<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter
Ended January 31, 1995 Commission File Number 0-12448
FLOW INTERNATIONAL CORPORATION
Incorporated in Delaware I.R.S. Employer No. 91-1104842
Post Office Box 97040
Kent, Washington 98064-9740
(206) 850-3500
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_____
The number of shares of common stock outstanding as of February 28, 1995:
14,299,243 shares.
<PAGE> 2
FLOW INTERNATIONAL CORPORATION
INDEX
Page
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
January 31, 1995 and April 30,1994...... ........................ 3
Condensed Consolidated Statements of Operations -
Three Months Ended January 31, 1995 and 1994...................... 5
Nine Months Ended January 31, 1995 and 1994....................... 6
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended January 31, 1995 and 1994....................... 8
Notes to Condensed Consolidated Financial Statements................ 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 12
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 14
Item 2. Changes in Securities...................................... 14
Item 3. Defaults Upon Senior Securities............................ 14
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........................... 14
Signatures.......................................................... 15
<PAGE> 3
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
January 31, April 30,
1995 1994
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 627 $ 1,351
Trade accounts receivable, less allowances
for doubtful accounts of $1,090 and $908, respectively 28,087 25,887
Inventories 26,401 22,160
Deferred income taxes 1,483 1,861
Other current assets 3,684 3,877
-------- --------
Total current assets 60,282 55,136
Property and equipment, net 22,754 20,030
Deferred income taxes 1,785 113
Intangible and other assets, net of accumulated
amortization of $2,099 and $1,736, respectively 15,054 2,949
-------- --------
$ 99,875 $ 78,228
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 24,459 $ 12,126
Current portion of long-term obligations 4,312 4,378
Accounts payable 8,816 7,968
Accrued payroll and related liabilities 3,308 2,027
Other accrued liabilities 5,078 3,222
-------- --------
Total current liabilities 45,973 29,721
Long-term obligations 7,178 10,559
-------- --------
Total liabilities 53,151 40,280
-------- --------
Stockholders' equity:
Series A 8% convertible preferred stock -
$.01 par value, $500 liquidation preference, 1,000,000 shares
authorized, 0 shares issued and outstanding
Common stock - $.01 par value, 20,000,000 shares authorized
14,575,646 and 14,299,243 shares issued and outstanding,
respectively, at January 31, 1995
14,031,262 and 13,754,859 shares issued and outstanding,
</TABLE>
See Accompanying Notes to Condensed
Consolidated Financial Statements
<PAGE> 4
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
January 31, April
30,
1995 1994
(Unaudited)
<S> <C> <C>
respectively, at April 30, 1994 146 140
Capital in excess of par 37,141 33,889
Retained earnings 9,155 3,728
Treasury common stock of 276,403 shares at cost (556) (556)
Cumulative translation adjustment 1,045 1,023
Loan to employee stock ownership plan and trust (207) (276)
-------- --------
Total stockholders' equity 46,724 37,948
-------- --------
$ 99,875 $ 78,228
======== ========
</TABLE>
See Accompanying Notes to Condensed
Consolidated Financial Statements
<PAGE> 5
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1995 1994
<S> <C> <C>
Revenue:
Sales $ 21,986 $ 15,670
Services 2,980 2,904
Rentals 2,221 1,981
-------- --------
Total revenues 27,187 20,555
Cost of sales:
Sales 12,930 9,670
Services 2,330 3,971
Rentals 973 906
-------- --------
Total cost of sales 16,233 14,547
-------- --------
Gross profit 10,954 6,008
Expenses:
Marketing 4,089 3,772
Research and engineering 1,782 1,306
General and administrative 2,452 2,687
-------- --------
8,323 7,765
-------- --------
Operating income (loss) 2,631 (1,757)
Interest and other expense, net 860 485
-------- --------
Income (loss) before provision for income taxes 1,771 (2,242)
Provision (benefit) for income taxes 155 (448)
-------- --------
Net income (loss) $ 1,616 $ (1,794)
======== ========
Earnings (loss) per common and equivalent shares:
Net income (loss) $ .11 $ (.13)
======== ========
</TABLE>
See Accompanying Notes to Condensed
Consolidated Financial Statements
<PAGE> 6
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
1995 1994
<S> <C> <C>
Revenue:
Sales $ 58,722 $ 45,116
Services 11,605 12,360
Rentals 8,127 7,025
-------- --------
Total revenues 78,454 64,501
Cost of sales:
Sales 33,499 25,943
Services 8,477 10,640
Rentals 3,486 2,895
-------- --------
