<PAGE>
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 APRIL 30, 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.)
1044 Fordtown Road, Kingsport, TN 37663
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(Address of principal executive offices, zip code)
(423) 349-8692
----------------------------------------------------
(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 5,375,477 SHARES OF COMMON STOCK ISSUED AND OUTSTANDING AT
JUNE 14, 2000.
1
<PAGE>
FLOUR CITY INTERNATIONAL, INC. INDEX
<TABLE>
<CAPTION>
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
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 9-13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 15
</TABLE>
2
<PAGE>
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 Six Months Ended
April 30, April 30,
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $14,154 $12,306 $27,051 $19,648
Cost of revenues 10,798 9,794 21,352 16,185
-------------------------------------------------------------------------------------------------
Gross Margin 3,356 2,512 5,699 3,463
Selling, general and administrative expenses (2,347) (2,497) (4,697) (4,625)
Amortization, net 99 84 181 168
-------------------------------------------------------------------------------------------------
Operating profit (loss) 1,108 99 1,183 (994)
Foreign currency transaction gain (loss) 2 (127) 8 (127)
Other income 255 248 456 501
-------------------------------------------------------------------------------------------------
Income (loss) before income taxes and minority interests 1,365 220 1,647 (620)
Income taxes (127) (116) (72) (54)
Minority income in net(loss)of consolidated subsidiaries (438) (363) (600) (469)
-------------------------------------------------------------------------------------------------
Net income (loss) $ 800 $ (259) $ 975 $(1,143)
=================================================================================================
Net income per share:
Basic $ 0.15 $ (0.04) $ 0.18 $ (0.19)
Diluted $ 0.15 $ (0.03) $ 0.18 $ (0.18)
=================================================================================================
Weighted average shares outstanding:
Basic 5,375 6,104 5,375 6,104
Diluted 5,375 6,268 5,375 6,268
=================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
FLOUR CITY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
April 30,2000 Oct. 31, 1999
--------------------------------------------------------------------------------------------
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 7,785 $ 9,557
Restricted cash 4,250 4,134
Accounts receivables, net 9,194 6,345
Tax refund receivable - 227
Note receivable 1,395 2,169
Costs and estimated earnings in excess
of billings on uncompleted contracts 9,064 7,125
Receivable from Joint Venture 891 -
Deferred income taxes 616 616
Other current assets 1,981 2,335
--------------------------------------------------------------------------------------------
Total current assets 35,176 32,508
Plant and equipment, net 2,993 2,547
Other assets 190 854
--------------------------------------------------------------------------------------------
Total assets $38,359 $35,909
============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $ 2,750 $ 3,291
Accounts payable and accrued expenses 7,617 6,843
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,805 1,509
Other current liabilities 1,086 1,003
--------------------------------------------------------------------------------------------
Total current liabilities 14,258 12,646
Other liabilities 60 70
Negative goodwill, net 728 947
--------------------------------------------------------------------------------------------
Total liabilities and deferred credits 15,046 13,663
--------------------------------------------------------------------------------------------
Commitments and contingencies - -
Minority interests in equity of unconsolidated subsidiaries 1,129 190
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 5,375 shares at April 30,2000
and October 31,1999 - -
Additional paid-in-capital, 14,788 14,788
less 915 and 892 shares of common stock in
treasury,at cost,respectively (1,545) (1,461)
Retained earnings 9,580 8,569
Accumulated other comprehensive income (577) 249
Other stockholders' equity (62) (89)
--------------------------------------------------------------------------------------------
Total stockholders' equity 22,184 22,056
--------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $38,359 $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
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months ended April 30,
2000 1999
-----------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 975 $ (1,143)
Adjustments to reconcile net income(loss) to net
rovided by(used in) operations
Depreciation and amortization (115) (15)
Non-cash stock compensation 27 21
Changes in assets and liabilities net of effects of
acquisitions of businesses:
Restricted deposits (116) (117)
