<PAGE>
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 1, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission File Number 1-11577
FALCON PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 43-0730877
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9387 DIELMAN INDUSTRIAL DRIVE 63132
ST. LOUIS, MISSOURI (Zip Code)
(Address of principal executive offices)
(314) 991-9200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months, and (2) has been subject
to such filing requirements for the past 90 days. YES X NO
----- -----
As of June 4, 1999, the registrant had 8,634,137 shares of common stock,
$.02 par value, outstanding.
1
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
--------------------
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Statements of Earnings
-----------------------------------
(Unaudited)
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
---------------------- ----------------------
May 1, May 2, May 1, May 2,
(In thousands, except per share data) 1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $36,469 $33,651 $71,064 $61,711
Cost of sales 25,797 24,126 50,490 44,052
------- ------- ------- -------
Gross margin 10,672 9,525 20,574 17,659
Selling, general and administrative expenses 7,220 6,465 13,833 11,813
------- ------- ------- -------
Operating profit 3,452 3,060 6,741 5,846
Interest income (expense), net (307) (90) (596) 7
Minority interest in consolidated subsidiary 8 19 14 34
------- ------- ------- -------
Earnings before income taxes 3,153 2,989 6,159 5,887
Income tax expense 1,183 1,151 2,325 2,267
------- ------- ------- -------
Net earnings $ 1,970 $ 1,838 $ 3,834 $ 3,620
======= ======= ======= =======
Basic and diluted earnings per share: $ .23 $ .20 $ .43 $ .38
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
2
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<PAGE>
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Balance Sheets
---------------------------
(Unaudited)
<CAPTION>
May 1, October 31,
(In thousands, except share data) 1999 1998
-------- -----------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 1,162 $ 5,186
Accounts receivable, less allowances
of $450 and $672, respectively 20,567 22,683
Inventories 27,761 24,877
Prepayments and other current assets 3,421 3,081
-------- --------
Total current assets 52,911 55,827
-------- --------
Property, plant and equipment:
Land 2,116 2,116
Buildings and improvements 11,451 11,395
Machinery and equipment 34,190 32,154
-------- --------
47,757 45,665
Less accumulated depreciation (19,403) (18,167)
-------- --------
Total property, plant and equipment 28,354 27,498
-------- --------
Other assets, net of accumulated amortization:
Goodwill 24,749 23,243
Other 5,717 5,406
-------- --------
Total other assets 30,466 28,649
-------- --------
Total Assets $111,731 $111,974
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 10,528 $ 11,695
Accrued liabilities 5,018 6,769
Current maturities of long-term debt 2,079 1,607
-------- --------
Total current liabilities 17,625 20,071
Long-term obligations:
Long-term debt 19,249 17,208
Deferred income taxes 876 876
Minority interest in consolidated subsidiary 796 810
Other 759 1,063
-------- --------
Total liabilities 39,305 40,028
-------- --------
Stockholders' equity:
Common stock, $.02 par value: authorized 20,000,000 shares; 198 198
9,915,117 shares issued
Additional paid-in capital 47,376 47,376
Treasury stock, at cost (1,280,980 and 992,777
shares, respectively) (15,685) (13,557)
Cumulative translation adjustment (196) (19)
Retained earnings 40,733 37,948
-------- --------
Total stockholders' equity 72,426 71,946
-------- --------
Total Liabilities and Stockholders' Equity $111,731 $111,974
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
3
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<PAGE>
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Statements of Stockholders' Equity
-----------------------------------------------
Twenty-Six Weeks Ended May 1, 1999, and May 2, 1998
---------------------------------------------------
(Unaudited)
<CAPTION>
(In thousands, except per share amounts) Additional Cumulative Total
Common Paid-in Treasury Translation Retained Stockholders'
Stock Capital Stock Adjustments Earnings Equity
------- ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 1, 1997 $ 198 $ 47,376 $ (6,855) $ (727) $ 33,272 $ 73,264
Net earnings -- -- -- -- 3,620 3,620
Exercise of stock options -- -- 219 -- (139) 80
Issuance of stock to Employee
Stock Purchase Plan -- -- 30 -- -- 30
Translation adjustments -- -- -- (176) -- (176)
Cash dividends ($.08 per share) -- -- -- -- (734) (734)
