Filed by Bowne Pure Compliance
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2007
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-13970
CHROMCRAFT REVINGTON, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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35-1848094 |
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer Identification No.) |
1330 Win Hentschel Blvd., Ste. 250, West Lafayette, IN 47906
(Address, including zip code, of registrants principal executive offices)
(765) 807-2640
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares outstanding for each of the registrants classes of common stock, as of the
latest practicable date:
Common Stock, $.01 par value 6,180,976 shares as of August 2, 2007
PART I.
Item 1. Financial Statements
Condensed Consolidated Statements of Operations (unaudited)
Chromcraft Revington, Inc.
(In thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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July 1, |
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June 30, |
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July 1, |
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2007 |
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2006 |
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2007 |
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2006 |
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Sales |
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$ |
32,769 |
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$ |
40,320 |
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$ |
66,616 |
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$ |
86,241 |
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Cost of sales |
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30,480 |
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32,205 |
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58,837 |
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69,114 |
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Gross margin |
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2,289 |
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8,115 |
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7,779 |
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17,127 |
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Selling, general and administrative expenses |
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7,566 |
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6,922 |
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15,032 |
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14,048 |
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Operating income (loss) |
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(5,277 |
) |
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1,193 |
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(7,253 |
) |
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3,079 |
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Interest (income) expense, net |
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(22 |
) |
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53 |
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(40 |
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130 |
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Earnings (loss) before income tax expense
(benefit) |
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(5,255 |
) |
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1,140 |
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(7,213 |
) |
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2,949 |
|
Income tax expense (benefit) |
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(1,954 |
) |
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464 |
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(2,734 |
) |
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1,144 |
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Net earnings (loss) |
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$ |
(3,301 |
) |
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$ |
676 |
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$ |
(4,479 |
) |
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$ |
1,805 |
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Earnings (loss) per share of common stock |
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Basic |
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$ |
(.73 |
) |
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$ |
.15 |
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$ |
(1.00 |
) |
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$ |
.41 |
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Diluted |
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$ |
(.73 |
) |
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$ |
.15 |
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$ |
(1.00 |
) |
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$ |
.40 |
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Shares used in computing earnings (loss) per share |
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Basic |
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4,493 |
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4,406 |
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4,485 |
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4,398 |
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Diluted |
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4,493 |
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4,467 |
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4,485 |
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4,460 |
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See accompanying notes to condensed consolidated financial statements.
3
Condensed Consolidated Balance Sheets (unaudited)
Chromcraft Revington, Inc.
(In thousands)
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June 30, |
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July 1, |
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Dec. 31, |
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2007 |
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2006 |
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2006 |
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Assets |
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Cash and cash equivalents |
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$ |
7,927 |
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$ |
2,755 |
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$ |
8,418 |
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Accounts receivable |
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17,189 |
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19,112 |
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19,072 |
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Refundable income taxes |
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2,276 |
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Inventories |
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26,124 |
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37,174 |
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28,667 |
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Assets held for sale |
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2,166 |
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5,068 |
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Deferred income taxes and prepaid expenses |
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3,169 |
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1,770 |
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3,104 |
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Current assets |
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58,851 |
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60,811 |
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64,329 |
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Property, plant and equipment, net |
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17,746 |
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29,375 |
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19,212 |
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Deferred income taxes and other assets |
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3,149 |
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924 |
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2,277 |
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Total assets |
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$ |
79,746 |
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$ |
91,110 |
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$ |
85,818 |
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Liabilities and Stockholders Equity |
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Accounts payable |
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$ |
4,652 |
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$ |
4,604 |
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$ |
5,144 |
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Accrued liabilities |
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6,394 |
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8,278 |
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7,534 |
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Current liabilities |
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11,046 |
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12,882 |
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12,678 |
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Deferred compensation |
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1,309 |
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1,813 |
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1,918 |
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Other long-term liabilities |
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991 |
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1,267 |
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804 |
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Total liabilities |
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13,346 |
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|
15,962 |
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15,400 |
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Stockholders equity |
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66,400 |
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75,148 |
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70,418 |
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Total liabilities and stockholders equity |
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$ |
79,746 |
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$ |
91,110 |
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$ |
85,818 |
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See accompanying notes to condensed consolidated financial statements.
4
Condensed Consolidated Statements of Cash Flows (unaudited)
Chromcraft Revington, Inc.
