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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 July 1, 2006
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.
(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
(Address, including zip code, of registrant's principal executive offices)
(765) 564-3500
(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 - 6,152,876 shares as of August 1, 2006
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INDEX
Page
Number
------
PART I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Earnings - Three And Six
Months Ended July 1, 2006 and July 2, 2005....................... 3
Condensed Consolidated Balance Sheets - July 1, 2006, July 2,
2005 and December 31, 2005....................................... 4
Condensed Consolidated Statement of Stockholders' Equity - Six
Months Ended July 1, 2006........................................ 5
Condensed Consolidated Statements of Cash Flows - Six Months
Ended July 1, 2006 and July 2, 2005.............................. 7
Notes to Condensed Consolidated Financial Statements............. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 17
Item 4. Controls and Procedures..................................... 17
PART II. Other Information
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders......... 18
Item 6. Exhibits.................................................... 19
SIGNATURES............................................................. 19
2
PART I.
Item 1. Financial Statements
Condensed Consolidated Statements of Earnings (unaudited)
Chromcraft Revington, Inc.
(In thousands, except per share data)
Three Months Ended Six Months Ended
------------------ -----------------
July 1, July 2, July 1, July 2,
2006 2005 2006 2005
------- ------- ------- -------
Sales $40,320 $43,401 $86,241 $88,060
Cost of sales 32,205 33,169 69,114 67,269
------- ------- ------- -------
Gross margin 8,115 10,232 17,127 20,791
Selling, general and administrative expenses 6,922 6,752 14,048 13,581
------- ------- ------- -------
Operating income 1,193 3,480 3,079 7,210
Interest expense, net 53 164 130 318
------- ------- ------- -------
Earnings before income tax expense 1,140 3,316 2,949 6,892
Income tax expense 464 1,223 1,144 2,543
------- ------- ------- -------
Net earnings $ 676 $ 2,093 $ 1,805 $ 4,349
======= ======= ======= =======
Earnings per share of common stock
Basic $ .15 $ .49 $ .41 $ 1.02
Diluted $ .15 $ .48 $ .40 $ 1.01
Shares used in computing earnings per share
Basic 4,406 4,299 4,398 4,253
Diluted 4,467 4,340 4,460 4,306
See accompanying notes to condensed consolidated financial statements.
3
Condensed Consolidated Balance Sheets (unaudited)
Chromcraft Revington, Inc.
(In thousands)
July 1, July 2, Dec. 31,
2006 2005 2005
------- ------- --------
Assets
Cash and cash equivalents $ 2,755 $ -- $ --
Accounts receivable 19,112 20,085 18,735
Inventories 37,174 36,157 37,009
Prepaid expenses and other 1,770 2,351 1,922
------- ------- -------
Current assets 60,811 58,593 57,666
Property, plant and equipment, net 29,375 31,200 30,274
Deferred income taxes and other 924 818 1,319
------- ------- -------
Total assets $91,110 $90,611 $89,259
======= ======= =======
Liabilities and Stockholders' Equity
Accounts payable $ 4,604 $ 5,316 $ 5,448
Accrued liabilities 8,278 8,433 7,340
------- ------- -------
Current liabilities 12,882 13,749 12,788
Bank debt -- 4,100 --
Deferred compensation 1,813 2,593 2,486
Other long-term liabilities 1,267 1,658 1,323
------- ------- -------
Total liabilities 15,962 22,100 16,597
Stockholders' equity 75,148 68,511 72,662
------- ------- -------
Total liabilities and stockholders' equity $91,110 $90,611 $89,259
======= ======= =======
See accompanying notes to condensed consolidated financial statements.
4
Condensed Consolidated Statement of Stockholders' Equity (unaudited)
For the Six Months Ended July 1, 2006
Chromcraft Revington, Inc.
(In thousands, except share data)
Common Stock Capital in
------------------ Excess of
Shares Amount Par Value
--------- ------ ----------
Balance at January 1, 2006 7,923,563 $79 $17,604
Net earnings -- -- --
ESOP compensation expense -- -- 100
Issuance of restricted stock awards 5,600 -- --
Amortization of unearned compensation -
restricted stock awards -- -- 105
Stock option compensation expense -- -- 138
--------- --- -------
Balance at July 1, 2006 7,929,163 $79 $17,947
========= === =======
See accompanying notes to condensed consolidated financial statements.
