35,163
Other (income) (a) -- (3,650) -- -- --
--------- --------- --------- --------- ---------
Operating income 13,135 15,023 19,077 17,971 27,336
Interest expense 788 1,147 1,758 687 2,008
--------- --------- --------- --------- ---------
Earnings before income taxes
and accounting change 12,347 13,876 17,319 17,284 25,328
Income tax expense 4,679 5,788 6,581 6,741 9,878
--------- --------- --------- --------- ---------
Earnings before accounting change 7,668 8,088 10,738 10,543 15,450
Cumulative effect of an accounting
change (net of tax benefit) (b) -- -- (26,727) -- --
--------- --------- --------- --------- ---------
Net earnings (loss) $ 7,668 $ 8,088 $ (15,989) $ 10,543 $ 15,450
========= ========= ========= ========= =========
Earnings (loss) per share of common
stock after accounting change (b)
Basic $ 1.85 $ 1.97 $ (3.09) $ 1.10 $ 1.59
========= ========= ========= ========= =========
Diluted $ 1.82 $ 1.94 $ (3.09) $ 1.09 $ 1.57
========= ========= ========= ========= =========
Shares used in computing earnings per share
Basic 4,143 4,109 5,168 9,577 9,727
Diluted 4,215 4,173 5,273 9,685 9,847
Financial Position (December 31,)
Cash and cash equivalents $ -- $ -- $ -- $ 8,207 $ 441
Working capital $ 40,054 $ 35,044 $ 39,141 $ 52,064 $ 64,210
Total assets $ 87,036 $ 85,900 $ 100,465 $ 149,068 $ 160,092
Bank indebtedness $ 5,700 $ 12,050 $ 28,050 $ -- $ 19,200
Stockholders' equity $ 62,909 $ 53,798 $ 45,770 $ 120,744 $ 110,245
Other Data
Operating income margin 7.6% 8.2% 8.9% 7.9% 10.1%
Depreciation and amortization $ 3,721 $ 4,188 $ 4,718 $ 6,109 $ 5,855
Capital expenditures $ 1,086 $ 674 $ 1,538 $ 2,191 $ 4,953
Common stock repurchases (c)
Shares -- 169 5,695 166 569
Total cost $ -- $ 2,226 $ 60,529 $ 1,570 $ 5,086
Number of employees 1,400 1,500 1,700 2,000 2,400
-----------------------------
(a) Resolution of a claim that existed as part of the Company's earlier
acquisition of a subsidiary.
(b) Effective January 1, 2002, the Company recorded a non-cash transition
charge for the impairment of goodwill. For the year ended December 31,
2002, basic and diluted earnings per share before accounting change were
$2.08 and $2.04, respectively.
(c) Common stock purchases in 2002 includes 2,000,000 shares acquired by the
Company's ESOP Trust.
8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
Overview
For the last several years, the U.S. furniture industry has experienced
declining sales primarily due to low-cost import competition. Foreign
manufacturers, primarily in China, have a substantial labor and overhead cost
advantage as compared to furniture manufacturers in the United States. In
addition, China's government continues to hold its currency value pegged to the
U.S. dollar, which has helped to keep its goods cheaper, thereby increasing its
exports. Off shore furniture manufacturing is rapidly expanding, causing U.S.
plant closings, lost jobs and companies exiting the business. We expect these
competitive conditions to continue.
In response to the lower sales level, the Company has reduced costs and lowered
employment levels. The Company's strategy is to operate autonomous niche-focused
businesses to serve the fragmented furniture distribution channel with product
selection and service. A key element in this strategy is to maintain a low-cost
structure to insure that the Company's products are a value to the customer. To
achieve this goal, the Company has increased imports of low-cost,
labor-intensive furniture components and finished furniture from overseas. Using
this blended approach of domestic manufacturing and selective importing, the
Company believes it is better able to control the quality of furniture and
service to its customers. Chromcraft Revington's competitiveness with producers
from other countries is influenced by transportation costs, timely delivery of
furniture to retailers and product differentiation.
The Company has several businesses, some of which have been impacted more
severely than others by the reduced sales volume. Chromcraft Revington is
closely monitoring this situation and, if business conditions do not improve,
this could cause asset impairment and restructuring charges in the future. Also,
the Company's operating units have experienced inflationary price increases in
raw materials and other costs. The Company is seeking ways to mitigate this
impact through product engineering, offshore sourcing of low-cost inventory
components and material substitution. Due to the competitive environment, the
Company may not be able to pass through any significant cost increases to its
customers.
Results of Operations
The following table sets forth the results of operations of Chromcraft Revington
for the years ended December 31, 2004, 2003 and 2002 expressed as a percentage
of sales.
Year Ended December 31,
----------------------------------------
2004 2003 2002
---------- ----------- ----------
Sales 100.0 % 100.0 % 100.0 %
Cost of sales 77.1 79.0 76.9
---------- ----------- ----------
Gross margin 22.9 21.0 23.1
Selling, general and administrative expenses 15.3 14.8 14.2
Other (income) -- (2.0) --
---------- ----------- ----------
Operating income 7.6 8.2 8.9
Interest expense .4 .7 .8
---------- ----------- ----------
Earnings before income taxes and cumulative
effect of a change in accounting principle 7.2 7.5 8.1
Income tax expense 2.7 3.1 3.1
---------- ----------- ----------
Earnings before cumulative effect of
a change in accounting principle 4.5 4.4 5.0
Cumulative effect of a change in accounting principle -- -- (12.5)
---------- ----------- ----------
Net earnings (loss) 4.5 % 4.4 % (7.5)%
========== =========== ==========
9
2004 Compared to 2003
For 2004, sales decreased 6.4% to $172,393,000 from $184,228,000 reported in
2003. The sales decrease was mainly due to import competition in bedroom, dining
room and occasional furniture. Upholstered furniture shipments remained
unchanged from 2003. Shipments of leather upholstered furniture introduced in
2004 were offset by a decrease in fabric upholstered furniture. Sales of
commercial furniture in 2004 were slightly lower compared to the prior year. The
consolidated sales decrease in 2004 was primarily due to lower unit volume.
Gross margin increased $778,000 to $39,414,000, or 22.9% of sales, in 2004, from
$38,636,000, or 21.0% of sales, in 2003. The margin improvement was primarily
due to a decrease in manufacturing expenses and improved operating efficiencies
in the production of bedroom furniture. In 2004, manufacturing expenses were
lower, as compared to the prior year, due, in part, to a decrease in health care
costs. Lower health care costs resulted from an increase in employee cost
sharing and a reduction in benefit levels. For the year ended December 31, 2003,
manufacturing expenses included an inventory obsolescence write down.
Selling, general and administrative expenses decreased $984,000 to $26,279,000,
or 15.3% of sales, in 2004, from $27,263,000, or 14.8%, in 2003. The decrease in
expense in 2004 was due to lower sales commissions and performance based
compensation.
Operating income decreased $1,888,000 to $13,135,000, or 7.6% of sales, in 2004,
from $15,023,000, or 8.2% of sales, in 2003. Operating income for 2003 includes
a $3,650,000 non-recurring non-cash gain on the resolution of a claim in
connection with the Company's earlier acquisition of a subsidiary.
Interest expense was $788,000 as compared to $1,147,000 in 2003. The decrease in
interest expense was primarily due to a reduction in bank indebtedness. Bank
debt was reduced in 2004 from excess cash flow generated from operations.
The effective income tax rate in 2004 was 37.9% as compared to 41.7% in 2003.
The higher tax rate in 2003 was due to additional income tax expense of $515,000
for a change in tax basis of certain acquired assets.
Net earnings decreased to $7,668,000 in 2004 as compared to $8,088,000 in 2003.
Factors contributing to the earnings reduction are outlined in the above
discussion.
2003 Compared to 2002
Consolidated sales for the year ended December 31, 2003 were $184,228,000, a
14.0% decrease from sales of $214,186,000 for the year ended December 31, 2002.
Shipments of all residential furniture categories were lower during 2003 as
compared to 2002. Commercial furniture shipments were slightly higher as
compared to 2002. The sales decline in 2003 was primarily due to a lower number
of units sold, attributable to foreign import competition. Selling prices in
2003 remained unchanged from the prior year.
Gross margin was $38,636,000, or 21.0% of sales, in 2003, as compared to
$49,441,000, or 23.1% of sales in 2002. The decrease in gross margin percentage
was primarily due to a reduced production level, which impacted fixed cost
absorption and manufacturing efficiencies. In addition, gross margin in 2003 was
reduced by a $950,000 write down for slow moving bedroom furniture.
