<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1995
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 2-81315
FLOW INTERNATIONAL CORPORATION
<TABLE>
<S> <C>
DELAWARE 91-1104842
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
23500 - 64TH AVENUE SOUTH
KENT, WASHINGTON 98032
(206) 850-3500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 Par Value
Preferred Stock Purchase Rights
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 [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [ ]
<PAGE> 2
The aggregate market value of the voting stock held by non affiliates of the
registrant based upon the closing price reported by the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") as of May 31, 1995,
was $124,645,257. The number of shares of common stock outstanding as of May
31, 1995, was 14,350,219 shares.
<PAGE> 3
DOCUMENTS INCORPORATED BY REFERENCE
PART I: None
PART II: None
PART III: ALL ITEMS -- SEE REGISTRANT'S DEFINITIVE PROXY STATEMENT WHICH
INVOLVES THE ELECTION OF DIRECTORS AND WHICH WILL BE FILED
WITH THE COMMISSION WITHIN 120 DAYS AFTER THE CLOSE OF THE
FISCAL YEAR.
Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial
Owners and Management
Item 13 Certain Relationships and Related Transactions
<PAGE> 4
PART I
Item 1. Business
Flow International Corporation ("Flow" or the "Company") designs,
develops, manufactures, markets, and services ultrahigh-pressure ("UHP") (over
30,000 psi) waterjet cutting and cleaning systems, and is a provider of access
systems, robotics and factory automation equipment. Flow provides
technologically advanced, environmentally sound solutions to the manufacturing,
industrial cleaning and construction services markets. The Company's waterjet
systems are used to cut both metallic and nonmetallic materials in many
industry segments, including the aerospace, automotive, disposable products,
food processing, glass, job shop, marble, oil field services and paper
industries. The Company also provides the robotic articulation equipment used
in the cutting process as well as other factory automation systems such as pick
and place and load/unload operations. The Company's infrastructure products
include UHP waterjets for use in industrial cleaning, surface preparation,
construction, nuclear decontamination, and petro-chemical applications, as well
as access systems for use in many of the same applications. The Company also
provides, as a service, the removal of deteriorated concrete from bridges and
parking garages using UHP waterjets ("HydroMilling(R)"), and the removal of
rubber, paint and grout from commercial and military runways
("HydroCleaning(TM)").
The Company was formed in 1974 as a division of Flow Industries, Inc.
("Flow Industries"). In March 1983, the Company completed its initial public
offering. During the year ended April 30, 1990, the Company acquired and
retired Flow Industries' remaining interest in the Company.
In September 1992, the Company acquired all of the outstanding stock
of Spider Staging Corporation ("Spider"). Spider designs, manufactures, rents,
sells, and services access systems to a variety of infrastructure-related
markets.
In April 1993, the Company acquired substantially all of the assets of
Power Climber, Inc. ("Power Climber"), and affiliated companies. Power Climber
was, prior to the acquisition, a supplier to Spider, and designs and markets
access systems, using traction hoist technology.
On November 4, 1994, the Company entered into a licensing agreement
with Ark Systems, Inc. ("Ark"). Ark designs and manufactures a range of access
containment systems which are used in under-bridge applications for surface
preparation, lead-paint abatement, cleaning and maintenance. The agreement
gives Spider the exclusive worldwide marketing and manufacturing rights for the
Ark product line for five years.
On December 15, 1994, the Company purchased certain net assets of
Dynovation Machine Systems, Inc. ("Dynovation"). Dynovation designs and
manufactures robotic waterjet cutting cells and automated assembly systems for
the automotive market and other industries.
<PAGE> 5
On January 3, 1995, the Company purchased certain net assets of ASI
Robotics Systems ("ASI"). ASI designs and manufactures high accuracy gantry
robots and related systems used in waterjet and other applications. ASI
supplies it's products to the aerospace, automotive and other similar
industries.
