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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 JANUARY 31, 2000
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.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 62-1709152
----------------------- ----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
915 RIVERVIEW DRIVE, SUITE ONE, JOHNSON CITY, TN 37620
-------------------------------------------------------------
(Address of principal executive offices, zip code)
(423) 928-2724
-------------------------------------------------------------
(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
---
There were 5,375,408 shares of common stock outstanding at March 15, 2000
1
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FLOUR CITY INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PAGE NO.
PART I. FINANCIAL INFORMATION
<S> <C> <C>
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 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-12
Item 3. Quantitative and Qualitative Disclosure About Market Risk 12
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
EXHIBITS 15
</TABLE>
2
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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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31, 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 12,897 $ 7,342
Cost of revenues 10,554 6,391
----------------------------------------------------------------------------------------------------
Gross margin 2,343 951
Selling, general and administrative expenses 2,350 2,128
Amortization, net (82) (84)
----------------------------------------------------------------------------------------------------
Operating profit (loss) 75 (1,093)
Foreign currency transaction gains 6 -
Other income (expense), net 201 253
--------------------------------------------------------------------------------------------------
Income (loss) before income taxes and minority interests 282 (840)
Income tax benefit 55 62
Minority interests in earnings of consolidated subsidiaries (162) (106)
----------------------------------------------------------------------------------------------------
Net income (loss) $ 175 $ (884)
====================================================================================================
Net income (loss) per share:
Basic $ 0.3 $ (0.14)
Diluted $ 0.3 $ (0.14)
====================================================================================================
Weighted average shares outstanding:
Basic 5,376 6,104
Diluted 5,379 6,268
====================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
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FLOUR CITY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share amounts)
<TABLE>
<CAPTION>
January 31
2000 October 31
(unaudited) 1999
- ----------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 8,342 $ 9,557
Restricted cash 4,250 4,134
Accounts receivables, net 7,308 6,345
Notes receivable 2,169 2,169
Costs and estimated earnings in excess
of billings on uncompleted contracts 8,532 7,125
Tax refund receivable 227 227
Deferred income taxes 616 616
Other current assets 2,040 2,335
- ----------------------------------------------------------------------------------------------------------------
Total current assets 33,484 32,508
Plant and equipment, net 2,874 2,547
Other assets 1,170 854
- ----------------------------------------------------------------------------------------------------------------
Total assets $ 37,528 $ 35,909
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $ 2,456 $ 3,291
Accounts payable and accrued expenses 6,886 6,843
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,787 1,509
Other current liabilities 418 1,003
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 12,547 12,646
Other liabilities 65 70
Negative goodwill, net 837 947
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and deferred credits 13,449 13,663
- ----------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Minority interests in equity of consolidated subsidiaries 1,169 190
Stockholders' equity:
Preferred stock, par value $0.0001; authorized
5,000 shares; no shares issued - -
Common stock, par value $0.0001; authorized
50,000 shares; issued 6,268 shares; outstanding
5,376 shares - -
Additional paid-in-capital 14,788 14,788
Retained earnings 8,744 8,569
Less 892 shares of common stock in treasury, at cost (1,461) (1,461)
Accumulated other comprehensive income 911 249
Other stockholders' equity (72) (89)
- ----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 22,910 22,056
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 37,528 $ 35,909
================================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
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FLOUR CITY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended January 31
- ----------------------------------------------------------------------------------------------------
(in thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 175 $ (884)
Adjustments:
Depreciation and amortization 37 (11)
Non-cash stock compensation 17 11
Changes in assets and liabilities:
Restricted deposits (116) (294)
Accounts receivable (963) (70)
Costs, estimated earnings and billings, net (129) 342
Other current assets 295 (663)
Other assets (326) 41
Accounts payable and accrued expenses 43 (472)
Other current liabilities (585) 149
Accounts payable to related parties - (79)
- ----------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,552) (1,930)
- ----------------------------------------------------------------------------------------------------
Cash Flows - Investing activities:
Purchase of property, plant and equipment (464) (232)
- ----------------------------------------------------------------------------------------------------
Net cash used in investing activities (464) (232)
- ----------------------------------------------------------------------------------------------------
Cash Flows - Financing activities:
Payment of short-term debt, net (835) (256)
Payment of other liabilities (5) -
Changes in minority interest 979 109
- ----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 139 (147)
- ----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 662 (44)
Net decrease in cash and cash equivalents (1,215) (2,353)
Cash and cash equivalents, beginning of year 9,557 19,297
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 8,342 $ 16,944
====================================================================================================
Supplemental cash flow information:
Interest paid in cash 29 19
Income taxes paid in cash 68 85
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
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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, 1999.
