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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 March 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ------------------
Commission file number 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 [ ]
The number of shares outstanding for each of the registrant's classes of common
stock, as of the latest practicable date:
Common Stock, $.01 par value -- 6,022,990 shares as of May 13, 2002
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INDEX
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Page Number
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PART I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Earnings (Loss) - Three
Months Ended March 30, 2002 and March 31, 2001.................... 3
Condensed Consolidated Balance Sheets - March 30, 2002,
March 31, 2001 and December 31, 2001.............................. 4
Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 30, 2002 and March 31, 2001.................... 5
Notes to Condensed Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 12
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 (Loss) (unaudited)
Chromcraft Revington, Inc.
(In thousands, except per share data)
Three Months Ended
---------------------
March 30, March 31,
2002 2001
-------- --------
Sales $ 60,814 $ 65,794
Cost of sales 47,322 51,100
-------- --------
Gross margin 13,492 14,694
Selling, general and administrative expenses 7,996 8,660
-------- --------
Operating income 5,496 6,034
Interest expense 127 310
-------- --------
Earnings before income taxes and cumulative
effect of a change in accounting principle 5,369 5,724
Income tax expense 2,040 2,232
-------- --------
Earnings before cumulative effect of a change in accounting principle $ 3,329 $ 3,492
Cumulative effect of a change in accounting principle (net of tax benefit) (26,727) --
-------- --------
Net earnings (loss) $(23,398) $ 3,492
======== ========
Earnings per share of common stock before cumulative
effect of a change in accounting principle
Basic $ .39 $ .36
Diluted $ .38 $ .36
Earnings (loss) per share of common stock after cumulative
effect of a change in accounting principle
Basic $ (2.71) $ .36
Diluted $ (2.71) $ .36
Shares used in computing earnings per share
Basic 8,618 9,573
Diluted 8,683 9,705
See accompanying notes to condensed consolidated financial statements.
3
Condensed Consolidated Balance Sheets (unaudited)
Chromcraft Revington, Inc.
(In thousands)
March 30, March 31, December 31,
2002 2001 2001
-------- --------- ------------
Assets
------
Cash and cash equivalents $ -- $ -- $ 8,207
Accounts receivable 25,173 27,742 21,025
Inventories 41,424 54,310 43,595
Other assets 6,119 3,636 5,112
-------- -------- --------
Current assets 72,716 85,688 77,939
Property, plant and equipment, net 41,215 44,163 42,107
Goodwill -- 29,159 28,180
Other long-term assets 1,699 482 842
-------- -------- --------
Total assets $115,630 $159,492 $149,068
======== ======== ========
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable $ 9,133 $ 7,553 $ 5,600
Accrued liabilities 16,287 17,481 12,068
Current portion of bank debt 5,000 -- --
-------- -------- --------
Current liabilities 30,420 25,034 17,668
Bank debt 38,000 10,300 --
Other long-term liabilities 10,345 10,421 10,656
-------- -------- --------
Total liabilities 78,765 45,755 28,324
Stockholders' equity 36,865 113,737 120,744
-------- -------- --------
Total liabilities and stockholders' equity $115,630 $159,492 $149,068
======== ======== ========
See accompanying notes to condensed consolidated financial statements.
4
Condensed Consolidated Statements of Cash Flows (unaudited)
Chromcraft Revington, Inc.
(In thousands)
Three Months Ended
----------------------
March 30, March 31,
2002 2001
-------- --------
Operating Activities
Net earnings (loss) $(23,398) $ 3,492
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 1,223 1,518
Deferred income taxes (63) 149
Non-cash goodwill impairment loss 26,727 --
Changes in assets and liabilities
Accounts receivable (4,148) (2,190)
Inventories 2,171 1,069
Accounts payable and accrued liabilities 7,766 4,866
Other (404) 164
-------- --------
Cash provided by operating activities 9,874 9,068
-------- --------
Investing Activities
Capital expenditures, net (553) (609)
-------- --------
Cash used by investing activities (553) (609)
-------- --------
Financing Activities
Net borrowing (repayment) under bank debt 43,000 (8,900)
Purchase of common stock by ESOP (20,000) --
Stock repurchase and related costs (40,583) --
Proceeds from exercise of stock options 55 --
-------- --------
Cash used by financing activities (17,528) (8,900)
-------- --------
Decrease in cash and cash equivalents (8,207) (441)
Cash and cash equivalents at beginning of period 8,207 441
-------- --------
Cash and cash equivalents at end of period $ -- $ --
======== ========
See accompanying notes to condensed consolidated financial statements.
