Filed by Bowne Pure Compliance
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|
|
|
þ |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
or
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
_____
to
_____
Commission file number 1-13970
CHROMCRAFT REVINGTON, INC.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
35-1848094 |
|
|
|
(State or other jurisdiction of
|
|
(IRS Employer Identification No.) |
incorporation or organization) |
|
|
1330 Win Hentschel Blvd., Suite 250, West Lafayette, IN 47906
(Address, including zip code, of registrants principal executive offices)
(765) 807-2640
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
|
|
Name of each |
Title of each class
|
|
exchange on which registered |
|
|
|
Common Stock, $.01 par value
|
|
American Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
Large accelerated filer
o |
|
Accelerated filer o |
|
Non-accelerated filer o
|
|
Smaller Reporting Company
þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of March 1, 2008 there were 6,172,609 shares of the registrants common stock ($.01 par value)
outstanding. The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 2007, the last business day of the registrants most recently completed
second fiscal quarter, was $33.1 million (based upon the closing price of the registrants common
stock, as reported by the American Stock Exchange).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the annual meeting of stockholders to be held May 8, 2008 are
incorporated by reference into Part III of this Form 10-K.
PART I
Item 1. Business
General
Chromcraft Revington, Inc., incorporated in 1992, is engaged in the design, import,
manufacture and marketing of residential and commercial furniture (Chromcraft Revington or the
Company). Chromcraft Revington is headquartered in West Lafayette, IN with furniture
manufacturing, warehousing and distribution operations in Delphi, IN, Senatobia, MS and Lincolnton,
NC.
The furniture industry has rapidly shifted to a global supply chain and foreign 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. In
addition, the residential furniture market is currently experiencing a slow down in retail activity
and may be in recession. The commercial furniture market is experiencing a similar slow down.
The Company is adapting to these competitive market conditions by shifting its business toward
use of the global supply chain and transitioning its U.S. based operations to built-to-order
customization and distribution activities. As part of this transition, the Company has
consolidated and shut down facilities, reduced employment levels, expanded its Asian sourcing and
supply chain operations and is progressively outsourcing existing furniture lines and developing
new products utilizing the global supply chain. At the same time, the Company is also changing its
organizational structure from autonomous operating divisions to a unified functional organization
and transitioning its management and staffing to support the new business model.
In 2007, the Company consolidated its residential sales force, product development and
marketing functions, combined its product showrooms and launched new products using extensive
consumer research. The Company also launched an umbrella identity program for its residential
business under the CR-Home brand name. All new product launches were based on expanded use of
global purchasing including products that offer consumer customization. The Company also
outsourced a number of previously domestically made products as part of its transition to the new
business model. The Companys supply chain, operations and other administrative areas are also in
the process of transitioning to a centralized management structure and developing management
processes to support the more unified approach. In addition, the Company has established an Asian
based sourcing and quality control function to enhance its procurement, vendor management, supply
chain flow and quality of sourced goods. To support the unified operating model, the Company began
the process of consolidating its multiple divisionally-based legacy information technology systems.
In 2006, the Company began implementing a restructuring program that included the shut down,
relocation, consolidation and outsourcing of certain manufacturing and distribution operations.
The purposes of the restructuring were to improve the utilization of a global supply chain, to
reduce fixed costs and to redeploy assets. Two manufacturing plants and one stand-alone
distribution center were closed in 2006. Most of these idle assets, including buildings and
equipment, were sold in 2007.
1
The Company, as part of its transformation to a new business model, has incurred asset
impairment charges, inventory write-downs, plant shut down costs, employee severance costs and
other restructuring related costs, and has reported operating losses in 2007 and 2006. Additional
transition costs, reduced revenue, increased operating expenses, restructuring charges and asset
impairments will likely occur as the Company continues its transformation. Continued outsourcing
of domestically made products and development of an optimized distribution and logistics capability
will result in additional transition costs in 2008 and potentially beyond. The Company believes
that the shift in its business model will provide a more competitive business model of import and
U.S. customization capabilities. Also, the new business model is expected to have a more variable
cost structure, which the Company anticipates will provide greater flexibility in competing in the
furniture industry.
On March 25, 2008, the board of directors approved a restructuring plan to cease furniture
manufacturing at the Companys Delphi, IN location effective May 30, 2008 and to outsource the
products made at this facility to overseas suppliers. The purposes of the restructuring are to
improve the utilization of the global supply chain, to enhance competitiveness, to improve
operating margins, to reduce fixed costs and to redeploy assets. The Company plans to continue its
Delphi distribution and warehouse operation, sell the manufacturing equipment and layoff
approximately 150 associates at this site. The Company expects to incur total restructuring costs
and related asset impairment charges of approximately $1.5 million to $2.0 million pre-tax. Most
of these charges are expected to be recorded in the first half of 2008.
Certain Risks
There are various risks that are currently affecting the Companys business and its ability to
return to profitability, including, among others, the following:
|
|
|
Competition from a number of foreign and domestic manufacturers that are larger
and have greater resources than the Company; |
|
|
|
The Companys ability to adapt to the continuing shift in the U.S. furniture
industry from domestic based manufacturing to foreign sourced products as well as the
realignment of distribution channels and customer buying patterns from primarily
traditional furniture stores to include specialty/lifestyle stores and internet sales; |
|
|
|
Uncertainties associated with the Companys increased reliance on foreign
sourced products, such as the ability to purchase goods that meet our manufacturing and
quality specifications at acceptable prices and delivery schedules, the political
stability in the countries where the Company sources products and the value of the U.S.
dollar against other foreign currencies; |
|
|
|
The current downturn in the economy and its impact on the retail environment
resulting in a decrease in the Companys sales volume and/or profit margins; |
|
|
|
The successful implementation of the Companys transformed business model and
the realization of the intended benefits from the new model; |
2
|
|
|
The Companys ability to increase sales by adding new customers, or increase
market share, and to sell the right mix of products; |
|
|
|
The Companys ability to develop new products with high customer acceptance
levels; |
|
|
|
The loss of customers, whether due to customers purchasing products of one of
the Companys competitors or customers going out of business; |
|
|
|
The ability of the Companys customers to source products directly from foreign
manufacturers; |
|
|
|
The Companys ability to maintain adequate liquidity from available cash and
bank financing in the near term; and |
|
|
|
The impact of additional asset impairments and inventory write-downs as the
Company transitions to its new business model. |
Products
The Company markets its residential furniture products under the CR-Home banner with
Chromcraft, Peters-Revington, Cochrane, Sumter and Silver as brand names. The Chromcraft
brand is also used in the commercial furniture markets. Each brand is focused on serving the
unique consumer and end-user needs of specific market niches within larger product categories.
These include occasional, bedroom, dining room, upholstered and commercial furniture.
In 2007, the Company began using extensive consumer research to develop new residential
furniture products and marketing information for retail dealers. The research uses consumer
surveys for feedback on product development including color, fabric, texture, finishes and product
construction features.
Occasional Furniture
Three of the Companys brands supply occasional furniture from entry to mid-to-upper price
points primarily to independent and regional furniture retailers. Occasional furniture includes
coffee tables, end tables and sofa tables. Occasional furniture collections may also include
coordinating furniture items such as entertainment storage cabinets, library and modular wall units
and other accent pieces. Occasional furniture is manufactured using a wide assortment of materials
including solid hardwoods, veneers, printed fiberboard, metals, glass, natural stone, leathers and
other materials.
The Peters-Revington and Silver brands are uniquely focused on the occasional furniture
category and offer a broad assortment of occasional furniture. The brands have various
collections with extensive item selection incorporating common designs and styling elements.
Occasional furniture is manufactured and sourced globally to provide a variety of products for the
brands. The brands provide products based on a wide range of consumer lifestyle-based needs from
traditional American and European styles to more contemporary urban fusion designs. Imported
occasional tables generally require some assembly by a retailer or consumer. Some occasional table
collections include coordinating upholstery products. Also, certain imported furniture is sold to
retailers by direct container delivered to the retailer from an overseas supplier.
3
Occasional furniture is marketed under the Cochrane brand in coordination with its exposed
wood upholstered products. This provides consumers and retailers with a unique combination of
built-to-order upholstered products and style coordinating occasional furniture room groupings.
Cochranes occasional products are sold at mid-market price points.
Bedroom Furniture
Bedroom furniture includes bed frames, dressers, night stands, entertainment armoires and
mirrors in a wide range of styles. Bedroom furniture is constructed using solid hardwoods and
veneers.
The Cochrane brand focuses on mid-priced and customized bedroom collections. The Cochrane
brand also includes a range of inventoried bedroom styles to provide a wider selection within its
collections.
The Sumter brand is positioned to serve the mid-to-upper price points offering premium
construction and larger scale bedroom furniture.
Dining Room Furniture
The Company manufactures and markets formal and casual dining furniture for use in dining
rooms, great rooms, kitchens and hearth rooms. Dining room furniture includes a broad line of
tables, armed and side chairs, buffets and china cabinets in a wide range of designs. Three of the
brands provide products in these niches.
The Chromcraft brand offers metal, wood and mixed media casual dining furniture. The product
line consists primarily of dining tables and stationary or tilt-swivel chairs. Certain casual
dining sets have matching barstools and china cabinets. Chairs are upholstered in a variety of
fabrics and vinyls, while tables are manufactured from metal, wood, glass, faux marble and other
materials and come in a variety of shapes. Most casual dining furniture is custom-ordered by the
retailer or end consumer. The Chromcraft brand products are manufactured in a U.S. production
facility and imported. Chromcrafts casual dining furniture is offered in a wide range of designs
from contemporary to traditional styling and is sold at medium price points.
The Sumter brand offers formal dining room furniture in solid wood. It is focused on serving
the needs of upper-end consumers with traditional craftsman construction and features. The
products are designed in traditional and transitional styles and are positioned at mid-to-higher
price points.
The Cochrane brand provides custom-design wood casual dining room furniture. Under this
program, consumers can personalize their dining tables, chairs and china cabinets by selecting from
a kiosk unit various wood finishes and styling, chair fabrics, hardware, accent finishes and table
sizes and shapes. Custom-design dining room furniture is manufactured in solid wood and sold at
mid-to-higher price points. The brand also includes more traditional dining room furniture sets to
provide a wide range of consumer choice.
Upholstered Furniture
Cochrane upholstered products include sofas, chairs and ottomans in a range of designs for
different consumer lifestyles. The brand offers a wide range of built-to-order upholstered products
and allows consumer choice of fabrics and construction style. Upper end construction features are
incorporated and the products are positioned at mid-market price points.
4
Commercial Furniture
Commercial furniture products are sold under the Chromcraft brand and include office chairs,
conference, meeting room and training tables, and lounge-area seating furniture for airports and
other public waiting areas. Office chairs are offered in various grades and colors of fabric or
leather and include executive, ergonomic and computer task models. Also, a limited number of
commercial chairs are imported to broaden product offerings. Chromcraft commercial brand furniture
mainly sells at mid-market price points and is marketed primarily through commercial dealers.
