Item 1. Business -----------------
General
Chromcraft Revington, Inc. ("Chromcraft Revington"), incorporated in 1992 under the laws of Delaware, is engaged in the design, manufacture and sale of residential and commercial furniture through its wholly- owned subsidiaries, Chromcraft Corporation ("Chromcraft"), Peters- Revington Corporation ("Peters-Revington"), Silver Furniture Co., Inc. ("Silver Furniture"), Cochrane Furniture Company, Inc. ("Cochrane Furniture") and Korn Industries, Incorporated ("Korn Industries"). Chromcraft Revington is headquartered in Delphi, Indiana.
In 1992, Chromcraft Revington acquired all of the outstanding common stock of Chromcraft and Peters-Revington from Consolidated Furniture Corporation (formerly Mohasco Corporation) pursuant to merger agreements. Concurrently, Chromcraft Revington completed its initial public offering and restructured its long-term debt. Chromcraft Revington had no operations prior to 1992. Chromcraft, located in Senatobia, Mississippi, manufactures casual dining and commercial furniture. Peters-Revington, located in Delphi, Indiana, manufactures occasional furniture. Chromcraft and Peters-Revington were both founded in 1946.
On April 3, 1995, Chromcraft Revington acquired Silver Furniture, a manufacturer and importer of occasional furniture. Silver Furniture has manufacturing and warehousing operations in Knoxville, Tennessee. On November 8, 1996, Chromcraft Revington acquired Cochrane Furniture, a manufacturer of dining room, bedroom and upholstered furniture. Cochrane Furniture has manufacturing facilities in Lincolnton and Warrenton, North Carolina.
On September 2, 1999, CRI Corporation-Sumter, a wholly-owned subsidiary of Chromcraft Revington, acquired Korn Industries for $8,525,000 in cash, including acquisition-related expenses, and the assumption of Korn Industries' liabilities. Korn Industries, based in Sumter, South Carolina, manufactures and sells bedroom and dining room furniture through its Sumter Cabinet Company ("Sumter Cabinet") division. The operations of Korn Industries are included in Chromcraft Revington's consolidated financial statements from its acquisition date. Additional financial information is included in Note 2 "Acquisition of Korn Industries, Incorporated" to the consolidated financial statements.
Chromcraft Revington and its subsidiaries have several operating segments which are aggregated into one reportable segment, in accordance with Financial Accounting Standards Board Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." No material amount of Chromcraft Revington's sales is dependent upon a single customer. Sales outside of the United States represent approximately 1% of total sales.
Products and Distribution
Occasional Furniture Medium-priced occasional furniture, including tables, bookcases, entertainment centers, library and modular wall units, curio cabinets and home office furniture in traditional, contemporary and country styles, are manufactured and sold under the Peters-Revington brand name. Occasional furniture is manufactured primarily from American hardwoods, such as oak, cherry and maple. Many Peters-Revington table collections include twelve or more pieces in matching styles. In addition, different pieces of occasional furniture incorporate the same design and styling themes, thereby enabling consumers to coordinate furniture for the same room. Peters-Revington's furniture is sold in the United States and Canada through independent sales representatives primarily to independent furniture retailers.
Entry level-to-medium priced occasional tables and entertainment centers are designed, manufactured, imported and sold under the Silver Furniture brand name. These products are generally designed with a contemporary appeal, utilizing special finishes and unique styling. Silver Furniture tables are constructed using a variety of materials, including wood, medium-density fiber board, glass and metal. Internally designed imported occasional tables and parts are sourced mainly from factories located in the Far East and Mexico. Silver Furniture occasional furniture is sold primarily in the United States and Canada through company sales personnel to national and regional furniture retailers and through independent sales representatives to independent furniture retailers.
Bedroom Furniture Solid wood bedroom furniture, primarily in oak, cherry, ash or maple, is manufactured and sold at medium price points under the Cochrane Furniture brand name and at mid-to-higher price points under the Sumter Cabinet brand name. Bedroom furniture includes beds, dressers, night stands, entertainment armoires and mirrors primarily in traditional styling. Cochrane Furniture and Sumter Cabinet bedroom furniture is sold through independent sales representatives to regional and independent furniture retail stores.
In 1999, Silver Furniture began selling bedroom furniture imported from the Far East. Silver Furniture's bedroom furniture is designed internally, mainly in traditional styling, and is sold primarily at medium price points through company sales personnel to national, regional and independent furniture retailers.
Dining Room Furniture Casual dining furniture is manufactured and sold under the Chromcraft brand name. Casual dining furniture is designed for use in dining rooms, family rooms, recreation rooms, kitchens and apartments without formal dining areas. The product line consists primarily of coordinated dining suites in a contemporary or traditional style that include tables with laminated, wood or glass table tops, stationary and tilt-swivel chairs, pedestal chairs and barstools. Chairs are upholstered in a variety of fabrics and vinyls, while tables are manufactured from metal, wood, glass, faux marble and other materials, and come in a variety of shapes. Chromcraft competes at the medium- to-higher price points in casual dining. Chromcraft's casual dining furniture is sold in the United States through company sales personnel and independent sales representatives to national, regional, independent and specialty dining retail furniture stores.
Dining room furniture, primarily in oak, cherry, ash or maple, is manufactured and sold at medium price points under the Cochrane Furniture brand name and at mid-to-higher price points under the Sumter Cabinet brand name. Dining room furniture includes a broad line of tables, armed and side chairs, buffets, chinas and serving pieces, mainly in traditional or country styling. Cochrane Furniture dining room tables are offered in solid wood or a high pressure laminate table top. Sumter Cabinet dining room tables feature solid wood tops, leaves, and legs. Dining room furniture is sold primarily in the United States through independent sales representatives to regional and independent furniture retail stores.
Upholstered Furniture Upholstered sofas, chairs and ottomans are manufactured and sold under the Cochrane Furniture brand name. Upholstered furniture is styled in traditional or contemporary patterns in a wide selection of fabrics using a heat tempered coil seat construction to evenly distribute body weight. Cochrane Furniture uses primarily hardwoods in the construction of its furniture frames. Seat cushions are made with high-density, high-resilience polyurethane foam, wrapped in polyester fiber for consistent comfort. Cochrane Furniture's upholstered furniture is sold primarily at medium price points. Upholstered furniture is sold through independent sales representatives primarily to independent furniture retail stores.
Commercial Furniture Commercial furniture, sold under the Chromcraft brand name, includes stationary and tilt-swivel office chairs, conference and meeting room tables and lounge-area seating products for airports and other public waiting areas. Chairs are offered in both contemporary and transitional styles and are upholstered in various grades and colors of fabric or leather. They include executive models with high backs, management models, ergonomic computer task chairs and secretarial models with no arm rests. Products are sold through company sales personnel and independent sales representatives to office product dealers, wholesalers/distributors and various contract customers.
Manufacturing
Manufacturing operations include cutting, shaping, sanding, finishing and final assembly of wood furniture, metal fabricating, plating, powder-coat painting, chair foam production for casual dining furniture and cutting and sewing of upholstery fabric. Cochrane Furniture and Sumter Cabinet also have rough mill operations and woodworking plants which process green lumber into parts for internal use.
Raw Materials
Major raw materials are wood, steel, fabrics, glass, medium-density fiber board, wood finishing materials, cartons, foam for cushions and paddings, and mechanisms. Suppliers are selected for their ability to deliver high quality products on a timely basis and at competitive prices. Chromcraft Revington believes that supplies of raw materials are available in sufficient quantities from an adequate number of suppliers. No significant shortages of raw materials were experienced during 1999.
Inventory and Seasonal Requirements
Chromcraft Revington maintains a finished goods inventory for occasional, dining room and bedroom furniture in order to respond quickly to customer delivery needs. Most casual dining, upholstered and commercial furniture is made to customer specifications and, therefore, not carried in stock. A limited number of casual dining, upholstered and commercial furniture items are maintained for quick delivery programs. Sales have historically not been subject to material seasonal fluctuations.
Competition
Chromcraft Revington encounters competition in the sale of all its products. Many of Chromcraft Revington's competitors, some of which are larger and have greater financial resources, produce a number of products which are not competitive with Chromcraft Revington's products. In many cases, such companies do not disclose the portion of their sales attributable to products similar to those manufactured by Chromcraft Revington. It is, therefore, impractical to state with any certainty Chromcraft Revington's relative position in a particular product line. Competition in Chromcraft Revington's products is in the form of the quality of its products, service and selling prices.
Backlog
Chromcraft Revington's backlog of sales orders was approximately $27.0 million at December 31, 1999, as compared to approximately $21.4 million at December 31, 1998. Order backlog at any particular time is not necessarily indicative of the level of future shipments.
Environment
Chromcraft Revington believes it is in compliance in all material respects with all federal, state and local environmental laws and regulations which impose limitations on the discharge of pollutants into the air and water, and establish standards for the treatment of hazardous wastes.
Employees
Chromcraft Revington employs a total of approximately 2,700 people. Production employees at Silver Furniture's Knoxville, Tennessee location are represented by a labor union under a collective bargaining agreement. Chromcraft Revington considers its relations with its employees to be good.
Item 2.
Item 2. Properties -------------------
The following table summarizes Chromcraft Revington's facilities as of December 31, 1999.
