<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 27, 1996
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ------------ to -------------
Commission File Number 1-11577
FALCON PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-0730877
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9387 Dielman Industrial Drive 63132
St. Louis, Missouri (Zip Code)
(Address of principal executive offices)
(314) 991-9200
(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 twelve months, and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
------- -----
As of September 3, 1996, the registrant had 9,607,692 shares of common stock,
$.02 par value, outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
----------------------
Item 1. - Financial Statements
---------------------
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Balance Sheets
---------------------------
(Unaudited)
<CAPTION>
July 27, October 28,
1996 1995
----------- -------------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 4,721,688 $ 6,969,786
Accounts receivable, less allowances
of $378,000 and $369,000, respectively 14,966,708 17,438,415
Inventories 20,784,001 16,705,744
Prepaid expenses and other current assets 2,267,275 1,966,988
----------- -----------
Total current assets 42,739,672 43,080,933
----------- -----------
Property, plant and equipment:
Land 2,841,625 2,841,625
Buildings and improvements 13,350,669 11,871,150
Machinery and equipment 23,950,664 21,276,524
----------- -----------
40,142,958 35,989,299
Less accumulated depreciation 15,747,698 13,802,033
----------- -----------
Total property, plant and equipment 24,395,260 22,187,266
----------- -----------
Other assets, net of accumulated amortization:
Excess of cost over fair value of net assets acquired 7,222,480 6,858,152
Other 3,099,200 2,757,863
----------- -----------
Total other assets 10,321,680 9,616,015
----------- -----------
$77,456,612 $74,884,214
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 6,942,725 $ 7,158,284
Accrued liabilities 4,051,646 5,031,264
Current maturities of long-term debt 596,549 963,976
----------- -----------
Total current liabilities 11,590,920 13,153,524
Long-term obligations:
Long-term debt 646,195 925,375
Pension liability 303,445 303,445
Deferred income taxes 1,185,722 1,185,722
Minority interest in consolidated subsidiary 972,483 1,009,502
----------- -----------
Total liabilities 14,698,765 16,577,568
----------- -----------
Stockholders' equity:
Common stock, $.02 par value: authorized 20,000,000 shares;
9,673,827 and 9,539,737 shares issued, respectively 193,477 190,795
Additional paid-in capital 43,317,741 42,760,776
Deferred compensation plan (47,180) (70,769)
Treasury stock, at cost (63,967 and 11,000 shares, respectively) (926,796) (135,000)
Cumulative translation adjustments 273,383 182,119
Retained earnings 19,947,222 15,378,725
----------- -----------
Total stockholders' equity 62,757,847 58,306,646
----------- -----------
$77,456,612 $74,884,214
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
-2-
<PAGE> 3
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Statements of Earnings
-----------------------------------
(Unaudited)
<CAPTION>
Thirteen Thirteen Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 27, 1996 July 29, 1995 July 27, 1996 July 29, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $27,587,381 $23,376,827 $78,852,285 $63,326,317
Cost of sales 19,107,550 15,429,499 54,038,997 42,047,685
----------- ----------- ----------- -----------
Gross margin 8,479,831 7,947,328 24,813,288 21,278,632
Selling, general and
administrative
expenses 5,227,046 4,918,519 15,581,455 13,490,816
----------- ----------- ----------- -----------
Operating profit 3,252,785 3,028,809 9,231,833 7,787,816
Interest income, net 28,618 45,663 77,735 119,780
Minority interest in
consolidated
subsidiary 17,104 (6,886) 37,019 (22,013)
----------- ----------- ----------- -----------
Earnings before
income taxes 3,298,507 3,067,586 9,346,587 7,885,583
Income tax expense 1,253,400 1,150,500 3,551,500 2,947,160
----------- ----------- ----------- -----------
Net earnings $ 2,045,107 $ 1,917,086 $ 5,795,087 $ 4,938,423
=========== =========== =========== ===========
Earnings per share<F*> $.21 $.20 $.59 $.51
==== ==== ==== ====
<FN>
<F*>Per share data has been adjusted to reflect the effects of the December 13, 1995, 10% stock
dividend.
See accompanying notes to consolidated financial statements.