Sales and Distribution
In 2007, the Company consolidated its residential sales management and shifted to an exclusive
sales representation of its brands. In the past, the Company used multi-line independent
representatives who sold other furniture companies products. These residential sales
representatives were managed by separate divisions of Chromcraft Revington. Commercial furniture
is still primarily sold through multi-line independent sales representatives.
There are many channels of furniture distribution including independent furniture stores,
national and regional chains, office furniture stores, rental/rent-to-own stores,
specialty/lifestyle stores, department stores, catalogs, wholesale clubs and manufacturer dedicated
stores. The Company markets and sells its residential furniture primarily to independent furniture
retailers and regional furniture chains. Chromcrafts commercial furniture is sold primarily to
office furniture dealers, wholesalers, distributors, furniture rental stores and contract
customers.
The Company has several thousand active customer accounts. Major customers include Nebraska
Furniture Mart, Jordans, American, Rooms To Go and Aarons. No material amount of Chromcraft
Revingtons sales is dependent upon a single customer. Sales outside the U.S. represent less than
one percent of total sales.
Competition
The furniture industry is highly fragmented. The Company encounters intense domestic and
foreign import competition in the sale of all its products. The Company encounters competition
from a number of foreign and domestic manufacturers that are larger than the Company and have
greater resources than the Company. In recent years, manufacturers in China and other Asian
countries, which benefit from lower labor costs, have significantly increased shipments into the
U.S. Many of the Companys competitors, some of which are larger and have greater financial
resources, produce a number of products which are not competitive with the Companys products. In
many cases, such companies do not disclose the portion of their sales attributable to products
similar to those manufactured by the Company. It is, therefore, impractical to state with any
certainty the Companys relative position in a particular product line. Competition in the
Companys products is in the form of the quality of its products, service and selling prices.
5
Manufacturing and Global Sourcing
The Company has several manufacturing and warehousing facilities in the U.S. to supply
products. Wood and metal working plants include machining, finishing and assembly operations. The
Companys upholstered furniture operations include chair foam production, cutting and sewing
operations.
In recent years, the Company has increased imports of furniture components and finished
furniture from lower labor cost areas to supplement the Companys domestic furniture manufacturing.
The Company uses agents and Company personnel to purchase furniture parts and finished furniture
from suppliers primarily located in China, Vietnam and the Philippines. Suppliers are selected by
their ability to provide high quality products on a timely basis and at competitive prices. Agents
and Company personnel perform quality control inspections at supplier locations. The Company
maintains a purchasing and quality control inspection office in China.
Imported furniture is purchased in U.S. dollars and, as a result, Chromcraft Revington is not
subject to foreign currency exchange risk.
Raw Materials
The major raw materials used in manufacturing are wood, steel, fabrics, glass, chair
mechanisms, fiberboard, finishing materials, hardware, cartons and foam for upholstered furniture.
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 2007.
Inventory and Seasonal Requirements
The Company maintains finished goods inventories for occasional, dining room and bedroom
furniture in order to respond quickly to customer delivery needs. Most custom-designed casual
dining room furniture, upholstered furniture and commercial furniture is made to customer
specifications and, therefore, is not carried in stock. A limited number of commercial furniture
items are maintained for quick delivery programs.
Over the last several years, the Company has increased its overseas purchases of furniture
parts and finished furniture. As a result, the Company has increased its raw material and finished
goods inventory levels for certain product lines in order to accommodate the longer delivery times
and, in some cases, to obtain quantity price discounts.
Sales have historically not been subject to material seasonal fluctuations.
Environment
Chromcraft Revington believes it is in compliance in all material respects with all federal,
state and local environmental laws and regulations which impose limitations on the discharge of
pollutants into the environment and establish standards for the treatment of hazardous wastes.
6
Patents
The Company has several commercial chair design patents, none of which are considered material
to the business.
Associates
The Company employs a total of approximately 750 people. None of the associates are
represented by a collective bargaining agreement.
Additional Information
Chromcraft Revington files annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission (SEC). Stockholders may inspect and copy
these materials at the Public Reference Room maintained by the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on the
operation of the Public Reference Room. The SEC maintains an Internet site that contains reports,
proxy and information statements and other information regarding issuers that file electronically
with the SEC. The address of the site is http://www.sec.gov. Copies of the Companys
annual, quarterly and current reports are available to stockholders without charge upon written
request to: Corporate Secretary, Chromcraft Revington, Inc., 1330 Win Hentschel Blvd., Suite 250,
West Lafayette, IN 47906.
Item 2. Properties
The following table summarizes the Companys principal facilities as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Square |
|
|
|
|
|
|
Owned/ |
Location |
|
Feet |
|
|
Operations |
|
Product |
|
Lease |
|
|
|
|
|
|
|
|
|
|
|
West Lafayette, IN
|
|
|
4,000 |
|
|
Headquarters
|
|
|
|
Lease |
|
|
|
|
|
|
|
|
|
|
|
Delphi, IN
|
|
|
519,000 |
|
|
Manufacturing/warehousing
|
|
Occasional/upholstery
|
|
Owned |
|
|
|
|
|
|
|
|
|
|
|
Lincolnton, NC
|
|
|
368,000 |
|
|
Manufacturing/warehousing
|
|
All residential categories
|
|
Owned |
|
|
|
|
|
|
|
|
|
|
|
Lincolnton, NC
|
|
|
159,000 |
|
|
Warehousing
|
|
All residential categories
|
|
Owned |
|
|
|
|
|
|
|
|
|
|
|
Senatobia, MS
|
|
|
560,000 |
|
|
Manufacturing/warehousing
|
|
Dining Room/commercial
|
|
Owned |
|
|
|
|
|
|
|
|
|
|
|
Highpoint, NC, Las
Vegas, NV
|
|
|
|
|
|
|
|
|
|
|
and
Chicago, IL
|
|
|
53,000 |
|
|
Showrooms
|
|
|
|
Lease |
Chromcraft Revington also leases trucks, trailers and other transportation equipment.
Management believes its properties and equipment are maintained in good operating condition and are
adequate to support present operations. The Company is not utilizing all of its productive
capacity.
Item 3. Legal Proceedings
None.
7
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
|
|
|
Item 5. |
|
Market for the
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Chromcraft Revingtons common stock is traded on the American Stock Exchange under the ticker
symbol CRC. The following table sets forth the high and low prices of the common stock, as
reported by the American Stock Exchange, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
$ |
9.95 |
|
|
$ |
8.03 |
|
|
$ |
13.52 |
|
|
$ |
12.61 |
|
Second quarter |
|
|
9.64 |
|
|
|
7.35 |
|
|
|
13.62 |
|
|
|
11.60 |
|
Third quarter |
|
|
7.60 |
|
|
|
4.67 |
|
|
|
11.89 |
|
|
|
9.55 |
|
Fourth quarter |
|
|
5.43 |
|
|
|
4.25 |
|
|
|
9.95 |
|
|
|
7.80 |
|
As of March 1, 2008, there were approximately 247 security holders of record of Chromcraft
Revingtons common stock. Chromcraft Revingtons bank credit agreement does restrict the payment
of cash dividends, and the Company does not intend to pay cash dividends in the foreseeable future.
On March 20, 2008, the closing price of Chromcraft Revingtons common stock was $4.53 as reported
by the American Stock Exchange.
Equity Compensation Plan Information
The following table provides certain information as of December 31, 2007 with respect to the
Companys equity compensation plans under which equity securities of the Company are authorized for
issuance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
securities to |
|
|
Weighted |
|
|
|
|
|
|
be issued |
|
|
average |
|
|
|
|
|
|
upon exercise |
|
|
exercise price |
|
|
|
|
|
|
of outstanding |
|
|
of outstanding |
|
|
|
|
|
|
options, |
|
|
options, |
|
|
Number of |
|
|
|
warrants and |
|
|
warrants and |
|
|
securities |
|
Plan Category |
|
rights |
|
|
rights |
|
|
remaining (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans approved by
security holders (2) |
|
|
549,976 |
|
|
$ |
11.82 |
|
|
|
526,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by security holders
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
549,976 |
|
|
$ |
11.82 |
|
|
|
526,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Available for future issuance under equity compensation plans
(excluding securities reflected in the first column). |
|
(2) |
|
Includes the Chromcraft Revington, Inc. 2007 Executive Incentive
Plan and the Directors Stock Plan of Chromcraft Revington, Inc. |
|
(3) |
|
The Company has no equity compensation plan that has not been
authorized by its stockholders. |
8
Purchases of Equity Securities by the Issuer
The following table represents information with respect to shares of Chromcraft Revington
common stock repurchased by the Company during the three months ended December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
number (or |
|
|
|
|
|
|
|
|
|
|
|
Total number of |
|
|
approximate |
|
|
|
|
|
|
|
|
|
|
|
shares |
|
|
dollar value) of |
|
|
|
|
|
|
|
|
|
|
|
purchased as |
|
|
shares that may |
|
|
|
|
|
|
|
|
|
|
|
part of publicly |
|
|
yet be |
|
|
|
Total number of |
|
|
|
|
|
|
announced |
|
|
purchased |
|
|
|
shares |
|
|
Average price |
|
|
plans or |
|
|
under the plans |
|
Period |
|
purchased |
|
|
paid per share |
|
|
programs |
|
|
or programs (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1, 2007 to
October 27, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
702,965 |
|
|
October 28, 2007 to
November 24,
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
702,965 |
|
|
November 25, 2007 to
December 31,
2007 |
|
|
867 |
|
|
$ |
4.84 |
|
|
|
867 |
|
|
|
702,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
867 |
|
|
$ |
4.84 |
|
|
|
867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company has maintained a share repurchase program since 1997. |
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
The furniture industry has rapidly shifted to a global supply chain and foreign 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. In
addition, the residential furniture market is currently experiencing a slow down in retail activity
and may be in recession. The commercial furniture market is experiencing a similar slow down.
The Company is adapting to these competitive market conditions by shifting its business toward
use of the global supply chain and transitioning its U.S. based operations to built-to-order
customization and distribution activities. As part of this transition, the Company has
consolidated and shut down facilities, reduced employment levels, expanded its Asian sourcing and
supply chain operations and is progressively outsourcing existing furniture lines and developing
new products utilizing the global supply chain. At the same time, the Company is also changing its
organizational structure from autonomous operating divisions to a unified functional organization
and transitioning its management and staffing to support the new business model.
