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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, 2005
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
incorporation or organization) Identification No.)
1100 North Washington Street, Delphi, IN 46923
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(Address, including zip code, of registrant's principal executive offices)
(765) 564-3500
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each
Title of each class exchange on which registered
---------------------------- ----------------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large
accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of February 14, 2006, there were 6,147,276 shares of the registrant's common
stock ($.01 par value) outstanding. The aggregate market value of the voting
stock held by nonaffiliates of the registrant as of July 2, 2005 was $56.3
million (based upon the closing price of the registrant's common stock, as
reported by the American Stock Exchange).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the annual meeting of stockholders to be
held May 9, 2006 are incorporated by reference into Part III of this Form 10-K.
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INDEX
Page
Number
------
PART I
Item 1. Business ................................................ 1
Item 1A. Risk Factors............................................. 6
Item 1B. Unresolved Staff Comments................................ 7
Item 2. Properties .............................................. 8
Item 3. Legal Proceedings ....................................... 8
Item 4. Submission of Matters to a Vote of Security Holders ..... 8
PART II
Item 5. Market for the Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities............................................... 8
Item 6. Selected Financial Data ................................. 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 12
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk ............................................. 18
Item 8. Financial Statements and Supplementary Data ............. 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ..................... 18
Item 9A. Controls and Procedures ................................. 18
Item 9B. Other Information ....................................... 18
PART III
Item 10. Directors and Executive Officers of the Registrant....... 19
Item 11. Executive Compensation .................................. 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters............... 19
Item 13. Certain Relationships and Related Transactions........... 19
Item 14. Principal Accountant Fees and Services................... 19
PART IV
Item 15. Exhibits and Financial Statement Schedules............... 20
Signatures ......................................................... 23
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
(collectively, the "Company"). Chromcraft Revington is headquartered in Delphi,
Indiana.
In 1992, Chromcraft Revington acquired Chromcraft Corporation
("Chromcraft") and Peters-Revington Corporation ("Peters-Revington") and
concurrently completed its initial public offering. Silver Furniture Co., Inc.
("Silver Furniture"), Cochrane Furniture Company, Inc. ("Cochrane") and Korn
Industries Incorporated ("Sumter Cabinet") were acquired in 1995, 1996 and 1999,
respectively. Chromcraft Revington had no operations prior to 1992.
In 2002, Chromcraft Revington formed the Chromcraft Revington Employee
Stock Ownership Trust ("ESOP Trust"). The ESOP Trust purchased 2,000,000 shares
of Chromcraft Revington common stock from then outstanding shares, using funds
borrowed from Chromcraft Revington. The loan to the ESOP Trust provides
repayment to the Company over a 30-year term. At December 31, 2005, the ESOP
Trust held approximately 32.3% of the issued and outstanding shares of
Chromcraft Revington's common stock.
PRODUCTS AND BRANDS
The Company markets its products under five brands, four that exclusively
serve the residential market and one that serves both residential and commercial
markets. Each brand is focused on serving the unique consumer and end user needs
of specific market niches within larger product categories. These include
occasional, bedroom, dining room, upholstered and commercial furniture.
Occasional Furniture
Four of the Company's brands supply occasional furniture from entry to mid
to upper price points primarily to independent and regional furniture retailers.
Occasional furniture includes coffee tables, end tables and sofa tables.
Occasional furniture collections may also include coordinating furniture items
such as entertainment storage cabinets, library and modular wall units, curios
and other accent pieces. Occasional furniture is manufactured using a wide
assortment of materials including solid hardwoods, veneers, printed fiberboard,
metals, glass, natural stone, leathers and other materials.
The Peters-Revington brand is uniquely focused on the occasional furniture
category and offers one of the broadest assortments of occasional furniture. It
markets and sells occasional furniture primarily at medium price points through
independent and regional retailers. The brand has various collections with
extensive item selection incorporating common designs and styling elements.
Occasional furniture is manufactured and sourced globally to provide a variety
of products for the Peters-Revington brand. The brand provides products based on
a wide range of consumer lifestyle-based needs from traditional American and
European styles to more contemporary urban fusion designs.
1
The Silver Furniture brand markets and distributes occasional furniture
primarily at entry to mid-market price points utilizing a global supply base.
Imported tables generally require some assembly by a retailer or consumer. Some
occasional table collections include imported entertainment storage furniture as
well as coordinating leather upholstery. This allows the Silver Furniture brand
to supply "whole room" packages. Furniture is sold to retailers from Silver
Furniture's distribution warehouse operation or by direct container delivered to
the retailer from an overseas supplier.
Cochrane markets occasional furniture in coordination with its exposed wood
upholstered products. This provides consumers and retailers with a unique
combination of built-to-order upholstered products with style coordinating
occasional furniture room groupings. Cochrane's occasional products are sold at
mid-market price points.
The Sumter Cabinet brand is focused on premium solid wood high quality
furniture. Included in the brand collections are a number of entertainment
storage units that incorporate common style and construction features. These
items are manufactured in the United States primarily of solid American
hardwoods. Sumter's occasional furniture is positioned with mid-market and
premium price points.
Bedroom Furniture
Bedroom furniture includes bed frames, dressers, night stands,
entertainment armoires and mirrors in a wide range of styles. The Company
utilizes a global supply chain to provide furniture components to supplement its
United States based manufacturing operations of bedroom furniture. Bedroom
furniture is constructed from solid hardwoods.
The Cochrane brand focuses on mid-priced and customized bedroom
collections. The Cochrane brand also includes a range of inventoried bedroom
styles to provide a wider selection within its collections.
The Sumter Cabinet brand focuses on premium quality products manufactured
utilizing traditional craftsman techniques and primarily American solid hardwood
construction. The Sumter Cabinet brand includes a number of traditional and
transitional design styles and is positioned in the mid-to-upper price points.
Dining Room Furniture
The Company manufactures and markets formal and casual dining furniture for
use in dining rooms, great rooms, kitchens, and hearth rooms. Dining room
furniture includes a broad line of tables, armed and side chairs, buffets and
china cabinets in a wide range of designs. Three of the brands provide products
in these niches.
The Chromcraft brand mainly focuses on metal and mixed media casual dining
furniture. The product line consists primarily of dining tables manufactured
with laminated, wood or glass table tops with stationary or tilt-swivel chairs.
Certain casual dining sets have matching barstools and china cabinets. Chairs
are upholstered in a variety of fabrics and vinyls, while tables are
manufactured from metal, wood, glass, faux marble and other materials, and come
in a variety of shapes. Most casual dining furniture is custom ordered by the
retailer or consumer. The Chromcraft brand products are primarily manufactured
in a United States production facility. The Chromcraft brand also imports a
variety of casual dining furniture mainly to broaden its product offerings and
price points. Chromcraft's casual dining furniture is offered in a wide range of
designs from contemporary to traditional styling and sold at medium price
points.
2
The Sumter Cabinet brand offers formal dining room furniture in solid wood,
primarily using American hardwoods. It is focused on serving the needs of
upper-end consumers with traditional craftsman construction and features. The
products are designed in traditional and transitional styles and are positioned
at mid-to-higher price points.
Cochrane provides custom-design wood casual dining room furniture. Under
this program, consumers can personalize their dining tables, chairs and china
cabinets by selecting from a kiosk unit, various wood finishes and styling,
chair fabrics, hardware, accent finishes and table sizes and shapes.
Custom-design dining room furniture is manufactured in solid wood and sold at
mid-to-higher price points. The brand also includes more traditional dining room
furniture sets to provide a wide range of consumer choice.
Upholstered Furniture
Upholstered products include fabric and leather sofas, chairs, ottomans and
accent pieces in a range of designs for different consumer lifestyles. Three of
the brands include products in the upholstered category.
The Cochrane brand offers a wide range of built-to-order fabric products.
These include consumer choice of fabrics and construction style. Upper end
construction features are incorporated while the products are positioned at
mid-market price points.
The Silver Furniture and Peters-Revington brands also provide upholstered
furniture. These brands focus on style, coordinating medium-priced leather sofas
and chairs designed in conjunction with occasional tables and entertainment
storage furniture.
Commercial Furniture
Commercial furniture products are sold under the Chromcraft brand and
include office chairs, conference, meeting room and training tables and
lounge-area seating furniture for airports and other public waiting areas.
Office chairs are offered in various grades and colors of fabric or leather and
include executive, ergonomic and computer task models. Also, a limited number of
commercial chairs are imported to broaden product offerings. Chromcraft
commercial brand furniture mainly sells at mid-market price points and markets
primarily through commercial dealers.
CUSTOMERS AND DISTRIBUTION
There are many channels of furniture distribution including independent
furniture stores, national and regional chains, office furniture stores,
rent/rent-to-own stores, specialty stores, department stores, catalogs,
wholesale clubs, and manufacturer dedicated stores. The Company markets and
sells its residential furniture primarily to independent furniture retailers and
regional furniture chains. Chromcraft's commercial furniture is sold primarily
to office furniture dealers, wholesalers, distributors, furniture rental stores
and contract customers.
The Company has approximately 5,500 active customer accounts. Major
customers include Nebraska Furniture Mart, Jordan's, Cort Furniture and Rooms To
Go. No material amount of Chromcraft Revington's sales is dependent upon a
single customer. Sales outside the United States represents less than one
percent of total sales. Furniture is primarily sold through independent sales
representatives.
3
COMPETITION
The furniture industry is highly fragmented and the Company encounters
intense domestic and foreign import competition in the sale of all its products.
