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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549-1004
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 0-23789
FLOUR CITY INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Nevada 62-1709152
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(State of Incorporation) (I.R.S. Employer Identification No.)
915 Riverview Drive, Suite One, Johnson City, TN 37620
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(Address of principal executive offices, zip code)
(423) 928-2724
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(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 (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Common stock 6,267,539 shares outstanding at September 13, 1999
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FLOUR CITY INTERNATIONAL, INC.INDEX
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PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to the Condensed Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-13
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FLOUR CITY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts) (unaudited)
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<CAPTION>
Three months ended Nine months ended
July 31, July 31,
1999 1998 1999 1998
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Revenues $ 10,969 $ 10,004 $ 30,617 $ 23,395
Cost of revenues (8,567) (7,125) (24,752) (15,035)
- ------------------------------------------------------------------------------------------------------------------------
Gross margin 2,402 2,879 5,865 8,360
Selling, general and administrative expenses (4,460) (1,937) (9,085) (4,890)
Amortization, net 235 99 403 282
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Operating profit (loss) (1,823) 1,041 (2,817) 3,752
Foreign currency transaction losses 83 (74) (44) (431)
Equity in net loss of unconsolidated affiliates - 26 - (39)
Other income (expense), net 207 182 708 424
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Income (loss) before income taxes and minority interests (1,533) 1,175 (2,153) 3,706
Income taxes (68) (248) (122) (637)
Minority interests in earnings of consolidated subsidiaries (203) - (672) -
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (1,804) $ 927 $ (2,947) $ 3,069
========================================================================================================================
Net income (loss) per share:
Basic $ (0.29) $ 0.16 $ (0.47) $ 0.69
Diluted $ (0.29) $ 0.16 $ (0.47) $ 0.64
========================================================================================================================
Weighted average shares outstanding:
Basic 6,268 5,658 6,268 4,461
Diluted 6,268 5,951 6,268 4,825
========================================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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FLOUR CITY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except shares and per share amounts)
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<CAPTION>
July 31, 1999 October 31, 1998
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(unaudited)
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ASSETS
Cash and cash equivalents $ 14,005 $ 19,297
Restricted cash 3,588 3,887
Accounts receivables, net 5,402 8,124
Claims receivable - 970
Note receivable 1,395 1,395
Costs and estimated earnings in excess
of billings on uncompleted contracts 3,882 3,314
Deferred income taxes 279 204
Other current assets 2,424 2,244
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Total current assets 30,975 39,435
Plant and equipment, net 2,094 1,454
Other assets 1,968 1,362
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Total assets $ 35,037 $ 42,251
================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $ 3,014 $ 1,282
Accounts payable and accrued expenses 4,787 4,119
Accounts payable to related parties - 79
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,287 8,543
Other current liabilities 971 485
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Total current liabilities 11,059 14,508
Negative goodwill, net 1,056 1,384
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Total liabilities and deferred credits 12,115 15,892
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Commitments and contingencies
Minority interests in equity of consolidated subsidiaries 878 207
Stockholders' equity:
Preferred stock, par value $0.0001; authorized
5,000,000 shares; no shares issued - -
Common stock, par value $0.0001; authorized
50,000,000 shares; issued and outstanding
6,267,539 shares at July 31, 1999, and
October 31, 1998 - -
Additional paid-in-capital 14,788 14,788
Retained earnings 7,851 10,798
Accumulated other comprehensive income (loss) (495) 697
Other stockholders' equity (100) (131)
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Total stockholders' equity 22,044 26,152
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Total liabilities and stockholders' equity $ 35,037 $ 42,251
================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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FLOUR CITY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
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Nine months ended July 31, 1999 1998
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Cash flows from operating activities:
Net income (loss) $ (2,947) $ 3,069
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:
Depreciation and amortization 30 (195)
Non-cash stock compensation 31 46
