<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 May 3, 1997
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 1-11577
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 June 1, 1997, the registrant had 9,701,880 shares of common stock, $.02
par value, outstanding.
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
--------------------
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Statements of Earnings
-----------------------------------
(Unaudited)
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------ ------------------------
May 3, April 27, May 3, April 27,
(In thousands, except per share data) 1997 1996 1997 1996
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Net sales $29,274 $25,832 $58,330 $51,265
Cost of sales 20,401 17,105 40,957 34,931
------- ------- ------- -------
Gross margin 8,873 8,727 17,373 16,334
Selling, general and administrative expenses 5,796 5,322 11,353 10,355
------- ------- ------- -------
Operating profit 3,077 3,405 6,020 5,979
Interest income, net 16 22 48 49
Minority interest in consolidated subsidiary 40 3 75 20
------- ------- ------- -------
Earnings before income taxes 3,133 3,430 6,143 6,048
Income tax expense 1,191 1,303 2,334 2,298
------- ------- ------- -------
Net earnings $ 1,942 $ 2,127 $ 3,809 $ 3,750
======= ======= ======= =======
Earnings per share $ .20 $ .22 $ .38 $ .38
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE> 3
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Balance Sheets
---------------------------
(Unaudited)
<CAPTION>
May 3, Nov. 2,
Assets 1997 1996
- ------ ------ -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,542 $ 5,714
Accounts receivable, less allowances
of $463 and $439, respectively 16,780 16,683
Inventories 24,542 21,725
Prepaid expenses and other current assets 2,392 2,247
------- -------
Total current assets 45,256 46,369
------- -------
Property, plant and equipment:
Land 2,842 2,842
Buildings and improvements 13,583 13,460
Machinery and equipment 27,684 25,403
------- -------
44,109 41,705
Less accumulated depreciation 17,746 16,323
------- -------
Total property, plant and equipment 26,363 25,382
------- -------
Other assets, net of accumulated amortization:
Goodwill 9,700 9,706
Other 3,490 3,532
------- -------
Total other assets 13,190 13,238
------- -------
$84,809 $84,989
======= =======
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 7,403 $ 7,565
Accrued liabilities 3,284 4,540
Current maturities of long-term debt 947 957
------- -------
Total current liabilities 11,634 13,062
Long-term obligations:
Long-term debt 389 448
Pension liability 239 239
Deferred income taxes 1,843 1,843
Minority interest in consolidated subsidiary 846 921
------- -------
Total liabilities 14,951 16,513
------- -------
Stockholders' equity:
Common stock, $.02 par value: authorized 20,000,000 shares;
9,915,117 shares issued 198 198
Additional paid-in capital 47,268 47,260
Treasury stock, at cost (224,410 and 11,000 shares, respectively) (3,227) (1,529)
Cumulative translation adjustments 280 274
Retained earnings 25,339 22,273
------- -------
Total stockholders' equity 69,858 68,476
------- -------
$84,809 $84,989
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE> 4
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Statements of Stockholders' Equity
-----------------------------------------------
Twenty-Six Weeks Ended May 3, 1997, and April 27, 1996
------------------------------------------------------
(Unaudited)
<CAPTION>
(In thousands) Additional Cumulative Total
Common Paid-in Treasury Translation Retained Stockholders'
Stock Capital Stock Adjustments Earnings Equity
------ ---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 28, 1995 $191 $42,761 $ (135) $182 $15,308 $58,307
Net earnings -- -- -- -- 3,750 3,750
Exercise of stock options 2 328 742 -- (542) 530
Issuance of stock to Employee
Stock Purchase Plan -- 133 199 -- -- 332
Compensation expense under
stock and option plans -- 4 -- -- 16 20
Translation adjustments -- -- -- 7 -- 7
Cash dividends -- -- -- -- (480) (480)
Treasury stock purchases -- -- (848) -- -- (848)
---- ------- ------- ---- ------- -------
Balance, April 27, 1996 $193 $43,226 $ (42) $189 $18,052 $61,618
==== ======= ======= ==== ======= =======
Balance, November 2, 1996 $198 $47,260 $(1,529) $274 $22,273 $68,476
Net earnings -- -- -- -- 3,809 3,809
Exercise of stock options -- -- 182 -- (80) 102
Issuance of stock to Employee
Stock Purchase Plan -- 8 426 -- -- 434
Compensation expense under
stock and option plans -- 4 -- -- 16 20
Translation adjustments -- -- -- 6 -- 6
Cash dividends -- -- -- -- (679) (679)
Treasury stock purchases -- -- (2,487) -- -- (2,487)
Issuance of stock for business acquisition -- (4) 181 -- -- 177
---- ------- ------- ---- ------- -------
Balance, May 3, 1997 $198 $47,268 $(3,227) $280 $25,339 $69,858
==== ======= ======= ==== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
<CAPTION>
Twenty-Six Weeks Ended
------------------------
(In thousands) May 3, April 27,
1997 1996
------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,809 $ 3,750
