Form 10-Q 3-31-07
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
quarterly period ended March 31, 2007
or
[
]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
transition period from _________
to _________
Commission
file number 1-13970
(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., Ste. 250,
West Lafayette, IN 47906
(Address,
including zip code, of registrant’s principal executive offices)
(765)
807-2640
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large
accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer
[X]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
The
number
of shares outstanding for each of the registrant’s classes of common stock, as
of the latest practicable date:
Common
Stock, $.01 par value - 6,167,876 shares as of May 2, 2007
INDEX
|
|
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Page
|
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Number
|
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PART
I. Financial Information
|
|
|
|
|
|
|
Item
1. Financial Statements (unaudited)
|
|
|
|
|
Condensed
Consolidated Statements of Operations -
Three
Months Ended March 31, 2007 and April 1, 2006
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets - March 31, 2007,
April
1, 2006 and December 31, 2006
|
4
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows -
Three
Months Ended March 31, 2007 and April 1, 2006
|
5
|
|
|
|
|
|
|
Condensed
Consolidated Statement of
Stockholders’
Equity
- Three Months Ended March 31, 2007
|
6
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
8
|
|
|
|
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition
and
Results of Operations
|
12
|
|
|
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
15
|
|
|
|
|
Item
4. Controls and Procedures
|
16
|
|
|
|
PART
II. Other Information
|
|
|
|
|
Item
1A. Risk Factors
|
16
|
|
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
17
|
|
|
|
|
Item
6. Exhibits
|
17
|
|
|
|
SIGNATURES
|
18
|
PART
I.
Item
1.
Financial Statements
Condensed
Consolidated Statements of Operations (unaudited)
Chromcraft
Revington, Inc.
(In
thousands, except per share data)
|
|
Three
Months Ended
|
|
|
|
March
31,
2007
|
|
April
1,
2006
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
33,847
|
|
$
|
45,921
|
|
Cost
of sales
|
|
|
28,357
|
|
|
36,909
|
|
Gross
margin
|
|
|
5,490
|
|
|
9,012
|
|
Selling,
general and administrative expenses
|
|
|
7,466
|
|
|
7,126
|
|
Operating
income (loss)
|
|
|
(1,976
|
)
|
|
1,886
|
|
Interest
(income) expense, net
|
|
|
(18
|
)
|
|
77
|
|
Earnings
(loss) before income tax expense (benefit)
|
|
|
(1,958
|
)
|
|
1,809
|
|
Income
tax expense (benefit)
|
|
|
(780
|
)
|
|
680
|
|
Net
earnings (loss)
|
|
$
|
(1,178
|
)
|
$
|
1,129
|
|
Earnings
(loss) per share of common stock
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(.26
|
)
|
$
|
.26
|
|
Diluted
|
|
$
|
(.26
|
)
|
$
|
.25
|
|
Shares
used in computing earnings (loss) per share
|
|
|
|
|
|
|
|
Basic
|
|
|
4,471
|
|
|
4,389
|
|
Diluted
|
|
|
4,471
|
|
|
4,453
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed consolidated financial
statements.
|
Condensed
Consolidated Balance Sheets (unaudited)
Chromcraft
Revington, Inc.
(In
thousands)
|
|
March
31,
2007
|
|
April
1,
2006
|
|
Dec.
31,
2006
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
11,002
|
|
$
|
3,137
|
|
$
|
8,418
|
|
Accounts
receivable
|
|
|
18,352
|
|
|
20,176
|
|
|
19,072
|
|
Inventories
|
|
|
26,429
|
|
|
35,956
|
|
|
28,667
|
|
Assets
held for sale
|
|
|
2,932
|
|
|
-
|
|
|
5,068
|
|
Deferred
income taxes and prepaid expenses
|
|
|
3,616
|
|
|
1,321
|
|
|
3,104
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
62,331
|
|
|
60,590
|
|
|
64,329
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
18,867
|
|
|
29,675
|
|
|
19,212
|
|
Deferred
income taxes and other assets
|
|
|
2,443
|
|
|
1,413
|
|
|
2,277
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
83,641
|
|
$
|
91,678
|
|
$
|
85,818
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
4,587
|
|
$
|
4,798
|
|
$
|
5,144
|
|
Accrued
liabilities
|
|
|
6,761
|
|
|
8,988
|
|
|
7,534
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
11,348
|
|
|
13,786
|
|
|
12,678
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
compensation
|
|
|
1,830
|
|
|
2,491
|
|
|
1,918
|
|
Other
long-term liabilities
|
|
|
984
|
|
|
1,263
|
|
|
804
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
14,162
|
|
|
17,540
|
|
|
15,400
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
69,479
|
|
|
74,138
|
|
|
70,418
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
83,641
|
|
$
|
91,678
|
|
$
|
85,818
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed consolidated financial
statements. |
|
|
Condensed
Consolidated Statements of Cash Flows (unaudited)
Chromcraft
Revington, Inc.
