COPYRIGHT March 2000 Business Wire

Business Editors

ST. LOUIS, Mo.--(BUSINESS WIRE)--March 7, 2000

Falcon Products, Inc. (NYSE: FCP), a leading manufacturer of commercial furniture, reported earnings per diluted share for the first quarter ended January 29, 2000, increased 14.3 percent to $0.24 from $0.21 in the first quarter of 1999. Net earnings increased 10.8 percent to $2.1 million from $1.9 million.

Net sales for the first quarter of 2000 were $75.1 million, a 117.0 percent increase from $34.6 million for the first quarter of 1999, driven in large part by the acquisition of Shelby Williams Industries, Inc. in June 1999. Operating profit increased to $8.0 million from $3.3 million, and, reflecting Falcon's emphasis on operating efficiency, Falcon's operating margin increased to 10.7 percent from 9.5 percent in the first quarter of 1999.

Operating cash flow, or earnings before interest, income taxes, depreciation and amortization ("EBITDA"), was $10.2 million for the first quarter of 2000 and $40.2 million, on a pro forma basis, for the last twelve months ended January 29, 2000. EBITDA margins increased to 13.5 percent of sales in the first quarter from 11.7 percent on a pro forma basis in the prior year quarter.

Franklin A. Jacobs, Chairman and Chief Executive Officer, said, "These solid first quarter earnings were in line with our expectations, and a good start for the 2000 fiscal year. We were especially pleased with the increase in our operating margin, which reflected our success in realizing the efficiencies from integrating the manufacturing operations of Shelby Williams. While our plant consolidation efforts, which began late in fiscal 1999, had some negative impact on shipments during the quarter, that impact was more than offset by our efficiency gains."

Darryl Rosser, President and Chief Operating Officer, commented, "The plant consolidation effort is proceeding very well. The City of Industry, California, facility shutdown should be substantially completed later this month, and production shifted to other facilities. Lewisville, Arkansas, and Tijuana, Mexico, production was transferred during the quarter, and the reduced production associated with these plant shutdowns is largely behind us. We are poised to achieve the benefits from these moves, which include significant cost savings and operating efficiencies."

Selling, general and administrative expenses decreased to 17.7 percent of net sales for the first quarter of 2000, compared to 19.1 percent for the same period in 1999. Reflecting the impact of the Shelby Williams acquisition, SG&A increased to $13.3 million for the first quarter of 2000 from $6.6 million in the first quarter of 1999.

Reflecting the increased debt associated with the acquisition of Shelby Williams, interest expense was $4.3 million in the first quarter of 2000, an increase of $4 million over $.3 million in interest expense in the first quarter of 1999.

The effective income tax rate for the first quarter of 2000 was 44.2 percent, compared to 38.0 percent for the first quarter of 1999. The higher rate includes goodwill amortization associated with the acquisition of Shelby Williams.

Reviewing the quarter's results, Jacobs concluded, "The progress we made on the integration of Shelby Williams was just one of our significant achievements made during this period. We also introduced the commercial furniture industry's first digital, interactive catalog, a single CD-ROM that contains Falcon's entire four-binder printed catalog. Our new CD-ROM catalog fundamentally changes the way customers specify and purchase commercial furniture. This new technology allows our customers to point and click to select products rather than manually sort through volumes of printed materials. Demand for the CD-ROM catalog has exceeded our expectations; in fact, we have had to double our original run of 5,000 copies. The success of the CD-ROM catalog marks a significant milestone in the creation of Falcon's electronic commerce capabilities".

Falcon Products, Inc., also announced that the Board of Directors declared a quarterly cash dividend of $.04 per share payable April 17, 2000, to stockholders of record on April 3, 2000.

Falcon Products, Inc., is the leader in the commercial furniture market it serves, with well-known brands, the largest manufacturing base and the largest sales force. Falcon and its subsidiaries design, manufacture and market products for the hospitality and lodging, food service, office, healthcare and education segments of the commercial furniture market. Falcon, headquartered in St. Louis, Missouri, currently operates 13 manufacturing facilities throughout the world and has more that 3,600 employees. Falcon has showrooms in seven cities within the United States.

Safe harbor statement under the Private Securities Litigation Reform Act of 1995: Statements contained in this news release which are not historical fact, such as forward-looking statements, involve risks and uncertainties, including those described in Falcon's periodic filings with the Securities and Exchange Commission. Although Falcon believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, Falcon can not give assurance that its expectations will be attained. Factors that could cause actual results to differ materially from expectations include the challenges of integrating the businesses of Shelby Williams and Falcon, the future capital needs of Falcon following the Shelby Williams acquisition, the uncertainty of additional funding, and other risks. Any forward-looking statements represent the best judgement of Falcon as of the date of this release. Falcon disclaims any intent or obligation to update a

COPYRIGHT 2000 American City Business Journals, Inc.

Franklin A. Jacobs

Chairman and chief executive

Falcon makes commercial furniture for the hospitality, office; fast-food restaurant and food-service markets. The company reported a profit of $600,000, or seven cents a share, on sales of $222 million for the year ended Oct. 30, 1999. The company's common stock is traded on the New York Stock Exchange under the symbol FCP. The following information is taken from the company's 2000 and 1999 proxies, which list Jan. 18, 2000, and Jan. 20, 1999, as dates of record.

 EXECUTIVE COMPENSATION 
Name and position Year Salary Bonus [LTIP.sup.1] 
Franklin A. Jacobs 1999 $653,846 $60,000 0 
Chairman and cheif executive 1998 $598,377 0 0 
Darryl Rosser  1999 $326,923 $66,472 0 
President amd cheif operating officer 1998 $297,535 0 0 
Michael J. Dreller 1999 $157,462 $32,035 0 
Vice president-finance and 1998 $142,519 0 0 
cheif financial officer 
Richard Hnatek 1999 $159,340 $32,035 0 
Senior vice president-quality 1998 $155,008 0 0 
Michael J. Kula 1999 $169,154 $34,037 0 
Vice president-corporate  1998 $163,346 0 0 
technology and development 
Name and position Total 
Franklin A. Jacobs $713,846 
Chairman and cheif executive $598,377 
Darryl Rosser $393,395 
President amd cheif operating officer $297,535 
Michael J. Dreller $189,497 
Vice president-finance and $142,519 
cheif financial officer 
Richard Hnatek $191,375 
Senior vice president-quality $155,008 
Michael J. Kula $203,191 
Vice president-corporate $163,346 
technology and development 
(1.)Long-term incentive pay 
 SIGNIFICANT STOCK OWNERSHIP [2] 
 Total Percent of 
Name of common Previous common 
benefical owner shares year (1998) shares 
Franklin A. Jacobs 2,047,220 2,027,724 23% 
Royce Funds Inc.  982,900 825,400 11.3% 
Robert Fleming Inc. 824,479 842,979 9.5% 
David L. Babson & Co. Inc. 727,547 1,069,820 8.4% 
Dimensional Fund Advisors Inc. 556,256 478,736 6.4% 
All officers and directors as a group 3,538,123 3,365,451 38.3% 
Name of Previous 
benefical owner year [3] 
Franklin A. Jacobs 22.5% 
Royce Funds Inc. 9.1% 
Robert Fleming Inc. 9.3% 
David L. Babson & Co. Inc. 11.9% 
Dimensional Fund Advisors Inc. 5.3% 
All officers and directors as a group 37.3% 
(2.)Includes options. 
(3.)Refers to 9,207,607 shares outstanding as of Jan. 20, 1999 
(*.)Less than 1 percent 
 STOCK VALUE 
 8,172,774 Total common shares of stock outstanding as of Jan. 18, 2000 
 $9.125 Value of one share of common stock as of Feb. 1, 2000 
$79,504,062 Approximate market value of firm as of Feb. 1, 2000 
 DIRECTORS 
Name Age Occupation 
Melvin F. Brown 64 Chairman emeritus, Deutsche Financial Services
James L. Hoagland 77 Retired president and cheif executive, 
  Graybar Electric Co. Inc. 
Lee M. Liberman 78 Chairman emritus and consultant to Laclede Gas Co. 
Raynor E. Baldwin 60 President of Woodsmiths Inc. 
James Schneider 68 Member, International Monetary Market, Chicago
  Mercantile Exchange 
Darryl C. Rosser 48 President and cheif operating officer of the company 
Donald P. Gallop 67 Attorney and chairman, 
 Gallop, Johnson & Neuman L.C. 
Franklin A. Jacobs 67 Chairman and chief executive of the company 
S. Lee King 71 Chairman, Kling Rechter & Co. L.P. 