Deferred income taxes - 216
Changes in assets and liabilities net of effects of acquisitions of
businesses:
Restricted deposits 299 (1,471)
Accounts receivable, net 2,722 2,787
Costs, estimated earnings and billings, net (6,824) (1,761)
Other current assets (301) 34
Other assets (554) (74)
Receivable from joint venture - (544)
Accounts payable and accrued expenses 668 212
Income taxes payable 104 (171)
Other current liabilities 384 (827)
Accounts payable to related parties (79) (5)
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Net cash provided by (used in) operating activities (6,467) 1,316
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-
Cash flows from investing activities:
Purchase of property, plant and equipment (954) (152)
Investment in joint venture corporations (52) (370)
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Net cash used in investing activities (1,006) (522)
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Cash flows from financing activities:
Proceeds from issuance of common stock - 14,666
Proceeds (payments) on bank borrowings 1,732 37
Changes in minority interest 671 -
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Net cash provided by financing activities 2,403 14,703
Effect of exchange rate changes on cash (222) (740)
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Net increase (decrease) in cash and cash equivalents (5,292) 14,757
Cash and cash equivalents, beginning of year 19,297 342
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Cash and cash equivalents, end of year $ 14,005 $ 15,099
=============================================================================================================
Supplemental cash flow information:
Interest paid in cash $ 60 $ 30
Income taxes paid in cash 180 586
=============================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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FLOUR CITY INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. GENERAL
The condensed consolidated financial statements include the accounts of
Flour City International, Inc. and its wholly owned and majority owned
subsidiary companies after elimination of material intercompany accounts and
transactions. Less than majority owned affiliates over which the Company
exercises significant influence are accounted for as equity investments. Less
than twenty percent owned affiliates over which the Company cannot exercise
significant influence are carried at cost.
When reading the financial information contained in this Quarterly
Report, reference should be made to the financial statements, schedules, and
notes, included in the Company's Annual Report on Form 10-K for the year ended
October 31, 1998. Prior year's quarterly financial statements have been
reclassified to conform to current presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. On an
ongoing basis, management reviews its estimates, including those related to
contracts, litigation, and contingencies, based on current available
information. Changes in facts and circumstances may result in revised estimates.
In the opinion of management, the Condensed Consolidated Financial Statements
include all material adjustments necessary to present fairly the Company's
financial position, results of operations, and cash flows. Such adjustments are
of a normal recurring nature. The Company's construction projects are awarded in
a competitive bidding process. Due to the nature of the process the Company has
experienced and may continue to experience significant delays in project awards
which have caused and may continue to cause substantial variations in quarterly
results. The results for this interim period are not necessarily indicative of
results for the entire year or any other interim period.
2. SIGNIFICANT ACCOUNTING PRINCIPLES
As of November 1, 1998, the Company adopted the provisions of SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information, which
supersedes portions of SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise. SFAS No. 131 requires the reporting of segment information
based on the way management runs the business whereas SFAS No. 14 required
reporting along product lines. See note 5 - Segment Information.
As of November 1, 1998, the Company adopted the provisions of SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 requires the inclusion, after
net income, of the after-tax effect of certain items currently affecting
stockholders' equity, to arrive at comprehensive income. The Company will
display other comprehensive income as an element in the statement of changes in
equity at year-end. See note 6 - Comprehensive Income.
3. ACCOUNTS AND NOTE RECEIVABLE, NET
(in thousands)
Accounts and note receivable are net of allowance for doubtful accounts
of $1,877 and $539 at July 31, 1999, and October 31, 1998, respectively. In
accordance with the terms of long-term contracts, customers withhold certain
percentages of billings until completion and acceptance of performance under the
contracts. Final payments of all such amounts withheld which might not be
received within a one-year period from July 31, 1999, and October 31, 1998, are
$4,273 and $5,002 respectively. In conformity with trade practice, however, the
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full amount of accounts receivable has been included in current assets. Notes
receivable consists of a $1,395 note from Armco, Inc. (Armco) related to
contracts assumed when the Company acquired Flour City Architectural Metals,
Inc. (FCAM) from Armco.