(In thousands)
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Six Months Ended |
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June 30, |
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July 1, |
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2007 |
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2006 |
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Operating Activities |
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Net earnings (loss) |
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$ |
(4,479 |
) |
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$ |
1,805 |
|
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities |
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Depreciation and amortization expense |
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966 |
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1,668 |
|
Deferred income taxes |
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(384 |
) |
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62 |
|
Non-cash asset impairment charges |
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1,100 |
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Non-cash ESOP compensation expense |
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286 |
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438 |
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Non-cash stock compensation expense |
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175 |
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243 |
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Non-cash inventory write-downs |
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2,400 |
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312 |
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Provision for doubtful accounts |
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209 |
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176 |
|
(Gain) loss on disposal of assets |
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(283 |
) |
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19 |
|
Changes in operating assets and liabilities |
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Accounts receivable |
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1,674 |
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(553 |
) |
Refundable income taxes |
|
|
(2,276 |
) |
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Inventories |
|
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143 |
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|
(477 |
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Prepaid expenses |
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40 |
|
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|
152 |
|
Accounts payable |
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(492 |
) |
|
|
(844 |
) |
Accrued liabilities |
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|
(1,155 |
) |
|
|
909 |
|
Deferred compensation |
|
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(609 |
) |
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|
(673 |
) |
Other long-term liabilities and assets |
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(391 |
) |
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|
306 |
|
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Cash provided by (used in) operating activities |
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(3,076 |
) |
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|
3,543 |
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Investing Activities |
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Capital expenditures |
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(351 |
) |
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|
(793 |
) |
Proceeds on disposal of assets |
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2,936 |
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|
5 |
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Cash provided by (used in) investing activities |
|
|
2,585 |
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(788 |
) |
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Financing Activities |
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Cash provided by (used in) financing activities |
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|
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|
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|
|
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|
|
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Change in cash and cash equivalents |
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(491 |
) |
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|
2,755 |
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Cash and cash equivalents at beginning of the period |
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8,418 |
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Cash and cash equivalents at end of the period |
|
$ |
7,927 |
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$ |
2,755 |
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|
|
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|
See accompanying notes to condensed consolidated financial statements.
5
Condensed Consolidated Statement of Stockholders Equity (unaudited)
For the Six Months Ended June 30, 2007
Chromcraft Revington, Inc.
(In thousands, except share data)
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Capital in |
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Unearned |
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Total |
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Common Stock |
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Excess of |
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ESOP |
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Retained |
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Treasury Stock |
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Stockholders' |
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Shares |
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Amount |
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Par Value |
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Shares |
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Earnings |
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Shares |
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Amount |
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Equity |
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Balance at January 1, 2007 |
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|
7,944,163 |
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|
$ |
80 |
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|
$ |
18,075 |
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|
$ |
(16,708 |
) |
|
$ |
89,971 |
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|
(1,776,287 |
) |
|
$ |
(21,000 |
) |
|
$ |
70,418 |
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Net loss |
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|
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(4,479 |
) |
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|
(4,479 |
) |
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ESOP compensation expense |
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|
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|
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|
(52 |
) |
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|
338 |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
286 |
|
|
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Issuance of restricted stock awards |
|
|
13,100 |
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|
|
|
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|
Amortization of unearned compensation
of restricted stock awards |
|
|
|
|
|
|
|
|
|
|
155 |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
155 |
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|
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|
|
|
|
|
|
|
|
Stock option compensation expense |
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
20 |
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007 |
|
|
7,957,263 |
|
|
$ |
80 |
|
|
$ |
18,198 |
|
|
$ |
(16,370 |
) |
|
$ |
85,492 |
|
|
|
(1,776,287 |
) |
|
$ |
(21,000 |
) |
|
$ |
66,400 |
|
|
|
|
|
|
|
|
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|
See accompanying notes to condensed consolidated financial statements.
6
Notes to Condensed Consolidated Financial Statements (unaudited)
Chromcraft Revington, Inc.
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of
Chromcraft Revington, Inc. and its wholly-owned subsidiaries (together, the Company) and have
been prepared in accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America for complete financial
statement presentation.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the three and six
months ended June 30, 2007 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2007.
The balance sheet at December 31, 2006 has been derived from the audited financial statements at
that date but does not include all information and footnotes required by generally accepted
accounting principles for complete financial statements.