Accounts receivable, net (2,849) (372)
Note receivable 1,001 -
Claims receivable - 543
Costs, estimated earnings and billings, net (643) (4,622)
Other current assets 624 (878)
Other assets 664 (178)
Receivable from Joint Venture (891) -
Accounts payable and accrued expenses 774 441
Income taxes payable - (71)
Other current liabilities 73 (45)
Accounts payable to related parties - (79)
-----------------------------------------------------------------------------------------
Net cash used in operating activities (476) (6,515)
-----------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (784) (618)
Purchase of Treasury Stock (84) -
-----------------------------------------------------------------------------------------
Net cash used in investing activities (868) (618)
-----------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds (payments) on bank borrowings (541) 1,553
Changes in minority interest 939 434
-----------------------------------------------------------------------------------------
Net cash provided by financing activities 398 1,987
-----------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (826) (695)
Net increase (decrease) in cash and cash equivalents (1,772) (5,841)
Cash and cash equivalents,beginning of period 9,557 19,297
------------------------
Cash and cash equivalents,end of period $ 7,785 $ 13,456
=========================================================================================
Supplemental cash flow information:
Interest paid in cash 96 37
Income taxes paid in cash 302 173
=========================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
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 NOTE RECEIVABLE, NET
(in thousands)
Accounts and note receivable are net of allowance for doubtful accounts of
$513 and $1,442 at April 30, 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 April 30, 2000, and October 31,
1999, are $4,704 and $4,416 respectively. In conformity with trade practice,
however, the full amount of accounts receivable has been included in current
assets. Note receivable consists of a $1,395 note from AK Steel Corporation
related to contracts assumed when the company acquired Flour City
Architectural Metals, Inc. (FCAM) from Armco, a subsidiary of AK Steel
Corporation.
6
<PAGE>
4. OTHER INCOME (EXPENSE), NET
(in thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Three months ended Six months ended
April 30, April 30,
2000 1999 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 162 $ 211 $ 325 $ 467
Interest expense (49) (17) (96) (35)
Other income (expense), net 142 54 227 69
---------------------------------------------------------------------------------------
Other income (expense), net $ 255 $ 248 $ 456 $ 501
=======================================================================================
</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 Six months ended
April 30, April 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Revenues from external customers:
North America $ 8,233 $ 4,439 $12,703 $ 7,353
Pacific 5,921 7,867 14,348 12,295
Total revenues from external customers 14,154 12,306 27,051 19,648
Intersegment revenues:
North America - - - 441
Pacific - - -
Total intersegment revenues - - - 441
Total revenues for reportable segments 14,154 12,306 27,051 20,089
Elimination of intersegment revenues - - - (441)
Consolidated revenues 14,154 12,306 27,051 19,648
PROFIT OR (LOSS):
North America $ (224) $ 69 $ (678) $ (97)
Pacific 1,024 (282) 1,653 (1,024)
PROFIT (LOSS) FOR REPORTABLE SEGMENTS 800 (213) 975 (1,121)
Unallocated corporate expenses, net - $ (46) - $ (22)
CONSOLIDATED NET INCOME(LOSS) $ 800 ($259) $ 975 ($1,143)
</TABLE>
7
<PAGE>
6. OTHER COMPREHENSIVE INCOME (LOSS)
(in thousands)
Other comprehensive income for the company is comprised solely of the
change in deferred foreign currency translation adjustments, net of tax. The
deferred 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
deferred 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 deferred foreign currency translation adjustment to arrive at
other comprehensive income. Other comprehensive income for the three months
ended April 30, 2000 and 1999, was $(1,488) and $351, respectively. Other
comprehensive income for the six months ended April 30, 2000 and 1999, was
$(557) and $(446), respectively.
7. COMMITMENTS AND CONTINGENCIES
(in thousands)
As of April 30,2000, the company had a total of $10,203 in performance
guarantees outstanding in relation to construction contracts in progress in
the Pacific-Rim.
8
<PAGE>
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 government 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;
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
Quarter Ended April 30, 2000 Compared to Quarter Ended April 30, 1999
REVENUES. Total revenues increased 15% or $1.9 million over the same quarter
a year ago. Revenues for the second quarter ended April 30,2000 were $14.2
million compared to $12.3 million for the quarter ended April 30,1999.