4. OTHER INCOME (EXPENSE), NET
(in thousands)
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THREE MONTHS ENDED NINE MONTHS ENDED
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JULY 31, JULY 31,
1999 1998 1999 1998
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Interest income $ 209 $ 155 $ 676 $ 218
Interest expense (25) (12) (60) (34)
Other income (expense), net 23 39 92 240
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Other income (expense), net $ 207 $ 182 $ 708 $ 424
======================================================================================================
</TABLE>
5. SEGMENT INFORMATION
The Company is engaged in one industry segment: the design,
engineering, manufacture, and installation of custom curtainwall systems for the
construction industry. The Company manages its business in two segments based on
geographical location: North America and the Pacific-Rim. The accounting
policies for each segment are the same as for the Company. Intersegment revenues
consist of design and engineering performed by one segment for another. In
consolidation, such intersegment revenues are eliminated against the receiving
segment's cost of revenues. Segment profit or loss includes all items that
comprise net income for the respective segments.
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SEGMENT REVENUES AND PROFIT
(in thousands)
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Three months ended Nine months ended
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July 31, July 31,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenues
Revenues from external customers:
North America $ 3,592 $ 5,356 $ 10,945 $ 13,661
Pacific 7,377 4,648 19,672 9,734
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Total revenues from external customers 10,969 10,004 30,617 23,395
Intersegment revenues: - -
North America 22 - 463 -
Pacific - - - -
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Total intersegment revenues 22 - 463 -
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Total revenues for reportable segments 10,991 10,004 31,080 23,395
Elimination of intersegment revenues (22) - (463) -
- -----------------------------------------------------------------------------------------------------------------------
Consolidated revenues 10,969 10,004 30,617 23,395
=======================================================================================================================
Profit or (loss):
North America (241) 258 (338) 863
Pacific (1,585) 669 (2,609) 2,206
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Profit (loss) for reportable segments (1,826) 927 (2,947) 3,069
Unallocated corporate income and (expenses), net 22 - -
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Consolidated net income (loss) (1,804) 927 (2,947) 3,069
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</TABLE>
Segment assets are the total assets of the segments. Unallocated corporate
assets consist primarily of cash and certificates of deposit.
SEGMENT ASSETS
(in thousands)
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AT JULY 31, 1999 AND OCTOBER 31, 1998 1999 1998
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Assets
North America $9,304 $10,914
Pacific 11,951 17,349
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Total assets for reportable segments 21,255 28,263
Unallocated corporate assets 13,782 13,988
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Consolidated total assets $35,037 $42,251
============================================================================
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
(in thousands)
In August 1999, the Company entered into a five year lease with an
option to purchase approximately 100,000 sq.ft. manufacturing facility near
Johnson City, Tennessee.
As of July 31, 1999, the Company had a total of $5,988 in performance
guarantees outstanding in relation to construction contracts in progress in
Thailand, Hong Kong and the Philippines.
Prior to the Company's purchase of FCAM from Armco (the "Armco Sale"),
FCAM operated facilities that allegedly generated hazardous substances. FCAM has
been named as a potentially responsible party (PRP) in relation to several sites
for actions that allegedly occurred prior to the Company's purchase of FCAM.
Pursuant to the terms of the Armco Sale, Armco agreed to defend, indemnify and
hold harmless the Company in connection with certain lawsuits, including
environmental claims associated with any property owned by FCAM at or before the
date of sale. Armco has assumed any and all cleanup responsibility and
litigation with respect to such environmental claims pursuant to the Armco Sale
agreement. The Company believes that to the extent FCAM
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incurs any loss or liability in connection with any such actions, it will be
fully compensated by Armco. In the opinion of management, any ultimate
liability with respect to these actions will not have a material impact on
the financial position of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Flour City International, Inc. (the "Company"), a Nevada corporation
incorporated in 1987, is a worldwide leader in the design, fabrication and
installation of custom exterior wall systems (known as "curtain wall") used
in the construction of a wide range of commercial and governmental buildings.