The furniture markets in which the Company participates include a large number
of relatively small domestic and foreign manufacturers. In recent years,
low-cost foreign manufacturers, primarily in China and other Asian countries,
have significantly increased shipments into the United States. Many of the
Company's competitors, some of which are larger and have greater financial
resources, produce a number of products which are not competitive with the
Company's products. In many cases, such companies do not disclose the portion of
their sales attributable to products similar to those manufactured by the
Company. It is, therefore, impractical to state with any certainty the Company's
relative position in a particular product line. Competition in the Company's
products is in the form of the quality of its products, service and selling
prices.
MANUFACTURING AND GLOBAL SOURCING
The Company has several manufacturing and warehousing facilities in the
United States to supply products for its five brands. Wood and metal working
plants include machining, finishing and assembly operations. Solid wood
furniture manufacturing operations have rough mill facilities that process green
lumber into parts for internal use. The Company's upholstered furniture
operations include chair foam production, cutting and sewing operations.
In recent years, the Company has increased imports of low-cost,
labor-intensive furniture components and finished furniture, primarily from
China, to supplement the Company's domestic furniture manufacturing. Using this
blended approach of domestic manufacturing and selective importing, the Company
is better able to control the quality of furniture and service to its customers.
The Company uses agents and Company personnel to purchase furniture parts
and finished furniture from suppliers primarily located in China, Vietnam and
the Philippines. Suppliers are selected for their ability to deliver high
quality products on a timely basis and at competitive prices. Agents and Company
personnel perform quality control inspections at supplier locations. The Company
maintains a purchasing and quality control inspection office in Southern China.
Imported furniture is purchased in U.S. dollars and, as a result,
Chromcraft Revington is not subject to foreign currency exchange risk.
RAW MATERIALS
The major raw materials used in manufacturing are wood, steel, fabrics,
glass, chair mechanisms, fiberboard, finishing materials, hardware, cartons and
foam for upholstered furniture. In recent years, more low-cost furniture parts
have been sourced overseas. Chromcraft Revington believes that supplies of raw
materials are available in sufficient quantities from an adequate number of
suppliers. No significant shortages of raw materials were experienced during
2005.
4
INVENTORY AND SEASONAL REQUIREMENTS
The Company maintains finished goods inventories for occasional, dining
room and bedroom furniture in order to respond quickly to customer delivery
needs. Most custom-design casual dining room furniture, upholstered furniture
and commercial furniture is made to customer specifications and, therefore, is
not carried in stock. A limited number of commercial furniture items are
maintained for quick delivery programs.
Over the last several years, the Company has increased its overseas
purchases of furniture parts and finished furniture. As a result, the Company
has increased its raw material and finished goods inventory levels, for certain
product lines, in order to accommodate the longer delivery times and, in some
cases, to obtain quantity price discounts.
Sales have historically not been subject to material seasonal fluctuations.
BACKLOG
The Company's backlog of sales orders was approximately $13.2 million at
December 31, 2005, as compared to approximately $14.5 million at December 31,
2004. Order backlog at any particular time is not necessarily indicative of the
level of future shipments.
ENVIRONMENT
Chromcraft Revington believes it is in compliance in all material respects
with all federal, state and local environmental laws and regulations which
impose limitations on the discharge of pollutants into the environment and
establish standards for the treatment of hazardous wastes.
PATENTS
The Company has several commercial chair design patents, none of which are
considered material to the business.
ASSOCIATES
The Company employs a total of approximately 1,400 people. None of the
associates are represented by a collective bargaining agreement.
ADDITIONAL INFORMATION
Chromcraft Revington files annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission
("SEC"). Stockholders may inspect and copy these materials at the Public
Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for more information on the
operation of the Public Reference Room. The SEC maintains an Internet site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of the site
is http://www.sec.gov. Copies of the Company's annual, quarterly and current
reports are
5
available to stockholders without charge upon written request to: Corporate
Secretary, Chromcraft Revington, Inc., 1100 North Washington Street, Delphi, IN
46923.
ITEM 1A. RISK FACTORS
Our sales and earnings may be negatively impacted by foreign competition.
In recent years, the North American furniture industry has been greatly
affected by the substantial increase of competition from foreign manufacturers.
Foreign manufacturers, primarily in China and other Asian countries, have a
substantial labor and overhead cost advantage as compared to furniture
manufacturers in North America. This results in the ability of foreign
manufacturers to sell furniture at lower prices than domestic manufacturers are
typically able to do. We expect these competitive industry conditions to
continue. As a result, we are subject to the risk of losing market share to
import competition, which could negatively impact our sales and earnings.
We may not be able to raise prices because of competitive pressures.
The furniture industry is highly fragmented and we encounter strong
domestic and foreign competition in the sale of all our products. Some of these
competitors are larger than we are and have greater financial resources. Our
manufacturing operations also have experienced inflationary price increases in
raw materials and other costs. Current market and competitive pressures may
limit our ability to raise prices or to pass through significant cost increases
to our customers. This could lower our earnings.
Our sales and earnings may be adversely affected by changes in consumer spending
on furniture and other household goods.
Consumer spending on residential furniture is significantly affected by
items such as consumer economic confidence levels, new and existing home sales
and levels of discretionary income. If these items decrease, our sales and
earnings could be adversely affected.
Our ability to predict furniture preferences or buying patterns will affect our
sales and earnings.
Furniture preferences, styles and buying patterns are subject to change. If
we are unable to predict or respond to changes in these preferences, styles or
patterns, or if customer acceptance of our existing and new product lines
decreases, we may lose sales and have to sell excess inventory at reduced
prices. This could lower our earnings.
Our business is affected by general economic conditions.
The furniture industry historically has been cyclical in nature. General
economic conditions as well as items such as interest rates, credit availability
and inflationary trends influence business and consumer spending. These factors
affect furniture buying decisions of end purchasers and our primary customers,
which are furniture retailers and could affect our sales and earnings.
6
Our ability to grow sales and earnings depends on the successful execution of
our business strategies.
Our ability to maintain and grow our sales and earnings depends on the
correct selection and successful execution of our business strategies for
designing, manufacturing and marketing our products. We also must sell the right
mix of products, maintain favorable production levels and manufacturing
efficiencies at our facilities, use an appropriate blend of domestic
manufacturing and global sourcing and retain an effective management, sales and
production work force. All of these factors affect our ability to grow sales and
earnings.
Our reduced sales volume in recent years may result in future charges.
We have several furniture brands, some of which have been impacted more
severely than others by our reduced sales volume. We are closely monitoring this
situation and, depending on business conditions, this could cause asset
impairment and restructuring charges in the future.
An erosion of our customer base could cause a decrease in sales and earnings.
The loss of customers, whether due to customers purchasing products of one
of our competitors instead of our products or due to customers going out of
business, could cause a decrease in our sales and earnings. Lost sales may be
difficult to replace and amounts owed to us by customers who go out of business
may be uncollectible.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
7
ITEM 2. PROPERTIES
The following table summarizes the Company's facilities as of December 31,
2005.
Square Furniture Owned/
Location Feet Operations Brand Leased
-------- ------- -------------- ---------- ------
Delphi, IN 519,000 Manufacturing/ Peters- Owned
warehousing Revington
Knoxville, TN 160,000 Warehousing Silver Owned
Furniture
Lincolnton, NC 368,000 Manufacturing/ Cochrane Owned
warehousing
Lincolnton, NC 152,000 Manufacturing Cochrane Owned
Lincolnton, NC 159,000 Warehousing Cochrane Owned
Warrenton, NC 166,000 Manufacturing Cochrane Owned
Senatobia, MS 560,000 Manufacturing/ Chromcraft Owned
warehousing
Sumter, SC 521,000 Manufacturing/ Sumter Owned
warehousing Cabinet
Chromcraft Revington leases trucks, trailers and other transportation
equipment and showroom facilities in High Point, North Carolina; Las Vegas,
Nevada; and Chicago, Illinois. Management believes the properties and equipment
of its subsidiaries are well maintained, in good operating condition and
adequate to support present operations. The Company is not utilizing all of its
productive capacity.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Effective June 8, 2004, Chromcraft Revington's common stock began trading
on the American Stock Exchange. Prior to June 8, 2004, the shares were traded on
the New York Stock Exchange. The common stock of the Company is traded under the
ticker symbol
8
"CRC". The following table sets forth the high and low prices of the common
stock, as reported by the stock exchange on which the stock was traded at the
time.
2005 2004
------------------ ------------------
High Low High Low
------ ------ ------ ------
First quarter $13.78 $12.65 $15.65 $11.28
Second quarter 13.95 11.52 15.30 12.20
Third quarter 14.70 13.10 13.90 12.05
Fourth quarter 13.71 11.90 12.85 11.40
As of February 14, 2006, there were approximately 263 security holders of
record of Chromcraft Revington's common stock. The Company does not intend to
pay cash dividends in the foreseeable future. Chromcraft Revington's bank credit
agreement permits the payment of cash dividends. On February 14, 2006, the
closing price of Chromcraft Revington's common stock was $13.00 as reported by
the American Stock Exchange.
Equity Compensation Plan Information
The following table provides certain information as of December 31, 2005
with respect to the Company's equity compensation plans under which equity
securities of the Company are authorized for issuance.
Number of securities
remaining available for
Number of securities to Weighted average future issuance under equity
be issued upon exercise exercise price of compensation plans (excluding
of outstanding options, outstanding options, securities reflected in the
Plan Category warrants and rights warrants and rights first column)
------------- ----------------------- -------------------- -----------------------------
Equity compensation plans
approved by security holders (1) 613,270 $12.00 280,543
Equity compensation plans not
approved by security holders (2) 30,000 13.38 45,000
------- ------ -------
Total 643,270 $12.07 325,543
======= ====== =======
(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) In December, 2005, the Company's Board of Directors approved an increase in
the authorized shares for the Directors' Stock Option Plan, subject to the
approval of the Company's stockholders at the 2006 annual meeting of
stockholders.