PRODUCTS AND SERVICES
The Company provides UHP waterjets and related products and services
to a wide variety of industries. The Company divides its revenues into four
primary categories of product:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
Revenue % Revenue % Revenue %
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UHP Waterjet and Factory
Automation Systems $36,600 33 $20,645 23 $24,160 31
UHP Spare Parts and Services 28,529 26 26,319 30 24,818 31
Access Systems and Services 33,566 31 28,888 33 22,015 28
HydroMilling(R) and
HydroCleaning(TM) Services 11,315 10 12,780 14 8,086 10
----------------------------------------------------------------------
Total Revenues $110,010 100 $88,632 100 $79,079 100
======================================================================
</TABLE>
UHP WATERJET AND FACTORY AUTOMATION SYSTEMS, SPARE PARTS AND SERVICES
The Company offers a variety of UHP waterjet and factory automation
system products and accessories, including related robotic articulation
equipment. Intensifier and direct-drive pumps are currently the core
components of the Company's products. An intensifier pump pressurizes water up
to 60,000 psi and forces it through a small nozzle, generating a high-velocity
waterjet. The Company's unique direct- drive pressure-compensated pump
pressurizes water utilizing triplex piston technology. In order to cut
metallic and other hard materials, abrasives are added to the waterjet stream
creating an abrasivejet. The Company's abrasivejet cuts with little heat,
causes no metallurgical changes, and leaves a high-quality edge that usually
requires no additional finishing. Flow also produces a range of tools and
accessories which incorporate waterjet technology, and sells aftermarket spare
parts and services for its products. The Company also provides factory
automation equipment used in applications such as pick and place operations,
waterjet cutting and inspection. A UHP waterjet system consists of an
ultrahigh-pressure intensifier pump, one or more waterjet cutting heads, and a
motion control system. Sales of UHP waterjet and factory automation systems,
and replacement parts and services, accounted for 33% and 26%, respectively, of
fiscal 1995 revenues. Spare parts sales help to insulate the Company from the
adverse effects of economic swings, when industrial customers tend to reduce
investment in new capital equipment. System sales generate an after-market in
consumable spare parts and service. Higher system sales therefore have a
corresponding positive impact on spare parts and services revenue. The Company
has placed UHP waterjet cutting systems worldwide and in many different
industries, including the aerospace, automotive, disposable products, food
processing, glass, job shop, metal cutting, marble and other stone
<PAGE> 6
cutting, oil field services and paper industries. The Company's UHP waterjet
systems are also used in industrial cleaning applications such as paint
removal, surface preparation, factory, ship hull and heat exchanger cleaning.
ACCESS SYSTEMS AND SERVICES
The Company designs, manufactures, rents, sells, and services access
systems for use in structural and facade maintenance and construction
applications. The Company's mobile or temporary work platforms provide access
to exterior building surfaces and construction sites, bridges, ships, offshore
oil rigs, radio towers, sports stadiums, and hydroelectric dams; and internal
access to large water and chemical tanks, power plant boilers, and missile
silos. The Company's permanently installed systems provide access to exterior
surfaces of high-rise buildings for window washing, painting, building
restoration and exterior maintenance. The Company is also the exclusive U.S.
distributor of a line of permanently installed access systems produced by
Mannesmann of Germany, and is the North American distributor of the Nihon Bisoh
automatic exterior maintenance systems. In fiscal 1995, sales and rental of
access systems and services amounted to 31% of total revenues.
HYDROMILLING AND HYDROCLEANING SERVICES
The Company provides HydroMilling services on a contract and subcontract
basis for the removal of deteriorated concrete from bridge and parking garage
surfaces. The Company's proprietary HydroMilling systems operate in the
pressure range of 25,000 to 40,000 psi, and use a rotating ultrahigh-pressure
waterjet, mounted on a robot, to remove concrete. The depth of the cutting per
pass can be controlled by adjusting the pressure and traverse speed of the
waterjet. In January 1993, the Company began work on the John F. Kennedy
Center for the Performing Arts parking garage in Washington, D. C., where Flow
will remove and replace deteriorated concrete in this 500,000 square foot
facility. This $13.8 million contract is expected to be completed in early
fiscal 1997. The Company recently announced the award of two other contracts
totaling $5.5 million. HydroCleaning services are provided to commercial and
military airfields. Ultrahigh-pressure waterjets are mounted on a vehicle to
remove rubber, paint and grout from airport runways. In fiscal 1995,
HydroMilling and HydroCleaning revenues were 10% of total revenues.
