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 September 26, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-13970
CHROMCRAFT REVINGTON, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 35-1848094
- - ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1100 North Washington Street, Delphi, IN 46923
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(Address, including zip code, of Registrant's principal executive offices)
(765) 564-3500
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(Registrant's telephone number, including area code)
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 [ ]
The number of shares outstanding for each of the Registrant's classes of common
stock as of the latest practicable date: 10,925,888 shares of the Company's
Common Stock, $.01 par value, were outstanding as of October 30, 1998.
TABLE OF CONTENTS
Page Number
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Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Earnings . . . . . . 3
Condensed Consolidated Balance Sheets . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows . . . . . 5
Notes to Condensed Consolidated Financial Statements. . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 7
Part II. Other Information
Item 6. Exhibits and reports on Form 8-K . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2
Part I. Financial Information
------------------------------
Item 1. Financial Statements
Condensed Consolidated Statements of Earnings (unaudited)
Chromcraft Revington, Inc.
(In thousands, except per share data)
Three Months Ended Nine Months Ended
------------------------ ------------------------
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
1998 1997 1998 1997
--------- --------- --------- ---------
Sales $ 56,337 $ 52,821 $ 174,639 $ 166,364
Cost of sales 41,860 39,419 130,541 124,856
--------- --------- --------- ---------
Gross margin 14,477 13,402 44,098 41,508
Selling, general and
administrative expenses 7,741 7,160 23,626 23,011
--------- --------- --------- ---------
Operating income 6,736 6,242 20,472 18,497
Interest expense 224 323 556 988
--------- --------- --------- ---------
Earnings before income
tax expense 6,512 5,919 19,916 17,509
Income tax expense 2,599 2,368 7,947 7,004
--------- --------- --------- ---------
Net earnings $ 3,913 $ 3,551 $ 11,969 $ 10,505
========= ========= ========= =========
Earnings per share
of common stock
Basic $ .35 $ .31 $ 1.07 $ .92
========= ========= ========= =========
Diluted $ .34 $ .30 $ 1.03 $ .89
========= ========= ========= =========
Shares used in computing
earnings per share
Basic 11,081 11,387 11,209 11,442
========= ========= ========= =========
Diluted 11,477 11,704 11,614 11,766
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
3
Condensed Consolidated Balance Sheets (unaudited)
Chromcraft Revington, Inc.
(In thousands)
Sept. 26, Sept. 27, Dec. 31,
Assets 1998 1997 1997
------ --------- --------- ---------
Accounts receivable $ 33,495 $ 32,232 $ 26,905
Inventories 41,334 35,731 35,172
Deferred income taxes and other assets 2,794 3,170 2,974
--------- --------- ---------
Current assets 77,623 71,133 65,051
Property, plant and equipment, net 36,829 37,330 37,445
Intangibles and other assets 23,273 24,159 23,648
--------- --------- ---------
Total assets $ 137,725 $ 132,622 $ 126,144
========= ========= =========
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable $ 9,304 $ 7,871 $ 8,450
Accrued liabilities 14,127 15,277 12,670
--------- --------- ---------
Current liabilities 23,431 23,148 21,120
Revolving credit facility 11,800 18,000 9,000
Deferred income taxes and other liabilities 5,055 4,939 5,118
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Total liabilities 40,286 46,087 35,238
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Stockholders' equity
Common stock and capital
in excess of par value 13,952 19,154 19,388
Retained earnings 83,487 67,381 71,518
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Total stockholders' equity 97,439 86,535 90,906
--------- --------- ---------
Total liabilities and
stockholders' equity $ 137,725 $ 132,622 $ 126,144
========= ========= =========
See accompanying notes to condensed consolidated financial statements.
4
Condensed Consolidated Statements of Cash Flows (unaudited)
Chromcraft Revington, Inc.
(In thousands)
Nine Months Ended
------------------------
Sept. 26, Sept. 27,
1998 1997
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Operating Activities
Net earnings $ 11,969 $ 10,505
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 3,398 3,351
Deferred income taxes 332 997
Changes in assets and liabilities, net
Accounts receivable (6,590) (2,448)
Inventories (6,162) (3,335)
Accounts payable and accrued liabilities 2,311 (3,377)
Other (449) 104
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Cash provided by operating activities 4,809 5,797
--------- ---------
Investing Activities
Capital expenditures (2,177) (1,783)
Disposal of property, plant and equipment 4 81
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Cash used in investing activities (2,173) (1,702)
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Financing Activities
Net borrowings (repayments) under
revolving credit facility 2,800 (2,200)
Proceeds from exercise of stock options 148 -
Repurchase and cancellation of common stock (5,584) (1,895)
--------- ---------
Cash used in financing activities (2,636) (4,095)
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Net change in cash $ - $ -
========= =========
See accompanying notes to condensed consolidated financial statements.
