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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, 2001
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.
------------------------------------------------------
(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
----------------------------------------------------
(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, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 18, 2002, there were 5,951,710 shares of the registrant's common
stock ($.01 par value) outstanding. The aggregate market value of the voting
stock held by nonaffiliates of the registrant as of March 18, 2002 was $47.5
million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the annual shareholders meeting to be held
June 5, 2002 are incorporated by reference into Part III.
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INDEX
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Page Number
-----------
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
Executive Officers of the Registrant................................... 7
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters........................................... 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.... 12
Item 8. Financial Statements and Supplementary Data................... 12
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 12
PART III
Item 10. Directors and Executive Officers of the Registrant............ 13
Item 11. Executive Compensation........................................ 13
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 13
Item 13. Certain Relationships and Related Transactions................ 13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K........................................................... 13
Signatures.................................................................. 17
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"), Peters-Revington Corporation
("Peters-Revington"), 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 all of the outstanding common stock of
Chromcraft and Peters-Revington from Consolidated Furniture Corporation
(formerly Mohasco Corporation) pursuant to merger agreements. Concurrently,
Chromcraft Revington completed its initial public offering and restructured its
long- term debt. Chromcraft Revington had no operations prior to 1992.
Chromcraft, located in Senatobia, Mississippi, manufactures casual dining and
commercial furniture. Peters-Revington, located in Delphi, Indiana, manufactures
occasional furniture. Chromcraft and Peters-Revington were both founded in 1946.
In April 1995, Chromcraft Revington acquired Silver Furniture, a manufacturer
and importer of occasional furniture. Silver Furniture has manufacturing and
warehousing operations in Knoxville, Tennessee. In November 1996, Chromcraft
Revington acquired Cochrane Furniture, a manufacturer of dining room, bedroom
and upholstered furniture. Cochrane Furniture has manufacturing facilities in
Lincolnton and Warrenton, North Carolina. In September 1999, Chromcraft
Revington acquired Korn Industries, based in Sumter, South Carolina. Korn
Industries manufactures and sells bedroom and dining room furniture through its
Sumter Cabinet Company ("Sumter Cabinet") division.
Chromcraft Revington and its subsidiaries 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." No material amount of Chromcraft
Revington's sales is dependent upon a single customer. Sales outside of the
United States represent approximately 1% of total sales.
Recent Developments
On March 15, 2002, Court Square Capital Limited ("Court Square"), an affiliate
of Citigroup Inc., completed its sale 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, to 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. With respect to the 5,695,418 shares of Chromcraft Revington's common
stock sold by 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. Court Square's designee was Mr. M. Saleem Muqaddam, who
received $1,000,000 of the aggregate transaction fee. Mr. Muqaddam is a former
officer of Court Square and resigned as a director of Chromcraft Revington
concurrently with the consummation of the Company Stock Transaction.
2
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 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. 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. 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.
Products and Distribution
Occasional Furniture
Medium-priced occasional furniture, including tables, bookcases, entertainment
centers, library and modular wall units and curio cabinets in traditional,
contemporary and country styles, are manufactured and sold under the
Peters-Revington brand name. Occasional furniture is manufactured primarily from
American hardwoods, such as oak, cherry and maple. Many Peters-Revington table
collections include twelve or more pieces in matching styles. In addition,
different pieces of occasional furniture incorporate the same design and styling
themes, thereby enabling consumers to coordinate furniture for the same room.
Peters-Revington's furniture is sold in the United States and Canada through
independent sales representatives primarily to independent furniture retailers.
Entry level-to-medium priced occasional tables and entertainment centers are
designed, manufactured, imported and sold under the Silver Furniture brand name.
These products are generally designed with a contemporary appeal, utilizing
special finishes and unique styling. Silver Furniture tables are constructed
using a variety of materials, including wood, medium-density fiber board, glass
and metal. Internally designed imported occasional tables and parts are sourced
mainly from factories located in the Far East and Mexico. Imported products are
purchased in U.S. dollars and, as a result, Chromcraft Revington is not subject
to foreign exchange risk. Silver Furniture occasional furniture is sold
primarily in the United States and Canada through company sales personnel to
national and regional furniture retailers and through independent sales
representatives to independent furniture retailers.
Bedroom Furniture
Solid wood bedroom furniture, primarily in oak, cherry, ash or maple, is
manufactured and sold at medium price points under the Cochrane Furniture brand
name and at mid-to-higher price points under the Sumter Cabinet brand name.
Bedroom furniture includes beds, dressers, night stands, entertainment armoires
and mirrors primarily in traditional styling. Cochrane Furniture and Sumter
Cabinet bedroom furniture is sold through independent sales representatives to
regional and independent furniture retail stores.
Dining Room Furniture
Casual dining furniture is manufactured and sold under the Chromcraft brand
name. Casual dining furniture is designed for use in dining rooms, family rooms,
recreation rooms, kitchens and apartments without formal dining areas. The
product line consists primarily of coordinated dining suites in a contemporary
or traditional style that include tables with laminated, wood or glass table
tops, stationary and tilt-swivel chairs, pedestal chairs and barstools. 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. Chromcraft competes at the medium-to-higher price points
in casual dining. Chromcraft's casual dining furniture is sold in the United
States through company sales personnel and independent sales representatives to
national, regional, independent and specialty dining retail furniture stores.
3
Dining room furniture, primarily in oak, cherry, ash or maple, is manufactured
and sold at medium price points under the Cochrane Furniture brand name and at
mid-to-higher price points under the Sumter Cabinet brand name. Dining room
furniture includes a broad line of tables, armed and side chairs, buffets,
chinas and serving pieces, mainly in traditional or country styling. Cochrane
Furniture dining room tables are offered in solid wood or a high pressure
laminate table top. Sumter Cabinet dining room tables feature solid wood tops,
leaves, and legs. Dining room furniture is sold primarily in the United States
through independent sales representatives to regional and independent furniture
retail stores.
Upholstered Furniture
Upholstered sofas, chairs and ottomans are manufactured and sold under the
Cochrane Furniture brand name. Upholstered furniture is styled in traditional or
contemporary patterns in a wide selection of fabrics using a heat tempered coil
seat construction to evenly distribute body weight. Cochrane Furniture uses
primarily hardwoods in the construction of its furniture frames. Seat cushions
are made with high-density, high-resilience polyurethane foam, wrapped in
polyester fiber for consistent comfort. Cochrane Furniture's upholstered
furniture is sold primarily at medium price points. Upholstered furniture is
sold through independent sales representatives primarily to independent
furniture retail stores.
