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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, 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.
------------------------------------------------------
(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, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 19, 2003, there were 6,038,590 shares of the registrant's common
stock ($.01 par value) outstanding. The aggregate market value of the voting
stock held by nonaffiliates of the registrant as of June 29, 2002 was $52.7
million.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the annual meeting of stockholders to be
held May 1, 2003 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
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.. 13
Item 8. Financial Statements and Supplementary Data................. 13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 13
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 14
Item 11. Executive Compensation...................................... 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 14
Item 13. Certain Relationships and Related Transactions.............. 14
Item 14. Controls and Procedures..................................... 14
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 15
Signatures................................................................ 19
Certifications ........................................................... 20
PART I
Item 1. Business
--------------------------------------------------------------------------------
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 and bedroom furniture. Chromcraft and Peters-Revington were both
founded in 1946.
In April 1995, Chromcraft Revington acquired Silver Furniture, an importer of
occasional furniture. Silver Furniture is located 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.
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 (the "ESOP"). 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" together with the
Company Stock Transaction being referred to herein as the "Transaction").
Chromcraft Revington and the ESOP Trust each paid $10 per share for the shares
acquired from Court Square for a total purchase price of $56,954,180. In
addition, Chromcraft Revington paid fees and expenses of $3,575,000 in
connection with the Transaction.
The funds required to pay the total consideration and certain related expenses
of the Transaction were obtained using available cash and bank borrowings.
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. At December 31, 2002, the ESOP Trust held approximately 33% of the
issued and outstanding shares of Chromcraft Revington's common stock.
Chromcraft Revington and its subsidiaries (collectively the "Company") have
several operating segments which are aggregated into one reportable segment, in
accordance with Financial Accounting Standards Board Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information. No material
amount of Chromcraft Revington's sales is dependent upon a single customer.
Sales outside of the United States represent less than 1% of total sales.
2
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
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.
Occasional furniture is sourced mainly from factories located in the Pacific
Rim. Imported furniture is 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. In
2002, Peters-Revington entered the bedroom furniture category. Peters-Revington
bedroom furniture is constructed of hardwoods, solids and veneers and is sold at
medium price points.
Bedroom furniture includes beds, dressers, night stands, entertainment armoires
and mirrors primarily in traditional styling. 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 primarily 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.
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, china
cabinets 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.
3
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. Seat cushions are made with
high-density, high-resilience polyurethane foam and 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 and
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. In addition, the Company supplements its domestic manufacturing by
sourcing parts and finished furniture primarily from the Pacific Rim.
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 2002.
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.
Competition
The U.S. furniture industry is highly fragmented and Chromcraft Revington
encounters domestic and import competition in the sale of all its products.
Recently, low-cost foreign competitors, primarily from China, have significantly
increased shipments into the United States. 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
4
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 $16.2 million
at December 31, 2002, as compared to approximately $18.7 million at December 31,
2001. Order backlog at any particular time is not necessarily indicative of the
level of future shipments.
Environment
Chromcraft Revington believes it is in compliance in all material respects with
all federal, state and local environmental laws and regulations which impose
limitations on the discharge of pollutants into the environment and establish
standards for the treatment of hazardous wastes.
Employees
Chromcraft Revington employs a total of approximately 1,700 people.
Additional Information
Chromcraft Revington is a reporting company and files annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC"). Stockholders may inspect and copy these
materials at the Public Reference Room maintained by the SEC at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for more information on the operation of the Public Reference
Room. The SEC maintains an Internet site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the SEC. The address of the site is http://www.sec.gov.
Copies of the Company's annual, quarterly and current reports will be available
to stockholders without charge upon request to: Investor Relations, Chromcraft
Revington, Inc., 1100 North Washington Street, Delphi, IN 46923.
5
Item 2. Properties
--------------------------------------------------------------------------------
The following table summarizes Chromcraft Revington's facilities as of December
31, 2002.
Square Type of Owned/
Location Feet Operations Furniture Leased
--------------- --------- -------------- -------------- ----------
Delphi, IN 519,000 Manufacturing/ Occasional/ Owned
warehousing bedroom
Knoxville, TN 160,000 Warehousing Occasional Owned
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/ Dining room/ 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
--------------------------------------------------------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
--------------------------------------------------------------------------------
Not applicable.
6
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
--------------------------------------------------------------------------------
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.
2002 2001
-------------------------- --------------------------
High Low High Low
----------- ---------- ----------- -----------
First quarter $ 12.80 $ 10.30 $ 10.30 $ 9.95
Second quarter 16.50 12.65 10.15 9.35
Third quarter 14.96 12.30 9.70 8.00
Fourth quarter 13.65 12.30 10.90 8.01
As of February 18, 2003, there were approximately 48 security holders of record
of Chromcraft Revington's common stock. The Company has never paid cash
dividends on shares of its common stock. Under financing agreements, Chromcraft
Revington is not permitted to pay cash dividends.
Equity Compensation Plan Information
The following table provides certain information as of December 31, 2002 with
respect to the Company's equity compensation plans under which equity securities
of the Company are authorized for issuance.
Number of securities Number of securities
to be issued upon remaining available for
exercise of Weighted future issuance under
outstanding average exercise price of equity compensation
options, warrants outstanding options, plans (excluding securities
Plan Category and rights warrants and rights reflected in the first column)
------------------------------------ -------------------- ---------------------------- --------------------------------
Equity compensation plans
approved by security holders(1) 918,562 $ 11.62 288,730
Equity compensation plans not
approved by security holders(2) - - -
(1) Includes the Chromcraft Revington, Inc. 1992 Stock Option Plan as amended
and restated effective March 15, 2002 and the Directors' Stock Option Plan
of Chromcraft Revington Inc., effective January 1, 2002.
(2) The Company has no equity compensation plan that has not been authorized by
its stockholders.
7
Item 6. Selected Financial Data
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Year Ended December 31,(a)
----------------------------------------------------------
(Dollars in thousands, except per share data) 2002 2001 2000 1999(b) 1998(c)
--------- --------- --------- --------- ---------
Operating Results
Sales $ 214,186 $ 228,492 $ 270,555 $ 256,010 $ 247,352
Cost of sales 164,745 180,434 208,056 198,822 187,381
--------- --------- --------- --------- ---------
Gross margin 49,441 48,058 62,499 57,188 59,971
Selling, general and administrative expenses 30,364 30,087 35,163 34,554 32,179
--------- --------- --------- --------- ---------
Operating income 19,077 17,971 27,336 22,634 27,792
Interest expense 1,758 687 2,008 988 739
--------- --------- --------- --------- ---------
Earnings before income taxes
and accounting change 17,319 17,284 25,328 21,646 27,053
Income tax expense 6,581 6,741 9,878 8,572 10,794
--------- --------- --------- --------- ---------
Earnings before accounting change 10,738 10,543 15,450 13,074 16,259
Cumulative effect of an accounting
change (net of tax benefit) (26,727) -- -- -- --
--------- --------- --------- --------- ---------
Net earnings (loss) $ (15,989) $ 10,543 $ 15,450 $ 13,074 $ 16,259
========= ========= ========= ========= =========
Earnings per share of common stock
before accounting change
Basic $ 2.08 $ 1.10 $ 1.59 $ 1.25 $ 1.46
========= ========= ========= ========= =========
Diluted $ 2.04 $ 1.09 $ 1.57 $ 1.22 $ 1.41
========= ========= ========= ========= =========
Earnings (loss) per share of common
stock after accounting change
Basic $ (3.09) $ 1.10 $ 1.59 $ 1.25 $ 1.46
========= ========= ========= ========= =========
Diluted $ (3.09) $ 1.09 $ 1.57 $ 1.22 $ 1.41
========= ========= ========= ========= =========
Shares used in computing earnings per share
Basic 5,168 9,577 9,727 10,448 11,137
Diluted 5,273 9,685 9,847 10,720 11,533
Financial Position (December 31,)
Cash and cash equivalents $ -- $ 8,207 $ 441 $ 1,148 $ --
Working capital 39,141 52,064 64,210 59,615 49,825
Total assets 100,465 149,068 160,092 159,135 129,645
Total bank debt 28,050 -- 19,200 26,700 5,400
Stockholders' equity 45,770 120,744 110,245 99,770 97,117
Other Data
Depreciation and amortization $ 4,718 $ 6,109 $ 5,855 $ 4,947 $ 4,534
Capital expenditures 1,538 2,191 4,953 3,630 3,388
------------------------------------
(a) Certain prior year amounts have been reclassified to conform to the 2002
presentation with no effect on net earnings or retained earnings as
previously reported.