Square Type of Owned/ Location Feet Operations Furniture Leased ------------ ------- -------------- -------------- --------------
Delphi, IN 490,000 Manufacturing/ Occasional Owned warehousing
Knoxville, TN 160,000 Manufacturing/ Occasional Owned warehousing
Knoxville, TN 117,000 Warehousing Occasional Leased (expires 2001)
Lincolnton, NC 368,000 Manufacturing/ Dining room/ Owned warehousing bedroom
Lincolnton, NC 152,000 Manufacturing Upholstery Owned
Lincolnton, NC 159,000 Manufacturing/ Upholstery Owned warehousing
Senatobia, MS 560,000 Manufacturing/ Casual dining/ Leased warehousing commercial (expires 2061)
Sumter, SC 521,000 Manufacturing/ Dining room/ Owned warehousing bedroom
Warrenton, NC 166,000 Manufacturing Dining room/ Owned bedroom
Chromcraft Revington also leases trucks, trailers and other transportation equipment and showroom facilities in High Point, North Carolina and Chicago, Illinois. Management believes the properties and equipment of its subsidiaries are well maintained, in good operating condition and adequate to support present operations.
Item 3.
Item 3. Legal Proceedings --------------------------
Chromcraft Revington is not a party to any lawsuits, other than ordinary routine litigation incidental to its business.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders ------------------------------------------------------------
Not applicable.
Executive Officers of Chromcraft Revington, Inc. ------------------------------------------------
Michael E. Thomas 58 President, Chief Executive Officer and Director since Chromcraft Revington's organization in 1992. Mr. Thomas is a director of TEU Holdings, Inc., the parent company of furniture retailer This End Up. TEU Holdings, Inc. and its subsidiaries filed for bankruptcy in 2000.
Frank T. Kane 46 Vice President-Finance, Chief Financial Officer and Secretary since Chromcraft Revington's organization in 1992.
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters -------------------------------------------------------------
Chromcraft Revington's common stock is traded on the New York Stock Exchange. The following table sets forth the high and low sales prices of Chromcraft Revington's common stock, as reported on the New York Stock Exchange, as adjusted for the two-for-one stock split effective June 10, 1998.
1999 1998 -------------------- -------------------- High Low High Low -------- -------- -------- --------
First quarter 17 7/8 14 18 11/16 13 13/16 Second quarter 17 14 1/8 20 1/16 17 1/2 Third quarter 14 3/4 11 7/8 19 5/16 13 11/16 Fourth quarter 12 13/16 10 1/8 18 1/4 14 3/4
As of March 7, 2000, there were approximately 57 security holders of record of Chromcraft Revington's common stock. Chromcraft Revington intends to retain cash for internal and external growth and development of its business and currently does not anticipate paying cash dividends. At December 31, 1999, unrestricted retained earnings available for dividends were $25,814,000.
Silver Furniture, Cochrane Furniture and Korn Industries are included in Chromcraft Revington's consolidated financial results from their acquisition dates of April 3, 1995, November 8, 1996 and September 2, 1999, respectively.
Per share data has been adjusted, where applicable, for the two-for- one common stock split distributed June 10, 1998.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------------------------------
General
Chromcraft Revington designs, manufactures and sells residential and commercial furniture through its wholly-owned subsidiaries, Chromcraft, Peters-Revington, Silver Furniture, Cochrane Furniture and Korn Industries. Chromcraft Revington's operating results include the operations of Korn Industries, acquired September 2, 1999, from the date of its acquisition (see Note 2 to the consolidated financial statements).
The following table sets forth the results of operations of Chromcraft Revington for the years ended December 31, 1999, 1998 and 1997 expressed as a percentage of sales.
Year Ended December 31, -------------------------------- 1999 1998 1997 -------- -------- -------- Sales 100.0% 100.0% 100.0% Cost of sales 76.8 74.8 75.3 -------- -------- -------- Gross margin 23.2 25.2 24.7 Selling, general and administrative expenses 14.0 13.5 13.3 -------- -------- -------- Operating income 9.2 11.7 11.4 Interest expense .4 .3 .6 -------- -------- -------- Earnings before income tax expense 8.8 11.4 10.8 Income tax expense 3.5 4.5 4.3 -------- -------- -------- Net earnings 5.3% 6.9% 6.5% ======== ======== ========
1999 compared to 1998
Consolidated sales increased 3.6% for the year ended December 31, 1999 to $245,385,000 from $236,744,000 for the year ended December 31, 1998. The increase in sales was primarily due to higher shipments of bedroom and dining room furniture, partially offset by lower shipments of upholstered, commercial and occasional furniture. The increase in bedroom and dining room shipments was due, in part, to the Korn Industries acquisition, which was completed September 2, 1999. The decrease in upholstered furniture shipments was primarily attributable to the repositioning of the product line price points and styling. Commercial furniture shipments were lower for 1999, as compared to 1998, due, in part, to a general softening in demand in the office furniture industry. Shipments of occasional furniture at Silver Furniture declined principally due to competitive price pressure.
Gross margin was $56,974,000, or 23.2% of sales, in 1999 as compared to $59,756,000, or 25.2% of sales, in 1998. Factors which contributed to the decrease in gross margin percentage included: manufacturing inefficiencies at Chromcraft due to a product mix change and employee attrition resulting from the tight labor market; unabsorbed fixed overhead due to the lower sales volume at Chromcraft and Silver Furniture; a $400,000 writedown of discontinued inventory at Chromcraft; and the inclusion of Korn Industries' operating results.
Selling, general and administrative expenses increased to $34,340,000, or 14.0% of sales, for 1999 from $31,964,000, or 13.5% of sales, for 1998. The percentage increase was primarily due to a $1,000,000 charge for employee termination and severance costs at Chromcraft.
Interest expense increased to $988,000 in 1999 as compared to $739,000 in 1998. The increase was due to higher average bank borrowings during 1999 attributable to the Korn Industries acquisition and the
refinancing of Korn Industries' bank indebtedness under Chromcraft Revington's revolving credit facility. Weighted average interest rates were slightly lower in 1999 as compared to 1998.
Chromcraft Revington's effective tax rate was 39.6% and 39.9% for the years ended December 31, 1999 and 1998, respectively. The decrease in the effective tax rate for 1999 was due to lower state income taxes.
Diluted earnings per share were $1.22 in 1999 and $1.41 in 1998. Average common shares used in the calculation of diluted earnings per share included dilutive potential common shares (stock options) of 272,000 in 1999 and 396,000 in 1998. Weighted average shares outstanding for 1999 decreased 6.2% as compared to 1998. During 1999, Chromcraft Revington purchased, under a stock repurchase program, 845,500 shares of its common stock.
1998 compared to 1997
Consolidated sales for the year ended December 31, 1998 increased 4.9% to $236,744,000 from $225,629,000 reported in 1997. The sales increase was primarily due to higher shipments of occasional, bedroom and commercial furniture, partially offset by lower upholstered furniture sales. Upholstered furniture sales were lower in 1998 as compared to the prior year period primarily due to the elimination of low margin and nonprofitable products. Dining room furniture sales were at approximately the same level as compared to the prior year. The consolidated sales increase in 1998 was primarily due to higher unit volume.
Gross margin as a percentage of sales increased to 25.2% from 24.7% in 1997. The percentage increase in 1998 was primarily due to the improved operating results at Cochrane Furniture, as a result of cost containment and improved manufacturing processes. The gross margin improvement was partially offset by manufacturing inefficiencies at Chromcraft and higher employee health care costs. The manufacturing inefficiencies were primarily due to start-up costs incurred for new product introductions and employee attrition resulting from tight labor market conditions.
Selling, general and administrative expenses increased $1,764,000 to $31,964,000, or 13.5% of sales, in 1998 from $30,200,000, or 13.3% of sales, in 1997. The higher cost percentage in 1998 was mainly due to an increase in incentive compensation.
Interest expense for the year ended December 31, 1998 was $739,000 as compared to $1,265,000 for the prior year period. The decrease in interest expense for 1998 was primarily due to lower average bank borrowings. Weighted average interest rates were slightly lower in 1998 as compared to 1997.
Chromcraft Revington's effective tax rate was 39.9% for the years ended December 31, 1998 and 1997.
Diluted earnings per share increased 12.8% to $1.41 in 1998 as compared to $1.25 in 1997. Average common shares used in the calculation of diluted earnings per share included dilutive potential common shares (stock options) of 396,000 in 1998 and 337,000 in 1997. Weighted average shares outstanding for 1998 decreased 2.5% as compared to the prior year period. During 1998, Chromcraft Revington retired 590,548 shares of its common stock acquired under a share repurchase program.
Liquidity and Capital Resources
Operating activities provided $14,757,000 of cash for the year ended December 31, 1999, a decrease of $2,228,000 from the amount provided in 1998. Cash generated from operations decreased in 1999 primarily due to a reduction in Korn Industries' trade accounts payable and lower earnings during 1999. Korn Industries' trade payables, assumed
at the acquisition date, were reduced in order to eliminate past due amounts and to obtain discounts on the early payment of invoices.
The investing activities used $10,971,000 and $3,337,000 during the years ended December 31, 1999 and 1998, respectively. On September 2, 1999, CRI Corporation-Sumter, a wholly-owned subsidiary of Chromcraft Revington, acquired Korn Industries, a manufacturer of bedroom and dining room furniture. Investing activities for 1999 include the cash payment to Korn Industries' stockholders and related acquisition expenses of $8,525,000.
Capital expenditures, primarily for machinery and data processing equipment purchases, were $3,630,000 during 1999 and $3,388,000 during 1998. Capital expenditures in 2000 are expected to be approximately $5,000,000. During 1999, Chromcraft Revington received cash proceeds of $1,184,000 in connection with several asset disposals.
Financing activities used $2,638,000 of cash during 1999. During the year, Chromcraft Revington borrowed $21,300,000 under its bank revolving credit facility in connection with the Korn Industries acquisition and the repurchase of Chromcraft Revington's common stock. As part of the acquisition, Korn Industries' bank indebtedness of $13,517,000 was refinanced with borrowings under Chromcraft Revington's revolving credit facility, which restricts indebtedness outside of the facility. Financing costs were more favorable under the facility as compared to the Korn Industries indebtedness. During 1999, Chromcraft Revington purchased, under its share repurchase program, 845,500 shares of its common stock for $12,079,000.