5
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 generally accepted accounting principles 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 generally accepted accounting principles 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 nine month period ended September 26, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant's annual report on Form 10-K for
the year ended December 31, 1997.
Note 2. Two-For-One Stock Split
The Board of Directors of Chromcraft Revington, Inc. declared a two-for-one
stock split to stockholders of record on May 27, 1998. The additional shares
were distributed to stockholders on June 10, 1998. All references to the number
of shares outstanding and per share amounts in the condensed consolidated
financial statements and notes reflect the stock split.
Note 3. Shares Used In Computing Earnings Per Share
Weighted average shares used in the calculation of diluted earnings per share
included dilutive potential common shares (stock options) of approximately
396,000 and 317,000 shares for the three months ended September 26, 1998 and
September 27, 1997, respectively, and 405,000 and 324,000 shares for the nine
months ended September 26, 1998 and September 27, 1997, respectively.
Note 4. Inventories
Inventories consisted of the following:
(In thousands)
---------------------------------------
Sept. 26, Sept. 27, Dec. 31,
1998 1997 1997
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Raw materials $ 14,463 $ 10,740 $ 11,033
Work-in-process 7,118 6,337 5,810
Finished goods 21,717 20,088 19,880
--------- --------- ---------
Inventories at FIFO cost 43,298 37,165 36,723
LIFO reserve (1,964) (1,434) (1,551)
--------- --------- ---------
$ 41,334 $ 35,731 $ 35,172
========= ========= =========
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Note 5. Accrued Liabilities
Accrued liabilities consisted of the following:
(In thousands)
--------------------------------------
Sept. 26, Sept. 27, Dec. 31,
1998 1997 1997
--------- --------- --------
Employee benefit plans $ 3,642 $ 4,003 $ 3,999
Salaries, wages and commissions 2,200 2,049 1,497
Vacation and holiday pay 1,498 1,887 1,234
Workers' compensation plans 1,266 1,115 1,268
Advertising and promotion 1,584 1,690 978
Other accrued liabilities 3,937 4,533 3,694
--------- --------- --------
$ 14,127 $ 15,277 $ 12,670
========= ========= ========
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The following table sets forth the results of operations of Chromcraft
Revington, Inc. (the "Company") for the three and nine months ended September
26, 1998 and September 27, 1997 expressed as a percentage of sales.
Three Months Ended Nine Months Ended
------------------------ ------------------------
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
1998 1997 1998 1997
--------- --------- --------- ---------
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 74.3 74.6 74.7 75.0
--------- --------- --------- ---------
Gross margin 25.7 25.4 25.3 25.0
Selling, general and
administrative expenses 13.7 13.6 13.6 13.9
--------- --------- --------- ---------
Operating income 12.0 11.8 11.7 11.1
Interest expense .5 .6 .3 .6
--------- --------- --------- ---------
Earnings before
income tax expense 11.5 11.2 11.4 10.5
--------- --------- --------- ---------
Income tax expense 4.6 4.5 4.5 4.2
--------- --------- --------- ---------
Net earnings 6.9 % 6.7 % 6.9 % 6.3 %
========= ========= ========= =========
Three and Nine Months Ended September 26, 1998 Compared to Three and Nine Months
Ended September 27, 1997.
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Sales
Consolidated sales for the three and nine months ended September 26, 1998
increased 6.7% and 5.0%, respectively, as compared to the prior year periods.
7
The sales increase for the quarter and first nine months of 1998 was primarily
due to higher shipments of occasional, bedroom and commercial furniture. Dining
room furniture sales were slightly lower for the quarter and nine months ended
September 26, 1998 as compared to the same periods last year. Upholstered
furniture sales were lower for the three and nine months ended September 26,
1998 as compared to the prior year periods primarily due to the elimination of
low margin and nonprofitable products.
The sales increase for the first nine months of 1998 was primarily attributable
to higher volume. Selling prices were slightly higher as compared to a year
ago. Sales order backlog at the end of the third quarter was at approximately
the same level as compared to the prior year.
Cost of Sales
Cost of sales as a percentage of sales was 74.3% and 74.7% for the three and
nine month periods ended September 26, 1998, respectively, as compared to 74.6%
and 75.0% for the three and nine month periods ended September 27, 1997. The
cost percentage decrease for the third quarter of 1998 was primarily due to
improved operating results at the Company's Cochrane Furniture subsidiary and a
more favorable mix of products sold. The gross margin improvement was partially
offset by manufacturing inefficiencies, primarily due to start-up costs incurred
for new product introductions and employee attrition resulting from tight labor
market conditions. In addition, raw material costs and self-insured employee
medical costs were higher as compared to the prior year period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales were 13.7%
and 13.6% for the three and nine month periods ended September 26, 1998 as
compared to 13.6% and 13.9% for the year ago periods, respectively. Selling,
general and administrative expenses as a percentage of sales for the third
quarter was up slightly as compared to the prior year quarter due, in part, to
higher incentive earnings and an increase in showroom rent expense.
