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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 January 30, 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 March 15, 1999, the registrant had 8,963,937 shares of common
stock, $.02 par value, outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
<TABLE>
Falcon Products, Inc. and Subsidiaries
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Consolidated Statements of Earnings
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(Unaudited)
<CAPTION>
Thirteen Weeks Ended
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January 30, January 31,
(In thousands, except per share data) 1999 1998
----------- -----------
<S> <C> <C>
Net sales $34,595 $28,060
Cost of sales 24,693 19,926
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Gross margin 9,902 8,134
Selling, general and administrative expenses 6,613 5,348
------- -------
Operating profit 3,289 2,786
Interest (expense)/income, net (289) 97
Minority interest in consolidated subsidiary 6 15
------- -------
Earnings before income taxes 3,006 2,898
Income tax expense 1,142 1,116
------- -------
Net earnings $ 1,864 $ 1,782
======= =======
Basic and diluted earnings per share $ 0.21 $ 0.19
======= =======
See accompanying notes to consolidated financial statements.
/TABLE
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<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Balance Sheets
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(Unaudited)
<CAPTION>
(In thousands, except share data) January 30, October 31,
1999 1998
----------- -----------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 4,542 $ 5,186
Accounts receivable, less allowances
of $421 and $672, respectively 20,971 22,683
Inventories 26,736 24,877
Prepayments and other current assets 3,722 3,081
-------- --------
Total current assets 55,971 55,827
-------- --------
Property, plant and equipment:
Land 2,116 2,116
Buildings and improvements 11,446 11,395
Machinery and equipment 32,784 32,154
-------- --------
46,346 45,665
Less accumulated depreciation (18,520) (18,167)
-------- --------
Total property, plant and equipment 27,826 27,498
-------- --------
Other assets, net of accumulated amortization:
Goodwill 24,881 23,243
Other 5,287 5,406
-------- --------
Total other assets 30,168 28,649
Total Assets $113,965 $111,974
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts Payable $ 13,933 $ 11,695
Accrued liabilities 4,418 6,769
Current maturities of long-term debt 1,911 1,607
-------- --------
Total current liabilities 20,262 20,071
Long-term obligations:
Long-term debt 17,479 17,208
Deferred income taxes 876 876
Minority interest in consolidated subsidiary 804 810
Other 912 1,063
-------- --------
Total liabilities 40,333 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 (942,540 and 992,777 shares,
respectively) (12,818) (13,557)
Cumulative translation adjustment (299) (19)
Retained earnings 39,175 37,948
-------- --------
Total stockholders' equity 73,632 71,946
-------- --------
Total Liabilities and Stockholders' Equity $113,965 $111,974
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
Falcon Products, Inc. and Subsidiaries
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Consolidated Statements of Stockholders' Equity
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Thirteen Weeks Ended January 30, 1999, and January 31, 1998
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(Unaudited)
<CAPTION>
(In thousands) Additional Cumulative Total
Common Paid-in Treasury Translation Retained Stockholders'
Stock Capital Stock Adjustments Earnings Equity
------ ---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 1, 1997 $198 $47,376 $ (6,855) $(727) $33,272 $73,264
Net earnings -- -- -- -- 1,782 1,782
Exercise of stock options -- -- 132 -- (106) 26
Issuance of stock to Employee
Stock Purchase Plan -- -- 31 -- -- 31
Translation adjustments -- -- -- (253) -- (253)
Cash dividends -- -- -- -- (370) (370)
Treasury stock purchases -- -- (2,975) -- -- (2,975)
Issuance of stock for business acquisition -- -- 149 -- -- 149
---- ------- -------- ----- ------- -------
Balance, January 31, 1998 $198 $47,376 $ (9,518) $(980) $34,578 $71,654
==== ======= ======== ===== ======= =======
Balance, October 31, 1998 $198 $47,376 $(13,557) $ (19) $37,948 $71,946
Net earnings -- -- -- -- 1,864 1,864
Exercise of stock options -- -- 73 -- (26) 47
Issuance of stock to Employee
Stock Purchase Plan -- -- 574 -- (226) 348
Translation adjustments -- -- -- (280) -- (280)
Cash dividends -- -- -- -- (359) (359)
Treasury stock purchases -- -- -- -- -- --
Issuance of stock for business acquisition -- -- 92 -- (26) 66
