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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 July 31, 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, (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
--- ---
As of September 14, 1999, the registrant had 8,643,016 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 Thirty-Nine Weeks Ended
------------------------ ------------------------
(In thousands, except per share data) July 31, August 1, July 31, August 1,
1999 1998 1999 1998
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $59,884 $41,297 $130,948 $103,008
Cost of sales, including special and nonrecurring items 46,567 32,073 97,058 76,125
Special and nonrecurring items 10,500 111 10,500 111
Selling, general and administrative expenses 10,575 8,545 24,407 20,358
------- ------- -------- --------
Operating profit (loss) (7,758) 568 (1,017) 6,414
Interest expense, net 2,227 243 2,823 236
Minority interest in consolidated subsidiary 3 (26) (11) (60)
------- ------- -------- --------
Earnings (loss) before income taxes (9,988) 351 (3,829) 6,238
Income taxes (3,759) 135 (1,435) 2,402
------- ------- -------- --------
Net earnings (loss) $(6,229) $ 216 $ (2,394) $ 3,836
======= ======= ======== ========
Earnings (loss) per share:
Basic $ (0.72) $ 0.02 $ (0.27) $ 0.41
======= ======= ======== ========
Diluted $ (0.71) $ 0.02 $ (0.27) $ 0.41
======= ======= ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
2
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<TABLE>
Falcon Products, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
July 31, October 31,
(In thousands, except share data) 1999 1998
--------- -----------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 7,324 $ 5,186
Accounts receivable, less allowances
of $1,273 and $672, respectively 41,434 22,683
Inventories 55,660 24,877
Prepayments and other current assets 6,671 3,081
-------- --------
Total current assets 111,089 55,827
-------- --------
Property, plant and equipment:
Land 3,621 2,116
Buildings and improvements 28,162 11,395
Machinery and equipment 44,711 32,154
-------- --------
76,494 45,665
Less accumulated depreciation (20,580) (18,167)
-------- --------
Total property, plant and equipment 55,914 27,498
-------- --------
Other assets, net of accumulated amortization:
Goodwill 122,475 23,243
Other 11,984 5,406
-------- --------
Total other assets 134,459 28,649
-------- --------
Total Assets $301,462 $111,974
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 30,531 $ 11,695
Accrued liabilities 27,414 6,769
Current maturities of long-term debt 2,809 1,607
-------- --------
Total current liabilities 60,754 20,071
Long-term obligations:
Long-term debt 170,224 17,208
Deferred income taxes 2,896 876
Minority interest in consolidated subsidiary 799 810
Other 609 1,063
-------- --------
Total liabilities 235,282 40,028
-------- --------
Stockholders' equity:
Common stock, $.02 par value: authorized 20,000,000
shares; 9,915,117 shares issued 198 198
Additional paid-in capital 47,376 47,376
Treasury stock, at cost (1,272,101 and 992,777 shares,
respectively) (15,647) (13,557)
Cumulative translation adjustment (241) (19)
Retained earnings 34,494 37,948
-------- --------
Total stockholders' equity 66,180 71,946
-------- --------
Total Liabilities and Stockholders' Equity $301,462 $111,974
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
3
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<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Statements of Stockholders' Equity
-----------------------------------------------
Thirty-Nine Weeks Ended July 31, 1999, and August 1, 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 $73,264
Net earnings -- -- -- -- 3,836 3,836
Exercise of stock options -- -- 324 -- (217) 107
Issuance of stock to Employee
Stock Purchase Plan -- -- 30 -- -- 30
Translation adjustments -- -- -- (134) -- (134)
Cash dividends ($.12 per share) -- -- -- -- (1,098) (1,098)
Treasury stock purchases -- -- (5,945) -- -- (5,945)
Issuance of stock for business acquisition -- -- 338 -- -- 338
---- ------- -------- ------ ------- -------
Balance, August 1, 1998 $198 $47,376 $(12,108) $ (861) $35,793 $70,398
==== ======= ======== ====== ======= =======
Balance, October 31, 1998 $198 $47,376 $(13,557) $ (19) $37,948 $71,946
Net earnings -- -- -- -- (2,394) (2,394)
Exercise of stock options -- -- 177 -- (77) (77)
Issuance of stock to Employee
Stock Purchase Plan -- -- 574 -- (226) 348
Translation adjustments -- -- -- (222) -- (222)
Cash dividends ($.12 per share) -- -- -- -- (710) (710)
Treasury stock purchases -- -- (3,025) -- -- (3,025)
Issuance of stock for business acquisition -- -- 184 -- (47) 137
---- ------- -------- ------ ------- -------
Balance, July 31, 1999 $198 $47,376 $(15,647) $ (241) $34,494 $66,180
==== ======= ======== ====== ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
4