Interest Expense
Interest expense for the third quarter of 1998 was $224,000 as compared to
$323,000 for the prior year period. For the first nine months of 1998, interest
expense was $556,000 as compared to $988,000 for the year-earlier period. The
decrease in interest expense for 1998 was primarily due to lower average bank
borrowings.
Income Tax Expense
The Company's effective tax rate was 39.9% for the three and nine month periods
ended September 26, 1998 as compared to 40.0% for the three and nine month
periods ended September 27, 1997. The slight reduction in the Company's
effective tax rate was due to lower state income taxes.
Liquidity and Capital Resources
The operating activities of the Company provided $4,809,000 of cash during the
nine months ended September 26, 1998 as compared to $5,797,000 during the nine
months ended September 27, 1997. The decrease in cash generated from operating
activities during the first nine months of 1998 as compared to the prior year
period was mainly due to an increase in working capital investment, primarily in
8
inventories and accounts receivable. Inventories at September 26, 1998 were
$5,603,000 higher as compared to the year ago level. The build-up of
inventories was due, in part, to an increase in imported furniture and parts
that require longer lead times to insure timely delivery to customers. The
Company expects inventory levels to decline in the fourth quarter of this year.
Higher accounts receivable at September 26, 1998, as compared to the prior year
quarter end, were primarily attributable to the increased sales volume in 1998.
The Company invested $2,177,000 in capital expenditures for the first nine
months of 1998 as compared to $1,783,000 during the year ago period. The
Company expects additions to property, plant and equipment to be approximately
$3,200,000 for the year ending December 31, 1998. Capital expenditures for the
year ended December 31, 1997 were $2,712,000.
The Company's financing activities used $2,636,000 of cash during the first nine
months of 1998 as compared to $4,095,000 used during the first nine months of
1997. The Company's Board of Directors authorized the repurchase of the
Company's common stock. For the nine months ended September 26, 1998, the
Company retired 311,248 shares of common stock purchased for $5,584,000. For
the same period last year, the Company retired 141,600 shares purchased for
$1,895,000. As of September 26, 1998, 537,152 shares were available for
repurchase under the stock buyback program.
For the first nine months of 1998, the Company financed a portion of its cash
needs through additional borrowings under its bank revolving credit facility.
Total borrowings under the facility were $11,800,000 at September 26, 1998.
Unused capacity under the revolving credit facility, after reduction for
outstanding letters of credit, equaled $46,579,000 at the end of the third
quarter.
Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Company has
established committees at its operating subsidiaries to identify Year 2000
issues, including a review and assessment of information technology (IT) and
non-IT systems (embedded technology). The Company has determined that it will
be required to modify or replace portions of its computer software and hardware
systems so that they will properly utilize dates beyond December 31, 1999. The
Company has initiated remediation and testing, and estimates that the Year 2000
project will be completed by the end of the second quarter 1999. The Company
expects to spend approximately $300,000 and $500,000 in 1998 and 1999,
respectively, primarily for computer hardware and operating system replacement,
for Year 2000 compliance. Most of these expenditures will be capitalized and
funded through operating cash flow. While the Company has been conducting a
comprehensive Year 2000 review of its IT and non-IT systems, there may be Year
2000-related matters that have not been identified.
The Company has received information from significant suppliers or third party
service providers on their plans to address the Year 2000 issue. While the
Company expects a successful resolution of its Year 2000 issues, there can be no
assurances that systems of other companies on which the Company relies will be
timely converted or that the failure to convert by another company would not
have an adverse effect on the Company's systems. The Company has not learned of
any systems of another company on which the Company relies which will not be
Year 2000 compliant. The Company has initiated development of contingency plans
in the event of a business interruption due to the Year 2000 issue, including
the identification of alternate suppliers.
9
Forward-Looking Statements
Certain matters included in this discussion are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Certain forward-looking statements are contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," including
expenditures to address, and the impact of, Year 2000 computer issues. These
forward looking statements can be generally identified as such because the
context of the statements includes words such as "plans," "may" and "expects" or
words of similar import. All forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those reported or expected as of the date of this report. Among the risks
and uncertainties that could cause actual results to differ materially from
those reported or anticipated are (i) general economic conditions, (ii) cyclical
nature of the furniture industry, and (iii) competition in the furniture
industry.
Part II. Other Information
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHROMCRAFT REVINGTON, INC.
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(Registrant)
Date: November 9, 1998 /s/ Frank T. Kane
---------------- --------------------------
Frank T. Kane
Vice President - Finance
(Duly Authorized Officer and
Chief Financial Officer)
10