The Company works closely with architects, general contractors and
owners/developers in the development and construction of highly recognizable
mid-rise and high-rise office buildings, public-use buildings such as
courthouses and airport terminals and other well-known landmark buildings and
uniquely designed structures.
The Company's principal subsidiaries are Flour City Architectural
Metals, Inc., a Delaware corporation (FCAM), and Flour City Architectural Metals
(Pacific) Limited (FCAM Pacific), a British Virgin Islands corporation. FCAM was
initially formed in 1893 under the name Flour City Ornamental Iron Company as a
specialty metals fabricator for the architectural industry, and was a subsidiary
of Armco, Inc. (Armco) immediately prior to the merger. FCAM Pacific was
formerly known as Hockley International Limited, an independent corporation.
- --------------------------------------------------------------------------------
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES SUCH AS: THE DEPENDENCE OF THE COMPANY ON A SMALL NUMBER
OF LARGE CONTRACTS; THE SENSITIVITY OF THE COMPANY'S BUSINESS TO GLOBAL
ECONOMIC CONDITIONS; REFERENCES TO THE EXPECTED LEVELS OF GROSS MARGINS
AND EXPENSES; YEAR 2000 COMPLIANCE; THE COLLECTABILITY OF RECEIVABLES;
AND THE ADEQUACY OF CASH FLOWS. THESE FORWARD-LOOKING STATEMENTS AND
OTHER STATEMENTS MADE ELSEWHERE IN THIS REPORT ARE MADE IN RELIANCE ON
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE SECTION BELOW
ENTITLED "FACTORS THAT MAY AFFECT FUTURE RESULTS" SETS FORTH AND
INCORPORATES BY REFERENCE CERTAIN FACTORS THAT COULD CAUSE ACTUAL
FINANCIAL RESULTS OF THE COMPANY TO DIFFER MATERIALLY FROM THESE
STATEMENTS.
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RESULTS OF OPERATIONS
(in thousands)
QUARTER ENDED JULY 31, 1999 COMPARED TO QUARTER ENDED JULY 31, 1998
REVENUES. Total revenues increased 9.6% or $965 over the same quarter a
year ago. Revenues for the third quarter ended July 31, 1999 were $10,969
compared to $10,004 for the quarter ended July 31, 1998. Revenues from projects
in the Pacific-Rim totaled $7,377 in the third quarter; an increase of 59% or
$2,729 over the same quarter last year. Project revenues in North America were
$3,592, a decrease of 33% from the $5,356 revenues reported in the same period
last year. North America has experienced significant delays on three of its
projects this quarter. John F. Kennedy Airport Terminal #4 in New York, Trump
Towers in New York and 33 Arch Street in Boston have experienced construction or
start-up delays. The increase or decrease in revenues is typical of the cyclical
nature of the Company's business, reflecting the simultaneous completion phase
of a number of older projects and start-up phases of newer projects.
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GROSS PROFIT/MARGIN. Gross profit for the quarter ended July 31, 1999,
was $2.4 million, or 21.9% of revenues, compared to $2.9 million, or 28.8% of
revenues, for the same period of 1998. The decline in gross margin contribution
and rate were the result of lower profit margin projects in the Pacific-Rim and
North America in contrast to projects at the same time last year.
North America gross margin was $.9 million, or 23.9% of revenues, for
the quarter ended July 31, 1999, compared to $1.5 million, or 27.7% of revenues,
for the same period in 1998. Pacific-Rim gross margin was $1.5 million, or 21%
of revenues, for the quarter ended July 31, 1999, compared to $1.4 million, or
30% of revenues, for the same period in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $4.4 million for the quarter ended July 31,
1999, compared to $1.9 million for the same quarter of 1998. Approximately
$2.0 million of the $2.5 million increase represents a reserve that is the
result of uncertainties in the collectability of primarily $1.6 million
retention receivables and "cost in excess of billings" and $0.4 million in
taxes and other costs on the Empire Towers project located in Thailand. In
July 1999, the owner of the building has refused to honor claims previously
agreed to and has asserted claims against the Company for which the Company
believes are unsubstantiated. Management is exploring the feasibility of
either legal action or arbitration to obtain resolution of the amounts due.