Financing activities used $13,648,000 of cash during the year ended December 31, 1998, primarily to acquire shares of Chromcraft Revington's common stock and reduce bank indebtedness. During 1998, Chromcraft Revington acquired 590,548 shares of common stock purchased for $10,196,000 under its share repurchase program.
Chromcraft Revington has a revolving credit facility with a commitment level of $60,000,000 that matures December 20, 2000. The interest rate under the facility is determined at the time of each borrowing and is based on one of a variety of floating rate indices or a bank prime lending rate. Total borrowings under the facility were $26,700,000 at December 31, 1999. Unused capacity under the revolving credit facility, after reduction for outstanding letters of credit, equaled $30,868,000 at the end of 1999. Management expects that a new long-term bank agreement will be in place before the present facility expires.
Management expects that cash flow from operations and availability under bank financing arrangements will continue to be sufficient to meet future business needs. Chromcraft Revington plans to grow its businesses internally and through acquisitions. Accordingly, Chromcraft Revington plans to retain cash in the business and currently does not anticipate paying cash dividends on its common stock. In 2000, absent further acquisitions, Chromcraft Revington expects to generate excess cash flow from operations, which will be used to reduce bank indebtedness, to repurchase Chromcraft Revington common stock, or for general corporate purposes.
Year 2000 Issue ---------------
Chromcraft Revington and its subsidiaries have not experienced any significant Year 2000 conversion issues. Chromcraft Revington plans to continue to monitor its internal systems, significant suppliers and third party service providers for potential disruptions.
Recently Issued Accounting Standards ------------------------------------
The Financial Accounting Standards Board has issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" and Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement 133." Statement No. 133 applies to all derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Statement will require Chromcraft Revington to recognize all derivatives on the balance sheet at fair value. Statement No. 137 has deferred the effective date of Statement No. 133 until the fiscal year beginning after June 15, 2000. Chromcraft Revington does not expect the adoption of this Statement to have a significant effect on its results of operations or financial position.
Forward-Looking Statements --------------------------
Certain matters included in this Annual Report on Form 10-K 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 the context of the statements includes words such as "plans," "may," "anticipates," and "expects" or words of similar import. All forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reported or expected as of the date of this report. Among the risks and uncertainties that could cause actual results to differ materially from those reported or anticipated are (i) general economic conditions, (ii) cyclical nature of the furniture industry, and (iii) competition in the furniture industry.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk --------------------------------------------------------------------
Not applicable.
Item 8. Financial Statements and Supplementary Data ----------------------------------------------------
The financial statements and schedule are listed in Part IV, Items 14(a) (1) and (2).
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure --------------------------------------------------------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant ------------------------------------------------------------
The sections entitled "Election of Directors" on page 3 and "Common Stock Beneficially Owned by Directors and Executive Officers" on pages 4 and 5 of Chromcraft Revington's Proxy Statement, expected to be dated April 5, 2000, are incorporated herein by reference, and have been omitted pursuant to Instruction G of Form 10-K since 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 1999 fiscal year.
Item 11. Executive Compensation --------------------------------
The sections entitled "Executive Compensation" on pages 6 through 9, "Compensation Committee Report on Executive Compensation" on pages 9 through 11 and "Stock Performance Graph" on page 12 of Chromcraft Revington's Proxy Statement, expected to be dated April 5, 2000, are incorporated herein by reference, and have been omitted pursuant to Instruction G of Form 10-K since 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 1999 fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management ------------------------------------------------------------------------
The sections entitled "Common Stock Beneficially Owned by Directors and Executive Officers" on pages 4 and 5 and "Voting Securities and Principal Stockholders" on pages 1 and 2 of Chromcraft Revington's Proxy Statement, expected to be dated April 5, 2000, are incorporated herein by reference, and have been omitted pursuant to Instruction G of Form 10-K since 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 1999 fiscal year.
Item 13. Certain Relationships and Related Transactions --------------------------------------------------------
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K -------------------------------------------------------------------------
(a) 1. and 2. List of Financial Statements and Financial Statement Schedule:
The following Consolidated Financial Statements of Chromcraft Revington are included in this report on Form 10-K:
Page Reference -------------- Consolidated Statements of Earnings for the years ended December 31, 1999, 1998 and 1997
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Independent Auditors' Report
Quarterly Financial Information (unaudited)
The following consolidated financial statement schedule of Chromcraft Revington is included in response to Item 14(d):
Schedule II - Valuation and Qualifying Accounts S-1
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
(a) 3. Listing of Exhibits
(3)(i) Certificate of Incorporation of the Registrant, as amended, filed as Exhibit No. 3.1 to Form S-1, registration number 33-45902, as filed with the Securities and Exchange Commission on February 21, 1992, is incorporated herein by reference.
(3)(ii) By-laws of the Registrant, filed as Exhibit No. 3.2 to Form S-1, registration number 33-45902, as filed with the Securities and Exchange Commission on February 21, 1992, is incorporated herein by reference.
(4.7) Credit Agreement, dated December 20, 1995, among the Registrant, the Banks party thereto and NBD Bank N.A., as agent for the Banks, filed as Exhibit No. 4.7 to Form 10-K for the year ended December 31, 1995, is incorporated herein by reference.
(10.1) Lease, dated February 15, 1962, between the Board of Supervisors of Tate County, Mississippi as Landlord and Chromcraft Corporation as Tenant, filed as Exhibit No. 10.1 to Form S-1, registration number 33-45902, as filed with the Securities and Exchange Commission on February 21, 1992, is incorporated herein by reference.
(10.3) Form of Registration Rights Agreement between the Registrant and 399 Venture Partners, Inc., formerly Citicorp Investments, Inc., filed as Exhibit No. 10.3 to Form S-1, registration number 33-45902, as filed with the Securities and Exchange Commission on February 21, 1992, is incorporated herein by reference.
(10.12) Contract, dated April 3, 1961, between the City of Senatobia, Tate County, Mississippi, the Board of Supervisors of Tate County, Mississippi and Chromcraft Corporation, filed as Exhibit No. 10.12 to Form S-1, Pre- Effective Amendment No. 1, registration number 33-45902, as filed with the Securities and Exchange Commission on March 17, 1992, is incorporated herein by reference.
(10.13) Lease, dated September 9, 1966, between the Board of Supervisors of Tate County, Mississippi as Landlord and Chromcraft Corporation as Tenant, filed as Exhibit No. 10.13 to Form S-1, Pre-Effective Amendment No. 1, registration number 33-45902, as filed with the Securities and Exchange Commission on March 17, 1992, is incorporated herein by reference.
(10.14) Contract, dated May 5, 1969, between the Board of Supervisors of Tate County, Mississippi and Chromcraft Corporation, filed as Exhibit No. 10.14 to Form S-1, Pre- Effective Amendment No. 1, registration number 33-45902, as filed with the Securities and Exchange Commission on March 17, 1992, is incorporated herein by reference.
(10.15) Contract and Lease Agreement, dated April 17, 1972, between Tate County, Mississippi as Landlord and Chromcraft Corporation as Tenant, filed as Exhibit No. 10.15 to Form S-1, Pre-Effective Amendment No. 1, registration number 33-45902, as filed with the Securities and Exchange Commission on March 17, 1992, is incorporated herein by reference.
Executive Compensation Plans and Arrangements ---------------------------------------------
(10.4) Chromcraft Revington, Inc. 1992 Stock Option Plan, as amended, filed as Exhibit No. 10.4 to Form 10-Q for the quarter ended June 27, 1998, is incorporated herein by reference.
(10.51) Chromcraft Revington, Inc. Short Term Executive Incentive Plan, effective January 1, 1998, filed as Exhibit No. 10.51 to Form 10-K for the year ended December 31, 1998, is incorporated herein by reference.
(10.55) Chromcraft Revington, Inc. Long Term Executive Incentive Plan, effective January 1, 1998, filed as Exhibit 10.55 to Form 10-K for the year ended December 31, 1998, is incorporated herein by reference.
(10.6) Chromcraft Revington Directors Deferred Compensation Plan, effective January 1, 1999, filed as Exhibit 10.6 to Form 10-K for the year ended December 31, 1998, is incorporated herein by reference.
(10.7) Chromcraft Revington, Inc. Supplemental Executive Retirement Plan, as amended and restated, effective December 3, 1998, filed as Exhibit 10.7 to Form 10-K for the year ended December 31, 1998, is incorporated herein by reference.
(10.75) Supplemental Executive Retirement Plan Trust Agreement, dated April 16, 1993, between the Registrant and Bank One, Indianapolis, National Association, filed as Exhibit No. 10.75 to Form 10-Q for the quarter ended July 3, 1993, is incorporated herein by reference.
(10.8) Employment Agreement, dated March 31, 1992, between the Registrant and Michael E. Thomas, filed as Exhibit No. 10.8 to Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
(10.85) Supplemental Retirement Benefits Agreement, dated August 21, 1992, between the Registrant and Michael E. Thomas, filed as Exhibit No. 10.85 to Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
(10.9) Employment Agreement, dated March 31, 1992, between the Registrant and H. Martin Michael, filed as Exhibit No. 10.9 to Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
--------------------
(21.1) Subsidiaries of the Registrant (filed herewith).
(23.1) Consent of Independent Auditors (filed herewith).
(24.1) Powers of Attorney (filed herewith).
(27.0) Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
Amendments No. 1 and 2 to the Current Report on Form 8-K dated September 2, 1999, reporting financial information on the acquisition of Korn Industries, Incorporated, were filed with the Securities and Exchange Commission on November 12, 1999.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate section of this report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate section of this report.