Selling, general and administrative expenses decreased $3,101,000 to $27,263,000
from $30,364,000 in 2002. The lower expense in 2003 was primarily due to a
decrease in sales commission expense of $1,399,000 and reduced performance based
compensation of $1,258,000.
Operating income was $15,023,000 in 2003 as compared to $19,077,000 in 2002.
Operating income for 2003 includes a $3,650,000 non-recurring non-cash gain on
the resolution of a claim in connection with the Company's earlier acquisition
of a subsidiary.
10
Interest expense decreased to $1,147,000 in 2003 from $1,758,000 in 2002. The
lower interest expense for 2003 was primarily due to a decrease in bank
borrowings.
Chromcraft Revington's effective income tax rate was 41.7% for the year ended
December 31, 2003 as compared to 38.0% for the year ended December 31, 2002. The
effective income tax rate was higher in 2003 primarily due to additional income
tax expense of $515,000 for a change in tax basis of certain acquired assets.
Earnings per share on a diluted basis were $1.94 in 2003 as compared to diluted
earnings per share before an accounting change of $2.04 in 2002. For the year
ended December 31, 2003, shares used in computing diluted earnings per share
decreased to 4,173,000 from 5,273,000 for 2002. The lower number of shares used
in 2003 was primarily due to the purchase of 5,695,418 shares of Company common
stock by Chromcraft Revington and the ESOP Trust that was completed on March 15,
2002.
Liquidity and Capital Resources
Operating Activities
Operating activities provided cash of $7,193,000 in 2004 as compared to
$17,870,000 in 2003 and $25,019,000 in 2002. The decrease in cash flow in 2004
was primarily due to lower cash earnings and an increase in working capital
investment. In 2004, inventories increased $2,798,000 primarily due to imported
dining room furniture parts and leather upholstered furniture used in new
product introductions. The decrease in cash flow in 2003, as compared to 2002,
was primarily due to lower cash earnings. During 2003 and 2002, inventory
reductions generated cash of $8,944,000 and $3,783,000, respectively.
Inventories were reduced in these years in response to the lower sales activity.
Investing Activities
Investing activities used cash for net capital expenditures of $1,074,000 in
2004 as compared to $652,000 in 2003 and $1,413,000 in 2002. The Company expects
to spend approximately $1,500,000 for capital expenditures in 2005.
Financing Activities
Financing activities used cash of $6,119,000 in 2004 as compared to $17,218,000
in 2003 and $31,813,000 in 2002. Cash was used to reduce bank indebtedness by
$6,350,000 in 2004 and $16,000,000 in 2003. In 2003, the Company acquired
168,700 shares of its common stock for $2,226,000. The share repurchases
included 98,200 shares acquired from the Company's Chairman, President and Chief
Executive Officer.
During 2002, the Company and its newly formed ESOP Trust purchased 5,695,418
shares of Company common stock from Court Square for a total purchase price of
$60,529,000. The ESOP Trust purchased 2,000,000 of the shares for $20,000,000,
using funds borrowed from the Company, with the remainder of the shares
purchased by the Company. The transaction was financed with available cash and
bank borrowings.
Under the bank agreement, interest rates 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 at December 31, 2004
was 3.42%. The Company has $1,997,000 of standby letters of credit outstanding
at December 31, 2004 in connection with workers compensation insurance programs.
These letters of credit expire on December 6, 2005 and are generally renewed
annually.
Management expects that cash flow from operations and availability under its
bank revolving credit line will continue to be sufficient to meet future
liquidity needs. At December 31, 2004, Chromcraft Revington had $37,300,000 in
unused availability under its bank credit facility maturing in March 2007.
Chromcraft Revington expects to generate excess cash flow in 2005 which will be
used to reduce bank indebtedness, repurchase Company common stock or for general
corporate purposes.
11
Contractual Obligations
The following table summarizes the Company's contractual obligations at December
31, 2004:
Payments Due by Period
------------------------------------------------------------
Less than 1 - 3 4 - 5 More than
(In thousands) Total 1 Year Years Years 5 Years
- -------------------------------------------- ------- -------- ------- ------- -------
Bank indebtedness and related interest
expense (a) $ 6,127 $ 194 $ 5,933 $ -- $ --
Operating leases 4,832 1,127 2,309 1,253 143
Other long-term liabilities
(less non-current deferred taxes of $251) 4,460 -- 1,891 858 1,711
------- ------- ------- ------- -------
Total contractual cash obligations $15,419 $ 1,321 $10,133 $ 2,111 $ 1,854
======= ======= ======= ======= =======
(a) Interest expense for variable rate debt was calculated using the interest
rate at December 31, 2004 and assumes no reduction in bank indebtedness until
maturity.
Critical Accounting Policies
The preparation of consolidated financial statements of the Company requires
management to make estimates and judgments that affect the amounts reported in
the financial statements and the related footnotes. Chromcraft Revington
considers the following accounting policies to be most significantly impacted by
the estimates and judgments used in the preparation of its consolidated
financial statements.
Allowance for Doubtful Accounts
- -------------------------------
The Company provides for an allowance for doubtful accounts based on expected
collectability of trade receivables. The allowance for doubtful accounts is
determined based on the Company's analysis of customer credit-worthiness,
historical loss experience and general economic conditions and trends.
Inventories
- -----------
Inventories are valued at the lower of cost or market. Inventories valued using
the last-in, first-out (LIFO) basis represent approximately 55% of total
inventories at December 31, 2004. All remaining inventories are valued using the
first-in, first-out (FIFO) basis. The Company evaluates its inventories for
excess or slow moving items based on sales order activity and expected market
changes. If circumstances indicate the cost of inventories exceed their
recoverable value, inventories are reduced to net realizable value.
Employee Related Benefits
- -------------------------
Accounting for self-insured health care and workers compensation liabilities
involves assumptions of expected claims based on past experience and a review of
individual claims. The Company establishes a liability based on claim
information supplied by insurance and third party administrators. Actual claim
expense could differ from the estimates made by the Company.
Property, Plant and Equipment
- -----------------------------
The Company reviews long-lived assets for impairment whenever events or changes
in facts and circumstances indicate the possibility that the carrying value may
not be recoverable. Factors that may trigger an impairment evaluation include
under-performance relative to historical or projected future operating results
and significant negative industry or economic trends. If the forecast of
undiscounted future cash flows is less than the carrying
12
amount of the assets, an impairment charge to reduce the carrying value of the
assets to fair value will be recognized in the current period.
Recently Issued Accounting Standards
- ------------------------------------
In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 151, Inventory Costs ("Statement
No. 151"). Statement No. 151 amends Accounting Research Bulletin No. 43, Chapter
4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs and wasted material. Statement No. 151
requires that those items be recognized as current-period charges and requires
that allocation of fixed production overheads to the cost of conversion be based
on the normal capacity of the production facilities. Statement No. 151 is
effective for fiscal years beginning after June 15, 2005. The Company does not
expect the adoption of Statement No. 151 to have a material impact on the
Company's financial condition or results of operations.
In December 2004, FASB issued Statement of Financial Accounting Standards No.
123 (revised 2004), Share-Based Payments ("Statement No. 123(R)"). Statement No.
123(R) replaces FASB Statement No. 123 and supersedes Accounting Principles
Board Opinion No. 25. Statement No. 123(R) will require the fair value of all
stock option awards issued to employees to be recorded as an expense over the
related vesting period. Statement No. 123(R) also requires the recognition of
compensation expense for the fair value of any unvested stock option awards
outstanding at July 1, 2005, the date of adoption. The Company has not
determined the impact of Statement No. 123(R).
In December 2004, FASB Staff Position 109-1 was issued to provide guidance on
the application of FASB Statement No. 109, Accounting for Income Taxes
("Statement No. 109"), to the provision within the American Jobs Creation Act of
2004 that provides a tax deduction, phased-in beginning in 2005, on qualified
production activities. The FASB staff concluded that the deduction should be
accounted for as a special deduction in accordance with Statement No. 109. The
Company has not determined the impact of FASB Staff Position 109-1 on its future
effective income tax rate.
Forward-Looking Statements
Certain information and statements contained in this report, including, without
limitation, the section captioned "Management's Discussion and Analysis of
Financial Condition and Results of Operations," are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can be generally identified as such because
they include future tense or dates, or are not historical or current facts, or
include words such as "anticipates," "believes," "may," or "expects," or words
of similar import. Forward-looking statements are not guarantees of performance
and are subject to certain risks and uncertainties that could cause actual
results or outcomes to differ materially from those reported, expected, or
anticipated as of the date of this report.
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; import and domestic competition in the furniture industry;
market interest rates; consumer confidence levels; cyclical nature of the
furniture industry; consumer and business spending; changes in relationships
with customers; customer acceptance of existing and new products; new and
existing home sales; and other factors that generally affect business.