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
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES which defines
derivatives, requires that all derivatives be carried at fair value and provides
for hedge accounting when certain conditions are met. SFAS No. 133, as amended
by SFAS No. 137, is effective for the Company in fiscal 2002. Although the
Company has not fully assessed the implication of SFAS No. 133 as amended, the
Company does not believe that the adoption of this statement will have a
material effect on financial conditions or results of operations.
3. ACCOUNTS AND NOTES RECEIVABLE, NET
(in thousands)
Accounts and notes receivable are net of allowance for doubtful
accounts of $890 and $1,442 at January 31, 2000, and October 31, 1999,
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 January 31, 2000, and
October 31, 1999, are $4,891 and $5,002 respectively. In conformity with trade
practice, however, the 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 and a $774 loan to the developer of
a joint venture in the PRC.
6
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4. OTHER INCOME (EXPENSE), NET
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31, 2000 1999
- ---------------------------------------------------------------------------
<S> <C> <C>
Interest income $ 163 $ 256
Interest expense (56) (18)
Other 94 15
- ---------------------------------------------------------------------------
Other income (expense), net $ 201 $ 253
===========================================================================
</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.
SEGMENT REVENUES AND PROFIT
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31, 2000 1999
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Revenues from external customers
North America $ 4,470 $ 2,914
Pacific 8,427 4,428
- ---------------------------------------------------------------------------------------------
Total revenues from external customers 12,897 7,342
Intersegment revenues
North America - 441
Pacific - -
- ---------------------------------------------------------------------------------------------
Total intersegment revenues - 441
Total revenues for reportable segments 12,897 7,783
Elimination of intersegment revenues - (441)
- ---------------------------------------------------------------------------------------------
Consolidated revenues $ 12,897 $ 7,342
=============================================================================================
Profit or (loss)
North America $ (200) $ (166)
Pacific 629 (742)
- ---------------------------------------------------------------------------------------------
Profit (loss) for reportable segments 429 (908)
Unallocated corporate income and expenses, net (254) 24
- ---------------------------------------------------------------------------------------------
Consolidated net income $ 175 $ (884)
=============================================================================================
</TABLE>
Segment assets are the total assets of the segments. Unallocated corporate
assets consist primarily of cash and certificates of deposit.
7
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SEGMENT ASSETS
(in thousands)
<TABLE>
<CAPTION>
At January 31, 2000 and October 31, 1999 2000 1999
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
North America $ 11,275 $ 10,043
Pacific 14,226 13,626
- ----------------------------------------------------------------------------------------------
Total assets for reportable segments 25,501 23,669
Unallocated corporate assets 12,027 12,240
- ---------------------------------------------------------------------------------------------
Consolidated total assets $ 37,528 $ 35,909
=============================================================================================
</TABLE>
6. COMPREHENSIVE INCOME
(in thousands)
Comprehensive income (loss) for the Company is comprised solely of the
change in foreign currency translation adjustments, net of tax. The foreign
currency translation adjustment occurs as a result of translating the financial
statements of the Company's foreign operations into United States Dollars. Since
the Company's operations that give rise to the foreign currency translation
adjustment are located primarily in countries that have little or no income tax,
and whose accumulated earnings are not expected to be repatriated, no tax
adjustment has been applied to the change in the foreign currency translation
adjustment to arrive at other comprehensive income (loss). Comprehensive income
(loss) for the three months ended January 31, 2000 and 1999, was $662 and $(797)
respectively.
7. COMMITMENTS AND CONTINGENCIES
(in thousands)
As of January 31, 1999, the Company had a total of $10.7 million 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, 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. Any
and all cleanup responsibility and litigation with respect to such environmental
claims have been assumed by Armco pursuant to the sale agreement. The Company
believes that to the extent FCAM 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.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Flour City International, Inc. and its majority owned subsidiaries (the
"Company" or the "Registrant") is primarily engaged in the design, engineering,
manufacture, and installation of custom curtainwall systems for the construction
industry with operations primarily in the United States and Asia. The Company's
primary operating units are Flour City Architectural Metals, Inc. ("FCAM"),
Flour City Architectural Metals (Asia) Ltd. ("FCAM Asia") and Flour City Arlo
Corporation (FC-Arlo, a consolidated joint venture formed in May 1998 in which
the Company has a 55% ownership).