9
Purchases of Equity Securities by the Issuer
The following table represents information with respect to shares of
Chromcraft Revington common stock repurchased by the Company during the three
months ended December 31, 2005.
Purchase of Equity Securities
Maximum number
Total number of (or approximate dollar
shares purchased value) of shares
Total number Average as part of that may yet be
of shares price paid publicly announced purchased under the
Period purchased per share plans or programs plans or programs (1)
------ ------------ ---------- ------------------ ----------------------
October 2, 2005 to October 29, 2005 -- -- -- 702,965
October 30, 2005 to November 26, 2005 -- -- -- 702,965
November 27, 2005 to December 31, 2005 -- -- -- 702,965
--- --- ---
-- -- --
=== === ===
(1) The Company has maintained a share repurchase program since 1997. On
February 8, 2005, the Board of Directors of the Company authorized the
purchase of an additional 500,000 shares of common stock. At December 31,
2005, there were 702,965 shares available to purchase under this program.
10
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share and
employee data)
Year Ended December 31,
-----------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- ---------
OPERATING RESULTS
Sales $169,565 $172,393 $184,228 $214,186 $228,492
Cost of sales 131,924 132,979 145,592 164,745 180,434
-------- -------- -------- -------- --------
Gross margin 37,641 39,414 38,636 49,441 48,058
Selling, general and administrative expenses 26,531 26,279 27,263 30,364 30,087
Other (income) (a) -- -- (3,650) -- --
-------- -------- -------- -------- --------
Operating income 11,110 13,135 15,023 19,077 17,971
Interest expense 753 788 1,147 1,758 687
-------- -------- -------- -------- --------
Earnings before income taxes
and accounting change 10,357 12,347 13,876 17,319 17,284
Income tax expense (b) 3,112 4,679 5,788 6,581 6,741
-------- -------- -------- -------- --------
Earnings before accounting change 7,245 7,668 8,088 10,738 10,543
Cumulative effect of an accounting change
(net of tax benefit) (c) -- -- -- (26,727) --
-------- -------- -------- -------- --------
Net earnings (loss) $ 7,245 $ 7,668 $ 8,088 $(15,989) $ 10,543
======== ======== ======== ======== ========
Earnings (loss) per share of common stock
after accounting change (c)
Basic $ 1.69 $ 1.85 $ 1.97 $ (3.09) $ 1.10
======== ======== ======== ======== ========
Diluted $ 1.66 $ 1.82 $ 1.94 $ (3.09) $ 1.09
======== ======== ======== ======== ========
Shares used in computing earnings per share
Basic 4,277 4,143 4,109 5,168 9,577
Diluted 4,357 4,215 4,173 5,273 9,685
FINANCIAL POSITION (December 31,)
Cash and cash equivalents $ -- $ -- $ -- $ -- $ 8,207
Working capital $ 44,878 $ 40,054 $ 35,044 $ 39,141 $ 52,064
Total assets $ 89,259 $ 87,036 $ 85,900 $100,465 $149,068
Bank indebtedness $ -- $ 5,700 $ 12,050 $ 28,050 $ --
Stockholders' equity $ 72,662 $ 62,909 $ 53,798 $ 45,770 $120,744
OTHER DATA
Operating income margin 6.6% 7.6% 8.2% 8.9% 7.9%
Depreciation and amortization $ 3,491 $ 3,721 $ 4,188 $ 4,718 $ 6,109
Capital expenditures $ 1,521 $ 1,086 $ 674 $ 1,538 $ 2,191
Common stock repurchases (d)
Shares 66 -- 169 5,695 166
Total cost $ 864 $ -- $ 2,226 $ 60,529 $ 1,570
Number of associates 1,400 1,400 1,500 1,700 2,000
----------
(a) Resolution of a claim that existed as part of the Company's earlier
acquisition of a subsidiary.
(b) Income tax expense for the year ended December 31, 2005 includes a
non-recurring income tax benefit of $710,000 primarily due to the favorable
resolution of a tax contingency. For the year ended December 31, 2003,
income tax expense includes $515,000 of additional income tax expense for a
change in the tax basis of certain acquired assets.
(c) Effective January 1, 2002, the Company recorded a non-cash transition
charge for the impairment of goodwill. For the year ended December 31,
2002, basic and diluted earnings per share before accounting change were
$2.08 and $2.04, respectively.
(d) Common stock purchases in 2002 includes 2,000,000 shares acquired by the
Company's ESOP Trust. The stock repurchase in 2005 is reflected on the
financial statements net of related compensation expense of $110,000.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Over the past five years the Company has experienced declining sales due to
a combination of heightened global competition and the Company's strategic
response to the changing market place. While sales of less competitive and less
profitable lines have declined, the Company has lowered its costs and utilized
excess cash flow from operations to reduce bank indebtedness and to repurchase
its outstanding common stock. The Company has also concentrated its efforts on
more attractive niches and the rate of sales decline has slowed in more recent
years.
Beginning in the late 1990's, the U.S. furniture industry began undergoing
a dramatic shift from a domestic manufacturing base to a highly competitive
global supply chain. This shift accelerated over the course of the last five
years. Global manufacturers, primarily in China and other Asian countries, have
used substantially lower labor costs and somewhat lower material cost to achieve
a competitive advantage over U.S. based manufacturers in several furniture
categories. As a result, numerous U.S. based manufacturing operations have
ceased to exist or have converted to alternative business models. Meanwhile,
consumers have benefited from products of reasonable quality at substantially
lower prices. This has altered the fundamental value perception of consumers and
the underlying value propositions of businesses serving the industry.
In the face of this fundamental industry dynamic, the Company has leveraged
its manufacturing competency and know-how to achieve lower costs and shifted its
products toward more attractive niche-focused businesses. In its efforts to
achieve lower costs, the Company has increased imports of low-cost,
labor-intensive furniture components and finished furniture from overseas. In
addition, the Company has initiated efforts to develop built-to-order products
to improve its overall value proposition. Management believes that this hybrid
approach of domestic manufacturing and assembly operations combined with global
sourcing allows the Company to better control product quality, service speed and
quality, as well as product selection to meet consumer lifestyle needs.
As a result of these strategic decisions, sales of less competitive and/or
less profitable products have declined, costs have been reduced and excess cash
from operations has been generated. To date, the excess cash flow has been
utilized to reduce bank indebtedness and to repurchase outstanding common shares
of the Company.
Management believes overall competitiveness and future growth opportunities
are based on a few key capabilities: first, understanding consumer lifestyles
needs; second, meeting those needs with product selection and built-to-order
customization; third, supplying reliable and durable product quality; fourth,
serving its retail and commercial customers with reliability and speed of
delivery; and fifth, implementing effective sales and marketing programs. The
Company's market position is influenced by its ability to execute these key
elements, as well as global transportation, distribution logistics and
manufacturing cost structures.
Management closely monitors the activities and performance of the Company's
different brands, as well as its multiple manufacturing and distribution
operations. As the Company continues to adapt to heightened global competition,
it will seek increased
12
cooperation and productivity from the various operating units. Adaptation to the
market and integration of some common activities could result in restructuring
charges, asset impairment, and/or increased operating expenses in the future. In
addition, the Company has experienced inflationary price increases in raw
materials, labor and other costs. Management is seeking ways to mitigate the
impact of these factors through product engineering, manufacturing productivity,
global sourcing and greater internal integration of activities. However, due to
the competitive environment the Company may not be able to pass through any
significant price increases to its customers.
RESULTS OF OPERATIONS
The following table sets forth the results of operations of Chromcraft
Revington for the years ended December 31, 2005, 2004 and 2003 expressed as a
percentage of sales.
Year Ended December 31,
-----------------------
2005 2004 2003
----- ----- -----
Sales 100.0% 100.0% 100.0%
Cost of sales 77.8 77.1 79.0
----- ----- -----
Gross margin 22.2 22.9 21.0
Selling, general and administrative expenses 15.6 15.3 14.8
Other (income) -- -- (2.0)
----- ----- -----
Operating income 6.6 7.6 8.2
Interest expense .5 .4 .7
----- ----- -----
Earnings before income taxes 6.1 7.2 7.5
Income tax expense 1.8 2.7 3.1
----- ----- -----
Net earnings 4.3% 4.5% 4.4%
===== ===== =====
2005 COMPARED TO 2004
Consolidated sales for 2005 were $169,565,000, a 1.6% decrease from sales
of $172,393,000 for 2004. Dining room and bedroom shipments were lower in 2005,
partially offset by higher sales of upholstered and commercial furniture.
Occasional furniture shipments in 2005 were at approximately the same level as
in 2004. The consolidated sales decline was primarily due to a lower number of
units sold attributable to relative competitiveness. Selling prices were
slightly higher compared to the prior year.
Gross margin decreased $1,773,000 to $37,641,000, or 22.2% of sales in
2005, as compared to $39,414,000, or 22.9% of sales in 2004. The decrease in
gross margin percentage in 2005 was primarily due to an unfavorable sales mix
and reduced production levels at two facilities, which impacted fixed cost
absorption and manufacturing efficiencies.
Selling, general and administrative expenses increased $252,000 to
$26,531,000 from $26,279,000 in 2004. The higher expense in 2005 was primarily
due to employment related costs for a new Chief Executive Officer for the
Company and an increase in bad debt and product marketing expenses, partially
offset by lower employee benefit costs.
Interest expense was $753,000 in 2005 as compared to $788,000 in 2004. The
lower interest expense in 2005 was primarily due to a reduction in bank
borrowings from excess
13
cash flow from operations. In 2005, interest expense included the write-off of
unamortized bank financing fees of $161,000 associated with a multi-bank credit
facility that was replaced in 2005.
Chromcraft Revington's effective income tax rate in 2005 was 30.0% compared
to 37.9% in 2004. The lower income tax rate in 2005 was mainly due to a
non-recurring income tax benefit of $710,000 primarily due to the favorable
resolution of a tax contingency.