5
Notes to Condensed Consolidated Financial Statements (unaudited)
Chromcraft Revington, Inc.
March 30, 2002
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statement presentation.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002.
The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in Chromcraft Revington's annual report on Form 10-K
for the year ended December 31, 2001.
Note 2. Goodwill Impairment Loss
Chromcraft Revington adopted Financial Accounting Standards Board Statement No.
142, "Goodwill and Other Intangible Assets" ("Statement 142") effective January
1, 2002 and recorded a non-cash transition charge of $26,727,000 (net of tax
benefit), or $3.10 loss per share, 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.
The following table presents earnings before the cumulative effect of a change
in accounting principle for the three months ended March 30, 2002 as compared to
the prior year period, after adjustment for goodwill amortization.
6
(in thousands, except
per share amounts)
Three Months Ended
------------------------
March 30, March 31,
2002 2001
--------- ---------
Earnings before cumulative effect of a change in accounting principle
As reported $ 3,329 $ 3,492
Goodwill amortization (net of tax benefit) -- 288
--------- ---------
Adjusted $ 3,329 $ 3,780
========= =========
Basic earnings per share before cumulative effect of
a change in accounting principle
As reported $ .39 $ .36
Goodwill amortization (net of tax benefit) -- .03
--------- ---------
Adjusted $ .39 $ .39
========= =========
Diluted earnings per share before cumulative effect of
a change in accounting principle
As reported $ .38 $ .36
Goodwill amortization (net of tax benefit) -- .03
--------- ---------
Adjusted $ .38 $ .39
========= =========
Note 3. Stockholders' Equity
On March 15, 2002, Chromcraft Revington and the Chromcraft Revington Employee
Stock Ownership Trust (the "ESOP Trust"), which forms a part of the Chromcraft
Revington Employee Stock Ownership Plan (the "ESOP"), completed the purchase of
5,695,418 shares of common stock of Chromcraft Revington, comprising
approximately 59% of Chromcraft Revington's issued and outstanding shares of
common stock on such date, from Court Square Capital Limited ("Court Square"),
an affiliate of Citigroup Inc. With respect to the shares of common stock
purchased from Court Square, 3,695,418 shares were repurchased by Chromcraft
Revington (the "Company Stock Transaction") and 2,000,000 shares were purchased
by the ESOP Trust (the "ESOP Stock Transaction" and together with the Company
Stock Transaction being referred to herein as the "Transaction"). Chromcraft
Revington and the ESOP Trust each paid $10 per share for the shares acquired
from Court Square for a total purchase price of $56,954,180. In addition,
Chromcraft Revington paid Court Square and its designee an aggregate transaction
fee of $2,800,000.
The funds required to pay the total consideration and certain related expenses
of the Transaction were obtained using available cash and borrowings of
approximately $45,000,000 under bank financing. Chromcraft Revington loaned
$20,000,000 to the ESOP Trust to finance the ESOP Stock Transaction. Immediately
following consummation of the Transaction, the ESOP Trust held approximately
33.6% of the issued and outstanding shares of Chromcraft Revington's common
stock. See Notes 4 and 5, "Bank Debt" and "Employee Stock Ownership Plan," for
additional information on the Company's bank financing and the ESOP.
Note 4. Bank Debt
On March 12, 2002, Chromcraft Revington entered into a $75,000,000 bank credit
agreement (the "Credit Facility") with a group of banks. The Credit Facility
provides for a $25,000,000 term loan and a $50,000,000 revolving credit line.
The term loan has a five-year term and is payable in quarterly installments of
$1,250,000.