For further information, refer to the consolidated financial statements and footnotes thereto
included in Chromcraft Revingtons annual report on Form 10-K for the year ended December 31, 2006.
Note 2. Restructuring and Asset Impairment Charges
In 2006, the board of directors of the Company approved the restructuring of certain of the
Companys operations. The restructuring program includes the shut down, relocation, consolidation,
and outsourcing of certain furniture manufacturing and distribution operations, and is expected to
be completed during 2007. The purposes of the restructuring program are to reduce fixed costs, to
improve the utilization of a global supply chain, and to increase asset utilization.
Restructuring charges recorded for the six months ended June 30, 2007 were as follows:
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Restructuring charges: |
|
|
|
|
Costs to shut down, vacate and prepare for sale |
|
$ |
329 |
|
One-time termination benefits |
|
|
78 |
|
|
|
|
|
|
|
|
407 |
|
Asset impairment charges |
|
|
1,045 |
|
|
|
|
|
|
|
$ |
1,452 |
|
|
|
|
|
|
|
|
|
|
Statements of Operations classification: |
|
|
|
|
Gross margin |
|
$ |
1,237 |
|
Selling, general and administrative expenses |
|
|
215 |
|
|
|
|
|
|
|
$ |
1,452 |
|
|
|
|
|
7
The Company expects to incur total restructuring costs of $1,435,000 for one-time
termination benefits and costs to shut down, vacate and prepare the facilities for sale as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
Year Ended |
|
|
Six Months Ended |
|
|
Remaining |
|
|
|
|
|
|
Dec. 31, 2006 |
|
|
June 30, 2007 |
|
|
Six Months |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs to shut down, vacate
and prepare for sale |
|
$ |
479 |
|
|
$ |
329 |
|
|
$ |
86 |
|
|
$ |
894 |
|
One-time termination benefits |
|
|
463 |
|
|
|
78 |
|
|
|
|
|
|
|
541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
942 |
|
|
$ |
407 |
|
|
$ |
86 |
|
|
$ |
1,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges to expense, cash payments or asset write-downs for the six months ended June 30,
2007 and the restructuring liabilities at June 30, 2007 and December 31, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
Six Months Ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
Charges |
|
|
|
|
|
|
Asset |
|
|
|
|
|
|
Dec. 31, |
|
|
to |
|
|
Cash |
|
|
Impairments, |
|
|
June 30, |
|
|
|
2006 |
|
|
Expense |
|
|
Payments |
|
|
Net |
|
|
2007 |
|
Costs to shut down,
vacate and
prepare for sale |
|
$ |
29 |
|
|
$ |
329 |
|
|
$ |
(358 |
) |
|
$ |
|
|
|
$ |
|
|
One time
termination
benefits |
|
|
260 |
|
|
|
78 |
|
|
|
(338 |
) |
|
|
|
|
|
|
|
|
Asset impairment
charges |
|
|
|
|
|
|
1,045 |
|
|
|
|
|
|
|
(1,045 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
289 |
|
|
$ |
1,452 |
|
|
$ |
(696 |
) |
|
$ |
(1,045 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2007, the Company recorded a pre-tax gain of $283,000
primarily due to the disposition of assets held for sale as part of the 2006 restructuring program.
