<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 August 2, 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 September 4, 1997, the registrant had 9,566,741 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 Thirty-Nine Weeks Ended
--------------------- -----------------------
August 2, July 27, August 2, July 27,
(In thousands, except per share data) 1997 1996 1997 1996
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales $28,570 $25,228 $82,153 $71,733
Cost of sales 20,199 17,609 58,280 49,655
------- ------- ------- -------
Gross margin 8,371 7,619 23,873 22,078
Selling, general and administrative expenses 5,686 4,924 16,041 14,309
------- ------- ------- -------
Operating profit 2,685 2,695 7,832 7,769
Interest income, net 1 29 49 78
Minority interest in consolidated subsidiary (20) 17 56 37
------- ------- ------- -------
Earnings from continuing operations before
income taxes 2,666 2,741 7,937 7,884
Income tax expense 1,013 1,042 3,016 2,996
------- ------- ------- -------
Net earnings from continuing operations 1,653 1,699 4,921 4,888
Earnings from discontinued operations, net of tax 397 346 938 907
------- ------- ------- -------
Net earnings $ 2,050 $ 2,045 $ 5,859 $ 5,795
======= ======= ======= =======
Primary Earnings per share:
Continuing operations $ .17 $ .17 $ .50 $ .50
Discontinued operations .04 .04 .09 .09
------- ------- ------- -------
Net earnings per share $ .21 $ .21 $ .59 $ .59
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE> 3
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Balance Sheets
---------------------------
(Unaudited)
<CAPTION>
(In thousands, except share data)
Aug. 2, Nov. 2,
1997 1996
------- -------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 1,716 $ 5,714
Accounts receivable, less allowances
of $408 and $391, respectively 15,613 15,010
Inventories 24,707 19,632
Prepaid expenses and other current assets 2,185 2,104
Net assets of discontinued operations 5,299 4,493
------- -------
Total current assets 49,520 46,953
------- -------
Property, plant and equipment:
Land 2,842 2,842
Buildings and improvements 12,745 12,418
Machinery and equipment 26,033 22,977
------- -------
41,620 38,237
Less accumulated depreciation 15,886 13,752
------- -------
Total property, plant and equipment 25,734 24,485
------- -------
Other assets, net of accumulated amortization:
Goodwill 9,449 9,445
Other 3,443 3,505
------- -------
Total other assets 12,892 12,950
------- -------
$88,146 $84,388
======= =======
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $10,271 $ 7,195
Accrued liabilities 3,530 4,270
Current maturities of long-term debt 871 957
------- -------
Total current liabilities 14,672 12,422
Long-term obligations:
Long-term debt 507 448
Pension liability 239 239
Deferred income taxes 1,882 1,882
Minority interest in consolidated subsidiary 865 921
------- -------
Total liabilities 18,165 15,912
------- -------
Stockholders' equity:
Common stock, $.02 par value: authorized 20,000,000 shares;
9,915,117 shares issued 198 198
Additional paid-in capital 47,269 47,260
Treasury stock, at cost (348,376 and 109,516 shares, respectively) (4,866) (1,529)
Cumulative translation adjustments 488 274
Retained earnings 26,892 22,273
------- -------
Total stockholders' equity 69,981 68,476
------- -------
$88,146 $84,388
======= =======
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 August 2, 1997, and July 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 -- -- -- -- 5,795 5,795
Exercise of stock options 2 358 742 -- (507) 595
Issuance of stock to Employee
Stock Purchase Plan -- 194 332 -- -- 526
Compensation expense under
stock and option plans -- 5 -- -- 24 29
Translation adjustments -- -- -- 91 -- 91
Cash dividends -- -- -- -- (719) (719)
Treasury stock purchases -- -- (1,866) -- -- (1,866)
---- ------- ------- ---- ------- -------
Balance, July 27, 1996 $193 $43,318 $ (927) $273 $19,901 $62,758
==== ======= ======= ==== ======= =======
Balance, November 2, 1996 $198 $47,260 $(1,529) $274 $22,273 $68,476
Net earnings -- -- -- -- 5,859 5,859