The Company does not undertake any obligation to update or revise publicly any
forward-looking statements to reflect information, events or circumstances after
the date of such statements or to reflect the occurrence of anticipated or
unanticipated events or circumstances.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------------------
Borrowings under Chromcraft Revington's bank agreement bear interest at a
variable rate and, therefore, are subject to changes in interest rates. A
one-percentage point fluctuation in market interest rates would have had less
than a $100,000 impact on net earnings in 2004.
13
The Company sources certain raw materials and finished furniture, primarily from
China. These purchases are fixed-price contracts payable in U.S. dollars and,
therefore, the Company has no material foreign currency exchange rate risk
exposure.
Item 8. Financial Statements and Supplementary Data
- --------------------------------------------------------------------------------
The financial statements and schedule are listed in Part IV, Items 15(a) (1) and
(2) and are included as exhibits to this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
None.
Item 9A. Controls and Procedures
- --------------------------------------------------------------------------------
Chromcraft Revington's principal executive officer and principal financial
officer have concluded, based upon their evaluation, that the Company's
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended), were effective as of the end of
the period covered by this Form 10-K.
Chromcraft Revington's management, including its principal executive officer and
principal financial officer, does not expect that the Company's disclosure
controls or its internal controls will prevent all errors and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people or by management
override of the control.
There have been no significant changes in Chromcraft Revington's internal
control over financial reporting that occurred during the fourth quarter of 2004
that have materially affected, or are reasonably likely to materially affect,
Chromcraft Revington's internal control over financial reporting.
Item 9B. Other Information
- --------------------------------------------------------------------------------
None.
14
Part III
Item 10. Directors and Executive Officers of the Registrant
- --------------------------------------------------------------------------------
Code of Ethics
- --------------
The Company has adopted a code of ethics that applies to all of its directors,
officers (including its chief executive officer, chief financial and accounting
officer, controller and any person performing similar functions) and employees.
A copy of the Code of Ethics is available without charge upon written request
to: Corporate Secretary, Chromcraft Revington, Inc., 1100 North Washington
Street, Delphi, IN 46923.
Audit Committee Financial Expert
- --------------------------------
The Company's Board of Directors has determined that each member of its Audit
Committee is a "financial expert", as defined under Item 401 (h) of Regulation
S-K of the Securities Exchange Act of 1934. Those members of the Company's Audit
Committee who are deemed to be financial experts are as follows:
Ronald H. Butler David L. Kolb Larry P. Kunz
Theodore L. Mullett Warren G. Wintrub
All persons identified as financial experts are independent, as that term is
used in Item 7 (d) (3) (iv), of Schedule 14A under the Securities Exchange Act
of 1934.
In accordance with the provisions of General Instruction G to Form 10-K, the
information required for the remainder of required disclosures under Item 10 is
not set forth herein because Chromcraft Revington intends to file with the
Securities and Exchange Commission a definitive Proxy Statement pursuant to
Regulation 14A not later than 120 days following the end of its 2004 fiscal
year, which Proxy Statement will contain such information. The information
required by Item 10, not presented above, is incorporated herein by reference to
such Proxy Statement.
Items 11. through 14.
- --------------------------------------------------------------------------------
In accordance with the provisions of General Instruction G to Form 10-K, the
information required by Item 11 (Executive Compensation), Item 12 (Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters), Item 13 (Certain Relationships and Related Transactions), and Item 14
(Principal Accountant Fees and Services) is not set forth herein because
Chromcraft Revington intends to file with the Securities and Exchange Commission
a definitive Proxy Statement pursuant to Regulation 14A not later than 120 days
following the end of its 2004 fiscal year, which Proxy Statement will contain
such information. The above information required by Items 11, 12, 13, and 14 is
incorporated herein by reference to such Proxy Statement.
15
Part IV
Item 15. Exhibits and Financial Statement Schedules
- --------------------------------------------------------------------------------
(a) 1. and 2. List of Financial Statements and Financial Statement Schedule:
The following Consolidated Financial Statements of Chromcraft Revington are
included in this report on Form 10-K:
Page Reference
--------------
Consolidated Statements of Operations for the years ended
December 31, 2004, 2003 and 2002 F-1
Consolidated Balance Sheets at December 31, 2004 and 2003 F-2
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2004, 2003 and 2002 F-3
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002 F-4
Notes to Consolidated Financial Statements F-5
Report of Independent Registered Public Accounting Firm F-15
Quarterly Financial Information (unaudited) F-16
The following consolidated financial statement schedule of Chromcraft Revington
is included in response to Item 15(c):
Schedule II - Valuation and Qualifying Accounts S-1
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.
(a) 3. Listing of Exhibits
(2.1) Stock Purchase Agreement, dated as of February 19, 2002, by
and between the Registrant and Court Square, filed as Exhibit
10.16 to Form 8-K, as filed with the Securities and Exchange
Commission on March 20, 2002, is incorporated herein by
reference.
(2.2) Stock Purchase Agreement, dated as of February 19, 2002, by
and between Court Square and GreatBanc Trust Company, not in
its individual or corporate capacity, but solely as trustee
of the Chromcraft Revington Employee Stock Ownership Trust,
filed as Exhibit 10.17 to Form 8-K, as filed with the
Securities and Exchange Commission on March 20, 2002, is
incorporated herein by reference.
(3.1) Certificate of Incorporation of the Registrant, as amended,
filed as Exhibit 3.1 to Form S-1, registration number
33-45902, as filed with the Securities and Exchange
Commission on February 21, 1992, is incorporated herein by
reference.
(3.2) By-laws of the Registrant, as amended, filed as Exhibit 3.2
to Form 10-Q for the quarter ended October 2, 2004, is
incorporated herein by reference.
16
(4.8) Credit Agreement, dated March 12, 2002, among the Registrant,
the Lenders party thereto and National City Bank of Indiana,
as agent for the Lenders, filed as Exhibit 4.8 to Form 8-K,
as filed with the Securities and Exchange Commission on March
20, 2002, is incorporated herein by reference.
(10.1) Lease, dated February 15, 1962, between the Board of
Supervisors of Tate County, Mississippi as Landlord and
Chromcraft Corporation as Tenant, filed as Exhibit 10.1 to
Form S-1, registration number 33-45902, as filed with the
Securities and Exchange Commission on February 21, 1992, is
incorporated herein by reference.
(10.12) Contract, dated April 3, 1961, between the City of Senatobia,
Tate County, Mississippi, the Board of Supervisors of Tate
County, Mississippi and Chromcraft Corporation, filed as
Exhibit 10.12 to Form S-1, Pre-Effective Amendment No. 1,
registration number 33-45902, as filed with the Securities
and Exchange Commission on March 17, 1992, is incorporated
herein by reference.
(10.13) Lease, dated September 9, 1966, between the Board of
Supervisors of Tate County, Mississippi as Landlord and
Chromcraft Corporation as Tenant, filed as Exhibit 10.13 to
Form S-1, Pre-Effective Amendment No. 1, registration number
33-45902, as filed with the Securities and Exchange
Commission on March 17, 1992, is incorporated herein by
reference.
(10.14) Contract, dated May 5, 1969, between the Board of Supervisors
of Tate County, Mississippi and Chromcraft Corporation, filed
as Exhibit 10.14 to Form S-1, Pre-Effective Amendment No. 1,
registration number 33-45902, as filed with the Securities
and Exchange Commission on March 17, 1992, is incorporated
herein by reference.
(10.15) Contract and Lease Agreement, dated April 17, 1972, between
Tate County, Mississippi as Landlord and Chromcraft
Corporation as Tenant, filed as Exhibit 10.15 to Form S-1,
Pre-Effective Amendment No. 1, registration number 33-45902,
as filed with the Securities and Exchange Commission on March
17, 1992, is incorporated herein by reference.
(10.19) Term Loan and Security Agreement, dated March 15, 2002, by
and between the Registrant and LaSalle Bank National
Association (as successor trustee), not in its individual or
corporate capacity, but solely as trustee of the Chromcraft
Revington Employee Stock Ownership Trust, filed as Exhibit
10.19 to Form 8-K, as filed with the Securities and Exchange
Commission on March 20, 2002, is incorporated herein by
reference.
(10.2) Amendment No. 1 to the Term Loan and Security Agreement,
dated July 14, 2003, by and between the Registrant and
LaSalle Bank National Association, not in its individual or
corporate capacity, but solely as trustee of the Chromcraft
Revington Employee Stock Ownership Trust, filed as Exhibit
10.2 to Form 10-K for the year ended December 31, 2003, is
incorporated herein by reference.