Treasury stock purchases -- -- (5,900) -- -- (5,900)
Issuance of stock for business acquisition -- -- 243 -- -- 243
------- ----------- ------------ ---------- ----------- -----------
Balance, May 2, 1998 $ 198 $ 47,376 $ (12,263) $ (903) $ 36,019 $ 70,427
======= =========== ============ ========== =========== ===========
Balance, October 31, 1998 $ 198 $ 47,376 $ (13,557) $ (19) $ 37,948 $ 71,946
Net earnings -- -- -- -- 3,834 3,834
Exercise of stock options -- -- 139 -- (67) 72
Issuance of stock to Employee
Stock Purchase Plan -- -- 574 -- (226) 348
Translation adjustments -- -- -- (177) -- (177)
Cash dividends ($.08 per share) -- -- -- -- (710) (710)
Treasury stock purchases -- -- (3,025) -- -- (3,025)
Issuance of stock for business acquisition -- -- 184 -- (46) 138
------- ----------- ------------ ---------- ----------- -----------
Balance, May 1, 1999 $ 198 $ 47,376 $ (15,685) $ (196) $ 40,733 $ 72,426
======= =========== ============ ========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
4
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<PAGE>
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
<CAPTION>
Twenty-Six Weeks Ended
-------------------------------
(In thousands) May 1, May 2,
1999 1998
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,834 $ 3,620
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,721 1,823
Translation adjustments (177) (176)
Minority interest in consolidated subsidiary (14) (34)
Change in assets and liabilities:
Accounts receivable, net 2,116 2,166
Inventories (2,884) (1,429)
Prepaid expenses and other current assets (340) (1,127)
Other assets, net (221) (221)
Accounts payable (1,167) (1,082)
Accrued liabilities (1,751) (6,510)
Other liabilities (304) --
------- --------
Net cash used in operating activities (1,857) (2,970)
------- --------
Cash flows from investing activities:
Additions to property, plant and equipment, net (1,503) (3,931)
Cost of business acquired, net of cash -- (15,962)
------- --------
Net cash used in investing activities (1,503) (19,893)
------- --------
Cash flows from financing activities:
Additions to (repayment of) long-term debt, net 2,513 15,150
Common stock issuances 558 110
Cash dividends (710) (734)
Treasury stock purchases (3,025) (5,900)
------- --------
Net cash provided by (used in) financing activities (664) 8,626
------- --------
Net decrease in cash and cash equivalents (4,024) (14,237)
Cash and cash equivalents-beginning of period 5,186 16,294
------- --------
Cash and cash equivalents-end of period $ 1,162 $ 2,057
======= ========
Supplemental Cash Flow Information:
Cash paid for interest $ 578 $ 277
======= ========
Cash paid for income taxes $ 2,745 $ 9,770
======= ========
See accompanying notes to consolidated financial statements.
</TABLE>
5
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<PAGE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
Note 1. - Interim Results
The financial statements contained herein are unaudited. In the
opinion of management, these financial statements reflect all
adjustments, consisting only of normal recurring adjustments, which are
necessary for fair presentation of the results of the interim periods
presented. Reference is made to the footnotes to the consolidated
financial statements contained in the Company's Annual Report on Form
10-K for the year ended October 31, 1998, filed with the Securities and
Exchange Commission.
Note 2. - Business Acquisition
The Company's results for the second quarter and twenty-six weeks
ended May 1, 1999 include Howe Furniture Corporation and its
subsidiaries (Howe) for the thirteen and twenty-six week periods. Howe
was acquired during March 1998, and therefore Howe's results of
operation are not included in the reported results for the first quarter
and a portion of the second quarter of 1998.
Note 3. - Comprehensive Income
In June 1997, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards, "Reporting Comprehensive
Income" (SFAS) No. 130, which is the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources; it includes all changes in equity
during the period except those resulting from investments by owners and
distribution to owners. Comprehensive income is the total of all
components of comprehensive income and other comprehensive income,
including net income. Other comprehensive income refers to revenues,
expenses, gains and losses that under GAAP are excluded from net income.
Effective November 1, 1998, the Company adopted SFAS No. 130. For the
Company, the only element of other comprehensive income is cumulative
translation adjustments, arising from the translation of certain balance
sheet accounts from local currency to functional currency.