9
In 2007, the Company consolidated its residential sales force, product development and
marketing functions, combined its product showrooms and launched new products using extensive
consumer research. The Company also launched an umbrella identity program for its residential
business under the CR-Home brand name. All new product launches were based on expanded use of
global purchasing including products that offer consumer customization. The Company also
outsourced a number of previously domestically made products as part of its transition to the new
business model. The Companys supply chain, operations and other administrative areas are also in
the process of transitioning to a centralized management structure and developing management
processes to support the more unified approach. In addition, the Company has established an Asian
based sourcing and quality control function to enhance its procurement, vendor management, supply
chain flow and quality of sourced goods. To support the unified operating model, the Company began
the process of consolidating its multiple divisionally-based legacy information technology systems.
In 2006, the Company began implementing a restructuring program that included the shut down,
relocation, consolidation and outsourcing of certain manufacturing and distribution operations.
The purposes of the restructuring were to improve the utilization of a global supply chain, to
reduce fixed costs and to redeploy assets. Two manufacturing plants and one stand-alone
distribution center were closed in 2006. Most of these idle assets, including buildings and
equipment, were sold in 2007.
The Company, as part of its transformation to a new business model, has incurred asset
impairment charges, inventory write-downs, plant shut down costs, employee severance costs and
other restructuring related costs, and has reported operating losses in 2007 and 2006. Additional
transition costs, reduced revenue, increased operating expenses, restructuring charges and asset
impairments will likely occur as the Company continues its transformation. Continued outsourcing
of domestically made products and development of an optimized distribution and logistics capability
will result in additional transition costs in 2008 and potentially beyond. The Company is also
subject to market, competitive and other risks as more fully described in Part I, Item 1. under the
caption Certain Risks, which is incorporated herein by reference. The Company believes that the
shift in its business model will provide a more competitive business model of import and U.S.
customization capabilities. Also, the new business model is expected to have a more variable cost
structure, which the Company anticipates will provide greater flexibility in competing in the
furniture industry.
On March 25, 2008, the board of directors approved a restructuring plan to cease furniture
manufacturing at the Companys Delphi, IN location effective May 30, 2008 and to outsource the
products made at this facility to overseas suppliers. The purposes of the restructuring are to
improve the utilization of the global supply chain, to enhance competitiveness, to improve
operating margins, to reduce fixed costs and to redeploy assets. The Company plans to continue its
Delphi distribution and warehouse operation, sell the manufacturing equipment and layoff
approximately 150 associates at this site. The Company expects to incur total restructuring costs
and related asset impairment charges of approximately $1.5 million to $2.0 million pre-tax. Most
of these charges are expected to be recorded in the first half of 2008.
10
Results of Operations
The table below sets forth the results of operations of Chromcraft Revington for the years
ended December 31, 2007 and 2006 expressed as a percentage of sales:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
88.0 |
|
|
|
85.3 |
|
|
|
|
|
|
|
|
Gross margin |
|
|
12.0 |
|
|
|
14.7 |
|
Selling, general and administrative
expenses |
|
|
24.5 |
|
|
|
17.4 |
|
|
|
|
|
|
|
|
Operating loss |
|
|
(12.5 |
) |
|
|
(2.7 |
) |
Interest expense, net |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
Loss before income tax
benefit |
|
|
(12.5 |
) |
|
|
(2.8 |
) |
Income tax benefit |
|
|
0.5 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
Net loss |
|
|
(12.0 |
)% |
|
|
(2.1 |
)% |
|
|
|
|
|
|
|
2007 Compared to 2006
Consolidated sales in 2007 were $123,373,000, a 23.1% decrease from sales of $160,478,000 in
2006. Shipments of residential furniture in 2007 were lower primarily due to a weak retail
environment, competitive pressures from imports and the impact of restructuring activities. In
2007, as part of the Companys transition to its new business model, sales were negatively impacted
by the discontinuation of certain slow moving domestic products before new outsourced replacements
were available. In addition, the Company realigned its sales force which caused a decrease in
sales due to customer relationship disruptions. Commercial furniture shipments rose in 2007 as
compared to the prior year due to higher shipments of office seating products. The consolidated
sales decrease for 2007 was primarily due to lower unit volume.
Gross margin decreased $8.8 million to $14.8 million in 2007 as compared to $23.6 million in
2006. Gross margin in 2007 was negatively impacted by the lower sales volume, product sales mix,
price discounting and non-cash charges for inventory write-downs and asset impairments. The lower
sales volume resulted in a reduced domestic production level, which unfavorably impacted fixed cost
absorption and manufacturing operations. For 2007, the Company recorded non-cash inventory
write-downs of $5.4 million pre-tax compared to $3.9 million pre-tax in 2006 to reflect anticipated
net realizable value on disposition. The inventory write-downs were primarily due to competitive
conditions and the discontinuation of certain slow moving domestic products. In 2006, the Company
recorded a non-cash asset impairment charge of $3.4 million pre-tax in connection with
restructuring activities to reduce the carrying value of long-lived assets to expected disposition
value. In 2007, an additional $1.2 million pre-tax asset impairment charge was recorded to reflect
the actual disposition value of those assets.
Selling, general and administrative expenses increased $2.3 million to $30.3 million, or 24.5%
of sales in 2007, from $28.0 million, or 17.4% of sales in 2006. The higher cost percentage in
2007 was primarily due to fixed selling and administrative costs spread over a lower sales volume.
The Company incurred higher costs in 2007, including product development, marketing, selling,
professional fees and severance, primarily due to the Companys transition to its new business
model. In addition, bad debt expense in 2007 increased $1.2 million as compared to the prior year
primarily due to the bankruptcy of a large customer and the weak retail environment.
11
Net interest expense for 2007 was $48,000 as compared to $232,000 in 2006. Net interest
expense for 2007 was lower than the prior year due to an increase in available funds for
investment.
Chromcraft Revingtons effective income tax benefit rate for 2007 was 4.1% as compared to
25.4% in 2006. The lower tax benefit in 2007 resulted from the Company recording an additional
valuation allowance of $5,152,000 against the entire net deferred tax asset balances. The
valuation allowance was recorded in the fourth quarter of 2007 after consideration of relevant
factors, including recent operating results, the likelihood of the utilization of net operating
loss tax carryforwards and the ability to generate future taxable income. In 2006, the Company
recorded state income taxes attributable to income generated on the cancellation of intercompany
indebtedness and the establishment of a valuation allowance of $62,000 for a state net operating
loss carryforward.
Liquidity and Capital Resources
Operating activities of the Company used $3.0 million of cash in 2007 primarily due to the
operating loss which was partially offset by cash generated from a liquidation of working capital.
The Company expects a tax loss for 2007 and plans to carry back a portion of its tax loss to
taxable income years for a refund of taxes paid in 2006 and 2005. At December 31, 2007, the
Company recorded refundable income taxes of $4.3 million. These tax refunds are expected to be
received in 2008.
Investing activities generated cash of $3.5 million for 2007 as compared to $0.5 million of
cash used in 2006. During 2007, the Company received cash proceeds of $4.5 million on asset
dispositions, including the sale of three buildings and idled machinery and equipment under a
restructuring program implemented in 2006. The Company used cash of $1.0 million for capital
expenditures during 2007, as compared to $1.6 million spent in the prior year. In 2008, the
Company expects to spend approximately $3.0 million for capital expenditures primarily to upgrade
information systems.
At December 31, 2007, the Company had cash and cash equivalents of $8.8 million and $15.5
million in availability under a revolving loan facility with a bank (Bank Facility). Interest
rates under the Bank Facility are determined at the time of borrowing based, at the Companys
option, on either the banks prime rate or the London Interbank Offered Rate (LIBOR). The Bank
Facility contains one restrictive financial covenant, which is applicable when availability under
the Bank Facility is below $5.0 million. The Bank Facility is secured by substantially all of the
assets of Chromcraft Revington and its subsidiaries. The Bank Facility expires in 2012 and there
were no borrowings outstanding at December 31, 2007.
The Companys primary sources of liquidity are cash on hand, tax refund receivables and
availability under the Bank Facility. Management believes that these cash resources are adequate
to fund its business model transformation and meet its other short term liquidity requirements in
2008. The Company will need to generate cash flow from operations in future periods in order to
support and grow its business.
12
Critical Accounting Policies
The preparation of consolidated financial statements of the Company requires management to
make estimates and judgments that affect the amounts reported in the financial statements and the
related footnotes. Chromcraft Revington considers the following accounting policies to be most
significantly impacted by the estimates and judgments used in the preparation of its consolidated
financial statements.
Revenue Recognition
The Company recognizes revenue when products are shipped and the customer takes ownership and
assumes risk of loss, collection of the related receivable is probable, persuasive evidence of an
arrangement exists, and the sales price is fixed or determinable.
Allowance for Doubtful Accounts
The Company provides for an allowance for doubtful accounts based on expected collectability
of trade receivables. The allowance for doubtful accounts is determined based on the Companys
analysis of customer credit-worthiness, historical loss experience and general economic conditions
and trends.
Inventories
Inventories are valued at the lower of cost or market. The Company evaluates its inventories
for excess or slow moving items based on sales order activity and expected market changes. If
circumstances indicate the cost of inventories exceeds their recoverable value, inventories are
reduced to net realizable value.
Employee Related Benefits
Accounting for self-insured health care and workers compensation liabilities involves
assumptions of expected claims based on past experience and a review of individual claims. The
Company establishes a liability based on claim information supplied by insurance and third party
administrators. Actual claim expense could differ from the estimates made by the Company.
Property, Plant and Equipment
The Company reviews long-lived assets for impairment whenever events or changes in facts and
circumstances indicate the possibility that the carrying value may not be recoverable. Factors
that may trigger an impairment evaluation include under-performance relative to historical or
projected future operating results and significant negative industry or economic trends. If the
forecast of undiscounted future cash flows is less than the carrying amount of the assets, an
impairment charge would be recognized to reduce the carrying value of the assets to fair value.
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 and include net operating loss tax carryforwards. 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. The Company
reviews relevant factors, including recent operating results, the likelihood of the utilization of
net operating loss tax carryforwards and the ability to generate future taxable income to determine
if deferred income taxes are recoverable and if a valuation reserve is required.
13
Recently Issued Accounting Standards
In September 2006, Financial Accounting Standards Board (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 157. Although the
Company has not completed its analysis of FAS 159, it is not expected to have a material impact.
In December 2007, FASB issued Statement of Financial Accounting Standards No. 141 (Revised
2007), Business Combinations (FAS 141R), which applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual report beginning after
December 15, 2008. Earlier adoption is prohibited. FAS 141R requires an acquiring entity to
recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date
fair value with limited exceptions. Although the Company has not completed its analysis of FAS
141R, any impact will be limited to business combinations occurring on or after January 1, 2009.
In December 2007, FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statements An Amendment of ARB No. 51 (FAS
160), which is effective for fiscal years beginning on or after December 15, 2008. Earlier
adoption is prohibited. FAS 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Although the
Company has not completed its analysis of FAS 160, 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.