Net earnings decreased to $7,245,000 in 2005 compared to $7,668,000 in
2004. Factors contributing to the decrease are outlined in the above discussion.
2004 COMPARED TO 2003
For 2004, sales decreased 6.4% to $172,393,000 from $184,228,000 reported
in 2003. The sales decrease was mainly due to import competition in bedroom,
dining room and occasional furniture. Upholstered furniture shipments remained
unchanged from 2003. Shipments of leather upholstered furniture introduced in
2004 were offset by a decrease in fabric upholstered furniture. Sales of
commercial furniture in 2004 were slightly lower compared to the prior year. The
consolidated sales decrease in 2004 was mainly due to lower unit volume.
Gross margin increased $778,000 to $39,414,000, or 22.9% of sales, in 2004,
from $38,636,000, or 21.0% of sales, in 2003. The margin improvement was
primarily due to a decrease in manufacturing expenses and improved operating
efficiencies in the production of bedroom furniture. In 2004, manufacturing
expenses were lower, as compared to the prior year, due, in part, to a decrease
in health care costs. Lower health care costs resulted from an increase in
employee cost sharing and a reduction in benefit levels. For the year ended
December 31, 2003, manufacturing expenses included an inventory obsolescence
write down.
Selling, general and administrative expenses decreased $984,000 to
$26,279,000, or 15.3% of sales, in 2004, from $27,263,000, or 14.8%, in 2003.
The decrease in expense in 2004 was primarily due to lower sales commissions and
performance-based compensation.
Operating income decreased $1,888,000 to $13,135,000, or 7.6% of sales, in
2004, from $15,023,000, or 8.2% of sales, in 2003. Operating income for 2003
included a $3,650,000 non-recurring non-cash gain on the resolution of a claim
in connection with the Company's earlier acquisition of a subsidiary.
Interest expense was $788,000 as compared to $1,147,000 in 2003. The
decrease in interest expense was primarily due to a reduction in bank
indebtedness. Bank debt was reduced in 2004 by excess cash flow generated from
operations.
The effective income tax rate in 2004 was 37.9% as compared to 41.7% in
2003. The higher tax rate in 2003 was due to additional income tax expense of
$515,000 for a change in tax basis of certain acquired assets.
Net earnings decreased to $7,668,000 in 2004 as compared to $8,088,000 in
2003. Factors contributing to the earnings reduction are outlined in the above
discussion.
14
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Operating activities provided cash of $5,973,000 in 2005 compared to
$7,193,000 in 2004 and $17,870,000 in 2003. Cash was used to increase
inventories by $3,343,000 in 2005 and $2,798,000 in 2004, primarily for overseas
purchases of furniture parts and finished furniture to accommodate the longer
delivery times. For the year ended December 31, 2003, the Company decreased
inventory levels and generated cash of $8,944,000.
Investing Activities
Investing activities used cash for net capital expenditures of $1,505,000
in 2005 compared to $1,074,000 in 2004 and $652,000 in 2003. The Company expects
to spend approximately $2,300,000 in 2006 on capital expenditures.
Financing Activities
Financing activities used cash of $4,468,000 in 2005 as compared to
$6,119,000 in 2004 and $17,218,000 in 2003. Cash was used to reduce bank
indebtedness by $5,700,000 in 2005, $6,350,000 in 2004, and $16,000,000 in 2003.
In addition, cash was used to acquire 65,987 shares of Company common stock
for $864,000 in 2005 and 168,700 shares of common stock for $2,226,000 in 2003.
Included in these common stock repurchases were 164,187 shares purchased from
the former President and Chief Executive Officer of the Company for $2,168,000.
The purchase price was determined based on an average selling price of the
Company's common stock prior to the transaction dates. The stock repurchase in
2005 is reflected on the financial statements net of related compensation
expense of $110,000. At December 31, 2005, 702,965 shares were available for
purchase under the Company's share repurchase program.
The Company received cash of $1,986,000, $231,000, and $1,008,000 on the
exercise of stock options in 2005, 2004, and 2003, respectively.
On September 20, 2005, the Company replaced a secured multi-bank credit
agreement with an unsecured revolving loan facility ("Facility") that allows the
Company to borrow up to $35,000,000 based on a multiple of cash flow. The
interest rate under the Facility is determined at the time of borrowing, at the
Company's option, at either the bank's prime rate, or a rate based on the
Federal Funds rate or the London Interbank Offered Rate (LIBOR). There were no
borrowings outstanding at December 31, 2005. The Company had $1,745,000 of
standby letters of credit outstanding at December 31, 2005 in connection with
workers compensation programs. These letters of credit, which reduce credit
availability under the Facility, expire on August 11, 2006 and are generally
renewed annually.
Management expects that cash flow from operations and availability under
its Facility will continue to be sufficient to meet its future liquidity needs.
The Company had approximately $29,247,000 of available credit under its Facility
at the end of the year. The Facility matures in September 2008. Chromcraft
Revington expects to generate excess cash flow in 2006 which will be used to
pursue strategic acquisitions, or repurchase Company common stock, or for
general corporate purposes.
15
CONTRACTUAL OBLIGATIONS
The following table summarizes the Company's contractual obligations at December
31, 2005:
Payments Due by Period
-----------------------------------------------
Less than 1 - 3 4 - 5 More than
(In thousands) Total 1 Year Years Years 5 Years
-------------- ------ --------- ------ ----- ---------
Operating leases $3,732 $1,205 $2,138 $389 $ --
Other long-term liabilities (a) 3,924 -- 2,069 268 1,587
------ ------ ------ ---- ------
Total contractual cash
obligations $7,656 $1,205 $4,207 $657 $1,587
====== ====== ====== ==== ======
(a) Includes interest.
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 57% of total
inventories at December 31, 2005. 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.
16
Property, Plant and Equipment
The Company reviews long-lived assets for impairment whenever events or
changes in facts and circumstances indicate the possibility that the carrying
value may not be recoverable. Factors that may trigger an impairment evaluation
include under-performance relative to historical or projected future operating
results and significant negative industry or economic trends. If the forecast of
undiscounted future cash flows is less than the carrying amount of the assets,
an impairment charge would be recognized to reduce the carrying value of the
assets to fair value.
RECENTLY ISSUED ACCOUNTING STANDARDS
In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 151, Inventory Costs ("Statement
No. 151"). Statement No. 151 amends Accounting Research Bulletin No. 43, Chapter
4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs and wasted material. Statement No. 151
requires that those items be recognized as current-period charges and requires
that allocation of fixed production overheads to the cost of conversion be based
on the normal capacity of the production facilities. Statement No. 151 is
effective for fiscal years beginning after June 15, 2005. The Company has
determined that the adoption of Statement No. 151 did not have a material
impact on the Company's financial condition or results of operations.
In December 2004, FASB issued Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payments ("Statement No. 123(R)"). Statement
No. 123(R) replaces FASB Statement No. 123 and supersedes Accounting Principles
Board Opinion No. 25. Statement No. 123(R) will require the fair value of all
stock option awards issued to employees to be recorded as an expense over the
related vesting period. Statement No. 123(R) also requires the recognition of
compensation expense for the fair value of any unvested stock option awards
existing at the date of adoption as the stock options vest. The Securities and
Exchange Commission amended FASB's compliance dates for Statement No. 123(R) to
allow a calendar year-end company to delay compliance with Statement No. 123(R)
until the first quarter of 2006. The Company has determined that the adoption of
Statement No. 123(R) did not have a material impact on the Company's financial
condition or results of operations.
FORWARD-LOOKING STATEMENTS
Certain information and statements contained in this report, including,
without limitation, in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations," are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements can be generally identified as such
because they include future tense or dates, or are not historical or current
facts, or include words such as "anticipates," "believes," "may," or "expects,"
or words of similar import. Forward-looking statements are not guarantees of
performance or outcomes 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
17
conditions; import and domestic competition in the furniture industry; market
interest rates; consumer confidence levels; cyclical nature of the furniture
industry; consumer and business spending; changes in relationships with
customers; customer acceptance of existing and new products; new and existing
home sales; and other factors that generally affect business.
The Company does not undertake any obligation to update or revise publicly
any forward-looking statements to reflect information, events or circumstances
after the date of such statements or to reflect the occurrence of anticipated or
unanticipated events or circumstances.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Borrowings under Chromcraft Revington's bank agreement bear interest at a
variable rate and, therefore, are subject to changes in interest rates. A
one-percentage point fluctuation in market interest rates would have had less
than a $25,000 impact on net earnings in 2005.
The Company sources certain raw materials and finished furniture, primarily
from China. These purchases are fixed-price contracts payable in U.S. dollars
and, therefore, the Company has no material foreign currency exchange rate risk
exposure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedule are listed in Part IV, Items 15(a)
(1) and (2) and are included as exhibits to this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Chromcraft Revington's principal executive officer and principal financial
officer have concluded, based upon their evaluation, that the Company's
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended), were effective as of the end of
the period covered by this Form 10-K.
There have been no significant changes in Chromcraft Revington's internal
control over financial reporting that occurred during the fourth quarter of 2005
that have materially affected, or are reasonably likely to materially affect,
Chromcraft Revington's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Code of Ethics
The Company has adopted a code of ethics that applies to all of its
directors, officers (including its chief executive officer, chief financial and
accounting officer, controller and any person performing similar functions) and
employees. A copy of the Code of Ethics is available without charge upon written
request to: Corporate Secretary, Chromcraft Revington, Inc., 1100 North
Washington Street, Delphi, IN 46923.