MARKETING
The Company markets its products worldwide through its headquarters in
Kent, Washington (a suburb of Seattle), through subsidiaries, divisions and
joint ventures in Pittsburgh, Pennsylvania; Johnstown, Pennsylvania;
Jeffersonville, Indiana; Burlington, Canada; Darmstadt, Germany; Antwerp,
Belgium; Paris, France; Lyon, France; Marseilles, France; Tokyo, Japan; and
Hsinchu, Taiwan; and through branch offices in sixteen North American cities.
The Company sells directly to customers in the U.S., Europe and parts of Asia,
and has distributors or agents in most other countries.
<PAGE> 7
No customer accounted for 10% or more of the Company's revenues during
any of the three years ended April 30, 1995.
Marketing efforts are focused on certain target industries. To
enhance the effectiveness of sales efforts, the marketing staff and sales force
acquire detailed information on the manufacturing and construction processes in
targeted industries. This information is used to develop standardized and
customized solutions using both UHP waterjet and robotics technologies, and
access systems. In selling both standard and custom-designed waterjet and
access systems, the Company provides turnkey systems, including system design,
specification, hardware and software integration, equipment testing and
simulation, installation, start-up services, technical training and service.
One of the Company's marketing techniques utilizes a telemarketing
program to identify and qualify sales leads, thus increasing the efficiency of
the direct sales staff. Market responses to these activities are carefully
screened to identify new areas of interest and new potential applications. The
Company also attends trade shows for targeted market segments and advertises in
selected publications.
The Company markets its proprietary HydroMilling and HydroCleaning
services primarily in the United States due to the location of service staff
and equipment. HydroMilling services are provided primarily in the Northeast
and Midwest areas of the country. Roadway concrete deteriorates faster in
these areas due to the freeze-thaw cycle and use of salt on roadways.
HydroCleaning services are provided throughout the United States. Services are
marketed directly to customers by the Company's sales force.
Application of the Company's products and services in the construction
industry vary with construction cycles. Sales in the March through October
period tend to be higher than sales in the remaining months of the year.
PATENTS AND LICENSES
The Company holds a number of patents relating to UHP waterjet
technology and systems, and to access system products and applications. Some
of these patents are subject to sub-licenses. In addition, the Company has
been granted licenses with respect to patents held in the name of Flow
Industries, the Company's former parent.
While the Company believes the patents it uses are valid, it does not
consider its business dependent on patent protection. In addition, the Company
has over the years developed non-patented proprietary expertise and know-how in
waterjet and access system applications, and in the manufacture of these
systems.
The Company believes the patents it holds, along with the proprietary
application and manufacturing know-how, act as a barrier of entry into the
markets it serves.
<PAGE> 8
BACKLOG
At April 30, 1995, the Company reported a year-end backlog of $23.5
million, up 54% from $15.3 million at the prior year end. Based upon the terms
of the customer contracts and the Company's manufacturing schedule, all of the
revenue backlog as of April 30, 1995 is expected to be realized during fiscal
1996. Amounts expected to be billed after April 30, 1996 have been excluded
from this backlog presentation. The unit sales price for most of the Company's
products and services is relatively high (typically ranging from tens of
thousands to over a million dollars) and individual orders can involve the
delivery of several hundred thousand dollars of products or services at one
time. Furthermore, some items in backlog can be shipped more quickly than
others, and some have higher profit margins than others. Consequently, even
sizable variations in the amount of the Company's backlog between particular
dates are not necessarily indicative of comparable variations in sales or
earnings.
COMPETITION
The major competitors for UHP waterjet systems are conventional
cutting and cleaning methods. These methods, which use saws, knives, shears,
lasers, abrasive wheels, grinders, routers, drills, dies, and abrasive cleaning
techniques, often have a lower initial cost. A UHP waterjet cutting system has
many advantages over conventional cutting systems, including the generation of
little heat and airborne dust, easy adaptability to complex cutting programs,
and the ability to leave clean-cut edges. These factors in addition to
elimination of secondary processing in certain circumstances enhance
manufacturing productivity. Waterjet cleaning offers many advantages over
other cleaning methods, such as the ability to remove difficult-to-clean
coatings or deposits from a surface without damaging underlying material. A
UHP waterjet system is an environmentally-friendly answer to many difficult
cutting and cleaning applications and can often be justified solely on the
basis of the removal of hazardous materials from the production process.