Commercial Furniture
Commercial furniture, sold under the Chromcraft brand name, includes stationary
and tilt-swivel office chairs, conference and meeting room tables and
lounge-area seating products for airports and other public waiting areas. Chairs
are offered in both contemporary and transitional styles and are upholstered in
various grades and colors of fabric or leather. They include executive models
with high backs, management models, ergonomic computer task chairs and
secretarial models with no arm rests. Products are sold through company sales
personnel and independent sales representatives to office product dealers,
wholesalers/distributors and various contract customers.
Manufacturing
Manufacturing operations include cutting, shaping, sanding, finishing and final
assembly of wood furniture, metal fabricating, plating, powder-coat painting,
chair foam production for casual dining furniture and cutting and sewing of
upholstery fabric. Cochrane Furniture and Sumter Cabinet also have rough mill
operations and woodworking plants which process green lumber into parts for
internal use.
Raw Materials
Major raw materials are wood, steel, fabrics, glass, medium-density fiber board,
wood finishing materials, cartons, foam for cushions and paddings and
mechanisms. Suppliers are selected for their ability to deliver high quality
products on a timely basis and at competitive prices. 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 2001.
Inventory and Seasonal Requirements
Chromcraft Revington maintains a finished goods inventory for occasional, dining
room and bedroom furniture in order to respond quickly to customer delivery
needs. Most casual dining, upholstered and commercial furniture is made to
customer specifications and, therefore, not carried in stock. A limited number
of casual dining, upholstered and commercial furniture items are maintained for
quick delivery programs. Sales have historically not been subject to material
seasonal fluctuations.
4
Competition
Chromcraft Revington encounters domestic and import competition in the sale of
all its products. Many of Chromcraft Revington's competitors, some of which are
larger and have greater financial resources, produce a number of products which
are not competitive with Chromcraft Revington's products. In many cases, such
companies do not disclose the portion of their sales attributable to products
similar to those manufactured by Chromcraft Revington. It is, therefore,
impractical to state with any certainty Chromcraft Revington's relative position
in a particular product line. Competition in Chromcraft Revington's products is
in the form of the quality of its products, service and selling prices.
Backlog
Chromcraft Revington's backlog of sales orders was approximately $18.7 million
at December 31, 2001, as compared to approximately $22.1 million at December 31,
2000. 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 air and water, and establish
standards for the treatment of hazardous wastes.
Employees
Chromcraft Revington employs a total of approximately 2,000 people. Production
employees at Silver Furniture's Knoxville, Tennessee location are represented by
a labor union under a collective bargaining agreement. Chromcraft Revington
considers its relations with its employees to be good.
5
Item 2. Properties
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The following table summarizes Chromcraft Revington's facilities as of December
31, 2001.
Square Type of Owned/
Location Feet Operations Furniture Leased
------------------ --------- -------------- ----------------- -------------
Delphi, IN 519,000 Manufacturing/ Occasional Owned
warehousing
Knoxville, TN 160,000 Manufacturing/ Occasional Owned
warehousing
Knoxville, TN 77,000 Warehousing Occasional Leased
(expires 2002)
Lincolnton, NC 368,000 Manufacturing/ Dining room/ Owned
warehousing bedroom
Lincolnton, NC 152,000 Manufacturing Upholstery Owned
Lincolnton, NC 159,000 Manufacturing/ Upholstery Owned
warehousing
Senatobia, MS 560,000 Manufacturing/ Casual dining/ Leased
warehousing commercial (expires 2061)
Sumter, SC 521,000 Manufacturing/ Dining room/ Owned
warehousing bedroom
Warrenton, NC 166,000 Manufacturing Dining room/ Owned
bedroom
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. All of the owned properties and equipment are pledged as collateral
under Chromcraft Revington's financing agreements.
Item 3. Legal Proceedings
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Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable.
6
Executive Officers of Chromcraft Revington, Inc.
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Michael E. Thomas President, Chief Executive Officer and Director since
(age 60) Chromcraft Revington's organization in 1992 and Chairman
since March 15, 2002.
Frank T. Kane Vice President-Finance, Chief Financial Officer and
(age 48) Secretary since Chromcraft Revington's organization in
1992.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
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Chromcraft Revington's common stock is traded on the New York Stock Exchange.
The following table sets forth the high and low sales prices of Chromcraft
Revington's common stock, as reported on the New York Stock Exchange.
2001 2000
------------------------- -------------------------
High Low High Low
--------- -------- --------- --------
First quarter 10.30 9.95 10.50 7.50
Second quarter 10.15 9.35 13.50 7.50
Third quarter 9.70 8.00 11.56 8.00
Fourth quarter 10.90 8.01 10.06 6.81
As of March 1, 2002, there were approximately 54 security holders of record of
Chromcraft Revington's common stock. Under financing agreements, Chromcraft
Revington is not permitted to pay cash dividends.
7
Item 6. Selected Financial Data
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Year Ended December 31,
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(Dollars in thousands, except per share data) 2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
Operating Results
Sales $ 217,787 $ 259,402 $ 245,385 $ 236,744 $ 225,629
Cost of sales 170,271 197,165 188,411 176,988 169,802
----------- ----------- ----------- ----------- -----------
Gross margin 47,516 62,237 56,974 59,756 55,827
Selling, general and
administrative expenses 29,545 34,901 34,340 31,964 30,200
----------- ----------- ----------- ----------- -----------
Operating income 17,971 27,336 22,634 27,792 25,627
Interest expense 687 2,008 988 739 1,265
----------- ----------- ----------- ----------- -----------
Earnings before income tax expense 17,284 25,328 21,646 27,053 24,362
Income tax expense 6,741 9,878 8,572 10,794 9,720
----------- ----------- ----------- ----------- -----------
Net earnings $ 10,543 $ 15,450 $ 13,074 $ 16,259 $ 14,642
=========== =========== =========== =========== ===========
Earnings per share of common stock
Basic $ 1.10 $ 1.59 $ 1.25 $ 1.46 $ 1.28
=========== =========== =========== =========== ===========
Diluted $ 1.09 $ 1.57 $ 1.22 $ 1.41 $ 1.25
=========== =========== =========== =========== ===========
Shares used in computing earnings per share
Basic 9,577 9,727 10,448 11,137 11,418
Diluted 9,685 9,847 10,720 11,533 11,755
Financial Position (December 31,)
Total assets $ 149,068 $ 160,092 $ 159,135 $ 129,645 $ 126,144
Total debt - 19,200 26,700 5,400 9,000
Stockholders' equity 120,744 110,245 99,770 97,117 90,906
Other Data
Depreciation and amortization $ 6,109 $ 5,855 $ 4,947 $ 4,534 $ 4,383
Capital expenditures 2,191 4,953 3,630 3,388 2,712
----------------------------
Korn Industries is included in Chromcraft Revington's consolidated financial
results from its acquisition date of September 2, 1999.