Total cost of sales 45,462 39,478
-------- --------
Gross profit 32,992 25,023
Expenses:
Marketing 11,992 11,052
Research and engineering 4,631 3,968
General and administrative 8,078 7,914
-------- --------
24,701 22,934
-------- --------
Operating income 8,291 2,089
Interest and other expense, net 1,756 692
-------- --------
Income before provision for income
taxes and change in accounting principle 6,535 1,397
Provision for income taxes 1,108 280
-------- --------
Income before change in accounting principle 5,427 1,117
Change in accounting principle - 401
-------- --------
Net income $ 5,427 $ 1,518
======== ========
</TABLE>
See Accompanying Notes to Condensed
Consolidated Financial Statements
<PAGE> 7
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
1995 1994
<S> <C> <C>
Earnings per common and equivalent shares:
Income before change in accounting principle $ .38 $ .07
Change in accounting principle - .03
-------- --------
Net income $ .38 $ .10
======== ========
</TABLE>
See Accompanying Notes to Condensed
Consolidated Financial Statements
<PAGE> 8
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands; unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
----------------
1995 1994
Cash flows from operating activities:
<S> <C> <C>
Net income $ 5,427 $ 1,518
Adjustments to reconcile net income to cash
Provided by operating activities:
Depreciation and amortization 3,563 3,254
Gain on sale of Spider facility - (445)
Change in accounting principle - (401)
Other 69 69
Change in assets and liabilities net of effects from
the purchase of ASI and Dynovation, Inc.
Increase in assets (1,462) (3,014)
Increase (decrease) in liabilities (892) 1,266
-------- --------
Cash provided by operating activities 6,705 2,247
-------- --------
Cash flows from investing activities:
Expenditures for property and equipment (4,459) (4,779)
Payment for purchase of assets of ASI
and Dynovation, Inc (11,470) -
Proceeds from sale of Spider facility - 156
Other (174) 21
-------- --------
Cash used by investing activities (16,103) (4,602)
-------- --------
Cash flows from financing activities:
Borrowings under line of credit agreements 62,463 54,191
Repayments under line of credit agreements (62,643) (48,587)
Financing for purchase of new companies 12,364 -
Payments of long-term debt (3,675) (2,609)
Proceeds from issuance of common stock 143 196
Payment of preferred stock dividends - (50)
-------- --------
Cash provided by financing activities 8,652 3,141
-------- --------
Effect of exchange rate changes on cash 22 (122)
-------- --------
Increase (decrease) in cash and cash equivalents (724) 664
Cash and cash equivalents at beginning of period 1,351 118
-------- --------
Cash and cash equivalents at end of period $ 627 $ 782
======== ========
</TABLE>
<PAGE> 9
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
Nine Months Ended
January 31,
----------------
1995 1994
Supplemental schedule of noncash investing and
financing activities:
<S> <C> <C>
Fair value of assets acquired from ASI
and Dynovation, Inc $ 19,839
Cash paid and stock issued for assets acquired (14,585)
--------
Liabilities assumed $ 5,254
========
Net proceeds from sale of the Spider manufacturing
facility $ 1,031
Less one year note receivable (875)
--------
Cash proceeds $ 156
========
</TABLE>
See Accompanying Notes to Condensed
Consolidated Financial Statements
<PAGE> 10
FLOW INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended January 31, 1995
(All tabular dollar amounts in thousands; unaudited)
1. In the opinion of the management of Flow International Corporation (the
"Company"), the accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position, statements of
operations, and cash flows for the interim periods presented. These interim
financial statements should be read in conjunction with the April 30, 1994
consolidated financial statements.
2. On December 15, 1994, the Company purchased certain net assets of
Dynovation Machine Systems, Inc. ("Dynovation"), and on January 3, 1995, the
Company purchased certain net assets of ASI Robotic Systems ("ASI"). The
Company paid total cash of $11.5 million and issued 445,000 shares of its
common stock to acquire the assets of Dynovation and ASI. Dynovation and ASI's
operating results have been included from the date of acquisition based upon
the purchase method of accounting.
On November 4, 1994, Spider Staging Corporation, a wholly owned
subsidiary of the Company, entered into a licensing agreement with Ark
Systems, Inc. ("Ark") at a cost of $400,000, for the exclusive worldwide
marketing and manufacturing rights for the Ark product line.
The Company funded these transactions through a short-term bridge loan
facility from the Company's principal bank.
