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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-13970
CHROMCRAFT REVINGTON, INC.
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(Exact name of registrant as specified in its charter)
Delaware 35-1848094
- -------------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1100 North Washington Street, Delphi, IN 46923
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(Address, including zip code, of registrant's principal executive offices)
(765) 564-3500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares outstanding for each of the registrant's classes of common
stock, as of the latest practicable date:
Common Stock, $.01 par value - 5,986,202 shares as of April 30, 2004
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INDEX
Page Number
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PART I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Earnings - Three
Months Ended April 3, 2004 and March 29, 2003...................................................... 3
Condensed Consolidated Balance Sheets - April 3, 2004,
March 29, 2003 and December 31, 2003............................................................... 4
Condensed Consolidated Statement of Stockholders' Equity - Three Months
Ended April 3, 2004................................................................................ 5
Condensed Consolidated Statements of Cash Flows - Three
Months Ended April 3, 2004 and March 29, 2003...................................................... 6
Notes to Condensed Consolidated Financial Statements............................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................... 11
Item 4. Controls and Procedures.............................................................................. 11
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K..................................................................... 12
Signatures........................................................................................................... 13
2
PART I.
Item 1. Financial Statements
Condensed Consolidated Statements of Earnings (unaudited)
Chromcraft Revington, Inc.
(In thousands, except per share data)
Three Months Ended
---------------------
April 3, March 29,
2004 2003
------- -------
Sales $46,467 $49,431
Cost of sales 35,759 38,396
------- -------
Gross margin 10,708 11,035
Selling, general and administrative expenses 8,087 7,177
------- -------
Operating income 2,621 3,858
Interest expense 197 324
------- -------
Earnings before income tax expense 2,424 3,534
Income tax expense 931 1,343
------- -------
Net earnings $ 1,493 $ 2,191
======= =======
Earnings per share of common stock
Basic $ .36 $ .53
Diluted $ .36 $ .52
Shares used in computing earnings per share
Basic 4,098 4,101
Diluted 4,183 4,185
See accompanying notes to condensed consolidated financial statements.
3
Condensed Consolidated Balance Sheets (unaudited)
Chromcraft Revington, Inc.
(In thousands)
April 3, March 29, Dec. 31,
2004 2003 2003
-------- -------- --------
Assets
Accounts receivable $ 21,635 $ 21,595 $ 17,768
Inventories 32,784 39,636 30,868
Prepaid expenses and other 1,634 1,236 1,362
-------- -------- --------
Current assets 56,053 62,467 49,998
Property, plant and equipment, net 34,439 37,813 35,166
Other long-term assets 765 2,236 736
-------- -------- --------
Total assets $ 91,257 $102,516 $ 85,900
======== ======== ========
Liabilities and Stockholders' Equity
Current portion of bank debt $ 5,000 $ 6,250 $ 5,000
Accounts payable 5,356 6,075 4,642
Accrued liabilities 11,021 14,451 10,312
-------- -------- --------
Current liabilities 21,377 26,776 19,954
Bank debt 8,500 21,100 7,050
Other long-term liabilities 5,607 6,398 5,098
-------- -------- --------
Total liabilities 35,484 54,274 32,102
Stockholders' equity 55,773 48,242 53,798
-------- -------- --------
Total liabilities and stockholders' equity $ 91,257 $102,516 $ 85,900
======== ======== ========
See accompanying notes to consolidated financial statements.
4
Condensed Consolidated Statement of Stockholders' Equity (unaudited)
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
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Balance at January 1, 2004 $ 77 $ 14,414 $(18,798) $ 78,451 $(20,346) $ 53,798
Net earnings -- -- -- 1,493 -- 1,493
ESOP compensation expense -- 58 168 -- -- 226
Stock option compensation
expense -- 50 -- -- -- 50
Exercise of stock options
(20,312 shares) -- 206 -- -- -- 206
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Balance at April 3, 2004 $ 77 $ 14,728 $(18,630) $ 79,944 $(20,346) $ 55,773
======== ======== ======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
5
Condensed Consolidated Statements of Cash Flows (unaudited)
Chromcraft Revington, Inc.