Per share data has been adjusted, where applicable, for the two-for-one common
stock split distributed June 10, 1998.
8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
--------------------------------------------------------------------------------
General
Chromcraft Revington designs, manufactures and sells residential and commercial
furniture through its wholly-owned subsidiaries, Chromcraft, Peters-Revington,
Silver Furniture, Cochrane Furniture and Korn Industries. Chromcraft Revington's
operating results include the operations of Korn Industries, acquired September
2, 1999, from the date of its acquisition (see Note 2 to the consolidated
financial statements). Korn Industries manufactures and sells bedroom and dining
room furniture.
The following table sets forth the results of operations of Chromcraft Revington
for the years ended December 31, 2001, 2000 and 1999 expressed as a percentage
of sales.
Year Ended December 31,
----------------------------------------
2001 2000 1999
---------- ---------- ---------
Sales 100.0% 100.0% 100.0%
Cost of sales 78.2 76.0 76.8
---------- ---------- ---------
Gross margin 21.8 24.0 23.2
Selling, general and administrative expenses 13.5 13.5 14.0
---------- ---------- ---------
Operating income 8.3 10.5 9.2
Interest expense .4 .7 .4
---------- ---------- ---------
Earnings before income tax expense 7.9 9.8 8.8
Income tax expense 3.1 3.8 3.5
---------- ---------- ---------
Net earnings 4.8% 6.0% 5.3%
========== ========== =========
2001 Compared to 2000
Consolidated sales for the year ended December 31, 2001 were $217,787,000, a
16.0% decrease from sales of $259,402,000 for the year ended December 31, 2000.
Shipments of occasional, dining room, bedroom, upholstered and commercial
furniture were lower during 2001 as compared to 2000. The decline in sales from
2000 primarily reflected the continued sluggish retail sales environment due to
the economic recession. The consolidated sales order backlog at December 31,
2001 was about 15% lower as compared to December 31, 2000. In general, selling
prices during 2001 were slightly higher as compared to the prior year.
Gross margin was $47,516,000, or 21.8% of sales, in 2001, as compared to
$62,237,000, or 24.0% in 2000. The decline in the gross margin percentage for
2001, as compared to 2000, was primarily due to unabsorbed fixed overhead
resulting from the lower sales volume. Lower raw material costs in 2001
partially offset the gross margin decline.
Selling, general and administrative expenses decreased $5,356,000 to $29,545,000
in 2001 from $34,901,000 in 2000. As a percentage of sales, selling, general and
administrative expenses were 13.5% for both 2001 and 2000. Bad debt expense
decreased $1,310,000 in 2001 as compared to 2000. The higher bad debt expense in
2000 was primarily due to the bankruptcy of a major furniture retailer. The
decrease in selling, general and administrative expenses as a percentage of
sales due to the lower bad debt expense was offset by the spreading of certain
fixed selling and administrative costs over a lower sales volume in 2001.
Interest expense decreased to $687,000 in 2001 from $2,008,000 in 2000. The
lower interest expense for 2001 was due to lower average bank borrowings during
the year and interest rate reductions.
Chromcraft Revington's effective income tax rate was 39.0% for the years ended
December 31, 2001 and 2000.
9
Diluted earnings per share were $1.09 in 2001 as compared to $1.57 in 2000. For
the year ended December 31, 2001, shares used in computing diluted earnings per
share deceased to 9,685,000 from 9,847,000 for 2000. The reduction in the number
of shares in 2001 was primarily due to purchases of common stock under
Chromcraft Revington's share repurchase program.
2000 compared to 1999
Consolidated sales for the year ended December 31, 2000 increased 5.7% to
$259,402,000 from $245,385,000 reported in 1999. The sales increase was due to
higher shipments of bedroom and commercial furniture, partially offset by lower
occasional, dining room and upholstered furniture sales. Bedroom furniture
shipments were boosted in 2000 from the Korn Industries acquisition. Sales in
2000 were negatively impacted by the U.S. economic slowdown. Chromcraft
Revington's consolidated sales orders began to slow at the end of the second
quarter of 2000 as compared to 1999. Weak retail conditions continued for the
remainder of 2000. Occasional and dining room furniture shipments were also
lower due to several major retailer bankruptcies and increased import and
domestic competition. Higher commercial furniture shipments in 2000 were due, in
part, to increased airport gate lounge seating and an improved office furniture
market. Selling prices for 2000 were slightly higher as compared to the prior
year.
Gross margin increased to $62,237,000, or 24.0% of sales, in 2000, from
$56,974,000, or 23.2% of sales, in 1999. The higher gross margin percentage in
2000 was primarily due to lower material costs and improved manufacturing
efficiencies. The lower material costs were due, in part, to sourcing of
furniture components from low-cost suppliers in the Far East. The inclusion of
Korn Industries' operating results for the full year 2000 partially offset the
gross margin percentage increase.
Selling, general and administrative expenses increased $561,000 to $34,901,000,
or 13.5% of sales, in 2000 from $34,340,000, or 14.0%, in 1999. Bad debt expense
increased $1,322,000 in 2000 as compared to 1999 primarily due to the bankruptcy
of a major furniture retailer. The inclusion of Korn Industries' operating
results in 2000 partially offset the selling, general and administrative expense
percentage increase due to higher bad debt expense.
Operating income for 2000 increased $4,702,000 to $27,336,000 from $22,634,000
in 1999. The increase in operating income was primarily due to the Cochrane and
Korn Industries subsidiaries.
Interest expense for the year ended December 31, 2000 was $2,008,000 as compared
to $988,000 for the prior year period. The increase in interest expense for 2000
was primarily attributable to higher average bank borrowings due to the Korn
Industries acquisition and purchases of common stock under Chromcraft
Revington's share repurchase program.
Chromcraft Revington's effective income tax rate was 39.0% for 2000 as compared
to 39.6% for 1999. The decrease in the effective tax rate for 2000 was due to
lower state income taxes.
