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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 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission File Number 1-11577
FALCON PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 43-0730877
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9387 DIELMAN INDUSTRIAL DRIVE 63132
ST. LOUIS, MISSOURI (Zip Code)
(Address of principal executive offices)
(314) 991-9200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months, and (2) has been subject
to such filing requirements for the past 90 days. YES X NO
--- ---
As of September 11, 2000, the registrant had 8,721,774 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 Thirty-Nine Weeks
Ended Ended
----------------------- -----------------------
July 29, July 31, July 29, July 31,
(In thousands, except per share data) 2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $78,104 $59,884 $232,724 $130,948
Cost of sales, including nonrecurring items 56,754 46,566 168,764 97,052
Special and nonrecurring items - 10,500 - 10,500
------- ------- -------- --------
Gross margin 21,350 2,818 63,960 23,396
Selling, general and administrative expenses 12,420 10,576 38,686 24,413
------- ------- -------- --------
Operating profit (loss) 8,930 (7,758) 25,274 (1,017)
Interest expense and other 4,288 2,230 12,838 2,812
------- ------- -------- --------
Earnings (loss) before income taxes 4,642 (9,988) 12,436 (3,829)
Income tax expense (benefit) 1,955 (3,759) 5,337 (1,435)
------- ------- -------- --------
Net earnings (loss) $ 2,687 $(6,229) $ 7,099 $ (2,394)
======= ======= ======== ========
Basic and diluted earnings (loss) per share: $ .31 $ (.72) $ .81 $ (.27)
======= ======= ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
2
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<TABLE>
Falcon Products, Inc. and Subsidiaries
--------------------------------------
Consolidated Balance Sheets
---------------------------
(Unaudited)
<CAPTION>
(In thousands, except share data)
July 29, Oct. 30,
2000 1999
--------- ---------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 2,159 $ 2,878
Accounts receivable, less allowances
of $1,153 and $1,352, respectively 38,091 47,733
Inventories 54,132 49,078
Prepayments and other current assets 6,183 5,080
-------- --------
Total current assets 100,565 104,769
-------- --------
Property, plant and equipment:
Land 3,524 3,368
Buildings and improvements 25,021 25,284
Machinery and equipment 42,393 42,034
-------- --------
70,938 70,686
Less accumulated depreciation 20,236 21,845
-------- --------
Net property, plant and equipment 50,702 48,841
-------- --------
Other assets, net of accumulated amortization:
Goodwill 121,846 124,381
Other 13,380 14,215
-------- --------
Total other assets 135,226 138,596
-------- --------
Total Assets $286,493 $292,206
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 15,547 $ 20,890
Customer deposits 10,237 11,765
Accrued liabilities 20,576 22,872
Current maturities of long-term debt 8,200 2,443
-------- --------
Total current liabilities 54,560 57,970
Long-term obligations:
Long-term debt 152,968 162,063
Other 3,312 2,872
-------- --------
Total liabilities 210,840 222,905
-------- --------
Stockholders' equity:
Common stock, $.02 par value: authorized 20,000,000 shares;
issued 9,915,117 shares 198 198
Additional paid-in capital 47,376 47,376
Treasury stock, at cost (1,193,343 and 1,265,151
shares, respectively) (14,481) (15,455)
Cumulative translation adjustments (455) (221)
Retained earnings 43,015 37,403
-------- --------
Total stockholders' equity 75,653 69,301
-------- --------
Total Liabilities and Stockholders' Equity $286,493 $292,206
======== ========
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 29, 2000, and July 31, 1999
--------------------------------------------------------
(Unaudited)
<CAPTION>
(In thousands) Additional Cumulative Total
Common Paid-in Treasury Translation Retained Stockholders'
Stock Capital Stock Adjustments Earnings Equity
------- ---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 30, 1999 $ 198 $47,376 $(15,455) $(221) $37,403 $69,301