(10.3) Chromcraft Revington Employee Stock Ownership Trust,
effective January 1, 2002, by and between the Registrant and
LaSalle Bank National Association (as successor trustee),
filed as Exhibit 10.3 to Form 10-K for the year ended
December 31, 2001, is incorporated herein by reference.
(10.31) First Amendment to the Chromcraft Revington Employee Stock
Ownership Trust, effective January 1, 2002, by and between
the Registrant and LaSalle Bank National Association (as
successor trustee), filed as Exhibit 10.31 to Form 10-K for
the year ended December 31, 2001, is incorporated herein by
reference.
(10.32) Second Amendment to the Chromcraft Revington Employee Stock
Ownership Trust, effective July 14, 2003, by and between the
Registrant and LaSalle Bank National Association filed as
Exhibit 10.32 to Form 10-K for the year ended December 31,
2003, is incorporated herein by reference.
17
Executive Compensation Plans and Arrangements
- ---------------------------------------------
(10.4) Chromcraft Revington, Inc. 1992 Stock Option Plan, as amended
and restated effective March 15, 2002, filed as Exhibit 10.4
to Form 10-K for the year ended December 31, 2001, is
incorporated herein by reference.
(10.45) Directors' Stock Option Plan of Chromcraft Revington, Inc.,
effective January 1, 2002, filed as Exhibit 10.45 to Form
10-K for the year ended December 31, 2001, is incorporated
herein by reference.
(10.52) Chromcraft Revington, Inc. Short Term Executive Incentive
Plan, as amended and restated effective January 1, 2002,
filed as Appendix A to the 2002 Proxy Statement, is
incorporated herein by reference.
(10.56) Chromcraft Revington, Inc. Long Term Executive Incentive
Plan, as amended and restated effective January 1, 2002,
filed as Appendix B to the 2002 Proxy Statement, is
incorporated herein by reference.
(10.6) Chromcraft Revington Directors Deferred Compensation Plan,
effective January 1, 1999, filed as Exhibit 10.6 to Form 10-K
for the year ended December 31, 1998, is incorporated herein
by reference.
(10.8) Employment Agreement, dated March 31, 1992, between the
Registrant and Michael E. Thomas, filed as Exhibit 10.8 to
Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
(10.81) Amendment No. 1 to Employment Agreement between the
Registrant and Michael E. Thomas, dated March 15, 2002, filed
as Exhibit 10.81 to Form 10-K for the year ended December 31,
2001, is incorporated herein by reference.
(10.85) Supplemental Retirement Benefits Agreement, dated August 21,
1992, between the Registrant and Michael E. Thomas, filed as
Exhibit 10.85 to Form 10-K for the year ended December 31,
1992, is incorporated herein by reference.
(10.86) First Amendment to the Supplemental Retirement Benefits
Agreement between the Registrant and Michael E. Thomas, dated
March 15, 2002, filed as Exhibit 10.86 to Form 10-K for the
year ended December 31, 2001, is incorporated herein by
reference.
(10.87) Supplement A to the Employment Agreement and the Supplemental
Retirement Benefits Agreement, dated March 3, 2004, between
the Registrant and Michael E. Thomas, filed as Exhibit 10.87
to Form 10-Q for the quarter ended April 3, 2004, is
incorporated herein by reference.
(10.9) Employment Agreement, dated March 15, 2002, between the
Registrant and Frank T. Kane, filed as Exhibit 10.9 to Form
10-K for the year ended December 31, 2001, is incorporated
herein by reference.
(14.1) Code of Ethics for Chief Executive Officer and Senior
Financial Officers, and Code of Business Conduct and Ethics
of Chromcraft Revington, Inc., filed as Exhibit 14.1 to Form
10-K for the year ended December 31, 2003, is incorporated
herein by reference.
--------------------------
(21.1) Subsidiaries of the Registrant (filed herewith).
18
(23.1) Consent of Independent Registered Public Accounting Firm
(filed herewith).
(31.1) Certification of Chief Executive Officer required pursuant to
Rule 15d - 14(a) of the Securities Exchange Act of 1934
(filed herewith).
(31.2) Certification of Chief Financial Officer required pursuant to
Rule 15d - 14(a) of the Securities Exchange Act of 1934
(filed herewith).
(32.1) Certifications of 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 (filed herewith).
(b) Exhibits
The response to this portion of Item 15 is submitted as a separate
section of this report.
(c) Financial Statement Schedules
The response to this portion of Item 15 is submitted as a separate
section of this report.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Chromcraft Revington, Inc. has duly caused this annual report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized.
Chromcraft Revington, Inc.
--------------------------------
(Registrant)
Date: March 7, 2005 By: /s/ Michael E. Thomas
---------------- ----------------------
Michael E. Thomas,
Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Chromcraft
Revington, Inc. and in the capacities and on the date indicated.
Signatures Title Date
- -------------------------- ---------------------------------------- ------------------------
/s/ Michael E. Thomas Chairman, President, Chief Executive March 7, 2005
- -------------------------- Officer and Director (principal executive ------------------------
Michael E. Thomas officer)
/s/ Frank T. Kane Vice President - Finance (principal March 7, 2005
- -------------------------- accounting and financial officer) ------------------------
Frank T. Kane
/s/ Ronald H. Butler Director March 7, 2005
- -------------------------- ------------------------
Ronald H. Butler
/s/ Stephen D. Healy Director March 7, 2005
- -------------------------- ------------------------
Stephen D. Healy
/s/ David L. Kolb Director March 7, 2005
- -------------------------- ------------------------
David L. Kolb
/s/ Larry P. Kunz Director March 7, 2005
- -------------------------- ------------------------
Larry P. Kunz
/s/ Theodore L. Mullett Director March 7, 2005
- -------------------------- ------------------------
Theodore L. Mullett
/s/ Warren G. Wintrub Director March 7, 2005
- -------------------------- ------------------------
Warren G. Wintrub
20
Consolidated Statements of Operations
Chromcraft Revington, Inc.
(In thousands, except per share data)
Year Ended December 31,
------------------------------------
2004 2003 2002
--------- --------- ---------
Sales $ 172,393 $ 184,228 $ 214,186
Cost of sales 132,979 145,592 164,745
--------- --------- ---------
Gross margin 39,414 38,636 49,441
Selling, general and administrative expenses 26,279 27,263 30,364
Other (income) -- (3,650) --
--------- --------- ---------
Operating income 13,135 15,023 19,077
Interest expense 788 1,147 1,758
--------- --------- ---------
Earnings before income taxes and cumulative
effect of a change in accounting principle 12,347 13,876 17,319
Income tax expense 4,679 5,788 6,581
--------- --------- ---------
Earnings before cumulative effect of
a change in accounting principle 7,668 8,088 10,738
Cumulative effect of a change in accounting
principle (net of tax benefit of $1,453) -- -- (26,727)
--------- --------- ---------
Net earnings (loss) $ 7,668 $ 8,088 $ (15,989)
========= ========= =========
Earnings per share of common stock
before cumulative effect of a change
in accounting principle
Basic $ 1.85 $ 1.97 $ 2.08
========= ========= =========
Diluted $ 1.82 $ 1.94 $ 2.04
========= ========= =========
Earnings (loss) per share of common stock
after cumulative effect of a change in
accounting principle
Basic $ 1.85 $ 1.97 $ (3.09)
========= ========= =========
Diluted $ 1.82 $ 1.94 $ (3.09)
========= ========= =========
Shares used in computing earnings per share
Basic 4,143 4,109 5,168
Diluted 4,215 4,173 5,273
See accompanying notes to the consolidated financial statements
F-1
Consolidated Balance Sheets
Chromcraft Revington, Inc.
(In thousands, except share data)
December 31,
---------------------
2004 2003
-------- --------
Assets
Accounts receivable, less allowances of $1,280 in 2004 and $1,356 in 2003 $ 18,133 $ 17,768
Inventories 33,666 30,868
Deferred income taxes and prepaid expenses 1,971 1,362
-------- --------
Current assets 53,770 49,998
Property, plant and equipment, at cost, less accumulated depreciation 32,490 35,166
Other long-term assets 776 736
-------- --------
Total assets $ 87,036 $ 85,900
======== ========
Liabilities and Stockholders' Equity
Current portion of bank debt $ -- $ 5,000
Accounts payable 5,093 4,642
Accrued liabilities 8,623 10,312
-------- --------
Current liabilities 13,716 19,954
Bank debt 5,700 7,050
Deferred compensation 3,500 2,914
Other long-term liabilities 1,211 2,184
-------- --------
Total liabilities 24,127 32,102
-------- --------
Stockholders' equity
Preferred stock, $1.00 par value, 100,000 shares authorized,
none issued or outstanding -- --
Common stock, $.01 par value, 20,000,000 shares authorized,
7,701,502 and 7,676,190 shares issued 77 77
Capital in excess of par value 15,121 14,414
Unearned ESOP shares (18,062) (18,798)
Retained earnings 86,119 78,451
-------- --------
83,255 74,144
Less cost of common stock in treasury,
1,710,300 shares in 2004 and 2003 (20,346) (20,346)
-------- --------
Total stockholders' equity 62,909 53,798
-------- --------
Total liabilities and stockholders' equity $ 87,036 $ 85,900
======== ========
See accompanying notes to the consolidated financial statements
F-2
Consolidated Statements of Stockholders' Equity
Chromcraft Revington, Inc.