Note 3. Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
June 30, |
|
|
July 1, |
|
|
Dec. 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
9,045 |
|
|
$ |
10,998 |
|
|
$ |
10,876 |
|
Work-in-process |
|
|
3,468 |
|
|
|
5,434 |
|
|
|
3,488 |
|
Finished goods |
|
|
17,244 |
|
|
|
23,946 |
|
|
|
17,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,757 |
|
|
|
40,378 |
|
|
|
32,090 |
|
LIFO reserve |
|
|
(3,633 |
) |
|
|
(3,204 |
) |
|
|
(3,423 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
26,124 |
|
|
$ |
37,174 |
|
|
$ |
28,667 |
|
|
|
|
|
|
|
|
|
|
|
8
Note 4. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
June 30, |
|
|
July 1, |
|
|
Dec. 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
$ |
925 |
|
|
$ |
2,231 |
|
|
$ |
925 |
|
Buildings and improvements |
|
|
26,023 |
|
|
|
34,830 |
|
|
|
25,989 |
|
Machinery and equipment |
|
|
39,442 |
|
|
|
52,298 |
|
|
|
41,059 |
|
Leasehold improvements |
|
|
635 |
|
|
|
984 |
|
|
|
1,059 |
|
Construction in progress |
|
|
84 |
|
|
|
666 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,109 |
|
|
|
91,009 |
|
|
|
69,148 |
|
Less accumulated depreciation
and amortization |
|
|
(49,363 |
) |
|
|
(61,634 |
) |
|
|
(49,936 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,746 |
|
|
$ |
29,375 |
|
|
$ |
19,212 |
|
|
|
|
|
|
|
|
|
|
|
Note 5. Assets Held for Sale
Assets held for sale consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
June 30, |
|
|
July 1, |
|
|
Dec. 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and buildings |
|
$ |
2,062 |
|
|
$ |
|
|
|
$ |
4,690 |
|
Machinery and equipment |
|
|
104 |
|
|
|
|
|
|
|
378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,166 |
|
|
$ |
|
|
|
$ |
5,068 |
|
|
|
|
|
|
|
|
|
|
|
Note 6. Accrued Liabilities
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
June 30, |
|
|
July 1, |
|
|
Dec. 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee-related benefits |
|
$ |
1,682 |
|
|
$ |
2,593 |
|
|
$ |
1,945 |
|
Compensation related |
|
|
859 |
|
|
|
502 |
|
|
|
408 |
|
Deferred compensation |
|
|
759 |
|
|
|
964 |
|
|
|
1,071 |
|
Sales commissions |
|
|
652 |
|
|
|
780 |
|
|
|
708 |
|
Other accrued liabilities |
|
|
2,442 |
|
|
|
3,439 |
|
|
|
3,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,394 |
|
|
$ |
8,278 |
|
|
$ |
7,534 |
|
|
|
|
|
|
|
|
|
|
|
9
Note 7. Employee Stock Ownership Plan
Chromcraft Revington sponsors a leveraged employee stock ownership plan (ESOP) that covers
substantially all employees who have completed six months of service. Chromcraft Revington makes
annual contributions to the ESOP Trust equal to the ESOP Trusts repayment of its loan from the
Company. As the ESOP loan is repaid, shares are released and allocated to ESOP accounts of active
employees based on the proportion of debt service paid in the year. Chromcraft Revington accounts
for its ESOP in accordance with AICPA Statement of Position 93-6, Accounting for Employee Stock
Ownership Plans. Accordingly, unearned ESOP shares are reported as a reduction of stockholders
equity as reflected in the Condensed Consolidated Statement of Stockholders Equity of the Company.
As shares are committed to be released, Chromcraft Revington reports compensation expense equal to
the current market price of the shares, and the shares become outstanding for earnings (loss) per
share computations. ESOP compensation expense, a non-cash charge, for the three and six months
ended June 30, 2007 was $142,000 and $286,000, respectively, compared to $215,000 and $438,000,
respectively, for the prior year periods. ESOP shares consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
June 30, |
|
|
July 1, |
|
|
Dec. 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated shares |
|
|
262 |
|
|
|
244 |
|
|
|
296 |
|
Committed to be released shares |
|
|
34 |
|
|
|
34 |
|
|
|
|
|
Unearned ESOP shares |
|
|
1,637 |
|
|
|
1,705 |
|
|
|
1,671 |
|
|
|
|
|
|
|
|
|
|
|
Total ESOP shares |
|
|
1,933 |
|
|
|
1,983 |
|
|
|
1,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned ESOP shares, at cost |
|
$ |
16,370 |
|
|
$ |
17,047 |
|
|
$ |
16,708 |
|
|
|
|
|
|
|
|
|
|
|
Fair value of unearned ESOP shares |
|
$ |
12,261 |
|
|
$ |
19,792 |
|
|
$ |
14,353 |
|
|
|
|
|
|
|
|
|
|
|
Note 8. Earnings per Share of Common Stock
Due to the net loss in the three and six months ended June 30, 2007, loss per share, basic and
diluted, are the same, as the effect of potential common shares would be antidilutive. For the
three and six months ended July 1, 2006, weighted average shares used in the calculation of diluted
earnings per share included dilutive potential common shares of approximately 61,000 and 62,000,
respectively.
Note 9. Income Taxes
The Company adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), on January 1, 2007. The
implementation of FIN 48 did not result in recognition of previously unrecognized tax benefits. At
January 1, 2007 and June 30, 2007, the Company had $270,000 of unrecognized tax benefits, all of
which would affect the effective tax rate if recognized.