7
The revolving credit line expires on March 13, 2007. The interest rate under the
Credit Facility is determined at the time of borrowing at either the prime rate
or LIBOR plus a spread based on a leverage ratio. At March 30, 2002, the Company
had approximately $27,600,000 in unused availability under the revolving credit
line portion of the Credit Facility. The weighted average interest rate on
borrowings outstanding as of March 30, 2002 was 4.4%. The Credit Facility
requires compliance with certain financial loan covenants related to net worth,
fixed charge coverage and debt leverage. The Company has granted a security
interest in all of its assets to the banks under the Credit Facility. The
Company also has pledged to the banks the shares of common stock owned by the
ESOP Trust and pledged by the ESOP Trust to the Company.
Long-term bank debt consisted of the following at March 30, 2002:
(In thousands)
--------------
Term loan $ 25,000
Revolving credit line 18,000
------------
43,000
Less current portion of term loan 5,000
------------
$ 38,000
============
Note 5. Employee Stock Ownership Plan
Chromcraft Revington sponsors a leveraged employee stock ownership plan that
covers substantially all employees who have completed six months of service.
Chromcraft Revington makes annual contributions to the ESOP Trust equal to the
ESOP Trust's repayment of its loan to the Company. Chromcraft Revington loaned
$20,000,000 to the ESOP Trust to finance the ESOP Stock Transaction. The loan to
the ESOP Trust provides for repayment to Chromcraft Revington over a 30-year
term at a fixed rate of interest of 5.48% per annum. The shares of common stock
owned by the ESOP Trust are pledged to the Company as collateral for the
Company's loan to the ESOP Trust. As the ESOP loan is repaid, shares are
released from collateral and allocated to ESOP accounts of active employees
based on the proportion of debt service paid in the year. Chromcraft Revington
accounts for its ESOP in accordance with Statement of Position 93-6.
Accordingly, unearned ESOP shares are reported as a reduction of stockholders'
equity in the Condensed Consolidated Balance Sheets 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 for
the three months ended March 30, 2002 was $38,000. The ESOP shares as of March
30, 2002 were as follows:
(In thousands)
\ --------------
Allocated shares --
Committed to be released shares 3
Unearned ESOP shares 1,997
------------
Total ESOP shares 2,000
============
Unearned ESOP shares $ 19,970
============
Fair value of unearned ESOP shares at March 30, 2002 $ 25,461
============
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
65,000 and 132,000 for the three months ended March 30, 2002 and
8
March 31, 2001, respectively.
Certain stock options to purchase shares of common stock were outstanding during
the first three months of 2002 and 2001, but were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market price of the common shares during those
periods and, therefore, their effect would be antidilutive. Options excluded
from the computation of diluted earnings per share and their weighted average
exercise prices at March 30, 2002 and March 31, 2001 were 333,560 shares at
$13.88 and 376,060 shares at $13.48, respectively.
Note 7. Inventories
The components of inventories consisted of the following:
(In thousands)
-----------------------------------------
March 30, March 31, December 31,
2002 2001 2001
-------- -------- ------------
Raw materials $ 12,458 $ 16,736 $ 13,334
Work in process 7,877 9,631 8,194
Finished goods 23,164 30,439 24,110
-------- -------- --------
Inventories at FIFO cost 43,499 56,806 45,638
LIFO reserve (2,075) (2,496) (2,043)
-------- -------- --------
$ 41,424 $ 54,310 $ 43,595
======== ======== ========
Note 8. Accrued Liabilities
Accrued liabilities consisted of the following:
(In thousands)
-----------------------------------------
March 30, March 31, December 31,
2002 2001 2001
-------- -------- ------------
Employee benefit plans $ 3,383 $ 3,759 $ 2,704
Salaries, wages and commissions 1,811 2,117 1,379
Income taxes payable 1,926 1,844 --
Vacation and holiday pay 1,229 1,332 1,005
Workers' compensation plans 1,390 1,079 1,203
Other accrued liabilities 6,548 7,350 5,777
-------- -------- --------
$ 16,287 $ 17,481 $ 12,068
======== ======== ========
Note 9. Reclassifications
Certain amounts for 2001 have been reclassified to conform to the current year
presentation.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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General
-------
Chromcraft Revington designs, manufactures and sells residential and commercial
furniture through its wholly owned subsidiaries Chromcraft Corporation,
Peters-Revington Corporation, Silver Furniture Co., Inc., Cochrane Furniture
Company, Inc. and Korn Industries, Incorporated.