The remaining additional increase in selling, general and administrative
expenses of $0.5 million represents a 27% increase over the same period of
the prior year and is primarily in support of the Pacific Rim revenue growth
of 59% over that of last year.
BACKLOG AND BIDS OUTSTANDING. The Company's backlog totaled $91 million
at July 31, 1999, of which $46 million was from North America and $45 was from
the Pacific-Rim area. Bids outstanding at July 31, 1999 totaled $242 million,
$157 million in North America and $85 million in the Pacific-Rim and Europe.
NINE MONTHS ENDED JULY 31, 1999 COMPARED TO NINE MONTHS ENDED JULY 31, 1998
REVENUES. Revenues increased by 30.9% or $7,222 from $23,395 to $30,617
in the nine-month period ended July 31, 1999, compared to the same period of
1998 due to increased project activity. Revenues generated by projects in North
America decreased by 19.9% from $13,661 to $10,945 in the nine-month period
ended July 31, 1999 compared to the same period of 1998. Revenues generated by
projects in the Pacific-Rim increased by 102% from $9,734 to $19,672 in the
nine-month period ended July 31, 1999 compared to the same period of 1998.
GROSS PROFIT. Gross profit declined from $8,360 to $5,865 in the
nine-month period ended July 31, 1999, compared to the same period of 1998.
The decline in gross margin rate was the result primarily of lower profit
margins on the mix of projects in both North America and the Pacific-Rim and
was adversely impacted by the $1.0 million adjustment on the Empire Towers
project in the first quarter.
Gross profit margin as a percent of revenues decreased from 35.7% to
19.2% in the nine-month period ended July 31, 1999, compared to the same period
of 1998. The decline in the gross margin rate is due to the mix of construction
projects underway this year in comparison to those of last year and the
adjustment discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses totaled $9.1 million for the nine-month period ended
July 31, 1999 compared to $4.9 million for the same period of 1998. The
increased expenses of $4.2 million was the result of the $2 million Empire
Tower reserve adjustment previously discussed and to support the nine-month
growth rate in global revenues of 31% and the anticipated future growth
levels of the business. Exclusive of the Empire Towers reserve adjustment,
selling, general and administrative expenses as a percent of revenues were
23% in the nine-month period ended July 31, 1999 compared to 21% in the
previous year.
LIQUIDITY AND CAPITAL RESOURCES
Management expects that the Company will have sufficient liquidity to
meet ordinary future short-term and long-term business needs. The source of
liquidity generally available to the Company is cash and cash equivalents.
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OPERATING ACTIVITIES. $6.5 million in cash was used in operating
activities for the nine-months ended July 31, 1999, compared to a contribution
of $1.3 million for the same period of 1998. North America projects typically
result in cash in-flows being less than cash outflows until units are installed
on the building, which can be as long as twelve months from the beginning of the
project. The Company typically receives substantial cash advances for projects
located in the Pacific-Rim. A significant use of cash during the current period
was attributable to a $6.8 million decline in the net billings in excess of cost
and estimated earnings on uncompleted contracts in the Pacific-Rim. Other uses
of cash during the nine-month period included an increase in other assets of
$0.6 million and other current assets of $0.3 million. A source of operating
funds was provided by a reduction in the accounts receivable of $2.7 million and
an increase in accounts payable and accrued expenses of $0.7 million
INVESTING ACTIVITIES. Capital expenditures used $1.0 million of cash
during the nine-month period ended July 31, 1999, compared to $0.2 million in
the same period of 1998. The expenditures were used primarily to equip a new
fabrication plant in the Philippines for two major projects in progress there.
FINANCING ACTIVITIES. The Company increased short-term borrowings,
principally with import loans associated with projects in the Philippines, by
$1.7 million during the nine-month period ended July 31, 1999. The short term
import loans, used for material purchases, bear interest at the prevailing
interest rate which approximates 16% and are due and payable between August 1999
and October 1999.