Comprehensive income was $2.1 million and $1.9 million for the second
quarter ended May 1, 1999, and May 2, 1998, respectively and $3.7
million and $3.4 for the twenty-six week period ending May 1, 1999 and
May 2, 1998, resptectively.
Note 4. - Subsequent Event
On May 5, 1999, the Company entered into a merger agreement to
acquire all of the outstanding shares of Shelby Williams Industries,
Inc. (Shelby Williams) for $16.50 per share in cash. The aggregate
purchase price, excluding transaction costs, for the outstanding Shelby
Williams common stock and the cost of redemption of outstanding Shelby
Williams stock options is expected to be approximately $148 million.
The acquisition will be funded by a Senior Secured Credit Facility
comprised of a $70 million term loan and a $50 million revolving credit
facility, in addition to $100 million of senior subordinated notes. (At
the closing, it is expected that the outstanding current revolver amount
of $19.2 million will be paid off and that the term loan and the notes
will be drawn in full and
6
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<PAGE>
the revolving credit facility will be undrawn.) The Company's domestic
subsidiaries will guarantee the notes on a senior subordinated basis.
The following condensed consolidating financial statements of the
Company include the combined accounts of the Company and its domestic
subsidiaries and the combined accounts of the foreign subsidiaries.
Given the size of the foreign subsidiaries, relative to the Company and
its domestic subsidiaries on a consolidated basis, separate financial
statements of the respective Company and its domestic subsidiaries are
not presented because management has determined that such information is
not material in assessing the Company and its domestic subsidiaries.
<TABLE>
Falcon Products, Inc.
Consolidating Statement of Earnings
For the Thirteen Weeks Ended May 1, 1999
<CAPTION>
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -----
<S> <C> <C> <C> <C>
Net sales $35,161 $4,472 $(3,164) $36,469
Cost of sales 24,940 4,021 (3,164) 25,797
------- ------ ------- -------
Gross margin 10,221 451 - 10,672
Selling, general and administrative 7,179 41 - 7,220
------- ------ ------- -------
Operating profit 3,042 410 - 3,452
Minority interest in consolidated subsidiary 8 - - 8
Interest income (expense) (282) (25) - (307)
------- ------ ------- -------
Earnings before income taxes 2,768 385 - 3,153
Income tax expense 1,095 88 - 1,183
------- ------ ------- -------
Net earnings $ 1,673 $ 297 $ - $ 1,970
======= ====== ======= =======
</TABLE>
<TABLE>
Falcon Products, Inc.
Consolidating Statement of Earnings
For the Thirteen Weeks Ended May 2, 1998
<CAPTION>
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -----
<S> <C> <C> <C> <C>
Net sales $31,525 $5,145 $(3,019) $33,651
Cost of sales 22,432 4,713 (3,019) 24,126
------- ------ ------- -------
Gross margin 9,093 432 - 9,525
Selling, general and administrative 6,022 443 - 6,465
------- ------ ------- -------
Operating profit 3,071 (11) - 3,060
Minority interest in consolidated subsidiary 19 - - 19
Interest income (expense) (75) (15) - (90)
------- ------ ------- -------
Earnings before income taxes 3,015 (26) - 2,989
Income tax expense 1,161 (10) - 1,151
------- ------ ------- -------
Net earnings $ 1,854 $ (16) $ - $ 1,838
======= ====== ======= =======
</TABLE>
7
<PAGE>
<PAGE>
<TABLE>
Falcon Products, Inc.
Consolidating Statement of Earnings
For the Twenty-six Weeks Ended May 1, 1999
<CAPTION>
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -----
<S> <C> <C> <C> <C>
Net sales $67,786 $9,606 $(6,328) $71,064
Cost of sales 48,440 8,378 (6,328) 50,490
------- ------ ------- -------
Gross margin 19,346 1,228 - 20,574
Selling, general and administrative 13,306 527 - 13,833
------- ------ ------- -------
Operating profit 6,040 701 - 6,741
Minority interest in consolidated subsidiary 14 - - 14
Interest income (expense) (566) (30) - (596)
------- ------ ------- -------
Earnings before income taxes 5,488 671 - 6,159
Income tax expense 2,168 157 - 2,325
------- ------ ------- -------
Net earnings $ 3,320 $ 514 $ - $ 3,834
======= ====== ======= =======
</TABLE>
<TABLE>
Falcon Products, Inc.