(In
thousands)
|
|
Three
Months Ended
|
|
|
|
March
31,
2007
|
|
April
1,
2006
|
|
Operating
Activities
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(1,178
|
)
|
$
|
1,129
|
|
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities
|
|
|
|
|
|
|
|
Depreciation
and amortization expense
|
|
|
487
|
|
|
833
|
|
Deferred
income
taxes
|
|
|
96
|
|
|
(94
|
)
|
Non-cash
ESOP
compensation expense
|
|
|
144
|
|
|
223
|
|
Non-cash
stock
compensation expense
|
|
|
95
|
|
|
124
|
|
Non-cash
inventory write-downs
|
|
|
384
|
|
|
211
|
|
Provision
for doubtful accounts
|
|
|
174
|
|
|
28
|
|
(Gain)
loss on disposal of assets
|
|
|
(357
|
)
|
|
12
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
546
|
|
|
(1,469
|
)
|
Inventories
|
|
|
1,854
|
|
|
842
|
|
Prepaid
expenses
|
|
|
(497
|
)
|
|
601
|
|
Accounts
payable
|
|
|
(557
|
)
|
|
(650
|
)
|
Accrued
liabilities
|
|
|
(788
|
)
|
|
1,648
|
|
Deferred
compensation and other long-term liabilities
and
assets
|
|
|
(170
|
)
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
|
233
|
|
|
3,383
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(167
|
)
|
|
(249
|
)
|
Proceeds on disposal of assets
|
|
|
2,518
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities
|
|
|
2,351
|
|
|
(246
|
)
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Change
in cash and cash equivalents
|
|
|
2,584
|
|
|
3,137
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of the period
|
|
|
8,418
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of the period
|
|
$
|
11,002
|
|
$
|
3,137
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed consolidated financial
statements.
|
Condensed
Consolidated Statement of Stockholders’ Equity (unaudited)
Three
Months Ended March 31, 2007
Chromcraft
Revington, Inc.
(In
thousands, except share data)
|
|
|
|
|
|
Capital
in
|
|
|
|
Common
Stock
|
|
Excess
of
|
|
|
|
Shares
|
|
Amount
|
|
Par
Value
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2007
|
|
|
7,944,163
|
|
$
|
80
|
|
$
|
18,075
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP
compensation expense
|
|
|
-
|
|
|
-
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of unearned compensation
- restricted stock grants
|
|
|
-
|
|
|
-
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option compensation expense
|
|
|
-
|
|
|
-
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2007 |
|
|
7,944,163
|
|
$
|
80
|
|
$
|
18,145
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed consolidated financial
statements. |
|
|
|
|
|
Unearned
|
|
|
|
|
|
Total
|
|
|
|
ESOP
|
|
Retained
|
|
Treasury
Stock
|
|
Stockholders'
|
|
|
|
Shares
|
|
Earnings
|
|
Shares
|
|
Amount
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(16,708
|
)
|
$
|
89,971
|
|
|
(1,776,287
|
)
|
$
|
(21,000
|
)
|
$
|
70,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
(1,178
|
)
|
|
-
|
|
|
-
|
|
|
(1,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(16,539
|
)
|
$
|
88,793
|
|
|
(1,776,287
|
)
|
$
|
(21,000
|
)
|
$
|
69,479
|
|
Notes
to
Condensed Consolidated Financial Statements (unaudited)
Chromcraft
Revington, Inc.
Note
1.
Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statement presentation.
In
the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 2007 are not necessarily
indicative of the results that may be expected for the year ending December
31,
2007.
The
balance sheet at December 31, 2006 has been derived from the audited financial
statements at that date but does not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements.
For
further information, refer to the consolidated financial statements and
footnotes thereto included in Chromcraft Revington’s annual report on Form 10-K
for the year ended December 31, 2006.
Note
2.
