UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 21, 2005
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FALCON PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION)
1-11577 43-0730877
(COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
10650 GATEWAY BLVD., ST. LOUIS, MISSOURI 63132
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(314) 991-9200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
9387 DIELMAN INDUSTRIAL DRIVE, ST. LOUIS, MISSOURI 63132
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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ITEM 4.02 NON-RELIANCE ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR A RELATED
AUDIT REPORT OR COMPLETED INTERIM REVIEW.
4.02(A)
On October 18, 2004, Falcon Products, Inc. (the "Company") reported that the
Audit Committee of the Board of Directors of the Company was investigating
certain accounting-related matters with the assistance of independent outside
counsel. On January 4, 2005, the Company announced that it expected to take a
significant charge relating to a write-down of inventory as of October 30, 2004,
the end of its fiscal year (for which no financial statements have been issued).
At that time, the Company indicated that it would be writing-down its inventory
in an amount estimated to be in excess of $20 million. The Company also
disclosed that this estimate was preliminary and that the actual amount of any
inventory write-down may be materially different from the preliminary estimate.
The Company stated at that time that, although it was likely that the inventory
write-down would impact prior periods, no definitive conclusion had been reached
as to whether prior periods were affected or whether the impact on prior periods
would warrant a restatement of prior period financial statements. The Company
added that as soon as practicable following the completion of the investigation
of the inventory write-down, the Company intended to announce its final
conclusions and, if necessary, file the required amendments to its previous
filings with the Securities and Exchange Commission.
The Audit Committee investigation has concluded and, on June 21, 2005, at a
meeting of the Board of Directors, Bryan Cave LLP, counsel to the Audit
Committee, presented its final report to the Board of Directors. The Audit
Committee determined that as a result of accounting errors and irregularities,
the Company's financial statements were materially misstated for the year ended
November 1, 2003 and for the first three fiscal quarters of the fiscal year
ended October 30, 2004. Although the amount of the adjustments resulting from
such errors and irregularities has been quantified as detailed below, for the
reasons stated below, the Company is unable to quantify the impact of the
adjustments on specific prior periods. The investigation did not address periods
prior to the year ended November 1, 2003. In particular, the Audit Committee
concluded that:
o the Company overstated the value of inventory, failed to
reserve for excess and obsolete inventory and failed to record
the results of quarterly physical counts, leading to the
write-off of $33.3 million of inventory;
o the Company failed to properly recognize revenue in accordance
with its revenue recognition policies (including recognizing
revenue on transactions where product did not actually ship to
customers, transactions where invoices were issued but goods
were in transit under the control of the Company and revenues
on consignment sales), although the investigation did not
determine that the amounts misstated with respect to revenue
recognition were quantitatively material;
o certain former members of senior management bear responsibility
for accounting irregularities that resulted in the
misstatements; and
o certain former members of senior management who had a
responsibility to establish and implement policies and
procedures to assure the integrity of the Company's financial
reporting had not done so.
The $33.3 million inventory write-off in the fourth quarter of fiscal year
2004 includes two components. The first component, which was originally
disclosed by the Company on January 4, 2005, totals $21.6 million and relates to
physical count adjustments and reductions in the recorded amounts of labor and
overhead. The second component totals $11.7 million and relates to excess and
obsolete inventory. The amount of the inventory write-off is preliminary and
subject to change.
The Audit Committee investigation also addressed capitalized supply, sample
and IT costs that were included on the Company's balance sheet. During the year
end close and audit process, the Company determined that adjustments to these
balances were required, including write-offs of $1.8 million, $1.1 million and
$800,000 relating to capitalized samples, supplies and IT costs, respectively.
The amounts of these adjustments are preliminary and subject to change.
Several additional significant adjustments (which were not addressed as part
of the Audit Committee investigation) were identified during the year end close
and audit process. These adjustments include a
write-off of goodwill ($117.5 million), a write-off of capitalized research and
development costs ($1.0 million), a write-off of certain non-trade receivables
($1.1 million), and a write-off of unsubstantiated assets ($1.0 million). The
Company also identified currency translation adjustments which resulted in
additional income of $2.0 million. The amounts of these adjustments are
preliminary and subject to change.
Based on its findings, the Audit Committee has determined that the Company's
financial statements for the fiscal year ended November 1, 2003 and each of the
quarters thereof and the first three quarters of the fiscal year ended October
30, 2004 should not be relied upon. As a result of the Company's current
financial and internal resource constraints, it is unable to quantify the impact
of the inventory write-down and other adjustments on any specific prior periods.
As such the Company is currently unable to restate prior period financial
statements.
The Board of Directors asked for and received the resignation of Franklin A.
Jacobs, as Chairman, President and Chief Executive Officer of the Company. None
of the one-time officers of the Company identified by the investigation as
having any level of involvement in the accounting irregularities remains an
officer of the Company.
The Company discussed the matters disclosed in this Current Report on Form
8-K with Eisner LLP, its independent registered accounting firm and Ernst &
Young LLP, its former independent registered accounting firm. The write-offs and
adjustments set forth in this Current Report on Form 8-K are not audited, and as
indicated above, are preliminary and subject to change.
ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL EXECUTIVE OFFICERS; ELECTION OF
DIRECTORS; APPOINTMENT OF PRINCIPAL EXECUTIVE OFFICERS.
5.02(b)
On June 21, 2005, Franklin A. Jacobs resigned and has retired from his
positions as Chairman, President and Chief Executive Officer of the Company and
its subsidiaries.
5.02(c)
On June 21, 2005, the Board of Directors of the Company appointed John S.
Sumner, Jr. as acting president and chief executive officer of the Company. Mr.
Sumner, who is 59 years old, has been employed by TRG Turnaround and Crisis
Management (a company engaged in consulting and crisis management) since 1997
and is currently a Principal with TRG. Mr. Sumner currently serves on the Board
of Directors of each of Morris Material Handling, Inc., a manufacturer of
material handling equipment and Dan River, Inc., a manufacturer of home
fashions, each of which is privately-held.
Mr. Sumner, as an employee of TRG, was retained by the Company pursuant to a
letter agreement dated as of February 16, 2005 between the Company and TRG (the
"Letter Agreement"). Under the terms of the Letter Agreement, the Company pays
$60,000 per month to TRG for the services of Mr. Sumner. The Company also agreed
to pay TRG an hourly rate ranging from $195 to $495 for other employees of TRG.
The Company agreed to compensate TRG for reasonable out-of-pocket expenses. The
Letter Agreement may be terminated by either party at any time by written notice
and the Company will be liable for payment of fees and expenses incurred by TRG
through the effective date of termination.
ITEM 8.01. OTHER EVENTS
On June 22, 2005, the Company issued a press release, included as Exhibit
99.1, which press release is incorporated herein by reference.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT
99.1 Press Release dated June 22, 2005.
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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 hereunto duly authorized.
Falcon Products, Inc.
Date: June 27, 2005 By /s/ Neal R. Restivo
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Neal R. Restivo
Corporate Vice President and Chief
Financial Officer