COPYRIGHT 2001 American City Business Journals, Inc.

Franklin A. Jacobs

Chairman and chief executive

Falcon makes commercial furniture for the hospitality, office, fast-food restaurant and food-service markets. The company reported a profit of $9.2 million or $1.05 a share, on sales of $315.7 million for the year ended Oct. 28, 2000. The company's common stock is traded on the New York Stock Exchange under the symbol FCP. The following information is taken from the company's 2001 and 2000 proxies, which list Jan. 18, 2001, and Jan. 18, 2000, as dates of record.

 EXECUTIVE COMPENSATION 
Name and position Year Salary Bonus LTIP [1] Total 
Franklin A. Jacobs 2000 $718,908 0 0 $718,908 
Chairman and chief executive 1999 $653,846 $60,000 0 $713,846 
Darryl Rosser [2] 2000 $359,454 0 0 $359,454 
Former president 1999 $326,923 $66,472 0 $393,395 
and chief operating officer 
Stephen E. Cohen 2000 $184,808 0 0 $184,808 
Vice president-sales 1999 $159,154 $32,035 0 $191,189 
and marketing 
Michael J. Dreller 2000 $184,808  0 0 $184,808 
Vice president-finance and 1999 $157,462 $32,035 0 $189,497 
chief financial officer 
Michael J. Kula 2000 $178,269 0 0 $178,269 
Vice president-corporate 1999 $169,154 $34,037 0 $203,191 
technology and development 
(1.)Long-term incentive pay 
(2.)Rosser resigned as a director and 
the president and chief operating 
officer of the company Dec. 6, 2000. 
David L. Morley succeeded him Dec. 13. 
 SIGNIFICANT STOCK OWNERSHIPS [3] 
 Total Percent of 
Name of common Previous common 
beneficial owner shares year (1999) shares 
Franklin A. Jacobs  2,110,726 2,047,220 23.5%
Royce Funds Inc. 966,600 982,900 11.0%
Dimensional Fund Advisors Inc. 588,356 556,256 6.7%
Putnam Investment Management 578,050 Not reported 6.6%
Chasse-Fleming Inc. 575,269 842,479 6.5%
Wellington Management 502,500 Not reported 5.7%
James Schneider 356,136 360,986 4.0%
S. Lee Kling 194,672  185,272 2.2%
Donald P. Gallop 181,742 248,596 2.1%
Darryl Rosser 172,121 154,823 1.9%
All officers and directors as a group 3,347,141 3,538,123 35.8%
(14 people) 
Name of  Previous 
beneficial owner year [4] 
Franklin A. Jacobs 23.0% 
Royce Funds Inc. 11.3% 
Dimensional Fund Advisors Inc. 6.4% 
Putnam Investment Management Not reported 
Chasse-Fleming Inc. 9.5% 
Wellington Management Not reported 
James Schneider 4.1% 
S. Lee Kling 2.1% 
Donald P. Gallop 2.8% 
Darryl Rosser 1.8% 
All officers and directors as a group 38.3% 
(14 people) 
(3.)Includes options. 
(4.)Refers to 8,712,774 shares outstanding 
as of Jan. 18, 2000 
(*.)Less than 1 percent 
 STOCK VALUE 
 8,785,036 Total common shares of stock outstanding as of Jan. 18, 2001 
 $9.20 Value of one share of common stock as of Feb. 6, 2001 
$80,822,331 Approximate market value of firm as of Feb. 6, 2001 
 DIRECTORS 
Name Age Occupation 
Melvin F. Brown 65 Retired and consultant to Deutsche Financial Services 
Donald P. Gallop 68 Attorney and chairman, 
 Gallop, Johnson & Neuman L.C. 
Franklin A. Jacobs 68 Chairman and chief executive of the company 
S. Lee Kling 72 Chairman, Kling Rechter & Co. L.P. 
Lee M. Liberman 79 Chairman emeritus and consultant to Laclede Gas Co. 
David L. Morley 44 President and chief operating officer of the company 
Steven C. Roberts 48 President of Roberts-Roberts & Associates 

ST. LOUIS, Aug. 29, 2001 /PRNewswire/ --

Falcon Products, Inc. (NYSE: FCP), a leading manufacturer of commercial furniture, will conduct a conference call to discuss fiscal 2001 third-quarter results on Friday, August 31, 2001, at 10:00 a.m. EDT.

The call will be available to investors and other interested individuals via a free live Web cast at StreetFusion. Falcon Products Chairman and CEO, Franklin A. Jacobs, David L. Morley, President and Chief Operating Officer, and Michael J. Dreller, Vice President, Finance and Chief Financial Officer, will host the call.

To listen to the Web cast, go to www.streetfusion.com, and click on Falcon Products, Inc. A link to the Web cast is also available on www.falconproducts.com .

A replay of the Web cast will be available shortly after the completion of the live call, through September 30, 2001, at www.streetfusion.com .

Falcon Products, Inc. is the leader in the commercial furniture markets it serves, with well-known brand names, the largest manufacturing base and the largest sales force. Falcon and its subsidiaries design, manufacture and market furniture products for the hospitality and lodging, food service, office, healthcare and education segments of the commercial furniture market. Falcon, headquartered in St. Louis, Missouri, currently operates 12 manufacturing facilities throughout the world and has more than 3,300 employees.

COPYRIGHT October 2001 American City Business Journals, Inc.

With competitors and major customers reporting double-digit sales declines, it would seem that commercial furniture maker Falcon Products Inc. should have nothing but bad news fonts shareholders when its fiscal year ends Oct. 31.

But the St. Louis-based company has come through the office furniture industry's worst year in recent history holding its own.

Bolstered by strong demand for its "data-enabled" training tables, Falcon's office, furniture sales are down between 3 percent and 4 percent for the year. That compares with the office furniture trade group's recent estimate of 16 percent decline in growth for the year.

The training tables, which are designed to accommodate power and data cabling, are sold to a broad spectrum of companies including Cisco Systems, General Motors and American Express.

Falcon's foodservice business, which covers both the large fast food chains and restaurants, is up substantially on the quick service side, despite that sector's tough times, said David Morley, Falcon's president and chief operating officer. A large remodeling contract from McDonald's to redesign its newly acquired Boston Market chain fueled sales, Morley said, as well as the rapid service and one-stop shopping offered by Falcon's design studio in Los Angeles.

"Turnkey service has been a big differentiation for us," Morley said, adding that Falcon could not have-taken on the Boston Market contract without that capability. Boston Market's contract was for about $10 million -- 200 units, at $50,000 a unit.

The hotel segment is another matter. Orders, which had been slowing prior to Sept. 11, virtually stopped in the week following the attacks. Business has picked up since, but "it's been spotty," Morley said. Sales are down about 12 percent. Spending by Marriott, Falcon's largest hospitality customer, is down more than that.

Nor is Falcon expecting a quick turnaround in sales. Morley guesses that the hotel business is one year into a two-year downturn, if it models the last slowdown in 1991. A mitigating factor is that the majority of Falcon's hotel business is remodeling and "there is only so much deferred remodeling you can do."

"The key question in hospitality and office both is how long will the deferral in corporate expenditures be? And for us, with a less predictable sales line, how do we increase profitability on an uncertain range of volume," Morley said.

The anticipated slowdown in most of Falcon's business segments has prompted A.G. Edwards Analyst Matthew Moyer to trim fourth quarter earnings estimates from 7 cents to 3 cents a share, and to lower 2002 estimates to 51 cents a share from 72 cents. Of particular concern was the double-digit decline in the office furniture sector.

"We felt that if the market was going to be down in the single-digit range, Falcon would still be able to grow its business by gaining market share as it has in the past. Now, however, we see this segment contracting for Falcon as well," Moyer stated in a report issued Sept. 19.

Falcon's stock closed at $5.25 a share Oct. 1, near its 52-week low of $4.85. It traded as high as $10.05 a share over the past year.