The Company or its subsidiaries file federal and various state income tax returns. The Internal
Revenue Service concluded an examination of the Companys U.S. income tax return for the year ended
December 31, 2002, with no proposed adjustments. With few exceptions,
the Company is no longer subject to state or local income tax examinations by tax authorities for
years before 2003.
10
The Company recognizes interest and penalties related to unrecognized tax benefits as a component
of income tax expense in the consolidated financial statements. For the six months ended June 30,
2007, the Company recognized approximately $4,000 in interest and penalties.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Overview
In recent years, the furniture industry has rapidly shifted to a global supply chain. Global
manufacturers, primarily located in China and other Asian countries, have used substantially lower
labor costs and somewhat lower material costs to achieve a competitive advantage over U.S. based
manufacturers. As a result, many U.S. based furniture manufacturing plants have been closed. To
adapt to this new global reality, the Company is transforming its business model to compete in the
evolving furniture marketplace.
Chromcraft Revingtons business strategy is to develop consumer research based products utilizing
the global supply chain and build-to-order customization capabilities. The Company also is
changing its organization structure from decentralized operating businesses to a unified functional
organization and has added new senior management. Recently, the Company combined its residential
furniture sales and marketing organizations, launched new products using the global supply chain,
and outsourced certain products that were manufactured in the U.S. As the Company transforms its
business model and reduces its reliance on U.S. manufacturing, it has incurred inventory
write-downs, asset impairment charges, employee severance costs, and higher product development,
marketing and selling costs in the first half of 2007. Additional transition costs, reduced
revenue, increased operating expenses, restructuring charges and asset impairments will likely
occur.
The Company reported a net loss of $4.5 million for the six months ended June 30, 2007 as compared
to net earnings of $1.8 million for the prior year period. For the first half of 2007, operating
activities used cash of $3.1 million, which was partially offset by cash provided by investing
activities of $2.6 million generated from asset dispositions.
On June 22, 2007, the Company entered into a new revolving loan facility (Facility) with a bank
that allows the Company to borrow up to $35 million based on eligible accounts receivable and
inventories. The Facility is secured by substantially all of the assets of the Company and its
subsidiaries. At June 30, 2007, the Company had approximately $19.4 million in availability under
the Facility. The Facilitys only restrictive financial covenant is applicable when availability
under the Facility is below $5 million. The Facility expires in 2012. At June 30, 2007, the
Company had cash and cash equivalents of $7.9 million and no bank borrowings.
11
Results of Operations
The following table sets forth the Condensed Consolidated Statements of Operations of Chromcraft
Revington for the three and six months ended June 30, 2007 and July 1, 2006 expressed as a
percentage of sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
July 1, |
|
|
June 30, |
|
|
July 1, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
93.0 |
|
|
|
79.9 |
|
|
|
88.3 |
|
|
|
80.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
7.0 |
|
|
|
20.1 |
|
|
|
11.7 |
|
|
|
19.9 |
|
Selling, general and administrative expenses |
|
|
23.1 |
|
|
|
17.1 |
|
|
|
22.6 |
|
|
|
16.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(16.1 |
) |
|
|
3.0 |
|
|
|
(10.9 |
) |
|
|
3.6 |
|
Interest (income) expense, net |
|
|
(0.1 |
) |
|
|
0.2 |
|
|
|
(0.1 |
) |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income tax
expense (benefit) |
|
|
(16.0 |
) |
|
|
2.8 |
|
|
|
(10.8 |
) |
|
|
3.4 |
|
Income tax expense (benefit) |
|
|
(5.9 |
) |
|
|
1.1 |
|
|
|
(4.1 |
) |
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
|
(10.1 |
)% |
|
|
1.7 |
% |
|
|
(6.7 |
)% |
|
|
2.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales for the three and six months ended June 30, 2007 of $32.8 million and $66.6 million,
respectively, represented a decrease of 18.7% and 22.8%, respectively, from the same periods last
year. Residential furniture shipments in 2007 were lower due to an industry-wide slow down at the
retail level, competitive pressure from imports, and the impact of restructuring the Companys
residential sales force to exclusive sales representation of its furniture brands. Commercial
furniture shipments rose in 2007 as compared to the prior year primarily due to higher shipments of
seating products. Consolidated shipments in the second quarter of 2007 included $3.3 million of
backlog reduction. The consolidated sales decrease for 2007 was primarily due to lower unit
volume.