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 28, 2000 By: /s/ Michael E. Thomas -------------- ---------------------------- Michael E. Thomas, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Chromcraft Revington, Inc. and in the capacities and on the date indicated.
Signatures Title Date --------------------- -------------------------- --------------
/s/ Michael E. Thomas President, Chief Executive March 28, 2000 --------------------- Officer and Director -------------- Michael E. Thomas
/s/ Frank T. Kane Vice President - Finance March 28, 2000 ----------------- (principal accounting and -------------- Frank T. Kane financial officer)
*Bruce C. Bruckmann Director ------------------- Bruce C. Bruckmann
*David L. Kolb Director ------------------- David L. Kolb
*Larry P. Kunz Director ------------------- Larry P. Kunz
*M. Saleem Muqaddam Director ------------------- M. Saleem Muqaddam
*Warren G. Wintrub Director ------------------- Warren G. Wintrub
By: /s/ Michael E. Thomas March 28, 2000 ------------------------- -------------- Michael E. Thomas, Attorney-in-fact*
See accompanying notes to the consolidated financial statements
See accompanying notes to the consolidated financial statements
See accompanying notes to the consolidated financial statements
See accompanying notes to the consolidated financial statements
Notes to Consolidated Financial Statements
Chromcraft Revington, Inc. December 31, 1999
Note 1. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of Chromcraft Revington, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Chromcraft Revington manufactures and sells residential and commercial furniture. Products are sold primarily through furniture dealers throughout the United States and Canada. Chromcraft Revington has several operating segments which are aggregated into one reportable segment, in accordance with Financial Accounting Standards Board Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information."
Use of Estimates
The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Inventories
All inventories (materials, labor and overhead) are valued at the lower of cost or market. Inventories valued using the last-in, first- out (LIFO) basis represent approximately 64% and 70% of total inventories at December 31, 1999 and 1998, 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.
Revenue Recognition
Revenue from sales is recognized when the goods are shipped to the customer.
Intangibles
Intangible assets are stated on the basis of cost. The excess of purchase price over the fair value of net assets acquired (goodwill) and tradenames are being amortized on a straight-line basis over periods ranging from 15 to 40 years. Chromcraft Revington reviews the carrying value of goodwill whenever changes in circumstances indicate that the carrying amount may not be recoverable. When factors indicate that the recoverability of goodwill should be evaluated, Chromcraft Revington uses an estimate of the undiscounted cash flows of the acquired businesses in determining whether an impairment loss is required.
Deferred Income Taxes
Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Earnings per Share
Basic earnings per share is calculated based on the average number of common shares outstanding. Diluted earnings per share include dilutive potential common shares (stock options).
Stock Options
Chromcraft Revington applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpre- tations in accounting for stock options and discloses the fair value of options granted as permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Financial Instruments
The carrying amounts reported in the balance sheets for accounts receivable, accounts payable and borrowings under a bank revolving credit facility approximate their fair values. Concentration of credit risk with respect to trade accounts receivable is limited due to the large number of entities comprising Chromcraft Revington's customer base.
Note 2. Acquisition of Korn Industries, Incorporated
On September 2, 1999, CRI Corporation-Sumter, a wholly-owned subsidiary of Chromcraft Revington, Inc., acquired all of the outstanding common stock of Korn Industries, Incorporated ("Korn Industries") for $8,525,000 in cash (including acquisition-related expenses) and the assumption of Korn Industries' liabilities. Korn Industries is headquartered in Sumter, South Carolina and manufactures and sells bedroom and dining room furniture through its Sumter Cabinet Company division. The operations of Korn Industries are included in the Consolidated Statements of Earnings commencing on September 2, 1999. The transaction was accounted for as a purchase and the purchase price has been allocated to assets acquired and liabilities assumed based on their fair market values at the date of acquisition. Goodwill and other intangibles are being amortized on a straight-line basis over periods ranging from 15 to 25 years.
The following unaudited pro forma results of operations for the year ended December 31, 1999 give effect to the Korn Industries acquisition as if it had occurred on January 1, 1999. The unaudited pro forma results of operations for the year ended December 31, 1998 combine the operating results of Korn Industries for the fiscal year ended November 28, 1998 and Chromcraft Revington's operating results for the
year ended December 31, 1998 and give effect to the Korn Industries acquisition as if it had occurred at the beginning of the period.
(In thousands, except per share data) ---------------------- 1999 1998 --------- --------- Sales $ 281,168 $ 291,395 Net earnings 11,280 14,310 Earnings per share of common stock Basic 1.08 1.28 Diluted 1.05 1.24
The pro forma information is presented for comparative purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated as of the above dates, nor is it necessarily indicative of future operating results.
Note 3. Inventories
Inventories at December 31, 1999 and 1998 consisted of the following:
(In thousands) ---------------------- 1999 1998 --------- --------- Raw materials $ 18,521 $ 12,502 Work-in-process 8,069 6,097 Finished goods 25,866 21,181 --------- --------- Inventories at FIFO cost 52,456 39,780 LIFO reserve (2,006) (1,650) --------- --------- $ 50,450 $ 38,130 ========= =========
Note 4. Property, Plant and Equipment
Property, plant and equipment at December 31, 1999 and 1998 consisted of the following:
(In thousands) ---------------------- 1999 1998 --------- --------- Land $ 2,208 $ 2,013 Buildings and improvements 32,869 29,923 Machinery and equipment 46,986 39,323 Leasehold improvements 862 768 Construction in progress 239 662 --------- --------- 83,164 72,689 Less accumulated depreciation and amortization (38,684) (35,595) --------- --------- $ 44,480 $ 37,094 ========= =========
Note 5. Accrued Liabilities
Accrued liabilities at December 31, 1999 and 1998 consisted of the following:
(In thousands) ---------------------- 1999 1998 --------- --------- Employee benefit plans $ 5,434 $ 4,114 Salaries, wages and commissions 1,907 1,837 Vacation and holiday pay 1,162 1,263 Workers' compensation plans 1,451 1,158 Other accrued liabilities 5,897 4,591 --------- --------- $ 15,851 $ 12,963 ========= =========
Note 6. Income Taxes
Components of the provision for income taxes for the years ended December 31, 1999, 1998 and 1997 were as follows:
(In thousands) ----------------------------------- 1999 1998 1997 --------- --------- --------- Current: Federal $ 7,029 $ 8,666 $ 6,683 State 1,012 1,235 1,255 --------- --------- --------- 8,041 9,901 7,938 --------- --------- --------- Deferred: Federal 502 738 1,517 State 29 155 265 --------- --------- --------- 531 893 1,782 --------- --------- --------- Total provision for income taxes $ 8,572 $ 10,794 $ 9,720 ========= ========= =========
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, 1999, 1998 and 1997 is summarized below:
(In thousands) ----------------------------------- 1999 1998 1997 --------- --------- --------- Tax expense, at U.S. statutory rate $ 7,577 $ 9,469 $ 8,527 State taxes, net of federal benefit 682 1,030 967 Non-deductible amortization of goodwill 253 222 222 Other, net 60 73 4 --------- --------- --------- Total provision for income taxes $ 8,572 $ 10,794 $ 9,720 ========= ========= =========
The tax effects of temporary differences that give rise to significant portions of net deferred tax assets (liabilities) at December 31, 1999 and 1998 are summarized below:
(In thousands) ---------------------- 1999 1998 --------- --------- Deferred tax assets attributable to: Accounts receivable $ 794 $ 680 Assets held for sale - 525 Accrued vacation and holiday pay 486 471 Deferred compensation 2,965 1,181 Net operating loss carryforwards 3,407 841 Other 2,209 1,859 --------- --------- Total gross deferred tax assets 9,861 5,557 --------- --------- Deferred tax liabilities attributable to: Inventories (3,744) (1,010) Property, plant and equipment (5,630) (4,254) Other (1,266) (1,258) --------- --------- Total gross deferred tax liabilities (10,640) (6,522) --------- --------- Net deferred tax liabilities $ (779) $ (965) ========= =========
Balance sheet classifications of deferred taxes at December 31, 1999 and 1998 were as follows:
(In thousands) ---------------------- 1999 1998 --------- --------- Deferred tax assets, current $ - $ 1,231 Deferred tax liability, current (562) - Deferred tax liability, noncurrent (217) (2,196) --------- --------- Net deferred tax liability $ (779) $ (965) ========= =========
In connection with the acquisitions of Cochrane Furniture and Korn Industries, Chromcraft Revington acquired certain federal and state net operating loss carryforwards with expiration dates through 2010 and 2018, respectively.
Note 7. Revolving Credit Facility
Chromcraft Revington has an unsecured revolving loan facility (the "Facility") with a group of banks that allows it to borrow up to $60,000,000 for working capital requirements, capital expenditures and acquisitions. At December 31, 1999, Chromcraft Revington had $30,868,000 in availability under the Facility. The interest rate under the Facility is determined at the time of borrowing, at Chromcraft Revington's option, at either the bank prime rate or a rate based on the certificate of deposit rate, the Fed Funds rate, or the London Interbank Offered Rate (LIBOR). The weighted average interest rate on borrowings outstanding as of December 31, 1999 and 1998 was 5.12% and 5.51%, respectively. A commitment fee, of up to .20% per annum, is payable on the unused portion of the credit line. Chromcraft Revington had outstanding letters of credit under the Facility of $2,432,000 and $1,718,000 at December 31, 1999 and 1998, respectively. The Facility expires December 20, 2000. Chromcraft Revington expects to have a new long-term bank agreement in place before the present facility expires.
The Facility requires compliance with certain financial loan covenants related to net worth, interest and fixed charge coverages and debt leverage. At December 31, 1999, unrestricted retained earnings available for dividends were $25,814,000.