14
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, including the current recessionary trends in the
U.S. economy; import and
domestic competition in the furniture industry; ability of the Company to execute its business
strategies, implement its new business model and successfully complete its business transformation;
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;
financial viability of the Companys customers and their ability
to continue or increase product orders; and other factors that generally
affect business.
The Company does not undertake any obligation to update or revise publicly any forward-looking
statements to reflect information, events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events or circumstances.
Item 8. Financial Statements
The financial statements are listed in Part IV, Items 15(a) 1. and 2. and are filed as part of
this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A (T). Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Chromcraft Revingtons principal executive officer and principal financial officer have
concluded, based on 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 ineffective
as of the end of the period covered by this report on Form 10-K due to the material weakness
identified in Managements Report on Internal Control over Financial Reporting below.
Managements Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining effective
internal control over financial reporting as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934. The Companys internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted
accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and presentation.
15
Management evaluated the effectiveness of the Companys internal control over financial
reporting as of December 31, 2007. In making this evaluation, management used the criteria set
forth in Internal Control over Financial Reporting Guidance for Smaller Public Companies drafted
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this evaluation, management concluded that, as of December 31, 2007, the Company did
not maintain effective internal control over financial reporting. Management identified a material
weakness in the Companys internal control over financial reporting as it did not properly design a
control to ensure the assumptions used to determine the realizability of its deferred tax assets
were properly evaluated. The Company designed a control relating to these assumptions and
subsequently revalued its deferred tax assets prior to the issuance of the Companys 2007 financial
statements.
A material weakness is a control deficiency, or a combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of annual or interim
financial statements will not be prevented or detected.
Attestation
Report of Independent Registered Public Accounting Firm
This annual report does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to provide only
managements report in this annual report.
Changes in Internal Control over Financial Reporting
Other than the control changes discussed above, there have been no significant changes in
Chromcraft Revingtons internal control over financial reporting that occurred during the fourth
quarter of 2007 that have materially affected, or are reasonably likely to materially affect,
Chromcraft Revingtons internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Code of Ethics
The Company has adopted a code of ethics that applies to all of its directors, officers
(including its chief executive officer, chief financial and accounting officer, controller and any
person performing similar functions) and employees. A copy of the Code of Ethics is available
without charge upon written request to: Corporate Secretary, Chromcraft Revington, Inc., 1330 Win
Hentschel Blvd., Suite 250, West Lafayette, IN 47906.
16
Audit Committee Financial Expert
The Companys board of directors has determined that each member of its Audit Committee is an
audit committee financial expert, as defined under Item 407(d) of Regulation S-K of the
Securities Exchange Act of 1934. The members of the Companys Audit Committee are John R. Hesse,
Larry P. Kunz, Theodore L. Mullett, and John D. Swift, and each is independent under the
requirements of the American Stock Exchange.
In accordance with the provisions of General Instruction G to Form 10-K, the information
required for the remainder of the required disclosures under Item 10 is not set forth herein
because Chromcraft Revington intends to file with the SEC a definitive Proxy Statement pursuant to
Regulation 14A not later than 120 days following the end of its 2007 fiscal year, which Proxy
Statement will contain such information. The information required by Item 10, not presented above,
is incorporated herein by reference to such Proxy Statement.
Items 11. through 14.
In accordance with the provisions of General Instruction G to Form 10-K, the information
required by Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters), Item 13 (Certain Relationships and Related
Transactions, and Director Independence), and Item 14 (Principal Accounting Fees and Services) is
not set forth herein because Chromcraft Revington intends to file with the SEC a definitive Proxy
Statement pursuant to Regulation 14A not later than 120 days following the end of its 2007 fiscal
year, which Proxy Statement will contain such information. The above information required by Items
11, 12, 13, and 14 is incorporated herein by reference to such Proxy Statement.
Part IV
Item 15. Exhibits and Financial Statements
(a) 1. and 2. List of Financial Statements:
The following Consolidated Financial Statements of Chromcraft Revington are included in this
report on Form 10-K:
|
|
|
|
|
Page Reference |
|
|
|
|
|
F-1 |
|
|
|
|
|
F-2 |
|
|
|
|
|
F-3 |
|
|
|
|
|
F-4 |
|
|
|
|
|
F-5 |
|
|
|
|
|
F-19 |
17
(a) 3. Listing of Exhibits
|
(3.1) |
|
Certificate of Incorporation of the Registrant, as amended, filed as Exhibit
3.1 to Form S-1, registration number 33-45902, as filed with the Securities and
Exchange Commission on February 21, 1992, is incorporated herein by reference. |
|
(3.2) |
|
By-laws of the Registrant, as amended, filed as Exhibit 3.2 to Form 8-K, as
filed with the Securities and Exchange Commission on December 19, 2007, is incorporated
herein by reference. |
|
(10.19) |
|
Term Loan and Security Agreement, dated March 15, 2002, by and between the
Registrant and First Bankers Trust Services, Inc. (as successor trustee), not in its
individual or corporate capacity, but solely as trustee of the Chromcraft Revington
Employee Stock Ownership Trust, filed as Exhibit 10.19 to Form 8-K, as filed with the
Securities and Exchange Commission on March 20, 2002, is incorporated herein by
reference. |
|
(10.2) |
|
Third Amendment to the Chromcraft Revington Employee Stock Ownership Trust, effective
December 31, 2005, by and between the Registrant and First Bankers Trust Services,
Inc., filed as Exhibit 10.2 to Form 10-K for the year ended December 31, 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 as Exhibit 10.21 to Form 10-Q for the quarter ended June 30, 2007, is
incorporated herein by reference. |
|
(10.3) |
|
Chromcraft Revington Employee Stock Ownership Trust, effective January 1, 2002, by
and between the Registrant and First Bankers Trust Services, Inc. (as successor
trustee), filed as Exhibit 10.3 to Form 10-K for the year ended December 31, 2001, is
incorporated herein by reference. |
|
(10.31) |
|
First Amendment to the Chromcraft Revington Employee Stock Ownership Trust,
effective January 1, 2002, by and between the Registrant and First Bankers Trust
Services, Inc. (as successor trustee), filed as Exhibit 10.31 to Form 10-K for the year
ended December 31, 2001, is incorporated herein by reference. |
|
(10.32) |
|
Amendment No. 2 to the Term Loan and Security Agreement, dated December 21, 2005, by
and between the Registrant and First Bankers Trust Services, Inc. (as successor
trustee), not in its individual or corporate capacity, but solely as trustee of the
Chromcraft Revington Employee Stock Ownership Trust, filed as Exhibit 10.32 to Form
10-K for the year ended December 31, 2005, is incorporated herein by reference. |
18
Executive Compensation Plans and Arrangements
|
(10.4) |
|
Chromcraft Revington, Inc. 1992 Stock Option Plan, as amended and restated effective
March 15, 2002, filed as Exhibit 10.4 to Form 10-K for the year ended December 31,
2001, is incorporated herein by reference. |
|
(10.46) |
|
Directors Stock Plan of Chromcraft Revington, Inc., as amended and restated
effective December 1, 2005, filed as Exhibit 10.46 to Form 10-Q for the quarter ended
July 1, 2006, is incorporated herein by reference. |
|
(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. |
|
(10.9) |
|
Employment Agreement, dated March 15, 2002, between the Registrant and Frank T. Kane,
filed as Exhibit 10.9 to Form 10-K for the year ended December 31, 2001, is
incorporated herein by reference. |
|
(10.91) |
|
Restricted Stock Award Agreement, dated December 16, 2005, between the Registrant
and Benjamin M. Anderson-Ray, filed as Exhibit 10.91 to Form 8-K, as filed with the
Securities and Exchange Commission on December 22, 2005, is incorporated herein by
reference. |
|
(10.92) |
|
Employment Agreement, dated June 22, 2005, between the Registrant and Benjamin M.
Anderson-Ray, filed as Exhibit 10.1 to Form 8-K, as filed with the Securities and
Exchange Commission on June 28, 2005, is incorporated herein by reference. |
|
(10.95) |
|
Employment Agreement, dated November 15, 2006, between the Registrant and Dennis C.
Valkanoff, filed as Exhibit 10.1 to Form 8-K, as filed with the Securities and Exchange
Commission on November 20, 2006, is incorporated herein by reference. |
|
(10.96) |
|
Form of Restricted Stock Award Agreement for non-employee directors under the
Directors Stock Plan of the Company, filed as Exhibit 10.96 to Form 10-K, as filed
with the Securities and Exchange Commission on March 26, 2007, is incorporated herein
by reference. |
|
(10.97) |
|
Form of Restricted Stock Award Agreement for key employees, filed as Exhibit 10.97
to Form 10-K, as filed with the Securities and Exchange Commission on March 26, 2007,
is incorporated herein by reference. |
|
(10.98) |
|
Employment Agreement, dated March 22, 2007, between the Registrant and Richard J.
Garrity, filed as Exhibit 10.1 to Form 8-K, as filed with the Securities and Exchange
Commission on March 28, 2007, is incorporated herein by reference. |
|
(14) |
|
Code of Business Conduct and Ethics of Chromcraft Revington, Inc., as amended
and restated effective January 4, 2008, filed as Exhibit 14 to Form 8-K, as filed with
the Securities and Exchange Commission on January 10, 2008, is incorporated herein by
reference. |
19
|
(21.1) |
|
Subsidiaries of the Registrant (filed herewith). |
|
(23.1) |
|
Consent of Independent Registered Public Accounting Firm (filed herewith). |
|
(31.1) |
|
Certification of Chief Executive Officer required pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
|
(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 (filed herewith). |
(b) Exhibits
The response to this portion of Item 15 is submitted as a separate section of this
report.
20
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 31, 2008 |
By: |
/s/ Benjamin M. Anderson-Ray
|
|
|
|
Benjamin M. Anderson-Ray, |
|
|
|
Chairman and Chief Executive Officer |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of Chromcraft Revington, Inc. and in the capacities and on
the date indicated.
|
|
|
|
|
Signatures |
|
Title |
|
Date |
|
|
|
|
|
/s/ Benjamin M. Anderson-Ray
Benjamin M. Anderson-Ray
|
|
Chairman, Chief Executive Officer
and Director (principal executive
officer)
|
|
March 31, 2008 |
|
|
|
|
|
/s/ Frank T. Kane
Frank T. Kane
|
|
Sr. Vice President Finance
(principal accounting and
financial officer)
|
|
March 31, 2008 |
|
|
|
|
|
/s/ Ronald H. Butler
|
|
Director
|
|
March 31, 2008 |
Ronald H. Butler |
|
|
|
|
|
|
|
|
|
/s/ John R. Hesse
|
|
Director
|
|
March 31, 2008 |
John R. Hesse |
|
|
|
|
|
|
|
|
|
/s/ David L. Kolb
|
|
Director
|
|
March 31, 2008 |
David L. Kolb |
|
|
|
|
|
|
|
|
|
/s/ Larry P. Kunz
|
|
Director
|
|
March 31, 2008 |
Larry P. Kunz |
|
|
|
|
|
|
|
|
|
/s/ Theodore L. Mullett
|
|
Director
|
|
March 31, 2008 |
Theodore L. Mullett |
|
|
|
|
|
|
|
|
|
/s/ Craig R. Stokely
|
|
Director
|
|
March 31, 2008 |
Craig R. Stokely |
|
|
|
|
|
|
|
|
|
/s/ John D. Swift
|
|
Director
|
|
March 31, 2008 |
John D. Swift |
|
|
|
|
21
Consolidated Statements of Operations
Chromcraft Revington, Inc.