Diluted earnings per share increased to $1.57 in 2000 from $1.22 in 1999. For
the year ended December 31, 2000, shares used in computing diluted earnings per
share decreased 8.1% to 9,847,000 from 10,720,000 for 1999. The share reduction
in 2000 was primarily due to purchases of common stock under Chromcraft
Revington's share repurchase program.
Critical Accounting Policies
In the preparation of the financial statements in accordance with generally
accepted accounting principles, management must often make estimates and
assumptions that affect the amounts reported in the financial
10
statements and accompanying disclosures. Some of these estimates and assumptions
can be subjective and complex and, consequently, actual results could differ
from those estimates. Such estimates and assumptions affect Chromcraft
Revington's most critical accounting policies: the valuation of receivables and
inventory obsolescence.
In determining the valuation of accounts receivable, management specifically
analyzes customer credit-worthiness, historic bad debts and changes in economic
conditions and records allowances for doubtful accounts as appropriate.
Inventories are valued at lower of cost or market. When, in management's
judgment, circumstances indicate the cost of certain inventories exceed their
recoverable value, reserves for inventory obsolescence are recorded.
Liquidity and Capital Resources
Operating activities provided $29,177,000 of cash during the year ended December
31, 2001, an increase of $12,530,000 from the amount provided during 2000. The
increase in cash flow from operating activities for 2001 was primarily due to a
reduction in working capital investment, offset, in part, by lower net earnings.
Inventories decreased $11,784,000 during 2001 as compared to an increase of
$4,929,000 during 2000, reflecting the reduced operating activity.
Investing activities used $2,167,000 of cash during the year ended December 31,
2001 as compared to $4,879,000 during 2000. Capital expenditures, primarily for
equipment purchases, were $2,191,000 and $4,953,000 during 2001 and 2000,
respectively. Chromcraft Revington expects capital expenditures in 2002 to be
less than $3,500,000.
Financing activities used $19,244,000 of cash during 2001, primarily to reduce
bank indebtedness. At December 31, 2001, Chromcraft Revington had no bank debt
outstanding. In addition, during 2001, Chromcraft Revington acquired 165,800
shares of its common stock for $1,570,000 under a share repurchase plan.
Cash used in financing activities during 2000 totaled $12,475,000, primarily to
reduce bank indebtedness and to acquire shares of Chromcraft Revington's common
stock. During 2000, Chromcraft Revington acquired 568,900 shares of its common
stock for $5,086,000.
On March 15, 2002, Court Square, an affiliate of Citigroup Inc., completed its
sale 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, to Chromcraft Revington and the ESOP Trust. 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 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 and 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.
Chromcraft Revington has granted a security interest in all of its assets to the
banks under the credit agreement. 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 this 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. Management expects
that cash flow from operations and availability under financing agreements will
continue to be sufficient to meet future needs.
11
See discussion of the Transaction under Part I, Item 1, "Recent Developments."
Recently Issued Accounting Standards
------------------------------------
Information on recently issued Financial Accounting Standards Board Statements
is included in Note 16, "Recently Issued Accounting Standards," to the
consolidated financial statements which are incorporated by reference in Part
II, Item 8.
Safe Harbor Statement Under the Private Litigation Reform Act of 1995
---------------------------------------------------------------------
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 "believes," "plans," "may," "anticipates," "estimates,"
"expects" or "likely" or words or 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, declining conditions in the furniture industry, new home
construction, cyclical nature of the furniture industry, competition in the
furniture industry, changes from anticipated levels of sales, future domestic or
international economic and competitive conditions, changes in relationships with
customers, customer acceptance of existing and new products, changes in tax
rates, increased bank debt, changes of interest rates, delays and disruptions in
the shipment of Chromcraft Revington's products and other factors that generally
affect business.
Chromcraft Revington 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 revolving credit facility bear
interest at a variable rate and, therefore, are subject to changes in interest
rates. There were no borrowings under the bank credit facility at December 31,
2001. Purchases of inventory from the Far East and Mexico are payable in U.S.
dollars and, therefore, Chromcraft Revington has no foreign exchange rate risk
exposure.
Item 8. Financial Statements and Supplementary Data
--------------------------------------------------------------------------------
The financial statements and schedule are listed in Part IV, Items 14(a) (1) and
(2).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
--------------------------------------------------------------------------------
None.
12
PART III
Items 10 Through 13.
--------------------------------------------------------------------------------
In accordance with the provisions of General Instruction G to Form 10-K, the
information required by Item 10 (Directors and Executive Officers of the
Registrant), Item 11 (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and
Related Transactions) 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 2001 fiscal year, which Proxy Statement will contain such information.
The information required by Items 10, 11, 12 and 13 is incorporated herein by
reference to such Proxy Statement, except that the information regarding
executive officers required by Item 10 is submitted as a separate section of
this Form 10-K. See Part I, "Executive Officers."
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
--------------------------------------------------------------------------------
(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 Earnings for the years ended
December 31, 2001, 2000 and 1999 F-1
Consolidated Balance Sheets at December 31, 2001 and 2000 F-2
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2001, 2000 and 1999 F-3
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999 F-4
Notes to Consolidated Financial Statements F-5
Independent Auditors' Report F-14
Quarterly Financial Information (unaudited) F-15
The following consolidated financial statement schedule of Chromcraft Revington
is included in response to Item 14(d):
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.
13
(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)(i) 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)(ii) By-laws of the Registrant, filed as Exhibit 3.2 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.
(4.7) Credit Agreement, dated December 20, 2000, among the
Registrant, the Banks party thereto and National City Bank,
as successor agent for the Banks (replaced by credit
agreement set forth in Exhibit 4.8 hereto) filed as Exhibit
4.7 to Form 10-K for the year ended December 31, 2000, 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.
14
(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 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 10.19, to Form 8-K, as filed with
the Securities and Exchange Commission on March 20, 2002, is
incorporated herein by reference.
(10.3) Chromcraft Revington Employee Stock Ownership Trust,
effective January 1, 2002, by and between the Registrant and
GreatBanc Trust Company (filed herewith).
(10.31) First Amendment to the Chromcraft Revington Employee Stock
Ownership Trust, effective January 1, 2002, by and between
the Registrant and GreatBanc Trust Company (filed herewith).
Executive Compensation Plans and Arrangements
---------------------------------------------
(10.4) Chromcraft Revington, Inc. 1992 Stock Option Plan, as
amended and restated effective March 15, 2002 (filed
herewith).
(10.45) Directors' Stock Option Plan of Chromcraft Revington, Inc.,
effective January 1, 2002 (filed herewith).