Note 8. Earnings Per Share of Common Stock
Weighted average shares used in the calculation of diluted earnings per share included dilutive potential common shares (stock options) of approximately 272,000, 396,000 and 337,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Stock options to purchase 138,426 shares of common stock at an average price of $16.85 per share and 58,000 shares at $19.78 per share were outstanding during 1999 and 1998, respectively, 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 for those years and, therefore, the effect would be antidilutive.
Note 9. Stockholders' Equity
Chromcraft Revington is authorized to issue up to 100,000 shares of $1.00 par value preferred stock, none of which is outstanding.
Chromcraft Revington effected a two-for-one stock split in the form of a 100% stock dividend to stockholders of record on May 27, 1998. The additional shares were distributed to stockholders on June 10, 1998. All references to the number of shares outstanding and per share amounts, where applicable, in the consolidated financial statements and notes reflect the stock split.
Chromcraft Revington has entered into a Registration Rights Agreement dated April 23, 1992 (the "Agreement") between Chromcraft Revington and 399 Venture Partners, Inc., which owned 5,695,418 shares or 56.2% of Chromcraft Revington's outstanding common stock at December 31, 1999. The Agreement permits 399 Venture Partners, Inc. and trans- ferees, as defined, to request certain registration rights under the Securities Act of 1933 for all or part of their shares of common stock under certain conditions. In connection with such registrations as may occur, Chromcraft Revington will be obligated for the payment of all registration expenses incurred in the performance of, or compliance with, this Agreement, subject to certain limitations set forth therein.
Note 10. Employee Benefit Plans
Chromcraft Revington sponsors a number of tax-qualified defined contribution retirement and savings plans. Employees may be eligible to participate in one or more of these plans. Company contributions to these plans are based on either a percentage of an employee's compensation or a matching portion of the employee's contributions. The cost of these plans was $1,299,000 in 1999, $1,188,000 in 1998 and $1,113,000 in 1997.
Chromcraft Revington also provides supplemental retirement benefits and "make up" benefits to key executives of Chromcraft Revington whose benefits are reduced by Internal Revenue Service Code restrictions. Contributions and expenses under these arrangements were $390,000 in 1999, $338,000 in 1998 and $305,000 in 1997.
Note 11. Stock Options
Chromcraft Revington's 1992 Stock Option Plan, as amended, (the "Plan") provides for the granting of either incentive stock options ("ISO's") or stock options which do not qualify as incentive stock options ("non-ISO's"). The total number of shares of common stock which may be issued under stock options granted pursuant to the Plan is 1,800,000 shares. ISO's granted under the Plan vest over no greater than a 10-year period, and are granted at exercise prices no less than the fair market value of Chromcraft Revington's common shares as of the date of grant.
Non-ISO's vest and are at exercise prices as determined by the compensation committee of the Board of Directors. At December 31, 1999 and 1998, there were 605,606 and 643,170 shares, respectively, available for future grants.
The estimated per share weighted average fair value of stock options granted during 1999, 1998 and 1997 was $6.02, $7.85 and $6.36, 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:
1999 1998 1997 --------- --------- --------- Expected life (years) 6 6 7 Interest rate 5.0% 5.7% 6.3% Volatility 27.2% 27.8% 28.0%
The following table summarizes the pro forma effects assuming compensation cost for such awards had been recorded based upon the estimated fair value:
A summary of Chromcraft Revington's stock option activity and related information for the three years ended December 31, 1999 follows:
Weighted Average Number Exercise of Shares Price --------- --------- Outstanding at beginning of year 943,440 $ 8.43 Granted 42,862 $ 14.16 Exercised (25,590) $ 8.46 Cancelled (1,170) $ 13.09 Outstanding at end of year 959,542 $ 8.68 Exercisable 803,770 $ 7.95
Granted 58,000 $ 19.78 Exercised (17,800) $ 7.25 Outstanding at end of year 999,742 $ 9.35 Exercisable 861,310 $ 8.38
Granted 47,064 $ 16.00 Exercised (181,860) $ 6.98 Cancelled (9,500) $ 18.32 Outstanding at end of year 855,446 $ 10.12 Exercisable 791,228 $ 9.74
Significant option groups outstanding at December 31, 1999 and related weighted average price and remaining life information follows:
Options Outstanding Options Exercisable ---------------------- ---------------------- Grant Number Exercise Number Exercise Remaining Date of Shares Price of Shares Price Life (Years) ------- --------- --------- --------- --------- --------- 4-15-92 310,960 $ 5.50 310,960 $ 5.50 2.3 2-19-93 86,100 $ 9.50 86,100 $ 9.50 3.1 1-11-94 138,000 $ 11.63 138,000 $ 11.63 4.0 All other 320,386 $ 14.12 256,168 $ 13.96 6.9
Note 12. Supplemental Cash Flow Information
Interest paid during the years ended December 31, 1999, 1998 and 1997 was $873,000, $774,000 and $1,081,000, respectively. Income taxes paid during the years ended December 31, 1999, 1998 and 1997 were $7,334,000, $10,062,000 and $8,510,000, respectively.
Note 13. Rental Commitments
Chromcraft Revington leases certain showroom facilities and trans- portation equipment under non-cancelable operating leases. The future minimum lease payments under non-cancelable leases for the years ending December 31, 2000, 2001, 2002, 2003 and 2004 are $1,442,000, $1,242,000, $1,060,000, $924,000 and $704,000, respectively. It is expected that, in the normal course of business, leases that expire will be renewed or replaced.
Rental expense was $1,825,000, $1,919,000 and $1,932,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Independent Auditors' Report
The Board of Directors and Stockholders Chromcraft Revington, Inc.:
We have audited the consolidated financial statements of Chromcraft Revington, Inc. and subsidiaries as listed in item 14(a) (1) and (2). In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in item 14(a) (1) and (2). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG LLP Indianapolis, Indiana February 2, 2000
--------------------
Operating results for the quarter ended December 31, 1999 include a non-recurring pre-tax charge of $1.5 million ($.09 per share on a diluted basis) for employee termination costs, the writing down of discontinued inventory and other related costs at Chromcraft Revington's Chromcraft subsidiary.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------------------------------
General
Chromcraft Revington designs, manufactures and sells residential and commercial furniture through its wholly-owned subsidiaries, Chromcraft, Peters-Revington, Silver Furniture, Cochrane Furniture and Korn Industries. Chromcraft Revington's operating results include the operations of Korn Industries, acquired September 2, 1999, from the date of its acquisition (see Note 2 to the consolidated financial statements).
The following table sets forth the results of operations of Chromcraft Revington for the years ended December 31, 1999, 1998 and 1997 expressed as a percentage of sales.
Year Ended December 31, -------------------------------- 1999 1998 1997 -------- -------- -------- Sales 100.0% 100.0% 100.0% Cost of sales 76.8 74.8 75.3 -------- -------- -------- Gross margin 23.2 25.2 24.7 Selling, general and administrative expenses 14.0 13.5 13.3 -------- -------- -------- Operating income 9.2 11.7 11.4 Interest expense .4 .3 .6 -------- -------- -------- Earnings before income tax expense 8.8 11.4 10.8 Income tax expense 3.5 4.5 4.3 -------- -------- -------- Net earnings 5.3% 6.9% 6.5% ======== ======== ========
1999 compared to 1998
Consolidated sales increased 3.6% for the year ended December 31, 1999 to $245,385,000 from $236,744,000 for the year ended December 31, 1998. The increase in sales was primarily due to higher shipments of bedroom and dining room furniture, partially offset by lower shipments of upholstered, commercial and occasional furniture. The increase in bedroom and dining room shipments was due, in part, to the Korn Industries acquisition, which was completed September 2, 1999. The decrease in upholstered furniture shipments was primarily attributable to the repositioning of the product line price points and styling. Commercial furniture shipments were lower for 1999, as compared to 1998, due, in part, to a general softening in demand in the office furniture industry. Shipments of occasional furniture at Silver Furniture declined principally due to competitive price pressure.
Gross margin was $56,974,000, or 23.2% of sales, in 1999 as compared to $59,756,000, or 25.2% of sales, in 1998. Factors which contributed to the decrease in gross margin percentage included: manufacturing inefficiencies at Chromcraft due to a product mix change and employee attrition resulting from the tight labor market; unabsorbed fixed overhead due to the lower sales volume at Chromcraft and Silver Furniture; a $400,000 writedown of discontinued inventory at Chromcraft; and the inclusion of Korn Industries' operating results.
Selling, general and administrative expenses increased to $34,340,000, or 14.0% of sales, for 1999 from $31,964,000, or 13.5% of sales, for 1998. The percentage increase was primarily due to a $1,000,000 charge for employee termination and severance costs at Chromcraft.
Interest expense increased to $988,000 in 1999 as compared to $739,000 in 1998. The increase was due to higher average bank borrowings during 1999 attributable to the Korn Industries acquisition and the
refinancing of Korn Industries' bank indebtedness under Chromcraft Revington's revolving credit facility. Weighted average interest rates were slightly lower in 1999 as compared to 1998.
Chromcraft Revington's effective tax rate was 39.6% and 39.9% for the years ended December 31, 1999 and 1998, respectively. The decrease in the effective tax rate for 1999 was due to lower state income taxes.
Diluted earnings per share were $1.22 in 1999 and $1.41 in 1998. Average common shares used in the calculation of diluted earnings per share included dilutive potential common shares (stock options) of 272,000 in 1999 and 396,000 in 1998. Weighted average shares outstanding for 1999 decreased 6.2% as compared to 1998. During 1999, Chromcraft Revington purchased, under a stock repurchase program, 845,500 shares of its common stock.