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
123,373 |
|
|
$ |
160,478 |
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
108,572 |
|
|
|
136,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
14,801 |
|
|
|
23,636 |
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
30,255 |
|
|
|
27,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(15,454 |
) |
|
|
(4,316 |
) |
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(48 |
) |
|
|
(232 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit |
|
|
(15,502 |
) |
|
|
(4,548 |
) |
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
630 |
|
|
|
1,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(14,872 |
) |
|
$ |
(3,393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share of common stock |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(3.30 |
) |
|
$ |
(.77 |
) |
|
|
|
|
|
|
|
Diluted |
|
$ |
(3.30 |
) |
|
$ |
(.77 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing loss per share |
|
|
|
|
|
|
|
|
Basic |
|
|
4,502 |
|
|
|
4,415 |
|
Diluted |
|
|
4,502 |
|
|
|
4,415 |
|
See accompanying notes to consolidated financial statements.
F-1
Consolidated Balance Sheets
Chromcraft Revington, Inc.
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
8,785 |
|
|
$ |
8,418 |
|
Accounts receivable, less allowance of $625 in 2007 and $650 in 2006 |
|
|
12,187 |
|
|
|
19,072 |
|
Refundable income taxes |
|
|
4,325 |
|
|
|
|
|
Inventories |
|
|
24,455 |
|
|
|
28,667 |
|
Assets held for sale |
|
|
455 |
|
|
|
5,068 |
|
Prepaid expenses and other |
|
|
1,266 |
|
|
|
3,104 |
|
|
|
|
|
|
|
|
Current assets |
|
|
51,473 |
|
|
|
64,329 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
17,456 |
|
|
|
19,212 |
|
Other assets |
|
|
805 |
|
|
|
2,277 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
69,734 |
|
|
$ |
85,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
5,137 |
|
|
$ |
5,144 |
|
Accrued liabilities |
|
|
6,047 |
|
|
|
7,534 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
11,184 |
|
|
|
12,678 |
|
|
|
|
|
|
|
|
|
|
Deferred compensation |
|
|
1,289 |
|
|
|
1,918 |
|
Other long-term liabilities |
|
|
997 |
|
|
|
804 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
13,470 |
|
|
|
15,400 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $1.00 par value, 100,000 shares authorized, none issued or
outstanding |
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 20,000,000 shares authorized, 7,949,763 shares issued
in 2007 and 7,944,163 shares issued in 2006 |
|
|
80 |
|
|
|
80 |
|
Capital in excess of par value |
|
|
18,121 |
|
|
|
18,075 |
|
Unearned ESOP shares |
|
|
(16,032 |
) |
|
|
(16,708 |
) |
Retained earnings |
|
|
75,099 |
|
|
|
89,971 |
|
|
|
|
|
|
|
|
|
|
|
77,268 |
|
|
|
91,418 |
|
Less cost of common stock in treasury, 1,777,154 shares in 2007 and 1,776,287 in 2006 |
|
|
(21,004 |
) |
|
|
(21,000 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
56,264 |
|
|
|
70,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
69,734 |
|
|
$ |
85,818 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-2
Consolidated Statements of Cash Flows
Chromcraft Revington, Inc.
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
Operating Activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(14,872 |
) |
|
$ |
(3,393 |
) |
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
1,916 |
|
|
|
3,086 |
|
Deferred income taxes |
|
|
3,819 |
|
|
|
(3,167 |
) |
Non-cash asset impairment charges |
|
|
1,342 |
|
|
|
3,419 |
|
Non-cash ESOP compensation expense |
|
|
509 |
|
|
|
771 |
|
Non-cash stock compensation expense |
|
|
309 |
|
|
|
404 |
|
Non-cash inventory write-downs |
|
|
5,369 |
|
|
|
3,859 |
|
Provision for doubtful accounts |
|
|
1,160 |
|
|
|
(15 |
) |
Gain on disposal of assets |
|
|
(345 |
) |
|
|
(19 |
) |
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
5,725 |
|
|
|
(322 |
) |
Refundable income taxes |
|
|
(4,325 |
) |
|
|
|
|
Inventories |
|
|
(1,157 |
) |
|
|
4,483 |
|
Prepaid expenses |
|
|
(66 |
) |
|
|
722 |
|
Accounts payable |
|
|
(7 |
) |
|
|
(304 |
) |
Accrued liabilities |
|
|
(1,487 |
) |
|
|
206 |
|
Deferred compensation |
|
|
(629 |
) |
|
|
(568 |
) |
Other long-term liabilities and assets |
|
|
(310 |
) |
|
|
(252 |
) |
|
|
|
|
|
|
|
Cash provided by (used in) operating activities |
|
|
(3,049 |
) |
|
|
8,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(1,037 |
) |
|
|
(1,649 |
) |
Proceeds on disposal of assets |
|
|
4,493 |
|
|
|
1,157 |
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities |
|
|
3,456 |
|
|
|
(492 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Stock repurchase |
|
|
(4 |
) |
|
|
|
|
Purchase of common stock by ESOP trust |
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash used in financing activities |
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
367 |
|
|
|
8,418 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of the period |
|
|
8,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period |
|
$ |
8,785 |
|
|
$ |
8,418 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
Consolidated Statements of Stockholders Equity
Chromcraft Revington, Inc.
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in |
|
|
Unearned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Excess of |
|
|
ESOP |
|
|
Retained |
|
|
Treasury Stock |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Par Value |
|
|
Shares |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2006 |
|
|
7,923,563 |
|
|
$ |
79 |
|
|
$ |
17,604 |
|
|
$ |
(17,385 |
) |
|
$ |
93,364 |
|
|
|
(1,776,287 |
) |
|
$ |
(21,000 |
) |
|
$ |
72,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP compensation
expense |
|
|
|
|
|
|
|
|
|
|
94 |
|
|
|
677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
771 |
|
Issuance of restricted
stock awards |
|
|
20,600 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Amortization of unearned
compensation of
restricted stock awards |
|
|
|
|
|
|
|
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212 |
|
Stock option compensation
expense |
|
|
|
|
|
|
|
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,393 |
) |
|
|
|
|
|
|
|
|
|
|
(3,393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2006 |
|
|
7,944,163 |
|
|
$ |
80 |
|
|
$ |
18,075 |
|
|
$ |
(16,708 |
) |
|
$ |
89,971 |
|
|
|
(1,776,287 |
) |
|
$ |
(21,000 |
) |
|
$ |
70,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(867 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
ESOP compensation
expense |
|
|
|
|
|
|
|
|
|
|
(203 |
) |
|
|
712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
509 |
|
Purchase of common stock
by ESOP Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36 |
) |
Issuance of restricted
stock awards |
|
|
13,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of
restricted stock award |
|
|
(7,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unearned
compensation of
restricted stock awards |
|
|
|
|
|
|
|
|
|
|
228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228 |
|
Stock option compensation
expense |
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,872 |
) |
|
|
|
|
|
|
|
|
|
|
(14,872 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2007 |
|
|
7,949,763 |
|
|
$ |
80 |
|
|
$ |
18,121 |
|
|
$ |
(16,032 |
) |
|
$ |
75,099 |
|
|
|
(1,777,154 |
) |
|
$ |
(21,004 |
) |
|
$ |
56,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
Notes to Consolidated Financial Statements
Chromcraft Revington, Inc.
Note 1. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of Chromcraft Revington, Inc. and
its wholly-owned subsidiaries (together, the Company). All significant intercompany accounts and
transactions have been eliminated.
Chromcraft Revington manufactures, distributes and sells residential and commercial furniture.
Products are sold primarily through furniture dealers throughout the U.S. and Canada. Chromcraft
Revington has several operating segments which are aggregated into one reportable segment in
accordance with Financial Accounting Standards Board (FASB) Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information.
Revenue Recognition
The Company recognizes revenue when products are shipped and the customer takes ownership and
assumes risk of loss, collection of the related receivable is probable, persuasive evidence of an
arrangement exists, and the sales price is fixed or determinable.
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months
or less to be cash equivalents.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company
provides for an allowance for doubtful accounts based on expected collectability of trade
receivables. The allowance for doubtful accounts is determined based on the Companys analysis of
customer credit-worthiness, historical loss experience and general economic conditions and trends.
The Company reviews past due balances and its allowance for doubtful accounts periodically. Any
accounts receivable balances that are determined to be uncollectible are included in the overall
allowance for doubtful accounts. After all attempts to collect a receivable have been exhausted,
the receivable is written off against the allowance. The Company does not have any
off-balance-sheet credit exposure related to its customers.
Inventories
All inventories (materials, labor and overhead) are valued at the lower of cost or market.
Inventories valued using the last-in, first-out (LIFO) basis represent approximately 60% and 57% of
total inventories at December 31, 2007 and 2006, respectively. Remaining inventories are valued
using the first-in, first-out (FIFO) basis.
F-5
Property, Plant and Equipment
Property, plant and equipment is stated on the basis of cost. Depreciation is computed
principally by the straight-line method for financial reporting purposes and by accelerated methods
for tax purposes. The following estimated useful lives are used for financial reporting purposes:
buildings and improvements, 15 to 45 years; machinery and equipment, 3 to 12 years; and leasehold
improvements, 3 to 5 years.
Impairment of Long-Lived Assets
When changes in circumstances indicate the carrying amount of certain long-lived assets may
not be recoverable, the assets will be evaluated for impairment. If the forecast of undiscounted
future cash flows is less than the carrying amount of the assets, an impairment charge would be
recognized to reduce the carrying value of the assets to fair value.
Restructuring Expenses
Restructuring expenses include costs to shut down, vacate and prepare facilities for sale and
one-time termination benefits. Costs to shut down, vacate and prepare facilities for sale are
recorded when incurred. One-time termination benefits are amortized over the related service
period. These costs are included in either cost of sales or selling, general and administrative
expenses consistent with the classification of the costs before the restructuring.