Audit Committee Financial Expert
The Company's Board of Directors has determined that each member of its
Audit Committee is an "audit committee financial expert", as defined under Item
401(h) of Regulation S-K of the Securities Exchange Act of 1934. The members of
the Company's Audit Committee are David L. Kolb, Theodore L. Mullett and John D.
Swift, and each is independent under the requirements of the American Stock
Exchange.
In accordance with the provisions of General Instruction G to Form 10-K,
the information required for the remainder of required disclosures under Item 10
is not set forth herein because Chromcraft Revington intends to file with the
Securities and Exchange Commission a definitive Proxy Statement pursuant to
Regulation 14A not later than 120 days following the end of its 2005 fiscal
year, which Proxy Statement will contain such information. The information
required by Item 10, not presented above, is incorporated herein by reference to
such Proxy Statement.
ITEMS 11. THROUGH 14.
In accordance with the provisions of General Instruction G to Form 10-K,
the information required by Item 11 (Executive Compensation), Item 12 (Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters), Item 13 (Certain Relationships and Related Transactions), and Item 14
(Principal Accountant Fees and Services) is not set forth herein because
Chromcraft Revington intends to file with the Securities and Exchange Commission
a definitive Proxy Statement pursuant to Regulation 14A not later than 120 days
following the end of its 2005 fiscal year, which Proxy Statement will contain
such information. The above information required by Items 11, 12, 13, and 14 is
incorporated herein by reference to such Proxy Statement.
19
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. and 2. List of Financial Statements and Financial Statement Schedule:
The following Consolidated Financial Statements of Chromcraft Revington are
included in this report on Form 10-K:
Page Reference
--------------
Consolidated Statements of Earnings for the years ended
December 31, 2005, 2004 and 2003 F-1
Consolidated Balance Sheets at December 31, 2005 and 2004 F-2
Consolidated Statements of Cash Flows for the years ended
December 31, 2005, 2004 and 2003 F-3
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2005, 2004 and 2003 F-4
Notes to Consolidated Financial Statements F-6
Report of Independent Registered Public Accounting Firm F-16
Quarterly Financial Information (unaudited) F-17
The following consolidated financial statement schedule of Chromcraft
Revington is included in response to Item 15(c):
Schedule II - Valuation and Qualifying Accounts S-1
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
(a) 3. Listing of Exhibits
(3.1) Certificate of Incorporation of the Registrant, as amended, filed
as Exhibit 3.1 to Form S-1, registration number 33-45902, as filed
with the Securities and Exchange Commission on February 21, 1992,
is incorporated herein by reference.
(3.2) By-laws of the Registrant, as amended, filed as Exhibit 3.2 to Form
8-K, as filed with the Securities and Exchange Commission on
December 12, 2005, is incorporated herein by reference.
(10.19) Term Loan and Security Agreement, dated March 15, 2002, by and
between the Registrant and First Bankers Trust Services, Inc. (as
successor trustee), not in its individual or corporate capacity,
but solely as trustee of the Chromcraft Revington Employee Stock
Ownership Trust, filed as Exhibit 10.19 to Form 8-K,
20
as filed with the Securities and Exchange Commission on March 20,
2002, is incorporated herein by reference.
(10.2) Amendment No. 2 to the Term Loan and Security Agreement, dated
December 21, 2005, by and between the Registrant and First Bankers
Trust Services, Inc. (as successor trustee), not in its individual
or corporate capacity, but solely as trustee of the Chromcraft
Revington Employee Stock Ownership Trust (filed herewith).
(10.21) Credit Agreement dated September 20, 2005, between the Registrant
and Wells Fargo Bank, N.A., filed as Exhibit 10.21 to Form 8-K, as
filed with the Securities and Exchange Commission on September 26,
2005, is incorporated herein by reference.
(10.3) Chromcraft Revington Employee Stock Ownership Trust, effective
January 1, 2002, by and between the Registrant and First Bankers
Trust Services, Inc. (as successor trustee), filed as Exhibit 10.3
to Form 10-K for the year ended December 31, 2001, is incorporated
herein by reference.
(10.31) First Amendment to the Chromcraft Revington Employee Stock
Ownership Trust, effective January 1, 2002, by and between the
Registrant and First Bankers Trust Services, Inc. (as successor
trustee), filed as Exhibit 10.31 to Form 10-K for the year ended
December 31, 2001, is incorporated herein by reference.
(10.32) Third Amendment to the Chromcraft Revington Employee Stock
Ownership Trust, effective December 31, 2005, by and between the
Registrant and First Bankers Trust Services, Inc. (filed
herewith).
Executive Compensation Plans and Arrangements
(10.4) Chromcraft Revington, Inc. 1992 Stock Option Plan, as amended and
restated effective March 15, 2002, filed 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., as
amended (filed herewith).
(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.
21
(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.
(10.91) Restricted Stock Award Agreement dated December 16, 2005, between
the Registrant and Benjamin M. Anderson-Ray, filed as Exhibit
10.91 to Form 8-K, as filed with the Securities and Exchange
Commission on December 22, 2005, is incorporated herein by
reference.
(10.92) Employment Agreement dated June 22, 2005, between the Registrant
and Benjamin M. Anderson-Ray, filed as Exhibit 10.1 to Form 8-K,
as filed with the Securities and Exchange Commission on June 28,
2005, is incorporated herein by reference.
(14.1) Code of Ethics for Chief Executive Officer and Senior Financial
Officers, and Code of Business Conduct and Ethics of Chromcraft
Revington, Inc., filed as Exhibit 14.1 to Form 10-K for the year
ended December 31, 2003, is incorporated herein by reference.
(21.1) Subsidiaries of the Registrant (filed herewith).
(23.1) Consent of Independent Registered Public Accounting Firm (filed
herewith).
(31.1) Certification of Chief Executive Officer required pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
(31.2) Certification of Chief Financial Officer required pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
(32.1) Certifications of Chief Executive Officer and Chief Financial
Officer required pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
(b) Exhibits
The response to this portion of Item 15 is submitted as a separate section
of this report.
(c) Financial Statement Schedules
The response to this portion of Item 15 is submitted as a separate section
of this report.
22
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 8, 2006 By: /s/ Benjamin M. Anderson-Ray
------------- ------------------------------------
Benjamin M. Anderson-Ray,
Chairman 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/ Benjamin M. Anderson-Ray Chairman, Chief Executive March 8, 2006
------------------------------------- Officer and Director -------------
Benjamin M. Anderson-Ray (principal executive officer)
/s/ Frank T. Kane Vice President - Finance March 8, 2006
------------------------------------- (principal accounting and -------------
Frank T. Kane financial officer)
/s/ Ronald H. Butler Director March 8, 2006
------------------------------------- -------------
Ronald H. Butler
/s/ John R. Hesse Director March 8, 2006
------------------------------------- -------------
John R. Hesse
/s/ David L. Kolb Director March 8, 2006
------------------------------------- -------------
David L. Kolb
/s/ Larry P. Kunz Director March 8, 2006
------------------------------------- -------------
Larry P. Kunz
/s/ Theodore L. Mullett Director March 8, 2006
------------------------------------- -------------
Theodore L. Mullett
/s/ Craig R. Stokely Director March 8, 2006
------------------------------------- -------------
Craig R. Stokely
/s/ John D. Swift Director March 8, 2006
------------------------------------- -------------
John D. Swift
23
CONSOLIDATED STATEMENTS OF EARNINGS
Chromcraft Revington, Inc.
(In thousands, except per share data)
Year Ended December 31,
------------------------------
2005 2004 2003
-------- -------- --------
Sales $169,565 $172,393 $184,228
Cost of sales 131,924 132,979 145,592
-------- -------- --------
Gross margin 37,641 39,414 38,636
Selling, general and administrative expenses 26,531 26,279 27,263
Other (income) -- -- (3,650)
-------- -------- --------
Operating income 11,110 13,135 15,023
Interest expense 753 788 1,147
-------- -------- --------
Earnings before income tax expense 10,357 12,347 13,876
Income tax expense 3,112 4,679 5,788
-------- -------- --------
Net earnings $ 7,245 $ 7,668 $ 8,088
======== ======== ========
Earnings per share of common stock
Basic $ 1.69 $ 1.85 $ 1.97
======== ======== ========
Diluted $ 1.66 $ 1.82 $ 1.94
======== ======== ========
Shares used in computing earnings per share
Basic 4,277 4,143 4,109
Diluted 4,357 4,215 4,173
See accompanying notes to the consolidated financial statements
F-1
CONSOLIDATED BALANCE SHEETS
Chromcraft Revington, Inc.
(In thousands, except share data)
December 31,
-------------------
2005 2004
-------- --------
Assets
Accounts receivable, less allowance of $1,045
in 2005 and $1,280 in 2004 $ 18,735 $ 18,133
Inventories 37,009 33,666
Other current assets 1,922 1,971
-------- --------
Current assets 57,666 53,770
Property, plant and equipment, at cost, less
accumulated depreciation 30,274 32,490
Other long-term assets 1,319 776
-------- --------
Total assets $ 89,259 $ 87,036
======== ========
Liabilities and Stockholders' Equity
Accounts payable $ 5,448 $ 5,093
Accrued liabilities 7,340 8,623
-------- --------
Current liabilities 12,788 13,716
Bank debt -- 5,700
Deferred compensation 2,486 3,500
Other long-term liabilities 1,323 1,211
-------- --------
Total liabilities 16,597 24,127
-------- --------
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, 7,923,563 shares issued in 2005 and
7,701,502 shares issued in 2004 79 77
Capital in excess of par value 17,983 15,121
Unearned ESOP shares (17,385) (18,062)
Unearned compensation - restricted stock grant (379) --
Retained earnings 93,364 86,119
-------- --------
93,662 83,255
Less cost of common stock in treasury,
1,776,287 shares in 2005 and 1,710,300 shares in 2004 (21,000) (20,346)
-------- --------
Total stockholders' equity 72,662 62,909
-------- --------
Total liabilities and stockholders' equity $ 89,259 $ 87,036
======== ========
See accompanying notes to the consolidated financial statements
F-2
CONSOLIDATED STATEMENTS OF CASH FLOWS
Chromcraft Revington, Inc.