5
Unearned Treasury Stock Total
ESOP Retained --------------------- Stockholders'
Shares Earnings Shares Amount Equity
-------- -------- ---------- -------- -------------
$(17,385) $93,364 (1,776,287) $(21,000) $72,662
-- 1,805 -- -- 1,805
338 -- -- -- 438
-- -- -- -- --
-- -- -- -- 105
-- -- -- -- 138
-------- ------- ---------- -------- -------
$(17,047) $95,169 (1,776,287) $(21,000) $75,148
======== ======= ========== ======== =======
6
Condensed Consolidated Statements of Cash Flows (unaudited)
Chromcraft Revington, Inc.
(In thousands)
Six Months Ended
-----------------
July 1, July 2,
2006 2005
------- -------
Operating Activities
Net earnings $1,805 $ 4,349
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation expense 1,668 1,822
Non-cash ESOP compensation expense 438 432
Non-cash stock compensation expense 243 65
Deferred income taxes 62 298
Loss on disposal of property, plant and equipment 19 232
Changes in operating assets and liabilities
Accounts receivable (377) (1,952)
Inventories (165) (2,491)
Prepaid expenses and other 152 (810)
Accounts payable and accrued liabilities 65 33
Deferred compensation and other long-term
assets and liabilities (367) (316)
------ -------
Cash provided by operating activities 3,543 1,662
------ -------
Investing Activities
Capital expenditures, net (788) (764)
------ -------
Cash used in investing activities (788) (764)
------ -------
Financing Activities
Net borrowings under a bank revolving credit line -- 2,650
Principal payments on a bank term loan -- (4,250)
Stock repurchase from related party -- (754)
Exercise of stock options -- 1,456
------ -------
Cash used in financing activities -- (898)
------ -------
Change in cash and cash equivalents 2,755 --
Cash and cash equivalents at beginning of the period -- --
------ -------
Cash and cash equivalents at end of the period $2,755 $ --
====== =======
See accompanying notes to condensed consolidated financial statements.
7
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 six month period ended July 1, 2006 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2006.
The balance sheet at December 31, 2005 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, 2005.
Note 2. Inventories
Inventories consisted of the following:
(In thousands)
----------------------------
July 1, July 2, Dec. 31,
2006 2005 2005
------- ------- --------
Raw materials $10,998 $11,265 $11,754
Work-in-process 5,434 6,417 5,619
Finished goods 23,946 21,218 22,627
------- ------- -------
40,378 38,900 40,000
Lifo reserve (3,204) (2,743) (2,991)
------- ------- -------
$37,174 $36,157 $37,009
======= ======= =======
8
Note 3. Accrued Liabilities
Accrued liabilities consisted of the following:
(In thousands)
----------------------------
July 1, July 2, Dec. 31,
2006 2005 2005
------- ------- --------
Employee related benefits $2,593 $2,076 $1,730
Deferred compensation 964 1,052 1,055
Commissions 780 842 778
Payroll taxes 587 541 241
Compensation related 502 1,057 644
Other 2,852 2,865 2,892
------ ------ ------
$8,278 $8,433 $7,340
====== ====== ======
Note 4. 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 per share computations. ESOP compensation expense, a
non-cash charge, for the three and six months ended July 1, 2006 was $215,000
and $438,000, respectively, compared to $211,000 and $432,000, respectively for
the prior year periods. ESOP shares consisted of the following:
(In thousands)
----------------------------
July 1, July 2, Dec. 31,
2006 2005 2005
------- ------- --------
Allocated shares 244 184 244
Committed to be released shares 34 34 --
Unearned ESOP shares 1,705 1,772 1,739
------- ------- -------
Total ESOP shares 1,983 1,990 1,983
Unearned ESOP shares, at cost $17,047 $17,724 $17,385
======= ======= =======
Fair value of unearned ESOP shares $19,792 $23,573 $22,775
======= ======= =======
9
Note 5. Earnings per Share of Common Stock
Weighted average shares used in the calculation of diluted earnings per share
included dilutive potential common shares of approximately 61,000 and 62,000 for
the three and six months ended July 1, 2006, respectively, and 41,000 and 53,000
for the three and six months ended July 2, 2005, respectively.
Note 6. Stock Based Compensation
The Company has the following stock-based compensation plans:
1992 Stock Option Plan
The purpose of the Company's 1992 Stock Option Plan, as amended ("1992 Plan"),
is to attract and retain persons of ability as key employees and to motivate key
employees to exert their best efforts on behalf of the Company.
