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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED NOVEMBER 1, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ----- TO -------
COMMISSION FILE NUMBER 1-11577
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FALCON PRODUCTS, INC.
DELAWARE 43-0730877
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9387 DIELMAN INDUSTRIAL DRIVE, ST. LOUIS, MISSOURI 63132
Registrant's telephone number, including area code: (314) 991-9200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, par value $.02 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
--------------------------------
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 12 months (or for such shorter period that the
Registrant was required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days: Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K: [X]
As of January 16, 1998, the Registrant had outstanding 9,263,179 shares
of Common Stock. The aggregate market value of the shares of Common Stock
held by nonaffiliates of the Registrant as of January 16, 1998, was $85.7
million based upon the closing stock price as reported on the New York Stock
Exchange on such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended November 1, 1997, are incorporated by reference into Parts
II and IV of this Report.
Portions of the Registrant's Proxy Statement for the 1998 Annual Meeting
of Stockholders to be held March 6, 1998, are incorporated by reference into
Part III of this Report.
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<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
PART I
- - ------
ITEM 1. Business 3
ITEM 2. Properties 9
ITEM 3. Legal Proceedings 9
ITEM 4. Submission of Matters to a Vote of Security Holders 10
ITEM 4A. Executive Officers of the Registrant 10
PART II
- - -------
ITEM 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 11
ITEM 6. Selected Financial Data 12
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
ITEM 8. Financial Statements and Supplementary Data 12
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 12
PART III
- - --------
ITEM 10. Directors and Executive Officers of the Registrant 12
ITEM 11. Executive and Director Compensation 12
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management 12
ITEM 13. Certain Relationships and Related Transactions 12
PART IV
- - -------
ITEM 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 13
SIGNATURES 16
- - ----------
</TABLE>
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FALCON PRODUCTS, INC.
FORM 10-K
When used herein, the term "Company" refers to the Registrant, Falcon
Products, Inc., and its subsidiaries.
This Report on Form 10-K contains certain forward-looking statements
within the meaning of the federal securities laws which, while reflective of
management's beliefs or expectations, involve certain risks and
uncertainties, many of which are beyond the control of the Company.
Accordingly, the Company's actual results and the timing of certain events
could differ materially from those discussed herein.
PART I
ITEM 1. BUSINESS.
GENERAL
The Company designs, manufactures and markets an extensive line of
furniture and related products for the foodservice, office, hospitality,
healthcare and retail markets, including table bases, table tops, metal and
wood chairs, booths, casegoods and interior decor systems. The Company
manufactures most of its products to customer order from basic raw materials.
The Company markets its products to a wide variety of customers, including
wholesale distributors, buying groups, architecture and design firms, office
furniture dealers and end users, through a combination of its own direct
factory sales force and independent manufacturer's representatives.
PRODUCTS
Furniture Products. The Company's principal products consist of table
bases, table tops, wood and metal chairs, booths, and casegoods. The
Company's table bases are produced in a variety of sizes, styles and finishes
and are utilized by restaurants, hotels, offices, cafeterias, hospitals,
airports, universities, country clubs and other commercial locations where
food is served. Thirty-three styles of table bases are finished to order in
one of the Company's standard catalog powder coat paint finishes or designer
plated finishes and also may be painted to match a customer's custom finish
requirements. Table bases either may be combined with table tops produced by
the Company to create complete tables for sale to customers or may be used by
a customer in connection with other table tops. The Company also has a
number of original equipment manufacturer customers who purchase its table
bases for use with their own table tops.
Table tops are manufactured by the Company in a number of standard sizes
and shapes and in a variety of finishes, including wood veneers, fiberglass,
high-pressure laminate patterns and solid wood. Edge treatments for the
table tops are available in vinyl, laminate, wood or metal. Wood edge,
veneer and butcher block tops are stained with one of the Company's standard
color finishes and sealed and sprayed with a durable catalyzed top coat. The
Company also has the capability of manufacturing custom table tops in a wide
variety of customer-specified sizes, shapes and finishes. Table tops are
typically sold with a base produced by the Company but may also be sold
separately.
The Company produces wood chairs in many styles from a variety of wood
types and in many standard upholstery fabric and vinyl coverings. These
chairs are manufactured by the Company or are assembled from machined parts
purchased in Europe. For upholstered products, the customer may select one of
the Company's standard catalog vinyls or contract-quality fabrics or may
specify or supply its choice of materials. Wood chairs are finished with one
of the Company's standard colors or the customer may specify or supply its
choice of finish material. A durable seal coat and top coat finish are also
applied to all wood chairs.
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The Company's metal stacking chairs are available in a wide variety of
styles and are used primarily in multi-use room situations where it is
necessary to store the chairs for certain functions, such as in training and
banquet facilities. Metal chairs may be upholstered in one of the Company's
standard catalog vinyls or fabrics or in customer-furnished or
customer-specified materials and may be plated or powder coat painted in a
standard catalog finish or in a customer-designated custom finish.
Booths manufactured by the Company are available in standard catalog
styles or customer-specified styles, some of which are suitable for outdoor
applications. Booths can be manufactured in wood, metal or fiberglass and
may be upholstered in one of the Company's standard catalog vinyls or fabrics
or in customer-designated or supplied coverings. Exposed wood is color
matched to customer specifications and top coated with the same durable
catalyzed finish used on the Company's table tops and other wood products.
The combination of the Company's broad line of furniture products and
its vertical manufacturing capabilities enable it to offer a complete
commercial interior decor package to its customers with significant design
flexibility and short lead times. The Company integrates certain of its
products into complete interior decor systems, which include all furniture,
booths, walls, wood trim and casegood components. These turnkey decor
packages include casegood components such as counters, bars, divider walls,
planter units, salad bars and stands produced in a variety of high-pressure
laminates which are manufactured by the Company, delivered to the customer
site and installed by employees or Company-trained subcontractors. These
packages are suitable for either new foodservice installations or remodeling
existing facilities.
MARKETING AND DISTRIBUTION
Domestic Sales of Furniture Products. The Company sells its furniture
products throughout the United States to a wide variety of customers,
including restaurant supply dealers, architectural design firms, office
furniture dealers, mass merchandisers, OEM's and chain restaurants. These
products are marketed through a combination of direct factory sales
representatives employed by the Company and independent manufacturer's
representatives organizations. Most sales representatives are assigned to
geographical territories. The efforts of these factory and independent sales
representatives are directed by the Company's Vice President-Sales, and the
Company's regional sales managers.
Each factory and independent sales representative is assigned a
territory in which to promote and sell the Company's products and assist in
resolution of any complaints with regard to his or her sales. The Company
determines the prices at which its products will be sold. The Company's
independent sales representatives are commissioned and do not carry competing
lines.
The Company's marketing programs assist its representatives in various
ways. The Company (i) conducts extensive training programs to better educate
its sales representatives with respect to the design, manufacture, variety
and decor applications of the Company's products; (ii) provides restaurant
supply and office furniture dealers, mass merchandisers, architectural
designers, OEM's and other customers with catalog materials, samples and
brochures; (iii) maintains a customer service department that ensures that
the Company promptly responds to the needs and orders of its customers; (iv)
exhibits its products at national and regional furniture shows and at a
showroom in the Merchandise Mart in Chicago; (v) maintains regular contact
with key customers; and (vi) conducts ongoing surveys to determine customer
satisfaction.
Flight. The Company's office and other furniture products are also
marketed through the Company's "Flight" network of over 400 independent office
furniture dealers. Flight dealers distribute the Company's furniture products
to a wide variety of commercial users and office furniture retailers and
provide the Company with access to incremental sales opportunities. The Flight
network is designed to both distribute the Company's office furniture products
and cross-sell its foodservice furniture products. The Company utilizes its
direct factory sales force and independent sales representatives, under the
supervision of the Company's Vice President - Office and Hospitality, to call
upon existing and prospective Flight dealers.
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International Sales. The Company's products are marketed throughout
Europe through an exclusive distribution agreement with a European
distributor. The Company's Falcon Mimon, a.s., subsidiary located in Mimon,
Czech Republic ("Falcon Mimon") also markets wood chair frames directly. The
manufacturing capabilities of Falcon Mimon and the distribution network allow
the Company to take advantage of opportunities in Europe.
Distribution of the Company's products in Asia and the Pacific Rim is
achieved through exclusive distribution arrangements in Japan, Hong Kong, and
South Korea. The Company plans to augment existing distribution agreements
during 1998 with additional distribution arrangements in other countries in
the Pacific Rim. The Company's international sales efforts are supported by
dedicated customer service personnel. During 1997, 1996 and 1995, foreign
operations and export sales were $9.3, $10.9 million, and $9.7 million,
respectively. Of these amounts, $3.9 million, $3.8 million and $4.0 million
of sales in 1997, 1996 and 1995, respectively, were made directly from the
Company's Mimon location.
National Accounts. The Company's National Accounts program targets the
major restaurant chains. The Company maintains a separate National Accounts
sales force consisting of both employee sales representatives and independent
sales representatives that are directed by the Company's Vice
President-National Accounts and regional sales managers. The Company believes
that its vertically integrated manufacturing capabilities allow it to better
serve these customers than most of its competitors and that its design,
installation and service capabilities are particularly suited for many of
these customers. The National Accounts sales force develops original design
concepts, including seating layouts and product specifications for each
customer based on the customer's requirements. The Company's National
Accounts sales force is supported by its own customer service team, quotation
and design staff and product engineers, located at the Company's Newport,
Tennessee and City of Industry, California manufacturing facilities.
PRODUCT DESIGN AND DEVELOPMENT
The Company's design and engineering group works with sales and
marketing personnel in support of the Company's complete decor systems for
its National Accounts program. The Company's engineering staff utilizes the
Company's computer aided design system to provide layout and configuration
advice to customers who are integrating the Company's furniture products into
their facilities and to design casegoods and other components. The design
and engineering group also assists the Company's product design engineers in
the development of new products.
The Company's Product Development team, which is comprised of sales,
marketing, purchasing, engineering and financial personnel, strives to
produce customer satisfaction and competitively priced products by constantly
improving the Company's product lines. The Product Development team has a
formalized charter and a plan that not only will account for new product
introductions, but has identified market trends and includes product
development to accommodate those trends. The Company has four full-time
product design engineers who report to the Product Development team and are
responsible for the design of new products. On occasion, product designs are
also purchased from outside sources to supplement the Company's internal
design capabilities.
MANUFACTURING
The Company's manufacturing facility in Newport, Tennessee, produces
table bases, table tops, millwork, casegoods and booths. Table bases are
produced from iron castings and from wood. Cast iron table bases are sent to
the Newport facility in truck load quantities from the Company's gray iron
foundry in Juarez, Mexico, and are finished to meet customer requirements.
Table tops, which may be combined with the Company's table bases to produce a
complete table, are produced from solid wood or particle board core with a
laminate or wood veneer surface, receive various edge treatments and
finishes, and are sealed and sprayed with a durable top coat. Millwork and
casegoods, which are produced primarily to support the National Accounts
program, are manufactured at the Newport facility from lumber that is
purchased in truck load quantities, dry-kilned and rough-planed. The product
is then cut and assembled to engineering specifications and finished with a
durable catalyzed finish. Booths are produced from rough lumber that is cut
and prepared in a millroom at the facility,
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covered or color-matched to customer specifications and top coated with the same
durable catalyzed finish used on the Company's table tops and other wood
products.
The Company's facility in Lewisville, Arkansas, produces wood chairs.
Approximately 20% of the facility's wood chairs are produced entirely in
house, with the balance assembled from machined parts imported from Falcon
Mimon or other European suppliers. The Company purchases these parts in
container loads and then assembles and finishes the chairs to customer order.
To provide consistency and speed to the finishing process, a conveyorized
paint line is utilized with spray booths and drying ovens positioned to allow
proper flash off and curing times between finishing steps.
The Company's facility in Belmont, Mississippi, produces metal chairs
that are marketed to the restaurant, banquet, retail distribution, office,
and healthcare markets. Most chairs are manufactured totally in-house
through a process of metal bending, fabrication, semi-automatic welding and
upholstering. All metal chairs, including the Company's line of metal office
chairs imported from Italy, are then finished to customer requirements
through plating or powder coat painting.
The Company's facility in Belding, Michigan, acquired as part of the
acquisition of the assets of Charlotte Company, Inc., produces metal, wood
and upholstered chairs and tables, which are principally marketed into the
office environment and upscale dining areas. The facility's high quality
woodworking, wood finishing and upholstery operations combine to produce
fully finished furniture to customer specifications.
The Company's facility in City of Industry, California, acquired as part
of the acquisition of the assets of Decor Concepts, produces fiberglass
booths, table tops, millwork and casegoods, metal chairs, wood chairs and
fully upholstered seating; finishes raw table bases received from the
Company's Juarez facility; and upholsters finished wood chair frames received
from the Company's Tijuana facility. In addition to manufacturing these
additional products, this facility also serves as a central distribution
center for products manufactured at other Falcon locations destined for the
western United States.
The Company's facility in Anaheim, California, produces wood chairs
suitable for hotels, resorts and country clubs. These products are
manufactured from rough lumber, planed to dimension, cut to the appropriate
size and profiled to meet engineering specifications. The chair frames are
then finished and upholstered to customer order.
The Company's facility in Tijuana, Mexico, manufactures casegoods and
wood chairs that are primarily suited for the lodging and hospitality
markets. Most of the chair frames manufactured and finished in this factory
are shipped to the City of Industry plant for upholstering or consolidation
with other Falcon products before the products are shipped to customers.
The Company's facility in Juarez, Mexico, produces iron castings which
are finished into table bases at other Falcon facilities. Molds for the
table bases are produced by packing sand around an aluminum match plate.
Many of the raw materials used at the facility are readily available in the
Juarez area. The bases are finished and painted with a powder coat paint in
Juarez prior to shipment or if the bases are to be chrome plated, they are
polished in Juarez prior to shipment to other Falcon factories. A small
portion of this facility's production is shipped, generally in truck-load
quantities, directly to the Company's customers. The Company's foundry
utilizes an emission-free electric furnace and has a melting capacity of
110,000 pounds per day.
The Company's facility in Mimon, Czech Republic, produces wood chairs
and wood chair parts for export and sale within the Czech Republic.
Approximately 35% of this facility's production is for chair parts shipped to
the Company's facility in Lewisville, Arkansas, for assembly and final
finishing. This facility also exports finished chairs and chair parts to
customers in Europe, the Pacific Rim and North America. This facility has
wood drying, machining and bending capabilities to produce chair frames from
raw lumber and finishing and upholstery capabilities to complete fully
finished chairs to customer specifications.
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Prior to September 8, 1997, the Company's facility in St. Louis,
Missouri, produced wire shelving systems and metal kitchen equipment for the
Company's William Hodges Division. On September 8, 1997 the William Hodges
Division was sold for approximately $18.0 million in cash. The St. Louis
facility serves as the Company's corporate headquarters. The manufacturing
space previously occupied by the William Hodges Division is leased to
unrelated businesses.
RAW MATERIALS
The Company manufactures most of its products to customer order from
basic raw materials. The Company utilizes a variety of raw materials in the
manufacture of its products, including rough lumber, laminates, particle
board, metal tubing, steel wire, scrap iron and various plastic components,
all of which the Company believes are in abundant supply and available from a
variety of sources. The Company has no long-term supply contracts with any
of its suppliers and it has experienced no significant problems in obtaining
raw materials for its operations.