1998 compared to 1997
Consolidated sales for the year ended December 31, 1998 increased 4.9% to $236,744,000 from $225,629,000 reported in 1997. The sales increase was primarily due to higher shipments of occasional, bedroom and commercial furniture, partially offset by lower upholstered furniture sales. Upholstered furniture sales were lower in 1998 as compared to the prior year period primarily due to the elimination of low margin and nonprofitable products. Dining room furniture sales were at approximately the same level as compared to the prior year. The consolidated sales increase in 1998 was primarily due to higher unit volume.
Gross margin as a percentage of sales increased to 25.2% from 24.7% in 1997. The percentage increase in 1998 was primarily due to the improved operating results at Cochrane Furniture, as a result of cost containment and improved manufacturing processes. The gross margin improvement was partially offset by manufacturing inefficiencies at Chromcraft and higher employee health care costs. The manufacturing inefficiencies were primarily due to start-up costs incurred for new product introductions and employee attrition resulting from tight labor market conditions.
Selling, general and administrative expenses increased $1,764,000 to $31,964,000, or 13.5% of sales, in 1998 from $30,200,000, or 13.3% of sales, in 1997. The higher cost percentage in 1998 was mainly due to an increase in incentive compensation.
Interest expense for the year ended December 31, 1998 was $739,000 as compared to $1,265,000 for the prior year period. The decrease in interest expense for 1998 was primarily due to lower average bank borrowings. Weighted average interest rates were slightly lower in 1998 as compared to 1997.
Chromcraft Revington's effective tax rate was 39.9% for the years ended December 31, 1998 and 1997.
Diluted earnings per share increased 12.8% to $1.41 in 1998 as compared to $1.25 in 1997. Average common shares used in the calculation of diluted earnings per share included dilutive potential common shares (stock options) of 396,000 in 1998 and 337,000 in 1997. Weighted average shares outstanding for 1998 decreased 2.5% as compared to the prior year period. During 1998, Chromcraft Revington retired 590,548 shares of its common stock acquired under a share repurchase program.
Liquidity and Capital Resources
Operating activities provided $14,757,000 of cash for the year ended December 31, 1999, a decrease of $2,228,000 from the amount provided in 1998. Cash generated from operations decreased in 1999 primarily due to a reduction in Korn Industries' trade accounts payable and lower earnings during 1999. Korn Industries' trade payables, assumed
at the acquisition date, were reduced in order to eliminate past due amounts and to obtain discounts on the early payment of invoices.
The investing activities used $10,971,000 and $3,337,000 during the years ended December 31, 1999 and 1998, respectively. On September 2, 1999, CRI Corporation-Sumter, a wholly-owned subsidiary of Chromcraft Revington, acquired Korn Industries, a manufacturer of bedroom and dining room furniture. Investing activities for 1999 include the cash payment to Korn Industries' stockholders and related acquisition expenses of $8,525,000.
Capital expenditures, primarily for machinery and data processing equipment purchases, were $3,630,000 during 1999 and $3,388,000 during 1998. Capital expenditures in 2000 are expected to be approximately $5,000,000. During 1999, Chromcraft Revington received cash proceeds of $1,184,000 in connection with several asset disposals.
Financing activities used $2,638,000 of cash during 1999. During the year, Chromcraft Revington borrowed $21,300,000 under its bank revolving credit facility in connection with the Korn Industries acquisition and the repurchase of Chromcraft Revington's common stock. As part of the acquisition, Korn Industries' bank indebtedness of $13,517,000 was refinanced with borrowings under Chromcraft Revington's revolving credit facility, which restricts indebtedness outside of the facility. Financing costs were more favorable under the facility as compared to the Korn Industries indebtedness. During 1999, Chromcraft Revington purchased, under its share repurchase program, 845,500 shares of its common stock for $12,079,000.
Financing activities used $13,648,000 of cash during the year ended December 31, 1998, primarily to acquire shares of Chromcraft Revington's common stock and reduce bank indebtedness. During 1998, Chromcraft Revington acquired 590,548 shares of common stock purchased for $10,196,000 under its share repurchase program.
Chromcraft Revington has a revolving credit facility with a commitment level of $60,000,000 that matures December 20, 2000. The interest rate under the facility is determined at the time of each borrowing and is based on one of a variety of floating rate indices or a bank prime lending rate. Total borrowings under the facility were $26,700,000 at December 31, 1999. Unused capacity under the revolving credit facility, after reduction for outstanding letters of credit, equaled $30,868,000 at the end of 1999. Management expects that a new long-term bank agreement will be in place before the present facility expires.
Management expects that cash flow from operations and availability under bank financing arrangements will continue to be sufficient to meet future business needs. Chromcraft Revington plans to grow its businesses internally and through acquisitions. Accordingly, Chromcraft Revington plans to retain cash in the business and currently does not anticipate paying cash dividends on its common stock. In 2000, absent further acquisitions, Chromcraft Revington expects to generate excess cash flow from operations, which will be used to reduce bank indebtedness, to repurchase Chromcraft Revington common stock, or for general corporate purposes.
Year 2000 Issue ---------------
Chromcraft Revington and its subsidiaries have not experienced any significant Year 2000 conversion issues. Chromcraft Revington plans to continue to monitor its internal systems, significant suppliers and third party service providers for potential disruptions.
Recently Issued Accounting Standards ------------------------------------
The Financial Accounting Standards Board has issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" and Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement 133." Statement No. 133 applies to all derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Statement will require Chromcraft Revington to recognize all derivatives on the balance sheet at fair value. Statement No. 137 has deferred the effective date of Statement No. 133 until the fiscal year beginning after June 15, 2000. Chromcraft Revington does not expect the adoption of this Statement to have a significant effect on its results of operations or financial position.
Forward-Looking Statements --------------------------
Certain matters included in this Annual Report on Form 10-K 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 the context of the statements includes words such as "plans," "may," "anticipates," and "expects" or words of similar import. All forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reported or expected as of the date of this report. Among the risks and uncertainties that could cause actual results to differ materially from those reported or anticipated are (i) general economic conditions, (ii) cyclical nature of the furniture industry, and (iii) competition in the furniture industry.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk --------------------------------------------------------------------
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data ----------------------------------------------------
The financial statements and schedule are listed in Part IV, Items 14(a) (1) and (2).
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure --------------------------------------------------------------------
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant ------------------------------------------------------------
The sections entitled "Election of Directors" on page 3 and "Common Stock Beneficially Owned by Directors and Executive Officers" on pages 4 and 5 of Chromcraft Revington's Proxy Statement, expected to be dated April 5, 2000, are incorporated herein by reference, and have been omitted pursuant to Instruction G of Form 10-K since 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 1999 fiscal year.
Item 11.
Item 11. Executive Compensation --------------------------------
The sections entitled "Executive Compensation" on pages 6 through 9, "Compensation Committee Report on Executive Compensation" on pages 9 through 11 and "Stock Performance Graph" on page 12 of Chromcraft Revington's Proxy Statement, expected to be dated April 5, 2000, are incorporated herein by reference, and have been omitted pursuant to Instruction G of Form 10-K since 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 1999 fiscal year.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management ------------------------------------------------------------------------
The sections entitled "Common Stock Beneficially Owned by Directors and Executive Officers" on pages 4 and 5 and "Voting Securities and Principal Stockholders" on pages 1 and 2 of Chromcraft Revington's Proxy Statement, expected to be dated April 5, 2000, are incorporated herein by reference, and have been omitted pursuant to Instruction G of Form 10-K since 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 1999 fiscal year.
Item 13.
Item 13. Certain Relationships and Related Transactions --------------------------------------------------------
None.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K -------------------------------------------------------------------------
(a) 1. and 2. List of Financial Statements and Financial Statement Schedule:
The following Consolidated Financial Statements of Chromcraft Revington are included in this report on Form 10-K:
Page Reference -------------- Consolidated Statements of Earnings for the years ended December 31, 1999, 1998 and 1997
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Independent Auditors' Report
Quarterly Financial Information (unaudited)
The following consolidated financial statement schedule of Chromcraft Revington is included in response to Item 14(d):
Schedule II - Valuation and Qualifying Accounts S-1
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
(a) 3. Listing of Exhibits
(3)(i) Certificate of Incorporation of the Registrant, as amended, filed as Exhibit No. 3.1 to Form S-1, registration number 33-45902, as filed with the Securities and Exchange Commission on February 21, 1992, is incorporated herein by reference.
(3)(ii) By-laws of the Registrant, filed as Exhibit No. 3.2 to Form S-1, registration number 33-45902, as filed with the Securities and Exchange Commission on February 21, 1992, is incorporated herein by reference.
(4.7) Credit Agreement, dated December 20, 1995, among the Registrant, the Banks party thereto and NBD Bank N.A., as agent for the Banks, filed as Exhibit No. 4.7 to Form 10-K for the year ended December 31, 1995, is incorporated herein by reference.
(10.1) Lease, dated February 15, 1962, between the Board of Supervisors of Tate County, Mississippi as Landlord and Chromcraft Corporation as Tenant, filed as Exhibit No. 10.1 to Form S-1, registration number 33-45902, as filed with the Securities and Exchange Commission on February 21, 1992, is incorporated herein by reference.
(10.3) Form of Registration Rights Agreement between the Registrant and 399 Venture Partners, Inc., formerly Citicorp Investments, Inc., filed as Exhibit No. 10.3 to Form S-1, registration number 33-45902, as filed with the Securities and Exchange Commission on February 21, 1992, is incorporated herein by reference.