For the first nine months of Falcon's 2091 fiscal year, ended July 28, 2001, revenue was $218.8 million, down 6 percent from $232.7 million in the prior year. Earnings were $900,000, compared with $7.1 million, during the same period in fiscal 2000.

Going forward, Falcon will be focusing on sharpening and streamlining its operations, Morley said, adding that layoffs are not out of the question. Falcon employs 3,300 people company wide and 130 people in St. Louis.

Falcon has moved to consolidate its manufacturing operations, announcing the-closing of its Statesville, N.C., facility and a major downsizing at its plant in Zacateras, Mexico. The consolidation and transfer of business to other plants is slated for completion in February 2002.

COPYRIGHT December 2002 PR Newswire Association LLC

Falcon Products, Inc. , a leading manufacturer of commercial furniture, today announced sales and operating results for its fourth quarter and fiscal year ended November 2, 2002.

Net sales for the fourth quarter of fiscal 2002 (13 weeks) were $75.8 million, compared with $83.8 million in the prior year (14 weeks), and net earnings were $1.2 million, or $0.13 per diluted share, compared with a net loss of $0.6 million, or $0.06 per diluted share, in the fourth quarter of 2001.

Franklin A. Jacobs, Chairman and Chief Executive Officer, stated, "During the fourth quarter the Company was challenged with the same difficult market conditions that it experienced during all of fiscal 2002. However, we are pleased that the cost reduction measures, consolidation of manufacturing facilities, and other performance initiatives we instituted earlier this year significantly improved our operating income during the quarter, which is reflected in our improved bottom-line results. We believe that we are well positioned to continue to perform well as we move forward."

Falcon reported strong sales growth in the food service market for the fourth quarter of 2002. The Company increased its share in the contract office market as the sales decline was substantially less than the overall rate of decline in the market. This is a reflection of the Company's strong performance within the education and healthcare portions of the contract office market. The Company's sales within the hospitality market during the quarter were consistent with the overall decline in this market. The Company's sales were also impacted by its earlier decision to discontinue business in certain channels in order to more profitably utilize the Company's manufacturing resources.

For the 2002 fiscal year (52 weeks), net sales were $277.5 million, compared with $314.1 million in the prior year (53 weeks), and net earnings were $0.7 million, or $0.08 per diluted share, compared with a net loss of $10.8 million, or $1.22 per diluted share, in fiscal 2001.

Excluding restructuring charges in both 2002 and 2001, earnings were $0.7 million, or $0.08 per diluted share, in the fourth quarter of 2002, compared with $0.4 million, or $0.05 per diluted share, in the fourth quarter of 2001. For the full fiscal year, earnings were $0.6 million, or $0.07 per diluted share, in 2002, compared with $1.4 million, or $0.15 per diluted share, in 2001.

Falcon Products, Inc. will conduct a conference call to discuss fiscal 2002 fourth-quarter results on December 18, 2002, at 10:00 a.m. EST. The call will be Web cast at http://www.companyboardroom.com/ and http://www.falconproducts.com/.

Falcon Products, Inc. is the leader in the commercial furniture markets it serves, with well-known brands, the largest manufacturing base and the largest sales force. Falcon and its subsidiaries design, manufacture and market products for the hospitality and lodging, food service, office, healthcare and education segments of the commercial furniture market. Falcon, headquartered in St. Louis, Missouri, currently operates 11 manufacturing facilities throughout the world and has approximately 3,000 employees.

Safe harbor statement under the Private Securities Litigation Reform Act of 1995: Statements contained in this news release which are not historical fact, such as forward-looking statements, involve risks and uncertainties, including, but not limited to, loss of key customers or suppliers within specific industries, availability or cost of raw materials, and increased competitive pricing pressures reflecting industry conditions. Additional cautionary statements regarding other risk factors that could have an effect on future performance of the Company are described in Falcon's periodic filings with the Securities and Exchange Commission. Although Falcon believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, Falcon can give no assurance that its expectations will be attained. Any forward-looking statements represent the best judgment of Falcon as of the date of this release. Falcon disclaims any intent or obligation to update any forward-looking statements.

  FALCON PRODUCTS, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS 
 FOURTH QUARTER AND FISCAL 2002 RESULTS 
 (In thousands, except per share amounts) 
 
 Fourth Quarter Ended (a) Year Ended (a) 
 Nov. 2, Nov. 3, % Nov. 2, Nov. 3, % 
 2002 2001 Change 2002 2001 Change 
 
 Net sales $75,789 $83,796 -9.6%  $277,537 $314,116 -11.6% 
 Cost of sales, 
 including special 
 and nonrecurring 
 items (c) 58,226 63,585 -8.4% 212,402 243,272 -12.7% 
 Gross margin 17,563 20,211 -13.1% 65,135 70,844 -8.1% 
 Selling, general 
 and Administrative 
 expenses (b) 11,683 14,667 -20.3% 46,147 56,172 -17.8% 
 Special and 
 nonrecurring 
 items (c) (d) (801)(c) 642(d) N/M (162)(c) 12,642(d) N/M 
 Operating profit 6,681 4,902 N/M 19,150 2,030 N/M 
 Interest expense 
 and other 4,292 4,366 -1.7% 17,140 17,016 0.7% 
  Pre-tax 
 earnings (loss) 2,389 536 N/M 2,010 (14,986) N/M 
 Income taxes 
 (benefit) 1,220 1,095 N/M 1,318 (4,215) N/M 
 Net earnings 
 (loss) $1,169 $(559) N/M $692 $(10,771) N/M 
 
 Basic and diluted 
 earnings (loss) 
 per share (b) $0.13 $(0.06) N/M $0.08 $(1.22) N/M 
 
 Weighted average 
 diluted shares 
 outstanding 8,948 8,847 8,943 8,833 
 
 
 N/M Not Meaningful 
  
 (a) The Company's fiscal year ends on the Saturday closest to October 31. 
 The fourth quarter and fiscal year 2002 include 13 weeks and 53 weeks, 
 respectively, compared with 14 weeks and 53 weeks in the fourth
 quarter and fiscal year 2001, respectively. 
 
 (b) The Company adopted Financial Accounting Standards Board Statement 
 No. 142 "Goodwill and Other Intangible Assets" effective at the
 beginning of fiscal year 2002. Statement No. 142 requires that
 goodwill no longer be amortized against earnings, but instead tested 
 for impairment at least annually. Upon adoption, the Company did not 
 have an impairment charge and eliminated the amortization of goodwill, 
 which was $916 and $3,508 for the fourth quarter ended and fiscal year 
 ended November 3, 2001, respectively. Adjusted for the elimination of 
 goodwill, basic and diluted earnings per share for the fourth quarter 
 ended and fiscal year ended November 3, 2001 would have been $0.04 and 
 $(0.83), respectively. 
 
 (c) The Company recorded a $0.6 million pre-tax nonrecurring charge during 
 the first quarter of 2002 to account for the execution of its plan to 
 restructure its manufacturing facilities, which began in the third 
 quarter of 2001. During the fourth quarter of 2002, the Company 
 recorded a pre-tax nonrecurring gain related to the sale of the
 Statesville, NC facility. 
 
 (d) The Company recorded an $18.6 million pre-tax nonrecurring charge 
 during fiscal year 2001 to account for the cost to restructure its 
 manufacturing facilities. This charge included costs associated with 
 asset write-downs and dispositions, real estate exit costs, employee 
 severance, and other related costs. Cost of sales includes a 
 $6.0 million charge to writedown the carrying value of inventory. 
 
