SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 8, 1996
CHROMCRAFT REVINGTON, INC.
----------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 1-13970 35-1848094
- - - - ---------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
1100 North Washington Street, Delphi, IN 46923
- - - - ---------------------------------------- --------
(Address of Principal Executive Offices) Zip Code
(317) 564-3500
----------------------------------------------------
(Registrant's telephone number, including area code)
The undersigned Registrant hereby amends Item 7 of its Current Report on
Form 8-K previously filed with the Securities and Exchange Commission on
November 23, 1996 as set forth below.
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired
(1) Audited Balance Sheets for Cochrane Furniture Company,
Inc. as of March 30, 1996 and April 1, 1995, the related
Statements of Operations, Stockholders' Equity and Cash
Flows for each of the years in the three-year period ended
March 30, 1996, the Notes to Financial Statements and the
Independent Auditor's Report.
(b) Pro forma financial information
(1) Pro Forma Condensed Consolidated Balance Sheet of the
Registrant as of September 28, 1996 (Unaudited).
(2) Pro Forma Condensed Consolidated Statement of Earnings of
the Registrant for the Nine Months Ended September 28,
1996 (Unaudited).
(3) Pro Forma Condensed Consolidated Statement of Earnings of
the Registrant for the Year Ended December 31, 1995
(Unaudited).
(4) Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements.
(c) Exhibits
2 Agreement and Plan of Merger dated October 10, 1996 by and
among the Registrant, Cochrane Furniture Company, Inc. and
CRI Acquisition Corporation (Incorporated by reference to
Exhibit 2 of the Registrant's Form 8-K, File No. 0-19894,
dated November 4, 1996).
2
Pro Forma Financial Information
Chromcraft Revington, Inc.
The following unaudited pro forma condensed consolidated balance sheet
of Chromcraft Revington, Inc. (the "Company") at September 28, 1996
gives effect to an Agreement and Plan of Merger (the "Merger Agreement")
dated October 10, 1996 by and among the Company, CRI Acquisition
Corporation and Cochrane Furniture Company, Inc. ("Cochrane Furniture")
as if the merger contemplated by the Merger Agreement had occurred on
such date. The unaudited pro forma condensed consolidated statement of
earnings of the Company for the nine months ended September 28, 1996
gives effect to the Merger Agreement as if the merger contemplated
thereby had occurred on January 1, 1996. The unaudited pro forma
condensed consolidated statement of earnings of the Company for the year
ended December 31, 1995 combines the operating results of Cochrane
Furniture for the fiscal year ended March 30, 1996 and the Company's
operating results for the year ended December 31, 1995 and gives effect
to the merger as if it had occurred at the beginning of the period.
Operating results of Cochrane Furniture for the quarter ended March 30,
1996 are included in each of the pro forma condensed consolidated
statements of earnings.
The pro forma financial statements do not purport to represent what the
Company's financial position or results of operations would actually
have been if the acquisition of Cochrane Furniture had in fact occurred
on such dates or to project the Company's financial position or results
of operations as of any future date or for any future period. Information
regarding the Company's actual results of operations for the periods
presented may be obtained from the respective filings on Form 10-K and 10-Q.
3
Pro Forma Condensed Consolidated Balance Sheet (unaudited)
Chromcraft Revington, Inc.
September 28, 1996
(In thousands)
(a)
Chromcraft Cochrane Purchase
Revington, Furniture Adjust-
Inc. Co., Inc. ments Pro Forma
----------- ----------- ------------ ------------
Assets
- - - - ------
Cash and cash equivalents $ 561 $ - $ - $ 561
Accounts receivable 24,454 9,532 - 33,986
Inventories 21,285 11,840 (1,354) (b) 31,771
Deferred income taxes
and other assets 1,492 1,236 2,172 (c) 4,900
----------- ----------- ------------ ------------
Current assets 47,792 22,608 818 71,218
Property, plant and
equipment, net 22,891 12,593 3,699 (d) 39,183
Goodwill and tradenames 21,086 - - 21,086
Other assets 2,198 1,406 (809) (e) 2,795
----------- ----------- ------------ ------------
Total assets $ 93,967 $ 36,607 $ 3,708 $ 134,282
=========== =========== ============ ============
Liabilities and Stockholders' Equity
- - - - ------------------------------------
Accounts payable $ 6,431 $ 6,224 $ - $ 12,655
Accrued liabilities 10,522 4,711 1,350 (f) 16,583
Current portion of
long term debt - 17,372 (17,372) (g) -
----------- ----------- ------------ ------------
Current liabilities 16,953 28,307 (16,022) 29,238
Long term debt - 4,875 17,372 (g) 25,730
3,483 (h)
Deferred income taxes and
other liabilities 2,861 2,794 (994) (c) 5,161
500 (i)
----------- ----------- ------------ ------------
Total liabilities 19,814 35,976 4,339 60,129
----------- ----------- ------------ ------------
Stockholders' equity 74,153 631 (631) (a) 74,153
----------- ----------- ------------ ------------
Total liabilities and
stockholders' equity $ 93,967 $ 36,607 $ 3,708 $ 134,282
=========== =========== ============ ============
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
4
Pro Forma Condensed Consolidated Statement of Earnings (unaudited)
Chromcraft Revington, Inc.
