______________________________________________________________________
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission file number: 1-13418
FALCON BUILDING PRODUCTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 36-3931893
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
233 SOUTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
(Address of Principal Executive Office)
(312) 906-9700
(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 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No .
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
As of May 1, 1998, Falcon Building Products, Inc. had the following
shares of its various classes of common stock outstanding:
985,620 shares of Class A Common Stock
6,721,536 shares of Class B Common Stock
844,174 shares of Class C Common Stock
17,000 shares of Class D Common Stock
________________________________________________________________________
FALCON BUILDING PRODUCTS, INC.
FORM 10-Q
MARCH 31, 1998
INDEX
PART I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets ...........................
Condensed Consolidated Statements of Income and Comprehensive Income
Condensed Consolidated Statements of Cash Flows..................
Notes to Condensed Consolidated Financial Statements.............
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.................
PART II. Other Information:
Item 6. Exhibits and Reports on Form 8-K.............................
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
MARCH 31, DECEMBER 31,
1998 1997
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents...................... $ 19.5 $ 29.9
Inventories, net............................... 85.0 79.5
Other current assets........................... 56.7 34.0
Total current assets........................... 161.2 143.4
Property, plant and equipment, net................ 103.6 101.3
Goodwill.......................................... 56.5 57.0
Other assets...................................... 31.0 32.1
Total assets................................... $352.3 $333.8
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion long-term debt.................. $ 1.4 $ 1.5
Accounts payable................................ 51.6 34.0
Accrued liabilities............................. 45.4 43.2
Total current liabilities....................... 98.4 78.7
Senior indebtedness................................ 175.5 175.6
Senior subordinated notes.......................... 255.5 252.7
Accrued employee benefit obligations............... 9.3 9.2
Other long-term liabilities........................ 28.2 31.3
Total liabilities............................... 566.9 547.5
Stockholders' equity (deficit):
Common stock...................................... 0.1 0.1
Additional paid-in capital........................ . _
Retained deficit.................................. (212.9) (211.8)
Other............................................. (1.8) (2.0)
Total stockholders' equity (deficit).............. (214.6) (213.7)
Total liabilities and stockholders' equity........... $ 352.3 $ 333.8
The accompanying notes are an integral part of
these condensed consolidated financial statements.
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(DOLLARS IN MILLIONS)
(UNAUDITED)
QUARTER ENDED MARCH 31,
1998 1997
Net sales................................... $ 171.4 $ 160.2
Cost of sales............................... 146.3 131.9
Gross earnings........................... 25.1 28.3
Selling and administrative expenses......... 14.7 14.6
Securitization expense...................... 0.9 0.9
Operating income......................... 9.5 12.8
Net interest expense........................ 10.7 2.8
Income (loss) before income taxes........... (1.2) 10.0
Provision (benefit) for income taxes........ (0.5) 3.9
Net income (loss)........................... $ (0.7) $ 6.1
Comprehensive income (loss)................. $ (0.7) $ 6.1
The accompanying notes are an integral part of
these condensed consolidated financial statements.
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
QUARTER ENDED
MARCH 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $ (0.7) $ 6.1
Adjustments to reconcile net income (loss) to net cash used
in operations:
Depreciation.................................... 3.3 3.4
Amortization.................................... 1.5 0.7
Accretion of debt discount on subordinated debt. 2.8 _
Cash effect of changes in working capital, accrued employee
benefit obligations, and other long-term liabilities (11.4) (41.0)
Net cash used in operating activities .......... (4.5) (30.8)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................. (4.7) (3.0)
Other............................................ (0.9) 0.2
Net cash used in investing activities........... (5.6) (2.8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on debt........................... (0.2) 31.2
Other............................................ (0.1) (0.2)
Net cash from (used in) financing activities.... (0.3) 31.0
CHANGE IN CASH AND CASH EQUIVALENTS................ (10.4) (2.6)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..... 29.9 3.9
CASH AND CASH EQUIVALENTS, END OF PERIOD........... $ 19.5 $ 1.3
The accompanying notes are an integral part of
these condensed consolidated financial statements.