------- -------
Adjustments to reconcile net earnings to net cash:
Depreciation 1,483 1,355
Amortization of other assets 528 567
Translation adjustments 6 7
Compensation expense under non-qualified stock options 16 16
Minority interest in consolidated subsidiary (75) (20)
Amortization of restricted stock awards 4 4
Change in assets and liabilities:
Decrease (increase) in:
Accounts receivable, net (97) 2,815
Inventories (2,817) (2,330)
Prepaid expenses and other current assets (145) (273)
Other assets, net (480) (527)
Increase (decrease) in:
Accounts payable (162) (470)
Accrued liabilities (1,256) (1,644)
------- -------
Total adjustments (2,995) (500)
------- -------
Net cash provided by operating activities 814 3,250
------- -------
Cash flows from investing activities:
Cost of businesses acquired -- (1,118)
Additions to property, plant and equipment, net (2,464) (2,864)
------- -------
Net cash used in investing activities (2,464) (3,982)
------- -------
Cash flows from financing activities:
Repayment of long-term debt, net (69) (173)
Common stock issuances 713 862
Cash dividends (679) (480)
Treasury stock purchases (2,487) (848)
------- -------
Net cash used in financing activities (2,522) (639)
------- -------
Net decrease in cash and cash equivalents (4,172) (1,371)
Cash and cash equivalents-beginning of period 5,714 6,970
------- -------
Cash and cash equivalents-end of period $ 1,542 $ 5,599
======= =======
Supplemental Cash Flow Information:
Cash paid for interest $ 44 $ 88
======= =======
Cash paid for income taxes $ 1,687 $ 1,860
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
5
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Falcon Products, Inc. and Subsidiaries
--------------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
Twenty-Six Weeks Ended May 3, 1997
----------------------------------
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 November 2, 1996,
filed with the Securities and Exchange Commission.
Note 2. - Acquisitions
During October 1996, the Company acquired certain assets and assumed certain
liabilities of The Chair Source for 241,400 newly issued shares of common
stock valued at approximately $3.3 million plus 75,000 shares of common stock
to be issued over a three-year period, subject to certain contingencies. The
purchase price is subject to working capital level adjustments. The Chair
Source manufactures wood and upholstered seating in Anaheim, California and
distributes these products primarily to the hospitality, lodging and
foodservice markets. This acquisition has been accounted for using the
purchase method of accounting. Accordingly, the purchase price was allocated
to the net assets acquired based on their estimated fair value.
Note 3. - New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share (SFAS No. 128), which establishes standards for
computing and presenting earnings per share (EPS). SFAS No. 128 is required
for the Company's fiscal year 1997 financial statements. Early adoption is
not permitted. SFAS No. 128 replaces the presentation of primary and fully
dilutive EPS with the presentation of basic and diluted EPS. Basic earnings
per common share excludes dilution and is computed by dividing net income by
the weighted average number of shares of common stock outstanding during the
period. Dilutive earnings per common share includes the potential dilution
that could occur if stock options or other securities were converted into
common stock.
Using the new method to compute EPS, there was no impact on EPS for the
thirteen weeks ended May 3, 1997, and April 27, 1996. For other periods,
basic EPS and dilutive EPS would be as follows:
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended Fiscal Year Ended
---------------------- -----------------------
May 3, April 27, Nov. 2, Oct. 28,
1997 1996 1996 1995
------ --------- ------- --------
<S> <C> <C> <C> <C>
Basic EPS $.39 $.39 $.88 $.79
Dilutive EPS $.38 $.38 $.86 $.76
</TABLE>
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123 (SFAS No. 123) which establishes a fair value based method of
accounting for employee stock options. The Company intends to adopt
SFAS No. 123 for its fiscal year 1997 financial statements by making the
pro forma disclosures required. The adoption of SFAS No. 123 is not
expected to have a significant effect on the Company's financial position
or results of operations.
6
<PAGE> 7
Item 2. - Management's Discussion and Analysis of Results of Operations and
-----------------------------------------------------------------
Financial Condition
-------------------
The information contained in this Item 2 includes statements regarding
matters which are not historical facts (including statements as to the
Company's plans, beliefs or expectations) that are forward-looking statements
within the meaning of the federal securities laws. Because such
forward-looking statements involve certain risks and uncertainties, the
Company's actual results and the timing of certain events could differ
materially from those discussed herein.