3. The Company filed a Form 8-K on December 23, 1994 in respect of the
purchase of the Dynovation net assets. If that transaction had occurred at the
beginning of each of the three and nine month periods ended January 31, 1995
and 1994, the results of operations of Flow would be adjusted as follows on a
pro forma basis:
a) for the three months ended January 31, 1995, total revenues would have been
$28,131,000, and net income would have been $1,325,000, or 9 cents per share.
The adjustments to net income include additional interest expense of $71,000,
and additional goodwill amortization of $81,000. For the comparative period in
1994, total revenues would have been $22,338,000, and the net loss would have
been $2,032,000, or 15 cents per share. The 1994 adjustments include
additional interest expense of $120,000, and additional goodwill amortization
of $121,000.
b) for the nine months ended January 31, 1995, total revenues would have been
$85,634,000, and net income would have been $4,877,000, or 34 cents per share.
The adjustments to net income include additional interest expense of $369,000,
and additional goodwill amortization of $317,000. For the comparative period
in 1994, total revenues would have been $69,635,000, and net income would have
been $788,000, or 6 cents per share. The 1994 adjustments include additional
interest expense of $359,000, and additional goodwill amortization of
$362,000.
<PAGE> 11
FLOW INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended January 31, 1995
(Continued)
The pro forma consolidated financial information is presented for
information purposes only, does not take into account savings which would have
been realized from the combination of the Company and Dynovation, and is not
indicative of the actual consolidated financial position or results of
operations in the future.
4. Primary earnings per common share are computed by dividing net income
available to common stockholders by the weighted average number of outstanding
shares plus the equivalent shares attributable to dilutive stock options
during each period.
The weighted average number of outstanding shares for the three months
ended January 31, 1995 and 1994 were 14,474,000 and 13,661,000, and for the
nine months ended January 31, 1995 and 1994 were 14,327,000 and 14,100,000,
respectively. Fully diluted earnings per share do not differ materially from
primary earnings per share. Common share equivalents are not included in
total shares outstanding for loss per share calculations, as they are
antidilutive.
5. Inventories consist of the following:
<TABLE>
January 31, 1995 April 30, 1994
<S> <C> <C>
Raw Materials and Parts $ 13,400 $ 12,417
Work in Process 4,309 1,819
Finished Goods 8,692 7,924
-------- --------
$ 26,401 $ 22,160
======== ========
</TABLE>
Included in inventory at January 31, 1995, is a total amount of $3,450,000
related to Dynovation, ASI and Ark, primarily consisting of work in process.
<PAGE> 12
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three and Nine Months Ended January 31, 1995 and
1994
During the quarter ended January 31, 1995, the Company purchased certain
net assets of two robotics systems manufacturers, Dynovation Machine Systems,
Inc. ("Dynovation") and ASI Robotics, Inc. ("ASI"). These acquisitions are
part of the Company's long-term strategic plan. Both companies are, and had
previously been, integrators of the Company's products. Consolidation of the
sales and marketing force began during the quarter, and integration of other
functions will continue into fiscal 1996. During the quarter the Company also
entered into a licensing agreement with Ark Systems, Inc. ("Ark"), for the
exclusive worldwide marketing and manufacturing rights for the Ark product
line. Ark produces access system equipment used in the cleaning and
maintenance of the under structure of bridges. The Company's consolidated
statements of operations include the results of Dynovation, ASI and Ark from
the dates of acquisition. The Company paid total cash of $11.5 million and
issued 445,000 shares of common stock to acquire the assets of Dynovation and
ASI, and paid $400,000 for the licensing agreement from Ark. The Company
funded these transactions through a short-term bridge loan facility from the
Company's principal bank.
Total revenues for the three and nine months ended January 31, 1995 were
$27,187,000 and $78,454,000, respectively, representing increases of
$6,632,000 (32%) and $13,953,000 (22%) over the corresponding prior year
periods. The increase in sales revenues of $6,316,000 (40%) for the three
months ended January 31, 1995 compared to the corresponding period in 1994,
came primarily from improved ultra high-pressure ("UHP") cutting and cleaning
product sales, and the effect of the third quarter acquisitions. The
$13,606,000 (30%) increase in sales revenues for the nine months ended January
31, 1995 compared to the corresponding period in 1994, arose for the same
reasons as for the three month period, and also from improved access system
sales. The Company's European operations contributed to these overall revenue
increases with gains of 63% and 53% for the three and nine month periods ended
January 31, 1995 over the prior year, respectively. This reflects a continued
improvement in that region's economy. Domestic revenues increased by 26% and
17% for the same periods, respectively. Rental revenues increased by $240,000
(12%) and $1,102,000 (16%) for the three and nine month periods ended January
31, 1995 over the prior year, respectively, as a result of expanding the
available rental fleet. Service revenues were flat for the three month period
ended January 31, 1995 compared to the prior year, and down slightly for the
nine month comparison.