(10.12) Contract, dated April 3, 1961, between the City of Senatobia, Tate County, Mississippi, the Board of Supervisors of Tate County, Mississippi and Chromcraft Corporation, filed as Exhibit No. 10.12 to Form S-1, Pre- Effective Amendment No. 1, registration number 33-45902, as filed with the Securities and Exchange Commission on March 17, 1992, is incorporated herein by reference.
(10.13) Lease, dated September 9, 1966, between the Board of Supervisors of Tate County, Mississippi as Landlord and Chromcraft Corporation as Tenant, filed as Exhibit No. 10.13 to Form S-1, Pre-Effective Amendment No. 1, registration number 33-45902, as filed with the Securities and Exchange Commission on March 17, 1992, is incorporated herein by reference.
(10.14) Contract, dated May 5, 1969, between the Board of Supervisors of Tate County, Mississippi and Chromcraft Corporation, filed as Exhibit No. 10.14 to Form S-1, Pre- Effective Amendment No. 1, registration number 33-45902, as filed with the Securities and Exchange Commission on March 17, 1992, is incorporated herein by reference.
(10.15) Contract and Lease Agreement, dated April 17, 1972, between Tate County, Mississippi as Landlord and Chromcraft Corporation as Tenant, filed as Exhibit No. 10.15 to Form S-1, Pre-Effective Amendment No. 1, registration number 33-45902, as filed with the Securities and Exchange Commission on March 17, 1992, is incorporated herein by reference.
Executive Compensation Plans and Arrangements ---------------------------------------------
(10.4) Chromcraft Revington, Inc. 1992 Stock Option Plan, as amended, filed as Exhibit No. 10.4 to Form 10-Q for the quarter ended June 27, 1998, is incorporated herein by reference.
(10.51) Chromcraft Revington, Inc. Short Term Executive Incentive Plan, effective January 1, 1998, filed as Exhibit No. 10.51 to Form 10-K for the year ended December 31, 1998, is incorporated herein by reference.
(10.55) Chromcraft Revington, Inc. Long Term Executive Incentive Plan, effective January 1, 1998, filed as Exhibit 10.55 to Form 10-K for the year ended December 31, 1998, is incorporated herein by reference.
(10.6) Chromcraft Revington Directors Deferred Compensation Plan, effective January 1, 1999, filed as Exhibit 10.6 to Form 10-K for the year ended December 31, 1998, is incorporated herein by reference.
(10.7) Chromcraft Revington, Inc. Supplemental Executive Retirement Plan, as amended and restated, effective December 3, 1998, filed as Exhibit 10.7 to Form 10-K for the year ended December 31, 1998, is incorporated herein by reference.
(10.75) Supplemental Executive Retirement Plan Trust Agreement, dated April 16, 1993, between the Registrant and Bank One, Indianapolis, National Association, filed as Exhibit No. 10.75 to Form 10-Q for the quarter ended July 3, 1993, is incorporated herein by reference.
(10.8) Employment Agreement, dated March 31, 1992, between the Registrant and Michael E. Thomas, filed as Exhibit No. 10.8 to Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
(10.85) Supplemental Retirement Benefits Agreement, dated August 21, 1992, between the Registrant and Michael E. Thomas, filed as Exhibit No. 10.85 to Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
(10.9) Employment Agreement, dated March 31, 1992, between the Registrant and H. Martin Michael, filed as Exhibit No. 10.9 to Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
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(21.1) Subsidiaries of the Registrant (filed herewith).
(23.1) Consent of Independent Auditors (filed herewith).
(24.1) Powers of Attorney (filed herewith).
(27.0) Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
Amendments No. 1 and 2 to the Current Report on Form 8-K dated September 2, 1999, reporting financial information on the acquisition of Korn Industries, Incorporated, were filed with the Securities and Exchange Commission on November 12, 1999.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate section of this report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate section of this report.
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 28, 2000 By: /s/ Michael E. Thomas -------------- ---------------------------- Michael E. Thomas, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Chromcraft Revington, Inc. and in the capacities and on the date indicated.
Signatures Title Date --------------------- -------------------------- --------------
/s/ Michael E. Thomas President, Chief Executive March 28, 2000 --------------------- Officer and Director -------------- Michael E. Thomas
/s/ Frank T. Kane Vice President - Finance March 28, 2000 ----------------- (principal accounting and -------------- Frank T. Kane financial officer)
*Bruce C. Bruckmann Director ------------------- Bruce C. Bruckmann
*David L. Kolb Director ------------------- David L. Kolb
*Larry P. Kunz Director ------------------- Larry P. Kunz
*M. Saleem Muqaddam Director ------------------- M. Saleem Muqaddam
*Warren G. Wintrub Director ------------------- Warren G. Wintrub
By: /s/ Michael E. Thomas March 28, 2000 ------------------------- -------------- Michael E. Thomas, Attorney-in-fact*
See accompanying notes to the consolidated financial statements
See accompanying notes to the consolidated financial statements
See accompanying notes to the consolidated financial statements
See accompanying notes to the consolidated financial statements
Notes to Consolidated Financial Statements
Chromcraft Revington, Inc. December 31, 1999
Note 1. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of Chromcraft Revington, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Chromcraft Revington manufactures and sells residential and commercial furniture. Products are sold primarily through furniture dealers throughout the United States and Canada. Chromcraft Revington has several operating segments which are aggregated into one reportable segment, in accordance with Financial Accounting Standards Board Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information."
Use of Estimates
The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Inventories
All inventories (materials, labor and overhead) are valued at the lower of cost or market. Inventories valued using the last-in, first- out (LIFO) basis represent approximately 64% and 70% of total inventories at December 31, 1999 and 1998, 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.
Revenue Recognition
Revenue from sales is recognized when the goods are shipped to the customer.
Intangibles
Intangible assets are stated on the basis of cost. The excess of purchase price over the fair value of net assets acquired (goodwill) and tradenames are being amortized on a straight-line basis over periods ranging from 15 to 40 years. Chromcraft Revington reviews the carrying value of goodwill whenever changes in circumstances indicate that the carrying amount may not be recoverable. When factors indicate that the recoverability of goodwill should be evaluated, Chromcraft Revington uses an estimate of the undiscounted cash flows of the acquired businesses in determining whether an impairment loss is required.
Deferred Income Taxes
Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Earnings per Share
Basic earnings per share is calculated based on the average number of common shares outstanding. Diluted earnings per share include dilutive potential common shares (stock options).
Stock Options
Chromcraft Revington applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpre- tations in accounting for stock options and discloses the fair value of options granted as permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Financial Instruments
The carrying amounts reported in the balance sheets for accounts receivable, accounts payable and borrowings under a bank revolving credit facility approximate their fair values. Concentration of credit risk with respect to trade accounts receivable is limited due to the large number of entities comprising Chromcraft Revington's customer base.
Note 2. Acquisition of Korn Industries, Incorporated
On September 2, 1999, CRI Corporation-Sumter, a wholly-owned subsidiary of Chromcraft Revington, Inc., acquired all of the outstanding common stock of Korn Industries, Incorporated ("Korn Industries") for $8,525,000 in cash (including acquisition-related expenses) and the assumption of Korn Industries' liabilities. Korn Industries is headquartered in Sumter, South Carolina and manufactures and sells bedroom and dining room furniture through its Sumter Cabinet Company division. The operations of Korn Industries are included in the Consolidated Statements of Earnings commencing on September 2, 1999. The transaction was accounted for as a purchase and the purchase price has been allocated to assets acquired and liabilities assumed based on their fair market values at the date of acquisition. Goodwill and other intangibles are being amortized on a straight-line basis over periods ranging from 15 to 25 years.
The following unaudited pro forma results of operations for the year ended December 31, 1999 give effect to the Korn Industries acquisition as if it had occurred on January 1, 1999. The unaudited pro forma results of operations for the year ended December 31, 1998 combine the operating results of Korn Industries for the fiscal year ended November 28, 1998 and Chromcraft Revington's operating results for the
year ended December 31, 1998 and give effect to the Korn Industries acquisition as if it had occurred at the beginning of the period.
(In thousands, except per share data) ---------------------- 1999 1998 --------- --------- Sales $ 281,168 $ 291,395 Net earnings 11,280 14,310 Earnings per share of common stock Basic 1.08 1.28 Diluted 1.05 1.24
The pro forma information is presented for comparative purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated as of the above dates, nor is it necessarily indicative of future operating results.