(In thousands)
Year Ended December 31,
----------------------------
2005 2004 2003
------- ------- --------
Operating Activities
Net earnings $ 7,245 $ 7,668 $ 8,088
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation expense 3,491 3,721 4,188
Loss on disposal of property, plant and equipment 230 29 3
Deferred income taxes (103) (989) 1,084
Provision for doubtful accounts 649 287 231
Non-cash gain on the resolution of a claim -- -- (3,650)
Non-cash ESOP compensation expense 895 967 837
Non-cash stock compensation expense 294 198 198
Changes in operating assets and liabilities
Accounts receivable (1,251) (652) 543
Inventories (3,343) (2,798) 8,944
Other current assets (591) (290) (1)
Accounts payable 355 451 (1,000)
Accrued liabilities (1,295) (1,689) (1,830)
Other (603) 290 235
------- ------- --------
Cash provided by operating activities 5,973 7,193 17,870
------- ------- --------
Investing Activities
Capital expenditures (1,521) (1,086) (674)
Proceeds on disposal of property, plant and equipment 16 12 22
------- ------- --------
Cash used in investing activities (1,505) (1,074) (652)
------- ------- --------
Financing Activities
Net repayment under a secured bank revolving credit line (1,450) (1,350) (4,000)
Principal payments on bank term loan (4,250) (5,000) (12,000)
Stock repurchases -- -- (922)
Stock repurchase from related party (754) -- (1,304)
Exercise of stock options, net of tax benefit 1,986 231 1,008
------- ------- --------
Cash used in financing activities (4,468) (6,119) (17,218)
------- ------- --------
Change in cash -- -- --
Cash at beginning of the year -- -- --
------- ------- --------
Cash at end of the year $ -- $ -- $ --
======= ======= ========
See accompanying notes to the consolidated financial statements
F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Chromcraft Revington, Inc.
(In thousands, except share data)
Common Stock Capital in
------------------ Excess of
Shares Amount Par Value
--------- ------ ----------
Balance at January 1, 2003 7,572,390 $76 $12,920
Purchase of treasury stock -- -- --
Exercise of stock options 103,800 1 1,130
ESOP compensation expense -- -- 166
Stock option compensation expense -- -- 198
Net earnings -- -- --
--------- --- -------
Balance at December 31, 2003 7,676,190 77 14,414
Exercise of stock options 25,312 -- 278
ESOP compensation expense -- -- 231
Stock option compensation expense -- -- 198
Net earnings -- -- --
--------- --- -------
Balance at December 31, 2004 7,701,502 77 15,121
Purchase of treasury stock -- -- (100)
Exercise of stock options 180,061 2 2,071
ESOP compensation expense -- -- 218
Issuance of restricted stock award 42,000 -- 568
Amortization of unearned compensation
- restricted stock grant -- -- --
Stock option compensation expense -- -- 105
Net earnings -- -- --
--------- --- -------
Balance at December 31, 2005 7,923,563 $79 $17,983
========= === =======
See accompanying notes to the consolidated financial statements
F-4
Unearned
Unearned Compensation - Treasury Stock Total
ESOP Restricted Stock Retained --------------------- Stockholders'
Shares Grant Earnings Shares Amount Equity
-------- ---------------- -------- ---------- -------- -------------
$(19,469) $ -- $70,363 (1,541,600) $(18,120) $45,770
-- -- -- (168,700) (2,226) (2,226)
-- -- -- -- -- 1,131
671 -- -- -- -- 837
-- -- -- -- -- 198
-- -- 8,088 -- -- 8,088
-------- ----- ------- ---------- -------- -------
(18,798) -- 78,451 (1,710,300) (20,346) 53,798
-- -- -- -- -- 278
736 -- -- -- -- 967
-- -- -- -- -- 198
-- -- 7,668 -- -- 7,668
-------- ----- ------- ---------- -------- -------
(18,062) -- 86,119 (1,710,300) (20,346) 62,909
-- -- -- (65,987) (654) (754)
-- -- -- -- -- 2,073
677 -- -- -- -- 895
-- (568) -- -- -- --
-- 189 -- -- -- 189
-- -- -- -- -- 105
-- -- 7,245 -- -- 7,245
-------- ----- ------- ---------- -------- -------
$(17,385) $(379) $93,364 (1,776,287) $(21,000) $72,662
======== ===== ======= ========== ======== =======
F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Chromcraft Revington, Inc.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Chromcraft
Revington, Inc. and its wholly-owned subsidiaries (together, the Company). All
significant intercompany accounts and transactions have been eliminated.
Chromcraft Revington manufactures and sells residential and commercial
furniture. Products are sold primarily through furniture dealers throughout the
United States and Canada. Chromcraft Revington has several operating segments
which are aggregated into one reportable segment in accordance with Financial
Accounting Standards Board Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information.
Revenue Recognition
Revenue from sales is recognized when the goods are shipped and risk and
rewards of ownership transfer to the customer.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do not bear
interest. The Company provides for an allowance for doubtful accounts based on
expected collectibility of trade receivables. The allowance for doubtful
accounts is determined based on the Company's analysis of customer
credit-worthiness, historical loss experience and general economic conditions
and trends. The Company reviews past due balances and its allowance for doubtful
accounts periodically. Any accounts receivable balances that are determined to
be uncollectible are included in the overall allowance for doubtful accounts.
After all attempts to collect a receivable have been exhausted, the receivable
is written off against the allowance. The Company does not have any
off-balance-sheet credit exposure related to its customers.
Inventories
All inventories (materials, labor and overhead) are valued at the lower of
cost or market. Inventories valued using the last-in, first-out (LIFO) basis
represent approximately 57% and 55% of total inventories at December 31, 2005
and 2004, 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-6
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 would be recognized to
reduce the carrying value of the assets to fair value.
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 potentially
dilutive common shares.
Financial Instruments
The carrying amounts reported in the balance sheets for accounts
receivable, accounts payable, deferred compensation and bank debt approximate
their fair values. Concentration of credit risk with respect to trade accounts
receivable is limited due to the large number of entities comprising Chromcraft
Revington's customer base and no single customer accounting for more than 10% of
trade accounts receivable.
Stock Options
The Company has two stock-based compensation plans, which are described
more fully in Note 12. "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, as amended, Accounting for Stock-Based
Compensation ("Statement No. 123"). The estimated per share weighted average
fair value of stock options granted during 2005, 2004 and 2003 was $5.12, $5.34
and $4.77, respectively, on the date of grant. The fair value of stock options
on the date of grant was estimated using the Black-Scholes model with the
following weighted average assumptions:
2005 2004 2003
---- ---- ----
Expected life (years) 6 6 6
Interest rate 4.2% 3.8% 3.5%
Volatility 32.2% 32.5% 34.0%
F-7
The following table illustrates the effect on net earnings and earnings per
share if the Company had applied the fair value recognition provisions of
Statement No. 123 to stock-based employee compensation for the years ended
December 31, 2005, 2004 and 2003.
(In thousands, except
per share data)
------------------------
2005 2004 2003
------ ------ ------
Net earnings $7,245 $7,668 $8,088
Add: Stock-based employee compensation
expense included in reported net earnings,
net of related tax effects 186 122 122
Deduct: Total stock-based employee
compensation expense determined
under fair value method for all awards,
net of related tax effects (523) (537) (726)
------ ------ ------
Pro forma net earnings $6,908 $7,253 $7,484
====== ====== ======
Earnings per share
Basic - as reported $ 1.69 $ 1.85 $ 1.97
Basic - pro forma $ 1.62 $ 1.75 $ 1.82
Diluted - as reported $ 1.66 $ 1.82 $ 1.94
Diluted - pro forma $ 1.59 $ 1.73 $ 1.81
Use of Estimates
The preparation of the financial statements in accordance with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2. INVENTORIES
Inventories at December 31, 2005 and 2004 consisted of the following:
(In thousands)
----------------------
2005 2004
------- -------
Raw materials $11,754 $10,980
Work-in-process 5,619 6,374
Finished goods 22,627 18,851
------- -------
40,000 36,205
LIFO reserve (2,991) (2,539)
------- -------
$37,009 $33,666
======= =======
F-8
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 2005 and 2004 consisted of the
following:
(In thousands)
----------------------
2005 2004
-------- --------
Land $ 2,231 $ 2,231
Buildings and improvements 34,740 34,685
Machinery and equipment 52,339 51,791
Leasehold improvements 1,017 809
Construction in progress 267 252
-------- --------
90,594 89,768
Less accumulated depreciation and amortization (60,320) (57,278)
-------- --------
$ 30,274 $ 32,490
======== ========
NOTE 4. ACCRUED LIABILITIES
Accrued liabilities at December 31, 2005 and 2004 consisted of the following:
(In thousands)
---------------
2005 2004
------ ------
Employee related benefits $1,730 $2,703
Deferred compensation 1,055 166
Commissions 778 804
Compensation related 644 817
Property taxes 585 868
Other accrued liabilities 2,548 3,265
------ ------
$7,340 $8,623
====== ======
NOTE 5. BANK DEBT
On September 20, 2005, the Company entered into an unsecured revolving loan
facility ("Facility") with a bank that allows the Company to borrow up to
$35,000,000. The Facility replaced a secured multi-bank credit agreement. The
interest rate under the Facility is determined at the time of borrowing, at the
Company's option, at either the bank's prime rate, or a rate based on the
Federal Funds rate or the London Interbank Offered Rate (LIBOR). A commitment
fee, of up to .25% per annum, is payable on the unused portion of the credit
line. No borrowings were outstanding under the Facility at December 31, 2005.