(In thousands)
Three Months Ended
---------------------
April 3, March 29,
2004 2003
------- -------
Operating Activities
Net earnings $ 1,493 $ 2,191
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities
Depreciation expense 980 1,136
Deferred income taxes (460) (46)
Non-cash ESOP expenses 226 216
Stock option compensation expense 50 49
Changes in assets and liabilities
Accounts receivable (3,867) (3,053)
Inventories (1,916) 176
Accounts payable and accrued liabilities 1,452 354
Other long-term liabilities 1,003 6
Other (332) (18)
------- -------
Cash provided by (used in) operating activities (1,371) 1,011
------- -------
Investing Activities
Capital expenditures, net (256) (246)
------- -------
Cash used in investing activities (256) (246)
------- -------
Financing Activities
Net borrowing (repayment) under a bank revolving credit line 2,700 (700)
Principal payment on bank term loan (1,250) --
Stock repurchases -- (923)
Proceeds from exercise of stock options 177 858
------- -------
Cash provided by (used in) financing activities 1,627 (765)
------- -------
Net change in cash -- --
Cash at beginning of period -- --
------- -------
Cash at end of period $ -- $ --
======= =======
See accompanying notes to condensed consolidated financial statements.
6
Notes to Condensed Consolidated Financial Statements (unaudited)
Chromcraft Revington, Inc.
Note 1. Basis of Presentation
- ------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statement presentation.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended April 3, 2004 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2004.
The balance sheet at December 31, 2003 has been derived from the audited
financial statements at that date but does not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in Chromcraft Revington's annual report on Form 10-K
for the year ended December 31, 2003.
Note 2. Inventories
- --------------------
Inventories consisted of the following:
(In thousands)
------------------------------------
April 3, March 29, Dec. 31,
2004 2003 2003
-------- -------- --------
Raw materials $ 8,438 $ 11,266 $ 8,811
Work-in-process 6,577 7,276 5,835
Finished goods 19,757 23,166 18,109
-------- -------- --------
Inventories at FIFO cost 34,772 41,708 32,755
LIFO reserve (1,988) (2,072) (1,887)
-------- -------- --------
$ 32,784 $ 39,636 $ 30,868
======== ======== ========
Note 3. Bank Debt
- ------------------
Long term bank debt consisted of the following:
(In thousands)
-------------------------------
April 3, March 29, Dec. 31,
2004 2003 2003
------- ------- -------
Term loan $ 8,000 $21,250 $ 9,250
Revolving credit line 5,500 6,100 2,800
------- ------- -------
13,500 27,350 12,050
Less current portion of term loan 5,000 6,250 5,000
------- ------- -------
$ 8,500 $21,100 $ 7,050
======= ======= =======
7
Note 4. Accrued Liabilities
- ----------------------------
Accrued liabilities consisted of the following:
(In thousands)
--------------------------------
April 3, March 29, Dec. 31,
2004 2003 2003
------- ------- -------
Salaries, wages and commissions $ 1,534 $ 1,676 $ 1,164
Vacation and holiday pay 1,339 1,242 1,009
Income taxes payable 1,191 1,131 123
Workers' compensation plans 988 1,148 915
Health and benefit plans 780 1,466 1,610
Profit sharing and bonus 520 326 1,223
Other accrued liabilities 4,669 7,462 4,268
------- ------- -------
$11,021 $14,451 $10,312
======= ======= =======
Note 5. Employee Stock Ownership Plan
- --------------------------------------
Chromcraft Revington sponsors a leveraged employee stock ownership plan ("ESOP")
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 the loan from the Company. As the ESOP loan is
repaid, shares are released and allocated to ESOP accounts of active employees
based on the proportion of the loan and related interest paid in the year.
Unearned ESOP shares are reported as a reduction of stockholders' equity as
reflected in the Condensed Consolidated Statement of Stockholders' Equity of the
Company. As shares are committed to be released, Chromcraft Revington reports
compensation expense equal to the current market price of the shares, and the
shares become outstanding for earnings per share computations. ESOP compensation
expense, a non-cash charge, for the three months ended April 3, 2004 and March
29, 2003 was $226,000 and $216,000, respectively. ESOP shares consisted of the
following:
(In thousands)
--------------------------------
April 3, March 29, Dec. 31,
2004 2003 2003
------- ------- -------
Allocated shares 120 53 120
Committed to be released shares 17 17 --
Unearned ESOP shares 1,863 1,930 1,880
------- ------- -------
Total ESOP shares 2,000 2,000 2,000
======= ======= =======
Unearned ESOP shares, at cost $18,630 $19,301 $18,798
======= ======= =======
Fair value of unearned ESOP shares $27,200 $24,801 $21,317
======= ======= =======
Note 6. Earnings per Share of Common Stock
- -------------------------------------------
Weighted average shares used in the calculation of diluted earnings per share
included dilutive potential common shares (stock options) of approximately
85,000 and 84,000 for the three months ended April 3, 2004 and March 29, 2003,
respectively.