Earlier this year the Company restructured and realigned its residential sales organizations. As
part of its ongoing transformation, the Company combined its residential sales management and
shifted to exclusive sales representation of its brands. In the past, the Company used multi-line
independent representatives who carried other furniture companies products. These sales
representatives were managed by separate divisions of Chromcraft Revington. This divisional
structure made it difficult for the Company to coordinate activities between its brands.
Gross margin for the three and six months ended June 30, 2007 decreased $5.8 million and $9.3
million, respectively, from the same periods in the prior year. The lower gross margin in 2007 is
primarily due to the lower sales volume, an unfavorable product sales mix and costs associated with
the transformation of the Company to a new business model. The lower sales volume resulted in a
reduced domestic production level, which impacted fixed cost absorption and manufacturing
variances. In the second quarter, the Company recorded inventory write-downs of $2.0 million
pre-tax, to reflect anticipated net realizable value on disposition, and asset impairment charges
of $1.1 million pre-tax to reduce the carrying value of long term assets to fair value. These
charges were due, in part, to transitioning the Companys business to a global supply chain.
12
Selling, general and administrative expenses as a percentage of sales were 23.1% and 22.6%,
respectively, for the three and six months ended June 30, 2007, compared to 17.1% and 16.3%,
respectively, for the same periods last year. The higher percentage in the 2007 periods was
primarily due to fixed selling and administrative costs spread over a lower sales volume. The
Company also incurred higher product development, marketing and selling costs in 2007 primarily to
support its new focus on consumer research based products. In addition, compensation related
expenses, including employee severance costs, were higher in the three and six months ended June
30, 2007 compared to the same periods in the prior year.
Net interest income for the three and six months ended June 30, 2007 was $22,000 and $40,000,
respectively, as compared to net interest expense of $53,000 and $130,000, respectively, for the
same periods in 2006. The higher interest income for the three and six months ended June 30, 2007
was due to an increase in available funds for investment as compared to the year earlier periods.
Chromcraft Revingtons effective income tax (benefit) rate for the three and six months ended June
30, 2007 was (37.2)% and (37.9)%, respectively, as compared to 40.7% and 38.8%, respectively, for
the same periods in 2006. The lower effective tax rate in 2007 was primarily due to a lower state
tax (benefit) and the impact of the deductibility of book items for tax purposes.
Liquidity and Capital Resources
Operating activities of the Company used $3.1 million of cash for the six months ended June 30,
2007, a decrease of $6.6 million from the prior year period. The decrease in cash from operating
activities was primarily due to the net loss in 2007. The Company anticipates a tax operating loss
for 2007 and plans to carry back its tax loss to taxable income years for a refund of taxes paid in
2006 and 2005. At June 30, 2007, the Company recorded refundable income taxes of $2.3 million,
which are expected to be received in 2008.
Investing activities generated cash of $2.6 million for the six months ended June 30, 2007 as
compared to $.8 million of cash used in the prior year period. During the first six months of
2007, the Company received cash proceeds of $2.9 million on asset dispositions. Cash used for
capital expenditures was $.4 million during the first six months of 2007, as compared to $.8
million spent during the same period last year. The Company plans to implement new enterprise
resource planning application software beginning in 2007. Vendor selection and costs have not been
determined for this project; however, the Company expects that capital expenditures in 2007 will
exceed the prior year amount.
On June 22, 2007, the Company entered into a new revolving loan facility with a bank (Facility)
that provides for a maximum line of credit of $35 million based on eligible accounts receivable and
inventories. The Facility is secured by substantially all of the assets of the Company and its
subsidiaries. At June 30, 2007, the Company had $19.4 million in availability under the Facility,
which reflects a $1.3 million reduction for a letter of credit outstanding in connection with a
self-insured workers compensation program. Interest rates under the Facility are determined at the
time of borrowing, at the Companys option, at either the banks prime rate or the London Interbank
Offered Rate (LIBOR). The Facility contains one restrictive financial covenant, which is
applicable when availability under the Facility is below $5 million. The Facility expires in 2012
and there were no borrowings outstanding at June 30, 2007.
13
The Companys primary sources of liquidity are cash on hand, availability under the Facility and
cash proceeds from asset dispositions. Management believes that these cash resources are adequate
to meet its short and long term liquidity requirements.