The Company had $1,745,000 of standby letters of credit outstanding at December
31, 2005 in connection with workers compensation programs. These letters of
credit, which reduce credit availability under the Facility, expire on August
11, 2006 and are generally renewed annually.
The Facility requires compliance with certain financial loan covenants
related to net worth, interest coverage and debt leverage. At December 31, 2005,
the Company had approximately $29,247,000 in unused availability under the
Facility. Availability under the Facility is determined based on a multiple of
cash flow. The Facility expires September 20, 2008.
F-9
Long-term bank debt at December 31, 2004 consisted of the following:
(in thousands)
--------------
Term loan - interest rate of 3.4% at December 31, 2004 $4,250
Revolving credit line - interest rate of 3.4% at December 31,2004 1,450
------
$5,700
======
NOTE 6. INCOME TAXES
Components of the provision for income taxes in the Consolidated Statements of
Earnings for the years ended December 31, 2005, 2004 and 2003 were as follows:
(In thousands)
----------------------------------
2005 2004 2003
------ ------ ------
Current:
Federal $2,552 $4,869 $3,904
State 663 799 800
------ ------ ------
3,215 5,668 4,704
------ ------ ------
Deferred:
Federal (133) (902) 986
State 30 (87) 98
------ ------ ------
(103) (989) 1,084
------ ------ ------
Provision for income taxes $3,112 $4,679 $5,788
====== ====== ======
A reconciliation of the provision for income taxes included in the
Consolidated Statements of Earnings and the amount computed by applying the U.S.
Federal income tax rate for the years ended December 31, 2005, 2004 and 2003 is
summarized below:
2005 2004 2003
---- ---- ----
Tax expense, at U.S. statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 4.4 3.8 4.3
Employee stock ownership plan expense 0.7 0.6 0.4
Resolution of tax contingency, net (6.9) -- --
Qualified production activities deduction (0.8) -- --
Change in the tax basis of certain acquired assets -- -- 3.7
Other, net (1.4) (0.5) (0.7)
---- ---- ----
Provision for income taxes 30.0% 37.9% 41.7%
==== ==== ====
For the year ended December 31, 2005, the Company recorded a non-recurring
income tax benefit of $710,000 primarily due to the favorable resolution of a
tax contingency.
F-10
The tax effects of temporary differences that give rise to significant
portions of net deferred tax assets (liabilities) at December 31, 2005 and 2004
are summarized below:
(In thousands)
----------------------
2005 2004
------- -------
Deferred tax assets attributable to:
Accounts receivable $ 401 $ 491
Employee benefit plans 931 907
ESOP compensation expense 519 387
Deferred compensation 2,734 1,860
Goodwill 854 1,004
Net operating loss carryforwards 1,208 1,490
Other liabilities 985 1,258
------- -------
Total gross deferred tax assets 7,632 7,397
------- -------
Deferred tax liabilities attributable to:
Inventories (2,061) (1,415)
Property, plant and equipment (4,874) (5,359)
Other (205) (234)
------- -------
Total gross deferred tax liabilities (7,140) (7,008)
------- -------
Net deferred tax asset $ 492 $ 389
======= =======
Balance sheet classifications of deferred taxes at December 31, 2005 and
2004 were as follows:
(In thousands)
------------------
2005 2004
---- -----
Deferred tax asset (liability), current $(12) $ 640
Deferred tax asset (liability), noncurrent 504 (251)
---- -----
Net deferred tax asset $492 $ 389
==== =====
Tax benefits relating to share-based plans of $87,000, $47,000 and $123,000
in 2005, 2004 and 2003, respectively have been credited to Capital in Excess of
Par Value in the accompanying Consolidated Statements of Stockholders' Equity.
The Company has federal and state net operating loss carryforwards ("NOLs")
available of $1,939,000 and $9,923,000, respectively, at December 31, 2005 with
expiration dates through 2010 and 2024, respectively. The use of the state NOLs
is primarily limited to the future taxable earnings of one of the Company's
subsidiaries. Based upon the level of historical taxable income and projections
for future income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not that the Company will
realize these tax benefits.
NOTE 7. EARNINGS PER SHARE OF COMMON STOCK
Weighted average shares used in the calculation of diluted earnings per
share included potentially dilutive common shares of approximately 80,000,
72,000 and 64,000 for the years ended December 31, 2005, 2004 and 2003,
respectively.
F-11
Certain options to purchase shares of common stock were outstanding during
2005, 2004 and 2003, but were not included in the computation of diluted
earnings per share because the options' exercise prices were greater than the
average market price of the common shares during those periods and, therefore,
their effect would be antidilutive. Options excluded from the computation of
diluted earnings per share and their weighted average exercise prices were
163,961 shares at $15.14 at December 31, 2005, 198,603 shares at $15.75 at
December 31, 2004 and 223,060 shares at $15.26 at December 31, 2003.
NOTE 8. OTHER LONG-TERM LIABILITIES
Other long-term liabilities include $597,000 and $650,000 at December 31,
2005 and 2004, respectively for environmental remediation costs for land that
was acquired as part of a previous acquisition by the Company. The amount of
this liability is based upon information provided to the Company by an
environmental consultant and other available information. The amount of actual
costs incurred could differ materially from this estimate.
NOTE 9. STOCKHOLDERS' EQUITY
In 2005, the Company awarded 42,000 shares of restricted common stock to
its Chairman and Chief Executive Officer. The award provided that 14,000 shares
will vest based on continued employment on December 31, 2005, 2006, and 2007.
The fair value of the award on the grant date was $568,000.
The Company acquired Chromcraft Revington common stock from the former
Chairman, President and Chief Executive Officer of the Company of 65,987 shares
in 2005 for $754,000, and 98,200 shares in 2003 for $1,304,000. The purchase
price on these transactions was determined based on the average selling price of
the Company's common stock for the periods prior to the transactions.
NOTE 10. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
Chromcraft Revington sponsors a leveraged employee stock ownership plan
that covers substantially all employees who have completed six months of
service. Chromcraft Revington makes annual contributions to the ESOP Trust equal
to the ESOP Trust's repayment of its loan to the Company. Chromcraft Revington
loaned $20,000,000 to the ESOP Trust to finance the ESOP Stock Transaction. The
loan to the ESOP Trust provides for repayment to Chromcraft Revington over a
30-year term at a fixed rate of interest of 5.48% per annum. The shares of
common stock owned by the ESOP Trust are pledged to the Company as collateral
for the Company's loan to the ESOP Trust. As the ESOP loan is repaid, shares are
released from collateral and allocated to ESOP accounts of active employees
based on the proportion of debt service paid in the year. Chromcraft Revington
accounts for its ESOP in accordance with AICPA Statement of Position 93-6,
Employers' Accounting for Employee Stock Ownership Plans. Accordingly, unearned
ESOP shares are reported as a reduction of stockholders' equity as reflected in
the Consolidated Statements of Stockholders' Equity of the Company. As shares
are committed to be released, Chromcraft Revington reports compensation expense
equal to the current market price of the shares, and the shares become
outstanding for earnings per share computations. ESOP compensation expense, a
non-cash charge, was $895,000 in 2005, $967,000 in 2004 and $837,000 in 2003.
ESOP shares
F-12
at December 31, 2005 and 2004 consisted of the following:
(In thousands)
-----------------
2005 2004
------- -------
Allocated shares 244 184
Unearned ESOP shares 1,739 1,806
------- -------
Total ESOP shares 1,983 1,990
======= =======
Unearned ESOP shares, at cost $17,385 $18,062
======= =======
Fair value of unearned ESOP shares $22,775 $22,216
======= =======
At December 31, 2005, the ESOP Trust owned approximately 32.3% of the
issued and outstanding shares of Chromcraft Revington's common stock.
NOTE 11. OTHER BENEFIT PLANS
Chromcraft Revington sponsors a tax-qualified defined contribution plan
under Internal Revenue Code Section 401(k). Company matching contributions to
the plan were $38,000 in 2005, $12,000 in 2004 and $11,000 in 2003. Company
matching contributions for most employees were made to the ESOP.
Chromcraft Revington also provides supplemental retirement benefits to key
employees and executive officers of Chromcraft Revington. Expenses under these
arrangements were $91,000 in 2005, $1,091,000 in 2004 and $702,000 in 2003.
NOTE 12. STOCK OPTIONS
Chromcraft Revington's 1992 Stock Option Plan, as amended ("1992 Plan"),
provides for the granting of either incentive stock options ("ISO's") or stock
options which do not qualify as incentive stock options ("non-ISO's"). The total
number of shares of common stock which may be issued under stock options granted
pursuant to the 1992 Plan is 1,800,000 shares. ISO's granted under the 1992 Plan
vest over no greater than a 10-year period, and are granted at exercise prices
no less than the fair market value of Chromcraft Revington's common shares as of
the date of grant. The compensation committee of the Board of Directors
determines the vesting period and exercise prices of non-ISO's. At December 31,
2005 and 2004, there were 265,543 and 222,924 shares, respectively, available
for future grants.
Chromcraft Revington's Directors' Stock Option Plan ("Directors' Plan") was
adopted effective January 1, 2002, and provides for the granting of non-ISO's to
members of the Board of Directors of the Company who are not employees. Under
the Directors' Plan, eligible directors of the Company receive an option to
purchase 2,500 shares of common stock on the day following their re-election to
the Board at each annual meeting of stockholders. Any new director who is
elected or appointed for the first time to the Board of Directors receives an
option to purchase 10,000 shares of common stock. In 2005, the total number of
shares of common stock which may be issued under stock options granted pursuant
to the Directors' Plan was increased to 150,000 shares. Non-ISO's granted under
F-13
the Plan are 100% vested on the date 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, 2005 and 2004, there were 60,000 and 20,000 shares, respectively,
available for future grants.