Certain products sold by the Company, including unfinished wood chair
frames and frame components and tubular steel stacking chair components, are
purchased by the Company from other sources. The Company has not experienced
difficulty in obtaining sources to produce these products and believes that
alternative arrangements could be made to obtain these products should the
need arise.
BACKLOG
As of November 1, 1997, the Company's backlog of orders for its products
believed to be firm was approximately $21.2 million, as compared to $17.7
million at November 2, 1996. Due to the Company's short delivery time,
backlog of orders is typically not considered a significant measure of future
sales.
COMPETITION
The foodservice, office furniture and hospitality segments of the
furniture industry are fragmented and highly competitive with respect to each
of the products manufactured by the Company. The Company believes its
competitive strengths are its vertically integrated manufacturing, its
emphasis on customer service and support, its reputation for quality and
responsiveness to its customers, the one-stop shopping advantage made
possible by the wide variety of products offered by the Company and its
ability to design, manufacture and install turnkey interior decor systems.
The Company competes for sales of each of its products with numerous domestic
and foreign manufacturers, many of which have financial and other resources
greater than the Company.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 1,309
persons in its seven domestic operations, 355 in its manufacturing facilities
in Mexico, and 357 in its manufacturing facility in Mimon, Czech Republic.
Approximately 53 persons were employed in sales, 277 persons in
administration and 1,691 in manufacturing.
TRADEMARKS AND PATENTS
The Company has registered the "FALCON", "CHARLOTTE", "FLIGHT" and
"GENESIS" trademarks with the United States Patent and Trademark Office.
Management believes that the Company's trademark position is adequately
protected in all markets in which the Company does business. The Company has
received mechanical patents on certain of its furniture mechanisms and
components. The Company believes that while its patents and trademarks have
value, it is not dependent upon patents, trademarks, servicemarks or
copyrights.
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GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS
The Company's operations must meet extensive federal, state, and local
regulatory standards in the areas of safety, health and environmental
pollution controls. Historically, these standards have not had any material
adverse effect on the Company's sales or operations. Management believes
that its plants are in compliance in all material respects with all
applicable federal, state, and local laws and regulations concerned with
safety, health and environmental protection.
ACQUISITIONS
In October 1996, the Company acquired the assets and assumed certain
liabilities of The Chair Source. The Chair Source manufactures wood and
upholstered seating in Anaheim, California and distributes these products
primarily to the hospitality, lodging and foodservice markets. Falcon
purchased the net assets for 266,400 newly issued shares of common stock
valued at $3.7 million, subject to working capital level adjustments, plus a
total of 50,000 shares of common stock to be issued in 1998 and 1999 over a
three-year period, subject to certain contingencies.
In February 1996, the Company acquired substantially all of the assets
and assumed certain liabilities of a manufacturing facility located in
Tijuana, Mexico. 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.
In 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 interior decor
products, including seating, tables and casegoods for restaurant chains. The
total purchase price for the transaction was approximately $1,540,000.
Approximately $1,095,000 of this price was paid at closing with the remainder
paid after the final valuation of certain assets was determined. This
transaction was funded by the Company with available cash reserves.
In September 1994, the Company acquired a 67% controlling interest in
Falcon Mimon, a furniture manufacturer in the Czech Republic, pursuant to an
agreement with the government of the Czech Republic. The total cost to
acquire the 67% interest in Falcon Mimon was approximately $2.3 million and
was funded from the Company's available cash reserves. Under terms of the
purchase agreement, the Company invested an additional $2.5 million in Falcon
Mimon during 1995 and 1996 to acquire equipment and make certain plant
improvements. This additional investment increased the Company's ownership
interest in Falcon Mimon to approximately 83%.
In January 1994, the Company acquired substantially all of the assets
and assumed certain liabilities of Charlotte Company, Inc. located in
Belding, Michigan. Charlotte is an 82 year old company that specializes in
the production and distribution of high quality wood and metal seating and
tables geared toward the office and upper end restaurant and lodging
applications. The total purchase price for this transaction was
approximately $3.4 million and was funded by the Company from its available
cash reserves.
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ITEM 2. PROPERTIES.
The following table provides information with respect to
each of the Company's manufacturing facilities:
<TABLE>
<CAPTION>
BUILDING AREA
LOCATION (SQUARE FEET) PRODUCTS LEASE/OWNERSHIP TERMS
-------- ------------- -------- ---------------------
<S> <C> <C> <C>
Newport, Tennessee 370,000 Table bases, table tops, Leases expiring in December
millwork, casegoods 2001, with and booths two
five-year renewals.
Belmont, Mississippi 227,000 Metal chairs, fiberglass Own 176,000 square feet in four
seating contiguous buildings; Lease
51,000 square feet expiring in
November 2003.
Lewisville, Arkansas 159,000 Wood chairs Leases expiring in February
1999, with three five-year
renewal options.
City of Industry, 177,000 Table bases, table tops, Lease expiring in April 2006,
California millwork, casegoods, metal with 2006, with three five-year
chairs, and fully upholstered renewal options.
seating
Belding, Michigan 89,000 Wood and metal chairs Owned
and tables
Anaheim, California 46,000 Wood chairs Lease expiring in October 2001.
Irwindale, California 34,000 Fiberglass booths Leases expiring in October 1999.
Mimon, Czech Republic 700,000 Wood chairs Owned
Juarez, Mexico 51,000 Iron castings for table bases Owned
Tijuana, Mexico 90,000 Casegoods and wood chairs Leases expiring in December 1998,
with five one-year renewal options.
</TABLE>
Management of the Company believes that its manufacturing and warehousing
facilities are in good condition and are adequate for the purposes for which
they are currently used. The capacity of the Company's current facilities is
considered to be adequate to meet current needs and anticipated increases in
sales volume for the foreseeable future.
ITEM 3. 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. 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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of stockholders during the last
quarter of the Company's fiscal year ended November 1, 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT<F*>.
The Executive Officers of the Company are:
<TABLE>
<CAPTION>
NAME POSITION AGE
- - ---- -------- ---
<C> <S> <C>
Franklin A. Jacobs Chairman of the Board since 1971; President from 1957 to May 65
1981 and again from January 1984 to December 1995.
Darryl C. Rosser President and Chief Operating Officer since December 1995; 46
Executive Vice President-Operations since May 1995;
Senior Vice President-Operations since December 1993; and
Vice President-Operations since January 1988.
Michael J. Dreller Vice President-Finance and Chief Financial Officer, 35
Secretary and Treasurer since January 1996; prior to joining
the Company, Vice President and Chief Financial Officer of
JDI Group, Inc., a distributor of residential furniture.
Richard Hnatek Senior Vice President-Sales since December 1993; 53
Vice President-Sales since November 1986.
Michael J. Kula Vice President-Operations since July 1996; prior to joining 48
the Company, Senior Vice President-Operations of The Gunlocke
Company, a subsidiary of HON Industries, Inc., a manufacturer
of office furniture.
<CAPTION>
Each officer is elected annually by the Board of Directors.
<FN>
- - -----------
<F*> This information is included in PART I as a separate item in accordance
with General Instruction G of Form 10-K under the Securities Exchange Act of
1934.
</TABLE>
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Principal Market
On December 6, 1995, the Company's common stock, par value $.02 per
share, was listed and began trading on the New York Stock Exchange under the
symbol FCP. Prior to that date, the Company's common stock was traded on the
NASDAQ National Market System.
(b) Stock Price and Dividend Information
The following table sets forth the high and low closing sales prices per
share for the Company's common stock and dividends paid per share for the
periods indicated. All per share price and shares outstanding information
set forth in this Report have been adjusted to reflect a 10% stock dividend paid
to stockholders of record on December 13, 1995.
<TABLE>
<CAPTION>
MARKET PRICE
------------------ DIVIDENDS
HIGH LOW PER SHARE
------ ------ ---------
<S> <C> <C> <C>
Year ended November 1, 1997:
First Quarter $16.00 $14.00 $.035
Second Quarter 15.88 13.63 .035
Third Quarter 14.38 12.88 .035
Fourth Quarter 15.94 13.31 .035
Year ended November 2, 1996:
First Quarter $13.25 $12.05 $.025
Second Quarter 16.63 13.00 .025
Third Quarter 16.75 14.13 .025
Fourth Quarter 15.13 13.13 .025
</TABLE>
Although the payment of future dividends is in the discretion of the
Board of Directors, the Company expects to pay a regular quarterly dividend
for the foreseeable future. During the first quarter of 1997, the Company
increased its cash dividend to $.035 per share from $.025 per share. The
Company again increased its dividend in the first quarter of 1998, raising it
to $.04 per share.
(c) Approximate Number of Holders of Common Stock
The approximate number of holders of record of the Company's common
stock as of January 16, 1998, was 994.
(d) Recent Sales of Unregistered Securities
In fiscal years 1996 and 1997, the Company issued 266,400 shares of
common stock, and incurred a contingent obligation to issue an additional
50,000 shares of common stock over the next two years (the 266,400 issued
shares and the additional 50,000 are hereafter referred to as the
"Acquisition Shares") in connection with its acquisition of the assets of The
Chair Source from The T.L. Spriggs Corporation. The Company believes that
the value of the acquired assets is commensurate with the total value of the
Acquisition Shares, which were valued at approximately $4.35 million as of
the acquisition date, October 28, 1996. The Acquisition Shares were exempt
from registration under Section 4(2) of the Securities Act of 1933, as
amended, and Regulation D promulgated thereunder.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data contained in the Registrant's Annual Report
for the fiscal year ended on November 1, 1997 (the "1997 Annual Report") is
incorporated herein by reference and contained herein as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the 1997 Annual
Report is incorporated herein by reference and contained herein as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements together with the notes thereto
and the report of independent auditors (as set forth in Part IV, Item 14 (a)
(1)) in the 1997 Annual Report are incorporated herein by reference. The
financial data contained under the caption "Quarterly Financial Information"
in the 1997 Annual Report is also incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the caption "INFORMATION ABOUT THE
NOMINEES" in the Registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders to be held March 6, 1998 (the "Proxy Statement"), is
incorporated herein by reference.
Information regarding executive officers of the Company is contained in
Part I, Item 4A hereof under the caption "Executive Officers of the
Registrant."
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 in the Proxy Statement under the caption "COMPLIANCE
WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934" is incorporated
herein by reference.
ITEM 11. EXECUTIVE AND DIRECTOR COMPENSATION.
The information contained under the captions "EXECUTIVE COMPENSATION",
"COMPENSATION OF DIRECTORS" and "INFORMATION AS TO STOCK OPTIONS" in the
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the captions "VOTING SECURITIES,
PRINCIPAL HOLDERS THEREOF AND CUMULATIVE VOTING RIGHTS" and "SECURITY
OWNERSHIP OF MANAGEMENT" in the Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the caption "TRANSACTIONS WITH ISSUER
AND OTHERS" in the Proxy Statement is incorporated herein by reference.
12
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements
The following Consolidated Financial Statements of the Company
included in the 1997 Annual Report are incorporated by reference in Part II,
Item 8:
<TABLE>
<CAPTION>
ANNUAL REPORT
PAGE REFERENCE
--------------
<S> <C>
Consolidated Statements of Earnings for the years ended November 1, 1997,
November 2, 1996, and October 28, 1995 16
Consolidated Balance Sheets as of November 1, 1997 and November 2, 1996, and
October 28, 1995 17
Consolidated Statements of Stockholders' Equity for the years ended November 1, 1997,
November 2, 1996 and October 28, 1995 18
Consolidated Statements of Cash Flows for the years ended November 1, 1997,
November 2, 1996, and October 28, 1995 19
Notes to Consolidated Financial Statements 20
Report of Independent Public Accountants 27
</TABLE>
(a) 2. Financial Statement Schedules
The following financial statement schedule is included in Item 14 on
page 15:
Schedule II-Valuation and Qualifying Accounts for the years ended
November 1, 1997, November 2, 1996 and October 28, 1995
(a) 3. Exhibits:
See Exhibit Index on pages 17 through 19 of this Report.
(b) Reports on Form 8-K:
None.
13
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
TO FALCON PRODUCTS, INC.:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Falcon Products, Inc. 1997 Annual Report to
Stockholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated December 15, 1997. Our audit was made for the purpose
of forming an opinion on those financial statements taken as a whole.
Schedule II included in this Form 10-K is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
December 15, 1997
14
<PAGE> 15
<TABLE>
FALCON PRODUCTS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
<CAPTION>
ADDITIONS
CHARGED ACQUISITIONS
BALANCE AT TO COSTS FROM DEDUCTIONS BALANCE
BEGINNING AND ACQUIRED FROM AT END OF
(In thousands) OF PERIOD EXPENSES COMPANIES RESERVES PERIOD
---------- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
and anticipated returns:
Year ended November 1, 1997 $ 392 $ 710 $ -- $ 765 <FA> $ 337
======== ========== ========== ========== ==========
Year ended November 2, 1996 $ 327 $ 1,062 $ -- $ 1,011 <FA> $ 392
======== ========== ========== ========== ==========
Year ended October 28, 1995 $ 463 $ 629 $ -- $ 765 <FA> $ 327
======== ========== ========== ========== ==========
<FN>
- - -----------
<FA> Accounts charged off less recoveries and returns.
</TABLE>
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FALCON PRODUCTS, INC.
Date: January 27, 1998 By /s/ Franklin A. Jacobs
-----------------------------------
Franklin A. Jacobs,
Chairman of the Board
and Chief Executive Officer
Date: January 27, 1998 By /s/ Michael J. Dreller
-----------------------------------
Michael J. Dreller
Vice President, Chief Financial
Officer, Secretary and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated:
Date: January 27, 1998 /s/ Raynor E. Baldwin
--------------------------------
Raynor E. Baldwin, Director
Date: January 27, 1998 /s/ Melvin F. Brown
--------------------------------
Melvin F. Brown, Director
Date: January 27, 1998 /s/ Donald P. Gallop
--------------------------------
Donald P. Gallop, Director
Date: January 27, 1998 /s/ James L. Hoagland
--------------------------------
James L. Hoagland, Director
Date: January 27, 1998 /s/ Franklin A. Jacobs
--------------------------------
Franklin A. Jacobs, Director
Date: January 27, 1998 /s/ S. Lee Kling
--------------------------------
S. Lee Kling, Director
Date: January 27, 1998 /s/ Lee M. Liberman
--------------------------------
Lee M. Liberman, Director
Date: January 27, 1998 /s/ Darryl C. Rosser
--------------------------------
Darryl C. Rosser, Director
Date: January 27, 1998 /s/ James Schneider
--------------------------------
James Schneider, Director
16
<PAGE> 17
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the quarterly period
ended April 27, 1996 (the "April 27, 1996 10-Q").
3.2 Restated Bylaws, filed as Exhibit 3.2 to the April 27, 1996 10-Q.
3.3 Amendment to Restated Bylaws, effective January 16, 1997, filed as Exhibit 3.3
to the Company's Annual Report on Form 10-K for the year ended November 2, 1996.
4.1 Form of Stock Certificate for Common Stock, incorporated herein by
reference to Exhibit 4.1 to the Company's Registration Statement on Form
S-1, Reg. No. 33-61706.