Note 3. Inventories
Inventories at December 31, 1999 and 1998 consisted of the following:
(In thousands) ---------------------- 1999 1998 --------- --------- Raw materials $ 18,521 $ 12,502 Work-in-process 8,069 6,097 Finished goods 25,866 21,181 --------- --------- Inventories at FIFO cost 52,456 39,780 LIFO reserve (2,006) (1,650) --------- --------- $ 50,450 $ 38,130 ========= =========
Note 4. Property, Plant and Equipment
Property, plant and equipment at December 31, 1999 and 1998 consisted of the following:
(In thousands) ---------------------- 1999 1998 --------- --------- Land $ 2,208 $ 2,013 Buildings and improvements 32,869 29,923 Machinery and equipment 46,986 39,323 Leasehold improvements 862 768 Construction in progress 239 662 --------- --------- 83,164 72,689 Less accumulated depreciation and amortization (38,684) (35,595) --------- --------- $ 44,480 $ 37,094 ========= =========
Note 5. Accrued Liabilities
Accrued liabilities at December 31, 1999 and 1998 consisted of the following:
(In thousands) ---------------------- 1999 1998 --------- --------- Employee benefit plans $ 5,434 $ 4,114 Salaries, wages and commissions 1,907 1,837 Vacation and holiday pay 1,162 1,263 Workers' compensation plans 1,451 1,158 Other accrued liabilities 5,897 4,591 --------- --------- $ 15,851 $ 12,963 ========= =========
Note 6. Income Taxes
Components of the provision for income taxes for the years ended December 31, 1999, 1998 and 1997 were as follows:
(In thousands) ----------------------------------- 1999 1998 1997 --------- --------- --------- Current: Federal $ 7,029 $ 8,666 $ 6,683 State 1,012 1,235 1,255 --------- --------- --------- 8,041 9,901 7,938 --------- --------- --------- Deferred: Federal 502 738 1,517 State 29 155 265 --------- --------- --------- 531 893 1,782 --------- --------- --------- Total provision for income taxes $ 8,572 $ 10,794 $ 9,720 ========= ========= =========
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, 1999, 1998 and 1997 is summarized below:
(In thousands) ----------------------------------- 1999 1998 1997 --------- --------- --------- Tax expense, at U.S. statutory rate $ 7,577 $ 9,469 $ 8,527 State taxes, net of federal benefit 682 1,030 967 Non-deductible amortization of goodwill 253 222 222 Other, net 60 73 4 --------- --------- --------- Total provision for income taxes $ 8,572 $ 10,794 $ 9,720 ========= ========= =========
The tax effects of temporary differences that give rise to significant portions of net deferred tax assets (liabilities) at December 31, 1999 and 1998 are summarized below:
(In thousands) ---------------------- 1999 1998 --------- --------- Deferred tax assets attributable to: Accounts receivable $ 794 $ 680 Assets held for sale - 525 Accrued vacation and holiday pay 486 471 Deferred compensation 2,965 1,181 Net operating loss carryforwards 3,407 841 Other 2,209 1,859 --------- --------- Total gross deferred tax assets 9,861 5,557 --------- --------- Deferred tax liabilities attributable to: Inventories (3,744) (1,010) Property, plant and equipment (5,630) (4,254) Other (1,266) (1,258) --------- --------- Total gross deferred tax liabilities (10,640) (6,522) --------- --------- Net deferred tax liabilities $ (779) $ (965) ========= =========
Balance sheet classifications of deferred taxes at December 31, 1999 and 1998 were as follows:
(In thousands) ---------------------- 1999 1998 --------- --------- Deferred tax assets, current $ - $ 1,231 Deferred tax liability, current (562) - Deferred tax liability, noncurrent (217) (2,196) --------- --------- Net deferred tax liability $ (779) $ (965) ========= =========
In connection with the acquisitions of Cochrane Furniture and Korn Industries, Chromcraft Revington acquired certain federal and state net operating loss carryforwards with expiration dates through 2010 and 2018, respectively.
Note 7. Revolving Credit Facility
Chromcraft Revington has an unsecured revolving loan facility (the "Facility") with a group of banks that allows it to borrow up to $60,000,000 for working capital requirements, capital expenditures and acquisitions. At December 31, 1999, Chromcraft Revington had $30,868,000 in availability under the Facility. The interest rate under the Facility is determined at the time of borrowing, at Chromcraft Revington's option, at either the bank prime rate or a rate based on the certificate of deposit rate, the Fed Funds rate, or the London Interbank Offered Rate (LIBOR). The weighted average interest rate on borrowings outstanding as of December 31, 1999 and 1998 was 5.12% and 5.51%, respectively. A commitment fee, of up to .20% per annum, is payable on the unused portion of the credit line. Chromcraft Revington had outstanding letters of credit under the Facility of $2,432,000 and $1,718,000 at December 31, 1999 and 1998, respectively. The Facility expires December 20, 2000. Chromcraft Revington expects to have a new long-term bank agreement in place before the present facility expires.
The Facility requires compliance with certain financial loan covenants related to net worth, interest and fixed charge coverages and debt leverage. At December 31, 1999, unrestricted retained earnings available for dividends were $25,814,000.
Note 8. Earnings Per Share of Common Stock
Weighted average shares used in the calculation of diluted earnings per share included dilutive potential common shares (stock options) of approximately 272,000, 396,000 and 337,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Stock options to purchase 138,426 shares of common stock at an average price of $16.85 per share and 58,000 shares at $19.78 per share were outstanding during 1999 and 1998, respectively, 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 for those years and, therefore, the effect would be antidilutive.
Note 9. Stockholders' Equity
Chromcraft Revington is authorized to issue up to 100,000 shares of $1.00 par value preferred stock, none of which is outstanding.
Chromcraft Revington effected a two-for-one stock split in the form of a 100% stock dividend to stockholders of record on May 27, 1998. The additional shares were distributed to stockholders on June 10, 1998. All references to the number of shares outstanding and per share amounts, where applicable, in the consolidated financial statements and notes reflect the stock split.
Chromcraft Revington has entered into a Registration Rights Agreement dated April 23, 1992 (the "Agreement") between Chromcraft Revington and 399 Venture Partners, Inc., which owned 5,695,418 shares or 56.2% of Chromcraft Revington's outstanding common stock at December 31, 1999. The Agreement permits 399 Venture Partners, Inc. and trans- ferees, as defined, to request certain registration rights under the Securities Act of 1933 for all or part of their shares of common stock under certain conditions. In connection with such registrations as may occur, Chromcraft Revington will be obligated for the payment of all registration expenses incurred in the performance of, or compliance with, this Agreement, subject to certain limitations set forth therein.
Note 10. Employee Benefit Plans
Chromcraft Revington sponsors a number of tax-qualified defined contribution retirement and savings plans. Employees may be eligible to participate in one or more of these plans. Company contributions to these plans are based on either a percentage of an employee's compensation or a matching portion of the employee's contributions. The cost of these plans was $1,299,000 in 1999, $1,188,000 in 1998 and $1,113,000 in 1997.
Chromcraft Revington also provides supplemental retirement benefits and "make up" benefits to key executives of Chromcraft Revington whose benefits are reduced by Internal Revenue Service Code restrictions. Contributions and expenses under these arrangements were $390,000 in 1999, $338,000 in 1998 and $305,000 in 1997.
Note 11. Stock Options
Chromcraft Revington's 1992 Stock Option Plan, as amended, (the "Plan") provides for the granting of either incentive stock options ("ISO's") or stock options which do not qualify as incentive stock options ("non-ISO's"). The total number of shares of common stock which may be issued under stock options granted pursuant to the Plan is 1,800,000 shares. ISO's granted under the Plan vest over no greater than a 10-year period, and are granted at exercise prices no less than the fair market value of Chromcraft Revington's common shares as of the date of grant.
Non-ISO's vest and are at exercise prices as determined by the compensation committee of the Board of Directors. At December 31, 1999 and 1998, there were 605,606 and 643,170 shares, respectively, available for future grants.
The estimated per share weighted average fair value of stock options granted during 1999, 1998 and 1997 was $6.02, $7.85 and $6.36, 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:
1999 1998 1997 --------- --------- --------- Expected life (years) 6 6 7 Interest rate 5.0% 5.7% 6.3% Volatility 27.2% 27.8% 28.0%
The following table summarizes the pro forma effects assuming compensation cost for such awards had been recorded based upon the estimated fair value:
A summary of Chromcraft Revington's stock option activity and related information for the three years ended December 31, 1999 follows:
Weighted Average Number Exercise of Shares Price --------- --------- Outstanding at beginning of year 943,440 $ 8.43 Granted 42,862 $ 14.16 Exercised (25,590) $ 8.46 Cancelled (1,170) $ 13.09 Outstanding at end of year 959,542 $ 8.68 Exercisable 803,770 $ 7.95
Granted 58,000 $ 19.78 Exercised (17,800) $ 7.25 Outstanding at end of year 999,742 $ 9.35 Exercisable 861,310 $ 8.38
Granted 47,064 $ 16.00 Exercised (181,860) $ 6.98 Cancelled (9,500) $ 18.32 Outstanding at end of year 855,446 $ 10.12 Exercisable 791,228 $ 9.74
Significant option groups outstanding at December 31, 1999 and related weighted average price and remaining life information follows:
Options Outstanding Options Exercisable ---------------------- ---------------------- Grant Number Exercise Number Exercise Remaining Date of Shares Price of Shares Price Life (Years) ------- --------- --------- --------- --------- --------- 4-15-92 310,960 $ 5.50 310,960 $ 5.50 2.3 2-19-93 86,100 $ 9.50 86,100 $ 9.50 3.1 1-11-94 138,000 $ 11.63 138,000 $ 11.63 4.0 All other 320,386 $ 14.12 256,168 $ 13.96 6.9
Note 12. Supplemental Cash Flow Information
Interest paid during the years ended December 31, 1999, 1998 and 1997 was $873,000, $774,000 and $1,081,000, respectively. Income taxes paid during the years ended December 31, 1999, 1998 and 1997 were $7,334,000, $10,062,000 and $8,510,000, respectively.
Note 13. Rental Commitments
Chromcraft Revington leases certain showroom facilities and trans- portation equipment under non-cancelable operating leases. The future minimum lease payments under non-cancelable leases for the years ending December 31, 2000, 2001, 2002, 2003 and 2004 are $1,442,000, $1,242,000, $1,060,000, $924,000 and $704,000, respectively. It is expected that, in the normal course of business, leases that expire will be renewed or replaced.
Rental expense was $1,825,000, $1,919,000 and $1,932,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Independent Auditors' Report
The Board of Directors and Stockholders Chromcraft Revington, Inc.:
We have audited the consolidated financial statements of Chromcraft Revington, Inc. and subsidiaries as listed in item 14(a) (1) and (2). In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in item 14(a) (1) and (2). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG LLP Indianapolis, Indiana February 2, 2000
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Operating results for the quarter ended December 31, 1999 include a non-recurring pre-tax charge of $1.5 million ($.09 per share on a diluted basis) for employee termination costs, the writing down of discontinued inventory and other related costs at Chromcraft Revington's Chromcraft subsidiary.