Revenues from projects in the Pacific-Rim totaled $5.9 million in the second
quarter; a decrease of 25% or $1,9 million over the same quarter last year.
As the company bills on a percentage of completion method, two projects that
are nearing completion, and thus have less costs being incurred, were
responsible for the decrease in revenues.
Revenues in North America were $8.2 million an increase of 86% or $3.8
million from the $4.4 million revenues reported in the same period last year.
North America showed an increase in the quarter as resources were spent on
the Trump Towers project as well as completing other projects started
earlier. 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.
GROSS MARGIN. Gross margin for the quarter ended April 30,2000 was $3.4
million, or 23.7% of revenues, compared to $2.5 million, or 20.4% of
revenues, for the same period of 1999. The increase in gross margin and rate
were the result of recognizing, during this quarter, profits on two projects
in the Pacific-Rim that are nearing completion, and where the total costs
incurred were substantially below estimate.
North America gross margin was $1.0 million, or 11.9% of revenues, for the
quarter ended April 30,2000, compared to $1.1 million, or 25.0% of revenues,
for the same period in 1999. Cost overruns, mainly in labor hours expended on
one project in New York , resulted in profit writedowns in the quarter from
profit percentages previously accrued.
Pacific-Rim gross margin was $2.4 million, or 40.2% of revenues, for the
quarter ended April 30,2000, compared to $1.4 million, or 17.8% of revenues,
for the same period in 1999. This represents an increase in gross margin
over the same quarter last year as cost savings are recognized on projects
that are nearing completion.
9
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $2.4 million for the quarter ended April
30,2000,or 16.6% of revenues compared to $2.5 million or 20.3% of revenues
for the same quarter of 1999.
This decrease is mainly due to measures taken in the Pacific Rim to lower
expenses, and the transfer of certain corporate expenses from the Pacific Rim
to North America, where the expenses of the Corporate group are accumulated.
The Corporate group, which includes Research and Development, has global
responsibilities, and, as a result, expenses are likely to increase in this
area as the company grows into other geographic areas, but at a slower rate
than the anticipated increase in sales.
North America selling, general and administrative expenses, including the
Corporate Group, amounted to $1.5 million or 18.5% of revenues for the
quarter ended April 30,2000 compared to $1.3 million or 29.2 % of revenues
for the same period in 1999. Most of the increase was attributable to the
expenses incurred by the Corporate group.
Pacific-Rim selling, general and administrative expenses were $0.8 million or
14.0% of revenues compared to $1.2million or 15.3% of revenues, for the
second quarter in 1999,and reflected the transfer of certain costs of the
Corporate group.
NET INCOME (LOSS). The net profit for the quarter ended April 30,2000 was
$0.8 million or $0.15 per share compared to a net loss of ($0.3 million) or
($0.04) per share for the same quarter a year ago. This increase in income
can be partially attributed to recognition of management fees earned and
profits recognized on two projects in the Pacific Rim that are nearing
completion, as well as increased sales revenue.
BACKLOG AND BIDS OUTSTANDING. The company's backlog totaled $130 million at
April 30, 2000, of which $85 million was from North America and $45 million
was from the Pacific-Rim area. Pacific-Rim backlog includes $24 million
related to projects in Hong Kong, $9 million related to projects in the
Philippines and $12 million to projects in China. Bids outstanding at April
30, 2000 totaled $123 million, of which $53 million were in North America,
$51 million in the Pacific-Rim, and $19 million in Europe.
10
<PAGE>
Six Months Ended April 30, 2000 Compared to Six Months Ended April 30, 1999
REVENUES. Revenues increased by 38% or $7.4 million from $19.6 million to
$27.0 million in the six-month period ended April 30, 2000, compared to the
same period of 1999, due to increased project activity. Revenues generated by
projects in North America increased by 63% from $7.8 million to $12.7 million
in the six-month period ended April 30, 2000 compared to the same period of
1999. Revenues generated by projects in the Pacific-Rim increased by 21%
from $11.9 million to $14.3 million in the six-month period ended April 30,
2000 compared to the same period of 1999.