Consolidating Statement of Earnings
For the Twenty-six Weeks Ended May 2, 1998
<CAPTION>
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -----
<S> <C> <C> <C> <C>
Net sales $58,201 $8,957 $(5,447) $61,711
Cost of sales 40,970 8,529 (5,447) 44,052
------- ------ ------- -------
Gross margin 17,231 428 - 17,659
Selling, general and administrative 11,304 509 - 11,813
------- ------ ------- -------
Operating profit 5,927 (81) - 5,846
Minority interest in consolidated subsidiary 34 - - 34
Interest income (expense) 45 (38) - 7
------- ------ ------- -------
Earnings before income taxes 6,006 (119) - 5,887
Income tax expense 2,312 (45) - 2,267
------- ------ ------- -------
Net earnings $ 3,694 $ (74) $ - $ 3,620
======= ====== ======= =======
</TABLE>
8
<PAGE>
<PAGE>
<TABLE>
Falcon Products, Inc.
Consolidating Balance Sheet
May 1, 1999
<CAPTION>
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -----
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ (31) $ 1,193 - $ 1,162
Accounts receivable 18,185 2,382 - 20,567
Inventories 22,902 4,859 - 27,761
Other current assets 2,891 530 - 3,421
-------- ------- ------- --------
Total current assets 43,947 8,964 - 52,911
Property plant and equipment, net 19,329 9,025 - 28,354
Investment in subsidiaries 7,664 - (7,664) -
Intangibles and other assets 30,466 - - 30,466
-------- ------- ------- --------
Total assets $101,406 $17,989 $(7,664) $111,731
======== ======= ======= ========
Liabilities and Stockholders' Equity
Current liabilities $ 13,056 $ 4,569 $ - $17,625
Long-term debt 19,249 - - 19,249
Other long-term liabilities 2,431 - - 2,431
Intercompany payable (receivable) (5,756) 5,756 - -
-------- ------- ------- --------
Total liabilities 28,980 10,325 - 39,305
-------- ------- ------- --------
Stockholders' equity
Common stock 198 6,446 (6,446) 198
Additional paid-in capital 47,376 925 (925) 47,376
Treasury stock (15,685) - - (15,685)
Cumulative translation adjustment (196) - - (196)
Retained earnings 40,733 293 (293) 40,733
-------- ------- ------- --------
Total stockholders' equity 72,426 7,664 (7,664) 72,426
-------- ------- ------- --------
Total liabilities and stockholders' equity $101,406 $17,989 $(7,664) $111,731
======== ======= ======= ========
</TABLE>
9
<PAGE>
<PAGE>
<TABLE>
Falcon Products, Inc.
Consolidating Balance Sheet
October 31, 1998
<CAPTION>
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -----
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 3,666 $ 1,520 - $ 5,186
Accounts receivable 20,472 2,211 - 22,683
Inventories 20,922 3,955 - 24,877
Other current assets 2,760 321 - 3,081
-------- ------- ------- --------
Total current assets 47,820 8,007 - 55,827
Property plant and equipment, net 18,362 9,136 - 27,498
Investment in subsidiaries 7,150 - (7,150) -
Intangibles and other assets 28,649 - - 28,649
-------- ------- ------- --------
Total assets $101,981 $17,143 $(7,150) $111,974
======== ======= ======= ========
Liabilities and Stockholders' Equity
Current liabilities $ 16,143 $ 3,928 $ - $ 20,071
Long-term debt 17,208 - - 17,208
Other long-term liabilities 2,749 - - 2,749
Intercompany payable (receivable) (6,065) 6,065 - -
-------- ------- ------- --------
Total liabilities 30,035 9,993 - 40,028
-------- ------- ------- --------
Stockholders' equity
Common stock 198 6,446 (6,446) 198
Additional paid-in capital 47,376 925 (925) 47,376
Treasury stock (13,557) - - (13,557)
Cumulative translation adjustment (19) - - (19)
Retained earnings 37,948 (221) 221 37,948
-------- ------- ------- --------
Total stockholders' equity 71,946 7,150 (7,150) 71,946
-------- ------- ------- --------
Total liabilities and stockholders' equity $101,981 $17,143 $(7,150) $111,974
======== ======= ======= ========
</TABLE>
10
<PAGE>
<PAGE>
<TABLE>
Falcon Products, Inc.