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<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
<CAPTION>
Thirty-Nine Weeks Ended
----------------------------
(In thousands) July 31, August 1,
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ (2,394) $ 3,836
Adjustments to reconcile net earnings to net cash:
Depreciation and amortization 3,491 3,184
Gain on sale of building -- (1,289)
Special and non-recurring items 14,000 4,650
Translation adjustments (222) (134)
Minority interest in consolidated subsidiary (11) (62)
Change in assets and liabilities:
Accounts receivable, net (1,296) (1,045)
Inventories 1,328 (4,105)
Prepaid expenses and other current assets (1,697) 17
Other assets, net 685 (1,280)
Accounts payable 392 (10)
Accrued liabilities (14,880) (6,926)
Other liabilities (454) --
--------- --------
Net cash used in operating activities (1,058) (3,164)
--------- --------
Cash flows from investing activities:
Cost of business acquired, net of cash (137,101) (15,962)
Net proceeds from sale of building -- 5,170
Additions to property, plant and equipment, net (4,189) (5,135)
--------- --------
Net cash used in investing activities (141,290) (15,927)
--------- --------
Cash flows from financing activities:
Additions to (repayment of) long-term debt, net 154,218 11,473
Debt issuance costs (6,582) --
Common stock issuances 585 137
Cash dividends (710) (1,098)
Treasury stock purchases (3,025) (5,945)
--------- --------
Net cash provided by financing activities 144,486 4,567
--------- --------
Net decrease in cash and cash equivalents 2,138 (14,524)
Cash and cash equivalents-beginning of period 5,186 16,294
--------- --------
Cash and cash equivalents-end of period $ 7,324 $ 1,770
========= ========
Supplemental Cash Flow Information:
Cash paid for interest $ 824 $ 423
========= ========
Cash paid for income taxes $ 5,965 $ 4,985
========= ========
See accompanying notes to consolidated financial statements.
</TABLE>
5
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Falcon Products, Inc. and Subsidiaries
--------------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
Thirty-Nine Weeks Ended July 31, 1999
-------------------------------------
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 Acquisitions
On June 18, 1999, the Company acquired all of the common stock of
Shelby Williams Industries, Inc. and its subsidiaries ("Shelby
Williams") for a cash price of $137.1 million. Shelby Williams is a
leading manufacturer of contract seating for the commercial contract
furniture market. The Company used the purchase method of accounting to
record this acquisition. Accordingly, results of operations have been
included in the financial statements from the date of acquisition. The
purchase price was allocated to the assets and liabilities (on a
preliminary basis) based on estimated fair values at the date of
acquisition. This resulted in an excess of purchase price over assets
acquired of $92.9 million, which is being amortized on a straight line
basis over 40 years.
Following are the Company's unaudited pro forma results assuming
the acquisition occurred on November 1, 1997:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
----------------------- ------------------------
(In thousands, except per share amounts) July 31, August 1, July 31, August 1,
1999 1998 1999 1998
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $77,756 $80,455 $234,267 $220,423
Net earnings (loss) (188) 1,574 2,438 3,770
Basic and diluted earnings (loss) per share (0.02) 0.17 0.27 0.40
</TABLE>
These unaudited pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the
results of operations which would have actually resulted had the
combination been in effect on November 1, 1997, or of future results
of operations.
The Company's results for the third quarter and thirty-nine weeks
ended July 31, 1999 include Howe Furniture Corporation and its
subsidiaries (Howe) for the thirteen and thirty-nine 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.
6
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Note 3. - Special and Non-recurring Items
In conjunction with the acquisition of Shelby Williams, the
Company recorded a third-quarter integration charge of $14.0 million,
$8.5 million after taxes to cover the anticipated costs of combining its
existing business with the acquired business. The charge relates to
closing certain manufacturing facilities and transferring production
from the closed facilities into the Company's existing facilities. This
one-time charge includes costs associated with asset write-downs and
dispositions, real estate exit costs, employee severance, and other
related costs associated with exiting the closed facilities. Cost of
sales includes a $3.3 million charge to writedown the carrying value of
inventory with the remaining components of the charge being reported in
the Special and Nonrecurring Items, net of the accompanying Consolidated
Statement of Earnings.