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
The accompanying unaudited Condensed Consolidated Financial Statements of
Falcon Building Products, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for a complete set of financial statements. In the opinion of
management, all adjustments considered necessary, consisting only of normal
recurring adjustments, are included for fair presentation. Operating
results for the quarter ended March 31, 1998 are not necessarily indicative
of results that may be expected for the full year. The unaudited Condensed
Consolidated Financial Statements should be read in conjunction with the
audited Consolidated Financial Statements of the Company for the year ended
December 31, 1997.
COMPREHENSIVE INCOME:
Effective January 1, 1998, the Company adopted the provisions of Statement
No. 130 "Reporting Comprehensive Income" ("SFAS No. 130"), which
establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. There was no material effect on the
Company's financial statements from the adoption of SFAS No. 130 for the
periods presented.
(2) INVENTORIES
Inventory consists of the following (in millions):
MARCH 31, DECEMBER 31,
1998 1997
(UNAUDITED)
Raw materials and supplies ..... $ 29.0 $ 27.8
Work in process ................ 12.2 12.0
Finished goods ................. 43.8 39.7
$ 85.0 $ 79.5
(3) ACCOUNTS RECEIVABLE
Included in the Company's financial statements as of March 31, 1998, in
other current assets, is a net residual interest of $34.3 million
associated with the $108.5 million of receivables sold under the accounts
receivable securitization program as of that date, compared to $13.1
million associated with the $88.6 million of receivables sold as of
December 31, 1997. The expense incurred on the sale of receivables under
this program was $0.9 million in the three months ended March 31, 1998 and
1997.
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS _ (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
(4) LONG-TERM DEBT
Senior indebtedness consists of the following (in millions):
MARCH 31, DECEMBER 31,
1998 1997
(UNAUDITED)
Bank Credit Facility
Revolver.............. $ - $ -
Term.................. 174.5 174.5
Total................. 174.5 174.5
Other ................... 2.4 2.6
Less: Current Portion... (1.4) (1.5)
Senior indebtedness... $ 175.5 $ 175.6
At March 31, 1998, the Company was in compliance with all covenants of the
Bank Credit Facility. Availability under the revolving portion of this
facility was $119.9 million at March 31, 1998.
Senior Subordinated Notes consist of the following (in millions):
MARCH 31, DECEMBER 31,
1998 1997
(UNAUDITED)
Notes.................... $145.0 $145.0
Discount Notes........... 110.5 107.7
$255.5 $252.7
(5) GUARANTOR SUBSIDIARIES
The Company's payment obligations under the Notes and the Discount Notes
are fully and unconditionally guaranteed on a joint and several basis
(collectively, the "Guarantees") by DeVilbiss Air Power Company, Hart & Cooley,
Inc., Mansfield Plumbing Products, Inc., SWC Industries, Inc. and Falcon
Manufacturing, Inc. (collectively, the "Guarantor Subsidiaries"). Each of the
Guarantor Subsidiaries is a direct or indirect wholly-owned subsidiary of the
Company. The Company's only other subsidiary, Falcon Receivable Program, Inc.,
is a special purpose corporation formed for the Company's accounts receivable
securitization program. The obligations of each Guarantor Subsidiary under its
Guarantee are subordinated to such subsidiary's obligations under its guarantee
of the Bank Credit Facility.
Presented below is condensed consolidating financial information for Falcon
Building Products, Inc. ("Parent Company"), the Guarantor Subsidiaries and
Falcon Receivable Program, Inc. (the "Non-Guarantor Subsidiary"). In the
Company's opinion, separate financial statements and other disclosures
concerning each of the Guarantor Subsidiaries would not provide additional
information that is material to investors. Therefore, the Guarantor
Subsidiaries are combined in the presentation below.
Investments in subsidiaries are accounted for by the Parent Company on the
equity method of accounting. Earnings of subsidiaries are, therefore, reflected
in the Parent Company's investments in and advances to/from subsidiaries account
and earnings. The elimination entries eliminate investments in subsidiaries and
intercompany balances and transactions.