GROSS MARGIN. Gross margin increased from $3.5 million to $5.7 million in
the six-month period ended April 30,2000, compared to the same period of
1999. The increase in gross margin dollars was the result primarily of
maintaining profit margins on the mix of projects in both North America and
the Pacific-Rim, the increase in sales, and the factors indicated above.
Gross margin as a percent of revenues increased from 17.63% to 21.11% in the
six-month period ended April 30,2000, compared to the same period of 1999.
The improvement 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
recognition of additional profits on projects that are nearing completion. .
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses totaled $4.7 million for the six-month period ended
April 30,2000 compared to $4.6 million for the same period of 1999. The
increase of $0.1 million was the result of the buildup in the Corporate group
and the start of a Research and Development effort, which, while not material
in the quarter and the six month period, is being expensed as incurred.
As a percent of revenues, S,G & A decreased to 17.4% of revenues for the six
month period ended April 30,2000 from 23.5% of revenues for the same period
ending April 30,1999.
FOREIGN CURRENCY EXCHANGE GAINS AND LOSSES. Foreign exchange gains were
negligible for the six-month period ended April 30,2000 compared to a loss of
$0.1 million in 1999. Gains and losses were primarily due to fluctuations in
the exchange rate of the Thai baht and the Philippine peso against the
U.S.Dollar. To the extent that foreign currencies strengthen or weaken
against the U.S. dollar, and the extent to which long-term contracts are
denominated in foreign currencies, the company will continue to experience
transaction gains and losses.
NET INCOME (LOSS). The net profit for the six-months ended April 30,2000 was
$1.0 million as compared to a net loss of $1.1 million for the six months
ended April 30,1999. The $1.0 million negative revenue adjustment during the
six months period ended April 30,1999 on a project in the Pacific Rim, the
project mix in 2000, and the recognition in 2000 of management fees on
projects reaching completion in the Pacific Rim, are the main contributors to
the profit improvement.
BACKLOG. The company's backlog totaled $130 million at April 30, 2000, of
which $84 million was from North America and $45 million was from the
Pacific-Rim area. Pacific-Rim backlog includes $22 million related to
projects in Hong Kong, $9 million related to projects in the Philippines, and
$12 million to projects in China. Bids outstanding at April 30, 2000,
totaled $123 million, $53 million in North America, $51 million in the
Pacific-Rim, and $19 million in Europe( this contract was awarded to Flour
City in late May, and can now be considered as backlog).
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Management expects that the company will have sufficient liquidity to meet
ordinary future short-term and long-term business needs. Sources of liquidity
generally available to the company include cash from operations, funds
available under the company's credit facility, and cash and cash equivalents.
The company is currently in discussions with various banking institutions
with a view to increasing the credit facilities in order to be able to handle
the increased volume of bus
OPERATING ACTIVITIES. In the six months ended April 30,2000 over $0.5 million
was used in operating activities compared to over $6.5 million in the same
period of 1999.Of the amount used, $1.0 million is due from a joint venture
partner, while an increase in accounts receivable, and retention payments,
offset by an increase in accounts payable and accrued expenses, accounted for
most of the balance.
INVESTING ACTIVITIES. Capital expenditures approximated $0.8 million, a
comparable amount to that expended in the prior year. In addition, as
authorized by the Board of Directors, the company, during April 2000 ,
purchased an additional twenty three thousand shares of company stock on the
open market. Some of the capital expenditures this period was the result of
the company's effort in consolidating its office and plant facilities into
one location in Kingsport, TN.
FINANCING ACTIVITIES. In the period ended April 30,2000, cash generated by
financing activities amounted to $0.4 million compared to expenditures of
$2.0 million in the comparable period last year. The company maintains lines
of credit with commercial banks in the United States and in Hong Kong,
collateralized by $4.3 million in the form of certificates of deposit. The
company has initiated discussions with these banks to increase lines of
credit facilities.