Net earnings -- -- -- -- 7,099 7,099
Translation adjustments -- -- -- (234) -- (234)
------- ------- -------- ----- ------- -------
Comprehensive income 6,865
Cash dividends -- -- -- -- (1,045) (1,045)
Issuance of stock to Employee
Stock Purchase Plan -- -- 692 -- (314) 378
Exercise of employee incentive
stock options -- -- 192 -- (93) 99
Issuance of stock for acquisition -- -- 90 -- (35) 55
------- ------- -------- ----- ------- -------
Balance, July 29, 2000 $ 198 $47,376 $(14,481) $(455) $43,015 $75,653
======= ======= ======== ===== ======= =======
Balance, October 31, 1998 $ 198 $47,376 $(13,557) $ (19) $37,948 $71,946
Net earnings (loss) -- -- -- -- (2,394) (2,394)
Translation adjustments -- -- -- (222) -- (222)
------- ------- -------- ----- ------- -------
Comprehensive income (2,616)
Cash dividends -- -- -- -- (710) (710)
Issuance of stock to Employee
Stock Purchase Plan -- -- 574 -- (226) 348
Exercise of employee incentive
stock options -- -- 177 -- (77) 100
Treasury stock purchases -- -- (3,025) -- -- (3,025)
Issuance of stock for 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 29, July 31,
2000 1999
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 7,099 $ (2,394)
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,245 3,491
Special and nonrecurring items -- 14,000
Translation adjustments during period (234) (222)
Change in assets and liabilities:
Accounts receivable, net 9,642 (1,296)
Inventories (5,054) 1,328
Prepayments and other current assets (1,103) (1,697)
Other assets, net (742) 685
Accounts payable and customer deposits (6,871) 392
Accrued liabilities (2,296) (14,880)
Other liabilities 440 (465)
------- ---------
Cash provided by (used in) operating activities 8,126 (1,058)
------- ---------
Cash flows from investing activities:
Cost of business acquired, net of cash -- (137,101)
Additions to property, plant and equipment, net (4,994) (4,189)
------- ---------
Cash used in investing activities (4,994) (141,290)
------- ---------
Cash flows from financing activities:
Additions to (repayment of) long-term debt, net (3,338) 154,218
Cash dividends (1,045) (710)
Common stock issuances 532 585
Treasury stock purchases -- (3,025)
Debt issuance cost -- (6,582)
------- ---------
Cash provided by (used in) financing activities (3,851) 144,486
------- ---------
Net increase (decrease) in cash and cash equivalents (719) 2,138
Cash and cash equivalents-beginning of year 2,878 5,186
------- ---------
Cash and cash equivalents-end of period $ 2,159 $ 7,324
======= =========
Supplemental cash flow information:
Cash paid for interest $15,080 $ 824
======= =========
Cash paid for taxes $ 2,090 $ 5,965
======= =========
See accompanying notes to consolidated financial statements.
</TABLE>
5
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Falcon Products, Inc. and Subsidiaries
--------------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
For the Thirty-Nine Weeks Ended July 29, 2000
---------------------------------------------
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 a 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 30, 1999, filed with the Securities and
Exchange Commission.
Note 2 - Business Acquisition
The Company's results for the third quarter and thirty-nine weeks
ended July 29, 2000 include Shelby Williams Industries, Inc. and its
subsidiaries ("Shelby Williams"). Shelby Williams was acquired during
June 1999, and was accounted for under the purchase method.
Accordingly, results of operations of Shelby Williams are included in
the financial statements from the date of acquisition.
Note 3 - Comprehensive Income
In fiscal 1999, the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income", which
reports Comprehensive Income and its components within the Consolidated
Statements of Stockholders' Equity. Comprehensive Income represents the
change in stockholders' equity from transactions and other events and
circumstances from non-owner sources which occur during the period. It
includes all changes in equity except those resulting from investments
by owners and distribution to owners.