For the Nine Months Ended September 28, 1996
(In thousands, except per share data)
Chromcraft Cochrane Purchase
Revington, Furniture Adjust-
Inc. Co., Inc. ments Pro Forma
------------ ------------ ------------- ------------
Sales $ 123,002 $ 60,433 $ - $ 183,435
Cost of sales 89,175 54,468 (379) (k) 143,264
------------ ------------ ------------- ------------
Gross margin 33,827 5,965 379 40,171
Selling, general and
administrative expenses 16,852 8,972 (86) (k) 25,738
------------ ------------ ------------- ------------
Operating income 16,975 (3,007) 465 14,433
Interest expense (income), net (20) 1,745 (396) (l) 1,329
------------ ------------ ------------- ------------
Earnings before income
tax expense 16,995 (4,752) 861 13,104
Income tax (benefit) expense 6,798 - (1,556) (m) 5,242
------------ ------------ ------------- ------------
Net earnings $ 10,197 $ (4,752) $ 2,417 $ 7,862
============ ============ ============= ============
Earnings per share
Primary $ 1.73 $ 1.34
============ ============
Fully diluted $ 1.73 $ 1.34
============ ============
Average common shares
and equivalents outstanding 5,886 5,886
============ ============
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
5
Pro Forma Condensed Consolidated Statement of Earnings (unaudited)
Chromcraft Revington, Inc.
Year Ended December 31, 1995
(In thousands, except per share data)
(j)
Chromcraft Cochrane Purchase
Revington, Furniture Adjust-
Inc. Co., Inc. ments Pro Forma
------------ ------------ ------------- ------------
Sales $ 152,609 $ 85,698 $ - $ 238,307
Cost of sales 111,787 76,520 (553) (k) 187,754
------------ ------------ ------------- ------------
Gross margin 40,822 9,178 553 50,553
Selling, general and
administrative expenses 20,478 14,456 (n) (117) (k) 34,817
------------ ------------ ------------- ------------
Operating income 20,344 (5,278) 670 15,736
Interest expense (income), net 236 2,104 (107) (l) 2,233
------------ ------------ ------------- ------------
Earnings before income
tax expense 20,108 (7,382) 777 13,503
Income tax (benefit) expense 8,134 (343) (2,322) (m) 5,469
------------ ------------ ------------- ------------
Net earnings $ 11,974 $ (7,039) $ 3,099 $ 8,034
============ ============ ============= ============
Earnings per share
Primary $ 2.04 $ 1.37
============ ============
Fully diluted $ 2.03 $ 1.36
============ ============
Average common shares
and equivalents outstanding 5,867 5,867
============ ============
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
6
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
Chromcraft Revington, Inc.
(a) To record the purchase price allocation using the purchase method
of accounting based upon the fair value of the assets acquired and
the liabilities assumed. The purchase price of the merger
consisted of a cash payment to Cochrane Furniture stockholders of
$2,213,000, acquisition related expenses of approximately
$1,270,000 and the assumption of Cochrane Furniture's liabilities.
The Company's revolving credit agreement imposes restrictions on
the ability of the Company's subsidiaries (including Cochrane
Furniture) to incur indebtedness outside of the revolving
credit facility. Accordingly, substantially all the Cochrane
Furniture indebtedness has been refinanced with borrowings under
the Company's revolving credit facility. A reconciliation of the
allocation of the excess of the purchase price over the book value
of the net assets acquired is provided below.
Book value of net assets acquired $ 631,000
To adjust the book value of balance sheet
items to their estimated fair values:
Inventories (1,354,000)
Deferred income taxes 3,166,000
Property, plant and equipment 3,699,000
Other long term assets (809,000)
Accrued liabilities (1,350,000)
Other long term liabilities (500,000)
-------------
Net purchase price $ 3,483,000
=============
Descriptions of these adjustments are contained in the following
footnotes.
(b) To write down finished goods inventory to reflect the Company's
decision to discontinue certain products and to adjust inventory
costing to the Company's current replacement cost.
(c) To eliminate Cochrane Furniture's deferred tax valuation allowance
and to record the deferred tax effects of the pro forma
adjustments.
(d) To allocate the amount assigned to property, plant and equipment
to the individual assets on a basis proportional to their fair
values. Independent appraisals and other information were used in
determining the fair value of these assets.
(e) To write off deferred financing costs of approximately $584,000 on
Cochrane Furniture indebtedness refinanced under the Company's
revolving credit facility and to record a $225,000 reduction in
property held for sale to reflect estimated fair value.
7
(f) To record liabilities for involuntary employee termination
benefits (severance) and excess wages under assumed employment
contracts and to conform the accounting method of recognizing
certain advertising costs.
(g) To reflect the refinancing of Cochrane Furniture's debt shortly
following the merger effective date.
(h) To reflect borrowings to finance the cash payment to Cochrane
Furniture stockholders and acquisition related expenses of the
merger transaction.
(i) To record contingent purchase consideration of approximately
$500,000 on Cochrane Furniture's Pem-Kay Furniture Company
acquisition.
(j) The unaudited pro forma condensed consolidated statement of
earnings for the year ended December 31, 1995 combines the
operating results of Cochrane Furniture for the fiscal year ended
March 30, 1996 and the Company's operating results for the year
ended December 31, 1995 and gives effect to the merger as if it
had occurred at the beginning of the period. Operating results of
Cochrane Furniture for the quarter ended March 30, 1996 are
included in each of the pro forma condensed consolidated statements
of earnings.
(k) To reflect the decrease in depreciation expense resulting from the
purchase adjustment to property, plant and equipment.