During the quarter ended July 31, 1998 the Company completed the
registration and issuance of 2,000,000 shares of the Company's $0.0001 par
value stock resulting in net proceeds after deducting estimated issuance
costs of approximately $13.5 million. On July 9, 1998 the Company's
underwriters exercised their over-allotment option with respect to 143,000
shares resulting in net proceeds of approximately $1.0 million. The intended
use of the proceeds is to increase the Company's plant production capacity,
working capital and general corporate purposes. The increased stockholders'
equity resulting from the offer allows the Company to secure more and larger
bonding facilities.
EFFECT OF EXCHANGE RATES ON CASH. Exchange rate fluctuations had an
adverse effect of $0.2 million to cash flows during the nine-month period
ended July 31, 1999, compared to $0.7 million in 1998.
GENERAL. The Company attempts to structure payment arrangements with
its customers to match costs incurred under projects. To the extent the
Company is not able to match costs, it relies on its cash reserves to meet
its working capital needs. As of July 31, 1999, the Company had working
capital of $19.9 million and a working capital ratio of 2.8 to 1.
COMMITMENTS AND CONTINGENCIES. See note 6 to the Condensed Consolidated
Financial Statements for a discussion of environmental liabilities and loss
contingency established for a lawsuit.
YEAR 2000 COMPLIANCE
The Company has undertaken a project to address the issue of computer
programs and embedded computer chips being unable to distinguish between the
year 1900 and the year 2000 (Y2K). The project is divided into three phases:
- - Phase I involves identifying areas where Y2K problems exist or may
exist. This phase includes both IT and non-IT systems. And the
surveying of suppliers and customers.
- - Phase II involves repairing or replacing items that are not Y2K
compliant including computer hardware and software. This phase also
involves identifying alternative sources of supply for major vendors
that are not Y2K compliant.
- - Phase III involves testing significant systems and processes to assure
their Y2K compliance.
Phase I is now 100% complete. The Company's main processes are
computer-assisted design and development of curtain-wall systems, manufacturing
information, and financial applications. The result of the Company's assessment
of potential Y2K problems indicates that the natures of the Company's operations
are such that there are few in-house date sensitive processes that could be
expected to cause damage to the Company's assets or have a material effect on
revenues. The survey of suppliers and customers is also 100% complete. The
survey results received so far indicate that approximately 75% of the Company's
suppliers of construction materials in the United States are Y2K compliant or
have active Y2K programs. Suppliers in other countries, mainly China, Thailand
and the Philippines typically employ manual processes.
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Phase II has also been completed. Operating system and software
patches have been received from developers. The Company has used the
technical services of IBM to conduct a Y2K upgrade to one computer system.
Company personnel have handled all other Y2K upgrades. Replacements for
non-compliant hardware have taken place.
Phase III testing of replacement software and upgraded hardware has
been completed.
The Company's costs incurred in connection with achieving Y2K
compliance were not material. However, the Company does not separately track the
internal costs incurred for the Y2K project since such costs are principally the
related payroll costs for information systems employees. Management estimates
the total external costs have totaled less than thirty thousand dollars.
The most reasonably likely worst case scenario of a major Y2K
failure would be the failure of several major suppliers to deliver required
materials on time. As discussed above, this would involve mainly suppliers in
North America. In such a case the Company could experience project delays of
up to two weeks on projects. Such delays could result in higher levels of
overtime for production and field installation workers as well as liquidating
damages if projects are at critical stages near completion. The costs in such
a case could be $1.5 million.
Contingency plans are being formulated to minimize any Y2K problems.
In-house computer systems are now believed to be Y2K compliant.
Management believes that the Company is adequately prepared for the
year 2000 and that its Y2K project will mitigate any material effect on the
Company's financial position, results of operations or cash flows.
