<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 February 1, 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 March 6, 1997, the registrant had 9,702,841 shares of common stock, $.02
par value, outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
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<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Statements of Earnings
-----------------------------------
(Unaudited)
<CAPTION>
Thirteen Weeks Ended
-----------------------------
February 1, January 27,
(In thousands, except per share data) 1997 1996
----------- -----------
<S> <C> <C>
Net sales $29,056 $25,433
Cost of sales 20,556 17,827
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Gross margin 8,500 7,606
Selling, general and administrative expenses 5,557 5,032
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Operating profit 2,943 2,574
Interest income, net 32 27
Minority interest in consolidated subsidiary 35 17
------- -------
Earnings before income taxes 3,010 2,618
Income tax expense 1,144 995
------- -------
Net earnings $ 1,866 $ 1,623
======= =======
Primary earnings per share $ .19 $ .17
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
2
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<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Balance Sheets
---------------------------
(Unaudited)
<CAPTION>
February 1, November 2,
(In thousands, except share data) 1997 1996
----------- -----------
<S> <C> <C>
Assets
- ------
Current Assets:
Cash and cash equivalents $ 3,804 $ 5,714
Accounts receivable, less allowances
of $495 and $439, respectively 16,052 16,683
Inventories 23,149 21,725
Prepaid expenses and other current assets 2,342 2,247
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Total current assets 45,347 46,369
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Property, plant and equipment:
Land 2,842 2,842
Buildings and improvements 13,545 13,460
Machinery and equipment 26,267 25,403
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42,654 41,705
Less accumulated depreciation 17,053 16,323
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Total property, plant and equipment 25,601 25,382
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Other assets, net of accumulated amortization:
Excess of cost over fair value of net assets acquired 9,615 9,706
Other 3,451 3,532
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Total other assets 13,066 13,238
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$84,014 $84,989
======= =======
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 6,829 $ 7,565
Accrued liabilities 4,536 4,540
Current maturities of long-term debt 910 957
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Total current liabilities 12,275 13,062
Long-term obligations:
Long-term debt 433 448
Pension liability 239 239
Deferred income taxes 1,843 1,843
Minority interest in consolidated subsidiary 886 921
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Total liabilities 15,676 16,513
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Stockholders' equity:
Common stock, $.02 par value: authorized 20,000,000 shares;
9,915,117 shares issued 198 198
Additional paid-in capital 47,262 47,260
Treasury stock, at cost (220,486 and 109,516 shares, respectively) (3,170) (1,529)
Cumulative translation adjustments 282 274
Retained earnings 23,766 22,273
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Total stockholders' equity 68,338 68,476
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$84,014 $84,989
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Statements of Stockholders' Equity
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Thirteen Weeks Ended February 1, 1997, and January 27, 1996
-----------------------------------------------------------
(Unaudited)
<CAPTION>
Additional Cumulative Total
Common Paid-in Treasury Translation Retained Stockholders'
(In thousands) 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 -- -- -- -- 1,623 1,623
Cash dividends -- -- -- -- (239) (239)
Issuance of stock to Employee
Stock Purchase Plan -- 55 100 -- -- 155
Exercise of employee incentive
stock options 1 159 -- -- -- 160
Compensation expense under
non-qualified stock option plans -- 2 -- -- 8 10
Translation adjustments -- -- -- 5 -- 5
Treasury stock purchases -- -- (777) -- -- (777)
---- ------- ------- ---- ------- -------
Balance, January 27, 1996 $192 $42,977 $ (812) $187 $16,700 $59,244
==== ======= ======= ==== ======= =======
Balance, November 2, 1996 $198 $47,260 $(1,529) $274 $22,273 $68,476
Net earnings -- -- -- -- 1,866 1,866
Cash dividends -- -- -- -- (339) (339)
Issuance of stock to Employee