</TABLE>
-3-
<PAGE> 4
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Statements of Stockholders' Equity
-----------------------------------------------
Thirty-Nine Weeks Ended July 27, 1996, and July 29, 1995
--------------------------------------------------------
(Unaudited)
<CAPTION>
Deferred
Additional Compen- Cumulative Total
Common Paid-in sation Treasury Translation Retained Stockholders'
Stock Capital Plan Stock Adjustments Earnings Equity
----- ------- ---- ----- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 29, 1994 $171,455 $30,510,061 $ -- $ -- $(38,621) $19,912,649 $50,555,544
Net earnings -- -- -- -- -- 4,938,423 4,938,423
Exercise of stock options 873 58,671 -- -- -- -- 59,544
Issuance of stock to Employee
Stock Purchase Plan 663 397,973 -- -- -- -- 398,636
Compensation expense under
restricted stock
and option plans -- 15,579 10,593 -- -- -- 26,172
Issuance of restricted stock 150 89,225 (89,225) -- -- -- 150
Translation adjustments -- -- -- -- 45,521 -- 45,521
Cash dividends -- -- -- -- -- (517,397) (517,397)
-------- ----------- -------- ------ -------- ----------- -----------
Balance, July 29, 1995 $173,141 $31,071,509 $(78,632) $ -- $ 6,900 $24,333,675 $55,506,593
======== =========== ======== ====== ======== =========== ===========
Balance, October 28, 1995 $190,795 $42,760,776 $(70,769) $(135,000) $182,119 $15,378,725 $58,306,646
Net earnings -- -- -- -- -- 5,795,087 5,795,087
Exercise of stock options 2,501 357,819 -- 742,501 -- (507,198) 595,623
Issuance of stock to Employee
Stock Purchase Plan 181 193,638 -- 332,207 -- -- 526,026
Compensation expense under
restricted stock and
option plans -- 5,508 23,589 -- -- -- 29,097
Translation adjustments -- -- -- -- 91,264 -- 91,264
Cash dividends -- -- -- -- -- (719,392) (719,392)
Treasury stock purchases -- -- -- (1,866,504) -- -- (1,866,504)
-------- ----------- -------- ---------- -------- ----------- -----------
Balance, July 27, 1996 $193,477 $43,317,741 $(47,180) $(926,796) $273,383 $19,947,222 $62,757,847
======== =========== ======== ========= ======== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
-4-
<PAGE> 5
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
<CAPTION>
Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended
July 27, 1996 July 29, 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,795,087 $ 4,938,423
----------- -----------
Adjustments to reconcile net earnings
to net cash provided by operating activities
Depreciation 2,058,701 1,487,910
Amortization of other assets 860,743 909,429
Translation adjustments 91,264 45,521
Compensation expense under non-qualified stock options 5,508 15,579
Minority interest in consolidated subsidiary (37,019) 22,013
Amortization of restricted stock awards 23,589 10,593
Change in assets and liabilities:
Decrease (increase) in:
Accounts receivable, net 2,552,451 1,156,919
Inventories (3,841,098) (2,238,632)
Prepaid expenses and other current assets (296,779) 45,469
Other assets, net (995,459) (1,095,984)
Increase (decrease) in:
Accounts payable 161,170 (358,553)
Accrued liabilities (1,429,618) (1,617,378)
----------- -----------
Total adjustments (846,547) (1,617,114)
----------- -----------
Net cash provided by operating activities 4,948,540 3,321,309
----------- -----------
Cash flows from investing activities:
Cost of businesses acquired (1,117,788) --
Additions to property, plant and equipment, net (3,817,996) (3,331,343)
----------- -----------
Net cash used in investing activities (4,935,784) (3,331,343)
----------- -----------
Cash flows from financing activities:
Borrowings (repayment) of long-term debt, net (796,607) 233,387
Common stock issuances 1,121,649 458,330
Cash dividends (719,392) (517,397)
Treasury stock purchases (1,866,504) --
----------- -----------
Net cash provided by (used in)
financing activities (2,260,854) 174,320
----------- -----------
Net increase (decrease) in cash and cash equivalents (2,248,098) 164,286
Cash and cash equivalents-beginning of period 6,969,786 7,312,189
----------- -----------
Cash and cash equivalents-end of period $ 4,721,688 $ 7,476,475
=========== ===========
Supplemental Cash Flow Information:
Cash paid for interest $ 121,175 $ 133,388
=========== ===========
Cash paid for income taxes $ 2,609,230 $ 3,798,902
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
-5-
<PAGE> 6
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
Thirty-Nine Weeks Ended July 27, 1996
-------------------------------------
Note 1. - Interim Results
The financial statements contained herein are unaudited. In the opinion
of management, these financial statements reflect all adjustments, consisting
only of normal recurring adjustments, which are necessary for fair
presentation of the results of the interim periods presented. Reference is
made to the footnotes to the consolidated financial statements contained in
the Company's Annual Report on Form 10-K for the year ended October 28,
1995, filed with the Securities and Exchange Commission.