(l) To reflect the decrease in interest expense due to a lower assumed
average borrowing rate after the refinancing of Cochrane
Furniture's debt under the Company's revolving credit facility,
partially offset by interest expense incurred on borrowings to
finance the cash payment to Cochrane Furniture stockholders and
acquisition related expenses. The Company's effective interest
rate was 6.0% and 6.7% for the nine months ended September 28,
1996 and for the year ended December 31, 1995, respectively.
(m) To record a tax benefit on Cochrane Furniture's operating loss for
the period, net of the tax effects of the pro forma adjustments.
(n) Includes the writedown of certain assets of the Pem-Kay division
of Cochrane Furniture of approximately $3,166,000.
8
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Cochrane Furniture Company, Inc.
Lincolnton, North Carolina
We have audited the accompanying balance sheets of Cochrane Furniture
Company, Inc., as of March 30, 1996, and April 1, 1995, and the related
statements of operations, stockholders' equity, and cash flows for each
of the three years in the period ended March 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Cochrane
Furniture Company, Inc. as of March 30, 1996 and April 1, 1995, and the
results of its operations and its cash flows for each of the three years
in the period ended March 30, 1996, in conformity with generally
accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Hickory, North Carolina
May 17, 1996, except for the last paragraph of Note 6
as to which the date is September 19, 1996 and
Note 19 as to which the date is June 20, 1996
1
COCHRANE FURNITURE COMPANY, INC.
BALANCE SHEETS
March 30, 1996 and April 1, 1995
ASSETS (Note 5) 1996 1995
- - - - -------------------------------------------------------------------------------------------------------
Current Assets
Cash $ 1,530 $ 1,530
Accounts receivable, trade, less allowance for doubtful accounts
1996 $120,000; 1995 $120,000 (Note 3) 10,264,866 10,206,321
Refundable income taxes 478,511 -
Deferred income taxes (Note 7) 1,337,268 1,458,119
Inventories: (Note 4)
Finished goods 6,502,621 6,108,317
Work in process 1,781,550 2,730,076
Raw materials 5,756,163 5,845,004
Property available for sale (Note 6) 600,000 858,219
Prepaid expenses 95,067 161,710
------------------------------
Total current assets 26,817,576 27,369,296
------------------------------
Investments and Other Assets
Cash value of life insurance, less policy loans 1996 $1,141,950;
1995 $1,141,859 330,535 233,695
Goodwill (Notes 12 and 13) - 2,243,605
Loan Cost 661,065 141,322
Other 30,500 114,376
------------------------------
1,022,100 2,732,998
------------------------------
Property and Equipment (Note 6)
Land 1,339,548 1,339,548
Buildings and improvements 11,477,448 11,765,751
Machinery and equipment 15,193,643 15,340,584
Transportation equipment 416,057 456,380
Office furniture and equipment 2,126,156 2,152,944
Computer and transportation equipment under capital leases 1,083,153 1,260,977
Construction and equipment installations in progress (Note 15) 797,403 630,613
------------------------------
32,433,408 32,946,797
Less accumulated depreciation, including amortization on
equipment acquired under capital leases 1996 $807,460;
1995 $626,094 19,179,897 17,698,659
------------------------------
13,253,511 15,248,138
------------------------------
$ 41,093,187 $ 45,350,432
==============================
See Notes to Financial Statements.
2
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- - - - -------------------------------------------------------------------------------------------------------
Current Liabilities
Checks written on line of credit $ 1,112,509 $ 1,002,907
Short-term borrowings (Note 5) 12,211,982 7,975,371
Current maturities of long-term debt (Note 6) 5,484,358 1,724,053
Accounts payable, trade 7,389,872 7,049,821
Accrued expenses (Note 10) 2,827,205 3,690,261
------------------------------
Total current liabilities 29,025,926 21,442,413
------------------------------
Long-Term Debt, less current maturities (Note 6) 5,418,832 10,288,187
------------------------------
Deferred Income Taxes (Note 7) 1,337,268 1,334,723
------------------------------
Deferred Compensation (Note 9) 834,953 769,972
------------------------------
Commitments and Contingencies (Notes 8, 9 and 15)
Stockholders' Equity (Note 9)
Common stock, stated value $.50 per share, authorized
2,000,000 shares; issued 465,971 in 1996 and 1995 232,986 232,986
Retained earnings 4,243,222 11,282,151
------------------------------
4,476,208 11,515,137
------------------------------
$ 41,093,187 $ 45,350,432
==============================
3
COCHRANE FURNITURE COMPANY, INC.
STATEMENTS OF OPERATIONS
Years Ended March 30, 1996, April 1, 1995 and April 2, 1994
1996 1995 1994
- - - - --------------------------------------------------------------------------------------------------------
Net sales $ 85,697,569 $ 76,248,527 $ 68,735,294
Cost of goods sold 76,519,878 65,989,873 59,097,283
----------------------------------------------------
Gross profit 9,177,691 10,258,654 9,638,011
Selling, general and administrative expenses:
Office salaries 2,146,733 1,797,083 2,064,682
Commissions to salesmen 3,218,305 3,389,942 3,238,112
Advertising, market and design 1,943,037 1,944,133 1,563,967
Restructuring - - 1,110,000
Other 4,473,001 2,780,893 4,971,326
Write down of Pem-Kay assets (Note 13) 3,166,005 - -
----------------------------------------------------
Operating income (loss) (5,769,390) 346,603 (3,310,076)
----------------------------------------------------
Financial income (expense):
Interest expense (2,103,619) (1,174,312) (1,000,060)
Other income 490,521 976,089 832,678
----------------------------------------------------
(1,613,098) (198,223) (167,382)
----------------------------------------------------
Income (loss) before income taxes (7,382,488) 148,380 (3,477,458)
----------------------------------------------------
Federal and state income taxes (credits)
(Note 7):
Current (466,955) 101,812 (427,995)
Deferred 123,396 21,215 (1,236,125)
----------------------------------------------------
(343,559) 123,027 (1,664,120)
----------------------------------------------------
Net income (loss) $ (7,038,929) $ 25,353 $ (1,813,338)
====================================================
Weighted average number of common shares
outstanding 465,971 466,093 466,121
====================================================
Earnings (loss) per common share $ (15.11) $ 0.05 $ (3.89)
====================================================
See Notes to Financial Statements.