Consolidating Statement of Cash Flows
For the Twenty-six Weeks Ended May 1, 1999
<CAPTION>
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -----
<S> <C> <C> <C> <C>
Net cash from operating activities $ (1,444) $ (413) $ - $ (1,857)
Cash flows used in investing activities
Capital expenditures, net (1,589) 86 - (1,503)
-------- ------- ------- --------
Net cash used in investing activities (1,589) 86 - (1,503)
Cash flows used in financing activities
Common stock issuance 558 - - 558
Treasury stock purchases (3,025) - - (3,025)
Cash dividends (710) - - (710)
Additions to (repayment of) long-term
debt, net 2,513 - - 2,513
Net cash used in financing activities (664) - - (664)
-------- ------- ------- --------
Net change in cash and cash equivalents $ (3,697) $ (327) $ - $ (4,024)
======== ======= ======= ========
</TABLE>
<TABLE>
Falcon Products, Inc.
Consolidating Statement of Cash Flows
For the Twenty-six Weeks Ended May 2, 1998
<CAPTION>
Total Total
Domestic Foreign Eliminations Total
-------- ------- ------------ -----
<S> <C> <C> <C> <C>
Net cash from operating activities $ (1,411) $(1,559) $ - $ (2,970)
Cash flows used in investing activities
Acquisition, net of cash (15,962) - - (15,962)
Capital expenditures, net (4,548) 617 - (3,931)
-------- ------- ------- --------
Net cash used in investing activities (20,510) 617 - (19,893)
Cash flows used in financing activities
Common stock issuance 110 - - 110
Treasury stock purchases (5,900) - - (5,900)
Cash dividends (734) - - (734)
Additions to (repayment of) long-term
debt, net 15,150 - - 15,150
-------- ------- ------- --------
Net cash used in financing activities 8,626 - - 8,626
-------- ------- ------- --------
Net change in cash and cash equivalents $(13,295) $ (942) $ - $(14,237)
======== ======= ======= ========
</TABLE>
11
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<PAGE>
Item 2. - Management's Discussion and Analysis of Results of Operations
-------------------------------------------------------------
and Financial Condition
-----------------------
The information contained in this Item 2 includes statements
regarding matters which are not historical facts (including statements
as to the Company's plans, beliefs or expectations) that are forward-
looking statements within the meaning of the federal securities laws.
Because such forward-looking statements involve certain risks and
uncertainties, the Company's actual results and the timing of certain
events could differ materially from those discussed herein.
RESULTS OF OPERATIONS
General
The following table sets forth, for the periods presented, certain
information relating to the operations of the Company, expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
May 1, May 2, May 1, May 2,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 70.7 71.7 71.0 71.4
------ ------ ------ ------
Gross margin 29.3 28.3 29.0 28.6
Selling, general and administrative expenses 19.8 19.2 19.5 19.1
------ ------ ------ ------
Operating profit 9.5 9.1 9.5 9.5
Interest income (expense), net and other (0.8) (0.2) (0.8) 0.1
------ ------ ------ ------
Earnings before income taxes 8.7 8.9 8.7 9.5
Income tax expense 3.3 3.4 3.3 3.7
------ ------ ------ ------
Net earnings 5.4% 5.5% 5.4% 5.9%
====== ====== ====== ======
</TABLE>
Thirteen weeks ended May 1, 1999, compared to the thirteen weeks ended
May 2, 1998
Net earnings were a record $2.0 million or $0.23 per share in the
second quarter of 1999, compared to $1.8 million or $0.20 per share in
1998, an increase in net earnings of 7.2% and an increase in earnings
per share of 15.0%.
Net sales for the second quarter of 1999 were $36.5 million, an
increase of 8.4% over 1998 second quarter net sales of $33.7 million.
The increase was primarily due to additional sales related to the Howe
acquisition and increased demand in the national accounts market which
were partially offset by lower casegoods sales in the lodging market.