Note 4 - Inventories
Inventories at July 29, 2000, and October 30, 1999, consisted of
the following:
<TABLE>
<CAPTION>
July 29, October 30,
In thousands 2000 1999
-------- -----------
<S> <C> <C>
Raw materials $37,801 $28,840
Work in process 5,706 11,570
Finished goods 10,625 8,668
------- -------
$54,132 $49,078
======= =======
</TABLE>
6
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Note 5 - Special and Nonrecurring Items
In connection with the acquisition of Shelby Williams, the Company
recorded a pre-tax integration charge of $14.0 million to cover the
anticipated costs of combining its existing business with the acquired
business. The charge related to the closing of certain duplicative
manufacturing facilities. During fiscal 1999, the Company utilized $12.4
million of this charge. The Company utilized $1.1 million of the charge
in the thirty-nine weeks ended July 29, 2000. At July 29, 2000, the
remaining amount of $.5 million relates to severance and real estate
exit costs for which payment is anticipated during the remainder of
fiscal year 2000.
Note 6 - Earnings Per Share
The following table reconciles net earnings and weighted average
shares outstanding to the amounts used to calculate basic and diluted
earnings per share for the third quarter and thirty-nine week periods
ended July 29, 2000, and July 31, 1999.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
----------------------- -----------------------
In thousands July 29, July 31, July 29, July 31,
Except per share data 2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings (loss) $2,687 $(6,229) $7,099 $(2,394)
====== ======= ====== =======
Average shares outstanding 8,715 8,698 8,710 8,866
Assumed exercise of
options (treasury method) 50 81 62 72
------ ------- ------ -------
Average shares outstanding
adjusted for dilutive effects 8,765 8,779 8,772 8,938
====== ======= ====== =======
Basic earnings (loss) per share $ .31 $ (.72) $ .81 $ (.27)
====== ======= ====== =======
Diluted earnings (loss) per share $ .31 $ (.72) $ .81 $ (.27)
====== ======= ====== =======
</TABLE>
Basic earnings per share was computed by dividing net earnings
(loss) by the weighted average shares of common stock outstanding
during the period. Diluted net earnings (loss) per share was
determined assuming the options issued and outstanding were exercised
as of the first day of the respective period. Outstanding options to
purchase shares were not included in the computation of diluted
earnings per share if the exercise price was greater than the average
market price of the common stock.
Note 7 - Guarantor Subsidiaries
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 provided for a six year
term loan of $70.0 million and a six year revolving credit facility of
up to $50.0 million.
All of the Company's domestic subsidiaries have guaranteed the
Senior Secured Credit Facility. A first priority security interest in
substantially all of the Company's properties and assets of its
domestic
7
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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 Company's senior subordinated notes are fully and
unconditionally guaranteed on an unsecured, senior subordinated basis
by each subsidiary of the Company (the "Guarantor Subsidiaries") other
than Howe Europe a/s, Falcon Products (Shenzhen) Limited, Falcon Mimon,
a.s., Falcon de Juarez, S.A. de C.V., and Industrial Mueblera Shelby
Williams, S.A. de C.V. (the "Non-Guarantor Subsidiaries"). Each of the
Guarantor Subsidiaries and Non-Guarantor Subsidiaries is wholly-owned
by the Company, except for Falcon Mimon, a.s., which is 87.4% owned by
the Company.
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.
8
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<TABLE>
Falcon Products, Inc.
Consolidating Statement of Earnings
For the Thirteen Weeks Ended July 29, 2000
<CAPTION>
Total Total
Guarantor Non-Guarantor Eliminations Total
------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $75,481 $5,500 $(2,877) $78,104
Cost of sales 54,948 4,683 (2,877) 56,754
Selling, general and administrative expenses 11,941 479 - 12,420
-----------------------------------------------------
Operating profit 8,592 338 - 8,930
Interest expense and other 4,237 51 - 4,288
-----------------------------------------------------
Earnings before income taxes 4,355 287 - 4,642
Income tax expense 1,899 56 - 1,955
-----------------------------------------------------
Net earnings $ 2,456 $ 231 $ - $ 2,687
=====================================================
</TABLE>
<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 $ 57,837 $4,318 $(2,271) $59,884
Cost of sales, including nonrecurring items 45,155 3,682 (2,271) 46,566
Special and nonrecurring items 10,500 - - 10,500
Selling, general and administrative expenses 10,116 460 - 10,576
------------------------------------------------------
Operating profit (loss) (7,934) 176 - (7,758)
Interest expense and other 2,201 29 - 2,230
------------------------------------------------------
Earnings (loss) before income taxes (10,135) 147 - (9,988)
Income tax expense (benefit) (3,813) 54 - (3,759)
------------------------------------------------------
Net earnings (loss) $ (6,322) $ 93 $ - $(6,229)
======================================================
</TABLE>
9
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<PAGE>
<TABLE>
Falcon Products, Inc.