4
COCHRANE FURNITURE COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended March 30, 1996, April 1, 1995 and April 2, 1994
Employee
Common Stock
Stock Retained Ownership
Issued Earnings Debt
- - - - ----------------------------------------------------------------------------------------------
Balance, April 3, 1993 as previously reported $ 233,061 $ 11,940,488 $ 177,200
Adjustment applicable to prior years resulting
from the retroactive change from the LIFO
method of accounting for inventory
to the FIFO method (Note 4) - 1,535,027 -
Adjustment applicable to prior years resulting
from the retroactive change to the accrual
method of accounting for discounts credits
(Note 20) - (371,700) -
------------------------------------------
Balance, April 3, 1993, as restated 233,061 13,103,815 177,200
Net Loss - (1,813,338) -
Cash Dividends, $.07 per share - (32,628) -
Decrease in Employee Stock Ownership
Trust Debt, guaranteed by the Company - - (92,600)
------------------------------------------
Balance, April 2, 1994 $ 233,061 $ 11,257,849 $ 84,600
Net income - 25,353 -
Purchase of 150 shares of stock (75) (1,051) -
Decrease in Employee Stock Ownership
Trust debt, guaranteed by the Company - - (84,600)
------------------------------------------
Balance, April 1, 1995 232,986 11,282,151 -
Net loss - (7,038,929) -
------------------------------------------
Balance, March 30, 1996 $ 232,986 $ 4,243,222 $ -
==========================================
See Notes to Financial Statements.
5
COCHRANE FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
Years Ended March 30, 1996, April 1, 1995 and April 2, 1994
1996 1995 1994
- - - - ------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income (loss) $ (7,038,929) $ 25,353 $ (1,813,338)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Amortization 149,184 38,027 -
Depreciation 1,637,295 1,667,797 1,749,363
Deferred compensation 64,981 67,020 (15,754)
Provision for doubtful accounts 16,092 5,419 132,729
Cash value of life insurance increase over
premiums paid (59,191) (57,215) (64,753)
Deferred income taxes 123,396 21,215 (1,236,125)
Gain on sale of property and equipment (1,440) (21,107) (151,539)
Write down of assets 3,166,005 - -
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (74,637) (779,171) (560,374)
Refundable income taxes (478,511) 479,960 (479,960)
Inventories 643,063 (4,977,018) 4,866,660
Prepaid expenses 66,643 (109,963) 57,849
Other assets (507,451) (88,044) 11,314
Increase (decrease) in:
Accounts payable and accrued expenses (413,403) 1,322,337 654,161
Income taxes payable - - (498,095)
--------------------------------------------
Net cash provided by (used in)
operating activities (2,706,903) (2,405,390) 2,652,138
--------------------------------------------
Cash Flows From Investing Activities
Proceeds from sale of property and equipment 1,440 28,355 264,288
Purchase of property and equipment (384,449) (1,268,915) (575,944)
Life insurance premiums (37,740) (45,744) (38,319)
--------------------------------------------
Net cash used in investing activities (420,749) (1,286,304) (349,975)
--------------------------------------------
(Continued)
6
COCHRANE FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS (Continued)
Years Ended March 30, 1996, April 1, 1995 and April 2, 1994
1996 1995 1994
- - - - ------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Net borrowings (Payments) on short-term credit
agreements $ 4,236,611 $ 4,595,855 $ (467,577)
Net proceeds from borrowings against cash
surrender value of life insurance 91 540,252 -
Proceeds from long-term borrowings 4,537,500 4,600,000 -
Principal payments on long-term borrowings (5,646,550) (6,042,512) (1,801,758)
Purchase of common stock - (1,126) -
Cash dividends paid - - (32,628)
Net cash provided by (used in) financing --------------------------------------------
activities 3,127,652 3,692,469 (2,301,963)
--------------------------------------------
Net increase in cash - 775 200
Cash:
Beginning 1,530 755 555
--------------------------------------------
Ending $ 1,530 $ 1,530 $ 755
============================================
Supplemental Disclosures of Cash Flow Information
Cash payments (receipts) for:
Interest $ 2,119,955 $ 1,193,483 $ 998,632
============================================
Income taxes $ 107,648 $ (485,680) $ 550,713
============================================
Supplemental Schedule of Noncash Financing
Activities
Reduction in employee stock ownership debt and
guarantee resulting from debt payment by a
Trust $ - $ 84,600 $ 92,600
============================================
1996 write down (Note 13) and 1995 acquisition of
Pem-Kay division:
Assets
Receivables and other assets $ - $ 224,228 $ -
Inventory - 684,894 -
Fair value of property and equipment (741,781) 3,135,600 -
Property available for sale (258,219) 858,219 -
Acquisition cost (71,584) - -
Goodwill (2,094,421) 2,281,632 -
--------------------------------------------
$ (3,166,005) $ 7,184,573 $ -
============================================
Liabilities
Long-term debt assumed - (2,870,582) -
Note payable issued - (362,345) -
Other net liabilities assumed and provided - (3,951,646) -
--------------------------------------------
$ - $ (7,184,573) $ -
============================================
See Notes to Financial Statements.
