Chromcraft Revington, Inc., incorporated in 1992, is engaged in the design, import, manufacture and marketing of residential and commercial furniture. Chromcraft Revington is headquartered in West Lafayette, IN with furniture manufacturing, warehousing and distribution operations in Senatobia, MS and warehouse and distribution operations in Delphi, IN and Lincolnton, NC.
The furniture industry has rapidly shifted to a global supply chain and foreign manufacturers have used substantially lower labor costs and somewhat lower material costs to achieve a competitive advantage over U.S. based manufacturers. The Company’s residential furniture business is being negatively impacted by low-cost competition overseas, a weak retail furniture market reflecting the effects of the current economic recession, and restructuring activities. The Company’s commercial furniture business has recently been impacted by the industry-wide reduced spending on contract and institutional projects as a result of the economic recession.
Beginning in 2006, the Company, in response to competitive business conditions in the residential furniture market, began reducing its furniture manufacturing operations and shifting the products manufactured at these domestic facilities to overseas suppliers, primarily located in China. As a result, the Company has incurred asset impairment and restructuring charges for plant shutdowns and consolidation, exit and disposal activities, termination benefits and inventory write-downs since 2006. At the same time, the Company centralized sales, marketing, product development, and supply chain management and added new senior management and supporting salaried personnel and overhead expenses.
In 2008, the Company incurred asset impairment and restructuring charges of $8,977,000 in connection with the shutdown of two furniture manufacturing operations, the consolidation of warehousing and distribution operations, and a management reorganization. The Company reorganized its management in 2008 by replacing its CEO and senior managers in sales, marketing, product development, operations and supply chain, and eliminated various salaried positions. Severance related costs in connection with the management reorganization are included in restructuring expenses as one-time termination benefits.
The Company expects to incur total asset impairment and restructuring expenses of $9,534,000 for the restructuring activities implemented in 2008, of which $557,000 is expected in 2009. A portion of these charges and expenses, resulting in total expected cash expenditures of approximately $2,615,000, do not include cash proceeds of $4,121,000 of cash received in 2008 from asset sales arising from the restructuring and approximately $484,000 of cash that was received in the first quarter of 2009.
Additional transition costs, reduced revenue, restructuring charges and asset impairments may occur as the Company continues its transition. Continued outsourcing of domestically made products and development of an optimized distribution and logistics capability will result in additional transition costs in 2009 and beyond. The Company is also subject to market, competitive and other risks as more fully described in this Item 1 under the caption “Certain Risks”. The Company believes that the shift in its business model will provide a more competitive business model of import and U.S. customization capabilities. In addition, the new business model is expected to have a more variable cost structure, which the Company anticipates will provide greater flexibility in competing in the furniture industry.
After completing the 2008 restructuring activities, the Company will be manufacturing and distributing dining room and commercial furniture from its Senatobia, Mississippi facility; warehousing and distributing occasional furniture from its Delphi, Indiana facility; operating a product quality and sourcing office in Dongguan, China; and performing administrative and finance functions at its corporate headquarters office in West Lafayette, Indiana.
The Company markets its residential furniture products under the ChromcraftTM, Peters-RevingtonTM and CochraneTM brand names. The ChromcraftTM brand is also used in the commercial furniture markets. Brands are primarily used to focus on specific market niches.
The Company’s Peters-RevingtonTM brand supplies occasional furniture from entry to mid price points primarily to independent and regional furniture retailers. Occasional furniture includes coffee tables, end tables and sofa tables. Occasional furniture collections may also include coordinating furniture items such as entertainment storage cabinets, library and modular wall units and other accent pieces. Occasional furniture is constructed using a wide assortment of materials including solid hardwoods, veneers, printed fiberboard, metals, glass, natural stone, leathers and other materials.
The Peters-RevingtonTM brand is uniquely focused on the occasional furniture category and offers a broad assortment of furniture. The brand has various collections with extensive item selection incorporating common designs and styling elements. Occasional furniture is sourced globally to provide a variety of products. The brand provides products based on a wide range of consumer lifestyle-based needs from traditional American and European styles to more contemporary urban fusion designs. Imported occasional tables generally require some assembly by a retailer or consumer. Also, certain imported furniture is sold to retailers by direct container delivered to the retailer from an overseas supplier.
Dining Room Furniture
The Company manufactures, sources and markets dining furniture for use in dining rooms, great rooms, kitchens and hearth rooms. Dining furniture includes a broad line of tables, armed and side chairs, buffets and china cabinets in a wide range of designs.
The Chromcraft brand offers metal, wood and mixed media casual dining furniture. The product line consists primarily of dining tables and stationary or tilt-swivel chairs. Certain casual dining sets have matching barstools and china cabinets. Chairs are upholstered in a variety of fabrics and vinyls, while tables are manufactured from metal, wood, glass, faux marble and other materials and come in a variety of shapes. Most casual dining furniture is custom-ordered by the retailer or end consumer. Chromcraft’s casual dining furniture is offered in a wide range of designs from contemporary to traditional styling and is sold at mid price points.
The Company also provides custom-design wood casual dining room furniture under the Cochrane brand name. Under this program, consumers can personalize their dining tables, chairs and china cabinets by selecting from a kiosk unit various wood finishes and styling, chair fabrics, hardware, accent finishes and table sizes and shapes. Custom-design dining room furniture is sold at mid-to-higher price points.
Other Residential Furniture
The Company expects to supplement its existing product lines with additional furniture categories using its global sourcing model.
Commercial furniture products are sold under the Chromcraft brand and include office chairs, conference, meeting room and training tables, and lounge-area seating furniture for airports and other public waiting areas. Office chairs are offered in various grades and colors of fabric or leather and include executive, ergonomic and computer task models. Also, a limited number of commercial chairs are imported to broaden product offerings. Chromcraft commercial brand furniture mainly sells at mid-market price points and is marketed primarily through commercial dealers.
The major raw materials used in manufacturing are steel, plastics, wood, glass, chair mechanisms, fiberboard, finishing materials, hardware, cartons and fabric and foam for upholstered furniture. Chromcraft Revington believes that supplies of raw materials are available in sufficient quantities from an adequate number of suppliers. No significant shortages of raw materials were experienced during 2008.