FACTORS THAT MAY AFFECT FUTURE RESULTS
GENERAL. The Company's projects are awarded by private or governmental
entities in a competitive bidding process. Due to the nature of the bidding and
award process, the Company has experienced, and in the future expects to
experience, significant delays in project awards. No assurance can be given that
the timing of a project award will be consistent with the Company's
expectations. In addition, numerous factors, many of which are out of the
Company's ability to control, have caused and will continue to cause substantial
variations in its results of operations in any quarterly or annual reporting
period. Some of these factors are:
- - Downturns in one or more segments of the construction industry;
- - Changes in economic conditions;
- - The failure of project owners to obtain adequate construction
financing;
- - The failure of project owners and general contractors to accept change
orders and claims on projects;
- - The failure of project general contractors to schedule other trades in
a manner most efficient for Flour City;
- - The Company's failure to obtain or delays in awards of major projects;
- - The Company's failure to collect accounts receivable under
construction projects;
- - The cancellation or delay of major projects, including cancellations
or delays caused by job-site labor problems and jurisdictional
disputes; or
- - The Company's failure to timely replace projects that have been
completed or are nearing completion.
Any of these factors could cause the Company's results of operations to
fluctuate significantly from period to period, including on a quarterly basis.
FOREIGN EXCHANGE RISKS. Where possible, the Company generally
attempts to mitigate foreign exchange risk by entering into contracts
providing for payment in United States dollars instead of the local currency.
Nonetheless, local currency must be used to pay for local labor, raw
materials or other local country costs of operations. The Company currently
has contracts denominated in the Hong Kong dollar, Thai baht and Philippine
peso. Future contracts may be denominated in the currency of other countries.
The Company maintains cash, short-term debt (based on floating interest
rates), accounts receivable, and accounts payable in several currencies. The
functional currencies in which those accounts are maintained match the
functional currencies of construction contracts in process. Accounts are also
maintained in United States dollars in all countries in which the Company
operates. The following table shows the July 31, 1999, United States dollar
translated balances of selected non-US dollar denominated current accounts by
the currency in which they are maintained:
12
<PAGE>
<TABLE>
<CAPTION>
HONG KONG THAI PHILIPPINE
($IN MILLIONS) DOLLARS BAHT PESOS
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and restricted cash $ 0.5 $ 0.6 $ 0.2
Short-term debt 0.4 - 1.3
Accounts and claim receivable 0.6 0.9 0.2
Accounts payable and accrued expenses 1.8 0.9 0.9
=====================================================================================
US dollar exchange rate at July 31, 1999 7.750 36.30 37.71
</TABLE>
Materials and services to perform project contracts are procured
globally. Aluminum extrusion is typically the largest material cost and is
generally denominated in United States dollars. Glass purchases are generally
denominated in United States dollars unless sourced locally in a foreign locale.
The expenses associated with erection services are generally denominated in
local currency. To the extent that foreign currencies weaken against the United
States dollar, the Company will experience translation losses due to the
revaluation of accounts payable, accounts receivable and other asset and
liability accounts.
The Company generally attempts to contract to secure compensation for
devaluation of local currencies relative to the United States dollar. In these
instances, although the Company may incur translation losses, the Company seeks
to offset such losses by increases in the amount of local currency payable to
the Company under contract so as to approximate the original United States
dollar equivalent value of the contract. There can be no assurance that the
Company will be successful in negotiating contracts with terms that maintain a
United States dollar equivalency. As of July 31, 1999, the Company's backlog of
non-US dollar based contracts without contract provisions to ensure United
States dollar equivalency totaled approximately $15.0 million. Exchange rate
fluctuations in local currency denominated contracts that do not have a United
States dollar equivalency, and in exchange rates in general, could have a
material adverse effect on the Company's financial position, results of
operations, and cash flows.
POLITICAL UNCERTAINTIES. The Company operates in several countries
including countries in Asia and in Mexico. Economic development in countries in
which the Company operates may be limited by the imposition of measures intended
to control economic conditions and the inadequate development of an
infrastructure to support manufacturing and large-scale construction projects.