10.1 Lease Agreement dated February 1, 1980, between Lafayette County,
Arkansas and the Company, incorporated herein by reference to Exhibit 10(e)
to the Company's Annual Report on Form 10-K for the year ended
October 31, 1980 (the "1980 10-K").
10.5 Assignment and Assumption Agreement dated January 30, 1980, and the lease
thereunder, incorporated herein by reference to Exhibit 10(g) to 1980 10-K.
10.6 Lease Agreement dated as of June 1, 1988, among Burley Builders, Inc. and
Tennessee Tobacco Sales, Incorporated, as lessors, and the Company, as lessee,
incorporated herein by reference to Exhibit 10(m) to the Company's Annual
Report on Form 10-K for the year ended October 29, 1988.
10.7 First Amendment to Lease Agreement dated as of November 21, 1991, among
Burley Builders, Inc. and Tennessee Tobacco Sales, Incorporated, as lessors,
and the Company, as lessee, incorporated herein by reference to Exhibit 10.9
to the Company's Annual Report on Form 10-K for the year ended November 2,
1991 (the "1991 10-K").
10.8<Fa> Falcon Products, Inc. 1981 Employee Incentive Stock Option Plan ("ISOP"),
incorporated herein by reference to Exhibit 4(h) to the Company's Registration
Statement on Form S-8, Reg. No. 33-15698.
10.9<Fa> Form of Stock Option Agreement dated June 9, 1986, regarding options issued
to Directors, incorporated herein by reference to Exhibit 10(i) to the Company's
Annual Report on Form 10-K for the year ended November 1, 1986 (the "1986 10-K").
<FN>
- - -----------
<Fa> Management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.
17
<PAGE> 18
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<C> <S>
10.10<Fa> Stock Option Agreement dated June 9, 1986, regarding options issued to
Franklin A. Jacobs, incorporated herein by reference to Exhibit 10(i) to the 1986 10-K.
10.11<Fa> First Amendment to the ISOP, adopted June 16, 1987, incorporated herein
by reference to Exhibit 10(1) to the Company's Annual Report on Form 10-K
for the year ended October 31, 1987.
10.12<Fa> Falcon Products, Inc. Amended and Restated 1991 Stock Option Plan, incor-
porated herein by reference to Exhibit 4.1 to the Company's Registration State-
ment on Form S-8, Reg. No. 33-46997.
10.13<Fa> Falcon Products, Inc. Amended and Restated Stock Purchase Plan, incorporated
herein by reference to Exhibit 10.15 to 1991 10-K.
10.14<Fa> Minutes of Meeting of Board of Directors of the Company dated March 14, 1991
(the "Non-Employee Director Plan"), incorporated herein by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-8, Reg. No. 33-46998.
10.15 Debt Agreement dated August 3, 1992 (the "Debt Agreement"), between the
Company and Boatmen's Bank ("Boatmen's") entered into with respect to a
$10,000,000 revolving line of credit from Boatmen's to the Company, incorporated
herein by reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended October 31, 1992 (the "1992 10-K").
10.17<Fa> Minutes of Meeting of Board of Directors of the Company dated September 15, 1992,
amending the Non-Employee Director Plan, incorporated herein by reference to Exhibit 10.17
to the 1992 10-K.
10.18<Fa> Amendment to the Falcon Products, Inc. Amended and Restated 1991 Stock Option Plan
incorporated herein by reference to Exhibit 10.18 to the Company's Annual Report on
Form 10-K for the year ended October 30, 1993 (the "1993 10-K").
10.19<Fa> Consulting Agreement dated August 1, 1993, by and between the Company and AJR
Enterprises, Inc., incorporated herein by reference to Exhibit 10.19 to the 1993 10-K.
10.20 Amendment to the Debt Agreement dated as of September 24, 1993, incorporated
herein by reference to Exhibit 10.20 to the 1993 10-K.
10.21 Second Amendment to the Debt Agreement dated as of August 30, 1994, incorporated
herein by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for
the year ended October 29, 1994 (the "1994 10-K").
<FN>
- - -------------
<Fa> Management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.
18
<PAGE> 19
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<C> <S>
10.22 Third Amendment to the Debt Agreement dated as of September 8, 1994, incorporated
herein by reference to Exhibit 10.22 to the 1994 10-K.
10.23<Fa> Amendment No. 2 to the Falcon Products, Inc. Amended and Restated 1991 Stock
Option Plan, incorporated herein by reference to Exhibit 10.23 to the 1994 10-K.
10.24 Agreement of Purchase and Sale of Assets dated September 26, 1995, by and between
Falcon Products, Inc. and DPD Manufacturing, Inc., incorporated herein by reference
to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended October 28,
1995 (the "1995 10-K").
10.25 Agreement of Purchase and Sale of Assets dated September 26, 1995, by and between
Falcon Products, Inc. and Decor Concepts, Inc., incorporated herein by reference to Exhibit
10.25 to the 1995 10-K.
10.26 Amendment to the Non-Employee Director Stock Option Plan, incorporated herein by reference
to Exhibit 10.26 to the April 27, 1996 10-Q.
10.27<Fa> Falcon Products, Inc. Employee Stock Purchase Plan, filed herewith.
10.28<Fa> Falcon Products, Inc. Non-Employee Directors' Deferred Compensation Plan, filed herewith.
11 Computation of Net Earnings Per Share, filed herewith.
13 Selected Portions of the Annual Report to Stockholders for the year ended November 1, 1997,
filed herewith.
21 Subsidiaries of the Company, filed herewith.
23 Consent of Independent Public Accountants, filed herewith.
27 Financial Data Schedule (filed in EDGAR version only).
<FN>
- - --------------
<Fa> Management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.
</TABLE>
19
<PAGE> 1
FALCON PRODUCTS, INC.
EMPLOYEE STOCK PURCHASE PLAN
SECTION 1
PURPOSE
The Falcon Products, Inc. 1997 Employee Stock Purchase Plan is intended
to provide a method whereby employees of Falcon Products, Inc. and its
Subsidiaries will have an opportunity to acquire a proprietary interest in
the Company through the purchase of shares of the Stock of the Company. It
is the intention of the Company to have the Plan qualify as an "employee
stock purchase plan" under Section 423 of the Code, as amended.
SECTION 2
DEFINITIONS
The following terms when used in the Plan shall have the meanings
hereinafter indicated.
2.1 ADMINISTRATIVE COMMITTEE - shall mean the committee
appointed by the Board, pursuant to the provisions of Section 11.1 hereof, to
administer the Plan.
2.2 BASE PAY - shall mean the salary or wages paid on behalf of the
Participant including overtime payments, bonuses and commissions.
2.3 BENEFICIARY - shall mean the person or persons (concurrently,
contingently or successively), including a trust, designated as such in
accordance with Section 12.1 of this Plan.
2.4 BOARD - shall mean the Board of Directors of the Company.
2.5 CODE - shall mean the Internal Revenue Code of 1986, as
amended, and as it may be amended hereafter from time to time.
2.6 COMPANY - shall mean Falcon Products, Inc., a Delaware
corporation.
2.7 ELIGIBLE EMPLOYEE - shall mean an Employee who meets the
eligibility requirements of this Plan as set forth in Section 3.1 hereof.
2.8 EMPLOYEE - shall mean any person employed by the Company or any
Subsidiary who is regularly scheduled to work more than 20 hours per week.
2.9 FAIR MARKET VALUE - shall mean, with respect to the Stock,
the closing price per share of Stock on the New York Stock
<PAGE> 2
Exchange on the first business day prior to the date of reference on which
trading occurred.
2.10 LEAVE OF ABSENCE - shall mean a leave of absence from the
employment of the Company or a subsidiary taken by an Employee pursuant to
the Family and Medical Leave Act of 1993.
2.11 LOCAL TIME - shall mean the time in effect in St. Louis,
Missouri on the date of reference.
2.12 OFFERING - shall mean the annual offering of the Company's
Stock as described in Section 4.1 hereof.
2.13 OFFERING COMMENCEMENT DATE - shall mean the November 1 on
which a particular Offering begins.
2.14 OFFERING TERMINATION DATE - shall mean the October 31 on
which a particular Offering terminates.
2.15 OPTION - shall mean an option granted hereunder which will
entitle an Employee to purchase a certain number of shares of Stock.
2.16 PARTICIPANT - shall mean an Eligible Employee who elects to
participate in an Offering pursuant to the provisions of Section 3.1 hereof.
2.17 PLAN - shall mean the Falcon Products, Inc. 1997 Employee Stock
Purchase Plan as set forth herein.
2.18 STOCK - shall mean shares of the $.02 par value common stock of
the Company.
2.19 SUBSIDIARY - or "Subsidiaries" shall mean a corporation or
corporations of which stock possessing at least 80% of the total combined
voting power of all classes of stock entitled to vote is owned by the Company
or by any other Subsidiary or Subsidiaries.
SECTION 3
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY TO PARTICIPATE. Any Employee actively employed
by the Company or a Subsidiary on November 1, 1997 shall be eligible to
participate in the Plan as of that date. Each other Employee, including any
new Employee, shall be eligible to participate in the Plan as of the November
1 coincident with or next following the date on which he becomes an Employee.
Notwithstanding the foregoing, no person shall participate in any Offering
under this Plan if he or she is no longer an Employee as of the date such
Offering commences.
2
<PAGE> 3
3.2 ELECTION TO PARTICIPATE IN THE PLAN. An Eligible Employee
may elect to participate in any Offering and thus become a Participant in the
Plan by completing an "Application For Participation" and an "Authorization
For Payroll Deductions" on the form provided by the Company and filing each
form with the Human Resources Department of the Company on or before the date
set therefor by the Administrative Committee, which date shall be prior to
the Offering Commencement Date for a specific Offering. Payroll deductions
for a Participant shall commence on the applicable Offering Commencement Date
for which his Authorization For Payroll Deductions becomes effective and
shall end on the Offering Termination Date of the Offering to which such
authorization is applicable unless sooner terminated by the Participant as
provided in Section 8 hereof.
3.3 LEAVE OF ABSENCE. For purposes of participation in the Plan,
a person on Leave of Absence shall be deemed to be an Employee for the first
90 days of such Leave of Absence and such Employee's employment shall be
deemed to have terminated at the close of business on the 90th day of such
Leave of Absence unless such Employee shall have returned to regular
employment prior to the close of business on such 90th day. Termination by
the Company of any Employee's Leave of Absence, other than termination of
such Leave of Absence on return to regular employment, shall terminate an
Employee's employment for all purposes of the Plan and shall terminate such
Employee's participation in the Plan and right to exercise any Option.
3.4 RESTRICTIONS ON PARTICIPATION. Notwithstanding any
provisions of the Plan to the contrary, no Employee shall be granted an
Option under the Plan and become a Participant:
(A) if, immediately after the grant, such Employee would own stock
of the Company, and/or hold outstanding options to purchase stock
of the Company, possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company (for
purposes of this Section 3.4, the rules of Section 424(d) of the
Code shall apply in determining stock ownership of any Employee);
or
(B) which permits his rights to purchase stock under all "employee
stock purchase plans" (as defined in Section 423(b) of the Code)
of the Company to accrue at a rate which exceeds $25,000 in Fair
Market Value of the Stock (determined at the time an Option is
granted) for each calendar year in which such Option is
outstanding.
3
<PAGE> 4
SECTION 4
OFFERINGS
4.1 ANNUAL OFFERINGS. The Plan will be implemented by five
annual offerings of the Company's Stock beginning on the 1st day of November
in each of the years 1997, 1998, 1999, and 2001, each Offering terminating at
5:00 p.m. Local Time on October 31 of the following year. The maximum number
of shares issued in the respective years shall be:
* FROM NOVEMBER 1, 1997 TO OCTOBER 31, 1998: 75,000
shares.
* FROM NOVEMBER 1, 1998 TO OCTOBER 31, 1999: 90,000 shares
plus unissued shares from the prior Offerings, whether offered or not.
* FROM NOVEMBER 1, 1999 TO OCTOBER 31, 2000: 110,000 shares
plus unissued shares from the prior Offerings, whether offered or not.
* FROM NOVEMBER 1, 2000 TO OCTOBER 31, 2001: 125,000
shares plus unissued shares from the prior Offerings, whether offered or not.
* FROM NOVEMBER 1, 2001 TO OCTOBER 31, 2002: 150,000
shares plus unissued shares from prior Offerings, whether offered or not.
SECTION 5
PAYROLL DEDUCTIONS
5.1 AMOUNT OF DEDUCTIONS. At the time a Participant files his
Authorization for Payroll Deductions, he shall elect to have deductions made
from his pay on each payday during the time he is a Participant in this Plan
at the rate of 1, 2, 3, 4, 5, 6, 7, 8, 9 or 10% of his Base Pay in effect at
the Offering Commencement Date of each Offering. In the case of an hourly
employee who participates in this Plan, such Employee's Base Pay shall be
determined by multiplying such Employee's hourly rate of pay in effect on the
subject Offering Commencement Date by the number of regularly scheduled hours
of work for such Employee during such Offering.
5.2 PARTICIPANT'S ACCOUNT. All payroll deductions made for a
Participant shall be credited to his account under the Plan. A Participant
may not make any separate cash payment into such account except when on Leave
of Absence and then only as provided in Section 5.4 hereof.
4
<PAGE> 5
5.3 CHANGES IN PAYROLL DEDUCTIONS. A Participant may
discontinue his participation in the Plan as provided in Section 8 hereof,
but no other change can be made during an Offering and, specifically, a
Participant may not alter the amount of his payroll deductions for that
Offering. A Participant may increase or decrease the amount of his payroll
deductions, within the limits prescribed in Section 5.1 hereof, with respect
to any future Offering, prior to the Offering Commencement Date for such
Offering.
5.4 LEAVE OF ABSENCE. If a Participant goes on an unpaid Leave
of Absence, such Participant shall have the right to elect: (A) to withdraw
the balance in his account pursuant to Section 8.1 hereof; (B) to discontinue
contributions to the Plan but remain a Participant in the Plan.
SECTION 6
GRANTING OF OPTION
6.1 GRANT OF OPTION SHARES; NUMBER OF OPTIONS GRANTED. On
each Offering Commencement Date, a Participant shall be deemed to have been
granted an Option to purchase a maximum number of shares of the Stock of the
Company equal to an amount determined as follows:
(A) that percentage of the Employee's Base Pay which he has elected
to have withheld from his pay (but in no event in excess of 10%);
multiplied by
-------------
(B) the Employee's Base Pay during the period of the Offering;
divided by
----------
(C) 85% of the Fair Market Value of the Stock on the applicable
Offering Commencement Date.
Participant's Base Pay during the period of an Offering shall be determined
by multiplying, in the case of a one-year Offering, his normal weekly rate of
pay (as in effect on the last day prior to the Offering Commencement Date of
the particular Offering) by 52 or the hourly rate by 2,080, provided that, in
the case of an hourly Employee, the Participant's Base Pay during the period
of an Offering shall be determined by multiplying such Participant's hourly
rate by the number of regularly scheduled hours of work for such Employee
during such Offering.
6.2 OPTION PRICE; PURCHASE OF OPTIONS. The purchase price of
each Option granted in accordance with Section 6.1 above, purchased with
payroll deductions made during each Offering shall be the lower of:
-----
5
<PAGE> 6
(A) 85% of the Fair Market Value of the Stock on the Offering
Commencement Date; or
(B) 85% of the Fair Market Value of the Stock on the Offering
Termination Date.