This was following the Company's previous decision to exit the hotel
casegoods market.
Cost of sales was $25.8 million for the 1999 second quarter, an
increase of 6.9% from $24.1 million in the second quarter of 1998. The
overall increase is a result of the increased sales volume. Gross
margin increased to $10.7 million for the second quarter of 1999, a
12.0% increase from $9.5 million in the same quarter of 1998. Gross
margin as a percentage of net sales increased to 29.3% in 1999 from
28.3% in 1998. The higher gross margin percentage during the second
quarter of 1999 was due primarily to the increased Howe sales and lower
sales of casegoods, which was partially offset by operating
inefficiencies in the City of Industry, California and Tijuana, Mexico
facilities.
12
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<PAGE>
Selling, general and administrative expenses were $7.2 million in the
second quarter of 1999, compared to $6.5 million in the second quarter
of 1998, an 11.7% increase. Selling, general and administrative
expenses as a percentage of net sales, increased to 19.8% for the second
quarter of 1999 as compared to 19.2% for the same period of 1998. The
increase from the prior year is principally related to the Howe
acquisition and increased selling costs, customer support costs, and
increased marketing expenditures related to the higher sales volume.
The increase in expense rate is primarily due to additional management
bonus program expense and increased telephone costs.
Net interest expense was $0.3 million for the second quarter of 1999,
versus $0.1 million for the comparable period in 1998. Financing
related to the Howe acquisition accounted for the increase in borrowing
costs. Income tax expense was $1.2 million for the second quarter of
both 1999 and 1998.
Twenty-six weeks ended May 1, 1999, compared to the twenty-six weeks
ended May 2, 1998
Net earnings were $3.8 million or $0.43 per share in the first half
of 1999, compared to $3.6 million or $0.38 per share in 1998, an
increase in net earnings of 5.9% and an increase in earnings per share
of 13.2%.
Net sales for the first half of 1999 were $71.1 million, an increase
of 15.2% over net sales of $61.7 million recorded for the same period in
1998. Net sales increased due to growth in the national accounts and
contract/office markets and the Howe acquisition which were partially
offset by lower casegoods sales. This was following the Company's
previous decision to exit the hotel casegoods market.
Cost of sales was $50.5 million for the first half of 1999, an
increase of 14.6% from $44.1 million in the first half of 1998. The
overall increase is primarily related to the increased sales volume.
Gross margin increased to $20.6 million for the first half of 1999, a
16.5% increase from $17.7 million in the same period of 1998. Gross
margin as a percentage of net sales increased to 29.0% in 1999 from
28.6% in 1998. The higher gross margin percentage during the first half
of 1999 was due primarily to the increased Howe sales and lower sales of
casegoods, which was partially offset by operating inefficiencies in the
City of Industry, California and Tijuana, Mexico facilities.
Selling, general and administrative expenses were $13.8 million in
the first half of 1999, compared to $11.8 million in 1998, a 17.1%
increase. The overall increase is primarily due to the Howe acquisition
and increased selling costs, customer support costs, and increased
marketing expenditures related to the higher sales volume. Selling,
general and administrative expenses as a percentage of net sales
increased to 19.5% for the first half of 1999, as compared to 19.1% for
the same period of 1998. The increase in expense rate is primarily due
to additional management bonus program expense and increased telephone
costs.
Net interest expense was $0.6 million for the first half of 1999,
versus net interest income of $7,000 for the comparable period in 1998.
Financing costs associated with the Howe acquisition caused the change
from interest income to interest expense. Income tax expense was $2.3
million for the first half of 1999 and 1998.
13
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at May 1, 1999, was $35.3 million and
its ratio of current assets to current liabilities was 3.0 to 1.0,
compared with $35.8 million and 2.8 to 1.0 at October 31, 1998.
In connection with the Howe acquisition, the Company entered into a
unsecured $20.0 million revolving line of credit expiring April 22,
2000. The rate of interest on borrowings under this agreement is, at
the Company's option, the Prime Rate, Federal Funds Rate or LIBOR
adjusted for a spread based upon the Company's leverage ratio. The
variable interest rate was 6.3% at May 1, 1999. Under the revolving
line of credit agreement, the Company must comply with certain covenants
including, but not limited to, the maintenance of specific ratios.