A summary of activity related to the strategic initiatives is as
follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
----------------------- ------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Balance, beginning of period $ -- $ -- $ -- $ --
Charges to operations:
Facility shut-down costs 11,575 -- 11,575 --
Real estate exit costs 975 -- 975 --
Severance costs 1,450 -- 1,450 --
------- ------- ------- ------
14,000 -- 14,000 --
Charges to operations:
Facility shut-down costs 5,516 -- 5,516 --
Real estate exit costs 26 -- 26 --
Severance costs 26 -- 26 --
------- ------- ------- ------
5,568 -- 5,568 --
------- ------- ------- ------
Balance, end of period $ 8,432 $ -- $ 8,432 $ --
======= ======= ======= ======
</TABLE>
Note 4. - Long-Term Obligations
In June 1999, the Company entered into a new $120.0 million senior
secured credit facility (the "Senior Secured Credit Facility") with a
group of financial institutions which provides for (1) a six year term
loan of $70.0 million (the "Term Loan") used to finance the acquisition
of Shelby Williams, the refinancing of existing debt in aggregate
principal amount of approximately $20.2 million (plus accrued interest)
and fees and expenses associated with the Shelby Williams transactions
and (2) a six year revolving credit facility of up to $50.0 million (the
"Revolving Credit Facility") for working capital and general corporate
purposes, including to fund possible acquisitions.
The loans outstanding under the Senior Secured Credit Facility
bear interest at the Company's option, at (1) the London Interbank
Offered Rate ("LIBOR") plus the applicable margin, or (2) the greater
of the Prime Rate and the rate which is 1% in excess of the rates on
overnight Federal funds transactions as published by the Federal Reserve
Bank of New York (the "Base Rate"), plus the applicable margin. The
applicable margin will be determined based on total leverage ratio. For
the Revolving Credit Facility and the Term Loan, the applicable margin
will range from 1.75% to 2.50% for LIBOR borrowings and from 0.75% to
1.50% for Base Rate borrowings. The Company is required to
7
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obtain and maintain until June 18, 2001 one or more interest rate
agreements with respect to the Term Loan to convert the fluctuating
interest rate obligations to fixed interest rate obligations in an
aggregate principal amount of not less than 50% of the amount of the
Term Loan outstanding on June 18, 1999.
The Company's Term Loan matures in quarterly installments
beginning July 31, 2000, with $3.5 million due in fiscal year 2000, $8.8
in fiscal year 2001, $12.3 million in fiscal year 2002, $15.8 million in
fiscal year 2003, $19.0 million in fiscal year 2004, and $10.6 million
in fiscal year 2005.
Concurrently with entering into the Senior Secured Credit
Facility, the Company issued $100.0 million of 11 3/8% Senior
Subordinated Notes Series A (the "Series A Notes") due June 15, 2009,
with interest payable semiannually commencing December 15, 1999.
The proceeds from the issuance were used in conjunction with the Senior
Secured Credit Facility to finance the Shelby Williams acquisition along
with the fees and expenses associated with the acquisition. At any time
prior to June 15, 2002, the Company may redeem up to 35% of the aggregate
principle amount at a redemption price of 111.375% of the principal amount,
with the net cash proceeds from public equity offerings.
Under the terms of the Senior Secured Credit Facility and the Indentures
as amended, pursuant to which the Notes have been issued (the "Indenture") the
Company must comply with certain covenants including, but not limited
to, those relating to the payment of dividends and the maintenance of
specific ratios.
Note 5. - 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 (loss) was ($6.0) million and $0.2 million for the third quarter
ended July 31, 1999, and August 1, 1998, respectively and ($2.2) million
and $3.4 for the thirty-nine week period ending July 31, 1999 and
August 1, 1998, respectively.
Note 6. - Subsequent Event
On August 30, 1999, the Company completed its offer to exchange its
11 3/8% Senior Subordinated Notes due June 15, 2009, Series B (the "Series B
Notes") for its outstanding Series A Notes (the "Exchange Offer"). The terms
of the Series B Notes are the same as the terms of the Series A Notes, except
that the Series B Notes have been registered under the Securities Act of 1933,
as amended, and the holders of the Series B Notes are not entitled to any
exchange or registration rights with respect thereto. All of the outstanding
Series A Notes were exchanged for Series B Notes pursuant to the Exchange
Offer. As used herein, the term "Notes" means (i) the Series A Notes until
the expiration of the Exchange Offer at 12:00 midnight on August 30, 1999,
and (ii) the Series B Notes from and after the expiration of the Exchange
Offer.
Note 7. - Guarantor Subsidiaries
All of the Company's existing domestic subsidiaries have guaranteed, and
future domestic subsidiaries will guarantee, the Senior Secured Credit Facility.
A first priority security interest in substantially all of the Company's
properties and assets and the assets of its existing and future domestic
subsidiaries (and all of its non-United States subsidiaries to the extent
doing so would not result in material increased tax or similar liabilities to
the Company or its subsidiaries), including a pledge of all of the stock of
the Company's domestic subsidiaries and 66% of the stock of its foreign
subsidiaries, secures the Senior Secured Credit Facility.