Consolidating Statement of Earnings
For the Thirty-Nine Weeks Ended July 29, 2000
<CAPTION>
Total Total
Guarantor Non-Guarantor Eliminations Total
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $224,929 $15,894 $(8,099) $232,724
Cost of sales 163,126 13,737 (8,099) 168,764
Selling, general and administrative expenses 37,011 1,675 - 38,686
-----------------------------------------------------
Operating profit 24,792 482 - 25,274
Interest expense and other 12,709 129 - 12,838
-----------------------------------------------------
Earnings before income taxes 12,083 353 - 12,436
Income tax expense 5,137 200 - 5,337
-----------------------------------------------------
Net earnings $6,946 $ 153 $ - $ 7,099
=====================================================
</TABLE>
<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 $123,900 $13,924 $(6,876) $130,948
Cost of sales, including nonrecurring items 91,868 12,060 (6,876) 97,052
Special and nonrecurring items 10,500 - - 10,500
Selling, general and administrative expenses 23,426 987 - 24,413
-----------------------------------------------------
Operating profit (loss) (1,894) 877 - (1,017)
Interest expense and other 2,753 59 - 2,812
-----------------------------------------------------
Earnings (loss) before income taxes (4,647) 818 - (3,829)
Income tax expense (benefit) (1,646) 211 - (1,435)
-----------------------------------------------------
Net earnings (loss) $ (3,001) $ 607 $ - $ (2,394)
=====================================================
</TABLE>
10
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<TABLE>
Falcon Products, Inc.
Consolidating Balance Sheet
As of July 29, 2000
<CAPTION>
Total Total
Guarantor Non-Guarantor Eliminations Total
------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 711 $ 1,448 $ - $ 2,159
Accounts receivable 36,158 1,933 - 38,091
Inventories 48,757 5,375 - 54,132
Other current assets 5,071 1,112 - 6,183
------------------------------------------------------
Total current assets 90,697 9,868 - 100,565
Property, plant and equipment, net 36,898 13,804 - 50,702
Investment in subsidiaries 10,758 - (10,758) -
Intangibles and other assets 135,226 - - 135,226
------------------------------------------------------
Total assets $273,579 $23,672 $(10,758) $286,493
======================================================
Liabilities and stockholders' equity
Current liabilities $ 50,090 $ 4,470 $ - $ 54,560
Long-term debt 151,370 1,598 - 152,968
Other long-term liabilities 3,312 - - 3,312
Inter-company payable (receivable) (6,846) 6,846 - -
------------------------------------------------------
Total liabilities 197,926 12,914 - 210,840
Stockholders' equity
Common stock 198 9,144 (9,144) 198
Additional paid-in capital 47,376 1,015 (1,015) 47,376
Treasury stock (14,481) - - (14,481)
Cumulative translation adjustments (455) - - (455)
Retained earnings 43,015 599 (599) 43,015
------------------------------------------------------
Total stockholders' equity 75,653 10,758 (10,758) 75,653
------------------------------------------------------
Total liabilities and stockholders' equity $273,579 $23,672 $(10,758) $286,493
======================================================
</TABLE>
11
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<TABLE>
Falcon Products, Inc.