(10.51) Chromcraft Revington, Inc. Short Term Executive Incentive
Plan, effective January 1, 1998, filed as Exhibit 10.51 to
Form 10-K for the year ended December 31, 1998, is
incorporated herein by reference.
(10.55) Chromcraft Revington, Inc. Long Term Executive Incentive
Plan, effective January 1, 2000, filed as Exhibit 10.55 to
Form 10-Q for the quarter ended July 1, 2000, 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.
(10.7) Chromcraft Revington, Inc. Supplemental Executive Retirement
Plan, as amended and restated, effective December 3, 1998,
filed as Exhibit 10.7 to Form 10-K for the year ended
December 31, 1998, is incorporated herein by reference.
(10.71) First Amendment of Chromcraft Revington, Inc. Supplemental
Executive Retirement Plan, as amended and restated, dated
March 15, 2002 (filed herewith).
(10.75) Supplemental Executive Retirement Plan Trust Agreement,
dated April 16, 1993, between the Registrant and Bank One,
Indianapolis, National Association, filed as Exhibit 10.75
to Form 10-Q for the quarter ended July 3, 1993, 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.
15
(10.81) Amendment No. 1 to Employment Agreement between the
Registrant and Michael E. Thomas, dated March 15, 2002
(filed herewith).
(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 herewith).
(10.9) Employment Agreement, dated March 15, 2002, between the
Registrant and Frank T. Kane (filed herewith).
------------------------------------
(21.1) Subsidiaries of the Registrant (filed herewith).
(23.1) Consent of Independent Auditors (filed herewith).
(b) Reports on Form 8-K
On December 7, 2001, Chromcraft Revington filed a Current Report on
Form 8-K reporting the dismissal of three virtually identical lawsuits
that had been filed in connection with Court Square's proposal dated
December 22, 2000 to acquire the issued and outstanding capital stock
of Chromcraft Revington not owned by Court Square. The proposal was
subsequently withdrawn by Court Square.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report.
16
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: April 1, 2002 By: /s/ Frank T. Kane
------------- ---------------------------------------
Frank T. Kane, Vice President - Finance
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 April 1, 2002
--------------------------------- Officer and Director -------------
Michael E. Thomas
/s/ Frank T. Kane Vice President - Finance (principal April 1, 2002
--------------------------------- accounting and financial officer) -------------
Frank T. Kane
/s/ David L. Kolb Director April 1, 2002
--------------------------------- -------------
David L. Kolb
/s/ Larry P. Kunz Director April 1, 2002
--------------------------------- -------------
Larry P. Kunz
/s/ Warren G. Wintrub Director April 1, 2002
--------------------------------- -------------
Warren G. Wintrub
17
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18
Consolidated Statements of Earnings
Chromcraft Revington, Inc.
(In thousands, except per share data)
Year Ended December 31,
----------------------------------------------
2001 2000 1999
----------- ----------- -----------
Sales $ 217,787 $ 259,402 $ 245,385
Cost of sales 170,271 197,165 188,411
----------- ----------- -----------
Gross margin 47,516 62,237 56,974
Selling, general and administrative expenses 29,545 34,901 34,340
----------- ----------- -----------
Operating income 17,971 27,336 22,634
Interest expense 687 2,008 988
----------- ----------- -----------
Earnings before income tax expense 17,284 25,328 21,646
Income tax expense 6,741 9,878 8,572
----------- ----------- -----------
Net earnings $ 10,543 $ 15,450 $ 13,074
=========== =========== ===========
Earnings per share of common stock
Basic $ 1.10 $ 1.59 $ 1.25
=========== =========== ===========
Diluted $ 1.09 $ 1.57 $ 1.22
=========== =========== ===========
Shares used in computing earnings per share
Basic 9,577 9,727 10,448
Diluted 9,685 9,847 10,720
See accompanying notes to the consolidated financial statements
F-1
Consolidated Balance Sheets
Chromcraft Revington, Inc.
(In thousands, except share data)
December 31,
----------------------------
2001 2000
----------- -----------
Assets
Cash and cash equivalents $ 8,207 $ 441
Accounts receivable, less allowances of $1,334 and $1,253 21,025 25,552
Inventories 43,595 55,379
Other 5,112 3,447
----------- -----------
Current assets 77,939 84,819
Property, plant and equipment, at cost, less accumulated depreciation 42,107 44,747
Goodwill, less accumulated amortization of
$10,485 and $9,181 28,180 29,484
Other 842 1,042
----------- -----------
Total assets $ 149,068 $ 160,092
=========== ===========
Liabilities and Stockholders' Equity
Accounts payable $ 5,600 $ 6,474
Accrued liabilities 12,068 13,694
----------- -----------
Current liabilities 17,668 20,168
Revolving credit facility - 19,200
Deferred compensation 6,070 5,998
Other long term liabilities 4,586 4,481
----------- -----------
Total liabilities 28,324 49,847
----------- -----------
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
11,178,728 and 10,949,048 shares issued 112 109
Capital in excess of par value 11,908 10,385
Retained earnings 126,844 116,301
----------- -----------
138,864 126,795
Less cost of common stock in treasury,
1,541,600 shares in 2001 and 1,375,800 shares in 2000 (18,120) (16,550)
----------- -----------
Total stockholders' equity 120,744 110,245
----------- -----------
Total liabilities and stockholders' equity $ 149,068 $ 160,092
=========== ===========
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 Total
Common Excess of Retained Treasury Stockholders'
Stock Par Value Earnings Stock Equity
---------------------------------------------------------------------------------
Balance at January 1, 1999 $ 108 $ 9,232 $ 87,777 $ - $ 97,117
Repurchase and cancellation
of stock (38,600 shares) - (615) (615)
Exercise of stock options
(181,860 shares) 1 1,657 1,658
Purchase of treasury stock
(806,900 shares) (11,464) (11,464)
Net earnings 13,074 13,074
------------ ----------- ------------ --------- -----------
Balance at December 31, 1999 109 10,274 100,851 (11,464) 99,770
Exercise of stock options
(10,000 shares) - 111 111
Purchase of treasury stock
(568,900 shares) (5,086) (5,086)
Net earnings 15,450 15,450
------------ ----------- ------------ --------- -----------
Balance at December 31, 2000 109 10,385 116,301 (16,550) 110,245
Exercise of stock options 3 1,523 1,526
(229,680 shares)
Purchase of treasury stock (1,570) (1,570)
(165,800 shares)
Net earnings 10,543 10,543
------------ ----------- ------------ --------- -----------
Balance at December 31, 2001 $ 112 $ 11,908 $ 126,844 $ (18,120) $ 120,744
============ =========== ============ ========= ===========
See accompanying notes to the consolidated financial statements
F-3
Consolidated Statements of Cash Flows
Chromcraft Revington, Inc.