(b) Korn Industries is included in Chromcraft Revington's consolidated
financial results from its acquisition date of September 2, 1999.
(c) 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.
The following table sets forth the results of operations of Chromcraft Revington
for the years ended December 31, 2002, 2001 and 2000 expressed as a percentage
of sales.
Year Ended December 31,
--------------------------
2002 2001 2000
-------- -------- --------
Sales 100.0 % 100.0 % 100.0 %
Cost of sales 76.9 79.0 76.9
-------- -------- --------
Gross margin 23.1 21.0 23.1
Selling, general and administrative expenses 14.2 13.1 13.0
-------- -------- --------
Operating income 8.9 7.9 10.1
Interest expense .8 .3 .7
------- ------- -------
Earnings before income taxes and cumulative
effect of a change in accounting principle 8.1 7.6 9.4
Income tax expense 3.1 3.0 3.7
-------- -------- --------
Earnings before cumulative effect of
a change in accounting principle 5.0 4.6 5.7
Cumulative effect of a change in accounting principle (12.5) -- --
-------- -------- --------
Net earnings (loss) (7.5)% 4.6 % 5.7 %
-------- -------- --------
2002 Compared to 2001
Consolidated sales for the year December 31, 2002 were $214,186,000, a 6.3%
decrease from sales of $228,492,000 for the year ended December 31, 2001.
Shipments of occasional, dining room, bedroom, upholstered and commercial
furniture were lower during 2002 as compared to 2001. The residential furniture
sales decline was mainly due to a weak economic environment and increased import
competition, primarily from the Pacific Rim. Shipments of commercial furniture
were impacted by a downturn in the office furniture industry. In general,
selling prices were at approximately the same level as compared to the prior
year.
Gross margin was $49,441,000 or 23.1% of sales, in 2002, as compared to
$48,058,000, or 21.0% in 2001. The increase in gross margin percentage was
primarily due to improved operating efficiencies, cost reductions, and a more
favorable product mix. In 2002, cost reductions included sourcing of low-cost
furniture components from the Pacific Rim.
Selling, general and administrative expenses increased $277,000 to $30,364,000
in 2002 from $30,087,000 in 2001. Selling, general and administrative expenses,
as a percentage of sales, were 14.2% for 2002 as compared to 13.1% for 2001. The
percentage increase for 2002 was primarily due to higher compensation-related
expenses, partially offset by the Company not recording goodwill amortization
expense due to the adoption of Financial Accounting Standards Board Statement
No. 142, Goodwill and Other Intangible Assets ("Statement 142").
Interest expense increased to $1,758,000 in 2002 from $687,000 in 2001. The
higher interest expense for 2002 was due to higher average bank borrowings
during 2002 resulting from the Transaction (as defined below).
9
Chromcraft Revington's effective income tax rate was 38% for the year ended
December 31, 2002 as compared to 39% for the year ended December 31, 2001. The
decrease in the effective rate was primarily due to the elimination of non-tax
deductible goodwill amortization expense upon implementation of Statement 142.
The Company adopted Statement 142 effective January 1, 2002 and recorded a one
time non-cash transition charge of $26,727,000 (net of tax benefit) for
impairment of goodwill in the first quarter of 2002. The loss was recorded as a
cumulative effect of a change in accounting principle. See Note 3 "Goodwill
Impairment Loss" to the Consolidated Financial Statements.
Diluted earnings per share before the accounting change were $2.04 in 2002 as
compared to $1.09 in 2001. Diluted earnings (loss) per share after the
accounting change were $(3.09) in 2002. For the year ended December 31, 2002,
shares used in computing diluted earnings per share decreased to 5,273,000 from
9,685,000 for 2001. The reduction in the number of shares in 2002 was primarily
due to the stock repurchase as a result of the Transaction (as defined below).
2001 Compared to 2000
Consolidated sales for the year ended December 31, 2001 were $228,492,000, a
15.5% decrease from sales of $270,555,000 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. In general, selling prices during 2001 were slightly
higher as compared to the prior year.
Gross margin was $48,058,000, or 21.0% of sales, in 2001, as compared to
$62,499,000, or 23.1% 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 $5,076,000 to
$30,087,000, or 13.1% of sales, in 2001 from $35,163,000 or 13.0%, in 2000. Bad
debts expense decreased $1,310,000 in 2001 as compared to 2000. The higher bad
debts expense in 2000 was 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 debts 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.
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.
Liquidity and Capital Resources
Operating activities provided $25,019,000 of cash during the year ended December
31, 2002, as compared to $29,177,000 during 2001. Cash flow was increased in
2002 and 2001 due to a reduction in working capital investment as a result of
lower sales activity. Inventory levels were reduced $3,783,000 and $11,784,000
10
during 2002 and 2001, respectively, and accounts receivable decreased $2,483,000
and $4,527,000, respectively, during the same periods.
Investing activities used $1,413,000 of cash for net capital expenditures during
the year ended December 31, 2002 as compared to $2,167,000 during 2001.
Chromcraft Revington expects capital expenditures in 2003 to approximate
$2,000,000.
Financing activities used $31,813,000 of cash during 2002 as compared to
$19,244,000 of cash used in 2001. 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"
together with the Company Stock Transaction, being referred to herein as the
"Transaction"). Chromcraft Revington and the ESOP Trust each paid $10 per share
for the shares acquired from Court Square for a total purchase price of
$56,954,180. In addition, Chromcraft Revington paid fees and expenses of
$3,575,000 in connection with the Transaction, which included the payment of a
$1 million transaction fee to Court Square's designee, Mr. M. Saleem Muqaddam, a
former officer of Court Square and a former director of Chromcraft Revington.
The funds required to pay the total consideration, as well as certain related
expenses of the Transaction, were obtained using available cash and bank
borrowings under a revolving line of credit and a $25 million term loan.
Interest rates under the term loan and revolving line of credit 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 December 31, 2002 was 3.2%. 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 following table summarizes the Company's contractual obligations at December
31, 2002
Payments Due by Period
---------------------------------------------------
Less than 1 - 3 4 - 5 After
(In thousands) Total 1 Year Years Years 5 Years
---------------------------------- ------- ------- ------- ------- -------
Bank indebtedness
Term loan $21,250 $ 5,000 $10,000 $ 6,250 $ --
Revolving line of credit 6,800 -- -- 6,800 --
Operating leases 2,302 1,204 1,068 30 --
------- ------- ------- ------- -------
Total contractual cash obligations $30,352 $ 6,204 $11,068 $13,080 $ --
======= ======= ======= ======= =======
Under its bank financing agreement, the Company has $1,997,000 of standby
letters of credit outstanding at December 31, 2002 in connection with workers
compensation insurance programs. These letters of credit expire on December 7,
2003 and are generally renewed annually.