7
COCHRANE FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - ---------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
The Company manufactures case goods and upholstered furniture for sale
to retail stores primarily located in the United States. Sales are on
credit at terms the Company establishes for individual customers.
A summary of the Company's significant accounting policies follows:
Estimates:
- - - - ---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fiscal year:
- - - - -----------
The Company's fiscal year ends on the Saturday nearest March 31. Fiscal
years 1994, 1995 and 1996 each contained 52 weeks.
Property available for sale:
- - - - ---------------------------
Property available for sale is carried at the lower of cost or market.
Inventories:
- - - - -----------
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method. (see Note 4)
Loan Costs:
- - - - ----------
Loan costs are being amortized over the term of the loan on a straight
line basis and is included in general and administrative expenses.
Property and equipment:
- - - - ----------------------
Property and equipment is stated at cost. Depreciation is computed
principally by the straight-line method. Depreciation is computed over
the following estimated useful lives:
Years
---------
Buildings and improvements 10 - 45
Machinery and equipment 5 - 10
Transportation equipment 3 - 5
Office furniture and equipment 3 - 5
The amortization expense on assets acquired under capital leases is
included with depreciation expense on owned assets.
Deferred taxes:
- - - - --------------
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
8
COCHRANE FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - ---------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Discount credits:
- - - - ----------------
The Company sells its products with a warranty that provides for repairs
or replacements of defective goods. The Company accrues an estimated
liability based on prior experience and knowledge of the goods. This
liability is included as a component of accrued expenses.
Note 2. Restricted Cash Accounts
The line of credit as described in Note 4 requires that restricted bank
accounts be maintained. The Company is required to deposit sales
collections into these accounts from which the lender makes regular
withdrawals, based on cleared funds, and reduces the outstanding balance
on the line of credit. Monies deposited in the collateral accounts are
not available for withdrawal by the Company. The restricted accounts
had no outstanding balances as of March 30, 1996.
Note 3. Accounts Receivable and Pledged Assets
A portion of the Company's Accounts Receivable are factored through an
agreement with a bank. The Company is permitted to receive advances up
to 100% of such receivables from the bank prior to the due date. The
advances bear interest at the bank's prime lending rate. The receivables
are essentially sold without recourse. The agreement may be terminated by
either party with 30 days notice.
Note 4. Inventories
Effective April 3, 1994, the Company changed from the last-in, first-out
(LIFO) method of accounting for inventories to the first-in, first-out
(FIFO) method. The change was made because, in the opinion of the
Company's management, the new method will more appropriately match costs
with revenues in a time when the Company's industry is experiencing
dramatic changes in the price of raw materials.
In conjunction with the change from LIFO to FIFO and the removal of the
LIFO reserve, the Company's management felt a retroactive establishment
of an inventory valuation allowance was necessary to ensure that
inventory was stated at the lower of cost or market in the years that
were restated.
The accompanying financial statements for the year ended April 2, 1994
have been restated to give retroactive effect to the two changes noted
above, net of the related deferred income tax effects. These changes
had the following effect on the opening balance sheet (April 3, 1993):
Inventories
LIFO reserve $ 2,637,027
Valuation allowance (200,000)
----------------
2,437,027
Deferred income taxes (902,000)
----------------
Retained earnings $ 1,535,027
================
9
COCHRANE FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - ---------------------------------------------------------------------------
Note 4. Inventories (Continued)
Net income for the year ended April 2, 1994 was affected as follows by
these changes.
Gross Profit $ 229,228 ($.49 per share)
Income tax expense (85,000) (($.18) per share)
--------------
Net Income $ 144,228 ($.31 per share)
==============
The deferred taxes result from the fact that income realized from the
changes from LIFO to FIFO for book purposes may be recognized for tax
purposes over a six year period following the change, and lower cost or
market inventory valuation allowances are not recognized for tax purposes
until the losses are actually realized.
Note 5. Short-Term Borrowings
The Company has a $15 million line of credit with a bank. The credit
agreement provides for revolving credit through November 17, 1998. As
of March 30, 1996, $2,788,018 was available to the Company for additional
draws under the agreement. The note bears interest on one or more bases
selected by the Company from the following options: 1) the bank's prime
rate plus .25%; 2) LIBOR rate plus 2.50%; or 3) LIBOR rate reserve percentage
expressed as a decimal, rounded upward to the nearest 1/100 of 1%, as
determined by the bank. The interest rate in effect at March 31, 1996 was
8.5%. The line of credit is collateralized by essentially all of the
Company's assets.
10
COCHRANE FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - ---------------------------------------------------------------------------
Note 6. Long-Term Debt and Pledged Assets
Long-term debt consists of the following:
Industrial Development Revenue Bond due in semiannual installments of $275,000,
plus interest at variable discounted rates, currently 3.50%, not to exceed 12%,
payable monthly $ 2,025,000
Industrial Development Revenue Bond due in quarterly installments of $45,000
through March 30, 1996 and $40,000 per quarter July 1, 1996 through July 1, 2005
plus interest at discounted rates currently 3.50%, not to exceed 12%, payable
monthly 1,480,000
Mortgage note payable, due in monthly installments of $37,500 plus interest
through November 17, 1996 followed by monthly payments of $53,571 plus
interest through November 17, 1998. The remaining unpaid balance is due in full on
November 17, 1998. Interest is charged at one or more bases selected by the
Company from the following rate options: 1) the bank's prime rate plus .50%;
2) LIBOR rate plus 2.75%; or 3) LIBOR rate reserve percentage expressed as a
decimal, rounded upward to nearest 1/100 of 1% as determined by the bank.