GENERAL. The company attempts to structure payment arrangements with its
customers to match costs incurred with revenues billed and collected. To the
extent that the company is not able to match costs, the company relies on its
cash reserves and credit facilities to meet its working capital needs. As of
April 30,2000 and 1999, the company had working capital approximating $21.0
million and $19.9 million respectively.
Quantitative and Qualitative disclosures about market risk
As of April 30,2000, 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, 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.
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, may
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.
12
<PAGE>
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 April 30, 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
($ in millions) Dollars Baht Pesos
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and restricted cash $ 1.4 $ 0.1 $ 0.9
Short-term debt 0.1 0.1 -
Accounts and claim receivable 1.3 - 1.9
Accounts payable and accrued expenses 2.5 0.1 1.6
==========================================================================================
US dollar exchange rate at April 30, 2000 7.789 38.06 41.21
</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
gains and 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 April 30,
2000, the company's backlog of non-US dollar based contracts without contract
provisions to ensure United States dollar equivalency totaled approximately
$32.0 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 the Pacific-Rim. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Flour City International, Inc. was held
on April 4, 2000 for the purpose of considering and voting on the following
matters:
a) Election of Directors
b) Ratification of the appointment of Grant Thornton LLP as the
company's independent auditors for the year ending October 31,
2000.
The total number of shares (the "Shares") of $0.0001 par value of the company
outstanding and entitled to vote as of the close of business on February 25,
2000, the record date for the Meeting, was 5,375,408. The number of shares
represented in person or by valid proxy at the meeting was 5,306,733.
The number of Shares voted at the Meeting was as follows with respect to the
proposals listed below:
In respect of the proposal to elect John W. Tang, Johnson Fong, Eugene M.
Armstrong, Paul D. Lynam and Mabel Chan as directors to serve until the next
Annual Meeting of Stockholders and until their successors are elected and
qualified:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Shares in favor Shares against Shares abstaining
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
John W. Tang 5,297,720 712 8,301
Johnson K. Fong 5,297,720 712 8,301
Eugene M. Armstrong 5,298,432 0 8,301
Paul D. Lynam 5,298,432 0 8,301
Mabel Chan 5,294,432 4,000 8,301
</TABLE>
In respect of the proposal to approve the ratification of the selection of
the Board of Directors of Grant Thornton LLP as the independent accountants
for the company for the fiscal year ending October 31, 2000.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Shares in favor Shares against Shares abstaining
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Grant Thornton, LLP 5,292,635 8,358 5,740
</TABLE>
ITEM 5. OTHER INFORMATION
On April 26, 1999 the company was informed by its independent auditors,
Deloitte & Touche LLP ("D&T), of D&T's resignation, effective as of that
date. The reports of D&T on the financial statements of the company for each
of the two fiscal years ended October 31, 1998 did not contain an adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles.
During each of the two fiscal years ended October 31, 1998, and the
subsequent interim period preceding D&T's resignation, there were no
disagreements with D&T on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of D&T, would have caused
D&T to make reference to the subject matter of the disagreements in
connection with their reports. During these periods, there were no
"reportable events" as that term is defined in Item 304(a)(1)(v) of
Regulation S-K.
The Audit Committee of the Board of Directors did not recommend a change in
independent accountants and did not request that D&T resign the account.
The company has authorized D&T to respond fully to the inquiries of the
company's successor accountant and has requested that D&T provide the company
with a letter addressed to the Securities and Exchange Commission stating
whether it agrees with the above statements. A copy of that letter, dated
April 30,1999, is filed as exhibit 16.1 to the Form 8-K as filed by the
Company on April 30, 1999.
14
<PAGE>
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended April 30,2000.
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 13th day of June, 2000.
FLOUR CITY INTERNATIONAL, INC
/s/ EDWARD M.BOYLE,III
Edward M.Boyle, III
President
/s/ IAN S. FERDINANDS
Ian S. Ferdinands
Chief Financial Officer
15