Consolidating Balance Sheet
As of October 30, 1999
<CAPTION>
Total Total
Guarantor Non-Guarantor Eliminations Total
-----------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 899 $ 1,979 $ - $ 2,878
Accounts receivable 45,507 2,226 - 47,733
Inventories 44,436 4,642 - 49,078
Other current assets 4,200 880 - 5,080
-----------------------------------------------------
Total current assets 95,042 9,727 - 104,769
Property, plant and equipment, net 35,089 13,752 - 48,841
Investment in subsidiaries 10,604 - (10,604) -
Intangibles and other assets 138,596 - - 138,596
-----------------------------------------------------
Total assets $279,331 $23,479 $(10,604) $292,206
=====================================================
Liabilities and stockholders' equity
Current liabilities $ 53,355 $ 4,615 $ - $ 57,970
Long-term debt 160,222 1,841 - 162,063
Other long-term liabilities 2,872 - - 2,872
Inter-company payable (receivable) (6,419) 6,419 - -
-----------------------------------------------------
Total liabilities 210,030 12,875 - 222,905
Stockholders' equity
Common stock 198 9,144 (9,144) 198
Additional paid-in capital 47,376 1,015 (1,015) 47,376
Treasury stock (15,455) - - (15,455)
Cumulative translation adjustments (221) - - (221)
Retained earnings 37,403 445 (445) 37,403
-----------------------------------------------------
Total stockholders' equity 69,301 10,604 (10,604) 69,301
-----------------------------------------------------
Total liabilities and stockholders' equity $279,331 $23,479 $(10,604) $292,206
=====================================================
</TABLE>
12
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<PAGE>
<TABLE>
Falcon Products, Inc.
Consolidating Statement of Cash Flows
For the Thirty-Nine Weeks Ended July 29, 2000
<CAPTION>
Total Total
Guarantor Non-Guarantor Eliminations Total
------------------------------------------------------
<S> <C> <C> <C> <C>
Cash provided by (used in) operating activities $ 8,206 $ (80) $- $ 8,126
-----------------------------------------------------
Cash flows used in investing activities
Additions to property, plant and equipment, net (4,786) (208) - (4,994)
-----------------------------------------------------
Cash used in investing activities (4,786) (208) - (4,994)
-----------------------------------------------------
Cash flows used in financing activities
Common stock issuances 532 - - 532
Cash dividends (1,045) - - (1,045)
Repayment of long-term debt, net (3,216) (122) - (3,338)
-----------------------------------------------------
Cash used in financing activities (3,729) (122) - (3,851)
-----------------------------------------------------
Net change in cash and cash equivalents $ (309) $(410) $- $ (719)
=====================================================
</TABLE>
<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>
Cash used in operating activities $ (966) $ (92) $- $ (1,058)
------------------------------------------------------
Cash flows used in investing activities
Acquisitions, net of cash (136,870) (231) - (137,101)
Additions to property, plant and equipment, net (4,358) 169 - (4,189)
------------------------------------------------------
Cash used in investing activities (141,228) (62) - (141,290)
------------------------------------------------------
Cash flows provided by (used in) financing activities
Common stock issuances 585 - - 585
Treasury stock purchases (3,025) - - (3,025)
Cash dividends (710) - - (710)
Additions to long-term debt, net 154,218 - - 154,218
Debt issuance cost (6,582) - - (6,582)
------------------------------------------------------
Cash provided by financing activities 144,486 - - 144,486
------------------------------------------------------
Net change in cash and cash equivalents $ 2,292 $(154) $- $ 2,138
======================================================
</TABLE>
13
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<PAGE>
Item 2. - Management's Discussion and Analysis of Results of Operations
-------------------------------------------------------------
and Financial Condition
-----------------------
Certain information presented herein includes "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. However, there can be no assurance that the
Company's actual results will not differ materially from its
expectations. The matters referred to in forward-looking statements may
be affected by risks and uncertainties affecting the Company's business.
The Company's results for the third quarter and thirty-nine weeks
ending July 29, 2000 include Shelby Williams Industries, Inc. and its
subsidiaries ("Shelby Williams"). Shelby Williams was acquired during
June 1999 and was accounted for under the purchase method. Accordingly,
results of operations of Shelby Williams are included in the financial
statements from the date of acquisition.