Restructuring and Asset Impairment Charges
In
2006,
the board of directors of the Company approved the restructuring of certain
of
the Company’s operations. The restructuring program included the shut down,
relocation, consolidation, and outsourcing of certain furniture manufacturing
and distribution operations, and is expected to be completed during 2007. The
purposes of the restructuring program are to reduce fixed costs, to improve
the
utilization of a global supply chain, and to increase asset utilization.
Restructuring
charges recorded for the three months ended March 31, 2007 were as
follows:
|
|
(In
thousands)
|
|
|
|
|
|
Restructuring
charges:
|
|
|
|
Costs to shut down, vacate and prepare for sale
|
|
$
|
287
|
|
One-time termination benefits
|
|
|
78
|
|
|
|
|
365
|
|
Asset
impairment
|
|
|
(7
|
)
|
|
|
$
|
358
|
|
|
|
|
|
|
Statements
of Operations classification:
|
|
|
|
|
Gross margin
|
|
$
|
178
|
|
Selling, general and administrative expenses
|
|
|
180
|
|
|
|
$
|
358
|
|
The
Company expects to incur total restructuring costs of $1,466,000 for one-time
termination benefits and costs to shut down, vacate and prepare the facilities
for sale as follows:
|
|
(In
thousands)
|
|
|
|
|
|
2007
|
|
|
|
|
|
Year
Ended
Dec.
31,
2006
|
|
Three
Months
Ended
March
31,
2007
|
|
Remaining
Nine
Months
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Costs
to shut down, vacate
and prepare for sale
|
|
$
|
479
|
|
$
|
287
|
|
$
|
159
|
|
$
|
925
|
|
One-time
termination benefits
|
|
|
463
|
|
|
78
|
|
|
-
|
|
|
541
|
|
|
|
$
|
942
|
|
$
|
365
|
|
$
|
159
|
|
$
|
1,466
|
|
Charges
to
expense, cash payments or adjustments for the three months ended March 31,
2007
and the restructuring liabilities at March 31, 2007 were as
follows:
|
|
(In
thousands)
|
|
|
|
|
|
Three
Months Ended March 31, 2007
|
|
|
|
|
|
Dec.
31,
2006
|
|
Charges
to
Expense
|
|
Cash
Payments
|
|
Adjustments
|
|
March
31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
to shut down, vacate and
prepare for sale
|
|
$
|
29
|
|
$
|
287
|
|
$
|
(286
|
)
|
$ |
-
|
|
$
|
30
|
|
One
time termination benefits
|
|
|
260
|
|
|
78
|
|
|
(176
|
)
|
|
- |
|
|
162
|
|
Asset
impairment
|
|
|
-
|
|
|
(7
|
)
|
|
-
|
|
|
7
|
|
|
-
|
|
|
|
$
|
289
|
|
$
|
358
|
|
$
|
(462
|
)
|
$
|
7
|
|
$
|
192
|
|
In
the
first quarter of 2007, the Company recorded a gain of $357,000 pre-tax primarily
due to the disposal of assets held for sale as part of the 2006 restructuring
program.
Note
3.
Inventories
Inventories
consisted of the following:
|
|
(In
thousands)
|
|
|
|
March
31,
|
|
April
1,
|
|
Dec.
31,
|
|
|
|
2007
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
10,125
|
|
$
|
11,308
|
|
$
|
10,876
|
|
Work-in-process
|
|
|
3,607
|
|
|
6,060
|
|
|
3,488
|
|
Finished
goods
|
|
|
16,205
|
|
|
21,700
|
|
|
17,726
|
|
|
|
|
29,937
|
|
|
39,068
|
|
|
32,090
|
|
LIFO
reserve
|
|
|
(3,508
|
)
|
|
(3,112
|
)
|
|
(3,423
|
)
|
|
|
$
|
26,429
|
|
$
|
35,956
|
|
$
|
28,667
|
|
Note
4.
Property, Plant and Equipment
Property,
plant and equipment consisted of the following:
|
|
(In
thousands)
|
|
|
|
March
31,
|
|
April
1,
|
|
Dec.