Recently Issued Accounting Standards
In September 2006, FASB issued Statement of Financial Accounting Standards No. 157, Fair Value
Measurements (FAS 157), which is effective prospectively for the fiscal year beginning after
November 15, 2007. FAS 157 provides a single authoritative definition of fair value, a framework
for measuring fair value, and requires additional disclosure about fair value measurements.
Although the Company has not completed its analysis of FAS 157, it is not expected to have a
material impact.
In February 2007, FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities including an amendment of FASB No. 115
(FAS 159), which is effective prospectively for the fiscal year beginning after November 15,
2007. FAS 159 permits entities to measure many financial instruments and certain other items at
fair value, expanding the use of fair value measurement consistent with FAS No. 157. Although the
Company has not completed its analysis of FAS 159, it is not expected to have a material impact.
Forward-Looking Statements
Certain information and statements contained in this report, including, without limitation, in the
section captioned Managements Discussion and Analysis of Financial Condition and Results of
Operations, are forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements can be generally identified as such because
they include future tense or dates, or are not historical or current facts, or include words such
as believes, may, expects, intends, plans, anticipates, or words of similar import.
Forward-looking statements are not guarantees of performance or outcomes and are subject to certain
risks and uncertainties that could cause actual results or outcomes to differ materially from those
reported, expected, or anticipated as of the date of this report.
Among the risks and uncertainties that could cause actual results or outcomes to differ materially
from those reported, expected or anticipated are general economic conditions; import and domestic
competition in the furniture industry; ability of the Company to execute its business strategies
and implement its new business model; market interest rates; consumer confidence levels; cyclical
nature of the furniture industry; consumer and business spending; changes in relationships with
customers; customer acceptance of existing and new products; new home and existing home sales;
other factors that generally affect business; and the risk factors set forth in this Form 10-Q and
the Companys annual report on Form 10-K for the year ended December 31, 2006.
The Company does not undertake any obligation to update or revise publicly any forward-looking
statements to reflect information, events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events or circumstances.
14
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company had no bank indebtedness in the second quarter of 2007 and, therefore, no interest rate
risk.
The Company sources certain raw materials and finished furniture, primarily from China. These
purchases are fixed price contracts payable in U.S. dollars and, therefore, the Company has no
material foreign exchange rate risk exposure.
During the three months ended June 30, 2007, certain inventories were written down to anticipated
net realizable value, and assets held for sale were recorded at fair value. These assets are
subject to market changes, which may require the Company to make further write-downs or may result
in further impairments.
Item 4. Controls and Procedures
Chromcraft Revingtons principal executive officer and principal financial officer have concluded,
based upon their evaluation, that the Companys disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended), were effective as of the end
of the period covered by this Form 10-Q.
There have been no significant changes in Chromcraft Revingtons internal control over financial
reporting that occurred during the second quarter of 2007 that may have materially affected, or are
reasonably likely to materially affect, Chromcraft Revingtons internal control over financial
reporting.
PART II.
Item 1A. Risk Factors
We may have difficulty returning to profitability.
The Company incurred an operating loss for the three and six months ended June 30, 2007. The
Company will need to increase sales, reduce expenses, and/or improve manufacturing processes in
order to return to profitability in future periods.
We may not be able to effectively source our products competitively.
The continued transformation of our business model will require enhanced global sourcing
capabilities. To respond to competitive pressures and customer requirements, the Company will need
to develop new and better products and source effectively in lower labor cost areas, such as China.
Without an improvement in these capabilities, sales and operating results can be negatively
impacted.
15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table represents information with respect to shares of Chromcraft Revington common
stock repurchased by the Company during the quarter ended June 30, 2007.