The Notes are fully and unconditionally (as well as jointly and
severally) guaranteed on an unsecured, senior subordinated basis by each
subsidiary of the Company (the "Guarantor Subsidiaries") other than Howe
Europe a/s., Falcon Products China Limited, Falcon Mimon a/s., Falcon De
Juarez, S.A. de C.V., Falcon De Baja California, S.A. de C.V. and
Industrial Mueblera Shelby Willimas, S.A. de C.V. (the "Non-Guarantor
Subsidiaries"). Each of the Guarantor Subsidiaries and Non-Guarantor
Subsidiaries is wholly owned by the Company.
8
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The following condensed consolidating financial statements of the
Company include the combined accounts of the Company and its Guarantor
subsidiaries and the combined accounts of the Non-Guarantor
subsidiaries. Given the size of the Non-Guarantor subsidiaries,
relative to the Company and its Guarantor subsidiaries on a consolidated
basis, separate financial statements of the respective Company and its
Guarantor subsidiaries are not presented because management has
determined that such information is not material in assessing the
Company and its Guarantor subsidiaries.
<TABLE>
Falcon Products, Inc.
Consolidating Statement of Earnings
For the Thirteen Weeks Ended July 31, 1999
<CAPTION>
Total Total
Guarantor Non-Guarantor Eliminations Total
--------- ------------- ------------ -------
<S> <C> <C> <C> <C>
Net sales $ 59,201 $4,318 $(3,635) $59,884
Cost of sales, including nonrecurring items 46,595 3,607 (3,635) 46,567
Special and nonrecurring items 10,500 - - 10,500
Selling, general and administrative 10,115 460 - 10,575
-------- ------ ------- -------
Operating profit (8,009) 251 - (7,758)
Minority interest in consolidated subsidiary (3) - - (3)
Interest income (expense) (2,198) (29) - (2,227)
-------- ------ ------- -------
Net earnings before income taxes (10,210) 222 - (9,988)
Income tax expense (3,813) 54 - (3,759)
-------- ------ ------- -------
Net earnings $ (6,397) $ 168 $ - $(6,229)
======== ====== ======= =======
</TABLE>
<TABLE>
Falcon Products, Inc.
Consolidating Statement of Earnings
For the Thirteen Weeks Ended August 1, 1998
<CAPTION>
Total Total
Guarantor Non-Guarantor Eliminations Total
--------- ------------- ------------ -------
<S> <C> <C> <C> <C>
Net sales $38,840 $5,970 $(3,513) $41,297
Cost of sales, including nonrecurring items 30,091 5,495 (3,513) 32,073
Special and nonrecurring items 111 - - 111
Selling, general and administrative 8,003 542 - 8,545
-------- ------ ------- -------
Operating profit 635 (67) - 568
Minority interest in consolidated subsidiary 26 - - 26
Interest income (expense) (226) (17) - (243)
-------- ------ ------- -------
Earnings before income taxes 435 (84) - 351
Income tax expense 96 39 - 135
-------- ------ ------- -------
Net earnings $ 339 $ (123) $ - $ 216
======== ====== ======= =======
</TABLE>
9
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<TABLE>
Falcon Products, Inc.
Consolidating Statement of Earnings
For the Thirty-Nine Weeks Ended July 31, 1999
<CAPTION>
Total Total
Guarantor Non-Guarantor Eliminations Total
--------- ------------- ------------ --------
<S> <C> <C> <C> <C>
Net sales $126,986 $13,924 $(9,962) $130,948
Cost of sales, including nonrecurring items 94,815 12,205 (9,962) 97,058
Special and nonrecurring items 10,500 - - 10,500
Selling, general and administrative 23,310 1,097 - 24,407
-------- ------- ------- --------
Operating profit (1,639) 622 - (1,017)
Minority interest in consolidated subsidiary 11 - - 11
Interest income (expense) (2,882) 59 - (2,823)
-------- ------- ------- --------
Net earnings before income taxes (4,510) 681 - (3,829)
Income tax expense (1,646) 211 - (1,435)
-------- ------- ------- --------
Net earnings $ (2,864) $ 470 $ - $ (2,394)
======== ======= ======= ========
</TABLE>
<TABLE>
Falcon Products, Inc.
Consolidating Statement of Earnings
For the Thirty-Nine Weeks Ended August 1, 1998
<CAPTION>
Total Total
Guarantor Non-Guarantor Eliminations Total
--------- ------------- ------------ --------
<S> <C> <C> <C> <C>
Net sales $97,039 $14,928 $(8,959) $103,008
Cost of sales, including nonrecurring items 71,525 13,559 (8,959) 76,125
Special and nonrecurring items 111 - - 111
Selling, general and administrative 19,307 1,051 - 20,358
------- ------- ------- --------
Operating profit 6,096 318 - 6,414
Minority interest in consolidated subsidiary 60 - - 60
Interest income (expense) (181) (55) - (236)
------- ------- ------- --------
Net earnings before income taxes 5,975 263 - 6,238
Income tax expense 2,334 68 - 2,402
------- ------- ------- --------
Net earnings $ 3,641 $ 195 $ - $ 3,836
======= ======= ======= ========
</TABLE>
10
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<TABLE>
Falcon Products, Inc.