31,
|
|
|
|
2007
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
925
|
|
$
|
2,231
|
|
$
|
925
|
|
Buildings
and improvements
|
|
|
26,013
|
|
|
34,740
|
|
|
25,989
|
|
Machinery
and equipment
|
|
|
40,736
|
|
|
52,309
|
|
|
41,059
|
|
Leasehold
improvements
|
|
|
1,273
|
|
|
966
|
|
|
1,059
|
|
Construction
in progress
|
|
|
167
|
|
|
387
|
|
|
116
|
|
|
|
|
69,114
|
|
|
90,633
|
|
|
69,148
|
|
Less
accumulated depreciation
and amortization
|
|
|
(50,247
|
)
|
|
(60,958
|
)
|
|
(49,936
|
)
|
|
|
$
|
18,867
|
|
$
|
29,675
|
|
$
|
19,212
|
|
Note
5.
Accrued Liabilities
Accrued
liabilities at March 31, 2007 consisted of the following:
|
|
(In
thousands)
|
|
|
|
March
31,
|
|
April
1,
|
|
Dec.
31,
|
|
|
|
2007
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
Employee-related
benefits
|
|
$
|
1,971
|
|
$
|
2,712
|
|
$
|
1,945
|
|
Deferred
compensation
|
|
|
1,029
|
|
|
1,043
|
|
|
1,071
|
|
Sales
commissions
|
|
|
690
|
|
|
858
|
|
|
708
|
|
Other
accrued liabilities
|
|
|
3,071
|
|
|
4,375
|
|
|
3,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,761
|
|
$
|
8,988
|
|
$
|
7,534
|
|
Note
6.
Employee Stock Ownership Plan
Chromcraft
Revington sponsors a leveraged employee stock ownership plan (“ESOP”) that
covers substantially all employees who have completed six months of service.
Chromcraft Revington makes annual contributions to the ESOP Trust equal to
the
ESOP Trust’s repayment of its loan from the Company. As the ESOP loan is repaid,
shares are released and allocated to ESOP accounts of active employees based
on
the proportion of debt service paid in the year. Chromcraft Revington accounts
for its ESOP in accordance with AICPA Statement of Position 93-6, Accounting
for Employee Stock Ownership Plans. Accordingly, unearned ESOP shares are
reported as a reduction of stockholders’ equity as reflected in the Condensed
Consolidated Statement of Stockholders’ Equity of the Company. As shares are
committed to be released, Chromcraft Revington reports compensation expense
equal to the current market price of the shares, and the shares become
outstanding for earnings (loss) per share computations. ESOP compensation
expense, a non-cash charge, for the
three
months ended March 31, 2007 and April 1, 2006 was $144,000 and $223,000,
respectively. ESOP shares consisted of the following:
|
|
(In
thousands)
|
|
|
|
March
31,
2007
|
|
April
1,
2006
|
|
Dec.
31,
2006
|
|
|
|
|
|
|
|
|
|
Allocated
shares
|
|
|
266
|
|
|
244
|
|
|
296
|
|
Committed
to be released shares
|
|
|
17
|
|
|
17
|
|
|
-
|
|
Unearned
ESOP shares
|
|
|
1,654
|
|
|
1,722
|
|
|
1,671
|
|
Total
ESOP shares
|
|
|
1,937
|
|
|
1,983
|
|
|
1,967
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
ESOP shares, at cost
|
|
$
|
16,540
|
|
$
|
17,216
|
|
$
|
16,708
|
|
Fair
value of unearned ESOP shares
|
|
$
|
15,911
|
|
$
|
23,173
|
|
$
|
14,353
|
|
Note
7.
Earnings per Share of Common Stock
Due
to the
net loss in the three months ended March 31, 2007, loss per share, basic and
diluted, are the same, as the effect of potential common shares would be
antidilutive. For the three months ended April 1, 2006, weighted average shares
used in the calculation of diluted earnings per share included dilutive
potential common shares of approximately 64,000.
Note
8.
Income Taxes
The
Company adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN
48”), on January 1, 2007. The implementation of FIN 48 did not result in
recognition of previously unrecognized tax benefits. At January 1, 2007 and
March 31, 2007, the Company had $270,000 of unrecognized tax benefits, all
of
which would affect the effective tax rate if recognized.
The
Company or its subsidiaries file income tax returns in the U.S. federal and
various state jurisdictions. The Internal Revenue Service concluded an
examination of the Company’s U.S. income tax return for the year ended December
31, 2002, with no proposed adjustments. With few exceptions, the Company
is no
longer subject to state or local income tax examinations by tax authorities
for
years before 2003.
The
Company recognizes interest and penalties related to unrecognized tax benefits
as a component of income tax expense in the consolidated financial statements.