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
(5) GUARANTOR SUBSIDIARIES (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 1998
(dollars in millions)
(Unaudited)
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
ASSETS
Current assets:
Cash and cash equivalents....... $ 17.8 $ 1.3 $ 0.4 $ _ $ 19.5
Inventories, net................ _ 85.0 _ _ 85.0
Other current assets............ 1.7 20.7 34.3 _ 56.7
Total current assets............ 19.5 107.0 34.7 _ 161.2
Property, plant and equipment, net. 0.5 103.1 _ _ 103.6
Goodwill........................... _ 56.5 _ _ 56.5
Investment in and advances
to/from subsidiaries............ 188.9 (121.4) (29.3) (38.2) _
Other long-term assets............. 26.4 4.6 _ _ 31.0
Total assets.................... $ 235.3 $ 149.8 $ 5.4 $ (38.2) $ 352.3
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion long-term debt.. $ 1.0 $ 0.4 $ _ $ _ $ 1.4
Accounts payable................ 0.4 51.2 _ _ 51.6
Accrued liabilities............. 15.2 30.2 _ _ 45.4
Total current liabilities....... 16.6 81.8 _ _ 98.4
Senior indebtedness................ 429.1 1.9 _ _ 431.0
Other long-term liabilities........ 4.2 33.3 _ _ 37.5
Total liabilities............... 449.9 117.0 _ _ 566.9
Stockholders' equity (deficit):
Common stock.................... 0.1 _ _ _ 0.1
Additional paid-in capital...... _ 42.9 6.5 (49.4) _
Retained earnings (deficit)..... (212.9) (10.1) (1.1) 11.2 (212.9)
Other........................... (1.8) _ _ _ (1.8)
Total stockholders' equity
(deficit).......................... (214.6) 32.8 5.4 (38.2) (214.6)
Total liabilities and
stockholders' equity............... $ 235.3 $ 149.8 $ 5.4 $ (38.2) $ 352.3
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 1998
(5) GUARANTOR SUBSIDIARIES (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1997
(dollars in millions)
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
ASSETS
Current assets:
Cash and cash equivalents....... $ 29.1 $ 0.7 $ 0.1 $ - $ 29.9
Inventories, net................ - 79.5 - - 79.5
Other current assets............ 1.1 19.8 13.1 - 34.0
Total current assets............ 30.2 100.0 13.2 - 143.4
Property, plant and equipment, net. 0.2 101.1 - - 101.3
Goodwill........................... - 57.0 - - 57.0
Investment in and advances
to/from subsidiaries............ 174.4 (135.5) (7.6) (31.3) -
Other long-term assets............. 27.4 4.7 - - 32.1
Total assets.................... $ 232.2 $ 127.3 $ 5.6 $ (31.3) $ 333.8
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion long-term debt.. $ 1.0 $ 0.5 $ - $ - $ 1.5
Accounts payable................ 0.3 33.7 - - 34.0
Accrued liabilities............. 14.2 29.0 - - 43.2
Total current liabilities....... 15.5 63.2 - - 78.7
Long term debt..................... 426.2 2.1 - - 428.3
Other long-term liabilities........ 4.2 36.3 - - 40.5
Total liabilities............... 445.9 101.6 - - 547.5
Stockholders' equity (deficit):
Common stock.................... 0.1 - - - 0.1
Additional paid-in capital...... - 42.9 6.5 (49.4) -
Retained earnings (deficit)..... (211.8) (17.2) (0.9) 18.1 (211.8)
Other........................... (2.0) - - - (2.0)
Total stockholders' equity
(deficit).......................... (213.7) 25.7 5.6 (31.3) (213.7)
Total liabilities and
stockholders' equity............... $ 232.2 $ 127.3 $ 5.6 $ (31.3) $ 333.8
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
(5) GUARANTOR SUBSIDIARIES (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
Three Months Ended March 31, 1998
(dollars in millions)
(Unaudited)
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
Net sales............................... $ _ $ 171.4 $ _ $ _ $ 171.4
Cost of sales........................... _ 146.3 _ _ 146.3
Gross earnings....................... _ 25.1 _ _ 25.1
Selling and administrative expenses..... 1.5 13.2 _ _ 14.7
Securitization expense.................. 1.1 _ (0.2) _ 0.9
Operating income (loss).............. (2.6) 11.9 0.2 _ 9.5
Net interest expense.................... 10.3 _ 0.4 _ 10.7