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 Twenty-Six Weeks Ended
-------------------- ----------------------
May 3, April 27, May 3, April 27,
1997 1996 1997 1996
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 69.7 66.2 70.2 68.1
Gross margin 30.3 33.8 29.8 31.9
Selling, general and administrative expenses 19.8 20.6 19.5 20.2
Operating profit 10.5 13.2 10.3 11.7
Interest income, net .1 .1 .1 .1
Minority interest in consolidated subsidiary .1 -- .1 --
Earnings before income taxes 10.7 13.3 10.5 11.8
Income tax expense 4.1 5.1 4.0 4.5
Net earnings 6.6 8.2 6.5 7.3
</TABLE>
Thirteen weeks ended May 3, 1997, compared to the thirteen weeks ended April
27, 1996
Net earnings were $1.9 million in the second quarter of 1997, compared to
$2.1 million in 1996, a decrease of 8.7%. Earnings per share were $.20 in
1997, compared to $.22 in 1996, a 9.1% decrease.
Net sales for the second quarter of 1997 were $29.3 million, an increase
of 13.3% over 1996 second quarter net sales of $25.8 million. This increase
primarily resulted from increased sales of the Company's lodging products
and its contract/office furniture products. Sales in the second quarter
of 1997 also benefited from the acquisition of The Chair Source in October
of 1996. Net sales for the quarter, excluding sales resulting from the
acquisition of The Chair Source, were approximately $27.6 million.
Cost of sales was $20.4 million for the 1997 second quarter, an increase
of 19.3% from $17.1 million in the second quarter of 1996. The overall
increase is a result of the increased sales volume. Gross margin increased
to $8.9 million for the second quarter of 1997, a 1.7% increase from $8.7
million in the same quarter of 1996. Gross margin as a percentage of net
sales decreased to 30.3% in 1997 from 33.8% in 1996. The lower gross margin
percentage during the second quarter of 1997 was due primarily to costs
associated with the introduction of many new products for the lodging market
and the development of the Company's Tijuana, Mexico facility which
manufactures these new products. During the quarter, the demand for the
Company's lodging products exceeded the capacity of the Company's Tijuana,
Mexico facility. This imbalance between incoming orders and production
capabilities required the Company to outsource certain product components
at a higher cost than the Company's internal cost to manufacture these
components. In addition, Falcon Mimon, a.s., the Company's subsidiary
located in the Czech Republic, operated at a loss during the quarter due
to certain production inefficiencies.
7
<PAGE> 8
Selling, general and administrative expenses were $5.8 million in the
second quarter of 1997, compared to $5.3 million in the second quarter of
1996, an 8.9% increase. The increase is primarily related to increased sales
and marketing programs, including salaries, travel expenses and commissions,
associated with the increased sales volume. Selling, general and
administrative expenses as a percentage of net sales, decreased to 19.8% for
the second quarter of 1997 as compared to 20.6% for the same period of 1996.
The decrease in the expense rate in 1997 is primarily the result of certain
efficiencies associated with higher sales volume, the Company's cost control
measures and lower expenses for the Company's management bonus program.
Net interest income was $16,000 for the second quarter of 1997, versus
$22,000 for the comparable period in 1996. Income tax expense decreased by
$113,000, or 8.7%, in the second quarter of 1997 compared to the same period
in 1996 due to lower earnings in 1997.
Twenty-six weeks ended May 3, 1997, compared to the twenty-six weeks ended
April 27, 1996
Net earnings were $3.8 million, or $.38 per share, during the first half
of 1997 and also 1996.
Net sales for the first half of 1997 were $58.3 million, an increase of
13.8% over net sales of $51.3 million recorded for the same period in 1996.
Net sales increased due to increased sales of the Company's lodging and
contract/office furniture products and due to the acquisition of The Chair
Source in October 1996. Net sales, excluding sales resulting from this
acquisition, were approximately $54.5 million for the six months ended May 3,
1997.
Cost of sales was $41.0 million for the first half of 1997, an increase of
17.2% from $34.9 million in the first half of 1996. The overall increase is
primarily related to the increased sales volume. Gross margin increased to
$17.4 million for the first half of 1997, a 6.4% increase from $16.3 million
in the same period of 1996. Gross margin as a percentage of net sales
decreased to 29.8% in 1997 from 31.9% in 1996. The lower gross margin
percentage during the first half of 1997 was due primarily to costs associated
with the introduction of new products for the lodging market and development
of the Company's Tijuana, Mexico facility, a loss during the period at Falcon
Mimon, a.s., due to certain production inefficiencies, and product mix.