The 1992 Plan provides for the granting of either incentive stock options
("ISO's") or stock options which do not qualify as incentive stock options
("non-ISO's"). The total number of shares of common stock, which may be issued
under stock options granted pursuant to the 1992 Plan, is 1,800,000 shares.
ISO's granted under the 1992 Plan are exercisable over no greater than a 10-year
period, and are granted at exercise prices no less than the fair market value of
Chromcraft Revington's common shares as of the date of grant. The compensation
committee of the Board of Directors determines the vesting period and exercise
prices of non-ISO's. At July 1, 2006, there were 263,025 shares available for
future awards.
Directors' Stock Plan
The Company's Amended and Restated Directors' Stock Plan ("Directors' Plan") was
approved and adopted effective May 9, 2006, and provides for the granting of
restricted stock or non-ISO's to members of the Board of Directors who are not
employees. Under the Directors' Plan, eligible directors of the Company receive
an award of either 800 shares of restricted common stock or an option to
purchase 2,500 shares of common stock on the day following their re-election to
the Board at each annual meeting of stockholders. Any new director who is
elected or appointed for the first time to the Board of Directors receives an
award of either 3,000 shares of restricted common stock or an option to purchase
10,000 shares of common stock. The total number of shares of common stock
subject to the Directors' Plan is 150,000 shares. No restricted common stock or
options will be granted under the Directors' Plan after December 1, 2016. Shares
of restricted common stock granted to directors under the Directors' Plan will
vest on the day immediately preceding the next annual meeting of stockholders
following the award date. Non-ISO's granted under the Directors' Plan are 100%
vested on the date of the grant and are granted at exercise prices equal to the
fair market value of the Company's common shares as of the date of the grant.
The options are exercisable for a period of ten years. At July 1, 2006, there
were 54,400 shares available for future awards.
10
The Directors' Plan is designed to promote the interests of the Company and its
stockholders through the granting of restricted common stock and options to the
non-employee members of the Company's Board of Directors, thereby encouraging
their focus on long-term stockholder value of the Company.
Accounting for the Plans
Effective January 1, 2006, the Company adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards No. 123 (revised
2004), "Share-Based Payment," ("FAS 123 (R)") using the modified prospective
application method for transition for its two stock-based compensation plans.
Accordingly, prior year amounts have not been restated.
The adoption of FAS 123 (R) reduced net earnings by approximately $25,000 and
$61,000 for the three and six months ended July 1, 2006, respectively, compared
to amounts that would have been reported if the Company had continued to account
for stock-based compensation under APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations.
The following table illustrates the effect on net earnings and earnings per
share for the three and six months ended July 2, 2005, if the Company had
applied the fair value recognition provisions of FAS 123 (R) to stock-based
employee compensation for these periods. For purposes of pro forma disclosure,
the value of the options is estimated using a Black-Scholes option-pricing model
and is amortized to expense over the options' vesting periods.
(in thousands, except per share data)
-------------------------------------
Three Months Six Months
Ended Ended
July 2, 2005 July 2, 2005
------------ ------------
Net earnings, as reported $2,093 $4,349
Add: Stock-based employee compensation
expense included in reported net earnings,
net of related tax effects 13 41
Deduct: Total stock-based employee
compensation expense determined under
fair-value based method for all awards, net
of related tax effects (68) (226)
------ ------
Pro forma net earnings $2,038 $4,164
====== ======
Earnings per share
Basic - as reported $ .49 $ 1.02
Basic - pro forma $ .47 $ .98
Diluted - as reported $ .48 $ 1.01
Diluted - pro forma $ .47 $ .97
11
In November 2005, the FASB issued Staff Position No. FAS 123 (R)-3, "Transition
Election Related to Accounting for the Tax Effects of Share-Based Payment
Awards" ("FSP 123 (R)-3"). FSP 123 (R)-3 provides an elective alternative
transition method for calculating the pool of excess tax benefits available to
absorb tax deficiencies recognized subsequent to the adoption of FAS 123 (R).
Companies may take up to one year from the effective date of FAS 123 (R) to
evaluate the available transition alternatives and make a one-time election as
to which method to adopt. The Company is currently in the process of evaluating
the alternative methods.
Options are granted to certain employees and directors at prices equal to the
market value of the stock on the dates the options are granted. The options
granted have a term of ten years from the grant date and granted options for
employees vest ratably ranging from immediate on the date of grant up to a
five-year period. The fair value of each option is amortized into compensation
expense on a straight-line basis between the grant date for the option and each
vesting date. The Company has estimated the fair value of all stock option
awards as of the date of grant by applying the Black-Scholes pricing valuation
model. The application of this valuation model involves assumptions that are
judgmental and sensitive in the determination of compensation expense.