SECTION 7
EXERCISE OF OPTION
7.1 AUTOMATIC EXERCISE. Unless a Participant gives written
notice to the Company as hereinafter provided, his Option for the purchase of
Stock with payroll deductions made during any Offering will be deemed to have
been exercised automatically on the Offering Termination Date applicable to
such Offering, for the purchase of the number of full shares of Stock which
the accumulated payroll deductions in his account at that time will purchase
at the applicable purchase price, as determined in accordance with Section
6.2 above (but not in excess of the number of shares for which Options have
been granted to the Participant pursuant to Section 6.1 hereof), and any
excess in his account at that time will be returned to him.
7.2 FRACTIONAL SHARES. Fractional shares will not be issued
under the Plan and any accumulated payroll deductions which would have been
used to purchase fractional shares will be returned to any Employee promptly
following the termination of an Offering, without interest.
7.3 DELIVERY OF STOCK. As promptly as practicable after the
Offering Termination Date of each Offering, the Company will deliver to each
Participant, as appropriate, the Stock purchased upon exercise of his Option.
SECTION 8
WITHDRAWAL
8.1 GENERAL RULE. By written notice to the Human Resources
Department, at any time prior to the Offering Termination Date applicable to
any Offering, a Participant may elect to withdraw all the accumulated payroll
deductions in his account at such time. All of the Participant's payroll
deductions credited to his account will be paid to him promptly after receipt
of his notice of withdrawal, and no further payroll deductions will be made
from his pay during such Offering. The Company may, in its sole discretion,
treat any attempt to borrow by a Participant on the security of his
accumulated payroll deductions as an election, under this Section 8.1 hereof,
to withdraw such deductions.
8.2 EFFECT ON SUBSEQUENT PARTICIPATION. In the event a
Participant withdraws from any Offering, he or she shall not be
6
<PAGE> 7
eligible to participate in any succeeding Offering or in any similar plan which
may hereafter be adopted by the Company until the November 1 following such
withdrawal.
8.3 TERMINATION OF EMPLOYMENT. Upon termination of the Participant's
employment for any reason, including retirement (but excluding
death while in the employ of the Company or continuation of a Leave of
Absence for a period beyond 90 days), the payroll deductions credited to his
account will be returned to him, or, in the case of his death subsequent to
the termination of his employment, to the person or persons entitled thereto
under Section 12.1 hereof.
8.4 TERMINATION OF EMPLOYMENT DUE TO DEATH. Upon termination
of the Participant's employment because of his death, his Beneficiary (as
defined in Section 12.1 hereof) shall have the right to elect, by written
notice given to the Human Resources Department of the Company prior to the
earlier of the Offering Termination Date or the expiration of a period of 60
days commencing with the date of the death of the Participant, either:
(A) to withdraw all of the payroll deductions credited to the
Participant's account under the Plan, or
(B) to exercise the Participant's Option for the purchase of stock
on the Offering Termination Date next following the date of the
Participant's death for the purchase of the number of full
shares of stock which the accumulated payroll deductions in the
Participant's account at the date of the Participant's death
will purchase at the applicable Option price, and any excess in
such account will be returned to said beneficiary, without
interest.
In the event that no such written notice of election shall be duly
received by the office of the Human Resources Department of the Company, the
beneficiary shall automatically be deemed to have elected, pursuant to
Subparagraph (B), to exercise the Participant's Option.
8.5 LEAVE OF ABSENCE. A Participant on a Leave of Absence shall,
subject to the election made by such Participant pursuant to Section 5.4
hereof, continue to be a Participant in the Plan so long as such Participant
is on continuous Leave of Absence. A Participant who has been on Leave of
Absence for more than 90 days and who therefore is not an Employee for the
purpose of the Plan shall not be entitled to participate in any Offering
commencing after the 90th day of such Leave of Absence. Notwithstanding any
other provisions of the Plan, unless a Participant on Leave of Absence
returns to regular employment with the Company at the termination of such
Leave of Absence, such Participant's participation in the Plan shall
terminate.
7
<PAGE> 8
SECTION 9
INTEREST
No interest shall be paid or allowed on any money paid into the Plan or
credited to the account of any Participant or Employee.
SECTION 10
STOCK
10.1 MAXIMUM SHARES. The maximum number of shares which shall be
issued under the Plan, subject to adjustment upon changes in capitalization
of the Company as provided in Section 12.4 shall be those amounts set forth
in Section 4.1 hereof with respect to each annual Offering plus in each
Offering all unissued shares from prior Offerings, whether offered or not,
not to exceed 550,000 shares for all Offerings. If the total number of
shares for which Options are exercised on any Offering Termination Date in
accordance with Section 6, exceeds the maximum number of shares for the
applicable offering, the Company shall make a pro-rata allocation of the
shares available for delivery and distribution in as nearly a uniform manner
as shall be practicable and as it shall determine to be equitable, and the
balance of payroll deductions credited to the account of each Participant
under the Plan shall be returned to him as promptly as possible.
10.2 PARTICIPANT'S INTEREST IN OPTION STOCK. The Participant
will have no interest in stock covered by his Option until such Option has
been exercised.
10.3 REGISTRATION OF STOCK. Stock to be delivered to a
Participant under the Plan will be registered in the name of the Participant,
or, if the Participant so directs by written notice to the Human Resources
Department of the Company prior to the Offering Termination Date applicable
thereto, in the names of the Participant and one such other person as may be
designated by the Participant, as joint tenants with rights of survivorship
or as tenants by the entireties, to the extent permitted by applicable law.
10.4 RESTRICTIONS ON EXERCISE. The Board of Directors may, in
its discretion, require as conditions to the exercise of any Option that the
shares of Stock reserved for issuance upon the exercise of the Option shall
have been duly listed, upon official notice of issuance, upon a stock
exchange, and that either:
(A) a Registration Statement under the Securities Act of 1933, as
amended, with respect to said shares shall be effective, or
(B) the Participant shall have represented at the time of purchase,
in form and substance satisfactory to the
8
<PAGE> 9
Company, that it is his intention to purchase the shares for
investment and not for resale or distribution.
SECTION 11
ADMINISTRATION
11.1 APPOINTMENT OF ADMINISTRATIVE COMMITTEE. The Board shall
appoint a committee to administer the Plan, which shall consist of no fewer
than three members of the Board. No member of the committee shall be
eligible to purchase Stock under the Plan. The Board hereby appoints the
Compensation Committee of the Board as the initial committee to administer
the Plan, which Compensation Committee shall serve as the Administrative
Committee until a successor committee is appointed by the Board or until the
termination of the Plan, whichever shall first occur.
11.2 AUTHORITY OF ADMINISTRATIVE COMMITTEE. Subject to the
express provisions of the Plan, the Administrative Committee shall have
plenary authority in its discretion to interpret and construe any and all
provisions of the Plan, to adopt rules and regulations for administering the
Plan, to adopt rules and regulations for administering the Plan, and to make
all other determinations deemed necessary or advisable for administering the
Plan. The Administrative Committee's determination on the foregoing matters
shall be conclusive.
11.3 RULES GOVERNING THE ADMINISTRATIVE COMMITTEE. The Board
may from time to time appoint members of the Administrative Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Administrative Committee. The
Administrative Committee may select one of its members as its Chairman and
shall hold its meetings at such times and places as it shall deem advisable
and may hold telephonic meetings. A majority of its members shall constitute
a quorum. All determinations of the Administrative Committee shall be made
by a majority of its members. The Administrative Committee may correct any
defect or omission or reconcile any inconsistency in the Plan, in the manner
and to the extent it shall deem desirable. Any decision or determination
reduced to writing and signed by a majority of the members of the
Administrative Committee shall be as fully effective as if it had been made
by a majority vote at a meeting duly called and held. The Administrative
Committee may appoint a secretary and shall make such rules and regulations
for the conduct of its business as it shall deem advisable.
SECTION 12
MISCELLANEOUS
12.1 DESIGNATION OF BENEFICIARY. A Participant may file a
written designation of a Beneficiary who is to receive any Stock
9
<PAGE> 10
and/or cash. Such designation of Beneficiary may be changed by the Participant
at any time by written notice to the Human Resources Department of the Company.
Upon the death of a Participant and upon receipt by the Company of proof of
identity and existence at the Participant's death of a Beneficiary validly
designated by him under the Plan, the Company shall deliver such Stock and/or
cash to such Beneficiary. In the event of the death of a Participant and in the
absence of a Beneficiary validly designated under the Plan who is living at
the time of such Participant's death, the Company shall deliver such Stock
and/or cash to the executor or administrator of the estate of the
Participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company) the Company, in its discretion, may deliver
such Stock and/or cash to the spouse or to any one or more dependents of the
Participant as the Company may designate. No Beneficiary shall, prior to the
death of the Participant by whom he has been designated, acquire any interest
in the Stock or cash credited to the Participant under the Plan.
12.2 PROHIBITION AGAINST TRANSFERABILITY. Subject to the
provisions of Section 8.4 hereof, neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an Option
or to receive stock under the Plan may be assigned, transferred, pledged, or
otherwise disposed of in any way by the Participant other than by will or the
laws of descent and distribution. Any such attempted assignment, transfer,
pledge or other disposition shall be without effect, except that the Company
may, in its sole discretion, treat such act as an election to withdraw funds
in accordance with Section 8.1 hereof.
12.3 USE OF FUNDS. All payroll deductions received or held by the
Company under this Plan may be used by the Company for any corporate purpose
and the Company shall not be obligated to segregate such payroll deductions.
12.4 ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(A) If, while any Options are outstanding, the outstanding shares of
Stock of the Company have increased, decreased, changed into, or
been exchanged for a different number or kind of shares or
securities of the Company through reorganization, merger,
recapitalization, reclassification, stock split, reverse stock
split or similar transaction, appropriate and proportionate
adjustments shall be made by the Administrative Committee in the
number and/or kind of shares which are subject to purchase under
outstanding Options and on the Option exercise price or prices
applicable to such outstanding Options. In addition, in any
such event, the number and/or kind of shares which may be offered
in the Offerings described in Section 4 hereof shall also be
proportionately adjusted. No
10
<PAGE> 11
adjustments shall be made for stock dividends. For the purposes of
this Paragraph, any distribution of shares to the shareholders in
an amount aggregating 20% or more of the outstanding shares shall
be deemed a stock split and any distributions of shares aggregating
less than 20% of the outstanding shares shall be deemed a stock
dividend.
(B) Notwithstanding anything contained in this Plan to the contrary,
upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one
or more corporations as a result of which the Company is not the
surviving corporation, or upon a sale of substantially all of
the property or stock of the Company to another corporation, the
"Offering Termination Date" with respect to any Offering then in
effect shall be deemed to be the closing date of such
transaction. In such an event, the holder of each Option then
outstanding under the Plan will thereafter be entitled to
receive at the next Offering Termination Date upon the exercise of
such Option for each share as to which such Option shall be
exercised, as nearly as reasonably may be determined, the cash,
securities and/or property which a holder of one share of the
Stock was entitled to receive upon and at the time of such
transaction. The Board shall take such steps in connection with
such transactions as the Board shall deem necessary to assure that
the provisions of this Section 12.4 shall thereafter be applicable,
as nearly as reasonably may be determined, in relation to the said
cash, securities and/or property as to which such holder of such
Option might thereafter be entitled to receive.
12.5 AMENDMENT AND TERMINATION. The Board of Directors shall
have complete power and authority to terminate or amend the Plan; provided,
however, that the Board of Directors shall not, without the approval of the
stockholders of the Corporation (A) increase the maximum number of shares
which may be issued under any Offering (except pursuant to Section 12.4
hereof); (B) amend the requirements as to the class of employees eligible to
purchase stock under the Plan; or (C) permit the members of the Committee to
purchase stock under the Plan. No termination, modification, or amendment of
the Plan may, without the consent of an employee then having an Option under
the Plan to purchase stock, adversely affect the rights of such employee
under such Option.
12.6 EFFECTIVE DATE. The Plan shall become effective as of
November 1, 1997, subject to approval by the holders of the majority of the
Stock present and represented at a special or annual meeting of the
shareholders held on or before November 1,
11
<PAGE> 12
1998. If the Plan is not so approved, the Plan shall not become effective.
12.7 NO EMPLOYMENT RIGHTS. The Plan does not, directly or
indirectly, create any right for the benefit of any Employee or class of
employees to purchase any shares under the Plan, or create in any Employee or
class of employees any right with respect to continuation of employment by
the Company, and it shall not be deemed to interfere in any way with the
Company's right to terminate, or otherwise modify, an Employee's employment
at any time.
12.8 EFFECT OF PLAN. The provisions of the Plan shall, in
accordance with its terms, be binding upon, and inure to the benefit of, all
successors of each Employee participating in the Plan, including, without
limitation, such Employee's estate and the executors, administrators or
trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy
or representative of creditors of such Employee.
12.9 GENDER. Whenever the context so requires words in the
masculine include the feminine and words in the feminine include the
masculine and the definition of any term in the singular may include the
plural.
12.10 GOVERNING LAW. The law of the State of Missouri will govern
all matters relating to this Plan except to the extent it is superseded by
the laws of the United States.
FALCON PRODUCTS, INC.
By: /s/ Franklin A. Jacobs
--------------------------------
Title: Chairman and CEO
-----------------------------
ATTEST:
By: /s/ Michael J. Dreller
--------------------------
Title: VP Finance and CFO
-----------------------
12
<PAGE> 1
FALCON PRODUCTS, INC.
NON-EMPLOYEE DIRECTORS'
DEFERRED COMPENSATION PLAN
SECTION 1
PURPOSES
The purpose of the Falcon Products, Inc. Non-Employee Directors'
Deferred Compensation Plan (the "Plan") is to help align the common interest
of directors and stockholders in enhancing the value of the Common Stock
of Falcon Products, Inc. The plan allows each member of the Board of
Directors of Falcon Products, Inc. (the "Company") who is not an employee
of the Company or its affiliates or subsidiaries ("Non-Employee Director") to
elect to defer payment of any retainer, committee chair and/or meeting fees
("Fees") payable as compensation for service as a director and thus attract
and retain well-qualified individuals to serve as Non-Employee Directors. A
Non-Employee Director's interest under the Plan shall be expressed in stock
units (the "Stock Units") equivalent to shares of the Company's $.02 par
value common stock ("Stock"). The Plan may be adopted by any affiliate or
subsidiary of the Company with the consent of the Company. (Any such
affiliate or subsidiary that adopts this Plan is herein referred to as a
"Participating Affiliate".)
SECTION 2
TERM
The Plan shall be effective as of January 1, 1998 (the "Effective
Date"), and shall remain in effect until terminated by the Board of Directors
of the Company ("Board"); provided, however, that the issuance or conveyance
of Stock under the Plan shall be conditioned upon the effectiveness of a
registration statement covering the Stock Units and the underlying Stock.
SECTION 3
ELIGIBILITY FOR PARTICIPATION
Each individual who is a member of the Board of the Company or the
Board of Directors of a Participating Affiliate and who is not an employee of
the Company or any affiliate or subsidiary of the Company shall be eligible
to participate in the Plan. Each Non-Employee Director may elect, in
accordance with Section 4.1 of the Plan, to defer the receipt of all or any
portion of any Fees payable by the Company or Participating Affiliate for
services on the Board of Directors of the Company or such Participating
Affiliate.