 
 SUPPLEMENTAL INFORMATION -- RESULTS OF OPERATIONS 
  BEFORE SPECIAL AND NONRECURRING ITEMS 
 (In thousands, except per share amounts) 
 (Unaudited) 
 
 Fourth Quarter Ended (a) Year Ended (a) 
 Nov. 2, Nov. 3, % Nov. 2, Nov. 3, % 
 2002 2001 Change 2002 2001 Change 
 
 Operating profit $5,880 $5,544 6.1% $18,988 $20,672 -8.1% 
 Pre-tax earnings 
 (loss) 1,588 1,178 34.8% 1,848 3,656 -49.5% 
 Net earnings (loss) 672 409 64.4% 592 1,357 -56.4% 
 
 Basic and diluted 
 earnings (loss) 
 per share $0.08 $0.05 62.5% $0.07 $0.15 -56.9% 
 
 
  FALCON PRODUCTS, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS 
 (In thousands) 
 (Unaudited) 
 
 Nov. 2, Nov. 3, Liabilities and Nov. 2, Nov. 3, 
 Assets 2002 2001 Stockholders' Equity 2002 2001 
 
 Cash and 
 cash equivalents $1,528 $1,670 Accounts payable $20,014 $20,101 
 
 Accounts 
 receivable 33,378 35,268 Customer deposits  9,211 10,953 
 
 Inventories 57,117 49,224 Accrued liabilities 15,111 18,303 
 
 Other current Current maturities of 
 assets 10,019 6,977 long-term debt 15,359 11,510 
 
 Total current Total current 
 assets 102,042 93,139 liabilities 59,695 60,867 
 
 Property, plant and Long-term debt 135,226 136,461 
 equipment, net 40,882 42,534 
 
  Other long-term 
 obligations 16,980 10,098 
 
 Other assets 129,977 131,794 Stockholders' equity 61,000 60,041 
 $272,901 $267,467 $272,901 $267,467 
 

Q3 2003 Falcon Products Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Thank you for standing by, and welcome to the third quarter earnings release conference call. (Operator Instructions). I would like to turn the conference over to the Chairman and CEO of Falcon Company Frank Jacobs.

FRANKLIN JACOBS, CHAIRMAN, DIRECTOR, CEO, FALCON PRODUCTS: Good morning everybody. Thanks for joining us. With me this morning is David Morley, our President and Chief Operating Officer, and Mike Dreller, our Vice President and Chief Financial Officer. During the call, we will review our third quarter results for 2003. Mike will start with a financial review, and then David will review our operations. First, Mike, you have the standard disclosure statement?

MICHAEL DRELLER, CFO, VP FINANCE, TREASURER, SECRETARY, FALCON PRODUCTS: Yes. Before we begin the presentation, let me remind you that in all presentations of this type forward-looking information will be discussed. As you know, the actual results of operations may differ materially from those discussed here. Additional information concerning factors that could cause such a difference can be found in the Company's periodic reports filed with the Securities and Exchange Commission.

FRANKLIN JACOBS: Before Mike and Dave begin, let me say a few words about our third-quarter. Over the past few years, we have made significant progress in reducing our cost structure. This is really a requirement in difficult times. This quarter we are announcing another step in that progression. We expect to see significant benefits from these actions announced today as we move forward.

We have also focused our efforts on gaining market share in each of the markets we serve. We believe we have accomplished that in foodservice, education and healthcare. We also believe that the operational steps we are taking today will position us to start to gain market share of the hospitality market, especially when it strengthens. So now I will turn it over to Mike. Mike?

MICHAEL DRELLER: Thanks, Frank, and good morning everyone. I will spend a few moments reviewing our financial results for the third quarter, and then I will turn over to David who will provide an update on operations. Net sales for the quarter were $62.3 million compared with 70.8 million in the third quarter of 2002. That is a 12 percent decrease. Sales were impacted during the quarter by the successful completion of the Boston Market remodeling program, which was completed during the first quarter of this year. Excluding the sales decline related to Boston Market, net sales for the quarter decreased by 3 percent.

Sales to the foodservice market segment of our business increased by approximately 21 percent during the quarter, excluding the effect of Boston Market. Net sales in the contract office market for the third quarter declined by approximately 1 percent from the prior year. The decline in the contract office sales for the quarter was substantially less than the overall market rate of decline as reported by (inaudible). And sales during the quarter in the hospitality market declined by approximately 12 percent from the prior year.

Cost of sales excluding restructuring charges was $47 million for the quarter compared with 54.3 million in the third quarter of 2002. Gross margin for the quarter, again excluding our restructuring charges, was 15.3 million compared with 16.6 million in the third quarter of the prior year. The Company's gross margin percentage was 24.5 percent for the third quarter of 2003 compared to 23.4 percent in 2002. The decrease in gross margin dollars is due to the decline in sales. The increase in gross margin percentage is due to the impact from the Company's cost reduction measures.

Selling, general and administrative expenses were 11.2 million during the quarter compared with 11.3 million in the third quarter of 2002. As a percentage of sales, SG&A expenses were 18 percent in 2003 and 15.9 percent in 2002. Operating profit for the quarter was $4.1 million, excluding restructuring charges, compared with 5.3 million during the third quarter of 2002. And operating profit margin was 6.5 percent of sales in the third quarter of '03 compared with 7.4 percent in 2002.

Interest expense for the quarter was 4.6 million compared with 4.5 million in the third quarter of 2002. During the quarter, the Company recorded a total of $7.7 million of non-cash pretax non-recurring charges. The charges represent $5.1 million after-tax, and that is 57 cents per diluted share. The charges include 4.3 million pretax, (inaudible) after-tax, to write down the assets of the Zacatecas Mexico production facility. The Company plans to dispose of the facility and transfer production to our Mimon Czech Republic facility and other outside providers. The Company currently has a signed letter of intent to sell the assets and transfer the operations of the facility to a third-party. We expect the sale to be completed by the end of the calendar year, or there are no assurances the sale will be completed. Depending on the ultimate disposition of the facility, there may be further consolidation charges related to the disposal. Any future related charges should not exceed $1 million.

The charges also include 1.8 million pretax charge, which is 1.1 million after-tax, related to its decision to freeze the accrual of benefits under its defined benefit pension plan which was effective August 1, 2003. The Company expects the annual saving associated with the disposal of the Zacatecas Mexico facility and the freezing of the pension plan will be $5 to $7 million. The Company also recorded a 1.6 million pretax charge, which is 1 million after-tax, to write-off the differed debt issuance costs in connection with the refinancing of its senior credit facility which we did during the quarter.

Excluding the impact from non-recurring charges, the Company would have reported a net loss for the quarter of $500,000 or 5 cents per diluted share. That compares with third quarter 2002 reported net earnings of $300,000 or 4 cents per diluted share. Including the non-recurring charges, the Company reported a net loss for the quarter of $5.6 million or 62 cents per diluted share. Our average share count for the period was 9,062,000 shares and 8 million 946 in the third quarter of 2002.

Depreciation and amortization charges during the third quarter of 2003 were $2.1 million, and adjusted EBITDA for the quarter was $6.3 million compared with 7.2 million of EBITDA in the third quarter of the prior year. Adjusted EBITDA for the last 12 months ended at the third quarter was $25.2 million.

And now I will turn it over to David Morley.

DAVID MORLEY, PRESIDENT, COO, DIRECTOR, FALCON PRODUCTS: Good morning. Thanks, Mike. As we said at the beginning of the year, we needed to focus on operational improvements and gain market share due to the unpredictability of the economy. We have made gains in both areas. We benefited from cost improvement throughout the year, and today we are announcing two further actions that will meaningfully our profitably as we go forward.

The first action reflects the redesign of our wood frame sourcing strategy. Let me give you a little background. We sell approximately 500,000 wood chairs a year. We manufacture about half of those. The other half of the chairs we source from Europe. Due to the lead times from Europe, we had a need for a North American supply of the product. Through a combination of debottlenecking (inaudible) facility, staging inventory differently, and deepening our relationships with key European suppliers, we have taken four to five weeks out of our leadtime from Europe. This allows us to dispose of our facility in Zacatecas, Mexico.

On the financial side, these actions will contribute $4 to $5 million to the bottom-line. Additionally, the streamlined supply chain will allow for a reduction of about $3 million in raw material and prime inventory, both meaningful impacts. A second action we announced today is the replacement of our defined benefit pension plan with a 401(k) based retirement plan. Given the cyclical nature of our industry, the 401(k) plan allows us to match contributions to our profitability. The effect of this in 2004 will be a $1 to $2 million increase in earnings. The benefits of these actions will be seen starting this quarter.