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
REVENUES: Revenues for the quarter ended January 31, 2000 increased to
$12.9 million, an increase of 75.7% over the $7.3 million of revenues reported
in the first quarter of fiscal 1999 as a result of increased project activity in
both the Pacific Rim and North America regions. Pacific Rim revenues in the
first quarter of this year totaled $8.5 million, an increase of 90% compared to
$4.4 million in the comparable quarter a year ago. Revenues in North America
also increased in comparison to last year's first quarter reaching $4.5 million,
an increase of 53% or $1.6 million. Revenues in the Pacific Rim during the first
quarter of last fiscal year were adversely impacted by a revenue adjustment of
$1.0 million for revenues previously recognized after a customer refused to
recognize claims previously agreed to.
GROSS MARGIN: Gross margin for the quarter ended January 31, 2000, was
$2.3 million, or 18.7% of revenues, compared to $1.0 million, or 13.0% of
revenue, for the same period of 1999. The increase in gross margin for the
quarter-on-quarter comparison is due in part to the 75.7% project revenue growth
and the $1.0 million revenue adjustment that adversely affected both revenues
and gross margin last year.
As a percent of revenues, gross margins in the Pacific Rim were 22.7%
in comparison to 5.9% last year. North America's gross revenues were 9.6% of
revenues for the quarter ended January 31, 2000 compared to 20.6% last year. The
decline in North America's margins are the result of the mix of active projects
generating revenues compared to the comparable period last year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses for the first quarter ended January 31, 2000 total $2.3
million or 17.6% of revenues compared to $2.0 million or 27.8% of revenues for
the same period last year. The increase of $0.224 million or 11% is attributable
to and in support of
9
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the 75.7% increase in revenue as the Company continues to build its
infrastructure in anticipation of future growth and also management
restructuring.
Selling, general and administrative expenses, as a percent of revenue,
in the Pacific Rim and in North America in the first quarter of fiscal year 2000
were 12.1% or $1.0 million and 19.0% or $0.9 million, respectively. During the
first quarter of last year, selling, general and administrative expenses were
20.6% or $0.9 million and 38.4% or $1.1 million for the Pacific Rim and North
America regions, respectively. Unallocated Corporate selling, general and
administrative expenses increased $0.4 million as a result of management
restructuring and staffing to meet the demands of future growth expectations.
BACKLOG. The Company's backlog totaled $121.2 million at January 31,
2000 of which $72.3 million was from North America and $49.9 was from the
Pacific-Rim. This compares to a backlog total last year at January 31, 1999 of
$80.3 million. Pacific-Rim backlog includes $37.5 million related to projects in
Hong Kong and $11.4 million related to projects in the Philippines. Bids
outstanding at January 31, 2000, totaled $148 million, $47 million in North
America and $101 million in the Pacific Rim.
LIQUIDITY AND CAPITAL RESOURCES
The Company manages its liquidity through the allocation of working
capital between North American and Pacific-Rim operations as needed and through
the use of import loans and bank loans that are secured with restricted cash.
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 payments with costs, it relies on its cash reserves and its credit
facilities to meet its working capital needs.
Management expects that the Company will have sufficient liquidity to
meet ordinary short-term and business needs for the foreseeable future. Sources
of liquidity generally available to the Company include cash from operations,
cash and cash equivalents, availability under existing credit facilities, and
borrowings from other sources.
OPERATING ACTIVITIES. $1.6 million in cash was used in operating
activities for the quarter ended January 31, 2000, compared to $1.9 million for
the same quarter of 1999. 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. Significant uses of cash from operations during the
quarter included a $1.0 million increase in trade receivables and a reduction of
other current liabilities of $0.6 million. Net cash used in operating activities
in the first quarter of fiscal 1999 resulted from a $0.9 million net loss, $0.8
million increase in trade receivables and a decrease of $0.2 million in contract
billings in excess of cost and estimated earnings in North America, $0.3 million
increase in restricted cash, $0.3 million decrease in accounts payable, and $0.7
million increase in deposits and advance payments in the Pacific-Rim.
INVESTING ACTIVITIES. Capital expenditures used $0.5 million of cash
during the quarter ended January 31, 2000, compared to $0.2 million in the same
quarter of 1999. North America's investments in its recently leased Kingsport,
Tennessee facility totaled $0.3 million while investments in equipment in the
Pacific Rim totaled $0.2 million in the quarter ended January 31, 2000. Capital
expenditures for equipment and facilities are expected to increase to meet
anticipated project growth. No investments in joint ventures or equity
contributions were recorded during the current quarter.