Due to covenant violations as of March 30, 1996, the bank has the right to call
this loan at any time 4,350,000
Note payable, due in monthly installments of $35,000 including interest at the prime
rate established by the lending bank plus three quarters of a percent, collateralized
by buildings, furniture and equipment with a carrying value of $2,950,060 at
March 30, 1996 2,450,592
Unsecured note payable, due in annual installments of $50,000 including interest of 8% 287,332
Capitalized lease obligations due in monthly installments of $19,904 including interest
at rates from 6% to 11%, collateralized by computer equipment with a carrying
value of $191,432 at March 30, 1996 251,657
Capitalized lease obligations, due in monthly installments of $3,460 including
interest at rates from 8.5% to 11.33%, collateralized by trailers with a carrying
value of $84,261 at March 30, 1996 58,609
------------
10,903,190
Less current maturities 5,484,358
------------
Long-term portion $ 5,418,832
============
The prime rate at March 30, 1996 was 8.5%.
The mortgage notes payable and the Industrial Development Revenue Bonds are
collateralized by substantially all of the Company's property and equipment.
11
COCHRANE FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - ---------------------------------------------------------------------------
Note 6. Long-Term Debt and Pledged Assets (Continued)
Principal maturities of long-term debt during each of the five fiscal years
after March 30, 1996, are as follows:
Year Amount
- - - - ----------------------------------------------------------------------------------------------
1997 $ 5,484,358
1998 1,058,145
1999 1,017,656
2000 834,613
2001 487,971
Later years 2,020,447
---------------
$ 10,903,190
===============
The following is a schedule of the future minimum lease payments under the
capital leases together with the present value of the net minimum lease
payments as of March 30, 1996:
Year Ending
April 30, Amount
- - - - ----------------------------------------------------------------------------------------------
1997 $ 232,867
1998 67,540
1999 38,104
---------------
Total minimum lease payments 338,511
Less amount representing interest 28,245
---------------
Present value of net minimum lease payments, of which $213,404 is included
in current liabilities $ 310,266
===============
The loan agreements are subject to various covenants which place
restrictions on dividends, working capital, net worth, capital
expenditures and certain ratios. The Company was in violation of
certain of the above covenants as of March 30, 1996. As a result, the
loan can be called at any time at the bank's discretion and has been
classified as a current maturity. The Company has made all scheduled
payments of principal and interest. The Company has entered into a
forbearance agreement with the bank which is effective through October
31, 1996. Under the terms of this agreement the bank agrees not to
exercise its rights and remedies under the loan documents which they may
have as a result of the existing events of default. This forbearance
agreement contains additional default provisions that give the bank the
ability to exercise its rights should the Company default. It cannot be
assured that the bank will extend the forbearance agreement or that
defaults on the provisions of the agreement by the Company will not
result in acceleration of the debt payment. Should either of these
events occur and the bank demands payment the Company must obtain
alternative sources of financing or working capital. If the Company is
unable to do so they may be forced to liquidate certain operating assets.
12
COCHRANE FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - ---------------------------------------------------------------------------
Note 7. Income Tax Matters
The net deferred tax assets consist of the following components as of
March 30, 1996 and April 1, 1995:
1996 1995
----------------------------------
Deferred tax assets:
Accounts receivable $ 64,600 $ 114,700
Inventory valuation allowance 170,000 -
Accrued vacation costs 193,902 221,324
Deferred compensation 283,884 284,889
Contribution carryforwards 20,766 120,943
Severance pay - 3,826
Worker's compensation 245,052 268,250
Discount credits 127,500 210,900
Self-insurance 69,700 83,250
AMT credit carryforwards 45,434 320,579
Net operating loss carryforwards 1,176,090 80,984
Reserve for Pem-Kay loss 1,076,442 -
Other - 3,516
----------------------------------
3,473,370 1,713,161
Less valuation allowance 2,458,163 90,000
----------------------------------
$ 1,015,207 $ 1,623,161
----------------------------------
Deferred tax liabilities:
Inventories 421,794 675,555
Property and equipment 593,413 824,210
----------------------------------
$ 1,015,207 $ 1,499,765
----------------------------------
Net deferred tax asset $ 0 $ 123,396
==================================
The components giving rise to the net deferred tax assets described above
have been included in the accompanying balance sheets as of March 30, 1996
and April 1, 1995 as follows:
1996 1995
----------------------------------
Deferred tax asset, current $ 1,337,268 $ 1,458,119
Deferred tax liability, noncurrent (1,337,268) (1,334,723)
----------------------------------
$ 0 $ 123,396
==================================
During the year ended April 1, 1995, the Company recorded a valuation
allowance of $90,000 on the deferred tax assets to reduce the total to
an amount that will ultimately be realized. During the year ended March
30, 1996, the valuation allowance increased $2,368,163, primarily
attributable to the write down of the Pem-Kay assets and increase in
loss carryforwards. The valuation allowance was increased because
realization of any deferred tax asset is dependent on sufficient future
taxable income which cannot be assured. There was no other activity in
the valuation allowance account during 1996 or 1995.