Exercise of stock options -- -- 410 -- (248) 162
Issuance of stock to Employee
Stock Purchase Plan -- 4 658 -- -- 662
Compensation expense under
stock and option plans -- -- -- -- 23 23
Translation adjustments -- -- -- 214 -- 214
Cash dividends -- -- -- -- (1,015) (1,015)
Treasury stock purchases -- -- (4,669) -- -- (4,669)
Issuance of stock for business acquisition -- 5 264 -- -- 269
---- ------- ------- ---- ------- -------
Balance, August 2, 1997 $198 $47,269 $(4,866) $488 $26,892 $69,981
==== ======= ======= ==== ======= =======
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 Weeks Ended
-----------------------
(In thousands) August 2, July 27,
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,859 $ 5,795
Adjustments to reconcile net earnings to net cash:
Earnings from discontinued operations (938) (907)
Depreciation 2,334 2,059
Amortization of other assets 820 861
Translation adjustments 214 91
Compensation expense under stock and option plans 23 29
Minority interest in consolidated subsidiary (56) (37)
Change in assets and liabilities:
Decrease (increase) in:
Accounts receivable, net (603) 2,108
Inventories (5,075) (3,709)
Prepaid expenses and other current assets (81) (298)
Other assets, net (762) (760)
Increase (decrease) in:
Accounts payable 3,076 100
Accrued liabilities (740) (879)
------- -------
Net cash provided by continuing operations 4,071 4,453
Net cash provided by discontinued operations 54 496
------- -------
Net cash provided by operating activities 4,125 4,949
------- -------
Cash flows from investing activities:
Cost of businesses acquired -- (1,118)
Additions to property, plant and equipment, net (3,505) (3,818)
------- -------
Net cash used in investing activities (3,505) (4,936)
------- -------
Cash flows from financing activities:
Repayment of long-term debt, net (27) (797)
Common stock issuances 1,093 1,121
Cash dividends (1,015) (719)
Treasury stock purchases (4,669) (1,866)
------- -------
Net cash used in financing activities (4,618) (2,261)
------- -------
Net decrease in cash and cash equivalents (3,998) (2,248)
Cash and cash equivalents-beginning of period 5,714 6,970
------- -------
Cash and cash equivalents-end of period $ 1,716 $ 4,722
======= =======
Supplemental Cash Flow Information:
Cash paid for interest $ 63 $ 121
======= =======
Cash paid for income taxes $ 2,979 $ 2,609
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
5
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Falcon Products, Inc. and Subsidiaries
--------------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
Thirty-Nine Weeks Ended August 2, 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. - Discontinued Operations
On September 8, 1997, the Company announced the sale of its
William Hodges division (the Hodges Division) to Leggett & Platt,
Incorporated for approximately $17.5 million. The Hodges Division
manufactures wire shelving and kitchen equipment. The Company will report
an after tax gain on the sale of approximately $7.0 million or $.71 per
share, during the fourth quarter.
Earnings from the discontinued Hodges Division operations were $397,000
and $346,000 for the thirteen weeks ended August 2, 1997, and July 27, 1996,
net of applicable income taxes of $244,000 and $212,000, respectively. For
the thirty-nine weeks ended August 2, 1997 and July 27, 1996, earnings from
the discontinued operations were $938,000 and $907,000, net of applicable
income taxes of $575,000 and $556,000, respectively.
Net assets of the discontinued Hodges Division operations consisted of
the following:
<TABLE>
<CAPTION>
Aug. 2, Nov. 2,
(In thousands) 1997 1996
------- -------
<S> <C> <C>
Accounts receivable $1,393 $1,673
Inventories 3,257 2,093
Other current assets 133 143
Net property and equipment 820 897
Goodwill, net of accumulated amortization 250 261
Other assets 49 66
Accounts payable (411) (370)
Accrued liabilities (192) (270)
------ ------
$5,299 $4,493
====== ======
</TABLE>
6
<PAGE> 7
Note 3. - 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 and goodwill of approximately $2.5 million was recorded.