Management expects that cash flow from operations and availability under its
bank revolving line of credit will continue to be sufficient to meet future
liquidity needs. At December 31, 2002, Chromcraft Revington had $41,200,000 in
unused availability under the bank revolving line of credit.
11
Critical Accounting Policies
The preparation of consolidated financial statements of the Company requires
management to make estimates and judgments that affect the amounts reported in
the financial statements and the related footnotes. Chromcraft Revington
considers the following accounting policies to be most significantly impacted by
the estimates and judgments used in the preparation of its consolidated
financial statements.
Allowance for Doubtful Accounts
-------------------------------
The Company provides for an allowance for doubtful accounts based on expected
collectability of trade receivables. The allowance for doubtful accounts is
determined based on the Company's analysis of customer credit-worthiness,
historical loss experience and general economic conditions and trends.
Inventories
-----------
Inventories are valued at the lower of cost or market. Inventories valued using
the last-in, first-out (LIFO) basis represent approximately 62% of total
inventories at December 31, 2002. All remaining inventories are valued using the
first-in, first-out (FIFO) basis. The Company evaluates its inventories for
excess or slow moving items based on sales order activity and expected market
changes. If circumstances indicate the cost of inventories exceed their
recoverable value, inventories are reduced to net realizable value.
Employee Related Benefits
-------------------------
Accounting for self-insured health care and workers compensation liabilities
involves assumptions of expected claims based on past experience and a review of
individual claims. The Company establishes a liability based on claim
information supplied by insurance and third party administrators. Actual claim
expense could differ from the estimates made by the Company.
Property, Plant and Equipment
-----------------------------
The Company reviews for impairment of long-lived assets whenever events or
changes in facts and circumstances indicate the possibility that the carrying
value may not be recoverable. Factors that may trigger an impairment evaluation
include under performance relative to historical or projected future operating
results and significant negative industry or economic trends. If the forecast of
undiscounted future cash flows is less than the carrying amount of the assets,
an impairment charge to reduce the carrying value of the assets to fair value
will be recognized in the current period.
Outlook
Chromcraft Revington expects the business environment in which it operates to
remain challenging in the near-term. Chromcraft Revington believes that
uncertainty in the U.S. economy, depressed consumer confidence levels, and the
potential for international conflict will likely result in weak consumer and
business spending, which will negatively impact its sales in 2003.
Additionally, Chromcraft Revington anticipates that competition from foreign
manufacturers, which have lower production costs, will continue to impact its
business as well as the U.S. furniture industry.
Chromcraft Revington projects little improvement in the current business climate
in the near-term. Incoming sales orders during the fourth quarter of 2002 were
down approximately 9% as compared to the prior year period.
12
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," "projects," or "likely" or words of similar import. Forward-looking
statements are not guarantees of performance and are subject to certain risks
and uncertainties that could cause actual results or outcomes to differ
materially from those reported, expected, or anticipated as of the date of this
report.
Among the risks and uncertainties that could cause actual results or outcomes to
differ materially from those reported, expected or anticipated are general
economic conditions, declining conditions in the furniture industry, new home
construction, the cyclical nature of the furniture industry, import and domestic
competition in the furniture industry, changes from anticipated levels of sales,
future domestic or international economic and competitive conditions,
international conflict, 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.
The Company does not undertake any obligation to update or revise publicly any
forward-looking statements to reflect information, events or circumstances after
the date of such statements or to reflect the occurrence of anticipated or
unanticipated events or circumstances.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
--------------------------------------------------------------------------------
Borrowings under Chromcraft Revington's bank agreement bear interest at a
variable rate and, therefore, are subject to changes in interest rates. The
Company sources certain raw materials and finished furniture, primarily from the
Pacific Rim. These purchases are payable in U.S. dollars and, therefore, the
Company has no material foreign exchange rate risk exposure.
Item 8. Financial Statements and Supplementary Data
--------------------------------------------------------------------------------
The financial statements and schedule are listed in Part IV, Items 15(a) (1) and
(2).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
--------------------------------------------------------------------------------
None.
13
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 2002 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.
Item 14. Controls and Procedures
--------------------------------------------------------------------------------
(a) Evaluation of Disclosure Controls and Procedures.
Chromcraft Revington's principal executive officer and principal financial
officer have concluded that the Company's disclosure controls and
procedures (as defined in Rule 13a-14(c) and 15d - 14(c) under the
Securities Exchange Act of 1934, as amended), based on their evaluation of
these controls and procedures as of a date within (90) days prior to the
filing date of this Form 10-K, are effective.
(b) Changes in Internal Controls.
There have been no significant changes in Chromcraft Revington's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation thereof, including any corrective
actions with regard to significant deficiencies and material weaknesses.
14
PART IV
Item 15. 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, 2002, 2001 and 2000 F-1
Consolidated Balance Sheets at December 31, 2002 and 2001 F-2
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2002, 2001 and 2000 F-3
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000 F-4
Notes to Consolidated Financial Statements F-5
Independent Auditors' Report F-15
Quarterly Financial Information (unaudited) F-16
The following consolidated financial statement schedule of Chromcraft Revington
is included in response to Item 15(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.
(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.
15
(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.
(4.8) Credit Agreement, dated March 12, 2002, among the
Registrant, the Lenders party thereto and National City Bank
of Indiana, as agent for the Lenders, filed as Exhibit 4.8
to Form 8-K, as filed with the Securities and Exchange
Commission on March 20, 2002, is incorporated herein by
reference.
(10.1) Lease, dated February 15, 1962, between the Board of
Supervisors of Tate County, Mississippi as Landlord and
Chromcraft Corporation as Tenant, filed as Exhibit 10.1 to
Form S-1, registration number 33-45902, as filed with the
Securities and Exchange Commission on February 21, 1992, is
incorporated herein by reference.
(10.12) Contract, dated April 3, 1961, between the City of
Senatobia, Tate County, Mississippi, the Board of
Supervisors of Tate County, Mississippi and Chromcraft
Corporation, filed as Exhibit 10.12 to Form S-1,
Pre-Effective Amendment No. 1, registration number 33-45902,
as filed with the Securities and Exchange Commission on
March 17, 1992, is incorporated herein by reference.
(10.13) Lease, dated September 9, 1966, between the Board of
Supervisors of Tate County, Mississippi as Landlord and
Chromcraft Corporation as Tenant, filed as Exhibit 10.13 to
Form S-1, Pre-Effective Amendment No. 1, registration number
33-45902, as filed with the Securities and Exchange
Commission on March 17, 1992, is incorporated herein by
reference.
(10.14) Contract, dated May 5, 1969, between the Board of
Supervisors of Tate County, Mississippi and Chromcraft
Corporation, filed as Exhibit 10.14 to Form S-1,
Pre-Effective Amendment No. 1, registration number 33-45902,
as filed with the Securities and Exchange Commission on
March 17, 1992, is incorporated herein by reference.
(10.15) Contract and Lease Agreement, dated April 17, 1972, between
Tate County, Mississippi as Landlord and Chromcraft
Corporation as Tenant, filed as Exhibit 10.15 to Form S-1,
Pre-Effective Amendment No. 1, registration number 33-45902,
as filed with the Securities and Exchange Commission on
March 17, 1992, is incorporated herein by reference.
(10.19) Term Loan and Security Agreement, dated March 15, 2002, by
and between the Registrant and 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 as Exhibit 10.3 to Form 10-K
for the year ended December 31, 2001, is incorporated herein
by reference.
16
(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 as Exhibit
10.31 to Form 10-K for the year ended December 31, 2001, is
incorporated herein by reference.
Executive Compensation Plans and Arrangements
---------------------------------------------
(10.4) Chromcraft Revington, Inc. 1992 Stock Option Plan, as
amended and restated effective March 15, 2002, filed as
Exhibit 10.4 to Form 10-K for the year ended December 31,
2001, is incorporated herein by reference.