Note 2. - Acquisitions
During September 1995, the Company acquired the interior decor business
and related assets, and assumed certain liabilities relating to that
business, from Omni Inc. The Company operates this business under the
tradename Decor Concepts, which was a tradename used by Omni Inc. for a
substantial portion of that business. Decor Concepts is a manufacturer of
furniture products such as seating, tables, and casegoods for restaurant
chains. The total purchase price for the transaction was approximately
$1,472,000. This purchase was funded by the Company with its available cash
reserves.
In February 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of a manufacturing facility located in Tijuana,
Mexico (the Tijuana facility). This facility specializes in manufacturing
upscale wood and upholstered seating primarily for the lodging and
hospitality industries. The total purchase price for this facility was
approximately $500,000 and was funded by the Company with its available cash
reserves.
Item 2. - Management's Discussion and Analysis of Results of Operations and
-----------------------------------------------------------------
Financial Condition
-------------------
Results of Operations
General
The following table sets forth, for the periods presented, certain
information relating to the operations of the Company, expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------- -----------------------
07/27/96 07/29/95 07/27/96 07/29/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 69.3 66.0 68.5 66.4
Gross margin 30.7 34.0 31.5 33.6
Selling, general and administrative expenses 18.9 21.0 19.8 21.3
Operating profit 11.8 13.0 11.7 12.3
Interest income, net .1 .1 .1 .2
Minority interest in consolidated subsidiary .1 -- .1 --
Earnings before income taxes 12.0 13.1 11.9 12.5
Income tax expense 4.6 4.9 4.5 4.7
Net earnings 7.4 8.2 7.4 7.8
</TABLE>
-6-
<PAGE> 7
Thirteen weeks ended July 27, 1996, compared to the thirteen weeks ended July
29, 1995
Net earnings were $2,045,000 in the third quarter of 1996, compared to
$1,917,000 in 1995, an increase of 6.7%. Earnings per share were $.21 in
1996, compared to $.20 in 1995, a 5.0% increase.
Net sales for the third quarter of 1996 were $27.6 million, an increase of
18.0% over 1995 third quarter net sales of $23.4 million. This increase
primarily resulted from strong sales performance from the Company's core
markets and incremental sales from the acquisition of Decor Concepts. The
Company estimates that its net sales for the quarter, excluding sales
resulting from the acquisition of Decor Concepts, were approximately $25.1
million.
Cost of sales was $19.1 million for the 1996 third quarter, an increase of
23.8% from $15.4 million in the third quarter of 1995. The overall increase
is a result of the increased sales volume. Gross margin increased to $8.5
million for the third quarter of 1996, a 6.7% increase from $7.9 million in
the same quarter of 1995. Gross margin as a percentage of net sales
decreased to 30.7% in 1996 from 34.0% in 1995. The lower gross margin
percentage during the third quarter of 1996 was due primarily to product mix
and certain production inefficiencies at the facilities acquired by the
Company in the Decor Concepts purchase. Additionally, gross margin was
negatively impacted during the quarter because production was interrupted as
the Company completed its move of substantially all of its California
operations to a new 180,000 square foot building.
Selling, general and administrative expenses were $5.2 million in the
third quarter of 1996, compared to $4.9 million in the third quarter of 1995,
a 6.3% increase. The increase is primarily related to increased sales and
marketing programs, including salaries, travel expenses and commissions.