(In thousands, except share data)
Capital in Unearned Total
Common Excess of ESOP Retained Treasury Stockholders'
Stock Par Value Shares 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) -- -- (40,492) -- (40,529)
ESOP Trust stock purchase
(2,000,000 shares) -- -- (20,000) -- -- (20,000)
Exercise of stock options
(89,080 shares) 1 665 -- -- -- 666
ESOP compensation expense -- 191 531 -- -- 722
Stock option compensation expense -- 156 -- -- -- 156
Net loss -- -- -- (15,989) -- (15,989)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 2002 76 12,920 (19,469) 70,363 (18,120) 45,770
Purchase of treasury stock
(168,700 shares) -- -- -- -- (2,226) (2,226)
Exercise of stock options
(103,800 shares) 1 1,130 -- -- -- 1,131
ESOP compensation expense -- 166 671 -- -- 837
Stock option compensation expense -- 198 -- -- -- 198
Net earnings -- -- -- 8,088 -- 8,088
--------- --------- --------- --------- --------- ---------
Balance at December 31, 2003 77 14,414 (18,798) 78,451 (20,346) 53,798
Exercise of stock options
(25,312 shares) -- 278 -- -- -- 278
ESOP compensation expense -- 231 736 -- -- 967
Stock option compensation expense -- 198 -- -- -- 198
Net earnings -- -- -- 7,668 -- 7,668
--------- --------- --------- --------- --------- ---------
Balance at December 31, 2004 $ 77 $ 15,121 $ (18,062) $ 86,119 $ (20,346) $ 62,909
========= ========= ========= ========= ========= =========
See accompanying notes to the consolidated financial statements
F-3
Consolidated Statements of Cash Flows
Chromcraft Revington, Inc.
(In thousands)
Year Ended December 31,
--------------------------------
2004 2003 2002
-------- -------- --------
Operating Activities
Net earnings (loss) $ 7,668 $ 8,088 $(15,989)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities
Depreciation expense 3,721 4,188 4,718
Loss on disposal of property, plant and equipment 29 3 97
Deferred income taxes (989) 1,084 267
Non-cash goodwill impairment loss -- -- 26,727
Non-cash gain on the resolution of a claim -- (3,650) --
Non-cash ESOP compensation expense 967 837 722
Stock option compensation expense 198 198 156
Changes in assets and liabilities
Accounts receivable (365) 774 2,483
Inventories (2,798) 8,944 3,783
Accounts payable 451 (1,000) 42
Accrued liabilities (1,689) (1,830) 1,931
Other -- 234 82
-------- -------- --------
Cash provided by operating activities 7,193 17,870 25,019
-------- -------- --------
Investing Activities
Capital expenditures (1,086) (674) (1,538)
Proceeds on disposal of property, plant and equipment 12 22 125
-------- -------- --------
Cash used in investing activities (1,074) (652) (1,413)
-------- -------- --------
Financing Activities
Net borrowing (repayment) under a bank
revolving credit line (1,350) (4,000) 6,800
Principal payments on bank term loan (5,000) (12,000) (3,750)
Proceeds from a bank term loan -- -- 25,000
Stock repurchases -- (922) (40,529)
Stock repurchase from related party -- (1,304) --
Purchase of common stock by ESOP Trust -- -- (20,000)
Exercise of stock options, net of tax benefit 231 1,008 666
-------- -------- --------
Cash used in financing activities (6,119) (17,218) (31,813)
-------- -------- --------
Change in cash -- -- (8,207)
Cash and cash equivalents at beginning of the year -- -- 8,207
-------- -------- --------
Cash and cash equivalents at end of the year $ -- $ -- $ --
======== ======== ========
See accompanying notes to the consolidated financial statements
F-4
Notes to Consolidated Financial Statements
Chromcraft Revington, Inc.
Note 1. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of Chromcraft
Revington, Inc. and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Chromcraft Revington manufactures and sells residential and commercial
furniture. Products are sold primarily through furniture dealers throughout the
United States and Canada. Chromcraft Revington has several operating segments
which are aggregated into one reportable segment, in accordance with Financial
Accounting Standards Board Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information.
Revenue Recognition
- -------------------
Revenue from sales is recognized when the goods are shipped and risk and rewards
of ownership transfer to the customer.
Cash Equivalents
- ----------------
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Accounts Receivable
- -------------------
Accounts receivable are recorded at the invoiced amount and do not bear
interest. The Company provides for an allowance for doubtful accounts based on
expected collectibility of trade receivables. The allowance for doubtful
accounts is determined based on the Company's analysis of customer
credit-worthiness, historical loss experience and general economic conditions
and trends. The Company reviews past due balances and its allowance for doubtful
accounts monthly. Any accounts receivable balances that are determined to be
uncollectible are included in the overall allowance for doubtful accounts. After
all attempts to collect a receivable have been exhausted, the receivable is
written off against the allowance. The Company does not have any
off-balance-sheet credit exposure related to its customers.
Inventories
- -----------
All inventories (materials, labor and overhead) are valued at the lower of cost
or market. Inventories valued using the last-in, first-out (LIFO) basis
represent approximately 55% and 57% of total inventories at December 31, 2004
and 2003, respectively. Remaining inventories are valued using the first-in,
first-out (FIFO) basis.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment is stated on the basis of cost. Depreciation is
computed principally by the straight-line method for financial reporting
purposes and by accelerated methods for tax purposes. The following estimated
useful lives are used for financial reporting purposes: buildings and
improvements, 15 to 45 years; machinery and equipment, 3 to 12 years; and
leasehold improvements, 5 to 10 years.
Impairment of Long-lived Assets
- -------------------------------
When changes in circumstances indicate the carrying amount of certain long-lived
assets may not be recoverable, the assets will be evaluated for impairment. If
the forecast of undiscounted future cash flows is less than the carrying amount
of the assets, an impairment charge to reduce the carrying value of the assets
to fair value will be recognized in the current period.
F-5
Deferred Income Taxes
- ---------------------
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.
Earnings per Share
- ------------------
Basic earnings per share is calculated based on the average number of common
shares outstanding. Diluted earnings per share include dilutive potential common
shares (stock options).
Financial Instruments
- ---------------------
The carrying amounts reported in the balance sheets for accounts receivable,
accounts payable and bank debt approximate their fair values. Concentration of
credit risk with respect to trade accounts receivable is limited due to the
large number of entities comprising Chromcraft Revington's customer base.
Stock Options
- -------------
The Company has two stock-based compensation plans, which are described more
fully in Note 11 "Stock Options". The Company accounts for those plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations and discloses the fair
value of options granted as permitted by Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("Statement No.
123"). The estimated per share weighted average fair value of stock options
granted during 2004, 2003 and 2002 was $5.34, $4.77 and $6.15, respectively, on
the date of grant. The fair value of stock options on the date of grant was
estimated using the Black-Scholes model with the following weighted average
assumptions:
2004 2003 2002
------ ------ ------
Expected life (years) 6 6 6
Interest rate 3.8% 3.5% 5.1%
Volatility 32.5% 34.0% 34.6%
F-6
The following table illustrates the effect on net earnings (loss) and earnings
(loss) per share if the Company had applied the fair value recognition
provisions of Statement No. 123 to stock-based employee compensation for the
years ended December 31, 2004, 2003 and 2002.