Purchase of Equity Securities
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Total number |
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Maximum number |
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of shares |
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(or approximate |
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purchased as |
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dollar value) of |
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Total |
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Average |
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part of publicly |
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shares that may yet |
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number |
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price |
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announced |
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be purchased |
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of shares |
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paid |
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plans or |
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under the plans or |
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Period |
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purchased |
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per share |
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programs |
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programs (1) |
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April 1, 2007 to April 28, 2007 |
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702,965 |
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April 29, 2007 to May 26, 2007 |
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702,965 |
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May 27, 2007 to June 30, 2007 |
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702,965 |
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Total |
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(1) |
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The Company has maintained a share repurchase program since 1997, which has no
expiration date. |
Item 4. Submission of Matters to a Vote of Security Holders
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(a) |
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Chromcraft Revington held its annual meeting of stockholders on May 9, 2007. |
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(b) |
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All directors nominated were elected to serve until the next annual meeting of
stockholders and until their successors are duly elected and qualified. Set forth below
are the votes cast for each director. |
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Votes |
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Directors |
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For |
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Withheld |
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Benjamin M. Anderson-Ray |
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5,000,704 |
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490,566 |
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Ronald H. Butler |
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5,012,416 |
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478,854 |
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John R. Hesse |
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5,014,689 |
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476,581 |
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David L. Kolb |
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5,012,140 |
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479,130 |
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Larry P. Kunz |
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5,015,949 |
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475,321 |
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Theodore L. Mullett |
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4,792,509 |
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698,761 |
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Craig R. Stokely |
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5,011,509 |
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479,761 |
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John D. Swift |
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5,014,246 |
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477,024 |
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16
|
(c) |
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The following matter also was voted upon at the annual meeting of stockholders. Set
forth below is the vote tabulation regarding such matter. |
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Votes Cast |
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Broker |
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For |
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Against |
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Abstain |
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Non-vote |
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Approval of the
Chromcraft Revington,
Inc. |
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Executive Incentive Plan |
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3,235,082 |
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1,810,491 |
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5,814 |
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439,883 |
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Item 5. Other Information
On June 22, 2007, the Company entered into a new revolving loan facility with Bank of America, N.A.
(Facility) that provides for a maximum line of credit of $35 million based on eligible accounts
receivable and inventories. The Facility is secured by substantially all of the assets of the
Company and its subsidiaries. At June 30, 2007 the Company had $19.4 million in availability under
the Facility, which reflects a $1.3 million reduction for a letter of credit outstanding in
connection with a self-insured workers compensation program. Interest rates under the Facility are
determined at the time of borrowing, at the Companys option, at either the banks prime rate or
the London Interbank Offered Rate (LIBOR). The Facility contains one restrictive financial
covenant, which is applicable when availability under the Facility is below $5 million. The
Facility expires in 2012 and there were no borrowings outstanding at June 30, 2007.
At the annual meeting of stockholders held on May 9, 2007, the Companys 2007 Executive Incentive
Plan was approved, effective January 1, 2007. A brief description of the
material terms and conditions of the plan was
included in the Companys proxy statement relating to its 2007 annual meeting on pages 5 through 13
under the caption Item 2 Approval of the 2007 Executive Incentive Plan and is incorporated
into this report by reference.
The foregoing descriptions of
the Facility and the 2007 Executive Incentive Plan
are qualified in their entirety by reference to the entire documents included or incorporated by
reference as exhibits to this report.
17
Item 6. Exhibits
3.1 |
|
Certificate of Incorporation of the Registrant, as amended, filed as Exhibit 3.1 to Form S-1,
registration number 33-45902, as filed with the Securities and Exchange Commission on February
21, 1992, is incorporated herein by reference. |
|
3.2 |
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By-laws of the Registrant, as amended, filed as Exhibit 3.2 to Form 8-K, as filed with the
Securities and Exchange Commission on December 12, 2005, is incorporated herein by reference. |
|
10.21 |
|
Loan and Security Agreement, dated June 22, 2007, between the Registrant, CR Chromcraft,
Inc., CR Home Occasional, Inc., CR Home, Inc., and Bank of America, N.A. (filed herewith). |
|
10.57 |
|
Chromcraft Revington, Inc. 2007 Executive Incentive Plan, effective January 1, 2007, filed
as Appendix A to the Registrants Proxy Statement dated
April 11, 2007, is incorporated herein by reference. |
|
31.1 |
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Certification of Chief Executive Officer required pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
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31.2 |
|
Certification of Chief Financial Officer required pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
|
32.1 |
|
Certifications of Chief Executive Officer and Chief Financial Officer required pursuant to 18
U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Chromcraft Revington, Inc. has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Chromcraft Revington, Inc.
(Registrant)
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Date: August 13, 2007 |
By: |
/s/ Frank T. Kane
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Frank T. Kane |
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Sr. Vice President-Finance and
Chief Financial Officer
(duly authorized officer and principal
accounting and financial officer) |
|
|
18