(In thousands)
Year Ended December 31,
---------------------------------------------
2001 2000 1999
---------- ---------- ----------
Operating Activities
Net earnings $ 10,543 $ 15,450 $ 13,074
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 6,109 5,855 4,947
Deferred income taxes (424) 347 531
Changes in assets and liabilities, net of effects of
acquired company
Accounts receivable 4,527 4,022 1,435
Inventories 11,784 (4,929) (1,831)
Accounts payable (874) (1,726) (4,030)
Accrued liabilities (623) (2,157) 72
Other (1,865) (215) 559
---------- ---------- ---------
Cash provided by operating activities 29,177 16,647 14,757
---------- ---------- ----------
Investing Activities
Investment in acquired company - - (8,525)
Capital expenditures (2,191) (4,953) (3,630)
Proceeds from disposals of property, plant and equipment 24 74 1,184
---------- ---------- ----------
Cash used in investing activities (2,167) (4,879) (10,971)
---------- ---------- ----------
Financing Activities
Net borrowing (repayment) under revolving credit facility (19,200) (7,500) 21,300
Refinance indebtedness of acquired company - - (13,517)
Repurchase of common stock (1,570) (5,086) (12,079)
Proceeds from exercise of stock options 1,526 111 1,658
---------- ---------- ----------
Cash used in financing activities (19,244) (12,475) (2,638)
---------- ---------- ----------
Increase (decrease) in cash 7,766 (707) 1,148
Cash and cash equivalents at beginning of the year 441 1,148 -
---------- ---------- ----------
Cash and cash equivalents at end of the year $ 8,207 $ 441 $ 1,148
========== ========== ==========
See accompanying notes to the consolidated financial statements
F-4
Notes to Consolidated Financial Statements
Chromcraft Revington, Inc.
December 31, 2001
Note 1. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of Chromcraft
Revington, Inc. ("Chromcraft Revington") 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."
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.
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 60% and 61% of total inventories at December 31, 2001
and 2000, respectively. Remaining inventories are valued using the first-in,
first-out (FIFO) basis.
Marketable Securities
Marketable securities are recorded at current market value. Realized and
unrealized gains and losses are reflected in earnings.
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.
Revenue Recognition
Revenue from sales is recognized when the goods are shipped to the customer.
F-5
Intangibles
Intangible assets are stated on the basis of cost. The excess of purchase price
over the fair value of net assets acquired (goodwill) is being amortized on a
straight-line basis over periods ranging from 15 to 40 years. Chromcraft
Revington reviews the carrying value of goodwill whenever changes in
circumstances indicate that the carrying amount may not be recoverable. When
factors indicate that the recoverability of goodwill should be evaluated,
Chromcraft Revington uses an estimate of the undiscounted cash flows of the
acquired businesses in determining whether an impairment loss is required. See
Note 16, "Recently Issued Accounting Standards," regarding the accounting for
goodwill and other intangible assets effective January 1, 2002.
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).
Stock Options
Chromcraft Revington applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees, and related Interpretations" in
accounting for stock options and discloses the fair value of options granted as
permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation."
Financial Instruments
The carrying amounts reported in the balance sheets for accounts receivable,
accounts payable and borrowings under a bank revolving credit facility
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.
Note 2. Acquisition of Korn Industries, Incorporated
On September 2, 1999, CRI Corporation-Sumter, a wholly-owned subsidiary of
Chromcraft Revington, acquired all of the outstanding common stock of Korn
Industries, Incorporated ("Korn Industries") for $8,525,000 in cash (including
acquisition-related expenses) and the assumption of Korn Industries'
liabilities. Korn Industries is headquartered in Sumter, South Carolina and
manufactures and sells bedroom and dining room furniture through its Sumter
Cabinet Company division.
F-6
The operations of Korn Industries are included in the Consolidated Statements of
Earnings from the date of acquisition. The transaction was accounted for as a
purchase and the purchase price has been allocated to assets acquired and
liabilities assumed based on their fair market values at the date of
acquisition.
The unaudited pro forma results of operations for the year ended December 31,
1999, assuming the purchase of Korn Industries had been consummated as of
January 1, 1999, are sales of $281,168,000, net earnings of $11,280,000 and
basic and diluted earnings per share of $1.08 and $1.05, respectively. The pro
forma information is presented for comparative purposes only and is not
necessarily indicative of the operating results that would have occurred had the
acquisition been consummated as of the above date, nor is it necessarily
indicative of future operating results.
Note 3. Inventories
Inventories at December 31, 2001 and 2000 consisted of the following:
(In thousands)
----------------------------
2001 2000
----------- -----------
Raw materials $ 13,334 $ 17,729
Work-in-process 8,194 9,083
Finished goods 24,110 30,870
----------- -----------
Inventories at FIFO cost 45,638 57,682
LIFO reserve (2,043) (2,303)
----------- -----------
$ 43,595 $ 55,379
=========== ===========
During 2001, LIFO inventory layers were reduced. This reduction resulted in
charging lower inventory costs prevailing in previous years to cost of sales in
2001, thus reducing cost of sales by $260,000 below the amount that would have
resulted from liquidating inventory recorded at December 31, 2001 prices.