(10.45) Directors' Stock Option Plan of Chromcraft Revington, Inc.,
effective January 1, 2002, filed as Exhibit 10.45 to Form
10-K for the year ended December 31, 2001, is incorporated
herein by reference.
(10.52) Chromcraft Revington, Inc. Short Term Executive Incentive
Plan, as amended and restated effective January 1, 2002
filed as Appendix A to the 2002 Proxy Statement, is
incorporated herein by reference.
(10.56) Chromcraft Revington, Inc. Long Term Executive Incentive
Plan, as amended and restated effective January 1, 2002,
filed as Appendix B to the 2002 Proxy Statement, is
incorporated herein by reference.
(10.6) Chromcraft Revington Directors Deferred Compensation Plan,
effective January 1, 1999, filed as Exhibit 10.6 to Form
10-K for the year ended December 31, 1998, is incorporated
herein by reference.
(10.8) Employment Agreement, dated March 31, 1992, between the
Registrant and Michael E. Thomas, filed as Exhibit 10.8 to
Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
(10.81) Amendment No. 1 to Employment Agreement between the
Registrant and Michael E. Thomas, dated March 15, 2002,
filed as Exhibit 10.81 to Form 10-K for the year ended
December 31, 2001, is incorporated herein by reference.
(10.85) Supplemental Retirement Benefits Agreement, dated August 21,
1992, between the Registrant and Michael E. Thomas filed as
Exhibit 10.85 to Form 10-K for the year ended December 31,
1992, is incorporated herein by reference.
(10.86) First Amendment to the Supplemental Retirement Benefits
Agreement between the Registrant and Michael E. Thomas,
dated March 15, 2002, filed as Exhibit 10.86 to Form 10-K
for the year ended December 31, 2001, is incorporated herein
by reference.
(10.9) Employment Agreement, dated March 15, 2002, between the
Registrant and Frank T. Kane, filed as Exhibit 10.9 to Form
10-K for the year ended December 31, 2001, is incorporated
herein by reference.
------------------------------------
(21.1) Subsidiaries of the Registrant (filed herewith).
(23.1) Consent of Independent Auditors (filed herewith).
17
(99.1) Certification by the Registrant's chief executive officer
required pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith).
(99.2) Certification by the Registrant's chief financial officer
required pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith).
(b) Reports on Form 8-K
On October 28, 2002, Chromcraft Revington, Inc. filed with the
Securities and Exchange Commission its Current Report on Form 8-K,
which included the certification by the Registrant's chief executive
officer and chief financial officer required pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(c) Exhibits
The response to this portion of Item 15 is submitted as a separate
section of this report.
(d) Financial Statement Schedules
The response to this portion of Item 15 is submitted as a separate
section of this report.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Chromcraft Revington, Inc. has duly caused this annual report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized.
Chromcraft Revington, Inc.
----------------------------------------------
(Registrant)
Date: March 7, 2003 By: /s/ Michael E. Thomas
------------- ------------------------------------------
Michael E. Thomas, Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Chromcraft
Revington, Inc. and in the capacities and on the date indicated.
Signatures Title Date
-------------------------- ----------------------------------------- -----------------
/s/ Michael E. Thomas Chairman, President, Chief Executive March 7, 2003
-------------------------- Officer and Director (principal executive -----------------
Michael E. Thomas officer)
/s/ Frank T. Kane Vice President - Finance (principal March 7, 2003
-------------------------- accounting and financial officer) -----------------
Frank T. Kane
/s/ Stephen D. Healy Director March 7, 2003
-------------------------- -----------------
Stephen D. Healy
/s/ David L. Kolb Director March 7, 2003
-------------------------- -----------------
David L. Kolb
/s/ Larry P. Kunz Director March 7, 2003
-------------------------- -----------------
Larry P. Kunz
/s/ Theodore L. Mullett Director March 7, 2003
-------------------------- -----------------
Theodore L. Mullett
/s/ Warren G. Wintrub Director March 7, 2003
-------------------------- -----------------
Warren G. Wintrub
19
CERTIFICATIONS
I, Michael E. Thomas, certify that:
1. I have reviewed this annual report on Form 10-K of Chromcraft Revington,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 7, 2003 /s/ Michael E. Thomas
------------- -------------------------------------
Michael E. Thomas, Chairman,
President and Chief Executive Officer
20
I, Frank T. Kane, certify that:
1. I have reviewed this annual report on Form 10-K of Chromcraft Revington,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 7, 2003 /s/ Frank T. Kane
------------- -------------------------------------
Frank T. Kane, Vice President-Finance
Chief Financial Officer and Secretary
21
[This page left intentionally blank]
Consolidated Statements of Earnings
Chromcraft Revington, Inc.
(In thousands, except per share data)
Year Ended December 31,
------------------------------------
2002 2001 2000
--------- --------- ---------
Sales $ 214,186 $ 228,492 $ 270,555
Cost of sales 164,745 180,434 208,056
--------- --------- ---------
Gross margin 49,441 48,058 62,499
Selling, general and administrative expenses 30,364 30,087 35,163
--------- --------- ---------
Operating income 19,077 17,971 27,336
Interest expense 1,758 687 2,008
--------- --------- ---------
Earnings before income taxes and cumulative
effect of a change in accounting principle 17,319 17,284 25,328
Income tax expense 6,581 6,741 9,878
--------- --------- ---------
Earnings before cumulative effect of
a change in accounting principle 10,738 10,543 15,450
Cumulative effect of a change in accounting
principle (net of tax benefit of $1,453) (26,727) -- --
--------- --------- ---------
Net earnings (loss) $ (15,989) $ 10,543 $ 15,450
========= ========= =========
Earnings per share of common stock
before cumulative effect of a change
in accounting principle
Basic $ 2.08 $ 1.10 $ 1.59
========= ========= =========
Diluted $ 2.04 $ 1.09 $ 1.57
========= ========= =========
Earnings (loss) per share of common stock
after cumulative effect of a change in
accounting principle
Basic $ (3.09) $ 1.10 $ 1.59
========= ========= =========
Diluted $ (3.09) $ 1.09 $ 1.57
========= ========= =========
Shares used in computing earnings per share
Basic 5,168 9,577 9,727
Diluted 5,273 9,685 9,847
See accompanying notes to the consolidated financial statements
F-1
Consolidated Balance Sheets
Chromcraft Revington, Inc.
(In thousands, except share data)
December 31,
-----------------------
2002 2001
--------- ---------
Assets
Cash and cash equivalents $ -- $ 8,207
Accounts receivable, less allowances of $1,373 in 2002 and $1,334 in 2001 18,542 21,025
Inventories 39,812 43,595
Other 1,040 5,112
--------- ---------
Current assets 59,394 77,939
Property, plant and equipment, at cost, less accumulated depreciation 38,705 42,107
Goodwill, less accumulated amortization of $10,485 in 2001 -- 28,180
Deferred income taxes and other 2,366 842
--------- ---------
Total assets $ 100,465 $ 149,068
========= =========
Liabilities and Stockholders' Equity
Current portion of bank debt $ 5,000 $ --
Accounts payable 5,642 5,600
Accrued liabilities 14,611 12,068
--------- ---------
Current liabilities 25,253 17,668
Bank debt 23,050 --
Deferred compensation 2,514 6,070
Other 3,878 4,586
--------- ---------
Total liabilities 54,695 28,324
--------- ---------
Stockholders' Equity
Preferred stock, $1.00 par value, 100,000 shares authorized,
none issued or outstanding -- --
Common stock, $.01 par value, 20,000,000 shares authorized,
7,572,390 and 11,178,728 shares issued 76 112
Capital in excess of par value 12,920 11,908
Unearned ESOP shares (19,469) --
Retained earnings 70,363 126,844
--------- ---------
63,890 138,864
Less cost of common stock in treasury,
1,541,600 shares in 2002 and 2001 (18,120) (18,120)
--------- ---------
Total stockholders' equity 45,770 120,744
--------- ---------
Total liabilities and stockholders' equity $ 100,465 $ 149,068
========= =========
See accompanying notes to the consolidated financial statements
F-2
Consolidated Statements of Stockholders' Equity
Chromcraft Revington, Inc.