The following table sets forth the Condensed Consolidated Statements of Earnings
(Loss) of Chromcraft Revington for the three months ended March 30, 2002 and
March 31, 2001 expressed as a percentage of sales.
Three Months Ended
----------------------
March 30, March 31,
2002 2001
-------- ---------
Sales 100.0 % 100.0 %
Cost of sales 77.8 77.7
----- -----
Gross margin 22.2 22.3
Selling, general and administrative expenses 13.2 13.1
----- -----
Operating income 9.0 9.2
Interest expense .2 .5
----- -----
Earnings before income taxes and cumulative effect
of a change in accounting principle 8.8 8.7
Income tax expense 3.3 3.4
----- -----
Earnings before cumulative effect of a change
in accounting principle 5.5 5.3
Cumulative effect of a change in accounting principle (44.0) --
----- -----
Net earnings (loss) (38.5)% 5.3 %
===== =====
Three Months Ended March 30, 2002 Compared to Three Months Ended March 31, 2001
-------------------------------------------------------------------------------
Consolidated sales for the three months ended March 30, 2002 were $60,814,000, a
7.6% decrease from sales of $65,794,000 for the three months ended March 31,
2001. The first quarter 2002 sales decrease was primarily due to lower shipments
of commercial furniture resulting from the downturn in the office furniture
industry. Shipments of occasional and upholstery furniture were flat compared to
the prior year period with dining and bedroom furniture shipments down about 5%.
The consolidated sales order backlog at March 30, 2002 was slightly lower as
compared to March 31, 2001. In general, selling prices for the first three
months of 2002 were at approximately the same level as compared to the prior
year period.
Gross margin as a percentage of sales remained at approximately the same level
for the three months ended March 30, 2002 and March 31, 2001.
Selling, general and administrative expenses as a percentage of sales were
slightly higher in 2002 as compared to 2001.
Interest expense during the first quarter of 2002 was $127,000 as compared to
$310,000 during the first quarter of 2001. The decrease in interest expense for
2002 was due to lower average bank borrowings during the period.
Chromcraft Revington's effective income tax rate was 38% and 39% for the three
month periods ended March 30, 2002 and March 31, 2001, respectively. The
decrease in the effective tax rate for 2002 was primarily due to
10
the elimination of non-tax deductible goodwill amortization expense upon
implementation of Statement 142.
The Company adopted Statement 142 effective January 1, 2002 and recorded a one
time non-cash transition charge of $26,727,000 (net of tax benefit) for
impairment of goodwill. The loss was recorded as a cumulative effect of a change
in accounting principle. See Note 2 "Goodwill Impairment Loss" to the Condensed
Consolidated Financial Statements.
Liquidity and Capital Resources
-------------------------------
Operating activities provided $9,874,000 of cash during the three months ended
March 30, 2002, an increase of $806,000 from the amount provided during the
three months ended March 31, 2001. The increase in cash flow from operating
activities for the first quarter of 2002 was primarily due to a reduction in
working capital investment.
Investing activities used $553,000 and $609,000 of cash for capital expenditures
during the first quarter of 2002 and 2001, respectively. Chromcraft Revington
expects capital expenditures in 2002 to be less than $3,500,000.
Financing activities used $17,528,000 of cash during the first quarter of 2002.
On March 15, 2002, Chromcraft Revington and the Chromcraft Revington Employee
Stock Ownership Trust (the "ESOP Trust"), which forms a part of the Chromcraft
Revington Employee Stock Ownership Plan (the "ESOP"), completed the purchase of
5,695,418 shares of common stock of Chromcraft Revington, comprising
approximately 59% of Chromcraft Revington's issued and outstanding shares of
common stock on such date, from Court Square Capital Limited ("Court Square"),
an affiliate of Citigroup Inc. With respect to the shares of common stock
purchased from Court Square, 3,695,418 shares were repurchased by Chromcraft
Revington (the "Company Stock Transaction") and 2,000,000 shares were purchased
by the ESOP Trust (the "ESOP Stock Transaction" and together with the Company
Stock Transaction being referred to herein as the "Transaction"). Chromcraft
Revington and the ESOP Trust each paid $10 per share for the shares acquired
from Court Square for a total purchase price of $56,954,180. In addition,
Chromcraft Revington paid Court Square and its designee an aggregate transaction
fee of $2,800,000. The funds required to pay the total consideration and certain
related expenses of the Transaction were obtained using available cash and
borrowings of approximately $45,000,000 under Chromcraft Revington's new
$75,000,000 secured bank credit agreement. Of the debt incurred, $25,000,000 was
borrowed under a 5-year term loan and approximately $20,000,000 was borrowed
under Chromcraft Revington's $50,000,000 revolving line of credit facility. The
term loan is payable in quarterly installments of $1,250,000. The revolving line
of credit expires on March 13, 2007. Interest rates under the agreement are
determined at the time of borrowing at either the prime rate or LIBOR plus a
spread based on a leverage ratio. The weighted average interest rate on
borrowings outstanding as of March 30, 2002 was 4.4%. Chromcraft Revington
loaned $20,000,000 to the ESOP Trust to finance the ESOP Stock Transaction. The
loan to the ESOP Trust provides for repayment to Chromcraft Revington over a
30-year term at a fixed rate of interest of 5.48% per annum.