As a percent of revenue, gross profit for the three and nine months ended
January 31, 1995 was 40% and 42%, respectively. This compares to 29% and 39%
for the same periods in 1994. Due to the historical impact of the winter
weather on construction services, along with a higher percentage of turnkey
systems business sold during the third quarter, the gross profit percentage
decreased to 40% from 43% for the first two quarters of fiscal 1995.
Comparison of gross profit margins between periods is dependent on the
differing sales mixes. Sales of UHP material separation spare parts and
services typically carry higher margins than UHP systems sales. The prior
year third quarter results include a charge of $2,300,000 related to a
terminated construction services contract. Exclusive of this non-recurring
charge, the prior year gross margin percentage would
<PAGE> 13
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
have been 40% and 42% for the three and nine month periods ended January 31,
1994, respectively.
Operating results also improved due to a reduction in operating expenses to
31% of revenues for both the three and nine months ended January 31, 1995,
compared to 38% and 36% for the corresponding prior year periods. As a
percentage of revenues, improvements were achieved in marketing and general
and administrative expense over the prior year quarter. These improvements
were primarily a result of ongoing cost containment programs and from
integrating certain functions since fiscal 1994. Research and engineering
expense as a percent of revenues rose to 7% from 6% in the prior year quarter
primarily as a result of the acquisitions which require a high investment in
ongoing engineering applications.
Interest and other expense, net, of $860,000 and $1,756,000 for the three and
nine months ended January 31, 1995, respectively, represent an increase of
$375,000 and $1,064,000, respectively, from the corresponding prior year
periods. The increase in net interest expense includes approximately $120,000
related to increased borrowings to finance the acquisitions. The prior year
also includes interest income on certain notes receivable which were settled
in the second half of fiscal 1994. The nine months ended January 31, 1994,
also includes recognized income of $445,000 related to the sale of a building
previously used by a subsidiary company.
Income tax expense was lower than the statutory rate primarily due to lower
foreign tax rates, benefits from the foreign sales corporation, and a
reassessment of the Company's FAS 109 valuation allowance in light of the
recent acquisitions.
As a result of the above, the Company recorded net income of $1,616,000, or 11
cents per share, and $5,427,000, or 38 cents per share, for the three and nine
months ended January 31, 1995, respectively, compared to a loss of $1,794,000,
or 13 cents per share, and net income of $1,518,000, or 10 cents per share,
for the same periods in 1994.
Liquidity and Capital Resources
As of January 31, 1995, the Company had cash of $627,000 and available credit
facilities of approximately $15,400,000 (exclusive of the bridge facility), of
which $9,700,000 was available to use domestically.
The Company's Revolving Credit and Term Loan Agreement requires the Company to
comply with certain financial covenants. As of January 31, 1995, the Company
was in compliance with all such covenants. During the quarter, the Company
obtained a short-term bridge loan facility of $14,000,000 from its principal
bank, specifically for acquisition purposes, including those of Dynovation,
ASI and the Ark licensing agreement. The Company is in the process of
evaluating various options to replace the bridge loan facility with permanent
or long-term financing. The Company believes its available credit facilities
and working capital generated by operations are sufficient to meet operating
and capital requirements.
<PAGE> 14
FLOW INTERNATIONAL CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to various legal actions incident to the normal
operations of its business, none of which is believed to be material to the
financial condition of the Company.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
The Company filed a Current Report on Form 8-K on December 23, 1994, reporting
the completion of the acquisition of certain net assets of Dynovation Machine
Systems, Inc. on December 15, 1994. The Current Report includes a pro forma
consolidated balance sheet as of October 31, 1994, a consolidated pro forma
income statement for the six months ended October 31, 1994 and a consolidated
pro forma income statement for the year ended April 30, 1994. Also included
was the audited financial statements of Dynovation for the year ended
September 30, 1994.
<PAGE> 15
FLOW INTERNATIONAL CORPORATION
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.
<TABLE>
<S> <C>
FLOW INTERNATIONAL CORPORATION
Ronald W. Tarrant
Date: March 8, 1995 ____________________________________
Ronald W. Tarrant
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Lee M. Andrews
Date: March 8, 1995 ____________________________________
Lee M. Andrews
Vice President, Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer)
</TABLE>