During the quarter ended March 31, 2007, the Company paid and recognized
approximately $4,000 in interest and penalties.
Item
2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Overview
In
recent
years, the value chain of the furniture industry has rapidly shifted to a global
marketplace. This dramatic shift toward imported products has been a powerful
driver of improved consumer value. It has also created a highly dynamic retail
environment of changing buying power and channel concentrations. In the wake
of
this upheaval, many U.S. based furniture manufacturing plants have been closed.
To adapt to this new global marketplace reality, the Company is in the process
of redefining its value proposition and organizational structure to serve the
evolving furniture marketplace.
Chromcraft
Revington’s business strategy is to develop products based on consumer research
utilizing a global supply chain and U.S.-based built-to-order manufacturing
capabilities. Recently, the Company began a transformation to a more integrated
organizational model by appointing senior managers to lead its sales, marketing
and product development, supply chain and finance functions. Under this
centralized functional structure, the Company recently converted its multi-line
sales representation to a unified exclusive sales force and combined its various
product development and marketing brand organizations. In addition, the Company
is in the process of shifting its U.S. manufacturing operations to greater
use
of a global supply chain and built-to-order capabilities. The
Company believes these actions are necessary to effectively compete in the
global furniture industry.
In
addition, the Company implemented a restructuring program in 2006 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 increase asset utilization. Two manufacturing plants and one stand-alone
distribution center were closed in 2006.
Chromcraft
Revington recorded a net loss of $1,178,000 for the first quarter of 2007 as
compared to net earnings of $1,129,000 for the prior year period. During the
first three months of 2007, the Company’s cash position increased $2,584,000 to
$11,002,000 at March 31, 2007. The increase in cash was primarily due to
proceeds received from asset sales as part of the 2006 restructuring program.
At
March 31, 2007, the Company had no bank indebtedness.
As
the
Company continues to adapt to the global furniture marketplace and integrates
functions common to its various products, additional restructuring charges,
asset impairments, duplicate costs, reduced revenues, increased operating
expenses and disruptions to the organization may occur.
Results
of Operations
The
following table sets forth the Condensed Consolidated Statements of Operations
of Chromcraft Revington for the three months ended March 31, 2007 and April
1,
2006 expressed as a percentage of sales.
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
April
1,
|
|
|
|
2007
|
|
2006
|
|
Sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of sales
|
|
|
83.8
|
|
|
80.4
|
|
Gross
margin
|
|
|
16.2
|
|
|
19.6
|
|
Selling,
general and administrative expenses
|
|
|
22.1
|
|
|
15.5
|
|
Operating
income (loss)
|
|
|
(5.9
|
)
|
|
4.1
|
|
Interest
(income) expense, net
|
|
|
(0.1
|
)
|
|
0.2
|
|
Earnings
(loss) before income tax
expense (benefit)
|
|
|
(5.8
|
)
|
|
3.9
|
|
Income
tax expense (benefit)
|
|
|
(2.3
|
)
|
|
1.4
|
|
Net
earnings (loss)
|
|
|
(3.5
|
)%
|
|
2.5
|
%
|
Consolidated
sales for the three months ended March 31, 2007 of $33,847,000 represented
a
26.3% decrease from $45,921,000 reported for the prior year period. Shipments
for the current quarter were lower as compared to the prior year period
primarily due to competitive pressure from imports, a soft furniture retail
environment, and the impact of a major change to the Company’s sales structure.
All residential furniture product category shipments, particularly in occasional
furniture, were lower in the first quarter as compared to the same period
last
year. Commercial furniture shipments were higher as compared to the same
period
in the prior year. During the first quarter, the Company restructured and
realigned its residential sales organizations. As part of its ongoing
transformation, the Company combined its residential sales management and
shifted to exclusive sales representation of its brands. In the past, the
Company used multi-line independent representatives who carried other
furniture companies' products. These sales representatives were managed by
separate divisions of Chromcraft Revington. This divisional structure made
it
difficult for the Company to coordinate activities between its brands.
The
consolidated sales decrease in the first quarter of 2007 was primarily due
to
lower unit volume.