Stock Purchase Plan -- -- 227 -- -- 227
Exercise of employee incentive
stock options -- -- 113 -- (42) 71
Compensation expense under non-
qualified stock and option plans -- 2 -- -- 8 10
Translation adjustments -- -- -- 8 -- 8
Treasury stock purchases -- -- (1,981) -- -- (1,981)
---- ------- ------- ---- ------- -------
Balance, February 1, 1997 $198 $47,262 $(3,170) $282 $23,766 $68,338
==== ======= ======= ==== ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
<CAPTION>
Thirteen Weeks Ended
-----------------------------
(In thousands) February 1, January 27,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,866 $ 1,623
------- -------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 790 638
Amortization of other assets 235 274
Translation adjustments during year 8 5
Compensation expense under stock and option plans 10 10
Minority interest in consolidated subsidiary (35) (16)
Change in assets and liabilities:
Decrease (increase) in:
Accounts receivable, net 631 1,878
Inventories (1,424) (179)
Prepaid expenses and other current assets (95) (172)
Other assets, net (63) (288)
Increase (decrease) in:
Accounts payable (736) (358)
Accrued liabilities (4) (773)
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Total adjustments (683) 1,019
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Net cash provided by operating activities 1,183 2,642
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Cash flows from investing activities:
Cost of business acquired -- (377)
Additions to property, plant and equipment, net (1,009) (1,943)
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Net cash used in investing activities (1,009) (2,320)
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Cash flows from financing activities:
Repayment of long-term debt (62) (79)
Common stock issuances 298 315
Treasury stock purchases (1,981) (777)
Cash dividends (339) (239)
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Net cash used in financing activities (2,084) (780)
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Net increase (decrease) in cash and cash equivalents (1,910) (458)
Cash and cash equivalents-beginning of period 5,714 6,970
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Cash and cash equivalents-end of period $ 3,804 $ 6,512
======= =======
Supplemental Cash Flow Information:
Cash paid for interest $ 28 $ 56
======= =======
Cash paid for income taxes $ 179 $ 31
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
5
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Falcon Products, Inc. and Subsidiaries
--------------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
Thirteen Weeks Ended February 1, 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
In 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.
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
------------------------
February 1, January 27,
1997 1996
----------- -----------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 70.8 70.1
Gross margin 29.2 29.9
Selling, general and administrative expenses 19.1 19.8
Operating profit 10.1 10.1
Interest income, net .1 .1
Minority interest in consolidated subsidiary .1 .1
Earnings before income taxes 10.3 10.3
Income tax expense 3.9 3.9
Net earnings 6.4 6.4
</TABLE>
6
<PAGE> 7
Thirteen weeks ended February 1, 1997, compared to the thirteen weeks ended
January 27, 1996
Net earnings totaled $1.9 million in the first quarter of 1997, compared
to $1.6 million in 1996, an increase of 15.0%. Earnings per share reached
$.19 in 1997, compared to $.17 in 1996, an 11.8% increase.
Net sales for the first quarter of 1997 were $29.1 million, an increase
of 14.2% over 1996 first quarter net sales of $25.4 million. The sales
increase over the prior year primarily resulted from strong sales performance
from the Company's contract/office furniture and lodging markets and
incremental sales from the acquisition of The Chair Source during 1996. Net
sales for the quarter excluding sales resulting from this acquisition were
approximately $26.8 million.
Cost of sales was $20.6 million for the 1997 first quarter, an increase
of 15.3% from $17.8 million in the 1996 first quarter. The overall increase
is primarily related to increased sales volume. Gross margin increased to
$8.5 million for the first quarter of 1997, an 11.7% increase from $7.6
million in the same quarter of 1996. Gross margin as a percentage of net
sales decreased to 29.2% in 1997 from 29.9% in 1996 primarily due to product
mix and higher volume at the Company's new facility in City of Industry,
California, which has operated at lower margins than the Company's other
manufacturing facilities.