Selling, general and administrative expenses as a percentage of net sales,
decreased to 18.9% for the third quarter of 1996 as compared to 21.0% for the
same period of 1995. The decrease in the expense rate in 1996 is primarily
the result of efficiencies from the higher sales volume and the impact of the
Company's cost reduction measures.
Net interest income was $29,000 for the third quarter of 1996, versus
$46,000 for the comparable period in 1995. The decrease in net interest
income is primarily due to the reduction of available funds invested in
interest-bearing securities due to the acquisitions of Decor Concepts in late
1995 and the Tijuana facility in 1996.
Income tax expense increased by $103,000, or 8.9%, in the third quarter of
1996 compared to the same period in 1995 due to higher earnings and a
slightly higher effective tax rate in 1996.
Thirty-nine weeks ended July 27, 1996, compared to thirty-nine weeks ended
July 29, 1995
Net earnings were $5,795,000 in the first three quarters of 1996, compared
to $4,938,000 in 1995, an increase of 17.3%. Earnings per share reached $.59
in 1996, compared to $.51 in 1995, a 15.7% increase.
Net sales for the first three quarters of 1996 were $78.9 million, an
increase of 24.5% over net sales of $63.3 million recorded for the same
period in 1995. Net sales increased primarily due to increased sales from
the Company's National Accounts program and due to the acquisition of Decor
Concepts during 1995. The Company estimates that its net sales, excluding
sales resulting from this acquisition, were approximately $71.6 million for
the nine months ended July 27, 1996.
-7-
<PAGE> 8
Cost of sales was $54.0 million for the first three quarters of 1996, an
increase of 28.5% from $42.0 million in the first three quarters of 1995. The
overall increase is primarily related to the increased sales volume. Gross
margin increased to $24.8 million for the first three quarters of 1996, a
16.6% increase from $21.3 million in the same period of 1995. Gross margin as
a percentage of net sales decreased to 31.5% in 1996 from 33.6% in 1995. The
lower gross margin percentage during the first three quarters of 1996 was due
primarily to product mix and inefficiencies at the facilities acquired in the
Decor Concepts purchase. Additionally, production was interrupted during the
third quarter of 1996, as the Company moved its California operations to a new
production facility.
Selling, general and administrative expenses were $15.6 million in the
first three quarters of 1996, compared to $13.5 million in 1995, a 15.5%
increase. The overall increase is primarily related to increased sales and
marketing programs, including salaries, travel expense and commissions.
Selling, general and administrative expenses as a percentage of net sales
decreased to 19.8% for the first three quarters of 1996 as compared to 21.3%
for the same period of 1995, due to efficiencies from higher sales volume.
Net interest income was $78,000 for the first three quarters of 1996,
versus $120,000 for the comparable period in 1995. The decrease in net
interest income is primarily due to the reduction of available funds invested
in interest-bearing securities due to the acquisitions of Decor Concepts
during late 1995 and the Tijuana facility in 1996.
Income tax expense increased by $604,000 for the first three quarters of
1996, a 20.5% increase over the same period in 1995. Income tax expense
increased in 1996 due to higher earnings and a slightly higher effective tax
rate.
Liquidity and Capital Resources
The Company's working capital at July 27, 1996, was $31.1 million and its
ratio of current assets to current liabilities was 3.7 to 1.0, compared to
$29.9 million and 3.3 to 1.0 at October 28, 1995.
During the thirty-nine weeks ended July 27, 1996, the Company acquired
approximately 140,000 shares of its common stock for a total cost of
approximately $1,867,000. The Company is authorized to purchase up to
275,000 shares of its common stock under a stock repurchase plan approved by
the Board of Directors.
The Company has a $2.0 million unsecured revolving line of credit
agreement with a commercial bank. The revolving line of credit bears annual
interest at LIBOR plus 1.25% and expires on July 1, 1999. As of July 27, 1996,
there were no amounts outstanding under the revolving line of credit.
The Company expects that it will meet its ongoing working capital and
capital requirements from a combination of internally generated funds,
available cash reserves and available borrowings under its revolving credit
facility. The Company's operating cash flows constitute its primary source
of liquidity.