(In thousands, except share data)
Capital in Unearned Total
Common Excess of ESOP Retained Treasury Stockholders'
Stock Par Value Shares Earnings Stock Equity
--------------------------------------------------------------------------------------
Balance at January 1, 2000 $ 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
(229,680 shares) 3 1,523 -- -- -- 1,526
Purchase of treasury stock
(165,800 shares) -- -- -- -- (1,570) (1,570)
Net earnings -- -- -- 10,543 -- 10,543
--------- --------- --------- --------- --------- ---------
Balance at December 31, 2001 112 11,908 -- 126,844 (18,120) 120,744
Repurchase and cancellation
of common stock
(3,695,418 shares) (37) -- -- (40,492) -- (40,529)
ESOP stock purchase
(2,000,000 shares) -- -- (20,000) -- -- (20,000)
Exercise of stock options
(89,080 shares) 1 665 -- -- -- 666
ESOP compensation expense -- 191 531 -- -- 722
Stock option compensation expense -- 156 -- -- -- 156
Net loss -- -- -- (15,989) -- (15,989)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 2002 $ 76 $ 12,920 $ (19,469) $ 70,363 $ (18,120) $ 45,770
========= ========= ========= ========= ========= =========
See accompanying notes to the consolidated financial statements
F-3
Consolidated Statements of Cash Flows
Chromcraft Revington, Inc.
(In thousands)
Year Ended December 31,
----------------------------------
2002 2001 2000
-------- -------- --------
Operating Activities
Net earnings (loss) $(15,989) $ 10,543 $ 15,450
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities
Depreciation and amortization 4,718 6,109 5,855
Loss on disposal of property, plant and equipment 97 -- --
Deferred income taxes 267 (424) 347
Non-cash goodwill impairment loss 26,727 -- --
Non-cash ESOP expense 722 -- --
Stock option compensation expense 156 -- --
Changes in assets and liabilities
Accounts receivable 2,483 4,527 4,022
Inventories 3,783 11,784 (4,929)
Accounts payable 42 (874) (1,726)
Accrued liabilities 1,931 (623) (2,157)
Other 82 (1,865) (215)
-------- -------- --------
Cash provided by operating activities 25,019 29,177 16,647
-------- -------- --------
Investing Activities
Capital expenditures (1,538) (2,191) (4,953)
Proceeds from disposals of property, plant and equipment 125 24 74
-------- -------- --------
Cash used in investing activities (1,413) (2,167) (4,879)
-------- -------- --------
Financing Activities
Net borrowing (repayment) under
revolving line of credit agreements 6,800 (19,200) (7,500)
Proceeds from bank term loan 25,000 -- --
Principal payments on bank term loan (3,750) -- --
Purchase of common stock by ESOP (20,000) -- --
Stock repurchase and related costs (40,529) (1,570) (5,086)
Proceeds from exercise of stock options 666 1,526 111
-------- -------- --------
Cash used in financing activities (31,813) (19,244) (12,475)
-------- -------- --------
Increase (decrease) in cash (8,207) 7,766 (707)
Cash and cash equivalents at beginning of the year 8,207 441 1,148
-------- -------- --------
Cash and cash equivalents at end of the year $ -- $ 8,207 $ 441
======== ======== ========
See accompanying notes to the consolidated financial statements
F-4
Notes to Consolidated Financial Statements
Chromcraft Revington, Inc.
December 31, 2002
Note 1. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of Chromcraft
Revington, Inc. and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Chromcraft Revington manufactures and sells residential and commercial
furniture. Products are sold primarily through furniture dealers throughout the
United States and Canada. Chromcraft Revington has several operating segments
which are aggregated into one reportable segment, in accordance with Financial
Accounting Standards Board Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information.
Revenue Recognition
-------------------
Revenue from sales is recognized when the goods are shipped to the customer.
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.
Cash Equivalents
----------------
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Marketable Securities
---------------------
Marketable securities are recorded at current market value. Realized and
unrealized gains and losses are reflected in earnings.
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 62% and 60% of total inventories at December 31, 2002
and 2001, respectively. Remaining inventories are valued using the first-in,
first-out (FIFO) basis.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment is stated on the basis of cost. Depreciation is
computed principally by the straight-line method for financial reporting
purposes and by accelerated methods for tax purposes. The following estimated
useful lives are used for financial reporting purposes: buildings and
improvements, 15 to 45 years; machinery and equipment, 3 to 12 years; and
leasehold improvements, 5 to 10 years.
F-5
Impairment of Long-lived Assets
-------------------------------
When changes in circumstances indicate the carrying amount of certain long-lived
assets may not be recoverable, the assets will be evaluated for impairment. If
the forecast of undiscounted future cash flows is less than the carrying amount
of the assets, an impairment charge to reduce the carrying value of the assets
to fair value will be recognized in the current period.
Deferred Income Taxes
---------------------
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.
Earnings per Share
------------------
Basic earnings per share is calculated based on the average number of common
shares outstanding. Diluted earnings per share include dilutive potential common
shares (stock options).
Financial Instruments
---------------------
The carrying amounts reported in the balance sheets for accounts receivable,
accounts payable and borrowings under a bank agreement 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.
Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the 2002
presentation with no effect on net earnings and retained earnings, as previously
reported.
Stock Options
-------------
At December 31, 2002, the Company has two stock-based compensation plans, which
are described more fully in Note 13 "Stock Options". The Company accounts for
those plans under the recognition and measurement principles of APB Opinion No.
25, Accounting for Stock Issued to Employees, and related Interpretations and
discloses the fair value of options granted as permitted by Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
("Statement No. 123"). The estimated per share weighted average fair value of
stock options granted during 2002 and 2000 was $6.15 and $3.38, respectively, on
the date of grant. No stock options were granted during 2001. The fair value of
stock options on the date of grant was estimated using the Black-Scholes model
with an expected life, interest rate and volatility for 2002 of 6 years, 5.1%
and 34.6% and for 2000, 6 years, 6.8% and 27.5%, respectively.
F-6
The following table illustrates the effect on net earnings (loss) and earnings
(loss) per share if the Company had applied the fair value recognition
provisions of Statement No. 123 to stock-based employee compensation.
Year Ended December 31,
---------------------------------
2002 2001 2000
--------- --------- ---------
Net earnings (loss), as reported $ (15,989) $ 10,543 $ 15,450
Add: Stock-based employee compensation
expense included in reported net
earnings (loss), net of related
tax effects 97 -- --
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects (416) (60) (218)
--------- --------- ---------
Pro forma net earnings (loss) $ (16,308) $ 10,483 $ 15,232
========= ========= =========
Earnings (loss) per share
Basic - as reported $ (3.09) $ 1.10 $ 1.59
Basic - pro forma $ (3.16) $ 1.09 $ 1.57
Diluted - as reported $ (3.09) $ 1.09 $ 1.57
Diluted - pro forma $ (3.16) $ 1.08 $ 1.55
Note 2. 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" 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 transaction fees and expenses of $3,575,000 in connection with
the Transaction, which included the payment of a $1 million transaction fee to
Court Square's designee, Mr. M. Saleem Muqaddam, a former officer of Court
Square and a former director of Chromcraft Revington.