Note 4. Property, Plant and Equipment
Property, plant and equipment at December 31, 2001 and 2000 consisted of the
following:
(In thousands)
-----------------------------
2001 2000
------------ ------------
Land $ 2,231 $ 2,231
Buildings and improvements 34,443 34,168
Machinery and equipment 51,747 50,257
Leasehold improvements 960 862
Construction in progress 296 391
------------ ------------
89,677 87,909
Less accumulated depreciation and amortization (47,570) (43,162)
------------ ------------
$ 42,107 $ 44,747
============ ============
F-7
Note 5. Accrued Liabilities
Accrued liabilities at December 31, 2001 and 2000 consisted of the following:
(In thousands)
----------------------------
2001 2000
----------- -----------
Employee benefit plans $ 2,704 $ 4,450
Salaries, wages and commissions 1,379 1,586
Vacation and holiday pay 1,005 1,035
Workers' compensation plans 1,203 1,013
Deferred taxes 14 1,018
Other accrued liabilities 5,763 4,592
----------- -----------
$ 12,068 $ 13,694
=========== ===========
Note 6. Income Taxes
Components of the provision for income taxes for the years ended December 31,
2001, 2000 and 1999 were as follows:
(In thousands)
----------------------------------------------
2001 2000 1999
----------- ----------- -----------
Current:
Federal $ 6,454 $ 8,420 $ 7,029
State 711 1,111 1,012
----------- ----------- -----------
7,165 9,531 8,041
----------- ----------- -----------
Deferred:
Federal (342) 257 502
State (82) 90 29
----------- ----------- -----------
(424) 347 531
----------- ----------- -----------
Total provision for income taxes $ 6,741 $ 9,878 $ 8,572
=========== =========== ===========
A reconciliation of the provision for income taxes included in the Consolidated
Statements of Earnings and the amount computed by applying the U.S. Federal
income tax rate for the years ended December 31, 2001, 2000 and 1999 is
summarized below:
(In thousands)
----------------------------------------------
2001 2000 1999
----------- ----------- -----------
Tax expense, at U.S. statutory rate $ 6,050 $ 8,865 $ 7,577
State taxes, net of federal benefit 462 729 682
Non-deductible amortization of goodwill 341 321 253
Other, net (112) (37) 60
----------- ----------- -----------
Total provision for income taxes $ 6,741 $ 9,878 $ 8,572
=========== =========== ===========
F-8
The tax effects of temporary differences that give rise to significant portions
of net deferred tax assets (liabilities) at December 31, 2001 and 2000 are
summarized below:
(In thousands)
--------------------
2001 2000
-------- --------
Deferred tax assets attributable to:
Accounts receivable $ 516 $ 566
Accrued vacation and holiday pay 346 373
Deferred compensation 2,473 2,680
Net operating loss carryforwards 2,259 2,445
Other liabilities 3,291 3,181
-------- --------
Total gross deferred tax assets 8,885 9,245
-------- --------
Deferred tax liabilities attributable to:
Inventories (2,729) (3,443)
Property, plant and equipment (5,668) (5,656)
Other (1,190) (1,272)
-------- --------
Total gross deferred tax liabilities (9,587) (10,371)
-------- --------
Net deferred tax liabilities $ (702) $ (1,126)
======== ========
Balance sheet classifications of deferred taxes at December 31, 2001 and 2000
were as follows:
(In thousands)
------------------
2001 2000
------- -------
Deferred tax liability, current $ (14) $(1,018)
Deferred tax liability, noncurrent (688) (108)
------- -------
Net deferred tax liability $ (702) $(1,126)
======= =======
Chromcraft Revington has federal and state net operating loss carryforwards
("NOL's") available of $4,526,000 and $7,182,000, respectively, 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
NOL's is limited to the future taxable earnings of the acquired companies. Based
upon the level of historical taxable income and projections for future income
over the periods 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. Revolving Credit Facility
In December 2000, Chromcraft Revington entered into an unsecured revolving loan
facility (the "Facility") with a group of banks that allows it to borrow up to
$47,500,000 for working capital requirements, capital expenditures and
acquisitions. At December 31, 2001, Chromcraft Revington had $45,503,000 in
availability under the Facility. The interest rate under the Facility is
determined at the time of borrowing, at Chromcraft Revington's option, at the
higher of the bank prime lending rate or Fed Funds rate plus .5%, or a rate
based on the Fed Funds rate or the London Interbank Offered Rate (LIBOR). There
were no borrowings outstanding at December 31, 2001. The weighted average rate
on borrowings outstanding as of December 31, 2000 was 7.42%. There is a
commitment fee ranging from .125% to .225% (depending on a leverage ratio) on
the unused portion of the credit line. Chromcraft Revington had outstanding
letters of credit under the Facility of $1,997,000 and $2,249,000 at December
31, 2001 and 2000, respectively. The Facility expires December 31, 2005.
F-9
The Facility requires compliance with certain financial loan covenants related
to net worth, interest and fixed charge coverages and debt leverage.
Note 8. Earnings Per Share of Common Stock
Weighted average shares used in the calculation of diluted earnings per share
included dilutive potential common shares (stock options) of approximately
108,000, 120,000 and 272,000 for the years ended December 31, 2001, 2000 and
1999, respectively.
Certain options to purchase shares of common stock were outstanding during 2001,
2000 and 1999, 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 376,060 shares at
$13.48 at both December 31, 2001 and 2000 and 138,426 shares at $16.85 at
December 31, 1999.
Note 9. Employee Benefit Plans
Chromcraft Revington sponsors a number of tax-qualified defined contribution
retirement and savings plans. Employees may be eligible to participate in one or
more of these plans. Company contributions to these plans are based on either a
percentage of an employee's compensation or a matching portion of the employee's
contributions. The cost of these plans was $524,000 in 2001, $1,235,000 in 2000
and $1,299,000 in 1999.
Chromcraft Revington also provides supplemental retirement benefits and "make
up" benefits to key executives of Chromcraft Revington whose benefits are
reduced by Internal Revenue Code restrictions. Contributions and expenses under
these arrangements were $63,000 in 2001, $198,000 in 2000 and $390,000 in 1999.
Note 10. Stock Options
Chromcraft Revington's 1992 Stock Option Plan, as amended (the "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 Plan is 1,800,000 shares. ISO's granted under the 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. Non-ISO's vest and are at exercise prices as determined by the
compensation committee of the Board of Directors. There were 623,730 shares
available for future grants at December 31, 2001 and 2000.