A summary of Chromcraft Revington's stock option activity and related
information for the three years ended December 31, 2005 follows:
Weighted
Average
Number Exercise
of Shares Price
--------- --------
2003
Granted 94,103 $12.08
Exercised (103,800) $ 9.71
Outstanding at end of year 908,865 $11.88
Exercisable 618,198 $12.50
2004
Granted 59,703 $13.75
Exercised (25,312) $ 9.08
Canceled (108,000) $11.82
Outstanding at end of year 835,256 $12.11
Exercisable 654,922 $12.57
2005
Granted 66,383 $12.94
Exercised (180,061) $11.07
Canceled (78,308) $15.59
Outstanding at end of year 643,270 $12.07
Exercisable 533,270 $12.23
Stock options outstanding have exercise prices ranging from $8.09 to
$19.78. Significant option groups outstanding at December 31, 2005 and related
weighted average price and remaining life information follow:
Options Outstanding Options Exercisable
-------------------- --------------------
Range of Exercise Number Exercise Number Exercise Remaining
Prices of Shares Price of Shares Price Life (Years)
----------------- --------- -------- --------- -------- ------------
$8.09 to $11.05 338,823 $10.46 258,823 $10.45 6.2
$12.20 to $14.83 250,689 $13.00 220,689 $12.95 7.4
$16.00 to $19.78 53,758 $17.83 53,758 $17.83 2.7
------- ------ ------- ------ ---
643,270 $12.07 533,270 $12.23 6.4
NOTE 13. OTHER INCOME
Other income for the year ended December 31, 2003 includes a $3,650,000
non-cash gain on the resolution of a claim in connection with the Company's
earlier acquisition of a subsidiary.
F-14
NOTE 14. SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the years ended December 31, 2005, 2004 and 2003 was
$779,000, $798,000 and $1,152,000, respectively. Income taxes paid during the
years ended December 31, 2005, 2004 and 2003 were $4,336,000, $5,155,000 and
$4,511,000, respectively.
NOTE 15. 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, 2006,
2007, 2008, 2009 and 2010 are $1,205,000, $1,114,000, $1,024,000, $241,000 and
$148,000 respectively. It is expected that, in the normal course of business,
leases that expire will be renewed or replaced.
Rental expense was $1,509,000, $1,335,000, and $1,563,000 for the years
ended December 31, 2005, 2004 and 2003, respectively.
NOTE 16. RECENTLY ISSUED ACCOUNTING STANDARDS
In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 151, Inventory Costs ("Statement
No. 151"). Statement No. 151 amends Accounting Research Bulletin No. 43, Chapter
4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs and wasted material. Statement No. 151
requires that those items be recognized as current-period charges and requires
that allocation of fixed production overheads to the cost of conversion be based
on the normal capacity of the production facilities. Statement No. 151 is
effective for fiscal years beginning after June 15, 2005. The Company has
determined that the adoption of Statement No. 151 does not have a material
impact on the Company's financial condition or results of operations.
In December 2004, FASB issued Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payments ("Statement No. 123(R)"). Statement
No. 123(R) replaces FASB Statement No. 123 and supersedes Accounting Principles
Board Opinion No. 25. Statement No. 123(R) will require the fair value of all
stock option awards issued to employees to be recorded as an expense over the
related vesting period. Statement No. 123(R) also requires the recognition of
compensation expense for the fair value of any unvested stock option awards
existing at the date of adoption as the stock options vest. The Securities and
Exchange Commission amended FASB's compliance dates for Statement No. 123(R) to
allow a calendar year-end company to delay compliance with Statement No. 123(R)
until the first quarter of 2006. The Company has determined that the adoption of
Statement No. 123(R) does not have a material impact on the Company's financial
condition or results of operations.
F-15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Chromcraft Revington, Inc.:
We have audited the consolidated financial statements of Chromcraft Revington,
Inc. and subsidiaries as listed in item 15(a) (1) and (2). In connection with
our audits of the consolidated financial statements, we also have audited the
consolidated financial statement schedule as listed in item 15(a) (1) and (2).
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Chromcraft
Revington, Inc. and subsidiaries as of December 31, 2005 and 2004, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2005, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Indianapolis, Indiana
March 8, 2006
F-16
QUARTERLY FINANCIAL INFORMATION (unaudited)
Chromcraft Revington, Inc.
(In thousands, except per share data)
--------------------------------------------------
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- --------
2005
Sales $44,659 $43,401 $40,836 $40,669 $169,565
Gross margin 10,559 10,232 8,949 7,901 37,641
Operating income 3,730 3,480 2,229 1,671 11,110
Net earnings 2,256 2,093 1,191 1,705(a) 7,245(a)
Earnings per share of
common stock
Basic .54 .49 .28 .39 1.69
Diluted .53 .48 .27 .38 1.66
2004
Sales $46,467 $42,638 $41,658 $41,630 $172,393
Gross margin 10,708 9,873 9,297 9,536 39,414
Operating income 2,621 3,499 3,416 3,599 13,135
Net earnings 1,493 2,039 1,979 2,157 7,668
Earnings per share of
common stock
Basic .36 .49 .48 .52 1.85
Diluted .36 .48 .47 .51 1.82
(a) Includes a non-recurring income tax benefit of $710,000 primarily due to
the favorable resolution of a tax contingency.
F-17
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Chromcraft Revington, Inc.
(In thousands)
Additions
-----------------------
Balance at Charged to Charged Balance
Beginning of Costs and to Other at End of
Classification Period Expenses Accounts Deductions Period
-------------- ------------ ---------- -------- ---------- ---------
Year ended December 31, 2005
Allowance for doubtful
accounts $1,280 $649 $-- $(884)(a) $1,045
Year ended December 31, 2004
Allowance for doubtful
accounts $1,356 $287 $-- $(363)(a) $1,280
Year ended December 31, 2003
Allowance for doubtful
accounts $1,373 $231 $-- $(248)(a) $1,356
(a) Represents charge-offs, net of recoveries, to the allowance for doubtful
accounts and other items.
S-1
EXHIBIT INDEX
(3.1) Certificate of Incorporation of the Registrant, as amended, filed
as Exhibit 3.1 to Form S-1, registration number 33-45902, as filed
with the Securities and Exchange Commission on February 21, 1992,
is incorporated herein by reference.
(3.2) By-laws of the Registrant, as amended, filed as Exhibit 3.2 to
Form 8-K, as filed with the Securities and Exchange Commission on
December 12, 2005, is incorporated herein by reference.
(10.19) Term Loan and Security Agreement, dated March 15, 2002, by and
between the Registrant and First Bankers Trust Services, Inc. (as
successor trustee), not in its individual or corporate capacity,
but solely as trustee of the Chromcraft Revington Employee Stock
Ownership Trust, filed as Exhibit 10.19 to Form 8-K, as filed with
the Securities and Exchange Commission on March 20, 2002, is
incorporated herein by reference.
(10.2) Amendment No. 2 to the Term Loan and Security Agreement, dated
December 21, 2005, by and between the Registrant and First Bankers
Trust Services, Inc. (as successor trustee), not in its individual
or corporate capacity, but solely as trustee of the Chromcraft
Revington Employee Stock Ownership Trust (filed herewith).
(10.21) Credit Agreement dated September 20, 2005, between the Registrant
and Wells Fargo Bank, N.A., filed as Exhibit 10.21 to Form 8-K, as
filed with the Securities and Exchange Commission on September 26,
2005, is incorporated herein by reference.
(10.3) Chromcraft Revington Employee Stock Ownership Trust, effective
January 1, 2002, by and between the Registrant and First Bankers
Trust Services, Inc. (as successor trustee), filed as Exhibit 10.3
to Form 10-K for the year ended December 31, 2001, is incorporated
herein by reference.
(10.31) First Amendment to the Chromcraft Revington Employee Stock
Ownership Trust, effective January 1, 2002, by and between the
Registrant and First Bankers Trust Services, Inc. (as successor
trustee), filed as Exhibit 10.31 to Form 10-K for the year ended
December 31, 2001, is incorporated herein by reference.
(10.32) Third Amendment to the Chromcraft Revington Employee Stock
Ownership Trust, effective December 31, 2005, by and between the
Registrant and First Bankers Trust Services, Inc. (filed
herewith).
Executive Compensation Plans and Arrangements
(10.4) Chromcraft Revington, Inc. 1992 Stock Option Plan, as amended and
restated effective March 15, 2002, filed 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., as
amended (filed herewith).
(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.
(10.9) 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.
(10.91) Restricted Stock Award Agreement dated December 16, 2005, between
the Registrant and Benjamin M. Anderson-Ray, filed as Exhibit
10.91 to Form 8-K, as filed with the Securities and Exchange
Commission on December 22, 2005, is incorporated herein by
reference.
(10.92) Employment Agreement dated June 22, 2005, between the Registrant
and Benjamin M. Anderson-Ray, filed as Exhibit 10.1 to Form 8-K,
as filed with the Securities and Exchange Commission on June 28,
2005, is incorporated herein by reference.
(14.1) Code of Ethics for Chief Executive Officer and Senior Financial
Officers, and Code of Business Conduct and Ethics of Chromcraft
Revington, Inc., filed as Exhibit 14.1 to Form 10-K for the year
ended December 31, 2003, is incorporated herein by reference.
(21.1) Subsidiaries of the Registrant (filed herewith).
(23.1) Consent of Independent Registered Public Accounting Firm (filed
herewith).
(31.1) Certification of Chief Executive Officer required pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
(31.2) Certification of Chief Financial Officer required pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
(32.1) Certifications of Chief Executive Officer and Chief Financial
Officer required pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).