13
COCHRANE FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - ---------------------------------------------------------------------------
Note 7. Income Tax Matters (Continued)
A reconciliation of income taxes at the federal statutory rate to the
effective tax rate for 1996, 1995 and 1994 is as follows:
1996 1995 1994
-------------------------------------------------
Statutory federal income tax rate $ (2,510,046) $ 50,449 $ (1,182,336)
Increases (decreases) in taxes resulting from:
State taxes, net of federal income tax benefit (155,890) 1,650 (78,661)
Valuation allowance 2,368,163 90,000 -
AMT Credit Carryforward - - (220,579)
Permanent differences (10,173) (16,801) (14,277)
Other (35,613) (2,271) (168,267)
-------------------------------------------------
$ (343,559) $ 123,027 $ (1,664,120)
=================================================
Note 8. Leases
The Company leases certain showroom space under operating lease agreements.
The total lease expense related to these agreements amounted to $230,340
in 1996, $201,786 in 1995 and $221,763 in 1994.
The future minimum rental commitments for the noncancelable operating leases
are as follows:
Year Ending Amount
- - - - ---------------------------------------------------------------------------
1997 $ 230,340
1998 209,037
1999 201,936
2000 117,796
------------
$ 759,109
============
The Company also leases transportation equipment on a month-to-month basis.
The total lease expense for this equipment amounted to $727,273 in 1996,
$458,779 in 1995 and $313,103 in 1994.
Note 9. Employee Benefit Plans
The Company has agreements with four officers to pay retirement benefits
which provide for payments beginning at the earlier of their retirement
or disability. The annual benefits are to be 40% of their base salary
at retirement and are to be paid over a ten-year period. In the event
of death prior to or during retirement, such payments will be made to
their respective beneficiaries. The estimated portion of such benefits
applicable to current service is being accrued by a charge to current
expense. The total expense related to these agreements amounted to
$67,020 in 1996, $67,020 in 1995 and ($15,755) in 1994.
The Company has a deferred profit sharing plan for the benefit of its
employees. The amount payable annually is determined by the Board of
Directors, with no minimum contribution based on net income required.
No contributions were made during 1996, 1995 or 1994.
14
COCHRANE FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - ---------------------------------------------------------------------------
Note 9. Employee Benefit Plans (Continued)
The Company has an employee savings and protection 401(k) plan. Eligible
participants contribute to the plan through payroll deductions, and the
Company currently makes a matching contribution of fifty percent of the
employee contribution up to four percent of the employee gross wages.
The Company made contributions of $306,582 in 1996, $176,819 in 1995 and
$97,116 in 1994.
The Company has an Employee Stock Ownership Plan (ESOP) and a related
trust for the benefit of its employees. The components of the amount
charged to expense, determined by the cash payment method, consisted of
compensation of $-0-, $4,700 and $92,600 and interest of $-0-, $7,287
and $6,777 for 1996, 1995 and 1994, respectively. As of April 1, 1996,
71,962 shares of the Company's common stock had been purchased by the
Employee Stock Ownership Trust (ESOT), which was established to fund the
ESOP.
The trust agreement provides that the Company shall contribute an amount
for each plan year as the Company's Board of Directors shall determine
in cash or in shares of Company stock. The benefit with respect to each
participant becomes partially vested based on the participants' years of
service beginning with three years of service and becomes fully vested
with seven years of service or upon the occurrence of certain specified
events.
The Company has bonus plans for its officers and key employees, which
provide for bonuses based on performance or on varying percentages of
the Company's adjusted income before income taxes. These plans can be
approved for subsequent years at the discretion of the Board of Directors.
Bonus expense amounted to $-0-, $129,000 and $-0- for 1996, 1995 and 1994,
respectively.
Note 10. Accrued Expenses
Accrued expenses consist of the following:
1996 1995
---------------------------------
Salaries, wages and commissions $ 835,700 $ 1,220,382
Worker's compensation retroactive premiums 720,740 725,000
Discount credits 375,000 570,000
Self-insured health claims 455,000 425,000
Bonuses - 129,000
Advertising 109,511 129,511
Taxes, other than income taxes 89,379 100,272
Income taxes - 96,092
Severance pay - 14,840
Interest 26,092 42,429
Withheld taxes & other 215,783 237,735
---------------------------------
$ 2,827,205 $ 3,690,261
=================================
15
COCHRANE FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - ---------------------------------------------------------------------------
Note 11. Stock Option Plan
On June 6, 1994, the Company adopted a stock option plan with 50,000
shares of common stock reserved for options to key employees. Option
prices will be the fair value of the common stock on the date the
options are granted and options expire five years from the date of
grant. The option price per share is $7.51. There were no options
exercised during the years ended March 30, 1996 or April 1, 1995.
During the year ending March 30, 1996 options representing 5,000 shares
expired and as of March 30, 1996 options for 45,000 shares are
outstanding.
Note 12. Business Combination
On December 9, 1994, the Company acquired substantially all of the
assets and assumed certain liabilities of Pem-Kay Furniture Company,
Inc., a manufacturer of upholstered furniture. The total acquisition
cost was $7,184,573. The excess of total cost over the fair value of
the net assets acquired of $2,281,632 was being amortized over 15 years
by the straight-line method. Total amortization charged to expense for
1996 and 1995 was $149,184 and $38,027, respectively.
The acquisition has been accounted for as a purchase and results of
operations of the acquired company since the date of acquisition are
included in the consolidated financial statements. Financial statements
of Pem-Kay Furniture Company, Inc. prior to the acquisition are not
readily available.