<PAGE> 2
SECTION 4
DEFERRAL OF FEES
4.1 DEFERRAL ELECTIONS. Commencing on the Effective Date of the
Plan, each Non-Employee Director may elect to defer the receipt of all or any
portion of Fees payable to such Non-Employee Director by executing and
delivering to the Compensation Committee of the Board of the Company
("Committee") a written "Deferral Election" on a form provided by the
Committee. The Deferral Election shall indicate the time and form of
distribution with respect to Fees being deferred. Each Deferral Election is
irrevocable and must be made on or before December 31 of the calendar year
immediately preceding the calendar year during which the Fees will be earned;
provided however: (i) each Non-Employee Director who is a member of the
Board of the Company or an Affiliate as of the Effective Date must make a
Deferral Election no later than January 31, 1998 with respect to Fees earned
during the remainder of 1998 and for Fees earned during the subsequent
calendar year; and (ii) a Non-Employee Director who first becomes eligible to
participate in the Plan on or after July 1 of a calendar year must make a
Deferral Election within 30 days of becoming eligible to participate in the
Plan with respect to Fees earned during the remainder of that calendar year
and for Fees earned during the subsequent calendar year. Anything contained
herein to the contrary notwithstanding, a Non-Employee Director may not
revoke, change or make a Deferral Election if such director has made an
opposite-way election under any plan of the Company within the previous six
months. A Deferral Election will continue in effect for subsequent calendar
years unless changed or revoked by the Non-Employee Director on or before
December 31 of the calendar year immediately preceding the calendar year for
which such change or revocation is effective.
4.2 CREDITING DEFERRAL AMOUNTS TO ACCOUNTS. Amounts deferred
pursuant to Section 4.1 hereof shall be credited to a bookkeeping account
maintained by the Company ("Stock Unit Account") as of the last day of the
month in which such amounts would have been paid to the Non-Employee Director
in cash as Fees. The number of Stock Units credited to the Stock Unit
Account of a Non-Employee Director of the Company shall equal (i) one hundred
twenty percent (120%) of the amount of Fees deferred, divided by (ii) the
----------
Fair Market Value (as defined in Section 4.3 below) of a share of Stock on
the last day of the month (or such other date as determined by the Committee
but not earlier than the date such Non-Employee Director would have otherwise
been paid such deferred amounts as Fees) in which such deferral amount would
have been paid but for the Deferral Election pursuant to Section 4.1. Such
calculation of Stock Units shall be carried to three decimal places.
2
<PAGE> 3
The Stock Unit Accounts maintained by the Company are for bookkeeping
purposes only, and no cash or Stock shall actually be allocated to any Stock
Unit Account established or maintained in the name of any Non-Employee
Director under the Plan.
4.3 FAIR MARKET VALUE OF STOCK. Fair Market Value of a share of
Stock for all purposes under the Plan shall mean, for any particular date,
the closing price per share of Stock on the New York Stock Exchange on the
first business day prior to the date of reference on which trading occurred.
4.4 NO VOTING RIGHTS. No Non-Employee Director shall have any
voting rights with respect to any Stock Units in his Stock Unit Account.
SECTION 5
ADDITIONS TO DEFERRED ACCOUNTS
As of each dividend payment date with respect to shares of Stock, there
shall be credited to each Non-Employee Director's Stock Unit Account an
additional number of Stock Units equal to (i) the per-share dividend payable
with respect to a share of Stock on such date, multiplied by (ii) the
-------------
number of Stock Units held in the Stock Unit Account as of the close of business
on the first business day prior to such dividend payment date and, if the
---
dividend is payable in cash or property other than shares of Stock, divided
-------
by (iii) the Fair Market Value of a share of Stock on such business day.
- - --
For purposes of this Section 5, "dividend" shall include all dividends, whether
normal or special, and whether payable in cash, Stock or other property. The
calculation of additional Stock Units shall be carried to three decimal
places.
SECTION 6
VESTING OF ACCOUNTS
All Stock Units credited to a Non-Employee Director's Stock Unit
Account pursuant to this Plan shall be at all times fully vested and
nonforfeitable.
SECTION 7
PAYMENT OF ACCOUNTS
7.1 TIME OF PAYMENT. Payment of the Stock Units to a Non-Employee
Director shall commence in January of the year of payment specified by the
Non-Employee Director in the Deferral Election; provided that (i) if the
Non-Employee Director ceases to be a Non-
3
<PAGE> 4
Employee Director solely because of the Non-Employee Director's disability, or
(ii) if the Non-Employee Director applies for a hardship withdrawal and the
Committee in its sole discretion determines that a hardship exists, an immediate
lump sum distribution of Stock shall be made to the Non-Employee Director in
accordance with Section 7.3 below. A distribution on account of hardship may be
in an amount equal to all or any portion of the Non-Employee Director's Stock
Unit Account, as the Committee shall determine. In the event of the death of
the Non-Employee Director before his or her Stock Unit Account has been fully
distributed, the value of the Stock Unit Account shall be distributed to the
Non-Employee Director's Beneficiary in accordance with Section 7.3 below as soon
as practicable following the date of death of the Non-Employee Director.
7.2 FORM OF DISTRIBUTION OF STOCK UNIT ACCOUNTS. Subject to
the provisions of Section 7.1 hereof, distributions shall be made from the
Stock Unit Account of a Non-Employee Director in whichever of the following
methods the Non-Employee Director elects at the time of the Deferral
Election:
(A) One lump sum distribution; or
(B) Annual installments over a period not to exceed ten years.
If all or any portion of a Non-Employee Director's Stock Unit Account
is being distributed in installments, the portion of the account being held
for future distribution shall continue to be credited with additional Stock
Units for dividends as provided in Section 5 hereof.
7.3 MANNER OF DISTRIBUTION OF STOCK UNIT ACCOUNTS. Any
payments or distributions to which a Non-Employee Director (or his legal
representative or Beneficiary, as the case may be) is entitled to under the
Plan shall be paid in the form of whole shares of Stock and cash representing
any fractional share of Stock.
(A) LUMP SUM DISTRIBUTIONS. If a benefit is to be paid in the
form of a lump sum distribution, such payment shall consist of a whole
number of shares of Stock representing each whole Stock Unit credited to
the Non-Employee Director's Stock Unit Account as of the date of
distribution, and cash representing any fractional Stock Unit.
4
<PAGE> 5
(B) INSTALLMENT PAYMENTS. If a benefit is to be paid in
installment payments, the number of shares of Stock to be distributed at
each installment payment initially shall be determined by dividing the
number of Stock Units credited to the Non-Employee's Stock Unit Account
as of the initial date of distribution by the number of installment
payments and rounding to the nearest number of whole Stock Units. Each
subsequent payment shall be determined by dividing the number of Stock
Units remaining in the Stock Unit Account by the number of installments
remaining to be paid and rounding to the nearest number of whole Stock
Units. Each installment payment shall consist of a whole number of
shares of Stock representing each payable Stock Unit with the last
installment payment consisting of whole number of shares of Stock
representing each whole Stock Unit and cash representing any fractional
Stock Unit.
The Company shall issue and deliver to each Non-Employee Director
(or his legal representative or Beneficiary) a stock certificate for
shares of Stock equivalent representing payment of Stock Units as soon
as practicable following the date on which the Stock Units, or any
portion thereof, become payable.
SECTION 8
SHARES SUBJECT TO THE PLAN
The aggregate number of shares of Stock that may be subject to issuance or
conveyance under the Plan shall not exceed 50,000, subject to adjustment as
provided in Section 9 of the Plan.
SECTION 9
ADJUSTMENTS AND REORGANIZATION
In the event of any Stock dividend, stock split, combination or
exchange of Stock, merger, consolidation, spin-off, recapitalization or other
distribution (other than normal cash dividends) of Company assets to
stockholders, or any other change affecting the Stock or the price of the
Stock, such proportionate adjustments, if any, as the Board in its sole
discretion may deem appropriate to reflect such change shall be made with
respect to the aggregate number of shares of Stock that may be issued under
the Plan, and each Stock Unit held in the Stock Unit Accounts. Any
adjustments described in the preceding sentence shall be carried to three
decimal places.
5
<PAGE> 6
SECTION 10
TERMINATION OR AMENDMENT OF PLAN
10.1 IN GENERAL. The Board may at any time by resolution terminate,
suspend or amend this Plan. If the Plan is terminated by the Board, no
deferrals may be credited after the effective date of such termination, but
previously credited Stock Units and additional credits which may be made to
reflect earnings on such units shall remain outstanding in accordance with
the terms and conditions of the Plan.
10.2 WRITTEN CONSENTS. No amendment may adversely affect the right
of any NonEmployee Director to have dividend equivalents credited to a Stock
Unit Account or to receive any shares of Stock pursuant to the payout of such
accounts, unless such Non-Employee Director consents in writing to such
amendment.
10.3 CORPORATE RESTRUCTURING. If the Company shall merge or
consolidate with any other corporation, or reorganize, and following such
event the succeeding or continuing corporation is not obligated to, or does
not agree to, assume, discharge and continue the obligation of the Company
under this Plan, this Plan shall immediately terminate and all amounts
accrued hereunder shall be paid to the Non-Employee Directors within 30 days
of such termination of the Plan.
SECTION 11
GOVERNMENT REGULATIONS
The obligations of the Company to issue or convey any Stock under this
Plan shall be subject to all applicable laws, rules and regulations and the
obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Board. Subject to the provisions of Section
11 hereof, the Board may make such changes in the design and administration
of this Plan as may be necessary or appropriate to comply with the rules and
regulations of any governmental authority.
SECTION 12
MISCELLANEOUS
12.1 UNFUNDED PLAN. The Plan shall at all times be entirely
unfunded with respect to the Company's obligation to pay any amounts due. No
Non-Employee Director or other person shall have any rights to receive any
payment with respect to any Stock Unit Account
6
<PAGE> 7
or other benefit payment under this Plan other than the rights of an unsecured
general creditor of the Company to receive the payments the Company has provided
herein. The Company shall not be obligated to set aside, earmark or escrow any
funds, Stock or other assets to satisfy its obligation hereunder.
12.2 TRUST. The Company may, but shall not be obligated, to
establish a "rabbi trust" with an institutional trustee to accumulate shares
of Stock to fund the obligations of the Company pursuant to this Plan. The
Trust Agreement, if any, shall be substantially in the form of the model
trust agreement set forth in Internal Revenue Procedure 92-64, or any
subsequent Internal Revenue Service Revenue Procedure, and shall include
provisions required in such model trust agreement that all assets of the
trust shall be subject to the creditors of the Company in the event of
insolvency. Payment from such rabbi trust of amounts due under the terms of
this Plan shall satisfy the obligations of the Company to make such payment.
In no event shall any Non-Employee Director be entitled to receive payment of
an amount from the Company that he receives from the rabbi trust.
12.3 ASSIGNMENT; ENCUMBRANCES. The right to have amounts credited
to a Stock Unit Account and the right to receive payment with respect to such
Stock Unit Account under this Plan are not assignable or transferable and
shall not be subject in any manner to anticipation, alienation, transfer,
sale, assignment, pledge, encumbrance, or charge and any attempt to
anticipate, alienate, transfer, sell, assign, pledge, encumber or charge the
same shall be null and void and of no force and effect whatsoever. No
interest in any Stock Unit Account or any benefit hereunder shall in any
manner be liable for or subject to the debts, contracts, liabilities or torts
of the person entitled to such benefits.
12.4 DESIGNATION OF BENEFICIARIES. A Non-Employee Director may
designate in writing a beneficiary or beneficiaries to receive any
distribution under the Plan which is made after the Non-Employee Director's
death; provided, however, that if at the time any such distribution is due,
there is no designation of a beneficiary in force or if any person (other
than a trustee or trustees) as to whom a beneficiary designation was in force
at the time of such Director's death shall have died before the payment
became due and the Non-Employee Director has failed to provide in such
beneficiary designation for any person or persons to take in lieu of such
deceased person, the person or persons entitled to receive such distribution
(or part thereof, as the case may be) shall be the legal representative of
the Non-Employee Director's estate.
7
<PAGE> 8
12.5 ADMINISTRATION. The Committee shall have the responsibility
and authority to control the operation and administration of the Plan, and
may construe the Plan, and its constructions thereof and action thereon in
good faith shall be final and conclusive. The Committee shall have full
authority, in its sole discretion, to interpret this Plan and determine any
and all matters whatsoever relating to the administration of this Plan. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in such manner and to such extent as it shall deem expedient to
carry the same into effect, and it shall be the sole and final judge of such
expediency. All actions of the Committee shall be made or result from
uniform standards applied in a nondiscriminatory manner with respect to all
Non-Employee Directors and beneficiaries. The Committee shall not be liable
for any action or determination taken or made in good faith with respect to
the Plan.
12.6 NO CONTRACT OF EMPLOYMENT. The adoption and maintenance of
the Plan shall not be deemed to be a contract of employment between the
Company and any Non-Employee Director. Nothing herein contained shall be
deemed to give to any Non-Employee Director the right to be retained as a
Non-Employee Director of the Company or its Affiliates or to interfere with
the right of the stockholders of the Company to discharge any Non-Employee
Director at any time, nor shall it be deemed to give the Company the right to
require any Non-Employee Director to continue to render services in such
capacity, nor shall it interfere with the Non-Employee Director's right to
terminate his services as such at any time.
12.7 GOVERNING LAW. The validity, construction and effect of the
Plan and any actions taken or relating to the Plan, shall be determined in
accordance with the laws of the State of Missouri without regard to its
conflict of law rules, and applicable federal law.
12.8 RIGHTS AS A STOCKHOLDER. A Non-Employee Director shall have
no rights as a stockholder with respect to a Stock Unit until the
Non-Employee Director actually becomes a holder of record of shares of Stock
distributed with respect thereto.
12.9 NOTICES. All notices or other communications made or given
pursuant to this Plan shall be in writing and shall be sufficiently made or
given if hand delivered, or if mailed by certified mail, addressed to the
Non-Employee Director at the address contained in the records of the Company
or to the Company at its principal office, as applicable.
8
<PAGE> 9
IN WITNESS WHEREOF, Falcon Products, Inc. has adopted the foregoing
instrument as of the 16th day of December, 1997.
FALCON PRODUCTS, INC.
By /s/ Franklin A. Jacobs
----------------------------
Title Chairman and CEO
-------------------------
9
<PAGE> 1
EXHIBIT 11
----------
<TABLE>
Falcon Products, Inc. and Subsidiaries
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
For the years ended November 1, 1997, November 2, 1996 and October 28, 1995
<CAPTION>
(In thousands, except per share amounts)
1997<F1> 1996<F1> 1995<F1>
-------- -------- --------
<S> <C> <C> <C>
Primary Earnings Per Share:
- - ---------------------------
Average number of common shares outstanding 9,665 9,591 9,497
Assumed exercise of options (treasury stock method) 176 202 247
------- ------ ------
Shares for primary computation 9,841 9,793 9,744
======= ====== ======
Net earnings $12,634 $8,433 $7,457
======= ====== ======
Primary earnings per share $ 1.28 $ .86 $ .77
======= ====== ======
Fully Diluted Earnings Per Share
- - --------------------------------
Average number of common shares outstanding 9,691 9,657 9,497
Assumed exercise of options (treasury stock method) 211 202 302
------- ------ ------
Shares for fully diluted computation 9,902 9,859 9,799
======= ====== ======
Net earnings $12,634 $8,433 $7,457
======= ====== ======
Fully diluted earnings per share $ 1.28 $ .86 $ .76
======= ====== ======
<FN>
<F1>Per share data reflects adjustments related to December 1995, 10% stock dividend.