The funds required to pay the total consideration and certain related expenses
of the Transaction were obtained using available cash and bank borrowings.
Chromcraft Revington loaned $20,000,000 to the ESOP Trust to finance the ESOP
Stock Transaction. At December 31, 2002, the ESOP Trust held approximately 33%
of the issued and outstanding shares of Chromcraft Revington's common stock. See
Notes 7 and 10, "Bank Debt" and "Employee Stock Ownership Plan," for additional
information on the Company's bank financing and the ESOP.
Note 3. 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
F-7
$26,727,000 (net of tax benefit), or $5.17 loss per share, for the year ended
December 31, 2002, for impairment of goodwill. The charge was recorded as a
cumulative effect of a change in accounting principle.
On January 1, 2002, the Company's fair value (based on quoted market prices) was
less than the carrying value of its net assets, including goodwill, which
indicated an impairment of goodwill. Under Statement 142, fair value was
allocated to the assets and liabilities of the Company based on the purchase
accounting method. This calculation indicated that the full amount of goodwill
was impaired at the date of adoption of Statement 142.
The following table presents earnings before the cumulative effect of a change
in accounting principle for the years ended December 31, 2002, 2001 and 2000,
after adjustment for goodwill amortization.
(in thousands, except per share amounts)
--------------------------------------
2002 2001 2000
---------- ---------- ----------
Earnings before cumulative effect of a
change in accounting principle
As reported $ 10,738 $ 10,543 $ 15,450
Goodwill amortization
(net of tax benefit) -- 1,155 1,099
---------- ---------- ----------
Adjusted $ 10,738 $ 11,698 $ 16,549
========== ========== ==========
Basic earnings per share before
cumulative effect of a change
in accounting principle
As reported $ 2.08 $ 1.10 $ 1.59
Goodwill amortization
(net of tax benefit) -- .12 .11
---------- ---------- ----------
Adjusted $ 2.08 $ 1.22 $ 1.70
========== ========== ==========
Diluted earnings per share before
cumulative effect of a change in
accounting principle
As reported $ 2.04 $ 1.09 $ 1.57
Goodwill amortization
(net of tax benefit) -- .12 .11
---------- ---------- ----------
Adjusted $ 2.04 $ 1.21 $ 1.68
========== ========== ==========
Note 4. Inventories
Inventories at December 31, 2002 and 2001 consisted of the following:
(In thousands)
2002 2001
-------- --------
Raw materials $ 11,988 $ 13,334
Work-in-process 7,396 8,194
Finished goods 22,437 24,110
-------- --------
Inventories at FIFO cost 41,821 45,638
LIFO reserve (2,009) (2,043)
-------- --------
$ 39,812 $ 43,595
======== ========
During the years 2002 and 2001, LIFO inventory layers were reduced. This
reduction resulted in charging lower inventory costs prevailing in previous
years to cost of sales, thus reducing cost of sales by $34,000 and $260,000
F-8
below the amount that would have resulted from liquidating inventory recorded at
December 31, 2002 and December 31, 2001 prices, respectively.
Note 5. Property, Plant and Equipment
Property, plant and equipment at December 31, 2002 and 2001 consisted of the
following:
(In thousands)
2002 2001
-------- --------
Land $ 2,231 $ 2,231
Buildings and improvements 34,583 34,443
Machinery and equipment 51,559 51,747
Leasehold improvements 787 960
Construction in progress 83 296
-------- --------
89,243 89,677
Less accumulated depreciation and amortization (50,538) (47,570)
-------- --------
$ 38,705 $ 42,107
======== ========
Note 6. Accrued Liabilities
Accrued liabilities at December 31, 2002 and 2001 consisted of the following:
(In thousands)
2002 2001
-------- --------
Profit sharing and bonus $ 2,450 $ 293
Health benefit plans 1,922 1,880
Salaries, wages and commissions 1,333 1,379
Workers' compensation plans 1,215 1,203
Vacation and holiday pay 1,027 1,005
Other accrued liabilities 6,664 6,308
-------- --------
$14,611 $12,068
======== ========
Note 7. Bank Debt
On March 12, 2002, Chromcraft Revington entered into a new bank credit agreement
(the "Credit Facility") with a group of banks. The Credit Facility provided for
a $25,000,000 term loan and a $50,000,000 revolving credit line. The 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. The weighted
average interest rate on borrowings outstanding as of December 31, 2002 was
3.2%. A commitment fee, of up to .50% per annum, is payable on the unused
portion of the revolving credit line.
At December 31, 2002, the Company had approximately $41,200,000 in unused
availability under the revolving credit line portion of the Credit Facility. 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. The Credit
Facility does not permit the payment of cash dividends.
F-9
Long term bank debt consisted of the following at December 31, 2002:
(In thousands)
Term loan $21,250
Revolving credit line 6,800
-------
28,050
Less current portion of term loan 5,000
-------
$23,050
=======
The term loan has a five-year term and is payable in quarterly installments of
$1,250,000. The revolving credit line expires on March 13, 2007. Annual
principal payments on bank debt over the next five years are $5,000,000 in 2003,
2004, 2005 and 2006 and $8,050,000 in 2007.
Note 8. Income Taxes
Components of total income taxes for the years ended December 31, 2002, 2001 and
2000 were as follows:
(In thousands)
-------------------------------
2002 2001 2000
------- ------- -------
Current:
Federal $ 5,504 $ 6,454 $ 8,420
State 810 711 1,111
------- ------- -------
6,314 7,165 9,531
------- ------- -------
Deferred:
Federal 345 (342) 257
State (78) (82) 90
------- ------- -------
267 (424) 347
------- ------- -------
Total provision for income taxes on earnings before
cumulative effect of a change in accounting principle 6,581 6,741 9,878
Tax benefit recorded as a part of a cumulative
effect of a change in accounting principle (1,453) -- --
------- ------- -------
$ 5,128 $ 6,741 $ 9,878
======= ======= =======
A reconciliation of the provision for income taxes attributable to earnings
before the cumulative effect of a change in accounting principle included in the
Consolidated Statements of Earnings and the amount computed by applying the U.S.
Federal income tax rate for the years ended December 31, 2002, 2001 and 2000 is
summarized below:
(In thousands)
-------------------------------
2002 2001 2000
------- ------- -------
Tax expense, at U.S. statutory rate $ 6,062 $ 6,050 $ 8,865
State taxes, net of federal benefit 477 462 729
Non-deductible amortization of goodwill -- 341 321
Other, net 42 (112) (37)
------- ------- -------
Total provision for income taxes $ 6,581 $ 6,741 $ 9,878
======= ======= =======
F-10
The tax effects of temporary differences that give rise to significant portions
of net deferred tax assets (liabilities) at December 31, 2002 and 2001 are
summarized below:
(In thousands)
2002 2001
------- -------
Deferred tax assets attributable to:
Accounts receivable $ 532 $ 516
Accrued vacation and holiday pay 351 346
Workers compensation 471 466
Deferred compensation 2,465 2,392
Goodwill 1,303 --
Net operating loss carryforwards 1,942 2,259
Other liabilities 2,766 2,906
------- -------
Total gross deferred tax assets 9,830 8,885
------- -------
Deferred tax liabilities attributable to:
Inventories (3,154) (2,729)
Property, plant and equipment (5,340) (5,668)
Other (852) (1,190)
------- -------
Total gross deferred tax liabilities (9,346) (9,587)
------- -------
Net deferred tax asset (liability) $ 484 $ (702)
======= =======
Balance sheet classifications of deferred taxes at December 31, 2002 and 2001
were as follows:
(In thousands)
2002 2001
------- -------
Deferred tax liability, current $ (626) $ (14)
Deferred tax asset (liability), noncurrent 1,110 (688)
------- -------
Net deferred tax asset (liability) $ 484 $ (702)
======= =======
Chromcraft Revington has federal and state net operating loss carryforwards
("NOL's") available of $3,880,000 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
state NOL is primarily limited to the future taxable earnings of Korn
Industries. Based upon the level of historical taxable income and projections
for future income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not that Chromcraft Revington will
realize these tax benefits.