-8-
<PAGE> 9
PART II - OTHER INFORMATION
-----------------
Item 1. - Legal Proceedings
-----------------
The Company is a defendant in a lawsuit filed on May 8,
1996, in the United States District Court for the Northern
District of California that alleges certain business tort
claims including trade dress and copyright infringement,
antitrust violation and unfair business practices by the
Company concerning new products that the Company introduced
for the lodging industry. The complaint seeks actual
damages in excess of $1.0 million and unspecified punitive
and other damages. The Company's management believes the
suit is without merit and intends to vigorously defend its
position. While the final outcome of the lawsuit cannot be
determined, the Company believes that it will not have a
material adverse effect on the Company's results of
operations or its financial position.
There are no other material pending legal proceedings, other
than routine litigation incidental to the business, to which
the Company is a party or of which any of the Company's
property is the subject.
Item 2. - Changes in Securities
---------------------
None.
Item 3. - Defaults Upon Senior Securities
-------------------------------
None.
Item 4. - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. - Other Information
-----------------
None.
Item 6. - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share.
(b) Reports on Form 8-K
None.
-9-
<PAGE> 10
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FALCON PRODUCTS, INC.
---------------------
(Registrant)
Date: September 5, 1996 /s/ Franklin A. Jacobs
--------------------------
Franklin A. Jacobs
Chief Executive Officer
and Chairman of the Board
Date: September 5, 1996 /s/ Michael J. Dreller
--------------------------
Michael J. Dreller
Vice President and
Chief Financial Officer
-10-
<PAGE> 1
<TABLE>
EXHIBIT 11
Falcon Products, Inc. and Subsidiaries
--------------------------------------
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------------------- ----------------------------------
<S> July 27, July 29, July 27, July 29,
Primary Earnings Per Share: 1996 1995 1996 1995
- --------------------------- ---------- ---------- ---------- ----------
<C> <C> <C> <C>
Net earnings $2,045,107 $1,917,086 $5,795,087 $4,938,423
========== ========== ========== ==========
Average number of common shares
outstanding 9,644,336 9,512,011 9,588,155 9,478,212
Assumed exercise of options
(treasury stock method) 232,842 255,080 203,389 234,919
---------- ---------- ---------- ----------
Shares for primary computation 9,877,178 9,767,091 9,791,544 9,713,131
========== ========== ========== ==========
Earnings per share $.21 $.20 $.59 $.51
==== ==== ==== ====
Fully Diluted Earnings Per Share:
- ---------------------------------
Net earnings $2,045,107 $1,917,086 $5,795,087 $4,938,423
========== ========== ========== ==========
Average number of common shares
outstanding 9,650,993 9,512,011 9,668,661 9,478,212
Assumed exercise of options
(treasury stock method) 232,842 255,080 226,343 270,793
---------- ---------- ---------- ----------
Shares for fully diluted computation 9,883,835 9,767,091 9,895,004 9,749,005
========== ========== ========== ==========
Fully diluted earnings per share $.21 $.20 $.59 $.51
==== ==== ==== ====
NOTE: Share data has been adjusted to reflect the effects of the December 13,
1995, 10% stock dividend.
</TABLE>
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from SEC Form 10-Q for the quarterly period
ended July 27, 1996 and is qualified in its entirety by
reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-02-1996
<PERIOD-END> JUL-27-1996
<CASH> 4,721,688
<SECURITIES> 0
<RECEIVABLES> 15,344,708
<ALLOWANCES> 378,000
<INVENTORY> 20,784,001
<CURRENT-ASSETS> 42,739,672
<PP&E> 40,142,958
<DEPRECIATION> 15,747,698
<TOTAL-ASSETS> 77,456,612
<CURRENT-LIABILITIES> 11,590,920
<BONDS> 0
<COMMON> 193,477
0
0
<OTHER-SE> 62,564,370
<TOTAL-LIABILITY-AND-EQUITY> 77,456,612
<SALES> 78,852,285
<TOTAL-REVENUES> 78,852,285
<CGS> 54,038,997
<TOTAL-COSTS> 54,038,997
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (77,735)
<INCOME-PRETAX> 9,346,587
<INCOME-TAX> 3,551,500
<INCOME-CONTINUING> 5,795,087
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,795,087
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
</TABLE>