(In thousands, except per share data)
-------------------------------------
2004 2003 2002
-------- -------- --------
Net earnings (loss), as reported, after cumulative
effect of a change in accounting principle in 2002 $ 7,668 $ 8,088 $(15,989)
Add: Stock-based employee compensation
expense included in reported net earnings (loss),
net of related tax effects 122 122 97
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects (537) (726) (416)
-------- -------- --------
Pro forma net earnings (loss) $ 7,253 $ 7,484 $(16,308)
======== ======== ========
Earnings (loss) per share, after cumulative effect of a
change in accounting principle in 2002
Basic - as reported $ 1.85 $ 1.97 $ (3.09)
Basic - pro forma $ 1.75 $ 1.82 $ (3.16)
Diluted - as reported $ 1.82 $ 1.94 $ (3.09)
Diluted - pro forma $ 1.73 $ 1.81 $ (3.16)
Use of Estimates
- ----------------
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Note 2. Inventories
Inventories at December 31, 2004 and 2003 consisted of the following:
(In thousands)
---------------------
2004 2003
-------- --------
Raw materials $ 10,980 $ 8,811
Work-in-process 6,374 5,835
Finished goods 18,851 18,109
-------- --------
36,205 32,755
LIFO reserve (2,539) (1,887)
-------- --------
$ 33,666 $ 30,868
======== ========
During 2003, LIFO inventory layers were reduced. This reduction resulted in
charging lower inventory costs prevailing in previous years to cost of sales,
thus reducing cost of sales by $122,000 below the amount that would have
resulted from liquidating inventory recorded at December 31, 2003 prices.
F-7
Note 3. Property, Plant and Equipment
Property, plant and equipment at December 31, 2004 and 2003 consisted of the
following:
(In thousands)
-------------------------------
2004 2003
-------------- --------------
Land $ 2,231 $ 2,231
Buildings and improvements 34,685 34,676
Machinery and equipment 51,791 51,411
Leasehold improvements 809 787
Construction in progress 252 54
-------------- --------------
89,768 89,159
Less accumulated depreciation and amortization (57,278) (53,993)
-------------- --------------
$ 32,490 $ 35,166
============= =============
Note 4. Accrued Liabilities
Accrued liabilities at December 31, 2004 and 2003 consisted of the following:
(In thousands)
------------------------------
2004 2003
------------- -------------
Employee benefit plans $ 2,703 $ 3,534
Compensation related and commissions 1,621 2,387
Property taxes 868 896
Other accrued liabilities 3,431 3,495
------------- -------------
$ 8,623 $ 10,312
============ ============
Note 5. Bank Debt
Chromcraft Revington has a bank agreement with a group of banks that provides
for a term loan and a revolving credit line. The interest rate under the bank
agreement is 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 December 31, 2004 and 2003 was 3.4% and
2.5%, respectively. A commitment fee of .20% per annum, is payable on the unused
portion of the revolving credit line.
At December 31, 2004, the Company had approximately $37,300,000 in unused
availability under the revolving credit line. The bank agreement 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 bank agreement. 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. The bank agreement does not permit the
payment of cash dividends.
Long-term bank debt at December 31, 2004 and 2003 consisted of the following:
(In thousands)
-------------------------------
2004 2003
------------- -------------
Term loan $ 4,250 $ 9,250
Revolving credit line 1,450 2,800
------------- -------------
5,700 12,050
Less current portion of term loan -- 5,000
------------- -------------
$ 5,700 $ 7,050
============= =============
F-8
In January 2005, the term loan was paid off and replaced with borrowings under
the bank revolving credit line that matures on March 13, 2007. Accordingly, the
Company has classified its bank indebtedness as a long-term liability at
December 31, 2004.
Note 6. Income Taxes
Components of total income taxes for the years ended December 31, 2004, 2003 and
2002 were as follows:
(In thousands)
--------------------------------------------------
2004 2003 2002
--------------- -------------- --------------
Current:
Federal $ 4,869 $ 3,904 $ 5,504
State 799 800 810
--------------- -------------- --------------
5,668 4,704 6,314
--------------- -------------- --------------
Deferred:
Federal (902) 986 345
State (87) 98 (78)
--------------- -------------- --------------
(989) 1,084 267
--------------- -------------- --------------
Total provision for income taxes on earnings before
cumulative effect of a change in accounting principle 4,679 5,788 6,581
Tax benefit recorded as part of a cumulative
effect of a change in accounting principle -- -- (1,453)
--------------- -------------- --------------
$ 4,679 $ 5,788 $ 5,128
=============== ============== ==============
A reconciliation of the provision for income taxes attributable to earnings
before the cumulative effect of a change in accounting principle included in the
Consolidated Statements of Operations and the amount computed by applying the
U.S. Federal income tax rate for the years ended December 31, 2004, 2003 and
2002 is summarized below:
2004 2003 2002
--------------- -------------- --------------
Tax expense, at U.S. statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 3.3% 3.6% 2.8%
Change in the tax basis of certain acquired assets -- 3.7% --
Other, net (0.4%) (0.6%) 0.2%
--------------- -------------- --------------
Total provision for income taxes 37.9% 41.7% 38.0%
=============== ============== ==============
F-9
The tax effects of temporary differences that give rise to significant portions
of net deferred tax assets (liabilities) at December 31, 2004 and 2003 are
summarized below:
(In thousands)
-------------------
2004 2003
------- -------
Deferred tax assets attributable to:
Accounts receivable $ 491 $ 577
Employee benefit plans 907 837
ESOP compensation expense 387 266
Deferred compensation 1,860 1,878
Goodwill 1,004 1,154
Net operating loss carryforwards 1,490 1,716
Other liabilities 1,258 1,093
------- -------
Total gross deferred tax assets 7,397 7,521
------- -------
Deferred tax liabilities attributable to:
Inventories (1,415) (1,662)
Property, plant and equipment (5,359) (6,065)
Other (234) (394)
------- -------
Total gross deferred tax liabilities (7,008) (8,121)
------- -------
Net deferred tax asset (liability) $ 389 $ (600)
======= =======
Balance sheet classifications of deferred taxes at December 31, 2004 and 2003
were as follows:
(In thousands)
-------------------
2004 2003
------- -------
Deferred tax asset, current $ 640 $ 321
Deferred tax liability, noncurrent (251) (921)
------- -------
Net deferred tax asset (liability) $ 389 $ (600)
======= =======
Chromcraft Revington has federal and state net operating loss carryforwards
("NOL's") available of $2,586,000 and $7,182,000, respectively, at December 31,
2004 with expiration dates through 2010 and 2018, respectively. The NOL's were
acquired in connection with the acquisitions of Cochrane Furniture and Korn
Industries. The use of the state NOL's is primarily limited to the future
taxable earnings of Korn Industries. Based upon the level of historical taxable
income and projections for future income over the periods in which the deferred
tax assets are deductible, management believes it is more likely than not that
Chromcraft Revington will realize these tax benefits.
Note 7. 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
72,000, 64,000 and 105,000 for the years ended December 31, 2004, 2003 and 2002,
respectively.
Certain options to purchase shares of common stock were outstanding during 2004,
2003 and 2002, 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 198,603 shares at
$15.75 at December 31, 2004, 223,060 shares at $15.26 at December 31, 2003 and
148,900 shares at $16.41 at December 31, 2002.
F-10
Note 8. Stockholders' Equity
On March 15, 2002, Chromcraft Revington and the Chromcraft Revington Employee
Stock Ownership Trust ("ESOP Trust"), which forms a part of the Chromcraft
Revington Employee Stock Ownership Plan ("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 ("Company Stock Transaction") and 2,000,000 shares were purchased by
the ESOP Trust ("ESOP Stock Transaction" 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 fees and expenses of $3,575,000 in connection with the
Transaction. See Note 9 "Employee Stock Ownership Plan" for additional
information on the ESOP.
In 2003, the Company bought 98,200 shares of Chromcraft Revington common stock
from Michael E. Thomas, Chairman, President and Chief Executive Officer for
$1,303,605, or $13.275 per share with the purchase price determined based on an
average selling price of the Company's common stock prior to the sale date.
Note 9. 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 AICPA Statement of Position 93-6,
Employers' Accounting for Employee Stock Ownership Plans. Accordingly, unearned
ESOP shares are reported as a reduction of stockholders' equity as reflected in
the Consolidated Statements 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. ESOP compensation expense, a
non-cash charge, was $967,000 in 2004, $837,000 in 2003 and $722,000 in 2002.
ESOP shares consisted of the following:
(In thousands)
------------------
December 31,
2004 2003
------- -------
Allocated shares 184 120
Unearned ESOP shares 1,806 1,880
------- -------
Total ESOP shares 1,990 2,000
======= =======
Unearned ESOP shares, at cost $18,062 $18,798
======= =======
Fair value of unearned ESOP shares $22,216 $21,317
======= =======
At December 31, 2004, the ESOP Trust owned approximately 33.2% of the issued and
outstanding shares of Chromcraft Revington's common stock.
Note 10. Other Benefit Plans
Chromcraft Revington sponsors a tax-qualified defined contribution plan under
Internal Revenue Code Section 401(k). Company matching contributions to the plan
were $12,000 in 2004, $11,000 in 2003 and $74,000 in 2002. Beginning in April
2002, Company matching contributions for most employees were made to the ESOP.