Historical information is the primary basis for the selection of the expected
volatility and life of an option. The risk-free interest rate is selected based
upon the yield of the U.S. Treasury issue with a term equal to the expected life
of the option being valued.
Stock option activity during the six months ended July 1, 2006 was as follows:
Weighted
Weighted Average (in thousands)
Average Remaining Aggregate
Number of Exercise Contractual Intrinsic
Shares Price Term (in yrs.) Value
--------- -------- -------------- --------------
Outstanding at January 1, 2006 643,270 $12.07 6.4
Lapsed -- --
Exercised -- --
Granted 2,518 13.30
-------
Outstanding at July 1, 2006 645,788 12.07 5.9 $3,757
=======
Exercisable at July 1, 2006 605,788 $12.17 5.9 $3,509
=======
The weighted average per share grant-date fair value of options granted in the
three and six months ended July 1, 2006 was $0 and $5.88, respectively, compared
to $4.76 and $4.92, respectively, for the prior year periods. There were no
stock options exercised during the second quarter of 2006. New shares are issued
by the Company upon the exercise of options. Cash proceeds, tax benefits and
intrinsic value related to total stock options exercised during the three and
six months ended July 1, 2005 was as follows:
12
(in thousands)
---------------------------
Three Months Six Months
Ended Ended
July 2, 2005 July 2, 2005
------------ ------------
Proceeds from stock options exercised $622 $1,456
Tax benefits related to stock options exercised 35 54
Intrinsic value of stock options exercised 311 765
The intrinsic value of options that vested during the three and six months ended
July 1, 2006 was $0 and $262,000, respectively, compared to $739,000 and
$787,000 for the prior year periods, respectively. As of July 1, 2006, there
were 40,000 unvested options and approximately $165,000 of unrecognized
compensation cost related to non-vested stock options. Since the options vest on
March 15, 2007, the cost will be recognized by the end of the first quarter of
2007.
Compensation expense recognized for stock option grants was $62,000 and $138,000
for the three and six months ended July 1, 2006, respectively, compared to
$45,000 and $65,000 for the prior year periods, respectively. The related tax
benefit for the compensation expense was $25,000 and $54,000 for the three and
six months ended July 1, 2006, respectively, compared to $17,000 and $24,000 for
the prior year periods, respectively.
Restricted Stock Awards
In the second quarter of 2006, the Company granted 5,600 shares of restricted
common stock to its non-employee Directors under the Directors' Plan. The fair
value of the award at the date of grant was $72,000 and was reflected as part of
stockholders equity. The award provided that the 5,600 shares vest on the day
immediately preceding the next annual meeting of stockholders following the
award date. The award is being recognized as compensation expense ratably over
the one year vesting period. As of July 1, 2006 there were 5,600 shares unvested
with unearned compensation expense of $62,000.
During 2005, the Company awarded 42,000 shares of restricted common stock to its
Chairman and Chief Executive Officer in connection with his employment with the
Company. The award provided that 14,000 shares will vest based on continued
employment on December 31, 2005, 2006, and 2007. The fair value of the award at
the date of grant was $568,000 and was reflected as part of stockholders'
equity. The award is being recognized as compensation expense ratably over the
vesting period. As of July 1, 2006, there were 28,000 shares unvested with
unearned compensation expense of $284,000.
Compensation expense recognized for restricted stock awards during the three and
six months ended July 1, 2006 was $57,000 and $105,000, respectively. The
related tax benefit for the compensation expense was $23,000 and $41,000 for the
three and six months ended July 1, 2006.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The U.S. furniture industry has experienced a dramatic shift from a domestic
manufacturing base to a highly competitive global supply chain. In the face of
this fundamental industry dynamic, the Company has leveraged its manufacturing
competency and know-how to achieve lower costs and shifted its products toward
more attractive niche-focused businesses. In its efforts to achieve lower costs,
the Company has increased imports of low-cost, labor-intensive furniture
components and finished furniture from overseas. In addition, the Company has
initiated efforts to develop built-to-order furniture to improve its overall
value proposition. Management believes that this hybrid approach of domestic
manufacturing and assembly operations combined with global sourcing allows the
Company to better control product quality, service and speed, as well as product
selection to meet consumer lifestyle needs.