Income (loss) before income taxes....... (12.9) 11.9 (0.2) _ (1.2)
Provision (benefit) for income taxes.... (5.3) 4.8 _ _ (0.5)
Income (loss) before equity in income of
consolidated subsidiaries............ (7.6) 7.1 (0.2) _ (0.7)
Equity in income of consolidated
subsidiaries............................ 6.9 - - (6.9) -
Net income (loss)....................... $ (0.7) $ 7.1 $ (0.2) $ (6.9) $ (0.7)
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
(5) GUARANTOR SUBSIDIARIES (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
Three Months Ended March 31, 1997
(dollars in millions)
(Unaudited)
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
Net sales............................... $ _ $ 160.2 $ _ $ _ $ 160.2
Cost of sales........................... _ 131.9 _ _ 131.9
Gross earnings....................... _ 28.3 _ _ 28.3
Selling and administrative expenses..... 1.3 13.3 _ _ 14.6
Securitization expenses................. 1.6 _ (0.7) _ 0.9
Operating income (loss).............. (2.9) 15.0 0.7 _ 12.8
Net interest expense.................... 2.4 0.1 0.3 _ 2.8
Income (loss) before income taxes....... (5.3) 14.9 0.4 _ 10.0
Provision (benefit) for income taxes.... (2.0) 5.9 _ _ 3.9
Income (loss) before equity in income of
consolidated subsidiaries............ (3.3) 9.0 0.4 _ 6.1
Equity in income of consolidated
subsidiaries............................ 9.4 - - (9.4) -
Net income.............................. $ 6.1 $ 9.0 $ 0.4 $ (9.4) $ 6.1
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
(5) GUARANTOR SUBSIDIARIES (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 1998
(dollars in millions)
(Unaudited)
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
Cash flows from (used in) operating
activities.............................. $ (3.3) $ 20.2 $ (21.4) $ - $ (4.5)
Cash flows used in investing
activities:
Capital expenditures................. (0.3) (4.4) _ _ (4.7)
Other................................ _ (0.9) _ _ (0.9)
Net cash used in investing activities (0.3) (5.3) _ _ (5.6)
Cash flows from (used in) financing
activities:
Advances (to) from affiliate......... (7.6) (14.1) 21.7 _ _
Net payments on debt................. _ (0.2) _ _ (0.2)
Other................................ (0.1) _ _ _ (0.1)
Net cash from (used in) financing
activities.............................. (7.7) (14.3) 21.7 - (0.3)
Change in cash and cash equivalents..... (11.3) 0.6 0.3 _ (10.4)
Cash and cash equivalents, beginning of
period............................... 29.1 0.7 0.1 _ 29.9
Cash and cash equivalents, end of period $ 17.8 $ 1.3 $ 0.4 $ _ $ 19.5
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
(5) GUARANTOR SUBSIDIARIES (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 1997
(dollars in millions)
(Unaudited)
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
Cash flows from (used in) operating
activities.............................. $ (10.3) $ 8.3 $ (28.8) $ - $ (30.8)
Cash flows from (used in) investing
activities:
Capital expenditures................. _ (3.0) _ _ (3.0)
Other................................ 0.2 _ _ _ 0.2
Net cash from (used in) investing
activities.............................. 0.2 (3.0) - - (2.8)
Cash flows from (used in) financing
activities:
Advances (to) from affiliate......... (23.3) (5.8) 29.1 _ _
Net borrowings (payments) on debt.... 31.3 (0.1) _ _ 31.2
Other................................ (0.2) _ _ _ (0.2)
Net cash from (used in) financing
activities.............................. 7.8 (5.9) 29.1 - 31.0
Change in cash and cash equivalents..... (2.3) (0.6) 0.3 _ (2.6)
Cash and cash equivalents, beginning of
period............................... 2.6 1.3 _ _ 3.9
Cash and cash equivalents, end of period $ 0.3 $ 0.7 $ 0.3 $ _ $ 1.3
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Following is a discussion of the results of operations of the Company and
its subsidiaries for the quarter ended March 31, 1998 as compared to the
quarter ended March 31, 1997 and should be read in conjunction with the