F-11
Chromcraft Revington also provides supplemental retirement benefits to key
employees and executive officers of Chromcraft Revington. Expenses under these
arrangements were $1,091,000 in 2004, $702,000 in 2003 and $908,000 in 2002.
Note 11. Stock Options
Chromcraft Revington's 1992 Stock Option Plan, as amended ("1992 Plan"),
provides for the granting of either incentive stock options ("ISO's") or stock
options which do not qualify as incentive stock options ("non-ISO's"). The total
number of shares of common stock which may be issued under stock options granted
pursuant to the 1992 Plan is 1,800,000 shares. ISO's granted under the 1992 Plan
vest over no greater than a 10-year period, and are granted at exercise prices
no less than the fair market value of Chromcraft Revington's common shares as of
the date of grant. The compensation committee of the Board of Directors
determines the vesting period and exercise prices of non-ISO's. At December 31,
2004 and 2003, there were 222,924 and 154,627 shares, respectively, available
for future grants.
Chromcraft Revington's Directors' Stock Option Plan ("Directors' Plan") was
adopted effective January 1, 2002, and provides for the granting of non-ISO's to
members of the Board of Directors of the Company who are not employees. Under
the Directors' Plan, eligible directors of the Company receive an option to
purchase 2,500 shares of common stock on the day following their re-election to
the Board at each annual meeting of stockholders. Any new director who is
elected or appointed for the first time to the Board of Directors receives an
option to purchase 10,000 shares of common stock. The total number of shares of
common stock which may be issued under stock options granted pursuant to the
Directors' Plan is 75,000 shares. Non-ISO's granted under the Plan are 100%
vested on the day of the grant and are granted at exercise prices equal to the
fair market value of Chromcraft Revington's common shares as of the date of
grant. The options are exercisable for a period of ten years. At December 31,
2004 and 2003, there were 20,000 and 40,000 shares, respectively, available for
future grants.
A summary of Chromcraft Revington's stock option activity and related
information for the three years ended December 31, 2004 follows:
Weighted
Average
Number Exercise
of Shares Price
--------- ----------
2002
Granted 410,000 $ 10.79
Exercised (89,080) $ 5.85
Outstanding at end of year 918,562 $ 11.62
Exercisable 527,562 $ 12.43
2003
Granted 94,103 $ 12.08
Exercised (103,800) $ 9.71
Outstanding at end of year 908,865 $ 11.88
Exercisable 618,198 $ 12.50
2004
Granted 59,703 $ 13.75
Exercised (25,312) $ 9.08
Canceled (108,000) $ 11.82
Outstanding at end of year 835,256 $ 12.11
Exercisable 654,922 $ 12.57
F-12
Stock options outstanding have exercise prices ranging from $8.00 to $19.78.
Significant option groups outstanding at December 31, 2004 and related weighted
average price and remaining life information follow:
Options Outstanding Options Exercisable
--------------------- ---------------------
Range of Number Exercise Number Exercise Remaining
Exercise Prices of Shares Price of Shares Price Life (Years)
- ---------------- --------- -------- --------- -------- ------------
$8.00 to $8.09 36,390 $ 8.08 34,390 $ 8.09 5.1
$10.49 to $11.05 402,000 $ 10.51 223,666 $ 10.53 6.9
$12.09 to $14.83 308,328 $ 13.02 308,328 $ 13.02 5.2
$16.00 to $19.78 88,538 $ 17.88 88,538 $ 17.88 3.7
Note 12. Other Long-Term Liabilities
Other long-term liabilities include $650,000 for expected environmental
remediation costs relating to property acquired as part of the Company's earlier
acquisition of a subsidiary. The amount of this liability is based upon
information provided to the Company by an environmental consultant and other
available information.
Note 13. Other Income
Operating income for the year ended December 31, 2003 includes a $3,650,000
non-cash gain on the resolution of a claim in connection with the Company's
earlier acquisition of a subsidiary.
Note 14. 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 $5.17 loss per share, for the year ended December 31, 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.
Note 15. Supplemental Cash Flow Information
Interest paid during the years ended December 31, 2004, 2003 and 2002 was
$798,000, $1,152,000 and $1,755,000, respectively. Income taxes paid during the
years ended December 31, 2004, 2003 and 2002 were $5,155,000, $4,511,000 and
$5,883,000, respectively.
Note 16. Rental Commitments
Chromcraft Revington leases certain showroom facilities and transportation
equipment under non-cancelable operating leases. The future minimum lease
payments under non-cancelable leases for the years ending December 31, 2005,
2006, 2007, 2008 and 2009 are $1,127,000, $1,201,000, $1,108,000, $1,017,000 and
$236,000, respectively. It is expected that, in the normal course of business,
leases that expire will be renewed or replaced.
Rental expense was $1,335,000, $1,563,000, and $1,650,000 for the years ended
December 31, 2004, 2003 and 2002, respectively.
Note 17. Recently Issued Accounting Standards
In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 151, Inventory Costs ("Statement
No. 151"). Statement No. 151 amends Accounting Research Bulletin No. 43, Chapter
4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs and wasted material. Statement No. 151
requires that those items be recognized as current-period charges and requires
that allocation of fixed production overheads to the cost of conversion be based
on the normal capacity of the production facilities. Statement No. 151 is
effective for fiscal years beginning after June 15, 2005. The
F-13
Company does not expect the adoption of Statement No. 151 to have a material
impact on the Company's financial condition or results of operations.
In December 2004, FASB issued Statement of Financial Accounting Standards No.
123 (revised 2004), Share-Based Payments ("Statement No. 123(R)"). Statement No.
123(R) replaces FASB Statement No. 123 and supersedes Accounting Principles
Board Opinion No. 25. Statement No. 123(R) will require the fair value of all
stock option awards issued to employees to be recorded as an expense over the
related vesting period. Statement No. 123(R) also requires the recognition of
compensation expense for the fair value of any unvested stock option awards
outstanding at July 1, 2005, the date of adoption. The Company has not
determined the impact of Statement No. 123(R).
In December 2004, FASB Staff Position 109-1 was issued to provide guidance on
the application of FASB Statement No. 109, Accounting for Income Taxes
("Statement No. 109"), to the provision within the American Jobs Creation Act of
2004 that provides a tax deduction, phased-in beginning in 2005, on qualified
production activities. The FASB staff concluded that the deduction should be
accounted for as a special deduction in accordance with Statement No. 109. The
Company has not determined the impact of FASB Staff Position 109-1 on its future
effective income tax rate.
F-14
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Chromcraft Revington, Inc.:
We have audited the consolidated financial statements of Chromcraft Revington,
Inc. and subsidiaries as listed in item 15(a) (1) and (2). In connection with
our audits of the consolidated financial statements, we also have audited the
consolidated financial statement schedule as listed in item 15(a) (1) and (2).
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Chromcraft
Revington, Inc. and subsidiaries as of December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in note 13 to the consolidated financial statements, the Company
changed its method of accounting for goodwill amortization and impairment in
2002.
KPMG LLP
Indianapolis, Indiana
February 25, 2005
F-15
Quarterly Financial Information (unaudited)
Chromcraft Revington, Inc.
(In thousands, except per share data)
------------------------------------------------------------
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
2004
Sales $ 46,467 $ 42,638 $ 41,658 $ 41,630 $172,393
Gross margin 10,708 9,873 9,297 9,536 39,414
Operating income 2,621 3,499 3,416 3,599 13,135
Net earnings 1,493 2,039 1,979 2,157 7,668
Earnings per share of common stock
Basic .36 .49 .48 .52 1.85
Diluted .36 .48 .47 .51 1.82
2003
Sales $ 49,431 $ 44,166 $ 44,951 $ 45,680 $184,228
Gross margin 11,035 9,598 8,765 9,238 38,636
Operating income 3,858 2,866 5,331 (a) 2,968 15,023 (a)
Net earnings 2,191 1,589 2,619 1,689 8,088
Earnings per share of common stock
Basic .53 .38 .63 .41 1.97
Diluted .52 .38 .62 .41 1.94
(a) Includes a $3,650,000 non-cash gain on the resolution of a claim in
connection with the Company's earlier acquisition of a subsidiary.
F-16
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Chromcraft Revington, Inc.