---- ------- -------- ----- ------- -------
Balance, January 30, 1999 $198 $47,376 $(12,818) $(299) $39,175 $73,632
==== ======= ======== ===== ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
Falcon Products, Inc. and Subsidiaries
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Consolidated Statements of Cash Flows
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(Unaudited)
<CAPTION>
Thirteen Weeks Ended
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January 30, January 31,
(In thousands) 1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,864 $ 1,782
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 688 920
Translation adjustments (280) (253)
Minority interest in consolidated subsidiary (6) (15)
Change in assets and liabilities
Accounts receivable, net 1,712 3,181
Inventories (1,859) (314)
Prepayments and other current assets (641) (315)
Other assets, net (1,928) (259)
Accounts payable 2,207 (3,385)
Accrued liabilities (2,322) (5,294)
Other liabilities (151) -
------- -------
Net cash used in operating activities (716) (3,952)
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Cash flows from investing activities:
Additions to property, plant and equipment, net (605) (1,176)
------- -------
Net cash used in investing activities (605) (1,176)
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Cash flows from financing activities:
Additions to (repayment of) long-term debt, net 575 (190)
Common stock issuances 461 206
Cash dividends (359) (370)
Treasury stock purchases - (2,975)
------- -------
Net cash provided by (used in) financing activities 677 (3,329)
------- -------
Net decrease in cash and cash equivalents (644) (8,457)
Cash and cash equivalents-beginning of period 5,186 16,294
------- -------
Cash and cash equivalents-end of period $ 4,542 $ 7,837
======= =======
Supplemental Cash Flow Information:
Cash paid for interest $ 291 $ 42
======= =======
Cash paid for income taxes $ 1,817 $ 3,116
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
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Falcon Products, Inc. and Subsidiaries
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Notes to Consolidated Financial Statements
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Thirteen Weeks Ended January 30, 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 Acquisition
The Company's results for the first quarter of 1999 include Howe
Furniture Corporation and its subsidiaries ("Howe") for the thirteen
week period. Howe was acquired during March 1998, and therefore Howe's
results of operation are not included in the reported results for the
first quarter of 1998.
Note 3. - Comprehensive Income
In June 1997, the Financial Accounting Standards Board (FASB) adopted
Statements of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", 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. For quarters
ended January 30, 1999, and January 31, 1998, comprehensive income was
$1.6 million and $1.5 million, respectively.
Item 2. - Management's Discussion and Analysis of Results of Operations
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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.
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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
--------------------------
January 30, January 31,
1999 1998
----------- -----------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 71.4 71.0
Gross margin 28.6 29.0
Selling, general and administrative expenses 19.1 19.1
Operating profit 9.5 9.9
Interest (expense) income, net (0.8) 0.3
Minority interest in consolidated subsidiary 0.0 0.1
Earnings before income taxes 8.7 10.3
Income tax expense 3.3 3.9
Net earnings 5.4 6.4
</TABLE>
Thirteen weeks ended January 30, 1999, compared to the thirteen weeks
ended January 31, 1998.
Net earnings were $1.9 million in the first quarter of fiscal 1999,
and $1.8 million in 1998. Net earnings per share were $.21 in 1999, and
$.19 in 1998, an increase of 10.5%.
Net sales for the first quarter of 1999 were $34.6 million, an
increase of 23.1% over the 1998 first quarter net sales of $28.1
million. The increase was primarily due to additional sales related
to the Howe acquisition 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 $24.7 million for the 1999 first quarter, an
increase of 24.1% from $19.9 million in the first quarter of 1998. The
overall increase is a result of the increased sales volume. Gross
margin increased to $9.9 million for the first quarter of 1999, a 22.2%
increase from $8.1 million in the same quarter of 1998. Gross margin as
a percentage of net sales decreased to 28.6% in 1999 from 29.0% in 1998.