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. A valuation allowance is established based on relevant
factors including recent operating results, the likelihood of the utilization of net operating loss
tax carryforwards and the ability to generate future taxable income.
Financial Instruments
The carrying amounts reported in the balance sheets for accounts receivable, accounts payable
and deferred compensation 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
Revingtons customer base and no single customer accounting for more than 10% of trade accounts
receivable.
Use of Estimates
The preparation of the financial statements in accordance with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results could differ from
those estimates.
F-6
Note 2. Inventories
Inventories at December 31, 2007 and 2006 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
6,880 |
|
|
$ |
10,876 |
|
Work-in-process |
|
|
2,987 |
|
|
|
3,488 |
|
Finished goods |
|
|
18,129 |
|
|
|
17,726 |
|
|
|
|
|
|
|
|
|
|
|
27,996 |
|
|
|
32,090 |
|
LIFO reserve |
|
|
(3,541 |
) |
|
|
(3,423 |
) |
|
|
|
|
|
|
|
|
|
$ |
24,455 |
|
|
$ |
28,667 |
|
|
|
|
|
|
|
|
Note 3. Property, Plant and Equipment
Property, plant and equipment at December 31, 2007 and 2006 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Land |
|
$ |
925 |
|
|
$ |
925 |
|
Buildings and improvements |
|
|
26,097 |
|
|
|
25,989 |
|
Machinery and equipment |
|
|
38,982 |
|
|
|
41,059 |
|
Leasehold improvements |
|
|
656 |
|
|
|
1,059 |
|
Construction in progress |
|
|
496 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
67,156 |
|
|
|
69,148 |
|
Less accumulated depreciation
and amortization |
|
|
(49,700 |
) |
|
|
(49,936 |
) |
|
|
|
|
|
|
|
|
|
$ |
17,456 |
|
|
$ |
19,212 |
|
|
|
|
|
|
|
|
Note 4. Assets Held for Sale
Assets held for sale at December 31, 2007 and 2006 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
2007 |
|
|
2006 |
|
|
Land and buildings |
|
$ |
445 |
|
|
$ |
4,690 |
|
Machinery and equipment |
|
|
10 |
|
|
|
378 |
|
|
|
|
|
|
|
|
|
|
$ |
455 |
|
|
$ |
5,068 |
|
|
|
|
|
|
|
|
F-7
Note 5. Accrued Liabilities
Accrued liabilities at December 31, 2007 and 2006 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Employee-related benefits |
|
$ |
1,283 |
|
|
$ |
1,945 |
|
Compensation related |
|
|
1,276 |
|
|
|
408 |
|
Deferred compensation |
|
|
710 |
|
|
|
1,071 |
|
Sales commissions |
|
|
534 |
|
|
|
708 |
|
Other accrued liabilities |
|
|
2,244 |
|
|
|
3,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,047 |
|
|
$ |
7,534 |
|
|
|
|
|
|
|
|
Note 6. Income Taxes
The tax effects of temporary differences that give rise to significant portions of net
deferred tax assets (liabilities) at December 31, 2007 and 2006 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
2007 |
|
|
2006 |
|
Deferred tax assets attributable to: |
|
|
|
|
|
|
|
|
Inventories |
|
$ |
427 |
|
|
$ |
105 |
|
Accounts receivable |
|
|
528 |
|
|
|
249 |
|
Assets held for sale |
|
|
193 |
|
|
|
19 |
|
Employee benefit plans |
|
|
918 |
|
|
|
655 |
|
ESOP compensation expense |
|
|
745 |
|
|
|
645 |
|
Deferred compensation |
|
|
2,064 |
|
|
|
2,372 |
|
Stock compensation expense |
|
|
290 |
|
|
|
296 |
|
Goodwill |
|
|
555 |
|
|
|
704 |
|
Net operating loss carryforwards |
|
|
1,939 |
|
|
|
725 |
|
Other |
|
|
513 |
|
|
|
864 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
8,172 |
|
|
|
6,634 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities attributable to: |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
(2,958 |
) |
|
|
(2,789 |
) |
Other |
|
|
|
|
|
|
(150 |
) |
|
|
|
|
|
|
|
Total gross deferred tax liabilities |
|
|
(2,958 |
) |
|
|
(2,939 |
) |
|
|
|
|
|
|
|
Net deferred tax asset before valuation allowance |
|
|
5,214 |
|
|
|
3,695 |
|
|
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
(5,214 |
) |
|
|
(62 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax balance after valuation allowance |
|
$ |
|
|
|
$ |
3,633 |
|
|
|
|
|
|
|
|
F-8
Balance sheet classifications of net deferred taxes, net of valuation allowance, at December
31, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
2007 |
|
|
2006 |
|
Current asset |
|
$ |
|
|
|
$ |
1,904 |
|
Long-term asset |
|
|
|
|
|
|
1,729 |
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
|
|
|
$ |
3,633 |
|
|
|
|
|
|
|
|
Components of income tax (benefit), expense in the Consolidated Statements of Operations for
the years ended December 31, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
2007 |
|
|
2006 |
|
Current: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
(4,049 |
) |
|
$ |
1,488 |
|
State |
|
|
(460 |
) |
|
|
498 |
|
|
|
|
|
|
|
|
|
|
|
(4,509 |
) |
|
|
1,986 |
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
Federal |
|
|
(904 |
) |
|
|
(3,288 |
) |
State |
|
|
(369 |
) |
|
|
85 |
|
Change in valuation allowance |
|
|
5,152 |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
3,879 |
|
|
|
(3,141 |
) |
|
|
|
|
|
|
|
Income tax benefit |
|
$ |
(630 |
) |
|
$ |
(1,155 |
) |
|
|
|
|
|
|
|
A reconciliation of the statutory federal income tax rate to the effective income tax rate for
the years ended December 31, 2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Statutory federal income tax rate |
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
State taxes, net of federal benefit |
|
|
(3.5 |
) |
|
|
2.2 |
|
Cancellation of intercompany
indebtedness state taxes |
|
|
|
|
|
|
5.8 |
|
Employee stock ownership plan |
|
|
(0.4 |
) |
|
|
0.7 |
|
Qualified production activities deduction |
|
|
|
|
|
|
(0.9 |
) |
Deferred tax asset valuation allowance |
|
|
33.2 |
|
|
|
1.4 |
|
Other, net |
|
|
0.6 |
|
|
|
(0.6 |
) |
|
|
|
|
|
|
|
Effective income tax rate |
|
|
(4.1 |
)% |
|
|
(25.4 |
)% |
|
|
|
|
|
|
|
At December 31, 2007 and 2006, the Company has deferred tax assets for federal and state net
operating loss (NOL) carryforwards of $1,501,000 and $438,000, respectively, with expiration dates
ranging from 2009 through 2027. After consideration of relevant factors, including recent
operating results, the likelihood of the utilization of net operating loss tax carryforwards and
the ability to generate future taxable income, the Company recorded a full valuation allowance
against the entire net deferred tax asset balances in the fourth quarter of 2007.
F-9
In 2006, the Company utilized a state net operating loss carryforward (NOL) to offset state
taxable income generated on the cancellation of intercompany indebtedness and established a
valuation allowance of $62,000 for the remaining portion of this NOL.
Tax expense relating to share-based plans of $60,000 and $27,000, in 2007 and 2006,
respectively, has been recorded under Capital in Excess of Par Value in the accompanying
Consolidated Statements of Stockholders Equity.
The Company adopted the provisions of 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 December 31, 2007 and January 1, 2007, the
Company had $285,000 and $270,000 of unrecognized tax benefits, respectively, all of which would
affect the effective tax rate if recognized.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as
follows:
|
|
|
|
|
|
|
(In thousands) |
|
Unrecognized tax benefits balance at January 1, 2007 |
|
$ |
270 |
|
Gross increases for tax positions of prior years |
|
|
15 |
|
Gross decreases for tax positions of prior years |
|
|
|
|
Settlements |
|
|
|
|
Lapse of statute of limitations |
|
|
|
|
|
|
|
|
Unrecognized tax benefits balance at December 31, 2007 |
|
$ |
285 |
|
|
|
|
|
The Company or its subsidiaries file federal and various state income tax returns. The
Internal Revenue Service has completed an examination of the Companys U.S. income tax returns
through 2002. With few exceptions, the Company is no longer subject to income tax examinations by
tax authorities for years before 2004.
The Company recognizes interest and penalties related to unrecognized tax benefits as a
component of income tax expense in the consolidated financial statements. As of December 31, 2007
and January 1, 2007, the Company had approximately $58,000 and $48,000 of accrued interest and
penalties related to uncertain tax positions, respectively.
Note 7. Bank Debt
On June 22, 2007, the Company entered into a new revolving loan facility (Bank Facility)
with a bank that allows the Company to borrow up to $35.0 million based on eligible accounts
receivable and inventories. At December 31, 2007, the Company had approximately $15.5 million in
availability under the Bank 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 Bank Facility are determined at the time of borrowing based, at the Companys option, on
either the banks prime rate or the London Interbank Offered Rate (LIBOR). During 2007, a
commitment fee of .375% per annum was payable on the unused portion of the credit line.
Thereafter, the commitment fee will be .25% for each calendar month during which the average amount
of the principal balance of the revolver loans plus the letter of credit obligations equals or
exceeds $10.0 million and .30% for any other calendar month.
F-10
The Bank Facility contains one restrictive financial covenant, which is applicable when
availability under the Bank Facility is below $5.0 million. The Bank Facility is secured by
substantially all of the assets of Chromcraft Revington and its subsidiaries and expires in 2012.
There were no borrowings outstanding under the Bank Facility at December 31, 2007.
Note 8. 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 included the shut down, relocation, consolidation
and outsourcing of certain furniture manufacturing and distribution operations. The purposes of
the restructuring program were to improve the utilization of a global supply chain, to reduce fixed
costs and to redeploy assets,
Restructuring charges include inventory write-downs to reflect anticipated net realizable
value, one-time termination benefits and costs to shut down, vacate and prepare the facilities for
sale. Asset impairment charges were recorded to reduce the carrying values of buildings, machinery
and equipment to fair value. Fair value was determined by actual sales, purchase offers or
estimates from real estate brokers.