</TABLE>
<PAGE> 1
Financial Stability
- - ------------------------------------------------------------------------------
Falcon ended 1997
with $16 million in
cash and almost
no debt.
Fiscal 1997 represented Falcon's 11th consecutive year of increased earnings
and earnings per share. This consistency in earnings growth has led Falcon to
its strongest balance sheet in its history. Falcon ended 1997 with $16
million in cash and almost no debt. With this financial strength, Falcon is
very well positioned to carry out its corporate goals and strategies. Total
long-term debt is just 2% of total capital. The Company's virtually
unleveraged balance sheet makes a variety of financing alternatives available
for strategic acquisitions.
During the last several years, the Company has devoted substantial
resources to its sales and marketing efforts, developed new markets and
distribution networks, and implemented an aggressive program of new product
introductions. Significant resources have also been devoted to developing and
enlarging the Company's direct factory sales force. Falcon will continue to
prudently reinvest earnings and capital in the resources required for
continued growth.
During 1997, the Company increased the annual dividend rate on its
common stock 40%, from $.10 per share to $.14 per share. The 1998 annual
dividend rate has been increased to $.16 per share, the fourth consecutive
annual dividend increase, beginning with the January 1998 quarterly dividend
payment. Since 1995, the Company has repurchased a total of $10.1 million of
its common stock under a repurchase program.
- - ------------------------------------------------------------------------------
<TABLE>
Operating Results as a Percentage of Sales
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
November 1, November 2, October 28,
1997 1996 1995
........................................................................................................................
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
........................................................................................................................
Cost of sales 70.3 68.6 66.4
........................................................................................................................
Nonrecurring charges 3.3 -- --
........................................................................................................................
Gross margin 26.4 31.4 33.6
........................................................................................................................
Selling, general and administrative expenses 19.5 20.3 21.3
........................................................................................................................
Operating profit 6.9 11.1 12.3
........................................................................................................................
Interest income, net .1 .1 .2
........................................................................................................................
Minority interest in consolidated subsidiary -- .1 (.1)
........................................................................................................................
Earnings from continuing operations before income taxes 7.0 11.3 12.4
........................................................................................................................
Income tax expense 2.6 4.3 4.6
........................................................................................................................
Net earnings from continuing operations 4.4 7.0 7.8
------------------------------------------------------------------------------------------------------------------------
Supplemental Information - Before Nonrecurring Charges
........................................................................................................................
Gross Margin 29.7 31.4 33.6
........................................................................................................................
Earnings before income taxes 10.2 11.1 12.3
........................................................................................................................
Net earnings 6.4 7.0 7.8
------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- - ------------------------------------------------------------------------------
Net Sales
Net sales from continuing operations (which excludes sales of the
Company's discontinued William Hodges division) in 1997 were $113.0 million,
an increase of 12.2% over 1996 net sales of $100.7 million. The sales
increase over the prior year primarily resulted from increased sales to the
Hospitality market, from strong sales of office furniture products through
the Company's Flight network of office furniture dealers and directly to
end-users and from incremental sales from the acquisition of The Chair Source
in late 1996. The 1997 fiscal year included 52 weeks compared with 53 weeks in
1996, which partially offset the increase in sales. Net sales from
continuing operations for 1997 and 1996, excluding sales resulting from the
acquisition of The Chair Source, were approximately $108.0 million and $100.5
million, respectively. Sales were unfavorably impacted by a decline in sales
from the Company's National Accounts market as several of its major customers
in this market segment opened significantly less new stores in 1997 than in
1996.
In 1996, net sales from continuing operations were $100. 7 million, an
increase of 26.4% over 1995 net sales of $79.6 million. The sales increase
over the prior year primarily resulted from increased sales from the
Company's National Accounts program, from strong sales of office furniture
products through the Company's Flight network of office furniture dealers and
directly to end users and from incremental sales from the acquisitions of
Decor Concepts in 1995. The 1996 fiscal year included 53 weeks compared with
52 weeks in 1995, which also contributed to the increase in sales. Net sales
from continuing operations for 1996 and 1995, excluding sales resulting from
acquisitions, were approximately $90.5 million and $78.1 million,
respectively.
The Company's strong sales results for both 1997 and 1996 were
favorably impacted by the Company's continued concentration of resources on
sales and marketing programs and new product introductions. During 1996, the
Company increased the number of direct sales representatives that are
selling its products from 37 to 40 representatives and during 1997, further
increased the number of direct sales representatives to 48.
[GRAPH]
- - ------------------------------------------------------------------------------
13
<PAGE> 3
Costs and Expenses
The Company's gross margin decreased to $29.8 million in 1997 from
$31.6 million in 1996, a 5.6% decrease primarily due to one-time
restructuring charges of $3.7 million to consolidate manufacturing locations
and eliminate certain wood seating product lines. Gross margin as a
percentage of sales decreased to 26.4% in 1997, also due to the
aforementioned restructuring costs. The gross margin percentage in 1997
excluding the nonrecurring charges was 29.7%, a decrease from 31.4% in 1996.
The decrease was primarily due to costs associated with the development of
new products and facilities to service the Hospitality market, particularly
products manufactured at the Company's Tijuana, Mexico facility, and
inefficiencies at the Company's Czech Republic plant. Demand for the
Company's lodging products exceeded capacity of the Tijuana plant
causing the Company to outsource certain products components at a higher
cost. The Company has since more than doubled the capacity of the Tijuana
facility.
In 1996, the Company's gross margin increased to $31.6 million from
$26.8 million in 1995, an 18.0% increase primarily due to the increased sales
volume. Gross margin as a percentage of sales decreased to 31.4% in 1996 from
33.6% in 1995. The decrease is primarily due to product mix and incremental
sales from the Decor Concepts acquisition which maintained a lower gross
margin percentage than the Company's historical base of business. This was
due to certain production inefficiencies at the facilities acquired in
connection with this acquisition. To address the inefficiencies, the Company
moved manufacturing and warehousing operations previously performed in three
separate buildings to a single newly leased building. Production was
interrupted due to this move which also contributed to the lower gross margin
in 1996.
Selling, general and administrative expenses were $22.0 million, $20.5
million and $17.0 million in 1997, 1996 and 1995, respectively. The overall
increase is principally related to the higher level of business and increased
sales and marketing programs including salaries, commissions, travel and
literature. As a percentage of net sales, the expense rate was 19.5% in 1997,
20.3% in 1996 and 20.5% in 1995. The decrease in the expense rate is
primarily due to the result of efficiencies from higher sales volume, the
impact of cost reduction programs, and lower expenses under the Company's
management bonus program.
Interest and Taxes
Net interest income was $139,000 in 1997, $95,000 in 1996 and $141,000
in 1995. The increase in interest income during 1997 is due primarily to
interest received on the proceeds from the sale of the William Hodges
division in late 1997. The lower interest income in 1996 is due to spending
invested funds for business acquisitions during 1996 and at the end of 1995.
Income tax expense was $3.0 million, $4.3 million and $3.7 million in
1997, 1996 and 1995, respectively. The effective income tax rate was 38% in
1997 and 1996, and 37.5% in 1995.
Net Earnings
Net earnings totaled $12.6 million in 1997, compared to $8.4 million in
1996, an increase of 49.8%. Earnings per share reached $1.28 in 1997,
compared with $.86 in 1996, a 48.8% increase. The increase is due primarily
to an after-tax gain on the sale of the William Hodges division of $6. 8
million, or $.69 per share, offset partially by an after-tax charge of $2.3
million, or $.23 per share, for costs associated with strategic initiatives
undertaken in 1997. These initiatives include the consolidation of wood chair
manufacturing operations and discontinuing duplicative and non-performing
wood seating product lines. Excluding the one-time gain on the sale and the
restructuring charge for the strategic initiatives, 1997 net earnings
14
<PAGE> 4
were $7.2 million, or $.73 per share, compared to $7.0 million, or $.71 per
share, in 1996. An increase in earnings of 3.1% and an increase in earnings
per share of 2.8%.
1996 net earnings from continuing operations increased to $7.0 million,
or $.71 per share, from $6.2 million, or $.64 per share in 1995. An increase
in earnings and earnings per share of 13.4% and 10.9%, respectively. In 1996,
net earnings were $8.4 million, compared to $7.5 million in 1995, an increase
of 13.1%. Earnings per share reached $.86 in 1996, compared with $.77 in
1995, an 11.7% increase.
Liquidity and Capital Resources
The Company's working capital at November 1, 1997 was $38.7 million and
its ratio of current assets to current liabilities was 2.7 to 1.0. During
1997 and 1996, cash provided by operating activities was $3.4 million and
$7.4 million respectively. Cash generated from operations in 1997 decreased
primarily due to lower earnings from continuing operations and lower accounts
receivable collections.
Cash provided by investing activities in 1997 was $13.9 million, an
increase from $5.6 million used in investing activities in 1996. The change
is due primarily to the $17.7 million cash received on the sale of the Hodges
Division. The Company invested $3.8 million in 1997 and $4.4 million in 1996
in capital additions primarily to increase manufacturing capacities and to
improve operating efficiencies, as well as normal recurring capital
replacements. The Company's capital budget for 1998 is approximately $3.5
million, which will be used primarily to acquire new equipment.
The cash portion of the cost of businesses acquired was $0 in 1997 and
$1.2 million in 1996. In addition, the acquisition of The Chair Source during
1996 was funded by the issuance of 241,400 shares of common stock in 1996,
plus 25,000 shares in 1997 and an additional 50,000 shares of common stock to
be issued during 1998 through 1999 based upon certain contingencies.
Cash used in financing activities was $6.7 million in 1997, and $3.1
million in 1996. The increase in 1997 is due primarily to the Company's stock
repurchase program. During the year ended November 1, 1997, the Company
acquired approximately 500,000 shares of its common stock at a total cost of
approximately $7.2 million. The Company is authorized to purchase up to
1,075,000 shares of its common stock under the stock repurchase plan approved
by the Board of Directors. Also during 1997, the Company increased its cash
dividend as the regular quarterly cash dividend was raised to $.035 per share
from $.025 per share.
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, 1998. As of November 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 existing cash, including the
proceeds from the sale of the William Hodges division, internally generated
funds, 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.
15
<PAGE> 5
<TABLE>
Consolidated Statements of Earnings
- - --------------------------------------------------------------------------------------------------------------
For the Years Ended November 1, 1997, November 2, 1996 and October 28, 1995
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1997 1996 1995
..............................................................................................................
<S> <C> <C> <C>
Net sales $113,010 $100,702 $79,647
Cost of sales 79,507 69,125 52,883
Nonrecurring charges 3,700 -- --
..............................................................................................................
Gross margin 29,803 31,577 26,764
Selling, general and administrative expenses 22,044 20,469 16,992
..............................................................................................................
Operating profit 7,759 11,108 9,772
Interest income, net; including interest income of
$228, $263 and $316, respectively 139 95 141
Minority interest in consolidated subsidiary 47 89 (44)
..............................................................................................................
Earnings from continuing operations before income taxes 7,945 11,292 9,869
Income tax expense 3,019 4,291 3,693
..............................................................................................................
Net earnings from continuing operations 4,926 7,001 6,176
Discontinued operations, net of tax 938 1,432 1,281
Gain on sale of discontinued operations, net of tax 6,770 -- --
..............................................................................................................
Net earnings $ 12,634 $ 8,433 $ 7,457
- - --------------------------------------------------------------------------------------------------------------
Earnings per share:
Continuing operations $ .50 $ .71 $ .64
Discontinued operations .09 .15 .13
Gain on sale of discontinued operations .69 -- --
..............................................................................................................
Net earnings per share $ 1.28 $ .86 $ .77
- - --------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
16
<PAGE> 6
<TABLE>
Consolidated Balance Sheets
- - --------------------------------------------------------------------------------------------------------------
November 1, 1997 and November 2, 1996
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------
(In thousands, except share data) 1997 1996
..............................................................................................................
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $16,294 $ 5,714
Accounts receivable, less allowances of $337 and $392, respectively 18,625 15,010
Inventories, net 22,687 19,632
Prepayments and other current assets 3,732 2,104
Net assets of discontinued operations -- 4,493
...........................................................................................................
Total current assets 61,338 46,953
.........................................................................................................
Property, plant and equipment:
Land 2,731 2,842
Buildings and improvements 12,347 12,418
Machinery and equipment 26,360 22,977
...........................................................................................................
41,438 38,237
Less accumulated depreciation 16,227 13,752
...........................................................................................................
Net property, plant and equipment 25,211 24,485
.........................................................................................................
Other assets, net of accumulated amortization:
Goodwill 9,454 9,445
Other 3,354 3,505
...........................................................................................................
Total other assets 12,808 12,950
.........................................................................................................
Total Assets $99,357 $84,388
- - --------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $10,458 $ 7,195
Accrued liabilities 10,716 4,270
Current maturities of long-term debt 1,473 957
...........................................................................................................
Total current liabilities 22,647 12,422
.........................................................................................................
Long-term obligations:
Long-term debt 321 448
Pension liability 96 239
Deferred income taxes 2,155 1,882
Minority interest in consolidated subsidiary 874 921
...........................................................................................................
Total liabilities 26,093 15,912
.........................................................................................................
Stockholders' equity:
Common stock, $. 02 par value: authorized 20,000,000 shares;
issued 9,915,117 198 198
Additional paid-in capital 47,376 47,260
Treasury stock, at cost (477,512 and 109,516 shares, respectively) (6,855) (1,529)
Cumulative translation adjustments (727) 274
Retained earnings 33,272 22,273
...........................................................................................................
Total stockholders' equity 73,264 68,476
.........................................................................................................