Note 4. - 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 August 2, 1997, and July 27, 1996. For both the
thirty-nine week periods ended August 2, 1997 and July 27, 1996, basic EPS
and dilutive EPS would be $.60 and $.59, respectively.
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.
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.
7
<PAGE> 8
RESULTS OF OPERATIONS
General
The following table sets forth, for the periods presented, certain
information relating to the continuing operations of the Company, expressed
as a percentage of net sales:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------ -------------------------
August 2, July 27, August 2, July 27,
1997 1996 1997 1996
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 70.7 69.8 70.9 69.2
Gross margin 29.3 30.2 29.1 30.8
Selling, general and administrative expenses 19.9 19.5 19.5 19.9
Operating profit 9.4 10.7 9.6 10.9
Interest income, net -- .1 -- .1
Minority interest in consolidated subsidiary (.1) .1 .1 --
Earnings from continuing operations before income taxes 9.3 10.9 9.7 11.0
Income tax expense 3.5 4.2 3.7 4.2
Net earnings from continuing operations 5.8 6.7 6.0 6.8
</TABLE>
Thirteen weeks ended August 2, 1997, compared to the thirteen weeks ended
July 27, 1996
Net earnings were $2.1 million in the third quarter of fiscal 1997,
compared to $2.0 million in 1996, an increase of 5.9%. Earnings per share were
$.21 in 1997, the same as 1996. Earnings from continuing operations were $1.7
million or $.17 per share in both the third quarter of 1997 and 1996. Earnings
from discontinued operations were $.4 million or $.04 per share in the third
quarter of 1997 and 1996.
Net sales from continuing operations for the third quarter of 1997 were
$28.6 million, an increase of 13.2% over 1996 third quarter net sales of
$25.2 million. This increase primarily resulted from increased sales of the
Company's lodging products and its contract/office furniture products. Sales
in the third 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 $27.1 million.
Cost of sales was $20.2 million for the 1997 third quarter, an increase
of 14.2% from $17.6 million in the third quarter of 1996. The overall
increase is a result of the increased sales volume. Gross margin increased
to $8.4 million for the third quarter of 1997, a 9.9% increase from $7.6
million in the same quarter of 1996. Gross margin as a percentage of net
sales decreased to 29.3% in 1997 from 30.2% in 1996. The lower gross margin
percentage during the third 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 Company completed
the expansion of its Tijuana, Mexico facility to improve its production
capabilities and efficiencies.
Selling, general and administrative expenses were $5.7 million in the
third quarter of 1997, compared to $4.9 million in the second quarter of
1996, an 15.5% increase. The increase is primarily
8
<PAGE> 9
related to increased sales and marketing programs, including salaries,
commissions and travel expenses associated with the increased sales volume.
Selling, general and administrative expenses as a percentage of net sales,
increased to 19.9% for the third quarter of 1997 as compared to 19.5% for the
same period of 1996. The increase in the expense rate in 1997 is primarily the
result of increased sales and marketing programs during the quarter.
Thirty-nine weeks ended August 2, 1997, compared to the thirty-nine weeks
ended July 27, 1996
Net earnings were $5.9 million during the first three quarters of fiscal
1997 compared to $5.8 million in fiscal 1996, an increase of 1.1%. Earnings
per share were $.59 in 1997, the same as 1996. Earnings from continuing
operations in 1997 were $4.9 million or $.50 per share for both the 1997 and
1996 nine month period. Earnings from discontinued operations are $.9 million,
or $.09 per share, in both nine month periods.
Net sales from continuing operations for the first three quarters of
fiscal 1997 were $82.2 million, an increase of 14.5% over net sales of $71.7
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
$76.8 million for the three quarters ended August 2, 1997.