Consolidating Balance Sheet
July 31, 1999
<CAPTION>
Total Total
Guarantor Non-Guarantor Eliminations Total
--------- ------------- ------------ --------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 5,958 $ 1,366 - $ 7,324
Accounts receivable 39,703 1,731 - 41,434
Inventory 50,672 4,988 - 55,660
Other assets 4,821 1,850 - 6,671
-------- ------- -------- --------
Total current assets 101,154 9,935 - 111,089
Property plant and equipment, net 44,172 11,742 - 55,914
Investment in subsidiaries 10,408 - (10,408) -
Intangibles and other assets 134,459 - - 134,459
-------- ------- -------- --------
Total assets $290,193 $21,677 $(10,408) $301,462
======== ======= ======== ========
Liabilities and Stockholders' Equity
Current liabilities $ 55,901 $4,853 $ - $ 60,754
Long-term debt 170,224 - - 170,224
Other long-term liabilities 4,304 - - 4,304
Intercompany payable (receivable) (6,416) 6,416 - -
-------- ------- -------- --------
Total liabilities 224,013 11,269 - 235,282
-------- ------- -------- --------
Stockholders' equity
Common stock 198 9,144 (9,144) 198
Additional paid-in capital 47,376 1,015 (1,015) 47,376
Treasury stock (15,647) - - (15,647)
Cumulative translation adjustment (241) - - (241)
Retained earnings 34,494 249 (249) 34,494
-------- ------- -------- --------
Total stockholders' equity 66,180 10,408 (10,408) 66,180
-------- ------- -------- --------
Total liabilities and stockholders' equity $290,193 $21,677 $(10,408) $301,462
======== ======= ======== ========
</TABLE>
11
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<TABLE>
Falcon Products, Inc.
Consolidating Balance Sheet
October 31, 1998
<CAPTION>
Total Total
Guarantor Non-Guarantor 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>
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<TABLE>
Falcon Products, Inc.
Consolidating Statement of Cash Flows
For the Thirty-Nine Weeks Ended July 31, 1999
<CAPTION>
Total Total
Guarantor Non-Guarantor Eliminations Total
--------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities $ (966) $ (92) $ - $ (1,058)
Cash flows used in investing activities
Acquisition, net of cash (136,870) (231) - (137,101)
Capital expenditures, net (4,358) 169 - (4,189)
--------- ----- ----- ---------
Net cash provided by (used in) investing activities (141,228) (62) - (141,290)
Cash flows used in financing activities
Common stock issuance 585 - - 585
Treasury stock purchases (3,025) - - (3,025)
Cash dividends (710) - - (710)
Additions to (repayment of) long-term debt, net 154,218 - - 154,218
Debt issuance costs (6,582) - - (6,582)
--------- ----- ----- ---------
Net cash provided by (used in) financing activities 144,486 - - 144,486
--------- ----- ----- ---------
Net change in cash and cash equivalents $ 2,292 $(154) $ - $ 2,138
========= ===== ===== =========
</TABLE>
<TABLE>
Falcon Products, Inc.
Consolidating Statement of Cash Flows
For the Thirty-Nine Weeks Ended August 1, 1998
<CAPTION>
Total Total
Guarantor Non-Guarantor Eliminations Total
--------- ------------- ------------ --------
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities $ (1,869) $(1,295) $ - $ (3,164)
Cash flows used in investing activities
Acquisition, net of cash (15,962) - - (15,962)
Capital expenditures, net (697) 732 - 35
-------- ------- ----- --------
Net cash provided by (used in) investing activities (16,659) 732 - (15,927)
Cash flows used in financing activities
Common stock issuance 137 - - 137
Treasury stock purchases (5,945) - - (5,945)
Cash dividends (1,098) - - (1,098)
Additions to (repayment of) long-term debt, net 11,473 - - 11,473
-------- ------- ----- --------
Net cash provided by (used in) financing activities $ 4,567 $ - - $ 4,567
-------- ------- ----- --------
Net change in cash and cash equivalents $(13,961) $ (563) $ - $(14,524)
======== ======= ===== ========
</TABLE>
13
<PAGE>
<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 Thirty-Nine Weeks Ended
--------------------------- --------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including nonrecurring item 77.8 77.7 74.1 73.9
Nonrecurring item 17.5 0.3 8.0 0.1
Selling, general and administrative expenses 17.7 20.7 18.6 19.8
----- ----- ----- -----
Operating (loss) profit (13.0) 1.3 (0.7) 6.2
Interest income (expense), net and other (3.7) (0.5) (2.2) (0.2)
----- ----- ----- -----
Earnings (loss) before income taxes (16.7) 0.8 (2.9) 6.0
Income tax expense (6.3) 0.3 (1.1) 2.3
----- ----- ----- -----
Net earnings (loss) from operations (10.4)% 0.5% (1.8)% 3.7%
===== ===== ===== =====
</TABLE>
Thirteen weeks ended July 31, 1999, compared to the thirteen weeks ended
August 1, 1998.