FINANCING ACTIVITIES. The Company reduced borrowings under lines of
credit by $0.9 million during the quarter ended January 31, 2000, compared to a
$0.3 million reduction during the 1999 period. Minority interest in the equity
of the Company's Philippines joint venture increased by $1.0 million during the
current quarter.
EFFECT OF EXCHANGE RATES. The effective of exchange rates primarily on
intercompany receivables caused an increase to Other Comprehensive Income of
$0.7 million as a result of the change in the valuation of the Thai Baht.
Exchange rate fluctuations were not a material contributor to cash flows during
the quarter ended January 31, 2000.
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 and its credit
facility to meet its working capital needs. As of January 31, 2000 and 1999, the
Company had working capital in excess of $20.9 million and $23 million,
respectively.
10
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COMMITMENTS AND CONTINGENCIES. See note 7 to the Condensed Consolidated
Financial Statements for a discussion of environmental liabilities and loss
contingency established for a lawsuit.
YEAR 2000 COMPLIANCE
The Company undertook a project last year 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 Company's costs incurred in
connection with achieving Y2K compliance were not material. In-house computer
systems are believed to be Y2K compliant. As of March 15, 2000 the Company has
not become aware of any negative impact or experienced any problems related to
Y2K.
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 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 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.
- - Dependence on large projects, the delay or abandonment of which could
adversely affect the Company.
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. 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 wherever possible. 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
January 31, 2000, United States dollar translated balances of selected non-US
dollar denominated current accounts by the currency in which they are
maintained:
<TABLE>
<CAPTION>
HONG KONG THAI PHILIPPINE
AT JANUARY 31, 2000 ($ IN MILLIONS) DOLLARS BAHT PESOS
----------------------------------------------------- -------------- ------------ -------------
<S> <C> <C> <C>
Cash and restricted cash $ 0.7 $ 0.2 $ 0.3
Short-term debt 0.3 - 0.7
Accounts and claim receivable 1.1 - 0.7
Accounts payable and accrued expenses 3.0 0.5 1.3
===================================================== ============== ============ =============
US dollar exchange rate at January 31, 1999 7.765 36.627 40.339
</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
11
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against the United States dollar, the Company will experience translation gains
or 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 January 31, 2000 the Company's backlog
of non-US dollar based contracts totaled approximately $48.9 million. Of that
amount contract provisions to ensure United States dollar equivalency did not
protect approximately $34.4 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,
primarily in North America and Asia. 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.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of January 31, 2000 and October 31, 1999, the Company had no
holdings of commodity-based instruments, long-term debt instruments, forward
contracts, futures contracts, firmly committed foreign sales contracts, interest
rate swaps, currency swaps, or other items in the nature of derivative financial
instruments. The Company does maintain cash, short-term debt (based on floating
interest rates), accounts receivable, and accounts payable in several
currencies. For a discussion of foreign exchange risks, see "Factors That May
Affect Future Results" in Management's Discussion and Analysis of Financial
Conditions and Results of Operations, in Item 2 of this report.
12
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Information as of January 31, 2000, 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 JANUARY 31, 2000
(in thousands) (unaudited)
<TABLE>
<CAPTION>
<S> <C>
Aggregate offering price of amount sold $ 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:
Proceeds used for purchase and installation of
leasehold improvements, machinery and equipment 1,980
Proceeds used for investment in joint ventures 334
Proceeds used as collateral for lines of credit 4,250
Proceeds used for working capital 1,436
Temporary investments in United States ------------------------
Government securities and cash deposits $ 6,545
========================
</TABLE>
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended January 31,
2000.
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 16th day of March, 2000.
FLOUR CITY INTERNATIONAL, INC.
/S/ EDWARD M. BOYLE, III
--------------------------------
Edward M. Boyle, III
President
/S/ JOHNSON K. FONG
--------------------------------
Johnson K. Fong
Executive Vice President
(Principal finance officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 12,592
<SECURITIES> 0
<RECEIVABLES> 10,367
<ALLOWANCES> 890
<INVENTORY> 0
<CURRENT-ASSETS> 33,484
<PP&E> 3,724
<DEPRECIATION> 850
<TOTAL-ASSETS> 37,528
<CURRENT-LIABILITIES> 12,547
<BONDS> 65
0
0
<COMMON> 0
<OTHER-SE> 22,910
<TOTAL-LIABILITY-AND-EQUITY> 37,528
<SALES> 0
<TOTAL-REVENUES> 12,897
<CGS> 0
<TOTAL-COSTS> 10,554
<OTHER-EXPENSES> (94)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 282
<INCOME-TAX> (55)
<INCOME-CONTINUING> 175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 175
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