As we look at the markets, there really has not been a lot of change. We saw slowing during the early summer and a strengthening in August, which should bode well for the fourth quarter. Overall as Frank said, we are increasing market share in foodservice and contract and holding market share in hospitality. We had strong performance in the third quarter in the foodservice market. As Mike reported, sales increased by 21 percent during the quarter, excluding the impact of Boston Market. This was driven by growth of Hardee's, Chick-Fil-A and (inaudible) brands. We expect to leverage our capabilities in this market in other areas of the foodservice market. We have completed our first test of these capabilities in the casual dining segment. We expect to complete five more tests before year-end. We are excited about driving new levels of service to all of our markets, and this is just one example. (technical difficulty).

As many of you are aware, we previously announced plans to begin a major remodeling program of its restaurant location in 2003. We are beginning to see a substantial increase in activity both on an order and a quoting perspective. Although the total program will not be what McDonald's previously announced in 2003, we do expect it to be a reasonable upside in our fourth quarter and our first quarter of 2004.

Our sales in the contract office market declined by 1 percent during the quarter and have grown 1 percent year-to-date. This is substantially better than the 12 percent decline in the first half of the year as reported by (inaudible). Our performance in this market has been driven by our focus on the education and healthcare segment as well as the growth of Epic. In the education market, we are well-positioned to take advantage of the technological advances impacting the classroom through our existing and new product offerings and our targeted marketing efforts. We have also greatly expanded our state contracts. In fact, this year alone we have added approximately seven state purchasing contracts to our already existing contracts.

Orders have been strong and bode well as I said before for the fourth quarter. The healthcare market also is continuing to perform well. The corporate market is still soft, but it is showing some signs of reemergence. We have seen new order activity from high-tech and financial segments and recently been named the corporate standard for Toys "R" Us and Northrop Grumman. These are positive signs.

The hospitality market continues to remain soft related to the weak U.S. economy. Our sales in the hospitality market declined 12 percent during the quarter. Quarter activity has increased in public space areas, particularly stacked chairs. We were also awarded the Orange County Convention Center, which is 25,000 stacked chairs in this fiscal year and 25,000 more next year. Strength in the stacked chairs in both hospitality and convention markets will provide for a stronger fourth quarter.

As we look forward, we will continue to focus on market share gains as well as cost reductions. We believe this will position us to grow even in a difficult economy. Frank?

FRANKLIN JACOBS: In closing, let me emphasizes that here at Falcon we are a service business. Our customers look to us to add value to their business in a variety of ways. They buy our product to drive sales. They refurbish every five to seven years. It can be a restaurant or an university. We come in and help create the environment our customers envision. We can design a restaurant, create custom products to made a specific need, and we can install the entire offering without distracting our customers from their main business. In fact, the entire Boston Market project was managed by one staff person at Boston Market.

The tests we are doing right now are an example of that service. By expanding the capabilities developed over the years and honed with Boston Market allow us to add value to our customers in ways very difficult for others to match. We believe the test we are now doing will show that we can lower our customers costs while improving our competitive position. Tough times bring out the best in people. We are building new capabilities and reducing costs in the toughest market in memory (technical difficulty) --. This combination prepares us well for the times ahead.

Thank you and now we will be pleased to answer any questions.

OPERATOR: (Operator Instructions). Our first question comes from Ryan Galeron (ph) with Goldman Sachs.

RYAN GALERON, ANALYST, GOLDMAN SACHS: Good morning guys. The debt balance is up in the quarter. It looks like working capital may have used some cash. Can you discuss what was going on with some of those items?

MICHAEL DRELLER: You are correct. The primary driver of change in debt was working capital. It is a variety of components. It is a combination of payroll balances and accruals and inventory all combined.

RYAN GALERON: Do you think those will work through the system?

MICHAEL DRELLER: Historically -- I know sure how familiar -- historically the fourth quarter is a reasonably strong source of cash for the company, working capital improves, and we would expect that to happen in the fourth quarter this year as it has in prior years.

RYAN GALERON: Okay. Thank you.

OPERATOR: Our next question is from Larry Taylor with CSFB.

LARRY TAYLOR, ANALYST, CSFB: Thanks. I have got a couple of questions. I wonder if you could give us a little bit more detail on expectations for McDonald's in terms of the balance of this year I guess? And then also on an ongoing basis whether it looks like they have actually scaled back what they are doing there?

DAVID MORLEY: They have been saying publicly the first one was about 1100 stores. I think they scaled it back a little bit to around 900 stores. There are currently roughly 600 stores that are in some kind of spec phase or development phase right now, and that is continuing to build. So they are targeting somewhere in that 900 to 1100 store range. It is difficult to know what the final number will be, but that is what they are stating publicly.

LARRY TAYLOR: Okay. And then that is the precursor to whether or not they roll out a broader program elsewhere? At this plight, can you give us some sense -- I am sorry; were you commenting?

FRANKLIN JACOBS: It is difficult to say. McDonald's has been pushing the reaching the remodeling program with the us. I mean our design and quotation has been very very busy churning out incredible amounts of redesigned stores for them, and they keep saying they are going to go ahead and get it done this year. It is getting awfully late in the calendar year to do as many stores as they would like us to do, so we really cannot say how many of these things are going to be done.

The precursor part is always difficult to tell with any of our customers. It seems logical that when they remodeled stores and their sales pick up, that this makes them go out and remodel more stores. But history has told us that we can never tell our customers what to do.

LARRY TAYLOR: Okay. What percentage now roughly speaking do you think McDonald's is of the food service business? It seems to me if you certainly are including Boston Market, it shrunk significantly. But order of magnitude?

FRANKLIN JACOBS: I would say that in this year it will be in the range of 10 percent of our total foodservice business.

LARRY TAYLOR: 10 percent of total food service? Okay. Just changing subjects a bit. Timing on the gains from the changes in the operation of Mexico. Are we going to see some of that do you think in the fourth quarter, or is that more of a 2004?

FRANKLIN JACOBS: It will start in the fourth quarter. Both the pension plan and the Zacatecas move will start contributing in the fourth quarter. The pension plans was effective August 1, and so it will have a full impact in the fourth quarter. The Zacatecas move will ramp a little bit, but we will start seeing benefits in the fourth quarter, and it will ramp through next year. I would expect in the range that I gave about 85 percent of it or so to be realized in 2004.

LARRY TAYLOR: Okay. Great. And then, Mike, can you give us a sense -- you obviously did this new bank facility during the quarter -- of the difference in what we should expect in terms of run-rate interest expense?

MICHAEL DRELLER: It will be up slightly from the 4.6 million that we reported in the third quarter, and that was basically two months of impact there, Larry. So it will be in the 4.8 million range I would predict.

LARRY TAYLOR: Okay. Great. Let me give somebody else a chance.

MICHAEL DRELLER: Quarterly number.

FRANKLIN JACOBS: The total cost -- increased cost -- of the new debt is about 1 percent over the old cost.

MICHAEL DRELLER: On a weighted average basis.

LARRY TAYLOR: On a weighted average cost basis?

FRANKLIN JACOBS: Right.

LARRY TAYLOR: Terrific. Let me give somebody else a chance.

OPERATOR: Our next question is from Sam Bergman (ph) with Bayberry Capital Management.

SAM BERGMAN, ANALYST, BAYBERRY CAPITAL: Good morning, gentlemen. A couple of questions. First of all, can you give me an idea of the activity in the (inaudible) business right now?

FRANKLIN JACOBS: Yes. We are seeing a stronger August than we did in June and July, and we are trending very well in contract. We are improving in hospitality, and we expect to have some real strength as these projects -- both McDonald's -- but I want to emphasize the importance of Hardee's, Chick-Fil-A and (inaudible) in the mix. And we expect to see there a stronger fourth quarter but also a very strong first quarter. We are trying to see the dates of these things. Remember our first quarter has got two months of this calendar year in it.

SAM BERGMAN: Right. I understand KFC is doing a major project with IT Spending. Are they also doing some remodeling with you in terms of the restaurants themselves or not?

FRANKLIN JACOBS: They have begun. They had not done it in a long time, particularly as the ownership issues were being settled on it. But we are now starting to see a pickup in activity at Burger King. KFC. I am sorry. Did you not say Burger King? What did you say?

SAM BERGMAN: KFC.

FRANKLIN JACOBS: KFC is doing a lot of work. I had the wrong answer. KFC with (inaudible) brands in general both at the corporate level and at the franchisee level is doing very well.

SAM BERGMAN: This question probably is for Michael. Is there a chance that somebody is giving the amount of inventory turns this quarter has?