The Company recorded pre-tax nonrecurring charges of $14.0 million
and $4.7 million during the third quarter of 1999 and 1998, respectively.
The 1999 charge related to costs associated with certain strategic initiatives
in connection with the acquisition of Shelby Williams and included a $3.5
million charge to writedown the carrying value of inventory, which is included
in cost of sales. The 1998 charge related to certain costs associated with
exiting the hotel casegoods line of business. This charge was partially offset
from gain on the sale of the Company's headquarters building and included $3.3
million to writedown the carrying value of inventory, which is included in cost
of sales.
The Company had a net loss of $6.2 million in the third quarter of
1999, compared to net earnings of $0.2 million in 1998. The decrease in
net earnings is attributable to the special and nonrecurring charges
described above. Net earnings, before the special and nonrecurring
items, were $2.5 million, or $0.28 per share, in the third quarter of
1999, compared with $2.3 million, or $0.25 earnings per share for 1998,
an increase of 7.4% and 12.0%, respectively.
14
<PAGE>
<PAGE>
Net sales for the third quarter of 1999 were $59.9 million, an
increase of 45.0% over 1998 third quarter net sales of $41.3 million.
The increase was primarily due to the acquisition of Shelby Williams
which occurred in the third quarter of 1999, which was partially offset
by a decline in casegoods sales in the lodging market. This was
following the Company's previous decision to exit the hotel casegoods
market.
Cost of sales was $46.6 million for the 1999 third quarter, an
increase of 45.2% from $32.1 million in the third quarter of 1998.
Excluding the special and nonrecurring items, cost of sales was $43.1
million for the 1999 third quarter compared to $28.8 million in 1998,
an increase of 49.7%. The overall increase is primarily the result of
increased sales volume related to the Shelby Williams acquisition,
operating inefficiencies and product mix. Excluding the special and
nonrecurring charges, gross margin increased to $16.8 million for the
third quarter of 1999, a 9.8% increase from $12.3 million in the same
quarter of 1998. Gross margin as a percentage of net sales decreased
to 28.1% in 1999 from 29.8% in 1998. The lower gross margin percentage
during the third quarter of 1999 was primarily due to operating
inefficiencies at the City of Industry, California and Tijuana, Mexico
facilities in addition to product mix.
Selling, general and administrative expenses were $10.6 million in
the third quarter of 1999, compared to $8.5 million in the third quarter
of 1998, a 23.8% increase. The increase is due to the Shelby Williams
acquisition. Selling, general and administrative expenses as a percentage
of net sales, decreased to 17.7% for the third quarter of 1999 as compared
to 20.7% for the same period of 1998. The decrease in the expense rate in
1999 is primarily the result of increased sales. In addition, Shelby Williams
had a historical lower expense rate than that of the Company's.
Thirty-nine weeks ended July 31, 1999, compared to the thirty-nine weeks
ended August 1, 1998.
The Company recorded pre-tax nonrecurring charges of $14.0 million
and $4.7 million during the third quarter of 1999 and 1998,
respectively. The 1999 charge related to costs associated with certain
strategic initiatives in connection with the acquisition of Shelby
Williams Industries, Inc. The charge included a $3.5 million charge to
writedown the carrying value of inventory, which is included in cost of
sales. The 1998 charge related to certain costs associated with exiting
the hotel casegoods line of business. This charge was partially offset
from gain on the sale of the Company's headquarters building and included
$3.3 million to writedown the carrying value of inventory, which is included
in cost of sales.
The Company had a net loss of $2.4 million for the first nine
months of 1999, compared to net earnings of $3.4 million in 1998. The
decrease in net earnings is attributable to the special and nonrecurring
charges described above. Net earnings, before the special and
nonrecurring items, were $6.3 million, or $0.70 per share, for the first
nine months of 1999, compared with $5.9 million, or $0.63 earnings per
share for 1998, an increase of 6.5% and 11.0%, respectively.
Net sales for the first nine months of 1999 were $131.0 million,
an increase of 27.1% over net sales of $103.0 million recorded for the
same period in 1998. Net sales increased primarily due to the
acquisition of Shelby Williams which occurred in the third quarter of
1999 and full year impact of the acquisition of Howe which occurred in
the second quarter of 1998, which were partially offset by a decline in
casegoods sales in the lodging market. This was following the Company's
previous decision to exit the hotel casegoods market.