No stock options were granted during 2001. The estimated per share weighted
average fair value of stock options granted during 2000 and 1999 was $3.38 and
$6.02, 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:
2000 1999
----------- -----------
Expected life (years) 6 6
Interest rate 6.8% 5.0%
Volatility 27.5% 27.2%
F-10
The following table summarizes the pro forma effects assuming compensation cost
for such awards had been recorded based upon the estimated fair value:
(In thousands, except per share data)
-----------------------------------------------------------------------
2001 2000 1999
---------------------- ----------------------- ----------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
--------- --------- --------- --------- --------- ---------
Net earnings $ 10,543 $ 10,483 $ 15,450 $ 15,232 $ 13,074 $ 12,622
Earnings per share
of common stock
Basic 1.10 1.09 1.59 1.57 1.25 1.21
Diluted 1.09 1.08 1.57 1.55 1.22 1.18
A summary of Chromcraft Revington's stock option activity and related
information for the three years ended December 31, 2001 follows:
Weighted
Average
Number Exercise
of Shares Price
--------- ------------
1999
Outstanding at beginning of year 999,742 $ 9.35
Granted 47,064 $ 16.00
Exercised (181,860) $ 6.98
Canceled (9,500) $ 18.32
Outstanding at end of year 855,446 $ 10.12
Exercisable 791,228 $ 9.74
2000
Granted 54,202 $ 8.08
Exercised (10,000) $ 11.00
Canceled (72,326) $ 13.15
Outstanding at end of year 827,322 $ 9.71
Exercisable 795,322 $ 9.56
2001
Exercised (229,680) $ 5.50
Outstanding at end of year 597,642 $ 11.33
Exercisable 587,642 $ 11.39
Significant option groups outstanding at December 31, 2001 and related weighted
average price and remaining life information follows:
Options Outstanding Options Exercisable
----------------------------- -----------------------------
Grant Number Exercise Number Exercise Remaining
Date of Shares Price of Shares Price Life (Years)
------------ ------------- ------------ ------------- ------------ --------------
4-15-92 81,280 $ 5.50 81,280 $ 5.50 0.3
2-19-93 86,100 $ 9.50 86,100 $ 9.50 1.1
1-11-94 98,000 $ 11.63 98,000 $ 11.63 2.0
All other 332,262 $ 13.14 322,262 $ 13.30 5.5
F-11
Note 11. Supplemental Cash Flow Information
Interest paid during the years ended December 31, 2001, 2000 and 1999 was
$735,000, $2,104,000 and $873,000, respectively. Income taxes paid during the
years ended December 31, 2001, 2000 and 1999 were $6,871,000, $8,247,000 and
$7,334,000, respectively.
Note 12. 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, 2002,
2003, 2004, 2005 and 2006 are $1,366,000, $1,173,000, $917,000, $156,000 and
$32,000, respectively. It is expected that, in the normal course of business,
leases that expire will be renewed or replaced.
Rental expense was $1,731,000, $1,772,000 and $1,825,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.
Note 13. Contingencies
At December 31, 2001, the Company or its subsidiaries were parties to various
lawsuits arising in the ordinary course of business. The Company is defending
these claims and believes that none of such matters will have a material adverse
effect on the financial condition, results of operations or liquidity of
Chromcraft Revington.
Note 14. Withdrawal of Purchase Offer from Court Square Capital Limited
On July 17, 2001, Court Square Capital Limited ("Court Square"), a unit of
Citigroup Inc., notified Chromcraft Revington that it had decided to withdraw
its proposal dated December 22, 2000 to acquire the issued and outstanding
capital stock of Chromcraft Revington not owned by Court Square. Under the
proposal, holders of Chromcraft Revington's publicly traded common stock would
have received cash of $10.30 per share in a transaction to take Chromcraft
Revington private.
Note 15. Subsequent Event
On March 15, 2002, Court Square completed its sale 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, to
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. With respect to the 5,695,418 shares of Chromcraft
Revington's common stock sold by 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.
F-12
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 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 and 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. Chromcraft Revington has granted a security interest in all of
its assets to the banks under the credit agreement.
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. 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.
Note 16. Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) recently issued Statement No.
141, "Business Combinations" and Statement No. 142, "Goodwill and Other
Intangible Assets." Statement No. 141 requires that the purchase method be used
for all business combinations initiated after June 30, 2001. Statement No. 142
requires, among other things, that goodwill no longer be amortized to earnings,
but instead be reviewed periodically for impairment. The amortization of
goodwill ceases upon adoption of Statement No. 142 on January 1, 2002. As of the
date of adoption, Chromcraft Revington had unamortized goodwill of $28,180,000,
which will be subject to the transition provisions of Statements 142.
Amortization expense related to goodwill was approximately $1,304,000,
$1,248,000 and $964,000 for the years ended December 31, 2001, 2000 and 1999,
respectively. Chromcraft Revington is currently evaluating the impact of these
Statements on its financial statements.
The Financial Accounting Standards Board also recently issued Statement No. 143,
"Accounting for Asset Retirement Obligations" and Statement 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." Statement 143 establishes
accounting standards for the recognition and measurement of obligations
associated with the retirement of tangible assets. Statement 144 provides
guidance on the recognition and measurement of impairment losses on long-lived
assets held for use, establishes criteria for when a long-lived asset is held
for sale, and prescribes the accounting for a long-lived asset that will be
disposed of other than by sale. The effective dates of Statements 143 and 144
are January 1, 2003 and January 1, 2002, respectively. Chromcraft Revington does
not expect the adoption of these Statements to have a significant effect on its
results of operations or its financial position.
F-13
Independent Auditors' Report
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 14(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 14(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 auditing standards generally accepted
in the United States of America. 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, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, 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.
KPMG LLP
Indianapolis, Indiana
February 1, 2002, except as
to Note 15 which is as of
March 15, 2002
F-14
Quarterly Financial Information (unaudited)
Chromcraft Revington, Inc.
(In thousands, except per share data)
------------------------------------------------------------------------
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
----------- ----------- ----------- ----------- -----------
2001
Sales $ 62,901 $ 51,369 $ 52,282 $ 51,235 $ 217,787
Gross margin 14,499 11,278 11,031 10,708 47,516
Operating income 6,034 4,271 3,952 3,714 17,971
Net earnings 3,492 2,486 2,334 2,231 10,543
Earnings per share
of common stock
Basic .36 .26 .24 .23 1.10
Diluted .36 .26 .24 .23 1.09
2000
Sales $ 73,740 $ 65,667 $ 62,062 $ 57,933 $ 259,402
Gross margin 18,115 16,094 14,050 13,978 62,237
Operating income 8,476 6,973 5,037 6,850 27,336
Net earnings 4,859 3,924 2,732 3,935 15,450
Earnings per share
of common stock
Basic .49 .40 .28 .41 1.59
Diluted .49 .40 .28 .41 1.57
F-15
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 Year
---------------------------------------------------------------------------------------------------------------
Year ended December 31, 2001
Allowance for doubtful
accounts $ 1,253 $ 258 $ - $ (177)(a) $ 1,334
Year ended December 31, 2000
Allowance for doubtful
accounts $ 1,266 $ 1,568 $ - $ (1,581)(a) $ 1,253
Year ended December 31, 1999
Allowance for doubtful
accounts $ 1,211 $ 246 $ 277(b) $ (468)(a) $ 1,266
(a) Represents charge-offs, net of recoveries, to the allowance for doubtful
accounts.
(b) Represents the allowance for doubtful accounts associated with the Korn
Industries acquisition.
S-1