RESULTS OF OPERATIONS
General
The following table sets forth, for the periods presented, certain
information relating to the continuing operations of the Company,
expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Thirteen Weeks Thirty-Nine Weeks
Ended Ended
----------------------- -----------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including nonrecurring items 72.7 77.8 72.5 74.1
Nonrecurring items - 17.5 - 8.0
----- ----- ----- -----
Gross margin 27.3 4.7 27.5 17.9
Selling, general and administrative expenses 15.9 17.7 16.6 18.6
----- ----- ----- -----
Operating profit (loss) 11.4 (13.0) 10.9 (.7)
Interest expense and other 5.5 3.7 5.5 2.2
----- ----- ----- -----
Earnings (loss) before income taxes 5.9 (16.7) 5.4 (2.9)
Income tax expense (benefit) 2.5 (6.3) 2.3 (1.1)
----- ----- ----- -----
Net earnings (loss) 3.4% (10.4)% 3.1% (1.8)%
===== ===== ===== =====
</TABLE>
Thirteen weeks ended July 29, 2000, compared to the thirteen weeks ended
July 31, 1999
Net earnings were $2.7 million in the third quarter of fiscal
2000, compared to a net loss of $6.2 million in the same period of
fiscal 1999. The 1999 loss included an $8.7 million after-tax
nonrecurring charge discussed below. Excluding the nonrecurring charge,
net earnings increased $.2 million in the current year's third quarter.
Diluted net earnings per share were $.31 in 2000, compared to a $.72
diluted loss per share in 1999. Weighted average diluted shares
outstanding were 8.8 million shares in the third quarter of 2000 and
1999.
14
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<PAGE>
Reported third quarter 1999 results included a nonrecurring charge
of $14.0 million pre-tax ($8.7 million, or $.99 per share, after-tax).
This 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.
Net sales for the third quarter of 2000 were $78.1 million, an
increase of 30.4% over the 1999 third quarter net sales of $59.9
million. This increase in large part reflected the acquisition of
Shelby Williams in June 1999.
Cost of sales was $56.8 million for the 2000 third quarter, an
increase of 21.9% from $46.6 million in the third quarter of 1999. The
increase was primarily the result of increased sales volume generated by
Shelby Williams. Cost of sales in 1999 included the nonrecurring charge
discussed above of $3.5 million to writedown the carrying value of
inventory in connection with the acquisition of Shelby Williams.
Excluding the nonrecurring items in 1999, gross margin increased
to $21.4 million for the third quarter of 2000, from $16.8 million in
the same quarter of 1999 and gross margin as a percentage of net sales
was 27.3% in 2000, compared to 28.1% in 1999. The increase in gross
margin dollars relates to the increased sales volume. The decrease in
the gross margin percentage is related to Shelby Williams, which has
historically operated at a lower gross margin percentage than Falcon.
Selling, general and administrative expenses were $12.4 million in
the third quarter of 2000, compared to $10.6 million in the third
quarter of 1999. The increase was primarily attributable to the
increased sales volume. Selling, general and administrative expenses as
a percentage of net sales were 15.9% for the third quarter of 2000,
compared to 17.7% for the third quarter of 1999. The decrease in the
expense rate was primarily due to the acquisition of Shelby Williams,
which historically operated with a lower selling, general and
administrative expense structure than that of the Company's. The
decline also reflected cost savings gained through the integration of
Falcon and Shelby Williams.
Interest expense and other for the third quarter of 2000 was $4.3
million, compared to $2.2 million in the third quarter of 1999. The
increase was associated with financing costs related to the Shelby
Williams acquisition, reflecting only two months of these costs in the
third quarter of 1999 as compared with a full quarter in the same 2000
period.
The effective income tax rate for the third quarter of 2000 was
42.1% compared to 37.6% for the third quarter of 1999. The higher rate
included goodwill amortization associated with the acquisition of Shelby
Williams.