8
Certain options to purchase shares of common stock were outstanding during the
first three months of 2004 and 2003, 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 at April 3, 2004 and March 29, 2003 were 188,603 shares at $15.87 and
200,560 shares at $15.56, respectively.
Note 7. Stock Based Compensation
- ---------------------------------
The Company has two stock-based compensation plans. 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 the first quarter of 2004 and 2003
was $5.30 and $4.82, respectively, on the date of grant.
Three Months Ended
---------------------
April 3, March 29,
2004 2003
------ ------
Net earnings, as reported $1,493 $2,191
Add: Stock-based employee compensation expense included
in reported net earnings, net of related tax effects 30 31
Deduct: Total stock-based employee compensation expense
determined under fair-value based method for all awards,
net of related tax effects (268) (407)
------ ------
Pro forma net earnings $1,255 $1,815
====== ======
Earnings per share
Basic - as reported $ .36 $ .53
Basic - pro forma $ .31 $ .44
Diluted - as reported $ .36 $ .52
Diluted - pro forma $ .30 $ .44
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Overview
- --------
Chromcraft Revington encounters intense domestic and import competition in the
sale of all its products. Furniture imports into the U.S. continue to grow at
double digit rates with the majority of the growth coming from China. Foreign
importers compete based on price, utilizing their low wage and overhead cost
structure.
Chromcraft Revington's business strategy is to operate as a low-cost,
high-quality manufacturer and distributor of residential and commercial
furniture. The Company has supplemented its domestic manufacturing with imports
of low-cost, labor-intensive furniture components and finished furniture from
the Pacific Rim. 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.
9
The Company has several businesses, some of which have been impacted more
severely than others from the reduced sales volume. As a result, Chromcraft
Revington may need to consolidate or curtail operations in the future if
operating results or business conditions do not improve.
The following table sets forth the Condensed Consolidated Statements of Earnings
of Chromcraft Revington for the three months ended April 3, 2004 and March 29,
2003 expressed as a percentage of sales.
Three Months Ended
------------------
April 3, March 29,
2004 2003
---- ----
Sales 100.0% 100.0%
Cost of sales 77.0 77.7
----- -----
Gross margin 23.0 22.3
Selling, general and administrative expenses 17.4 14.5
----- -----
Operating income 5.6 7.8
Interest expense 0.4 0.7
----- -----
Earnings before income taxes 5.2 7.1
Income tax expense 2.0 2.7
----- -----
Net earnings 3.2% 4.4%
===== =====
Three Months Ended April 3, 2004 Compared to Three Months Ended March 29, 2003
- ------------------------------------------------------------------------------
Consolidated sales for the three months ended April 3, 2004 of $46,467,000 were
6.0% lower as compared to the prior year period. The first quarter sales decline
was primarily due to foreign import competition. Shipments of residential and
commercial furniture, particularly bedroom furniture, were lower in the first
quarter as compared to the prior year period. In general, selling prices for the
first three months of 2004 were at approximately the same level as compared to
the prior year period.
Gross margin, as a percentage of sales, was 23.0% for the three months ended
April 3, 2004 as compared to 22.3% for the same period last year. The higher
gross margin percentage in 2004 was primarily due to cost reductions and a more
favorable product sales mix.
Selling, general and administrative expenses for the three months ended April 3,
2004 increased $910,000 to $8,087,000 from $7,177,000 for the year ago period.
The higher expense in 2004 was due to a $1,100,000 charge to record a minimum
annual supplemental retirement benefit payable to Michael E. Thomas, Chairman,
President, and Chief Executive Officer of the Company. The charge resulted from
an amendment to Mr. Thomas' employment and supplemental retirement benefit
agreements with the Company dated March 3, 2004. In addition, selling, general
and administrative expenses, as a percentage of sales, for the three month
period in 2004 were higher as compared to the prior year period due to certain
fixed costs spread over a lower sales volume in 2004.
Interest expense was $197,000 in the first quarter of 2004 as compared to
$324,000 in the first quarter of 2003. The decrease in interest expense was
primarily due to lower average bank borrowings during the first three months of
2004.
Chromcraft Revington's effective income tax rate was 38.4% for the first three
months of 2004 as compared to 38.0% for the prior year period. The increase in
the effective tax rate was due to higher state income taxes.