Condensed Consolidated Financial Statements included herein and the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
QUARTER ENDED MARCH 31,
1998 1997
AMOUNT % OF SALES AMOUNT % OF SALES
(dollars in millions)
Net sales
Air Distribution Products.. $ 45.3 26.4% $ 41.9 26.2%
Plumbing Fixtures.......... 36.4 21.3 38.6 24.1
Air Power Products......... 89.7 52.3 79.7 49.7
Total.................. $ 171.4 100.0% $ 160.2 100.0%
Gross earnings............... $ 25.1 14.6 $ 28.3 17.7
Operating income............. $ 9.5 5.5 $ 12.8 8.0
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
Net sales for the quarter of $171.4 million were $11.2 million or 7.0%
higher than in 1997. The increase in Air Power Products of $10.0 million
was primarily due to increased generator sales due to storm activity of
$7.4 million, increased air compressor sales, primarily to Sears, of $7.1
million, partially offset by a net decrease in pressure washer sales of
$3.8 million due primarily to loss of customers resulting from the
Company's implementation of a "no returns" policy. The increased net sales
in Air Distribution Products of $3.4 million was primarily due to increased
sales volume of residential and light commercial vents and registers as
well as strong activity in heavy commercial products, partially offset by
reduced pricing in flexible duct product compared to the first quarter of
1997, as these prices did not come under pressure until the third and
fourth quarters of 1997. The decrease in net sales of Plumbing Fixtures
was primarily due to unfavorable weather conditions affecting wholesaler
and contractor demand, primarily on the West Coast.
Gross earnings of $25.1 million were $3.2 million or 11.1% lower than in
1997. Air Power Products' margins compared unfavorably to 1997 as the
margins reflected on pressure washer sales in the first two quarters of
1997 were based upon estimated return costs that subsequently developed
adversely. Earnings on the increased sales volume partially offset these
declines. First quarter results continue to be affected by manufacturing
inefficiencies in Plumbing Fixtures. The Company has instituted cost
controls, revised process flows, implemented management changes and
committed additional capital for cost reduction programs in order to
improve its manufacturing costs. Gross margin decreased from 17.7% in 1997
to 14.6% in 1998 due to the above mentioned factors, in addition to the
lower pricing for flexible duct products.
Operating income decreased from $12.8 million in 1997 to $9.5 million in
1998. This decrease was primarily due to the reduced level of gross
earnings as discussed above.
Net interest expense increased from $2.8 million in 1997 to $10.7 million
in 1998 due to the new debt structure that resulted from the
Recapitalization in June 1997.
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that it will meet its working capital and capital
expenditure needs in 1998 through a combination of operating cash flow,
availability under its Bank Credit Facility and funds available through the
accounts receivable securitization program.
Net cash flow used in operating activities was $4.5 million for the quarter
ended March 31, 1998, compared to $30.8 million for the comparable 1997
period. The improvement of $26.3 million was primarily due to a decrease
in working capital requirements and the effects of the asset securitization
program. Partially offsetting these improvements was the fact that a loss
was recorded in the 1998 period compared to income recorded in the 1997
period.
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
99.1 Letter to Bondholders
b) Reports on Form 8-K
Current report on Form 8-K, dated February 24, 1998, relative to the
Corrective Action Program approved by the United States Consumer
Product Safety Commission regarding high temperature plastic venting
systems.
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 BUILDING PRODUCTS, INC.
By: /s/ Sam A. Cottone
Sam A. Cottone
Executive Vice President and
Chief Financial Officer
Dated: May 15, 1998