The lower gross margin percentage during the first quarter of 1999 was
due primarily to operating inefficiencies at the City of Industry,
California manufacturing facility caused by lower volume.
Selling, general and administrative expenses were $6.6 million in the
first quarter of 1999, compared to $5.3 million in the first quarter of
1998, a 24.5% increase. The increase is primarily attributable to the
Howe acquisition. Selling, general and administrative expenses as a
percentage of net sales were 19.1% for the first quarter of 1999 and
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at January 30, 1999, was $35.7 million
and its ratio of current assets to current liabilities was 2.8 to 1.0,
compared with $35.8 million and 2.8 to 1.0 at October 31, 1998.
The Company has a $20.0 million unsecured revolving line of credit
agreement with a commercial bank. The revolving line of credit bears
interest at a floating rate based on LIBOR, the Federal Funds Rate, or
the Prime Rate, at the Company's election, plus a spread. The spread
is determined by a leverage ratio, as defined in the agreement. The
interest rate on the revolving
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credit facility is currently Prime minus 2%. The outstanding amounts
under the agreement were $17.5 million and $16.9 million as of January 30,
1999 and October 31, 1998, respectively.
The Company expects that it will meet its ongoing working capital and
capital requirements from available cash reserves and available
borrowings under its revolving credit facility. The Company's operating
cash flows constitute its primary source of liquidity.
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
-----------------
From time to time, the Company is subject to legal proceedings and
other claims arising in the ordinary course of its business. The
Company maintains insurance coverage against potential claims in an
amount it believes to be adequate. 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
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None.
Item 3. - Defaults Upon Senior Securities
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None.
Item 4. - Submission of Matters to a Vote of Security Holders
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None.
Item 5. - Other Information
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None.
Item 6. - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
None.
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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.
Date: March 16, 1999 /s/ Franklin A. Jacobs
----------------------
Franklin A. Jacobs
Chief Executive Officer
and Chairman of the Board
Date: March 16, 1999 /s/ Michael J. Dreller
----------------------
Michael J. Dreller
Vice President and
Chief Financial Officer
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EXHIBIT NO. 11
<TABLE>
Falcon Products, Inc. and Subsidiaries
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COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<CAPTION>
(In thousands, except per share amounts) Thirteen Weeks Ended
--------------------------
January 30, January 31,
1999 1998
----------- -----------
<S> <C> <C>
Basic Earnings Per Share:
- -------------------------
Average number of common shares outstanding 8,958 9,348
====== ======
Net earnings $1,864 $1,782
====== ======
Earnings per share $ 0.21 $ 0.19
====== ======
Diluted Earnings Per Share:
- ---------------------------
Average number of common shares outstanding 8,958 9,348
Assumed exercise of options (treasury stock method) 84 186
------ ------
Shares for diluted computation 9,042 9,534
====== ======
Net earnings $1,864 $1,782
====== ======
Earnings per share $ 0.21 $ 0.19
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from SEC Form 10-Q for the quarterly period
ended January 30, 1999 and is qualified in its entirety
by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-END> JAN-30-1999
<CASH> 4,542
<SECURITIES> 0
<RECEIVABLES> 20,971
<ALLOWANCES> 421
<INVENTORY> 26,736
<CURRENT-ASSETS> 55,971
<PP&E> 27,826
<DEPRECIATION> 18,520
<TOTAL-ASSETS> 113,965
<CURRENT-LIABILITIES> 20,262
<BONDS> 0
<COMMON> 198
0
0
<OTHER-SE> 73,434
<TOTAL-LIABILITY-AND-EQUITY> 113,965
<SALES> 34,595
<TOTAL-REVENUES> 34,595
<CGS> 24,693
<TOTAL-COSTS> 24,693
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 289
<INCOME-PRETAX> 3,006
<INCOME-TAX> 1,142
<INCOME-CONTINUING> 1,864
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,864
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