15
<PAGE>
<PAGE>
Cost of sales was $97.1 million for the first nine months of 1999,
an increase of 27.7% from $76.1 million the same period in 1998.
Excluding the special and nonrecurring items, cost of sales was $93.6
million for the first nine months of 1999 compared to $72.9 million in
1998, an increase of 28.6%. The overall increase is primarily the result
of increased sales volume related to the Shelby Williams acquisition,
operating inefficiencies and product mix. Excluding the special and
nonrecurring charges, gross margin increased to $37.4 million for the
first nine months of 1999, a 23.9% increase from $30.2 million in 1998.
Gross margin as a percentage of net sales decreased to 28.6% in 1999 from
29.3% in 1998. The lower gross margin percentage was primarily due to
operating inefficiencies at the City of Industry, California and Tijuana,
Mexico facilities in addition to product mix.
Selling, general and administrative expenses were $24.4 million in
the first nine months of 1999, compared to $20.4 million in 1998, a
19.9% increase. The overall increase is primarily due to the Shelby
Williams acquisition. Selling, general and administrative expenses as a
percentage of net sales, decreased to 18.6% for the first nine months of
1999 as compared to 19.8% for the same period of 1998. The decrease in
the expense rate in 1999 is primarily the result of increased sales. In
addition, Shelby Williams had a historical lower expense rate than that
of the Company's.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at July 31, 1999, was $50.3 million
and its ratio of current assets to current liabilities was 1.8 to 1.0,
compared with $35.8 million and 2.8 to 1.0 at October 31, 1998. The
decrease in the ratio is attributable to the acquisition of Shelby Williams.
In connection with the Shelby Williams acquisition, the Company
restructured its debt by entering into the Senior Secured Credit Facility
comprised of the Term Loan and the Revolving Credit Facility and issued $100.0
million of its Series A Notes. At July 31, 1999, there were no borrowings under
the Revolving Credit Facility. Under the Senior Secured Credit Facility and the
Indenture, the Company must comply with certain covenants including, but not
limited to, those relating to the payment of dividends and the maintenance of
specific ratios.
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 nine months 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 an additional
440,000 shares of its common stock under stock repurchase programs
authorized by the Board of Directors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Not applicable.
16
<PAGE>
<PAGE>
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 and Use of Proceeds
-----------------------------------------
On June 17, 1999, the Company issued $100.0 million of its Series A
Notes. The proceeds from the issuance of the Series A Notes were used in
conjunction with the Senior Secured Credit Facility to finance the Shelby
Williams acquisition, along with the fees and expenses associated with the
acquisition.
On August 30, 1999, the Company completed the Exchange Offer, whereby
all of its outstanding Series A Notes were exchanged for Series B Notes.
The terms of the Series B Notes are the same as the Series A Notes, except
that the Series B Notes have been registered under the Securities Act of 1933,
as amended, and the holders of the Series B Notes are not entitled to any
exchange or registration rights with respect thereto.
Under the terms of the Senior Secured Credit Facility and the Indenture,
the Company must comply with certain covenants including, but not limited to,
those relating to the payment of dividends and the maintenance of specific
ratios.
Item 3. - Defaults Upon Senior Securities
-------------------------------
None.
Item 4. - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. - Other Information
-----------------
None.
Item 6. - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 4.1 - Indenture, dated as of June 17, 1999, by and
among the Company, The Bank of New York and the guarantors
named therein, incorporated herein by reference to Exhibit 4.2
of the Company's Registration Statement on Form S-4 (File No.
333-83207).
Exhibit 4.2 - Supplemental Indenture, dated as of June 18, 1999,
by and among Shelby Williams Industries, Inc., Sellers &
Josephson, Inc., Madison Furniture Industries, Inc., the Company,
the guarantors named therein and The Bank of New York,
incorporated herein by reference to Exhibit 4.3 of the Company's
Registration Statement on Form S-4 (File No. 333-83207).
Exhibit 4.3 - Form of 11-3/8% Senior Subordinated Note due 2009,
Series B, incorporated herein by reference to Exhibit 4.4 of
the Company's Registration Statement on Form S-4 (File No.
333-83207).
Exhibit 4.4 - A/B Exchange Registration Rights Agreement, dated
as of June 17, 1999, by and among the Company, the guarantors
named therein, and Donaldson, Lufkin & Jenrette Securities
Corporation, incorporated herein by reference to Exhibit 4.5
of the Company's Registration Statement on Form S-4 (File No.
333-83207).
Exhibit 10.1 - Credit Agreement, dated as of June 17, 1999, of
the Company, incorporated herein by reference to Exhibit 10.18
of the Company's Registration Statement on Form S-4 (File No.
333-83207).