Total Liabilities and Stockholders' Equity $99,357 $84,388
- - --------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
17
<PAGE> 7
<TABLE>
Consolidated Statements of Stockholders' Equity
- - -----------------------------------------------------------------------------------------------------------------------------
For the Years Ended November 1, 1997, November 2, 1996 and October 28, 1995
<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 29, 1994 $172 $30,510 $ -- $ (39) $ 19,913 $50,556
Net earnings -- -- -- -- 7,457 7,457
Cash dividends -- -- -- -- (691) (691)
Stock dividend 17 11,280 -- -- (11,300) (3)
Issuance of stock to Employee
Stock Purchase Plan 1 547 -- -- -- 548
Exercise of employee incentive
stock options 1 74 -- -- -- 75
Compensation expense under
non-qualified stock options -- 20 -- -- -- 20
Tax benefit of stock options -- 241 -- -- -- 241
Translation adjustments -- -- -- 221 -- 221
Issuance of restricted stock -- 89 -- -- (89) --
Amortization of restricted stock -- -- -- -- 18 18
Treasury stock purchases -- -- (135) -- -- (135)
--------------------------------------------------------------------------------------------------------------------------
Balance, October 28, 1995 $191 $42,761 $ (135) $ 182 $ 15,308 $58,307
Net earnings -- -- -- -- 8,433 8,433
Cash dividends -- -- -- -- (958) (958)
Issuance of stock to Employee
Stock Purchase Plan -- 195 533 -- -- 728
Exercise of employee incentive
stock options 2 355 864 -- (553) 668
Compensation expense under
non-qualified stock options -- 7 -- -- -- 7
Tax benefit of stock options -- 647 -- -- -- 647
Translation adjustments -- -- -- 92 -- 92
Cancellation of restricted stock -- (19) -- -- 19 --
Amortization of restricted stock -- -- -- -- 24 24
Treasury stock purchases -- -- (2,791) -- -- (2,791)
Issuance of stock for acquisition 5 3,314 -- -- -- 3,319
--------------------------------------------------------------------------------------------------------------------------
Balance, November 2, 1996 $198 $47,260 $(1,529) $ 274 $ 22,273 $68,476
Net earnings -- -- -- -- 12,634 12,634
Cash dividends -- -- -- -- (1,348) (1,348)
Issuance of stock to Employee
Stock Purchase Plan -- 8 893 -- -- 901
Exercise of employee incentive
stock options -- -- 624 -- (314) 310
Tax benefit of stock options -- 103 -- -- -- 103
Translation adjustments -- -- -- (1,001) -- (1,001)
Amortization of restricted stock -- -- -- -- 27 27
Treasury stock purchases -- -- (7,202) -- -- (7,202)
Issuance of stock for acquisition -- 5 359 -- -- 364
--------------------------------------------------------------------------------------------------------------------------
Balance, November 1, 1997 $198 $47,376 $(6,855) $ (727) $ 33,272 $73,264
- - -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
18
<PAGE> 8
<TABLE>
Consolidated Statements of Cash Flow
- - --------------------------------------------------------------------------------------------------------------
For the Years Ended November 1, 1997, November 2, 1996 and October 28, 1995
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
..............................................................................................................
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $12,634 $ 8,433 $ 7,457
Adjustments to reconcile net earnings to cash
provided by operating activities:
Gain on sale of discontinued operations (6,770) -- --
Earnings from discontinued operations (938) (1,432) (1,281)
Depreciation 3,122 2,645 2,077
Amortization 1,108 1,171 1,277
Translation adjustments (1,001) 92 221
Tax benefit of stock option exercises 103 647 241
Compensation expense under stock and option plans 27 31 38
Deferred income tax provision (978) 819 (212)
Minority interest in consolidated subsidiary (47) (89) (10)
Change in assets and liabilities:
Accounts receivable, net (3,346) 1,472 (3,483)
Inventories (3,055) (3,941) (1,678)
Prepayments and other current assets (438) (464) (332)
Other assets, net (944) (1,443) (1,304)
Accounts payable 3,264 (172) 1,434
Accrued liabilities 763 (1,203) (97)
.........................................................................................................
Cash provided by continuing operating activities 3,504 6,566 4,348
Cash provided by (used in) discontinued operations (99) 867 1,318
.........................................................................................................
Cash provided by operating activities 3,405 7,433 5,666
- - --------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment, net (3,807) (4,449) (4,570)
Proceeds from sale of discontinued operations 17,711 -- --
Cost of businesses acquired (including working capital
at acquisition of $(165) in 1996 and $912 in 1995) -- (1,189) (1,095)
.......................................................................................................
Cash provided by (used in) investing activities 13,904 (5,638) (5,665)
-------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Common stock issuances 1,575 1,396 623
Treasury stock purchases (7,202) (2,791) (135)
Cash dividends (1,348) (958) (694)
Additions to (repayment of) long-term debt, net 389 (634) 102
Decrease in pension liability (143) (64) (239)
...........................................................................................................
Cash used in financing activities (6,729) (3,051) (343)
-------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 10,580 (1,256) (342)
Cash and cash equivalents - beginning of period 5,714 6,970 7,312
..............................................................................................................
Cash and cash equivalents - end of period $16,294 $ 5,714 $ 6,970
- - --------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid for interest $ 91 $ 21 $ 160
- - --------------------------------------------------------------------------------------------------------------
Cash paid for income taxes $ 4,841 $ 3,809 $ 5,000
- - --------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
19
<PAGE> 9
Notes to Consolidated Financial Statements
- - ------------------------------------------------------------------------------
November 1, 1997, November 2, 1996 and October 28, 1995
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Falcon Products, Inc. and its subsidiaries (the Company). All significant
intercompany balances and transactions are eliminated in consolidation.
Financial Statement Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Certain prior year amounts have been reclassified to conform to
the current year presentation.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to October 31.
Fiscal years 1997 and 1995 ended November 1, 1997, and October 28, 1995,
respectively, and included 52 weeks. Fiscal year 1996 ended on November 2,
1996, and included 53 weeks. References to years relate to
fiscal years rather than calendar years.
Nature of Business
The principal products manufactured and sold by the Company are
pedestal table bases, table tops, metal and wood chairs, upholstered seating,
booths, millwork and casegoods. The Company's sales are primarily to the
foodservice equipment, contract furniture, hospitality, government and
healthcare markets. The Company considers its operations a single industry
segment.
The Company operates factories in Mexico through wholly-owned
subsidiaries which produce all of its table base casting requirements and
wood chair frames and casegoods products. Substantially all of the sales of
these subsidiaries are to the parent company and are eliminated in
consolidation. The Company has an 83% controlling interest in a manufacturing
facility in the Czech Republic, Falcon Mimon, a.s. (Falcon Mimon), which
manufactures and sells chair frames and fully finished wood chairs throughout
Europe and in North America. Sales from foreign operations (primarily Falcon
Mimon) and export sales from domestic facilities were $9.3 million, $10.9
million and $9.7 million in 1997, 1996 and 1995, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Substantailly all of the Company's cash equivalents are denominated in U.S.
dollars and therefore the effect of exchange rate changes on cash balances
was not significant during any of the years presented.
Inventories
Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method. Inventories at November 1,
1997 and November 2, 1996 consist of the following:
<TABLE>
<CAPTION>
- - --------------------------------------------------------
(In thousands) 1997 1996
........................................................
<S> <C> <C>
Raw materials $17,579 $15,139
Work in process 4,320 3,459
Finished goods, net 788 1,034
........................................................
$22,687 $19,632
- - --------------------------------------------------------
</TABLE>
Long-lived Assets
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed Of, requires that long-lived assets and certain identifiable
intangibles to be held and used or disposed of by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of asset may not be recoverable. The Company has assessed the
recoverability of long-lived assets, including intangible assets, and has
determined that no impairment loss need be recognized for applicable assets
of continuing operations.
Investments in property, plant and equipment are recorded at cost.
Improvements are capitalized, while repair and maintenance costs are charged
to operations. When assets are retired or disposed of, the cost and
accumulated depreciation are removed from the accounts; gains or losses are
included in operations.
Depreciation, including the amortization of assets recorded under
capital leases, is computed by use of the straight-line method over estimated
service lives. Principal service lives are: buildings and improvements - 5
to 40 years; machinery and equipment - 3 to 13 years.
20
<PAGE> 10
- - --------------------------------------------------------------------------
Other assets at November 1, 1997 and November 2, 1996 consist of the
following:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------
(In thousands) 1997 1996
..........................................................................
<S> <C> <C>
Goodwill, net of accumulated
amortization of $1,481 and $1,126 $ 9,454 $ 9,445
Deferred catalog costs, net of
accumulated amortization of $318 and $7 1,226 1,226
Other, net of accumulated
amortization of $544 and $102 2,128 2,279
..........................................................................
$12,808 $12,950
- - --------------------------------------------------------------------------
</TABLE>
Goodwill represents the excess of cost over fair value of net assets
acquired at the dates of acquisition. Goodwill is amortized on a
straight-line basis over thirty to forty years. The cost of the design,
production and distribution of sales catalogs and reprints are being amortized
on a straight-line basis over three to six years.
Pension Plan
The Company has a noncontributory defined benefit pension plan covering
certain hourly and substantially all domestic salaried personnel. The
Company's policy is to fund pension benefits to the extent contributions are
deductible for tax purposes and in compliance with federal laws and
regulations.
Stock Dividends
On November 21, 1995, the Board of Directors of the Company declared a
10% stock dividend. The record date of this transaction was December 13,
1995, with a distribution date of January 2, 1996. All information contained
in the accompanying Consolidated Financial Statements and these Notes to
Consolidated Financial Statements relating to the Company's common stock,
including shares outstanding, stock option plans and per share data, has been
restated to give effect to this stock dividend.
Earnings per share
In February 1997, the Financial Accountings Standards Board issued SFAS
No. 128, Earnings Per Share (SFAS No. 128), which established standards for
computing and presenting earnings per share (EPS). SFAS No. 128 is required
for the Company's fiscal year 1998 financial statements. Early adoption is
not permitted. SFAS No. 128 replaces the presentation of primary EPS and
fully diluted EPS with the presentation of Basic EPS and Dilutive EPS. Basic
EPS excludes dilution and is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period.
Dilutive EPS 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, Basic EPS and Dilutive EPS would
be as follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
1997 1996 1995
................................................................................
<S> <C> <C> <C>
Basic EPS:
Net earnings from continuing operations $ 51 $.73 $.65
Net earnings $1.31 $.88 $.79
................................................................................
Dilutive EPS:
Net earnings from continuing operations $ .50 $.71 $.64
Net earnings $1.28 $.86 $.77
- - --------------------------------------------------------------------------------
</TABLE>
Foreign Currency Translation
The Financial Statements of the Company's non-U.S. subsidiaries are
translated into U.S. dollars in accordance with SFAS No. 52. The functional
currency for Falcon Mimon has been determined to be the subsidiary's local
currency. As a result, the gain or loss resulting from the translation of its
financial statements to U.S. dollars is included as a separate component of
stockholders' equity.
For the Company's Mexican subsidiaries, the functional currency is the
U.S. dollar. As such, inventory, prepayments and property are translated at
historical exchange rates while other assets and liabilities are translated
at current exchange rates. Revenues and expenses are translated at average
exchange rates during the year. The resulting translation adjustment is
included in selling, general and administrative expenses.
The net foreign currency translation and transaction losses included in
earnings for 1997, 1996 and 1995, were $304, $235 and $271 thousand,
respectively.
21
<PAGE> 11
Notes to Consolidated Financial Statements
- - ------------------------------------------------------------------------------
November 1, 1997, November 2, 1996 and October 28, 1995
Note 2 - Discontinued Operations
On September 8, 1997, the Company completed the sale of its William
Hodges division (the Hodges Division) to Leggett & Platt, Incorporated for
approximately $17.7 million. The Hodges Division manufactures wire shelving
and kitchen equipment. The sale resulted in a gain of approximately $6.8
million, net of applicable income taxes of $3.8 million. Proceeds from the
sale were $16.0 million in cash and $1.7 million in an escrow account. The
escrowed funds are included in cash and cash equivalents and are subject to
certain purchase price adjustments. The Company does not expect any
adjustments to the purchase price, in which case the escrowed funds will be
remitted to the Company.
The results of the Hodges Division for 1997 through the date of the
sale (approximately 10.5 months) and for 1996 and 1995 are classified as
discontinued operations in the accompanying financial statements. Earnings
from the discontinued Hodges Division were $938 thousand in 1997, $1,432
thousand in 1996 and $1,281 thousand in 1995, net of applicable income taxes
of $575, $877 and $766 thousand, respectively. Net revenues from the Hodges
Division in 1997 through the date of the sale were $7,822 thousand. Hodges
Division revenues in fiscal years 1996 and 1995 were $10,338 and $10,389
thousand, respectively.
Net assets of the discontinued Hodges Division operations consisted of
the following at November 2, 1996:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------
(In thousands) 1996
..........................................................
<S> <C>
Accounts receivable $1,673
Inventories 2,093
Other current assets 143
Property, plant and equipment, net 897
Goodwill, net 261
Other assets 66
Accounts payable (370)
Accrued liabilities (270)
..........................................................
$4,493
- - ----------------------------------------------------------
</TABLE>
Note 3 - Nonrecurring Charges
During the 1997 fourth quarter, the Company recorded a pre-tax charge
of $3.7 million, $2.3 million after-tax, for special and nonrecurring items.
The charges are a result of the consolidation of the Company's manufacturing
operations at its Anaheim, California and Belding, Michigan facilities into
its City of Industry, California facility and the elimination of several
duplicative and nonperforming wood seating product lines. These pre-tax
charges are recorded as a separate line in the Consolidated Statements of
Earnings and included $3.0 million for costs associated with asset
write-downs and dispositions and $.7 million for exit costs of leased
facilities and employee severance and termination costs.
Note 4 - Rental Expense and Lease Commitments
The Company leases certain manufacturing facilities and certain office
and transportation equipment under non-cancelable lease agreements having an
initial term of more than one year and expiring at various dates through the
year 2006.
The future minimum rental commitments due under lease agreements are as
follows at November 1, 1997:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------
(In thousands) Capital Operating
Leases Leases
....................................................................
<S> <C> <C>
1998 $ 61 $1,414
1999 61 1,459
2000 61 1,418
2001 61 1,382
2002 61 770
Later years 124 2,438
....................................................................
Total minimum lease payments 429 $8,881
--------
Less-amount representing interest (61)
.................................................
Present value of minimum
lease payments $368
- - -------------------------------------------------
</TABLE>
Total operating lease and rental expense was approximately $1,463,
$953 and $633 thousand in 1997, 1996 and 1995, respectively.
22
<PAGE> 12
- - --------------------------------------------------------------------------
Note 5 - Long-Term Debt
The carrying amount of long-term debt, which approximates fair value,
consists of the following at November 1, 1997 and November 2, 1996:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------
(In thousands) 1997 1996
..........................................................................
<S> <C> <C>
$2.0 million revolving line of credit
expiring July 1,1998, interest at
LIBOR plus 1.25% $ -- $ --
Notes payable to a foreign bank, secured
by certain assets of Falcon Mimon due
monthly, interest at LIBOR + 2.5% 1,301 848
Obligations under capital leases, due in
annual installments through
November 16, 2003, interest at 4.0% 368 412
Community Development loan, secured
by machinery and equipment, due in
monthly installments through 1997,
interest at 7.5% -- 20
Notes payable to individuals 125 125
..........................................................................
1,794 1,405
Less current maturities 1,473 957
..........................................................................
$ 321 $ 448
- - --------------------------------------------------------------------------
</TABLE>
Under the revolving line of credit agreement, the Company must comply
with certain covenants including, but not limited to, the maintenance of
specific ratios and net worth. The Company has complied with the terms of the
loan agreements.
The minimum annual maturities of long-term debt, including capital
lease obligations, are: $1,473, $48, $50, $52 and $55 thousand in 1998
through 2002, respectively, and $116 thousand thereafter.
Note 6 - Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No.
109). SFAS No. 109 requires income taxes to be accounted for using a balance
sheet approach known as the liability method. The liability method accounts
for deferred income taxes by applying statutory tax rates in effect at the
date of the balance sheet to differences between the book and tax basis of
assets and liabilities. Adjustments to deferred income taxes resulting from
statutory rate changes flow through the tax provision in the year of the
change.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------
(In thousands) 1997 1996 1995
..........................................................................
<S> <C> <C> <C>
Current:
Federal $3,587 $3,107 $3,484
State 410 365 432
Foreign -- -- (11)
Deferred (978) 819 (212)
..........................................................................