As a result of the above, net earnings were $1,493,000 for the three months
ended April 3, 2004, a 31.9% decrease from $2,191,000 reported for the prior
year period.
10
Liquidity and Capital Resources
- -------------------------------
Operating activities used $1,371,000 of cash during the three months ended April
3, 2004 as compared to $1,011,000 of cash generated in the same period last
year. Operating activities in the first quarter of 2004 required cash to support
a seasonal build in working capital, primarily for accounts receivable and
inventories. At April 3, 2004, inventories were $32,784,000 compared to
$39,636,000 at the end of the first quarter last year.
Investing activities used $256,000 of cash for capital expenditures during the
first three months of 2004 as compared to $246,000 spent during the same period
last year. Chromcraft Revington expects capital expenditures in 2004 to be less
than $2,000,000.
Financing activities provided $1,627,000 of cash during the first three months
of 2004. Cash provided by financing activities was primarily due to borrowings
under a bank revolving credit line. At April 3, 2004, the Company had
approximately $31,600,000 in unused availability under its bank credit line that
matures in 2007.
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. Chromcraft Revington expects to generate excess cash flow in
2004 which will be used to reduce bank debt, to repurchase Company common stock
or for general corporate purposes.
Contractual Obligations
- -----------------------
The following table summarizes the Company's contractual obligations at April 3,
2004:
Payments Due by Period
------------------------------------------------------------------
Less than 1-3 4-5 More than
(In thousands) Total 1 Year Years Years 5 Years
------- ------- ------- ------- -------
Bank debt
Term loan $ 8,000 $ 5,000 $ 3,000 $ -- $ --
Revolving credit line 5,500 -- 5,500 -- --
Operating leases 1,330 809 339 182 --
Other long-term liabilities
(less non-current deferred taxes of $427) 5,180 183 648 1,955 2,394
------- ------- ------- ------- -------
Total contractual cash obligations $20,010 $ 5,992 $ 9,487 $ 2,137 $ 2,394
======= ======= ======= ======= =======
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
Certain information and statements contained in this report 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 "expects", "may" or words of similar import.
Forward-looking statements are not guarantees of results or 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 such risks and uncertainties 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 spending;
changes in relationships with customers; customer acceptance of existing and new
products; new home and existing home sales; and other factors that generally
affect business.
11
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 3. 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 not have a
material impact on net earnings in 2004. The Company supplements its domestic
manufacturing by sourcing parts and finished furniture primarily from the
Pacific Rim. These purchases are payable in U.S. dollars and, therefore, the
Company has no material foreign exchange rate risk exposure.
Item 4. Controls and Procedures
- --------------------------------
Chromcraft Revington's principal executive officer and principal financial
officer have concluded that the Company's disclosure controls and procedures (as
defined in Rule 13a-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-Q.
Chromcraft Revington's management, including its principal executive officer and
principal financial officer, does not expect that the Company's disclosure
controls and procedures or its internal controls will prevent all error 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.
Over time, controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate. The
design of any system of controls also is based, in part, upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions.
There have been no significant changes in Chromcraft Revington's internal
controls, or in other factors that could significantly affect these controls,
during the period covered by this Form 10-Q.
PART II.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
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 herewith).
31.1 Certification of Chief Executive Officer required
pursuant to Rule 15d-14(a) of the Securities Exchange
Act of 1934, as amended (filed herewith).
31.2 Certification of Chief Financial Officer required
pursuant to Rule 15d-14(a) of the Securities Exchange
Act of 1934, as amended (filed herewith).
12
32.1 Certifications of Chief Executive Officer and Chief
Financial Officer required pursuant to 18
U.S.C.Section1350, as adopted pursuant toSection906 of
the Sarbanes-Oxley Act of 2002 (filed herewith)
(b) Reports on Form 8-K
On February 10, 2004, Chromcraft Revington, Inc. filed a report on
Form 8-K, announcing fourth quarter 2003 operating results. On March
5, 2004, Chromcraft Revington, Inc. filed a report on Form 8-K,
reporting an amendment to the Company's employment agreement and
supplemental retirement benefits agreements with Michael E. Thomas.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Chromcraft
Revington, Inc. has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Chromcraft Revington, Inc.
--------------------------
(Registrant)
Date: May 10, 2004 By: /s/ Frank T. Kane
------------ --------------------------
Frank T. Kane
Vice President-Finance
(Duly Authorized Officer
and Principal Accounting
and Financial Officer)
13