Changes in governmental policies as well as general economic conditions
including interest rates or rates of inflation could have a material adverse
affect on the Company's financial position, results of operations, and cash
flows.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Information as of July 31, 1999, required by Item 701(f) of Regulation S-K is
set forth below:
The Company's registration statement on Form S-1, commission file number
333-43793, for 2,000,000 shares of the Company's common stock was filed with the
Commission and was declared effective on May 21, 1998. All of the shares offered
to the public were sold by the termination date of May 28, 1998. On July 3,
1998, the Company's underwriters exercised their option with respect to an
over-allotment of 143,000 shares of common stock. The aggregate price of the
2,143,000 shares was $17,144,000.
FLOUR CITY INTERNATIONAL, INC.
COMMON STOCK
EXPENSES OF ISSUANCE AND USE OF PROCEEDS
AS OF JULY 31, 1999
(in thousands) (unaudited)
<TABLE>
<S> <C>
Aggregate offering price of amount sold to date $ 17,144
Expenses of issuance:
Underwriters discount 1,286
SEC registration fee 9
NASD filing fee 3
Nasdaq National Market listing fee 67
Blue sky fees and expenses including legal fees 15
Printing costs 248
Registrar and Transfer Agent fees 5
Legal fees and expenses 548
Underwriters nonaccountable expense allowance 257
Accounting fees and expenses 130
Miscellaneous 31
----------
Total expenses of issuance 2,599
----------
Net proceeds 14,545
Use of proceeds:
Direct or indirect payment to directors,
officers, 10% owners, affiliates and others -
Proceeds used for construction of plant, building,
and facilities -
Proceeds used for purchase and installation of
machinery and equipment -
Proceeds used for investment in joint ventures 334
Proceeds used as collateral for lines of credit 2,000
Proceeds used for working capital 1,260
Temporary investments in U.S. Government
securities, 1-A commercial paper, ----------
and cash deposits $ 10,951
==========
</TABLE>
14
<PAGE>
ITEM 5. OTHER INFORMATION
On August 20, 1999, the Company's Board of Directors authorized the appointment
of the international accounting firm of Grant Thornton LLP to serve as the
Company's independent auditors for the fiscal year ending October 31, 1999.
On August 20, 1999 the Board accepted the resignation of Michael J. Russo, who
served as President of Flour City international Inc. and Chief Executive Officer
of Flour City Architectural Metals, Inc. Edward Boyle III has been appointed
President of Flour City International, Inc. Roger Ulbricht has been appointed
Executive Vice President of Flour City International, Inc. and President and
Chief Executive Officer of Flour City Architectural Metals, Inc. John Tang,
Chairman of Flour City International, Inc. assumed the additional position of
Chief Executive Officer of Flour City International, Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 16.1 to the Form 8-K
(b) REPORTS ON FORM 8-K
The Company filed Form 8-K on April 30, 1999 pursuant to Section 13 or
15(d) of the Securities and Exchange Act of 1934 addressing "Changes in
Registrant's Certifying Accounts.
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, on the 13th day of September, 1999.
FLOUR CITY INTERNATIONAL, INC.
/s/ JOHN W. TANG
------------------------------
John W. Tang
Chairman of the Board, Secretary
/s/ JAMES F. LAWLER
------------------------------
James F. Lawler
Interim Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 17,593
<SECURITIES> 0
<RECEIVABLES> 8,674
<ALLOWANCES> 1,877
<INVENTORY> 0
<CURRENT-ASSETS> 30,975
<PP&E> 2,765
<DEPRECIATION> 671
<TOTAL-ASSETS> 35,037
<CURRENT-LIABILITIES> 11,059
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 22,044
<TOTAL-LIABILITY-AND-EQUITY> 35,037
<SALES> 0
<TOTAL-REVENUES> 30,617
<CGS> 0
<TOTAL-COSTS> 24,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,808
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> (2,153)
<INCOME-TAX> 122
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,947)
<EPS-BASIC> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