Restructuring and asset impairment charges recorded for the years ended December 31, 2007 and
2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
Years Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
Restructuring charges: |
|
|
|
|
|
|
|
|
Costs to shut down, vacate and
prepare for sale |
|
$ |
353 |
|
|
$ |
479 |
|
One-time termination benefits |
|
|
78 |
|
|
|
463 |
|
Inventory write-downs |
|
|
|
|
|
|
3,011 |
|
|
|
|
|
|
|
|
|
|
|
431 |
|
|
|
3,953 |
|
|
|
|
|
|
|
|
|
|
Asset impairment charges |
|
|
1,210 |
|
|
|
3,419 |
|
|
|
|
|
|
|
|
|
|
$ |
1,641 |
|
|
$ |
7,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Operations classification: |
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
1,403 |
|
|
$ |
7,083 |
|
Selling, general and administrative
expenses |
|
|
238 |
|
|
|
289 |
|
|
|
|
|
|
|
|
|
|
$ |
1,641 |
|
|
$ |
7,372 |
|
|
|
|
|
|
|
|
F-11
Charges to expense, cash payments or asset write-downs for the years ended December 31, 2007
and 2006, and the restructuring liabilities at December 31, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
Year Ended December 31, 2007 |
|
|
|
|
|
|
Balance |
|
|
Charges |
|
|
|
|
|
|
Asset |
|
|
Balance |
|
|
|
Jan. 1, |
|
|
to |
|
|
Cash |
|
|
Write-downs, |
|
|
Dec. 31, |
|
|
|
2007 |
|
|
Expense |
|
|
Payments |
|
|
Net |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs to shut down,
vacate and prepare for sale |
|
$ |
29 |
|
|
$ |
353 |
|
|
$ |
(382 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- time
termination
benefits |
|
|
260 |
|
|
|
78 |
|
|
|
(338 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment
charges |
|
|
|
|
|
|
1,210 |
|
|
|
|
|
|
|
(1,210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
289 |
|
|
$ |
1,641 |
|
|
$ |
(720 |
) |
|
$ |
(1,210 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
Year Ended December 31, 2006 |
|
|
|
|
|
|
Balance |
|
|
Charges |
|
|
|
|
|
|
Asset |
|
|
Balance |
|
|
|
Jan. 1, |
|
|
to |
|
|
Cash |
|
|
Write-downs, |
|
|
Dec. 31, |
|
|
|
2006 |
|
|
Expense |
|
|
Payments |
|
|
Net |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs to shut down,
vacate and prepare for sale |
|
$ |
|
|
|
$ |
479 |
|
|
$ |
(450 |
) |
|
$ |
|
|
|
$ |
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-time termination
benefits |
|
|
|
|
|
|
463 |
|
|
|
(203 |
) |
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory write-downs |
|
|
|
|
|
|
3,011 |
|
|
|
|
|
|
|
(3,011 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment
charges |
|
|
|
|
|
|
3,419 |
|
|
|
|
|
|
|
(3,419 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
7,372 |
|
|
$ |
(653 |
) |
|
$ |
(6,430 |
) |
|
$ |
289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007, the Company recorded an increase in gross margin of
$345,000 pre-tax primarily due to the disposition of assets held for sale as part of the 2006
restructuring program.
Note 9. Earnings Per Share of Common Stock
Due to the net loss in both 2007 and 2006, loss per share, basic and diluted, are the same, as
the effect of potential common shares would be anti-dilutive.
Note 10. Other Long-Term Liabilities
Other long-term liabilities include $558,000 and $570,000 at December 31, 2007 and 2006,
respectively, for estimated environmental remediation costs for land that was acquired as part of a
previous acquisition by the Company.
F-12
Note 11. 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
loaned $20,000,000 to the ESOP Trust to finance the ESOP stock transaction. The loan to the ESOP
Trust provides for repayment to Chromcraft Revington over a 30-year term at a fixed rate of
interest of 5.48% per annum. Chromcraft Revington makes annual contributions to the ESOP Trust
equal to the ESOP Trusts repayment obligation under the loan to the ESOP from the Company. The
shares of common stock owned by the ESOP Trust are pledged to the Company as collateral for the
Companys loan to the ESOP Trust. As the ESOP loan is repaid, shares are released from collateral
and allocated to ESOP accounts of active employees based on the proportion of total debt service
paid in the year. Chromcraft Revington accounts for its ESOP in accordance with AICPA Statement of
Position 93-6, Employers Accounting for Employee Stock Ownership Plans. Accordingly, unearned
ESOP shares are reported as a reduction of stockholders equity as reflected in the Consolidated
Statements of Stockholders Equity of the Company. As shares are committed to be released,
Chromcraft Revington reports compensation expense equal to the current market price of the shares,
and the shares become outstanding for earnings per share computations. ESOP compensation expense,
a non-cash charge, was $509,000 in 2007 and $771,000 in 2006.
ESOP shares at December 31, 2007 and 2006, respectively, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
2007 |
|
|
2006 |
|
Allocated shares |
|
|
268 |
|
|
|
296 |
|
Unearned ESOP shares |
|
|
1,603 |
|
|
|
1,671 |
|
|
|
|
|
|
|
|
Total ESOP shares |
|
|
1,871 |
|
|
|
1,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned ESOP shares, at cost |
|
$ |
16,032 |
|
|
$ |
16,708 |
|
|
|
|
|
|
|
|
Fair value of unearned ESOP shares |
|
$ |
7,695 |
|
|
$ |
14,353 |
|
|
|
|
|
|
|
|
At December 31, 2007, the ESOP Trust owned approximately 30.3% of the issued and outstanding
shares of the Companys common stock.
Note 12. Other Benefit Plans
Chromcraft Revington sponsors a defined contribution plan qualified under Internal Revenue
Code Section 401(k). For the years ended December 31, 2007 and 2006, the Companys matching
contributions with respect to participants pre-tax contributions to the 401(k) plan were made to
the ESOP. The ESOP used such contributions to pay the loan from the Company.
F-13
Note 13. Stock-Based Compensation
The Company has the following stock-based compensation plans:
2007 Executive Incentive Plan
On May 9, 2007, the Companys stockholders approved the 2007 Executive Incentive Plan
effective as of January 1, 2007 (Executive Incentive Plan). The Executive Incentive Plan
superseded and replaced the 1992 Stock Option Plan, as amended (1992 Plan), the Short Term
Executive Incentive Plan and the Long Term Executive Incentive Plan, provided that options
outstanding prior to 2007 continue to be subject to the 1992 Plan. The Executive Incentive Plan
allows the Compensation Committee of the Board of Directors to make new stock-based awards of
nonqualified stock options (non-ISOs), stock appreciation rights, restricted shares and
performance shares. Incentive stock options (ISOs) outstanding under the 1992 Plan are
exercisable over a 10-year period and were granted at an exercise price no less than the fair
market value of Chromcraft Revingtons common shares as of the date of grant. The Compensation
Committee of the Board of Directors determines the vesting period and exercise prices of non-ISOs.
All outstanding options were vested and exercisable at December 31, 2007. At December 31, 2007
there were 478,016 common shares available for future awards under the Executive Incentive Plan.
Under the 1992 Plan, there were 298,025 shares available for future stock option awards at December
31, 2006.
The purposes of the Executive Incentive Plan are to provide the Company the flexibility to
grant various types of stock-based compensation awards, rather than only stock options, and cash
awards to our executive officers and other key employees and to attract, retain and motivate
executive officers and other key employees, to provide them with an incentive for making
contributions to the financial success, as well as to achieve short-term and long-term objectives,
of the Company and to further align their interests with the interests of the Companys
stockholders.
Directors Stock Plan
The Companys Amended and Restated Directors Stock Plan (Directors Plan) provides for the
granting of restricted stock or non-ISOs to members of the board of directors who are not employees
of the Company. Under the Directors Plan, eligible directors of the Company receive an award of
either 800 shares of restricted common stock or an option to purchase 2,500 shares of common stock
on the day following their re-election to the Board at each annual meeting of stockholders. Any
new director who is elected or appointed for the first time to the board of directors receives an
award of either 3,000 shares of restricted common stock or an option to purchase 10,000 shares of
common stock. The Compensation Committee of the board of directors determines whether awards under
the Directors Plan are made in restricted stock or stock options. The total number of shares of
common stock subject to the Directors Plan is 150,000 shares. No restricted common stock or
options will be granted under the Directors Plan after December 1, 2015. Shares of restricted
common stock granted to directors under the Directors Plan will vest on the day immediately
preceding the next annual meeting of stockholders following the award date. Non-ISOs granted under
the Directors Plan are 100% vested on the date of the grant and are granted at an exercise price
equal to the fair market value of the Companys common shares as of the date of the grant. The
options are exercisable for a period of ten years. At December 31, 2007 and 2006, there were
48,800 and 54,400 shares, respectively, available for future awards.
F-14
The Directors Plan is designed to promote the interests of the Company and its stockholders
through the granting of restricted common stock and options to the non-employee members of the
Companys board of directors, thereby encouraging their focus on enhancing long-term stockholder
value of the Company.
Restricted Stock Awards
The Company has granted to certain key employees and outside directors restricted shares of
the Companys common stock in connection with their employment agreements and the Directors Plan,
respectively. These shares are valued at fair market value on the date of grant and reflected as
part of stockholders equity. Compensation expense is recognized ratably over the vesting period.
During 2007 and 2006, the Company granted 7,500 shares and 15,000 shares, respectively, of
restricted common stock to employees in connection with their employment agreements with the
Company. In 2007, the Company cancelled 7,500 restricted shares awarded to an employee in 2006 in
connection with the resignation of this employee. The remaining awards provide that the 15,000
shares will vest based on continued employment with 5,000 shares eligible to vest on each of
December 31, 2007, 2008 and 2009.
The Company also granted 5,600 shares of restricted common stock in 2007 and 2006,
respectively, to each of its non-employee Directors under the Directors Plan. Each year, the
5,600 shares will vest on the day immediately preceding the annual meeting of stockholders that
next follows the award date.
For the years ended December 31, 2007 and 2006, the Company granted 13,100 and 20,600 shares,
respectively, of restricted common stock with aggregate fair market values, on the dates of grant,
of $121,000 and $195,000, respectively. The shares generally vest over periods ranging from one to
three years.
As of December 31, 2007, there was a total unearned compensation balance attributable to
restricted stock awards of $106,000. The cost is expected to be recognized over a weighted average
period of 1.8 years. Compensation expense recognized for restricted stock awards during the years
ended December 31, 2007 and 2006 was $289,000 and $239,000, respectively. The related tax benefit
for the compensation expense was $12,000 and $78,000 for the same periods, respectively.
F-15
A summary of all non-vested restricted stock activity for the year ended December 31, 2007 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Number of |
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
Restricted Stock Outstanding at January 1, 2007 |
|
|
34,600 |
|
|
$ |
11.12 |
|
Granted |
|
|
13,100 |
|
|
$ |
9.23 |
|
Forfeited |
|
|
(7,500 |
) |
|
$ |
8.15 |
|
Vested |
|
|
(24,600 |
) |
|
$ |
12.43 |
|
|
|
|
|
|
|
|
|
Restricted Stock Outstanding at December 31, 2007 |
|
|
15,600 |
|
|
$ |
8.90 |
|
|
|
|
|
|
|
|
|
Stock Options
A summary of all stock option activity for the year ended December 31, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number of |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Term (Years) |
|
|
Value |
|
Options Outstanding at January 1, 2007 |
|
|
610,788 |
|
|
$ |
12.11 |
|
|
|
5.5 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(60,812 |
) |
|
$ |
14.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding and Exercisable
at December 31, 2007 |
|
|
549,976 |
|
|
$ |
11.82 |
|
|
|
4.7 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, the market price was less than the exercise price of all outstanding
options and, therefore, no intrinsic value is reflected in the above table.