$3,019 $4,291 $3,693
- - --------------------------------------------------------------------------
</TABLE>
The following is a reconciliation between statutory federal income tax
expense and actual income tax expense:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
............................................................................................
<S> <C> <C> <C>
Computed "expected" federal
income tax expense $2,701 $3,852 $3,355
Increase (decrease) resulting from:
State income taxes 378 452 408
Other, net (60) (13) (70)
............................................................................................
$3,019 $4,291 $3,693
- - --------------------------------------------------------------------------------------------
</TABLE>
The significant components of deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------
(In thousands) 1997 1996
..........................................................................
<S> <C> <C>
Deferred tax assets:
Inventories $ 648 $ 507
Reserves and accruals 1,505 688
..........................................................................
2,153 1,195
..........................................................................
Deferred tax liabilities:
Depreciation and other property
basis differences (1,558) (1,513)
Other (597) (662)
..........................................................................
(2,155) (2,175)
..........................................................................
Net deferred income tax liability $ (2) $ (980)
- - --------------------------------------------------------------------------
</TABLE>
Net current deferred income tax assets are included in prepaid expenses
and other current assets in the accompanying Consolidated Balance Sheets. The
Company's income tax returns have been examined by the Internal Revenue
Service for fiscal years through 1994.
23
<PAGE> 13
Notes to Consolidated Financial Statements
- - ------------------------------------------------------------------------------
November 1, 1997, November 2, 1996 and October 28, 1995
Note 7 - Stock Option and Stock Purchase Plans
The Company has an employee incentive stock option plan which allows
the Company to grant key employees incentive and non-qualified stock options
to purchase up to 1,100,000 shares of the Company's common stock at not less
than the market price on the date of grant. Options not exercised accumulate
and are exercisable, in whole or in part, in any subsequent period but not
later than ten years from the date of grant.
The Company also has a Non-Employee Director stock option plan,
approved by the stockholders, under which the Company annually grants an
option to purchase 1,650 shares of common stock to each director who is
neither an officer of the Company nor compensated under any employment or
consulting arrangements (Non-Employee Director). Under the plan, the option
exercise price is the fair market value of the Company's common stock on the
date of the grant and the options are exercisable, on a cumulative basis, at
20% per year commencing on the date of the grant.
The Company accounts for the option plans using APB Opinion No. 25,
Accounting for Stock Issued to Employees. Accordingly, no compensation
expense has been recognized relating to the stock options.
Pro forma net earnings and net earnings per common share in the
following table were prepared as if the Company had accounted for its stock
option plans under the fair market value method of SFAS No. 123, Accounting
for Stock-Based Compensation.
<TABLE>
<CAPTION>
- - --------------------------------------------------------
1997 1996
........................................................
<S> <C> <C>
Net earnings-pro forma $12,446 $8,425
Net earnings per share-
pro forma $1.26 $.86
Weighted-average fair value
of options granted $7.39 $6.54
- - --------------------------------------------------------
</TABLE>
For the pro forma disclosures, the fair value of each option grant is
estimated at the date of the grant using an option pricing model with the
following assumptions:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------
1997 1996
.................................................................
<S> <C> <C>
Expected dividend yield .7% .6%
Expected stock price volatility 30% 30%
Risk-free interest rate 6.4% 5.8%
Expected life of option 10 years 10 years
- - -----------------------------------------------------------------
</TABLE>
The Company had a Stock Purchase Plan under which eligible employees
may elect to invest up to 10% of salary earned during each pay period and the
Company contributed an amount equal to 40% of each participant's
contributions. This plan was terminated at the end of fiscal 1997.
Stock option transactions under the plans for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
........................................................................................................................
Average Number Average Number Average Number
Price of Shares Price of Shares Price of Shares
........................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year $ 9.35 575,925 $ 7.58 766,450 $ 6.57 677,303
Options granted $14.49 168,900 $13.04 68,150 $10.17 162,800
Options canceled $13.16 12,754 $10.00 64,348 $ 9.66 22,627
Options exercised $ 7.01 44,179 $ 3.44 194,327 $ 1.43 51,026
........................................................................................................................
Options outstanding at end of year $10.70 687,892 $ 9.35 575,925 $ 7.58 766,450
- - ------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 311,847 245,346 313,615
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Stock options outstanding at November 1, 1997:
- - -----------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
...........................................................................................
Range of Number Remaining Weighted Average Number Weighted Average
Exercise Price of Options Contractual Life Exercise Price of Options Exercise Price
..........................................................................................................................
<S> <C> <C> <C> <C> <C>
$ .50 - $10.00 368,007 5.5 $ 8.80 260,537 $ 8.45
$10.00 - $13.00 144,585 7.3 $11.00 45,370 $10.72
$13.00 - $15.00 175,300 9.1 $14.41 5,940 $13.58
...........................................................................................
687,892 6.8 $10.70 311,847 $ 8.88
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 14
- - -------------------------------------------------------------------------------
Note 8 - Pension Plan
The Company has a noncontributory defined benefit pension plan covering
certain hourly and substantially all salaried domestic personnel. Normal
retirement age is 65, but provision is made for earlier retirement. Benefits
are based on 1.5% of average annual compensation for each year of service.
Full vesting occurs upon completion of five years of service. Assets of the
plan consist entirely of an investment in group annuity contracts with an
insurance company.
The following actuarial assumptions were used in determining the
Company's net periodic pension cost and projected benefit obligation:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------
1997 1996 1995
........................................................................
<S> <C> <C> <C>
Discount rate 7.25% 7.25% 7.50%
Rate of salary increase 5.00% 5.50% 5.50%
Expected long-term rate of
return on plan assets 9.00% 9.00% 9.00%
- - ------------------------------------------------------------------------
</TABLE>
The funded status of the defined benefit pension plan and the net
periodic pension cost are as follows:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------
(In thousands) 1997 1996
........................................................................
<S> <C> <C>
Vested benefit obligation $(3,643) $(3,287)
Non-vested benefits (631) (276)
........................................................................
Accumulated benefit obligation (4,274) (3,563)
Effect of projected
compensation levels (467) (351)
........................................................................
Projected benefit obligation (4,741) (3,914)
Plan assets at fair value 4,018 3,152
........................................................................
Plan assets less than projected
benefit obligation (723) (762)
Unrecognized net loss due to
past experience different
from assumptions 130 236
Unrecognized prior service cost 586 414
Unrecognized net asset (89) (127)
........................................................................
Accrued pension cost $ (96) $ (239)
- - ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
..............................................................................
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 473 $ 421 $ 335
Interest cost 279 257 212
Return on plan assets (641) (389) (332)
Net total of other components 345 137 136
..............................................................................
Net periodic pension cost $ 456 $ 426 $ 351
- - ------------------------------------------------------------------------------
</TABLE>
Note 9 - Business Acquisitions
In October 1996, the Company acquired certain assets and assumed
certain liabilities of The Chair Source for 266,400 newly issued shares of
common stock valued at approximately $3.7 million, plus 50,000 additional
shares of common stock to be issued through October 1999, subject to certain
contingencies. The Chair Source manufactures wood and upholstered seating in
Anaheim, California and distributes them primarily to the hospitality,
lodging and foodservice markets. The Company used the purchase method to
account for this acquisition and recorded goodwill of approximately $2.9
million.
In February 1996, the Company acquired substantially all of the assets
and assumed certain liabilities of a manufacturing facility located in
Tijuana, Mexico. This facility specializes in manufacturing upscale wood and
upholstered seating and casegoods primarily for the lodging and hospitality
markets. The total purchase price for this facility was approximately $500
thousand and was funded by the Company with its available cash reserves. The
Company used the purchase method of accounting and recorded goodwill of
approximately $421 thousand relating to this acquisition.
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 interior decor products
such as seating, tables and casegoods for restaurant chains. The total
purchase price for the transaction was approximately $1.5 million and was
funded by the Company with its available cash reserves. The Company used the
purchase method to account for this acquisition and recorded goodwill of
approximately $384 thousand.
Note 10 - Transactions with Related Parties
Certain of the Company's directors or their affiliates provide various
consulting and other professional services to the Company or receive
commissions as sales representatives. During 1997, 1996 and 1995, the Company
incurred expenses of approximately $99, $220 and $138 thousand, respectively,
for such services.
25
<PAGE> 15
<TABLE>
- - -------------------------------------------------------------------------------
Note 11 - Quarterly Financial Information (Unaudited)
<CAPTION>
(In thousands, except per share data)
- - ------------------------------------------------------------------------------------------------------------
1997 First Second Third Fourth
............................................................................................................
<S> <C> <C> <C> <C>
Net sales $26,733 $26,850 $28,570 $30,857
............................................................................................................
Nonrecurring charges -- -- -- 3,700
............................................................................................................
Gross margin 7,658 7,844 8,371 5,930
............................................................................................................
Net earnings from continuing operations 1,688 1,580 1,653 5
............................................................................................................
Discontinued operations, net of tax 179 362 397 --
............................................................................................................
Gain on sale of discontinued operations -- -- -- 6,770
............................................................................................................
Net earnings 1,867 1,942 2,050 6,775
............................................................................................................
Earnings per share:
Continuing operations $ .17 $ .16 $ .17 $ --
Discontinued operations .02 .04 .04 --
Gain on sale of Hodges division -- -- -- .69
............................................................................................................
Net earnings per share $ .19 $ .20 $ .21 $ .69
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
1996 First Second Third Fourth
............................................................................................................
<S> <C> <C> <C> <C>
Net sales $23,239 $23,266 $25,228 $28,969
............................................................................................................
Gross margin 6,855 7,604 7,619 9,499
............................................................................................................
Net earnings from continuing operations 1,459 1,730 1,699 2,113
............................................................................................................
Discontinued operations, net of tax 164 397 346 52
............................................................................................................
Net earnings 1,623 2,127 2,045 2,638
............................................................................................................
Earnings per share:
Continuing operations $ .15 $ .18 $ .17 $ .22
Discontinued operations .02 .04 .04 .05
............................................................................................................
Net earnings per share $ .17 $ .22 $ .21 $ .27
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 16
Report of Independent Public Accountants
- - -------------------------------------------------------------------------------
To Falcon Products, Inc.:
We have audited the accompanying consolidated balance sheets of FALCON
PRODUCTS, INC. (a Delaware corporation) and subsidiaries as of November 1,
1997 and November 2, 1996, and the related consolidated statements of
earnings, stockholders' equity and cash flows for each of the three fiscal
years in the period ended November 1, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Falcon Products,
Inc. and subsidiaries as of November 1, 1997 and November 2, 1996, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended November 1, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
December 15, 1997
27
<PAGE> 17
<TABLE>
Selected Financial Data
- - -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
(In thousands, except per share data) 1997 1996 1995 1994 1993 1992
.......................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
Operating Data
Net sales $113,010 $100,702 $79,647 $67,957 $54,293 $41,905
Cost of sales 79,507 69,125 52,883 45,318 37,073 28,300
Nonrecurring costs 3,700 -- -- -- -- --
....................................................................................................................
Gross Margin 29,803 31,577 26,764 22,639 17,220 13,605
Selling, general and
administrative expenses 22,044 20,469 16,992 14,354 11,177 8,571
....................................................................................................................
Operating profit 7,759 11,108 9,772 8,285 6,043 5,034
Interest income, net 139 95 141 145 (223) (137)
Minority interest 47 89 (44) 4 -- --
....................................................................................................................
Earnings from continuing
operations before income taxes 7,945 11,292 9,869 8,434 5,820 4,897
Income tax expense 3,019 4,291 3,693 3,121 2,137 1,761
....................................................................................................................
Net Earnings from continuing
operations 4,926 7,001 6,176 5,313 3,683 3,136
Discontinued operations, net of tax 938 1,432 1,281 864 764 599
Gain on sale of discontinued
operations, net of tax 6,770 -- -- -- -- --
....................................................................................................................
Net income $ 12,634 $ 8,433 $ 7,457 $ 6,177 $ 4,447 $ 3,735
---------------------------------------------------------------------------------------------------------------------
Earnings per share from:<F1>
Continuing operations $ .50<F2> $ .71 $ .64 $ .55 $ .42 $ .41
Discontinued operations .09 .15 .13 .09 .09 .08
Gain on sale of discontinued
operations .69 -- -- -- -- --
---------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 1.28 $ .86 $ .77 $ .64 $ .50 $ .48
---------------------------------------------------------------------------------------------------------------------
Cash dividends per share $ .14 $ .10 $ .07 $ .04 $ -- $ --
--------------------------------------------------------------------------------------------------------------------
Financial Position:
Working capital $ 38,691 $ 34,531 $29,927 $25,658 $25,129 $13,327
Property, plant and equipment, net 25,211 24,485 21,529 18,467 11,069 10,674
Capital expenditures 3,807 4,449 4,969 4,608 1,506 1,131
Total assets 99,357 84,388 74,884 64,905 53,228 40,555
Long-term obligations 3,446 3,490 3,424 3,550 1,648 10,272
Stockholders' equity 73,264 68,476 58,307 50,556 44,147 23,404
--------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Per share data reflects adjustments related to the December 1995, 10% stock dividend and the January 1993, 50%
stock dividend.
<F2> 1997 earnings per share from continuing operations includes nonrecurring charges of $2.3 million after-tax, or
$.23 per share. Excluding this charge, earnings per share would have been $.73 in 1997.
</TABLE>
28
<PAGE> 1
EXHIBIT 21
-----------
Falcon Products, Inc. and Subsidiaries
SUBSIDIARIES OF THE COMPANY
---------------------------
The following are wholly-owned subsidiaries of the Company: Kaydee
Metal Products Corporation; Falcon Mexican Holdings, Inc.; Falcon
International, E.U.R.L. (a French corporation); Falcon De Juarez, S.A. de
C.V., Fundiciones Tecnicas, S.A., and Falcon De Baja California, S.A. de C.V.
(Mexican corporations); and Falcon Mimon, a.s. (a Czech Republic
corporation). Falcon Mimon is an 84%-owned subsidiary of the Company.
<PAGE> 1
EXHIBIT 23
-----------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
TO FALCON PRODUCTS, INC.:
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 2-98469, 33-15698, 33-46997, 33-46998 and
333-18671.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
January 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-K for the year ended November 1, 1997 and is qualified in its
entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-01-1997
<PERIOD-END> NOV-01-1997
<CASH> 16,294
<SECURITIES> 0
<RECEIVABLES> 18,625
<ALLOWANCES> 337
<INVENTORY> 22,687
<CURRENT-ASSETS> 61,338
<PP&E> 41,438
<DEPRECIATION> 16,227
<TOTAL-ASSETS> 99,357
<CURRENT-LIABILITIES> 22,647
<BONDS> 0
<COMMON> 198
0
0
<OTHER-SE> 73,066
<TOTAL-LIABILITY-AND-EQUITY> 99,357
<SALES> 113,010
<TOTAL-REVENUES> 113,010
<CGS> 79,507
<TOTAL-COSTS> 83,207
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (139)
<INCOME-PRETAX> 7,945
<INCOME-TAX> 3,019
<INCOME-CONTINUING> 4,926
<DISCONTINUED> 938
<EXTRAORDINARY> 6,770
<CHANGES> 0
<NET-INCOME> 12,634
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
</TABLE>