Note 9. 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
105,000, 108,000 and 120,000 for the years ended December 31, 2002, 2001 and
2000, respectively.
Certain options to purchase shares of common stock were outstanding during 2002,
2001 and 2000, 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 148,900 shares at
$16.41 at December 31, 2002 and 376,060 shares at $13.48 at both December 31,
2001 and 2000.
F-11
Note 10. Employee Stock Ownership Plan
Chromcraft Revington sponsors the ESOP, a leveraged employee stock ownership
plan, that covers substantially all employees who have completed six months of
service. Chromcraft Revington makes annual contributions to the ESOP Trust equal
to the ESOP Trust's repayment of its loan to the Company. Chromcraft Revington
loaned $20,000,000 to the ESOP Trust to finance the ESOP Stock Transaction. The
loan to the ESOP Trust provides for repayment to Chromcraft Revington over a
30-year term at a fixed rate of interest of 5.48% per annum. The shares of
common stock owned by the ESOP Trust are pledged to the Company as collateral
for the Company's loan to the ESOP Trust. As the ESOP loan is repaid, shares are
released from collateral and allocated to ESOP accounts of active employees
based on the proportion of debt service paid in the year. Chromcraft Revington
accounts for its ESOP in accordance with AICPA Statement of Position 93-6,
Employers' Accounting for Employee Stock Ownership Plans. Accordingly, unearned
ESOP shares are reported as a reduction of stockholders' equity as reflected in
the Consolidated Statements of Stockholders' Equity of the Company. As shares
are committed to be released, Chromcraft Revington reports compensation expense
equal to the current market price of the shares, and the shares become
outstanding for earnings per share computations. ESOP compensation expense, a
non-cash charge, for the year ended December 31, 2002 was $722,000. The ESOP
shares as of December 31, 2002 were as follows:
(In thousands)
Allocated shares 53
Committed to be released shares --
Unearned ESOP shares 1,947
--------
Total ESOP shares 2,000
========
Unearned ESOP shares, at cost $ 19,469
========
Fair value of unearned ESOP shares at December 31, 2002 $ 25,407
========
Note 11. Other Benefit Plans
Chromcraft Revington sponsors a tax-qualified defined contribution plan. Company
contributions to the plan were based on either a percentage of an employee's
compensation or a matching portion of the employee's contributions. Beginning in
2002, matching contributions to this plan, for most employees, were made to the
ESOP. Chromcraft Revington's contributions to the plan were $74,000 in 2002,
$524,000 in 2001 and $1,235,000 in 2000.
Chromcraft Revington also provides supplemental retirement benefits to key
employees and executive officers of Chromcraft Revington. Expenses under these
arrangements were $908,000 in 2002, $63,000 in 2001 and $198,000 in 2000.
During 2002, the Company distributed $3.9 million of assets held in trust for a
supplemental retirement plan that was terminated to participants. At December
31, 2001, the assets were reflected in other current assets and the related
liability was recorded in non-current liabilities.
Note 12. Supplemental Cash Flow Information
Interest paid during the years ended December 31, 2002, 2001 and 2000 was
$1,755,000, $735,000 and $2,104,000, respectively. Income taxes paid during the
years ended December 31, 2002, 2001 and 2000 were $5,883,000, $6,871,000 and
$8,247,000, respectively.
F-12
Note 13. Stock Options
Chromcraft Revington's 1992 Stock Option Plan, as amended (the "1992 Plan"),
provides for the granting of either incentive stock options ("ISO's") or stock
options which do not qualify as incentive stock options ("non-ISO's"). The total
number of shares of common stock which may be issued under stock options granted
pursuant to the 1992 Plan is 1,800,000 shares. ISO's granted under the 1992 Plan
vest over no greater than a 10-year period, and are granted at exercise prices
no less than the fair market value of Chromcraft Revington's common shares as of
the date of grant. The compensation committee of the Board of Directors
determines the vesting period and exercise prices of non-ISO's. At December 31,
2002 and 2001, there were 238,730 and 623,730 shares, respectively, available
for future grants.
Chromcraft Revington's Directors' Stock Option Plan (the "Directors' Plan") was
adopted effective January 1, 2002, and provides for the granting of non-ISO's to
members of the Board of Directors of the Company who are not employees. Under
the Directors' Plan, eligible directors of the Company receive an option to
purchase 2,500 shares of common stock on the day following each annual meeting
of stockholders. Any new director who is elected or appointed for the first time
to the Board of Directors receives an option to purchase 10,000 shares of common
stock. The total number of shares of common stock which may be issued under
stock options granted pursuant to the Directors' Plan is 75,000 shares.
Non-ISO's granted under the Plan are 100% vested on the day of the grant and are
granted at exercise prices equal to the fair market value of Chromcraft
Revington's common shares as of the date of grant. The options are exercisable
for a period of ten years. At December 31, 2002, there were 50,000 shares
available for future grants.
A summary of Chromcraft Revington's stock option activity and related
information for the three years ended December 31, 2002 follows:
Weighted
Average
Number Exercise
of Shares Price
--------- -----------
2000
Outstanding at beginning of year 855,446 $ 10.12
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
2002
Granted 410,000 $ 10.79
Exercised (89,080) $ 5.85
Outstanding at end of year 918,562 $ 11.62
Exercisable 527,562 $ 12.43
F-13
Significant option groups outstanding at December 31, 2002 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)
---------------- ------------- -------------- ------------- ------------- ---------------
2-19-93 78,300 $ 9.50 78,300 $ 9.50 .1
1-11-94 98,000 $ 11.63 98,000 $ 11.63 1.0
3-15-02 375,000 $ 10.49 - $ - 9.2
All other 367,262 $ 13.22 351,262 $ 13.30 4.9
Note 14. 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, 2003,
2004, 2005, 2006 and 2007 are $1,204,000, $919,000, $149,000, $30,000 and $0,
respectively. It is expected that, in the normal course of business, leases that
expire will be renewed or replaced.
Rental expense was $1,650,000, $1,731,000 and $1,772,000 for the years ended
December 31, 2002, 2001 and 2000, respectively.
Note 15. Contingencies
At December 31, 2002, 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 16. Recently Issued Accounting Standards
The Financial Accounting Standards Board recently issued Statement No. 143,
Accounting for Asset Retirement Obligations that establishes accounting
standards for the recognition and measurement of obligations associated with the
retirement of tangible assets. The effective date of Statement No. 143 is
January 1, 2003. The Financial Accounting Standards Board also recently issued
Statement No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, that addresses financial accounting and reporting for costs
associated with exit or disposal activities. The effective date of Statement No.
146 is for exit or disposal activities that are initiated after December 31,
2002. The Financial Accounting Standards Board also recently issued
Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others.
Interpretation No. 45 clarifies the requirements of Financial Accounting
Standards Board Statement No. 5, Accounting for Contingencies. Interpretation
No. 45 requires that upon issuance of a guarantee, the guarantor must recognize
a liability for the fair value of the obligation it assumes under that
guarantee. 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-14
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 15(a) (1) and (2). In connection with
our audits of the consolidated financial statements, we also have audited the
consolidated financial statement schedule as listed in item 15(a) (1) and (2).