Selling, general and administrative expenses were $11.4 million in the
first half of 1997, compared to $10.4 million in 1996, a 9.6% increase. The
overall increase is primarily related to increased sales and marketing
programs, including salaries, travel expense and commissions, associated with
the increased sales volume. Selling, general and administrative expenses as a
percentage of net sales decreased to 19.5% for the first half of 1997 as
compared to 20.2% for the same period of 1996, due to certain efficiencies
associated with the higher sales volume, the Company's cost control measures
and lower expenses for the Company's management bonus program.
Net interest income was $48,000 for the first half of 1997, versus $49,000
for the comparable period in 1996. Income tax expense was $2.3 million for
the first half of 1997, which was the same as 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at May 3, 1997, was $33.6 million and its
ratio of current assets to current liabilities was 3.9 to 1.0, compared with
$33.3 million and 3.5 to 1.0 at November 2, 1996.
8
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During the first half of 1997, the Company repurchased approximately
170,000 shares of its common stock for a total cost of approximately $2.5
million. The Company is authorized to purchase up to an additional 688,000
shares of its common stock under stock repurchase programs authorized 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
interest at the London Interbank Offered Rate plus 1.25 percent and expires
on July 1, 1997. As of May 3, 1997, 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.
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
-----------------
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company maintains
insurance coverage against potential claims in an amount it believes to be
adequate.
Other than as described in the Company's Annual Report on Form 10-K for
the year ended November 2, 1996, there are no 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
---------------------------------------------------
The Company held its Annual Meeting of Stockholders on March 18,
1997, for the purpose of electing three Class A Directors. The number
of votes in favor, votes withheld and votes abstained for each nominee
for Director are as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld Votes Abstained
------- --------- -------------- ---------------
<S> <C> <C> <C>
Melvin F. Brown 7,950,864 16,391 223,341
James L. Hoagland 7,965,056 2,199 223,341
Lee M. Liberman 7,965,356 1,899 223,341
</TABLE>
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<PAGE> 10
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.
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: June 10, 1997 /s/ Franklin A. Jacobs
----------------------
Franklin A. Jacobs
Chief Executive Officer
and Chairman of the Board
Date: June 10, 1997 /s/ Michael J. Dreller
----------------------
Michael J. Dreller
Vice President and
Chief Financial Officer
10
<PAGE> 1
EXHIBIT NO. 11
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------ ------------------------
5/3/97 4/27/96 5/3/97 4/27/96
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
- ---------------------------
Average number of common shares outstanding 9,703,162 9,597,466 9,724,382 9,560,065
Assumed exercise of options
(treasury stock method) 207,264 237,120 199,713 216,308
---------- ---------- ---------- ----------
Shares for primary computation 9,910,426 9,834,586 9,924,095 9,776,373
========== ========== ========== ==========
Net earnings $1,942,386 $2,126,986 $3,808,453 $3,749,980
========== ========== ========== ==========
Earnings per share $ .20 $ .22 $ .38 $ .38
========== ========== ========== ==========
Fully Diluted Earnings Per Share:
- ---------------------------------
Average number of common shares outstanding 9,705,832 9,635,339 9,731,182 9,649,041
Assumed exercise of options
(treasury stock method) 207,264 267,162 199,713 267,162
---------- ---------- ---------- ----------
Shares for fully-diluted computation 9,913,096 9,902,501 9,930,895 9,916,203
========== ========== ========== ==========
Net earnings $1,942,386 $2,126,986 $3,808,453 $3,749,980
========== ========== ========== ==========
Earnings per share $ .20 $ .22 $ .38 $ .38
========== ========== ========== ==========
</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 May 3, 1997 and is qualified in its
entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-01-1997
<PERIOD-END> MAY-03-1997
<CASH> 1,542
<SECURITIES> 0
<RECEIVABLES> 16,780
<ALLOWANCES> 463
<INVENTORY> 24,542
<CURRENT-ASSETS> 45,256
<PP&E> 44,109
<DEPRECIATION> 17,746
<TOTAL-ASSETS> 84,809
<CURRENT-LIABILITIES> 11,634
<BONDS> 0
<COMMON> 198
0
0
<OTHER-SE> 69,660
<TOTAL-LIABILITY-AND-EQUITY> 84,809
<SALES> 58,330
<TOTAL-REVENUES> 58,330
<CGS> 40,957
<TOTAL-COSTS> 40,957
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (48)
<INCOME-PRETAX> 6,143
<INCOME-TAX> 2,334
<INCOME-CONTINUING> 3,809
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,809
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