There were no stock options granted in 2007. The estimated per share weighted average fair
value of stock options granted during 2006 was $5.88 on the date of grant. The fair value of stock
options on the date of grant was estimated using the Black-Scholes pricing valuation model with the
following weighted average assumptions:
|
|
|
|
|
|
|
2006 |
|
Expected life (years) |
|
|
7 |
|
Interest rate |
|
|
4.8 |
% |
Volatility |
|
|
32.1 |
% |
The fair value of each option is amortized into compensation expense on a straight line basis
between the grant date of the option and each vesting date. The application of
the Black-Scholes model involves assumptions that are judgmental and sensitive in the determination
of compensation expense. Historical information is the primary basis for the selection of the
expected volatility and life of an option. The risk-free interest rate is selected based upon the
yield of the U.S. Treasury issued with a term equal to the expected life of the option being
valued.
F-16
There were no stock options exercised during the twelve months ended December 31, 2007 or
2006, respectively. New shares are issued by the Company upon the exercise of options.
The intrinsic value of options that vested during the years ended December 31, 2007 and 2006
was $124,000 and $262,000, respectively. As of December 31, 2007, there were no unvested options.
Compensation expense recognized for stock options was $21,000 and $165,000 for the years ended
December 31, 2007 and 2006, respectively. The related tax benefit for the compensation expense was
$1,000 and $53,000 for the same periods, respectively.
Accounting for the Plans
Effective
January 1, 2006, the Company adopted FASB Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based
Payment, (FAS 123(R)) using the modified prospective
application method for transition for its two stock-based compensation plans. Also effective January 1, 2006, the Company adopted FASB
Staff Position 123R-3, Transition Election Related to Accounting for the Tax Effects of Share-Based
Payment Awards, which provides a simplified alternative approach to calculate the initial pool of
excess tax benefits. The adoption of FAS 123 (R) increased the net loss by approximately $111,000
(approximately $.03 per share) for the year ended December 31, 2006.
Note 14. Supplemental Cash Flow Information
Interest, net of interest income, paid during the years ended December 31, 2007 and 2006 was
$67,000 and $244,000, respectively. Income taxes paid during the years ended December 31, 2007 and
2006 were $43,000 and $1,119,000, respectively.
Note 15. Rental Commitments
Chromcraft Revington leases office space, showroom facilities and transportation and other
equipment under non-cancelable operating leases. The future minimum lease payments under
non-cancelable leases for the years ending December 31, 2008, 2009, 2010, 2011, and 2012 are
$1,799,000, $1,837,000, $1,070,000, $829,000, and $573,000, respectively. It is expected that, in
the normal course of business, leases that expire will be renewed or replaced.
Rental expense was $2,150,000 and $1,616,000 for the years ended December 31, 2007 and 2006.
Note 16. 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.
F-17
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 157. Although the
Company has not completed its analysis of FAS 159, it is not expected to have a material impact.
In December 2007, FASB issued Statement of Financial Accounting Standards No. 141 (Revised
2007), Business Combinations (FAS 141R), which applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual report beginning after
December 15, 2008. Earlier adoption is prohibited. FAS 141R requires an acquiring entity to
recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date
fair value with limited exceptions. Although the Company has not completed its analysis of FAS
141R, any impact will be limited to business combinations occurring on or after January 1, 2009.
In December 2007, FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statements An Amendment of ARB No. 51 (FAS
160), which is effective for fiscal years beginning after December 15, 2008. Earlier adoption is
prohibited. FAS 160 establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. Although the Company has not
completed its analysis of FAS 160, it is not expected to have a material impact.
Note 17. Subsequent Event
On March 25, 2008, the board of directors approved a restructuring plan to cease furniture
manufacturing at the Companys Delphi, IN location on May 30, 2008 and to outsource the products
made at this facility to overseas suppliers. The purposes of the restructuring are to improve the
utilization of the global supply chain, to enhance competitiveness, to improve operating margins,
to reduce fixed costs and to redeploy assets. The Company plans to continue its Delphi
distribution and warehouse operation, sell the manufacturing equipment and layoff approximately 150
associates at this site. The Company expects to incur total restructuring costs and related asset
impairment charges of approximately $1.5 million to $2.0 million pre-tax. Most of these charges are
expected to be recorded in the first half of 2008.
F-18
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Chromcraft Revington, Inc.:
We have audited the accompanying balance sheets of Chromcraft Revington, Inc. and subsidiaries as
of December 31, 2007 and 2006, and the related consolidated statements of operations, shareholders
equity, and cash flows for the years then ended. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, 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, 2007 and 2006, and the results of their operations and their cash flows for the years
then ended, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 6 to the consolidated financial statements, effective January 1, 2007 the
Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, and as
discussed in Note 13 to the consolidated financial statements, effective January 1, 2006, the
Company adopted the fair value method of accounting for stock-based compensation as required by the
Statement of Financial Accounting Standards No. 123(R), Shared-Based Payment.
Indianapolis, Indiana
March 28, 2008
F-19
EXHIBIT INDEX
|
(3.1) |
|
Certificate of Incorporation of the Registrant, as amended, filed as Exhibit
3.1 to Form S-1, registration number 33-45902, as filed with the Securities and
Exchange Commission on February 21, 1992, is incorporated herein by reference. |
|
|
(3.2) |
|
By-laws of the Registrant, as amended, filed as Exhibit 3.2 to Form 8-K, as
filed with the Securities and Exchange Commission on December 19, 2007, is incorporated
herein by reference. |
|
|
(10.19) |
|
Term Loan and Security Agreement, dated March 15, 2002, by and between the
Registrant and First Bankers Trust Services, Inc. (as successor trustee), not in its
individual or corporate capacity, but solely as trustee of the Chromcraft Revington
Employee Stock Ownership Trust, filed as Exhibit 10.19 to Form 8-K, as filed with the
Securities and Exchange Commission on March 20, 2002, is incorporated herein by
reference. |
|
|
(10.2) |
|
Third Amendment to the Chromcraft Revington Employee Stock Ownership Trust, effective
December 31, 2005, by and between the Registrant and First Bankers Trust Services,
Inc., filed as Exhibit 10.2 to Form 10-K for the year ended December 31, 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 as Exhibit 10.21 to Form 10-Q for the quarter ended June 30, 2007, is
incorporated herein by reference. |
|
|
(10.3) |
|
Chromcraft Revington Employee Stock Ownership Trust, effective January 1, 2002, by
and between the Registrant and First Bankers Trust Services, Inc. (as successor
trustee), filed as Exhibit 10.3 to Form 10-K for the year ended December 31, 2001, is
incorporated herein by reference. |
|
|
(10.31) |
|
First Amendment to the Chromcraft Revington Employee Stock Ownership Trust,
effective January 1, 2002, by and between the Registrant and First Bankers Trust
Services, Inc. (as successor trustee), filed as Exhibit 10.31 to Form 10-K for the year
ended December 31, 2001, is incorporated herein by reference. |
|
|
(10.32) |
|
Amendment No. 2 to the Term Loan and Security Agreement, dated December 21, 2005, by
and between the Registrant and First Bankers Trust Services, Inc. (as successor
trustee), not in its individual or corporate capacity, but solely as trustee of the
Chromcraft Revington Employee Stock Ownership Trust, filed as Exhibit 10.32 to Form
10-K for the year ended December 31, 2005, is incorporated herein by reference. |
Executive Compensation Plans and Arrangements
|
(10.4) |
|
Chromcraft Revington, Inc. 1992 Stock Option Plan, as amended and restated effective
March 15, 2002, filed as Exhibit 10.4 to Form 10-K for the year ended December 31,
2001, is incorporated herein by reference. |
|
|
(10.46) |
|
Directors Stock Plan of Chromcraft Revington, Inc., as amended and restated
effective December 1, 2005, filed as Exhibit 10.46 to Form 10-Q for the quarter ended
July 1, 2006, is incorporated herein by reference. |
|
|
(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. |
|
|
(10.9) |
|
Employment Agreement, dated March 15, 2002, between the Registrant and Frank T. Kane,
filed as Exhibit 10.9 to Form 10-K for the year ended December 31, 2001, is
incorporated herein by reference. |
|
|
(10.91) |
|
Restricted Stock Award Agreement, dated December 16, 2005, between the Registrant
and Benjamin M. Anderson-Ray, filed as Exhibit 10.91 to Form 8-K, as filed with the
Securities and Exchange Commission on December 22, 2005, is incorporated herein by
reference. |
|
|
(10.92) |
|
Employment Agreement, dated June 22, 2005, between the Registrant and Benjamin M.
Anderson-Ray, filed as Exhibit 10.1 to Form 8-K, as filed with the Securities and
Exchange Commission on June 28, 2005, is incorporated herein by reference. |
|
|
(10.95) |
|
Employment Agreement, dated November 15, 2006, between the Registrant and Dennis C.
Valkanoff, filed as Exhibit 10.1 to Form 8-K, as filed with the Securities and Exchange
Commission on November 20, 2006, is incorporated herein by reference. |
|
|
(10.96) |
|
Form of Restricted Stock Award Agreement for non-employee directors under the
Directors Stock Plan of the Company, filed as Exhibit 10.96 to Form 10-K, as filed
with the Securities and Exchange Commission on March 26, 2007, is incorporated herein
by reference. |
|
|
(10.97) |
|
Form of Restricted Stock Award Agreement for key employees, filed as Exhibit 10.97
to Form 10-K, as filed with the Securities and Exchange Commission on March 26, 2007,
is incorporated herein by reference. |
|
|
(10.98) |
|
Employment Agreement, dated March 22, 2007, between the Registrant and Richard J.
Garrity, filed as Exhibit 10.1 to Form 8-K, as filed with the Securities and Exchange
Commission on March 28, 2007, is incorporated herein by reference. |
|
(14) |
|
Code of Business Conduct and Ethics of Chromcraft Revington, Inc., as amended
and restated effective January 4, 2008, filed as Exhibit 14 to Form 8-K, as filed with
the Securities and Exchange Commission on January 10, 2008, is incorporated herein by
reference. |
|
|
(21.1) |
|
Subsidiaries of the Registrant (filed herewith). |
|
|
(23.1) |
|
Consent of Independent Registered Public Accounting Firm (filed herewith). |
|
|
(31.1) |
|
Certification of Chief Executive Officer required pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
|
|
(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 (filed herewith). |