Selling, general and administrative expenses were $5.6 million in the
1997 first quarter, compared to $5.0 million in the 1996 first quarter, a
10.4% increase. The overall increase is primarily related to higher sales
volume. Selling, general and administrative expenses as a percentage of net
sales decreased to 19.1% for the first quarter of 1997 compared to 19.8% for
the same period of 1996, primarily due to certain economies of scale
associated with the sales volume increases.
The Company reported net interest income of $32,000 for the first
quarter of 1997, versus net interest income of $27,000 for the comparable
period in 1996. Income tax expense increased by $149,000, or 15.0%, in the
first quarter of 1997 compared to the same period in 1996 due to higher
earnings during 1997.
Liquidity and Capital Resources
The Company's working capital at February 1, 1997, was $33.1 million and
its ratio of current assets to current liabilities was 3.7 to 1.0, compared
to $33.3 million and 3.5 to 1.0 at November 2, 1996.
During the first quarter of 1997, the Company acquired approximately
135,000 shares of its common stock for a total cost of approximately $2.0
million. The Company is authorized to purchase up to 575,000 shares of its
common stock under a stock repurchase plan previously approved by the Board
of Directors. The Company has purchased approximately 352,000 shares under
the plan at February 1, 1997.
7
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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% and expires on July
1, 1997. As of February 1, 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 internal
source of liquidity.
Generally, inflation has not had a material effect on the Company in the
past and no such effect is expected in the near future. Historically, the
Company has been able to increase prices to offset increases in the cost of
manufacturing its products, and management presently believes that the
Company will continue to be able to do so.
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 which 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 other
material pending legal proceedings, other than routine litigation
incidental to the business, to which the registrant is a party or
of which any of the registrant's property is the subject.
Item 2. - Changes in Securities
---------------------
None.
Item 3. - Defaults Upon Senior Securities
-------------------------------
None.
8
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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.
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: March 17, 1997 /s/ Franklin A. Jacobs
-----------------------------
Franklin A. Jacobs
Chief Executive Officer and
Chairman of the Board
Date: March 17, 1997 /s/ Michael J. Dreller
-----------------------------
Michael J. Dreller
Vice President and
Chief Financial Officer
9
<TABLE>
EXHIBIT 11
Falcon Products, Inc. and Subsidiaries
--------------------------------------
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<CAPTION>
Thirteen Weeks Ended
-----------------------------------
February 1, January 27,
Primary Earnings Per Share: 1997 1996
- --------------------------- ----------- -----------
<S> <C> <C>
Average number of common shares outstanding 9,745,602 9,522,661
Assumed exercise of options (treasury stock method) 197,540 277,375
---------- ----------
Shares for primary computation 9,943,142 9,800,036
========== ==========
Net earnings $1,866,065 $1,622,994
========== ==========
Net earnings per share $ .19 $ .17
===== =====
Fully Diluted Earnings Per Share:
- ---------------------------------
Average number of common shares outstanding 9,751,808 9,522,661
Assumed exercise of options (treasury stock method) 205,959 281,323
---------- ----------
Shares for fully diluted computation 9,957,767 9,803,984
========== ==========
Net earnings $1,866,065 $1,622,994
========== ==========
Net earnings per share $ .19 $ .17
===== =====
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-Q for the quarterly period ended February 1, 1997 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 3,804
<SECURITIES> 0
<RECEIVABLES> 16,052
<ALLOWANCES> 495
<INVENTORY> 23,149
<CURRENT-ASSETS> 45,347
<PP&E> 42,654
<DEPRECIATION> 17,033
<TOTAL-ASSETS> 84,014
<CURRENT-LIABILITIES> 12,275
<BONDS> 0
<COMMON> 198
0
0
<OTHER-SE> 68,140
<TOTAL-LIABILITY-AND-EQUITY> 84,014
<SALES> 29,056
<TOTAL-REVENUES> 29,056
<CGS> 20,556
<TOTAL-COSTS> 20,556
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (32)
<INCOME-PRETAX> 3,010
<INCOME-TAX> 1,144
<INCOME-CONTINUING> 1,866
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,866
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