Thirty-nine weeks ended July 29, 2000, compared to the thirty-nine weeks
ended July 31, 1999
Net earnings were $7.1 million in the first nine months of 2000,
compared to a net loss of $2.4 million in the same period of 1999. The
1999 loss included the $8.7 million after-tax nonrecurring charge
previously discussed. Excluding the nonrecurring charge, net earnings
increased $.8 million in the current year's nine months. Diluted net
earnings per share were $.81 for the thirty-nine week period ending July
29, 2000, compared to a $.27 diluted loss per share for the same period
ending July 31, 1999. Weighted average shares outstanding were 8.8
million shares in 2000 and 8.9 million shares in 1999.
15
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Net sales for the thirty-nine weeks ending July 29, 2000 increased
77.7% to $232.7 million, over the 1999 same-period net sales of $130.9
million. This increase was primarily due to additional sales related to
the acquisition of Shelby Williams.
Cost of sales was $168.8 million for the first nine months of
2000, an increase of 73.8% from $97.1 million in the first nine months
of 1999. The increase was primarily the result of increased sales
volume generated by Shelby Williams. Cost of sales in 1999 included the
nonrecurring charge discussed above of $3.5 million to writedown the
carrying value of inventory in connection with the acquisition of Shelby
Williams.
Excluding the nonrecurring charge in 1999, gross margin increased
to $64.0 million for the first nine months of 2000, from $37.4 million
in the same period of 1999 and gross margin as a percentage of net sales
was 27.5% in 2000, compared to 28.6% in 1999. The increase in gross
margin dollars relates to the increased sales volume. The decrease in
the gross margin percentage is related to Shelby Williams, which has
historically operated at a lower gross margin percentage than Falcon.
Selling, general and administrative expenses were $38.7 million in
the first nine months of 2000, compared to $24.4 million in the same
period of 1999. The increase was primarily attributable to volume
associated with Shelby Williams. Selling, general and administrative
expenses as a percentage of net sales were 16.6% for the thirty-nine
weeks ended July 29, 2000, compared to 18.6% for the same period of
1999. The decrease in the expense rate was primarily due to the
acquisition of Shelby Williams, which historically operated with a lower
selling, general and administrative expense structure than that of the
Company's. The decline also reflected cost savings gained through the
integration of Falcon and Shelby Williams.
Interest expense and other for the first nine months of 2000 was
$12.8 million, compared to $2.8 million in the first nine months of
1999. The increase was associated with financing costs related to the
Shelby Williams acquisition.
The effective income tax rate for the first nine months of 2000
was 42.9% compared to 37.5% for the first nine months of 1999. The
higher rate included goodwill amortization associated with the
acquisition of Shelby Williams.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at July 29, 2000, was $46.0 million
and its ratio of current assets to current liabilities was 1.8 to 1.0,
compared with $46.8 million and 1.8 to 1.0 at October 30, 1999.
The Company has a $50.0 million unsecured revolving line of credit
agreement with a group of financial institutions. The revolving line of
credit bears annual interest, at the Company's option, equal to the
Prime Rate, Federal Funds Rate or LIBOR in each case adjusted for a
spread based on the Company's leverage ratio. As of July 29, 2000,
there was no outstanding balance under the revolving line of credit.
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The Company expects that it will meet its ongoing working capital
and capital requirements from a combination of existing cash, internally
generated funds and available borrowings under its revolving credit
facility. The Company's operating cash flows constitute its primary
internal source of liquidity.
Item 3. - Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Not applicable.
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
---------------------------------------------------
None.
Item 5. - Other Information
-----------------
None.
Item 6. - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27 - Financial Data Schedule (filed in EDGAR
version only), filed herewith.
(b) Reports on Form 8-K
None.
17
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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.
FALCON PRODUCTS, INC.
Date: September 11, 2000 /s/ Franklin A. Jacobs
----------------------
Franklin A. Jacobs
Chief Executive Officer
and Chairman of the Board
Date: September 11, 2000 /s/ Michael J. Dreller
----------------------
Michael J. Dreller
Vice President and
Chief Financial Officer
18