Gross
margin decreased $3,522,000 to $5,490,000, or 16.2% of sales, for the first
three months of 2007 from $9,012,000, or 19.6% of sales, for the prior year
period. The lower gross margin in 2007 was primarily due to a lower sales
volume, which impacted fixed cost absorption and manufacturing efficiencies,
and
an unfavorable sales mix. In addition, gross margin in 2007 included a charge
of
$178,000 pre-tax for restructuring related costs in connection with the
Company’s 2006 restructuring program. In the three month period ended March 31,
2007, the Company recognized a $357,000 pre-tax gain on asset sales, which
favorably impacted gross margin.
Selling,
general and administrative expenses as a percentage of sales, were 22.1%
for the
first quarter of 2007 as compared to 15.5% for the prior year period. The
higher
percentage in 2007 was primarily due to fixed selling and administrative
costs
spread over a lower sales volume. In addition, product development and marketing
costs were higher in the first quarter of 2007 as compared to the same period
last year. Selling, general and administrative expenses for the three month
period ended March 31, 2007 also included a charge of $180,000 pre-tax for
restructuring related costs in connection with the Company's 2006 restructuring
program.
Net
interest income was $18,000 in the first quarter of 2007 as compared to net
interest expense of $77,000 in the prior year period. Net interest income for
the three months ended March 31, 2007 was primarily due to an increase in cash
equivalents investments as compared to the year earlier period.
Chromcraft
Revington’s effective income tax (benefit) rate was (39.8%) for the first three
months of 2007 as compared to 37.6% for the prior year period. The higher
effective tax rate for the quarter ended March 31, 2007 reflects the impact
of
book income not subject to tax.
Liquidity
and Capital Resources
Operating
activities provided cash of $233,000 for the three months ended March 31, 2007
as compared to $3,383,000 for the same period last year. The decrease in cash
from operating activities in 2007 as compared to the prior year period was
primarily due to an operating loss in the current period.
Investing
activities generated cash of $2,351,000 in the first quarter of 2007 as compared
to $246,000 of cash used in the prior year period. During the first quarter
of
2007, the Company received cash proceeds of $2,518,000 on asset sales as part
of
the 2006 restructuring program. Cash used for capital expenditures was $167,000
during the first three months of 2007, as compared to $249,000 spent during
the
same period last year. The Company plans to implement a new enterprise resource
planning application software in 2007. Vendor selection and costs have not
been
determined for this project; however, the Company expects that capital
expenditures in 2007 will exceed the 2006 capital expenditures
level.
The
Company’s primary sources of liquidity are cash from operating activities, cash
on hand, cash proceeds from assets held for sale and its external borrowing
capacity. At March 31, 2007 the Company had approximately $2.5 million in
availability under its unsecured bank credit facility and no borrowings.
Availability under the bank credit facility is based on a multiple of trailing
twelve months cash flow and, therefore, has been limited based on the Company’s
recent operating performance. The Company is in the process of replacing its
bank credit facility with a secured asset based bank credit facility that is
expected to provide credit availability in excess of $20 million. Management
believes that its internal cash resources and external borrowing capacity are
adequate to meet its short and long term liquidity requirements.
Recently
Issued Accounting Standards
In
September 2006, FASB issued Statement of Financial Accounting Standards No.
157,
Fair Value Measurements (“FAS 157”), which is effective prospectively
for the fiscal year beginning after November 15, 2007. FAS 157 provides a single
authoritative definition of fair
value,
a
framework for measuring fair value, and requires additional disclosure about
fair value measurements. Although the Company has not completed its analysis
of
FAS 157, it is not expected to have a material impact.
In
February 2007, FASB issued Statement of Financial Accounting Standards No.
159,
The Fair Value Option for Financial Assets and Financial Liabilities
-
including an amendment of FASB No. 115 (“FAS 159”), which is effective
prospectively for the fiscal year beginning after November 15, 2007. FAS
159
permits entities to measure many financial instruments and certain other
items
at fair value, expanding the use of fair value measurement consistent with
FAS
No. 157. Although no material impact is expected, the Company has not yet
completed its analysis of FAS 159.
Forward-Looking
Statements
Certain
information and statements contained in this report, including, without
limitation, in the section captioned “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can be generally identified as such because
they include future tense or dates, or are not historical or current facts,
or
include words such as “believes,” “may,” “expects,” “intends,” “plans,” or words
of similar import. Forward-looking statements are not guarantees of performance
or outcomes and are subject to certain risks and uncertainties that could cause
actual results or outcomes to differ materially from those reported, expected,
or anticipated as of the date of this report.