Second quarter and first half shipments in 2006 of domestically produced
built-to-order wood casual dining furniture and imported finished furniture were
higher, while shipments of other furniture decreased as compared to the prior
year periods. This reflects the Company's strategic transition to an improved
utilization of the global supply chain and focus on higher value-added
customized furniture. The Company is continuing to shift its product development
and marketing to a more market-based focus on the needs of consumers and
customers. This business model will involve a significant expansion of global
sourcing activities, as well as a conversion of U.S. operations towards
increased use of demand flow and mass customization techniques, as well as
increased focus on distribution and logistics services.
Management closely monitors the activities and performance of the Company's
different brands, as well as its multiple manufacturing and distribution
operations. As the Company continues to adapt to heightened global competition,
it will seek increased cooperation and productivity from its various operating
units. Adaptation to the market and integration of some common activities could
result in restructuring charges, asset impairment, transition costs and/or
increased operating expenses in the future. In addition, the Company has
experienced inflationary price increases in raw materials, labor and other
costs. Management is seeking ways to mitigate the impact of these factors
through product engineering, manufacturing productivity, global sourcing and
greater internal integration of activities. However, due to the competitive
environment, the Company may not be able to pass through any significant price
increases to its customers.
Results of Operations
The following table sets forth the Condensed Consolidated Statements of Earnings
of Chromcraft Revington for the three and six months ended July 1, 2006 and July
2, 2005 expressed as a percentage of sales.
14
Three Months Ended Six Months Ended
------------------ -----------------
July 1, July 2, July 1, July 2,
2006 2005 2006 2005
------- ------- ------- -------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 79.9 76.4 80.1 76.4
----- ----- ----- -----
Gross margin 20.1 23.6 19.9 23.6
Selling, general and administrative expenses 17.1 15.6 16.3 15.4
----- ----- ----- -----
Operating income 3.0 8.0 3.6 8.2
Interest expense, net 0.2 0.4 0.2 0.4
----- ----- ----- -----
Earnings before income taxes 2.8 7.6 3.4 7.8
Income tax expense 1.1 2.8 1.3 2.9
----- ----- ----- -----
Net earnings 1.7% 4.8 % 2.1% 4.9%
===== ===== ===== =====
Consolidated sales for the second quarter ended July 1, 2006 of $40,320,000
represented a 7.1% decrease from $43,401,000 reported for the same quarter last
year. Lower shipments of bedroom, occasional, commercial and dining room
furniture were partially offset by higher upholstered furniture sales as
compared to the second quarter last year.
For the first six months of 2006, consolidated sales decreased 2.1% to
$86,241,000 from $88,060,000 for the same period last year. Lower shipments of
bedroom, dining room and commercial furniture were partially offset by higher
occasional and upholstered furniture sales as compared to the prior year period.
Consolidated sales were lower for the second quarter and first half of 2006
primarily due to competitive pressure and a decrease in the number of units sold
as compared to prior year periods.
Gross margin as a percentage of sales was 20.1% and 19.9% for the three and six
months ended July 1, 2006, respectively, compared to 23.6% for both the three
and six months ended July 2, 2005. The gross margin percentage decrease for the
three and six months ended July 1, 2006 was primarily due to a reduced domestic
production level which affected fixed cost absorption and manufacturing
efficiencies, as well as an unfavorable sales mix, and higher manufacturing
costs.
Selling, general and administrative expenses for the three months ended July 1,
2006 increased $170,000 to $6,922,000 from $6,752,000 for the year ago period.
Selling, general and administrative expenses for the six months ended July 1,
2006 increased $467,000 to $14,048,000 from $13,581,000 for the same period last
year. The higher expense for the second quarter and first half of 2006 was
primarily due to additional product showroom space and higher compensation and
administrative costs.
Interest expense for the three and six months ended July 1, 2006 was $53,000 and
$130,000, respectively, as compared to $164,000 and $318,000, respectively, for
the same periods in 2005. Interest expense was lower this year as compared to
the prior year period since the Company had no bank indebtedness in 2006.
15
Chromcraft Revington's effective income tax rate was 40.7% and 38.8% for the
three and six months ended July 1, 2006, respectively, as compared to 36.9% for
the three and six months ended July 2, 2005. The increase in the effective tax
rate for 2006 was primarily due to higher state taxes and certain non-deductible
expenses for tax purposes spread over a lower pretax earnings.