(In thousands)
Additions
------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Classification of Period Expenses Accounts Deductions of Period
- ---------------------------------------------------------------------------------------------------------
Year ended December 31, 2004
Allowance for doubtful
accounts $ 1,356 $ 287 $ -- $ (363) (a) $ 1,280
Year ended December 31, 2003
Allowance for doubtful
accounts $ 1,373 $ 231 $ -- $ (248) (a) $ 1,356
Year ended December 31, 2002
Allowance for doubtful
accounts $ 1,334 $ 434 $ -- $ (395) (a) $ 1,373
(a) Represents charge-offs, net of recoveries, to the allowance for doubtful
accounts.
S-1
EXHIBIT INDEX
(2.1) Stock Purchase Agreement, dated as of February 19, 2002, by and
between the Registrant and Court Square, filed as Exhibit 10.16 to
Form 8-K, as filed with the Securities and Exchange Commission on
March 20, 2002, is incorporated herein by reference.
(2.2) Stock Purchase Agreement, dated as of February 19, 2002, by and
between Court Square and GreatBanc Trust Company, not in its
individual or corporate capacity, but solely as trustee of the
Chromcraft Revington Employee Stock Ownership Trust, filed as Exhibit
10.17 to Form 8-K, as filed with the Securities and Exchange
Commission on March 20, 2002, is incorporated herein by reference.
(3.1) Certificate of Incorporation of the Registrant, as amended, filed as
Exhibit 3.1 to Form S-1, registration number 33-45902, as filed with
the Securities and Exchange Commission on February 21, 1992, is
incorporated herein by reference.
(3.2) By-laws of the Registrant, as amended, filed as Exhibit 3.2 to Form
10-Q for the quarter ended October 2, 2004, is incorporated herein by
reference.
(4.8) Credit Agreement, dated March 12, 2002, among the Registrant, the
Lenders party thereto and National City Bank of Indiana, as agent for
the Lenders, filed as Exhibit 4.8 to Form 8-K, as filed with the
Securities and Exchange Commission on March 20, 2002, is incorporated
herein by reference.
(10.1) Lease, dated February 15, 1962, between the Board of Supervisors of
Tate County, Mississippi as Landlord and Chromcraft Corporation as
Tenant, filed as Exhibit 10.1 to Form S-1, registration number
33-45902, as filed with the Securities and Exchange Commission on
February 21, 1992, is incorporated herein by reference.
(10.12) Contract, dated April 3, 1961, between the City of Senatobia, Tate
County, Mississippi, the Board of Supervisors of Tate County,
Mississippi and Chromcraft Corporation, filed as Exhibit 10.12 to Form
S-1, Pre-Effective Amendment No. 1, registration number 33-45902, as
filed with the Securities and Exchange Commission on March 17, 1992,
is incorporated herein by reference.
(10.13) Lease, dated September 9, 1966, between the Board of Supervisors of
Tate County, Mississippi as Landlord and Chromcraft Corporation as
Tenant, filed as Exhibit 10.13 to Form S-1, Pre-Effective Amendment
No. 1, registration number 33-45902, as filed with the Securities and
Exchange Commission on March 17, 1992, is incorporated herein by
reference.
(10.14) Contract, dated May 5, 1969, between the Board of Supervisors of Tate
County, Mississippi and Chromcraft Corporation, filed as Exhibit 10.14
to Form S-1, Pre-Effective Amendment No. 1, registration number
33-45902, as filed with the Securities and Exchange Commission on
March 17, 1992, is incorporated herein by reference.
(10.15) Contract and Lease Agreement, dated April 17, 1972, between Tate
County, Mississippi as Landlord and Chromcraft Corporation as Tenant,
filed as Exhibit 10.15 to Form S-1, Pre-Effective Amendment No. 1,
registration number 33-45902, as filed with the Securities and
Exchange Commission on March 17, 1992, is incorporated herein by
reference.
(10.19) Term Loan and Security Agreement, dated March 15, 2002, by and between
the Registrant and LaSalle Bank National Association (as successor
trustee), not in its individual or corporate capacity, but solely as
trustee of the Chromcraft Revington Employee Stock Ownership Trust,
filed as Exhibit 10.19 to Form 8-K, as filed with the Securities and
Exchange Commission on March 20, 2002, is incorporated herein by
reference.
(10.2) Amendment No. 1 to the Term Loan and Security Agreement, dated July
14, 2003, by and between the Registrant and LaSalle Bank National
Association, not in its individual or corporate capacity, but solely
as trustee of the Chromcraft Revington Employee Stock Ownership Trust,
filed as Exhibit 10.2 to Form 10-K for the year ended December 31,
2003, is incorporated herein by reference.
(10.3) Chromcraft Revington Employee Stock Ownership Trust, effective January
1, 2002, by and between the Registrant and LaSalle Bank National
Association (as successor trustee), filed as Exhibit 10.3 to Form 10-K
for the year ended December 31, 2001, is incorporated herein by
reference.
(10.31) First Amendment to the Chromcraft Revington Employee Stock Ownership
Trust, effective January 1, 2002, by and between the Registrant and
LaSalle Bank National Association (as successor trustee), filed as
Exhibit 10.31 to Form 10-K for the year ended December 31, 2001, is
incorporated herein by reference.
(10.32) Second Amendment to the Chromcraft Revington Employee Stock Ownership
Trust, effective July 14, 2003, by and between the Registrant and
LaSalle Bank National Association filed as Exhibit 10.32 to Form 10-K
for the year ended December 31, 2003, is incorporated herein by
reference.
Executive Compensation Plans and Arrangements
- ---------------------------------------------
(10.4) Chromcraft Revington, Inc. 1992 Stock Option Plan, as amended and
restated effective March 15, 2002, filed as Exhibit 10.4 to Form 10-K
for the year ended December 31, 2001, is incorporated herein by
reference.
(10.45) Directors' Stock Option Plan of Chromcraft Revington, Inc., effective
January 1, 2002, filed as Exhibit 10.45 to Form 10-K for the year
ended December 31, 2001, is incorporated herein by reference.
(10.52) Chromcraft Revington, Inc. Short Term Executive Incentive Plan, as
amended and restated effective January 1, 2002, filed as Appendix A to
the 2002 Proxy Statement, is incorporated herein by reference.
(10.56) Chromcraft Revington, Inc. Long Term Executive Incentive Plan, as
amended and restated effective January 1, 2002, filed as Appendix B to
the 2002 Proxy Statement, is incorporated herein by reference.
(10.6) Chromcraft Revington Directors Deferred Compensation Plan, effective
January 1, 1999, filed as Exhibit 10.6 to Form 10-K for the year ended
December 31, 1998, is incorporated herein by reference.
(10.8) Employment Agreement, dated March 31, 1992, between the Registrant and
Michael E. Thomas, filed as Exhibit 10.8 to Form 10-K for the year
ended December 31, 1992, is incorporated herein by reference.
(10.81) Amendment No. 1 to Employment Agreement between the Registrant and
Michael E. Thomas, dated March 15, 2002, filed as Exhibit 10.81 to
Form 10-K for the year ended December 31, 2001, is incorporated herein
by reference.
(10.85) Supplemental Retirement Benefits Agreement, dated August 21, 1992,
between the Registrant and Michael E. Thomas, filed as Exhibit 10.85
to Form 10-K for the year ended December 31, 1992, is incorporated
herein by reference.
(10.86) First Amendment to the Supplemental Retirement Benefits Agreement
between the Registrant and Michael E. Thomas, dated March 15, 2002,
filed as Exhibit 10.86 to Form 10-K for the year ended December 31,
2001, is incorporated herein by reference.
(10.87) Supplement A to the Employment Agreement and the Supplemental
Retirement Benefits Agreement, dated March 3, 2004, between the
Registrant and Michael E. Thomas, filed as Exhibit 10.87 to Form 10-Q
for the quarter ended April 3, 2004, is incorporated herein by
reference.
(10.9) Employment Agreement, dated March 15, 2002, between the Registrant and
Frank T. Kane, filed as Exhibit 10.9 to Form 10-K for the year ended
December 31, 2001, is incorporated herein by reference.
(14.1) Code of Ethics for Chief Executive Officer and Senior Financial
Officers, and Code of Business Conduct and Ethics of Chromcraft
Revington, Inc., filed as Exhibit 14.1 to Form 10-K for the year ended
December 31, 2003, is incorporated herein by reference.
-------------------------
(21.1) Subsidiaries of the Registrant (filed herewith).
(23.1) Consent of Independent Registered Public Accounting Firm (filed
herewith).
(31.1) Certification of Chief Executive Officer required pursuant to Rule 15d
- 14(a) of the Securities Exchange Act of 1934, (filed herewith).
(31.2) Certification of Chief Financial Officer required pursuant to Rule 15d
- 14(a) of the Securities Exchange Act of 1934, (filed herewith).
(32.1) Certifications of 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 (filed herewith).