MICHAEL DRELLER: It is roughly four times, three to four times.

SAM BERGMAN: And the Mexico facility that is supposed to be closed/sold by the end of the year, what type of dollar value is that range of dollar value back to the company would that have?

MICHAEL DRELLER: I am sorry. I am not sure if I followed the question.

SAM BERGMAN: The Mexico facility, is that company-owned?

MICHAEL DRELLER: Yes, it is.

SAM BERGMAN: So in terms of range of dollar value, what is that as a real estate value on the market right now?

MICHAEL DRELLER: The value is not significant. It is included in the write-down that we reflected in the third quarter.

SAM BERGMAN: Oh, it is. Okay.

MICHAEL DRELLER: The potential proceeds if any or reflected in the write-down in the third quarter. It is not significant.

SAM BERGMAN: Is it possible perhaps, Franklin, if somebody perhaps can talk about the significant competitive win that you have had this quarter over one of your competitors or even throughout the year?

FRANKLIN JACOBS: Well, this is Frank. They tend to think of me as a real salesperson. The glass is always two-thirds full. So I am going to let David (multiple speakers) talk about that.

DAVID MORLEY: Sure. The big one that was just awarded was this Orange County Convention Center in Florida. It was a very competitive position. There was in total almost a $5 million award over a two-year period. It went through several hearings. It went through the public review process. It went through everything. We are quite confident that we will have a nice contribution from that business.

That is 25,000 stacked chairs that will be sold before our fiscal year-end and then 25,000 to follow. That is not including -- the stacked chairs are an important part of that business. Stacked chairs in a convention are nice because they are an annuity, also. You get replacement product over time. It is a long-term contract you develop, but it also let us into the food service parts of that convention center, and we managed a substantially bigger order out of that through that process. I also think as I said before Toys "R" Us and Northrup just named us as their corporate standard. That is a very positive sign.

FRANKLIN JACOBS: Let me add another one, too. One of the things that we have been building for a number of years in this service business is -- and also our international factories. Remember we do have factories both in Europe and in China. And when we talk to people like Starbucks, who is a very good customer of ours, we don't do the total turnkey package. We sell them tables and shares. Starbucks is a company that really goes for what is called Green.

They come to us and and they have asked us some time ago to get a certification over the wood that is used that is used in our chairs. That it is certified and reinforced products and not from products managed for us, of course which we do mostly over in the Czech Republic. We have gotten that certification, and people like Starbucks know that they can buy our chairs all over the world. We can ship it from our factory in China. We can ship it from our factory in the Czech Republic or Europe, and of course, we ship it from our factories in Tennessee and in Mississippi, and it is a certifiable chair. These are the kinds of things that there really is no one else in the world they can do -- that we can go to these national chain accounts -- and chain restaurants are now responsible for 80 percent of the sales in foodservice facilities in the world, and that is where we are going.

DAVID MORLEY: In the education market -- just to give you an example of this -- a couple of years ago when we really started this push we were small, and we have selling, we have been doing well, but we are gaining the recognition where just this quarter we have negotiated contracts with the states of Illinois, Texas, California Community Colleges, Connecticut and Pennsylvania.

What these contracts allow us to do is not have to negotiate price with the local decision maker. Largely all government agencies within that state have the ability to have a predetermined price and be able to spec that product. That puts us on a list in these states with only sometimes only one competitor, sometimes two, where we really have an advantage to move forward and sell those products in a much more streamlined way than going through the whole procurement process within the state. We probably have now about 15 states under such contracts.

SAM BERGMAN: The only other question and I will let somebody else get on the line, in hotel businesses (inaudible) this past month that the architects are very very busy doing drawings of remodelings of hotels and refurbishing the hotels. When does that come down to your business activities increasing over a period of a quarter or two or even over a year's time?

MICHAEL DRELLER: The cycle varies. The architects are busy. We are busy doing quotes for architects and helping them through that. The real question is when does the end user pull the trigger, and that has been what has been deferred in the hospitality market, the willingness to invest in that refurbishment. There is a substantial number of dollars of pinup demand to invest in the hospitality market. People are waiting to make sure that they invest at the low point in the market.

We have turned things as quickly as weeks, and sometimes these plans for refurbishment can take more than a year. It all depends on the interest, the need of the specific property, the interest at the corporate level to fund or the franchisee level to fund and if funds are available for them, so it is hard to give you a specific number.

SAM BERGMAN: What you say is more percentage going? You have your projects now this quarter versus prior quarters or not?

MICHAEL DRELLER: We have not seen a substantial change in the investment, but we are seeing changes in the public space. And particularly around the holiday season as people prepare for Christmas parties and those kind of things, we are seeing banquet chairs particularly doing well in the market. We are seeing some movement of banquet tables, but it is not a broad -- I cannot say that it is a broad movement.

FRANKLIN JACOBS: The hotel industry is still waiting to get their occupancy rates up and their revenue par per room up. They are still discounting so many rooms that they have not been willing to spend the money to do the large-scale refurbishing that we saw back in the mid-90s. It is going to come; we just don't know when.

MICHAEL DRELLER: I think if you're looking for a leading indicator to that, the best leading indicator is probably business travel. As business travel picks up, you would see more investment.

SAM BERGMAN: Thank you very much. Keep up the good work.

OPERATOR: Our next question is from Paul Ross with ING.

PAUL ROSS, ANALYST, ING: Good morning, Frank and Mike and Dave. Mike, could you talk about indenture covenants as it relates to the bank facility and the impact of this quarter's operating results and nonrecurring charges please?

MICHAEL DRELLER: Yes. The nonrecurring charges were reported. Non-cash charges are excluded from any covenant calculations, so there was no impact in the quarter.

PAUL ROSS: So what was the EBITDA that was reported from continuing operations this quarter?

MICHAEL DRELLER: For the quarter? 3 million.

PAUL ROSS: How does that compare to a quarter ago, a year ago?

MICHAEL DRELLER: 7.2 million.

PAUL ROSS: And what is the test in the current credit facility?

MICHAEL DRELLER: The EBITDA as defined in the agreement is on LTM basis, and the covenant was 24 million, and we were at 24. -- excuse me, 25.2 million.

PAUL ROSS: You were at 25.2? What is the LTM covenant for the end of the calendar year -- end of the fiscal year?

MICHAEL DRELLER: 25 million.

PAUL ROSS: Thank you very much.

OPERATOR: We have a question from David Mara (ph) with First Albany Corporation.

DAVID MARA, ANALYST, FIRST ALBANY CORPORATION: Good morning, gentlemen. Just a comment on working capital. Obviously your debt balance is up. You still got $64 million in inventory. I know sales have been tough, but can we work some of this inventory off? Can that be a source of cash going into the fourth quarter?

MICHAEL DRELLER: Absolutely. I have historically brought inventory down in the fourth quarter. We will do so again. We would expect to bring that down in the $3 to $4 million range, maybe do better than that in the fourth quarter, but that kind of a range. When we made the decision to close Zacatecas, we did build a little insurance into that through inventory.

The other piece of it is as in the third quarter we are always at a high point because we do source a substantial amount of our products in Europe, and Europe closes in the month of August. And so July is actually -- the inventory we are bringing in July preparing for that shutdown always has some kind of a blip. So the combination of where we supply our product from and that our fourth quarter is always our strongest quarter makes the third quarter the high point in the year.

DAVID MARA: Just following up on Paul's question. With $25 million in terms of your EBITDA test and this brand-new cut bank deal, it looks like it is going to be a little close. I calculate year-to-date EBITDA 17.5 million, so that is telling me you need at least $7.5 million in EBITDA in the fourth quarter to stay in compliance. Can you comment on how comfortable you are? I know revenues are hard to come by in this environment.

FRANKLIN JACOBS: We are comfortable with the EBITDA requirements for the fourth quarter.

DAVID MARA: Just looking at your actions, obviously -- again, I congratulate you guys for doing what you can in terms of taking out costs. You've created a lot of operating leverage. We just need to see some sales pickup. We have been waiting a long time for it. It looks like with Mexico and it looks like the pension plan, it looks like you have got $5 million of savings just locked up. Can I take that to mean that, let us say you do $25 million in EBITDA this year, if nothing changes next year, if there is no pickup whatsoever to the business, you should be able to do $30 million in EBITDA?

FRANKLIN JACOBS: Yes. That is a fair analysis.

DAVID MARA: Just from a free cash flow standpoint, even if I take your numbers down a little bit for the full year, I cannot imagine you guys paying any taxes this year. CapEx, I assume is $2 to $3 million, somewhere in that zipcode?

MICHAEL DRELLER: For the quarter, CapEx was $380,000, and for nine months, it is 1.6 million. Although it is (multiple speakers)

DAVID MARA: 1.6 for nine months?

MICHAEL DRELLER: Yes.

DAVID MARA: So if I use 2.5 of CapEx and you are going to be running what? Around 18 million in interest expense?

FRANKLIN JACOBS: Something less than that.

DAVID MARA: Really no taxes. You are still going to have free cash flow of $5 million from operations?

MICHAEL DRELLER: That is correct.

DAVID MARA: Last question. On this term loan, obviously you cannot be too thrilled with the interest cost on that. Are you focused on getting rid of that?

DAVID MORLEY: On the date that it is possible.

FRANKLIN JACOBS: I will emphasize that we have a 12 month period -- we have 15 months way of getting rid of that without paying any penalty, and we are extremely focused that by this time next year we will have done something about that.

DAVID MARA: Thank you, Frank.

OPERATOR: We have a question from Bud Bugatch with Raymond James.

BUD BUGATCH, ANALYST, RAYMOND JAMES: Frank, I think you and I have been waiting a long time for some sales pickup.

FRANKLIN JACOBS: We sure have, Bud. We sure have.

BUD BUGATCH: A couple of questions. On Zacatecas, I want to make sure I understand the timing. When do you exit the facility?

DAVID MORLEY: We did effective yesterday.

BUD BUGATCH: Is there any severance costs? There will be no severance?

DAVID MORLEY: We have a letter of intent, and as part of the letter of intent, the operations cost of the facility until the definitive agreement is signed is the responsibility of the purchaser. But we cannot know for sure about severance until we have the definitive agreement.

BUD BUGATCH: When do you think you will have that, David?

DAVID MORLEY: The letter of intent is by the end of the year, and that is when we can get the government approvals and those kinds of things. We expect to have a contract before that.

BUD BUGATCH: Is the third party going to then make chair frames there, going to be a competitor?

DAVID MORLEY: It is a residential furniture maker from the Northeast who makes -- it is a small operator who makes very hiigh-end custom product.

BUD BUGATCH: Northeastern United States or Northeastern Mexico?

DAVID MORLEY: Northeastern United States, sorry.

FRANKLIN JACOBS: They tried to go to China, and it did not work out. And then when they decided they needed to go to North America, they found out that we were closing our facility in Zacatecas. They got word of that. They came to us and suggested that they buy it and make their products there because it is a good deal for them and it is a very good deal for us actually.

BUD BUGATCH: Let us go over the savings and make sure I understand that because in the release you said $5 to $7 million in next year. I took that as incremental to next year. But in this morning's call, you said we were going to get -- I know we are going to at least see some of the defined benefit plans savings of quarterly run-rate of probably what? $250,000 to $500,000 a quarter beginning this quarter? So is the 5 to 7 million next year incremental to this year, or do we have to back out a quarter's worth for the fourth quarter?

DAVID MORLEY: Year-over-year, you would have to back out a little bit for this quarter. Your calculation on the pension is right, and the Zacatecas piece is going to have a similar kind of range of impact in the fourth quarter that the pension didn't. So year-over-year there would be that difference.

BUD BUGATCH: But we've got to pull that down. Can you be a little more (inaudible) than 5 million to 7 million? If you are that close to getting in done, you should have a -- for your company, that is a big enough window to (inaudible)?

FRANKLIN JACOBS: I am sorry. What was your question?

BUD BUGATCH: $5 to $7 million range, I just was wondering what the variables are for that range? Is it going to be 5 million or 7 million? How do you come to that number, and why is the range so large?

MICHAEL DRELLER: While the range is due to the exact sourcing of frames through Europe. Depending on the mix of the product that moves through our facility, creates a range on where we source from, how we buy it, and without knowing the exact mix of the wood frames that go through, we cannot put an exact number on the savings from those frames.

BUD BUGATCH: Okay. I understand. Two more questions. On foodservice, you said it was up 21 percent excluding Boston Market. Did I hear you, Mike, say it was down 3 percent in the quarter including Boston Market?

MICHAEL DRELLER: The total company consolidated results that were down 12 percent, but if you had excluded Boston Market, consolidated results would be down 3 percent.

BUD BUGATCH: And in foodservice, what would that be? Can you give us that number?

MICHAEL DRELLER: Including Boston Market? Without Boston market, I reported it was up 21 percent.

BUD BUGATCH: Including Boston Market, what would foodservice have been?

MICHAEL DRELLER: That clearly would have been down about 28 percent.

BUD BUGATCH: Down 28 percent. Okay. Lastly -- let me make sure I heard you right, David -- you are going to deliver 25,000 stacks to Orange County this quarter and another 25,000 fourth quarter?

DAVID MORLEY: No. It is an open order, but it is over next year. So we don't know the exact timing of the second 25,000. It is up to them on when they want to order it. (multiple speakers)

BUD BUGATCH: The first 25,000 will be this quarter?

DAVID MORLEY: Yes.

BUD BUGATCH: What is the selling price?

FRANKLIN JACOBS: (multiple speakers). I think it is on the Orange County Website, so I don't know.

DAVID MORLEY: I don't know if that is public or not.

BUD BUGATCH: What was your list price on the chair?

DAVID MORLEY: It wasn't. It was custom.

FRANKLIN JACOBS: It was a custom chair, Bud.

BUD BUGATCH: For a stacked chair, there is a list price of what? 280 is that what I recall?

DAVID MORLEY: Not on a convention chair.

BUD BUGATCH: Not that high?

FRANKLIN JACOBS: The total award was around about $5 million, Bud. The total award was $5 million, and you divided by 50,000 --(multiple speakers).

BUD BUGATCH: I can do that math, Frank.

FRANKLIN JACOBS: There is some foodservice (multiple speakers) so take some of it out.

BUD BUGATCH: I have got you. That is helpful. Thank you very much.

OPERATOR: (Operator Instructions). We have no further questions.

FRANKLIN JACOBS: Let me wind it up by saying a couple of things. As we go into the -- and we finish up our year and go into next year, I think we are set in a much lower cost structure assuming that business conditions do not improve, so we should do better next year obviously. The other thing is that we do believe that this turnkey capability will allow us to take market share next year in foodservice and in education. Historically we have grown in difficult times by taking market share. I think we are now prepared to go back and do a little bit of that again. So we should do relatively well next year regardless of what happens in the economy.

But the other thing that we are really focused on next year is improving our balance sheet. I think we are dedicated toward doing a better job on our balance sheet, especially on the high-cost portion of the debt that we will be able to do something about by the third quarter of next year. I want everybody to know that now that we have the things we should have done, now we are going to focus on that, regardless of what happens in the economy.

So thank you very much for being with us this morning. Good-bye.

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Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Ladies and gentlemen, thank you for standing by and welcome to the Falcon Company's 4th quarter earnings release. At this time all participants are in a listen only mode. Later we will conduct a question and answering session. Instructions will be given at that time.

If you should require assistance during the call, please press star then zero. And as a reminder this conference is being recorded.

I would now like to turn the conference over to our host, Mr. Frank Jacobs, Chairman and Chief Executive Officer. Please go ahead.

FRANK JACOBS, CHAIRMAN, DIRECTOR, AND CEO, FALCON PRODUCTS, INC.: Thanks, Lois. Good morning, everybody. Thanks for joining us. With me this morning on the call is David Morley, our President and Chief Operating Officer, and Bob Branstetter, our Corporate Controller.

I would like to start by saying that Mike Dreller, our Chief Financial Officer, has taken a job elsewhere and we are in the process of recruiting a new CFO. We wish Mike well in his new endeavors and thank him for his service over the years.

During the call, we will review our 4th quarter results for fiscal 2003. Bob will start with the financial review and then David will review our operations. First Bob, you've got a standard disclose our.

BOB BRANSTETTER, CONTROLLER, FALCON PRODUCTS, INC.: Before we begin the presentation let me remind you, as in all presentations of this type, forward-looking information will be discussed. As you know, the actual results of operations may differ materially from those discussed here. Additional information concerning factors that could cause such a difference can be found in the company's periodic reports filed with the Securities and Exchange Commission.

FRANK JACOBS: Okay, guys, listen. I want to talk a few minutes before I have Bob start with the numbers. 2003 was a challenging year. We've taken control of our future through restructuring our operating platforms, cost reductions, and our new financing package. With that largely behind us, we are well positioned to move forward.

As we approached the decision to refinance our Tranche B facility, we felt it was important for people to understand the commitment that the board of directors had behind our plan. Prior to initiated discussions with potential financial institutions, insiders, primarily board members, including David and myself, put $4.2 million into the company in the form of convertible debentures. This was done by the people who know the company best as an indication of support for the direction we are going. In total, the restructured facility will provide us with increased liquidity and flexibility to effectively operate our business well into the future.

Okay, Bob. Turn it over to you.

BOB BRANSTETTER: Thanks, Frank, and good morning, everyone. I'll spend a few minutes reviewing our financial results for the 4th quarter of fiscal 2003. I will then turn it over to David Morley who will provide an update on our business.

Net sales for the quarter were $65.7 million compared with $75.8 million in the 4th quarter of 2002, a 13.4% decrease. Sales were impacted during the quarter by the successful completion of the Boston Market remodeling program, which was completed during the 1st quarter of this year. Excluding the sales decline related to Boston Market, net sales for the quarter decreased by 3.2%. Cost of sales was $58.6 million for the quarter and includes a charge of $5.5 million to write-down the carrying costs of inventory, compared with $58.2 million in the 4th quarter of 2002.

Gross margin for the quarter, including the inventory charge was $7.1 million, compared with $17.6 million in the 4th quarter of the prior year. The decrease in gross margin is due to the decline in volume and pricing, and product mixed pressures; limited primarily to the hospitality market, as well as the inventory charge. The companies continued cost reduction measures, partially offset these unfavorable effects.

Selling general and administrative expenses were $11.9 million during the quarter, compared with $11.7 million in the 4th quarter of 2002. As a percentage of sales, SG&A expenses were 18.1% in 2003, and 15.4% in 2002. Interest expense was $5 million in the 4th quarter of 2003, compared to $4.3 million in the 4th quarter of 2002.

During the 4th quarter, the company recorded a $2.6 million pretax restructuring charge related to its decision to consolidate its Canton, Mississippi manufacturing operations. The company will close the Canton facility and transfer production into the other plants by the end of February. The company expects that the savings associated with the closure of Canton will be approximately $4.4 million annually and will begin to accrue during the 2nd quarter of this year.

The company reported a net loss for the quarter of $16 million or $1.77 per diluted share, including the charges I have discussed. In addition, the company's 4th quarter results were negatively impacted by the recording of valuation allowance to reduce its deferred tax assets. That compares to a 4th quarter 2002 reported net earnings of $1.2 million or 13 cents per diluted share. Excluding the impact from the charges in the 4th quarter of 2003, the company would have reported a net loss for the quarter of $2.9 million or 32 cents per diluted share. The company's future net earnings will be favorably impacted by the reversal of the deferred tax valuation allowance as the company returns to profitability.

For fiscal 2003, the company reported a net loss of $22.5 million or $2.49 per diluted share including non recurring charges, compared with net earnings of $.7 million or 8 cents per diluted share including a non recurring gain in 2002. The 2003 results include charges related to the restructuring of the company's manufacturing facilities, the freezing of benefits under the company's defined benefit pension plan, the write-off of deferred debt issuing costs, the write-down of inventory costs, and the recording of the deferred tax allowance. These charges totaled $18.3 million or $2.02 per diluted share. Depreciation amortization charges for fiscal 2003 were $8.2 million and adjusted EBITDA for fiscal 2003 was $20.1 million.

I'd like to give you an update on the status of our Zacatecas, Mexico facility. The signed letter of intent expired and the potential buyer was not able to come up with the financing, so we are in the process of closing this facility. We will complete the closure over the next few weeks and don't expect the closure costs to exceed more than $.5 million dollars for the remainder of the year.

Now, I'd like to briefly discuss the company's new financing arrangements. As of the end of the year, the company was not in compliance with the financial covenants under its existing senior secured credit agreement and on January 15th, 2004, the company amended and restated the credit agreement. The new agreement provides the company with increased total availability at a reduced interest rate and, at the same time, we reset financial covenants as we move forward.

The new agreement essentially replaces the $35 million term loan B of our previous agreement with the new $50 million term loan B. The interest rate on the new term loan B is 15% total, with 6% cash interest and 9% fixed. This is reduced from 16.5% total interest of which 12% was cash and 4.5% was fixed under the previous agreement.

Also subsequent to the end of the fiscal year, during December 2003, the company sold $4.2 million of new junior subordinated, convertible debentures that are due in 2010. The convertible debentures were primarily sold to directors of the company and have provided the company with additional liquidity. The debentures are subordinated to the existing senior subordinated notes and carry interest at 12%.

Now, we'll turn it over to Dave Morley for some additional comments.

DAVE MORLEY, PRESIDENT, COO, DIRECTOR, FALCON PRODUCTS, INC.: Thanks, Bob. Good morning, everyone. I think almost everyone on the phone today would agree that 2003 was a tougher year than anyone expected. Our initial focus during the year was to drive down costs and capitalize on targeted market opportunities. We laid out an aggressive pathway to reduce costs, streamline our supply chain, and continue to improve responses to our customers. The fundamental change in our thinking was that we should only have fixed capital employed where we're adding unique value. We need to be able to source commodity products or components from the low cost sources anywhere in the world. This adds value to our customers and stockholders.

The first step was the redesign of the European wood frame supply chain. This allowed the faster delivery from Europe and reduced costs. This further allowed us to close the Zacatecas facility.

The second step was the reallocation of production from our Canton facility to [Morristown]. We largely completed these actions in the 1st quarter. Furthermore, we froze our pension plan.

These decisions drive future competitiveness and steadily increasing profitability over the last three quarters of 2004. The combined effect of these initiatives in 2004 will be an incremental 8 to $10 million in savings. In addition, going in 2003, we targeted education, Epic, and McDonald's to drive volume. As discussed in these calls, we also assumed a stable hospitality market that proved to be incorrect. We will discuss this more late, but we succeeded with education and Epic, while McDonald's got off to a slower start than they projected.

The next priority in 2003 became the creation of a new credit facility. As Bob discussed, this new facility will provide us with increased liquidity, at lower cost to operate our business in the current economic environment, and the capital to grow our business in the future. We ran a competitive process for our financing after the equity investment for insiders that Frank discussed. We had 6 firms interested in participating. We took three firms to full term sheets, post due diligence, and are pleased to be working with Oak Tree Capital in addition to Fleet Capital.

Now, I'm going to provide an update on our markets and the 4th quarter performance. The 4th quarter continued the trends earlier in the year. We had strength in the contract office market and food service market, and weakness continued in the hospitality market. Importantly, we performed with or ahead of the market in each case. We had very strong performance in food service during the quarter. Bob reported our sales increased by 11% during the quarter, excluding the impact from the earlier completion of Boston Market. The increase is a reflection of increased market share, particularly in the national account segment of the market.

All of the top QS -- or many of the top QSR brands have announced refurbishment programs. In fact, our McDonald's orders grew -- our non- McDonald's orders grew, in 2003, by over 20%. Just two weeks ago, McDonald's announced that they will re-image 15 to 1800 stores in 2004, compared to 700 stores in 2003. Their intent is to make the new stores points of destination. They said that their remodeling was largely done late in the year, but that the stores were providing, 'above market returns,' and they were expanding the project.

McDonald's has made a substantial turnaround recently. They're doing extensive marketing research to determine the drivers of the improvement across the three main variables of menu, service, and environment. We're not privy to the exact findings, but environment was determined to be important enough to more than double the number of stores to be refurbished in 2004. We believe that similar thinking is taking place across the other brands in the marketplace, and this bodes well for the coming year.

We're also leveraging our turn key approach to other areas of the food service market. We completed our first renovation