Cost of sales was $58.3 million for the first three quarters of fiscal
1997, an increase of 17.4% from $49.7 million in the first three quarters of
1996. The overall increase is primarily related to the increased sales volume.
Gross margin increased to $23.9 million for the first three quarters of 1997,
an 8.1% increase from $22.1 million in the same period of 1996. Gross margin
as a percentage of net sales decreased to 29.1% in 1997 from 30.8% in 1996.
The lower gross margin percentage during the first three quarters 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 Falcon Mimon, a.s. due to certain production
inefficiencies, and product mix.
Selling, general and administrative expenses were $16.0 million in the
first three quarters of 1997, compared to $14.3 million in 1996, a 12.1%
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 three quarters of 1997 as compared to 19.9% for the same period of
1996, due to certain efficiencies associated with the higher sales volume,
and implementation of the Company's cost control measures.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital excluding discontinued operations at
August 2, 1997, was $29.5 million and its ratio of current assets to current
liabilities was 3.0 to 1.0, compared with $30.0 million and 3.4 to 1.0 at
November 2, 1996.
During the first three quarters of 1997, the Company repurchased
approximately 334,000 shares of its common stock for a total cost of
approximately $4.7 million. The Company is authorized to purchase up to an
additional 524,000 shares of its common stock under stock repurchase programs
authorized by the Board of Directors.
9
<PAGE> 10
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, 1998. As of August 2, 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 the proceeds from the sale of the
Hodges Division, 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 (as to which there are no material
developments), 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
---------------------------------------------------
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.
10
<PAGE> 11
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 12, 1997 /s/ Franklin A. Jacobs
----------------------
Franklin A. Jacobs
Chief Executive Officer
and Chairman of the Board
Date: September 12, 1997 /s/ Michael J. Dreller
----------------------
Michael J. Dreller
Vice President and
Chief Financial Officer
11
<PAGE> 1
EXHIBIT NO. 11
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<CAPTION>
Thirteen Weeks Thirty-Nine Weeks
Ended Ended
------------------------- -------------------------
8/2/97 7/27/96 8/2/97 7/27/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
- ---------------------------
Average number of common shares outstanding 9,661 9,644 9,703 9,588
Assumed exercise of options
(treasury stock method) 157 233 177 203
------ ------ ------ ------
Shares for primary computation 9,818 9,877 9,880 9,791
====== ====== ====== ======
Net earnings $2,050 $2,045 $5,859 $5,795
====== ====== ====== ======
Earnings per share $ .21 $ .21 $ .59 $ .59
====== ====== ====== ======
Fully Diluted Earnings Per Share:
- ---------------------------------
Average number of common shares outstanding 9,664 9,651 9,720 9,669
Assumed exercise of options
(treasury stock method) 157 233 177 226
------ ------ ------ ------
Shares for fully-diluted computation 9,821 9,884 9,897 9,895
====== ====== ====== ======
Net earnings $2,050 $2,045 $5,859 $5,795
====== ====== ====== ======
Earnings per share $ .21 $ .21 $ .59 $ .59
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-Q for the quarterly period ended August 2, 1997 and is qualified
in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-01-1997
<PERIOD-END> AUG-02-1997
<CASH> 1,716
<SECURITIES> 0
<RECEIVABLES> 15,613
<ALLOWANCES> 408
<INVENTORY> 24,707
<CURRENT-ASSETS> 49,520
<PP&E> 41,620
<DEPRECIATION> 15,886
<TOTAL-ASSETS> 88,146
<CURRENT-LIABILITIES> 14,672
<BONDS> 0
<COMMON> 198
0
0
<OTHER-SE> 69,783
<TOTAL-LIABILITY-AND-EQUITY> 88,146
<SALES> 82,153
<TOTAL-REVENUES> 82,153
<CGS> 58,280
<TOTAL-COSTS> 58,280
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (49)
<INCOME-PRETAX> 7,937
<INCOME-TAX> 3,016
<INCOME-CONTINUING> 4,921
<DISCONTINUED> 938
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,859
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
</TABLE>