As a result of the Transaction, Chromcraft Revington's bank debt and interest
expense will be higher in 2002 as compared to 2001 and there will be fewer
shares of Chromcraft Revington's common stock outstanding. The lower number of
common shares outstanding as compared to last year is expected to favorably
impact earnings per share in 2002. At March 30, 2002, Chromcraft Revington had
unused capacity under its bank revolving line of credit of approximately
$27,600,000.
2002 Outlook
------------
Chromcraft Revington expects that second quarter earnings per share, on a
diluted basis, will be between $.44 and $.48, as compared to $.26 for the prior
year period. For the full year 2002, the Company expects diluted earnings per
share, before the cumulative effect of a change in accounting principle, to be
in the $1.75 to $1.85 range as compared to $1.09 reported for 2001.
11
Recently Issued Accounting Standards
------------------------------------
The Financial Accounting Standards Board recently issued Statement No. 143,
"Accounting for Asset Retirement Obligations" that establishes accounting
standards for the recognition and measurement of obligations associated with the
retirement of tangible assets. The effective date of Statement No. 143 is
January 1, 2003. Chromcraft Revington does not expect the adoption of this
Statement to have a significant effect on its results of operations or its
financial position.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
--------------------------------------------------------------------------------
Certain matters included in this discussion may contain forward-looking
statements regarding Chromcraft Revington's future performance. These
forward-looking statements can be generally identified as such because they
include future tenses or dates or are not historical or current facts or include
words such as "believes," "plans," "may," "anticipates," "estimates," "expects,"
or "likely" or words of similar import. These forward-looking statements are
based upon certain assumptions as well as current expectations and projections
about future events and are subject to uncertainties. As a result, the
forward-looking statements contained in this report could turn out significantly
different from expectations and projections or may not occur. Further, actual
results may differ materially from those described in any forward-looking
statements. Additional information concerning potential factors that could
affect Chromcraft Revington's actual financial results is included in its Form
10-K for the year ended December 31, 2001.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------
Borrowings under Chromcraft Revington's bank credit facility bear interest at a
variable rate and, therefore, are subject to changes in interest rates. The
Company sources certain raw materials and finished goods inventory from the Far
East and Mexico. These purchases are payable in U.S. dollars and, therefore, the
Company has no foreign exchange rate risk exposure.
PART II
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
On January 15, 2002, Chromcraft Revington filed a Current Report on
Form 8-K reporting that on January 10, 2002, Court Square accepted
Chromcraft Revington's proposal to purchase all of the 5,695,418
shares of common stock of Chromcraft Revington owned by Court Square
for total consideration of $59,754,180, or approximately $10.49 per
share.
On March 20, 2002, Chromcraft Revington filed a Current Report on
Form 8-K reporting that on March 15, 2002, Court Square completed its
sale of 5,695,418 shares of common stock of Chromcraft Revington to
the Company (3,695,418 shares) and to the Chromcraft Revington
Employee Stock Ownership Trust (2,000,000 shares), which forms a part
of the Chromcraft Revington Employee Stock Ownership Plan.
12
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: March 14, 2002 By: /s/ Frank T. Kane
-------------- -------------------------------
Frank T. Kane
Vice President - Finance
(Duly Authorized Officer and
Chief Financial Officer)
13