Exhibit 11 - Computation of Earnings Per Share, filed herewith.
Exhibit 27 - Financial Data Schedule (filed in EDGAR version
only), filed herewith.
(b) Reports on Form 8-K
A report on Form 8-K, dated May 13, 1999, was filed with the
Commission on May 13, 1999, reporting the commencement of a
cash tender offer to acquire Shelby Williams.
A report on Form 8-K, dated June 10, 1999, was filed with the
Commission on June 10, 1999, reporting the death of Sam Ferrell,
the Chief Financial Officer of Shelby Williams.
A report on Form 8-K, dated June 28, 1999, was filed with the
Commission on June 28, 1999, reporting the completion of the
acquisition of Shelby Williams.
A report on Form 8-K/A, dated July 20, 1999, was filed with
the Commission on July 20, 1999, to provide the historical and
pro forma financial statements and exhibits required by Item 7
thereof with respect to the acquisition of Shelby Williams.
17
<PAGE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
FALCON PRODUCTS, INC.
---------------------
(Registrant)
Date: September 14, 1999 /s/ Franklin A. Jacobs
----------------------
Franklin A. Jacobs
Chief Executive Officer
and Chairman of the Board
Date: September 14, 1999 /s/ Michael J. Dreller
----------------------
Michael J. Dreller
Vice President and
Chief Financial Officer
18
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
4.1 Indenture, dated as of June 17, 1999, by and among the Company,
The Bank of New York and the guarantors named therein,
incorporated herein by reference to Exhibit 4.2 of the Company's
Registration Statement on Form S-4 (File No. 333-83207).
4.2 Supplemental Indenture, dated as of June 18, 1999, by and among
Shelby Williams Industries, Inc., Sellers & Josephson, Inc.,
Madison Furniture Industries, Inc., the Company, the guarantors
named therein and The Bank of New York, incorporated herein by
reference to Exhibit 4.3 of the Company's Registration Statement
on Form S-4 (File No. 333-83207).
4.3 Form of 11-3/8% Senior Subordinated Note due 2009, Series B,
incorporated herein by reference to Exhibit 4.4 of the Company's
Registration Statement on Form S-4 (File No. 333-83207).
4.4 A/B Exchange Registration Rights Agreement, dated as of June 17,
1999, by and among the Company, the guarantors named therein, and
Donaldson, Lufkin & Jenrette Securities Corporation, incorporated
herein by reference to Exhibit 4.5 of the Company's Registration
Statement on Form S-4 (File No. 333-83207).
10.1 Credit Agreement, dated as of June 17, 1999, of the Company,
incorporated herein by reference to Exhibit 10.18 of the
Company's Registration Statement on Form S-4 (File No. 333-
83207).
11 Computations of Earnings Per Share
27 Financial Data Schedule
19
<PAGE>
EXHIBIT 11
<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<CAPTION>
(In thousands, except share and per share amounts) Thirteen Weeks Thirty-Nine Weeks
Ended Ended
------------------------ ------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Baic Earnings Per Share:
- ------------------------
Average number of common shares outstanding 8,698 9,058 8,865 9,199
Net earnings $(6,229) $ 216 $(2,394) $3,836
======= ====== ======= ======
Earnings per share $ (0.72) $ 0.02 $ (0.27) $ 0.41
======= ====== ======= ======
Diluted Earnings Per Share:
Average number of common shares outstanding 8,697 9,058 8,865 9,199
Assumed exercise of options
(treasury stock method) 81 124 72 143
------- ------ ------- ------
Shares for diluted computation 8,779 9,182 8,938 9,342
======= ====== ======= ======
Net earnings $(6,229) $ 216 $(2,394) $3,836
======= ====== ======= ======
Earnings per share $ (0.71) $ 0.02 $ (0.27) $ 0.41
======= ====== ======= ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from SEC Form 10-Q for the quarterly period
ended July 31, 1999 and is qualified in its entirety
by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 7,324
<SECURITIES> 0
<RECEIVABLES> 41,434
<ALLOWANCES> 1,273
<INVENTORY> 55,660
<CURRENT-ASSETS> 111,089
<PP&E> 76,494
<DEPRECIATION> 20,580
<TOTAL-ASSETS> 111,089
<CURRENT-LIABILITIES> 60,754
<BONDS> 0
<COMMON> 198
0
0
<OTHER-SE> 65,982
<TOTAL-LIABILITY-AND-EQUITY> 301,462
<SALES> 130,948
<TOTAL-REVENUES> 130,948
<CGS> 97,058
<TOTAL-COSTS> 2
<OTHER-EXPENSES> 131,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,823
<INCOME-PRETAX> (3,829)
<INCOME-TAX> (1,435)
<INCOME-CONTINUING> (2,394)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,394)
<EPS-BASIC> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