Among
the
risks and uncertainties that could cause actual results or outcomes to differ
materially from those reported, expected or anticipated are general economic
conditions; import and domestic competition in the furniture industry; ability
of the Company to execute its business strategies and implement its new business
model; market interest rates; consumer confidence levels; cyclical nature of
the
furniture industry; consumer and business spending; changes in relationships
with customers; customer acceptance of existing and new products; new home
and
existing home sales; other factors that generally affect business; and the
risk
factors set forth in this Form 10-Q and the Company's annual
report on Form 10-K for the year ended December 31, 2006.
The
Company does not undertake any obligation to update or revise publicly any
forward-looking statements to reflect information, events or circumstances
after
the date of such statements or to reflect the occurrence of anticipated or
unanticipated events or circumstances.
Item
3.
Quantitative and Qualitative Disclosures About Market Risk
The
Company had no bank indebtedness in the first quarter of 2007 and, therefore,
no
interest rate risk.
The
Company sources certain raw materials and finished furniture, primarily from
China. These purchases are fixed price contracts payable in U.S. dollars and,
therefore, the Company has no material foreign exchange rate risk
exposure.
As
part of
the 2006 restructuring program, certain inventories were written down to
anticipated net realizable value, and assets held for sale were recorded
at fair
value. These assets are subject to market changes, which may require the
Company
to make further write-downs or may result in further impairments.
Item
4.
Controls and Procedures
Chromcraft
Revington’s principal executive officer and principal financial officer have
concluded, based upon their evaluation, that the Company’s disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Securities Exchange
Act
of 1934, as amended), were effective as of the end of the period covered
by this
Form 10-Q.
There
have
been no significant changes in Chromcraft Revington’s internal control over
financial reporting that occurred during the first quarter of 2007 that may
have
materially affected, or are reasonably likely to materially affect, Chromcraft
Revington’s internal control over financial reporting.
PART
II.
Item
1A. Risk Factors
We
may
have difficulty returning to profitability.
The
Company incurred an operating loss in the first quarter of 2007. The Company
will need to increase sales, reduce expenses, and/or improve manufacturing
processes in order to return to profitability in future periods.
We
may
not be able to effectively source our products competitively.
The
continued transformation of the business will require enhanced global sourcing
capabilities. To respond to competitive pressures and customer requirements,
the
Company will need to develop new and better products and source effectively
in
lower labor cost areas, such as China. Without an improvement in these
capabilities sales and operating results can be negatively
impacted.
Item
2.
Unregistered Sales of Equity Securities and Use of Proceeds
The
following table represents information with respect to shares of Chromcraft
Revington common stock repurchased by the Company during the quarter ended
March
31, 2007.
Purchase
of Equity Securities
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
number (or
|
|
|
|
|
|
|
|
|
|
approximate
|
|
|
|
|
|
|
|
|
|
dollar
value)
|
|
|
|
|
|
|
|
|
|
of
shares that
|
|
|
|
|
|
|
|
as
part
|
|
may
yet be
|
|
|
|
|
|
|
|
|
|
purchased
|
|
|
|
number
|
|
|
|
announced
|
|
under
the
|
|
|
|
of
shares
|
|
paid
|
|
plans
or
|
|
plans
or
|
|
Period
|
|
purchased
|
|
per
share
|
|
programs
|
|
programs
(1)
|
|
|
|
|
|
|
|
|
|
|
|
January
1, 2007 to January 27, 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
702,965
|
|
January
28, 2007 to February 24, 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
702,965
|
|
February
25, 2007 to March 31, 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
702,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
(1)
The
Company has maintained a share repurchase program since 1997.
Item
6.
Exhibits
3.1
|
Certificate
of Incorporation of the Registrant, as amended, filed as Exhibit
3.1 to
Form S-1, registration number 33-45902, as filed with the Securities
and
Exchange Commission on February 21, 1992, is incorporated herein
by
reference.
|
3.2
|
By-laws
of the Registrant, as amended, filed as Exhibit 3.2 to Form 8-K,
as filed
with the Securities and Exchange Commission on December 12, 2005,
is
incorporated herein by reference.
|
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).
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, Chromcraft
Revington, Inc. has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
|
|
Chromcraft
Revington, Inc.
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
|
|
Date:
|
May
14, 2007
|
|
By:
|
/s/
Frank T. Kane
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Frank
T. Kane
Sr.
Vice President-Finance
(Duly
Authorized Officer and Principal Accounting and Financial
Officer)
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