Net earnings for the three and six months ended July 1, 2006 were $676,000 and
$1,805,000, respectively, as compared to $2,093,000 and $4,349,000,
respectively, for the prior year periods. Factors contributing to the earnings
decrease are outlined in the above discussion.
Financial Condition, Liquidity and Capital Resources
Operating activities provided cash of $3,543,000 during the six months ended
July 1, 2006 as compared to $1,662,000 for the same period last year. The
increase in cash from operating activities in 2006 compared to the prior year
period was primarily due to a lower investment in working capital partially
offset by lower cash earnings. In addition, cash was used to pay deferred
compensation obligations of $764,000 in 2006.
Investing activities used cash of $788,000 for capital expenditures during the
first six months of 2006 as compared to $764,000 spent during the same period
last year. The Company expects to spend approximately $2,000,000 in 2006 on
capital expenditures.
The Company did not use cash for financing activities in the first half of 2006.
In the prior year period, cash was used to reduce bank indebtedness and
repurchase common stock, which was partially offset by cash generated from stock
option exercises.
Management expects that cash flow from operations and availability under its
bank credit facility will continue to be sufficient to meet future liquidity
needs. At July 1, 2006, the Company had approximately $20.7 million in
availability under its bank credit facility that matures in 2008.
Recent Accounting Pronouncement
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" (FIN 48), which clarifies the
accounting for uncertainty in tax positions. The Interpretation seeks to reduce
the diversity in practice associated with certain aspects of measurement and
recognition in accounting for income taxes. In addition, FIN 48 requires
expanded disclosure with respect to the uncertainty in income taxes and is
effective at the beginning of the 2007 fiscal year. Management is evaluating the
impact of adopting FIN 48 on the Company's financial statements.
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
that are based on current expectations and
16
assumptions. 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 "anticipates," "believes," "may,"
"could," "expects," 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 such 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;
execution of business strategies; 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 and existing home sales; and other factors that
generally affect business. An additional list of risks relating to the Company's
business is located in the Company's Form 10-K for the fiscal year ended
December 31, 2005.
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 half of 2006 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.
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 second quarter of 2006
that may have materially affected, or are reasonably likely to materially
affect, Chromcraft Revington's internal control over financial reporting.
17
PART II.
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 three months ended
July 1, 2006.
Purchase of Equity Securities
Maximum number
Total number of (or approximate dollar
shares purchased value) of shares
Total number Average price as part of publicly that may yet be purchased
of shares paid per announced plans under the plans or
Period purchased share or programs programs (1)
------ ------------ ------------- ------------------- -------------------------
April 2, 2006 to April 29, 2006 -- -- -- 702,965
April 30, 2006 to May 27, 2006 -- -- -- 702,965
May 28, 2006 to July 1, 2006 -- -- -- 702,965
------------ ------------- -------------------
Total -- -- --
============ ============= ===================
(1) The Company has maintained a share repurchase program since 1997.
Item 4. Submission of Matters to a Vote of Security Holders
(a) Chromcraft Revington held its annual meeting of stockholders on May
9, 2006.
(b) All directors nominated were elected to serve until the next annual
meeting of stockholders and until their successors are duly elected
and qualified. Set forth below are the votes cast for each
director.
Votes
--------------------
Directors For Withheld
------------------------ --------- --------
Benjamin M. Anderson-Ray 5,457,986 232,497
Ronald H. Butler 5,457,458 232,025
John R. Hesse 5,454,708 235,775
David L. Kolb 5,457,908 232,575
Larry P. Kunz 5,438,704 251,779
Theodore L. Mullett 5,235,908 454,575
Craig R. Stokely 5,457,508 232,975
John D. Swift 5,454,398 236,085
(c) The following matter also was voted upon at the annual meeting of
stockholders. Set forth below is the vote tabulation regarding such
matter.
18
Votes Cast
---------------------
For Against Abstain
--------- --------- -------
Approval of the Directors' Stock Plan 3,282,213 1,242,502 393,599
Item 6. Exhibits
10.46 Directors' Stock Plan of Chromcraft Revington, Inc., as amended and
restated effective December 1, 2005 (filed herewith).
31.1 Certification of Principal Executive Officer required pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 Certification of Chief Financial Officer required pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (filed herewith).
32.1 Certifications of Principal Executive Officer and Chief Financial
Officer required pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 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: August 4, 2006 By: /s/ Frank T. Kane
---------------- --------------------------------
Frank T. Kane
Vice President-Finance
(Duly Authorized Officer and
Principal Accounting and
Financial Officer)
19