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with 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, 2002 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in note 3 to the consolidated financial statements, the Company
changed its method of accounting for goodwill amortization and impairment in
2002.
KPMG LLP
Indianapolis, Indiana
January 31, 2003
F-15
Quarterly Financial Information (unaudited)
Chromcraft Revington, Inc.
(In thousands, except per share data)
--------------------------------------------------------------
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
--------- --------- --------- --------- ---------
2002
Sales $ 60,814 $ 54,660 $ 49,676 $ 49,036 $ 214,186
Gross margin 13,492 11,812 11,260 12,877 49,441
Operating income 5,496 4,040 4,119 5,422 19,077
Earnings before cumulative effect of
a change in accounting principle 3,329 2,169 2,228 3,012 10,738
Cumulative effect of a change in
accounting principle (net of tax benefit) (26,727) -- -- -- (26,727)
Net earnings (loss) (23,398) 2,169 2,228 3,012 (15,989)
Earnings per share of common stock before
cumulative effect of a change in
accounting principles
Basic .39 .54 .55 .74 2.08
Diluted .38 .52 .53 .72 2.04
Earnings (loss) per share of common stock
after cumulative effect of a change in
accounting principles
Basic (2.71) .54 .55 .74 (3.09)
Diluted (2.71) .52 .53 .72 (3.09)
2001
Sales $ 65,794 $ 53,893 $ 55,046 $ 53,759 $ 228,492
Gross margin 14,694 11,368 11,164 10,832 48,058
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
F-16
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Chromcraft Revington, Inc.
(In thousands)
Additions
-------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Classification of Period Expenses Accounts Deductions of Period
----------------------------------------------------------------------------------------------------------------
Year ended December 31, 2002
Allowance for doubtful
accounts $ 1,334 $ 434 $ - $ (395)(a) $ 1,373
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
(a) Represents charge-offs, net of recoveries, to the allowance for doubtful
accounts.
S-1
EXHIBIT INDEX
(2.1) Stock Purchase Agreement, dated as of February 19, 2002, by
and between the Registrant and Court Square, filed as
Exhibit 10.16 to Form 8-K, as filed with the Securities and
Exchange Commission on March 20, 2002, is incorporated
herein by reference.
(2.2) Stock Purchase Agreement, dated as of February 19, 2002, by
and between Court Square and GreatBanc Trust Company, not in
its individual or corporate capacity, but solely as trustee
of the Chromcraft Revington Employee Stock Ownership Trust,
filed as Exhibit 10.17 to Form 8-K, as filed with the
Securities and Exchange Commission on March 20, 2002, is
incorporated herein by reference.
(3)(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.
(4.8) Credit Agreement, dated March 12, 2002, among the
Registrant, the Lenders party thereto and National City Bank
of Indiana, as agent for the Lenders, filed as Exhibit 4.8
to Form 8-K, as filed with the Securities and Exchange
Commission on March 20, 2002, is incorporated herein by
reference.
(10.1) Lease, dated February 15, 1962, between the Board of
Supervisors of Tate County, Mississippi as Landlord and
Chromcraft Corporation as Tenant, filed as Exhibit 10.1 to
Form S-1, registration number 33-45902, as filed with the
Securities and Exchange Commission on February 21, 1992, is
incorporated herein by reference.
(10.12) Contract, dated April 3, 1961, between the City of
Senatobia, Tate County, Mississippi, the Board of
Supervisors of Tate County, Mississippi and Chromcraft
Corporation, filed as Exhibit 10.12 to Form S-1,
Pre-Effective Amendment No. 1, registration number 33-45902,
as filed with the Securities and Exchange Commission on
March 17, 1992, is incorporated herein by reference.
(10.13) Lease, dated September 9, 1966, between the Board of
Supervisors of Tate County, Mississippi as Landlord and
Chromcraft Corporation as Tenant, filed as Exhibit 10.13 to
Form S-1, Pre-Effective Amendment No. 1, registration number
33-45902, as filed with the Securities and Exchange
Commission on March 17, 1992, is incorporated herein by
reference.
(10.14) Contract, dated May 5, 1969, between the Board of
Supervisors of Tate County, Mississippi and Chromcraft
Corporation, filed as Exhibit 10.14 to Form S-1,
Pre-Effective Amendment No. 1, registration number 33-45902,
as filed with the Securities and Exchange Commission on
March 17, 1992, is incorporated herein by reference.
(10.15) Contract and Lease Agreement, dated April 17, 1972, between
Tate County, Mississippi as Landlord and Chromcraft
Corporation as Tenant, filed as Exhibit 10.15 to Form S-1,
Pre-Effective Amendment No. 1, registration number 33-45902,
as filed with the Securities and Exchange Commission on
March 17, 1992, is incorporated herein by reference.
(10.19) Term Loan and Security Agreement, dated March 15, 2002, by
and between the Registrant and 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 as Exhibit 10.3 to Form 10-K
for the year ended December 31, 2001, is incorporated herein
by reference.
(10.31) First Amendment to the Chromcraft Revington Employee Stock
Ownership Trust, effective January 1, 2002, by and between
the Registrant and GreatBanc Trust Company, filed as Exhibit
10.31 to Form 10-K for the year ended December 31, 2001, is
incorporated herein by reference.
Executive Compensation Plans and Arrangements
---------------------------------------------
(10.4) Chromcraft Revington, Inc. 1992 Stock Option Plan, as
amended and restated effective March 15, 2002, filed as
Exhibit 10.4 to Form 10-K for the year ended December 31,
2001, is incorporated herein by reference.
(10.45) Directors' Stock Option Plan of Chromcraft Revington, Inc.,
effective January 1, 2002, filed as Exhibit 10.45 to Form
10-K for the year ended December 31, 2001, is incorporated
herein by reference.
(10.52) Chromcraft Revington, Inc. Short Term Executive Incentive
Plan, as amended and restated effective January 1, 2002
filed as Appendix A to the 2002 Proxy Statement, is
incorporated herein by reference.
(10.56) Chromcraft Revington, Inc. Long Term Executive Incentive
Plan, as amended and restated effective January 1, 2002,
filed as Appendix B to the 2002 Proxy Statement, is
incorporated herein by reference.
(10.6) Chromcraft Revington Directors Deferred Compensation Plan,
effective January 1, 1999, filed as Exhibit 10.6 to Form
10-K for the year ended December 31, 1998, is incorporated
herein by reference.
(10.8) Employment Agreement, dated March 31, 1992, between the
Registrant and Michael E. Thomas, filed as Exhibit 10.8 to
Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
(10.81) Amendment No. 1 to Employment Agreement between the
Registrant and Michael E. Thomas, dated March 15, 2002,
filed as Exhibit 10.81 to Form 10-K for the year ended
December 31, 2001, is incorporated herein by reference.
(10.85) Supplemental Retirement Benefits Agreement, dated August 21,
1992, between the Registrant and Michael E. Thomas filed as
Exhibit 10.85 to Form 10-K for the year ended December 31,
1992, is incorporated herein by reference.
(10.86) First Amendment to the Supplemental Retirement Benefits
Agreement between the Registrant and Michael E. Thomas,
dated March 15, 2002, filed as Exhibit 10.86 to Form 10-K
for the year ended December 31, 2001, is incorporated herein
by reference.
(10.9) Employment Agreement, dated March 15, 2002, between the
Registrant and Frank T. Kane, filed as Exhibit 10.9 to Form
10-K for the year ended December 31, 2001, is incorporated
herein by reference.
(21.1) Subsidiaries of the Registrant (filed herewith).
(23.1) Consent of Independent Auditors (filed herewith).
(99.1) Certification by the Registrant's chief executive officer
required pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith).
(99.2) Certification by the Registrant's chief financial officer
required pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith).