Falcon Products, Inc. (OTC:FCPR),
a leading manufacturer of commercial furniture, announced that it expects to
record a significant charge relating to the write-down of inventory. The
amount of the inventory write-down, and the underlying causes, are still under
review. Management currently estimates that the inventory write-down will
exceed $20 million, including approximately $4 million relating to a previously
closed facility. However, such estimate is preliminary and the actual amount
of any inventory write-down may be materially different from the preliminary
estimate. The Company had previously disclosed that certain deficiencies in
internal controls existed related to accounting for inventory and that it
intended to take certain actions to improve inventory controls. Such actions
included performance of a physical inventory of finished goods and work in
process on a quarterly basis, improved cycle counting procedures, increased
corporate oversight of the controls and procedures over inventory and the
hiring of experienced inventory personnel. During the course of the previously
announced Audit Committee investigation, it has been determined that these
stated actions were either not taken or not completely and properly
implemented. As previously announced, the Company hired a new chief financial
officer in late October whose responsibilities include addressing these
deficiencies.
The impact, if any, of the expected inventory write-down on the results of the
first three quarters of fiscal year 2004, and on periods prior to fiscal year
2004 has not yet been determined. Although the Company believes that it is
likely that the inventory write-down will impact prior periods, no definitive
conclusion has yet been reached as to whether prior periods are affected or
whether the impact on prior periods will warrant a restatement of prior period
financial statements. As soon as practicable following the completion of its
investigation of the inventory write-down, the Company intends to announce its
final conclusions and, if necessary, file the required amendments to its
previous filings with the Securities and Exchange Commission.
As previously announced, the Company's Audit Committee commenced an
investigation, with the assistance of independent counsel, into certain
accounting matters. The Audit Committee investigation is ongoing. On December
20, 2004, the SEC informed the Company that it is conducting a non-public
inquiry into certain accounting matters including inventory-related issues.
The Company intends to fully cooperate with this inquiry.
The Company also previously announced that it was not in compliance with
certain provisions under its senior credit facilities. The Company has been
advised by its lenders that, while the Company's request for waivers of such
defaults are under review, the lenders are unwilling to provide such waivers at
this time. Any restatement of the Company's financial statements for prior
periods could result in additional events of default under the Company's
various debt agreements. Although the defaults under the senior credit
facilities are continuing, the Company continues to have access to borrowings
under its revolving credit facility and its ability to serve its customers and
pay its employees and vendors in the ordinary course has not been affected.
On December 15, 2004, the Company announced that it was utilizing the 30-day
grace period relating to the payment of interest under its $100 million 11 3/8%
Senior Subordinated Notes due 2009 (the "Notes"). Although a final
determination has not yet been made as to whether the Company will be able to
make the interest payment prior to the expiration of the grace period on
January 14, 2005, it is currently likely that such payment will not be made.
The non-payment of the interest would constitute an event of default under the
Notes as well as under the Company's senior credit facilities.
The Company has had preliminary discussions with a large holder of the Notes
regarding a possible transaction that would convert the Notes to equity,
however, the feasibility of such a transaction has not yet been determined. In
addition, the Company, along with its financial advisor Imperial Capital LLC,
is evaluating various strategic alternatives relating to a possible
restructuring of the Company's outstanding indebtedness.
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 8 manufacturing facilities
throughout the world and has approximately 2,100 employees.
Certain statements in this press release that are not historical facts may be
"forward-looking statements." Actual events may differ materially from those
projected in any forward-looking statement. There are a number of important
factors involving risks and uncertainties beyond the control of the Company
that could cause actual events to differ materially from those expressed or
implied by such statements. Such factors include the results of the Company's
investigation, the ability of the Company to successfully implement
improvements in inventory controls, the SEC's ongoing informal inquiry with
respect to the Company, the continued willingness of the Company's revolving
lenders to provide access to the Company's credit lines, the continued
forbearance by the Company's lenders from exercising remedies under the
Company's credit arrangements, the Company's success with its liquidity
improvement initiatives, and the Company's ability to restructure its
outstanding indebtedness. The Company disclaims any intention or obligation to
update publicly or revise such statements, whether as a result of new
information, future events or otherwise.
FOR FURTHER INFORMATION
AT THE COMPANY:
Franklin A. Jacobs
9387 Dielman Industrial Drive
St. Louis, MO 63132
(314) 991-9200
DATASOURCE: Falcon Products, Inc.
CONTACT: Franklin A. Jacobs of Falcon Products, Inc., +1-314-991-9200