At March 30, 1996, the Company has reduced the recorded value of the goodwill
to -0- as described in Note 13, below.
16
COCHRANE FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - ---------------------------------------------------------------------------
Note 13. Impairment of Assets
During the year ended March 30, 1996 the Company evaluated certain assets
of the Pem-Kay division. Based upon this evaluation management has
determined that certain assets need to be adjusted to more appropriately
reflect their net realizable value. Accordingly, the Company has reduced
Pem-Kay's assets to their expected realizable value and recorded the
appropriate adjustment, which consist of the following:
Prior to
Reduction Adjustment March 30, 1996
-----------------------------------------------------------
Goodwill $ 2,094,421 $ (2,094,421) $ -
Property held for sale 858,219 (258,219) 600,000
Building & land 2,326,830 (300,133) 2,026,697
Machinery & equipment 880,801 (441,648) 439,153
Other 71,584 (71,584) -
-----------------------------------------------------------
$ 6,231,855 $ (3,166,005) $ 3,065,850
===========================================================
Note 14. Advertising Expense
Advertising expense for the years ended March 30, 1996, April 1, 1995
and April 2, 1994 was $1,943,037, $1,944,133 and $1,563,967, respectively.
Note 15. Commitments and Contingencies
The Company has expended $797,403 for various additions to property and
equipment which were incomplete at March 30, 1996. Additional
expenditures to complete these projects are estimated at approximately
$475,000, to be completed over the next two years.
Self-insurance reserves are established for employee group medical
benefits based on claims filed and claims incurred but not reported,
with a maximum up to $70,000 per covered person for a policy year. The
Company is insured for covered costs in excess of these limits. The
expense related to these policies amounted to $2,902,994 in 1996,
$2,035,911 in 1995 and $1,702,292 in 1994.
The Company has guaranteed 25.93% of a loan in connection with the
establishment of a day care facility located near the Company. At
March 30, 1996, the balance outstanding on the loan was $364,343, of
which the Company's portion is $94,474.
17
COCHRANE FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - ---------------------------------------------------------------------------
Note 16. Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Financial
Accounting Standards No. 107, "Disclosure About Fair Value of Financial
Instruments". The estimated fair value amounts have been determined by
the Company using available market information and valuation methodologies
described below. However, considerable judgment is required in interpreting
market data to develop the estimates of fair value. Accordingly, the
estimates presented herein may not be indicative of the amounts the Company
could realize in a current market exchange. The use of different market
assumptions or valuation methodologies may have a material effect on the
estimated fair value amounts.
Accounts receivable and accounts payable: The carrying amounts of accounts
receivable and accounts payable approximate their fair values due to the
short-term maturities of these instruments.
Long-term, and short-term borrowings: The carrying amounts of the
Company's long-term and short-term borrowings approximate their
estimated fair value because the current rates approximate the rates of
financial instruments with similar characteristics.
The carrying value of the loan guarantee is $0 and it is not practicable
to determine its estimated fair value.
Note 17. Financial Accounting Standards Board Statement to be Adopted
The Financial Accounting Standards Board ("FASB") has issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", which has not been adopted by the
Company as of March 30, 1996. FASB Statement No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. Under the guidelines of the new
standard, the Company will be required to review long-lived assets and
certain identifiable intangibles to be held for impairment whenever
events of changes in circumstances, as outlined in Statement No. 121,
indicate that the carrying amount of an asset may not be recoverable.
If these events or changes in circumstances indicate that the carrying
amount of an asset that an entity expects to hold and use may not be
recoverable, the Company shall estimate the future cash flows expected
to result from the use of the asset and its eventual disposition. If
the sum of the expected future cash flows is less than the carrying
amount of the asset, the Company shall recognize an impairment loss in
accordance with the Statement. The Company has not determined the
impact of FASB Statement No. 121 on the financial statements.
Note 18. Reclassifications
Certain amounts in the financial statements for 1995 and 1994 have been
reclassified, with no effect on net income or stockholders' equity, to
be consistent with the classifications adopted for 1996.
18
COCHRANE FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - ---------------------------------------------------------------------------
Note 19. Subsequent Event
The Company entered into a nonbinding letter of intent to sell its
stock on June 20, 1996. The parties involved are currently negotiating
the terms for sale.
Note 20. Retroactive Change in the Method of Recognizing Discount
Credits and Deferred Income Taxes
In prior years, the company reduced sales for discount credits issued on
an "as issued" basis for both financial statement and tax purposes.
During the year ended April 1, 1995, the Company retroactively changed
its method of accounting for discount credits to the accrual basis in
accordance with generally accepted accounting principles.
The financial statements for the year ended April 2, 1994 have been
retroactively restated for this change and the portion of the adjustment
applicable to the year ended April 3, 1993 and prior years in the amount
of $590,000, less the deferred tax effect of $218,300, has been treated
as a retroactive restatement of the April 3, 1993 retained earnings
balance. This change had no significant effect on the results of
operations for the year ended April 2, 1994 as previously reported.
The deferred taxes result from the fact that discount credits of this
nature are recognized on the accrual method for financial statement
purposes and on the "as issued" basis for income tax purposes.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to its Current Report on Form
8-K to be signed on its behalf by the undersigned hereunto duly authorized.
CHROMCRAFT REVINGTON, INC.
(Registrant)
Date: January 23, 1997 By: /s/ Frank T. Kane
----------------------
Frank T. Kane,
Vice President-Finance
20