At May 1, 1999, $19.2 million was outstanding under the $20.0
million revolving line of credit.
The Company expects that it will meet its ongoing working capital and
capital requirements from a combination of internally generated funds,
available cash reserves and available borrowings under its revolving
credit facility. The Company's operating cash flows constitute its
primary source of liquidity.
During the first two quarters of 1999, the Company repurchased
349,100 shares of its common stock for a total cost of approximately
$3.0 million. The Company is authorized to purchase up to an additional
440,000 shares of its common stock under stock repurchase programs
authorized by the Board of Directors.
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
-----------------
From time to time, the Company is subject to legal proceedings and
other claims arising in the ordinary course of its business. The
Company maintains insurance coverage against potential claims in an
amount it believes to be adequate. There are no material pending legal
proceedings, other than routine litigation incidental to the business,
to which the Company is a party or of which any of the Company's
property is the subject.
Item 2. - Changes in Securities
---------------------
None.
Item 3. - Defaults Upon Senior Securities
-------------------------------
None.
Item 4. - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its Annual Meeting of Stockholders on March
10, 1999, for the purposes of electing three Class C
directors for a term expiring in 2002
14
<PAGE>
<PAGE>
The number of votes for and withheld for each nominee for
director are as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- --------- --------------
<S> <C> <C>
Donald P. Gallop 6,476,876 178,655
Franklin A. Jacobs 6,476,359 179,172
S. Lee Kling 6,477,176 178,355
</TABLE>
Item 5. - Other Information
-----------------
None.
Item 6. - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial data schedule (filed in EDGAR
version only)
(b) Reports on Form 8-K
May 12, 1999 - Reporting the commencement of a cash
tender offer to acquire Shelby Williams Industries, Inc.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
FALCON PRODUCTS, INC.
---------------------
(Registrant)
Date: June 4, 1999 /s/ Franklin A. Jacobs
----------------------
Franklin A. Jacobs
Chief Executive Officer
and Chairman of the Board
Date: June 4, 1999 /s/ Michael J. Dreller
----------------------
Michael J. Dreller
Vice President and
Chief Financial Officer
15
<PAGE>
EXHIBIT 11
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<CAPTION>
(In thousands, except share and per share Thirteen Weeks Twenty-Six Weeks
amounts) Ended Ended
------------------ ------------------
May 1, May 2, May 1, May 2,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic Earnings Per Share:
- -------------------------
Average number of common shares outstanding 8,684 9,197 8,951 9,272
Net earnings $1,970 $1,838 $3,834 $3,620
====== ====== ====== ======
Earnings per share $ .23 $ .20 $ .43 $ .38
====== ====== ====== ======
Diluted Earnings Per Share:
- ---------------------------
Average number of common shares outstanding 8,684 9,197 8,951 9,272
Assumed exercise of options
(treasury stock method) 20 122 49 158
------ ------ ------ ------
Shares for diluted computation 8,704 9,319 9,000 9,430
====== ====== ====== ======
Net earnings $1,970 $1,838 $3,834 $3,620
====== ====== ====== ======
Earnings per share $ .23 $ .20 $ .43 $ .38
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from SEC Form 10-Q for the quarterly period
ended May 1, 1999 and is qualified in its entirety by
reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> MAY-01-1999
<CASH> 1,162
<SECURITIES> 0
<RECEIVABLES> 20,567
<ALLOWANCES> 450
<INVENTORY> 27,761
<CURRENT-ASSETS> 52,911
<PP&E> 28,354
<DEPRECIATION> 19,403
<TOTAL-ASSETS> 111,731
<CURRENT-LIABILITIES> 17,625
<BONDS> 0
<COMMON> 198
0
0
<OTHER-SE> 72,426
<TOTAL-LIABILITY-AND-EQUITY> 111,731
<SALES> 71,064
<TOTAL-REVENUES> 71,064
<CGS> 50,490
<TOTAL-COSTS> 50,490
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 598
<INCOME-PRETAX> 6,157
<INCOME-TAX> 2,324
<INCOME-CONTINUING> 3,834
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,834
<EPS-BASIC> 0.23
<EPS-DILUTED> 0.23
</TABLE>