The Company also competes with other waterjet cutting equipment
manufacturers in the United States, Europe and Asia. Certain of these
competitors have greater financial resources than the Company. The recent
robotics acquisitions give Flow a competitive advantage as the only total
system provider of a complete line of articulation equipment used in waterjet
cutting. Although independent market information is not generally available,
based upon data assembled from internal and external sources, Company
management believes it is the largest manufacturer of UHP waterjet cutting
systems in the world.
With respect to access systems, the Company believes that service,
price, product performance, and reliability are the key competitive factors.
Management believes that its products are priced competitively and that the
strength of its North American branch system and its product reliability are
key to its results. In the permanently installed access system markets, the
Company believes there are 15 to 20 firms with which it competes. None of
these firms dominate the market.
The primary competitors to HydroMilling services are traditional
concrete removal operators. The advantages of the UHP approach of HydroMilling
over other concrete removal systems, such as jackhammers, include increased
speed, reduced cost, depth control, better concrete bonding; and the
<PAGE> 9
elimination of micro-cracks, rebar damage, vibration, dust, and noise.
HydroMilling also competes with other hydrodemolition contractors, most of
which use waterjets at 10,000 to 25,000 psi with significantly higher volumes
of water. The Company believes that its process, operating with pressures to
36,000 psi, produces a higher quality bonding surface and that the size of its
fleet as compared to competitors enables it to complete larger projects more
quickly.
HydroCleaning competitors include companies using chemical processes
and other mechanical means. The Company believes that the speed and
environmentally-friendly aspects of its process are key advantages.
Overall, the Company believes that its competitive position is
enhanced by (1) technically advanced, proprietary products that provide
excellent reliability, low operating costs, and user-friendly features, (2) a
strong application-oriented, problem-solving marketing approach, (3) an active
research and development program that allows it to maintain technical
leadership, (4) the ability to provide complete turnkey systems, (5) strong
position in key markets, such as the U.S., Japan, southeast Asia and Europe,
(6) strong OEM customer ties, and (7) efficient production facilities.
RESEARCH AND ENGINEERING
The Company has allocated over 6% of revenues to research and
engineering during each of the three years ended April 30, 1995. Research and
engineering expenses were approximately $6,784,000, $5,361,000, and $4,983,000
in fiscal years 1995, 1994, and 1993, respectively.
EMPLOYEES
As of April 30, 1995, the Company employed 792 full time and 6 part
time personnel. There are no material collective bargaining agreements to
which the Company is a party.
FOREIGN AND DOMESTIC OPERATIONS
See Note 13 of Notes to Consolidated Financial Statements for
information regarding foreign and domestic operations.
<PAGE> 10
Item 2. Properties
The Company's headquarters and primary manufacturing facilities are
located in one leased facility in Kent, Washington. In addition, the Company
maintains HydroMilling office and shop facilities in Pittsburgh, Pennsylvania;
manufacturing facilities in Jeffersonville, Indiana; sales facilities in
sixteen North American cities; Tokyo, Japan and three facilities in France; and
sales, manufacturing and warehouse facilities in Johnstown, Pennsylvania;
Burlington, Canada; Hsinchu, Taiwan; Antwerp, Belgium; and Darmstadt, Germany.
In connection with the acquisition of certain assets of ASI, the
Company owns the land and building in which ASI operates. The plant is located
in Jeffersonville, Indiana.
All other facilities of the Company are leased with the exception of a
warehouse and sales facility in Chicago, Illinois.
The Company believes that its facilities are suitable for its current
operations and that expansion in the near term will not require additional
space. The Company further considers that its primary manufacturing facility
will be adequate to meet production requirements for the next three to five
years.
Item 3. Legal Proceedings
The Company is party to various legal actions incident to the normal
operation of its business, none of which is believed to be material to the
financial condition of the Company. See Notes 1 and 12 of Notes to
Consolidated Financial Statements for a description of the Company's product
liability insurance coverage and estimated exposure.
Item 4. Submission of Matters to a Vote of Security Holders
An annual stockholders' meeting was held on August 31, 1994, during
which three persons were elected to be members of the Board of Directors.
Daniel J. Evans, Kenneth M. Roberts and Ronald W. Tarrant were elected to
three-year terms ending with the 1997 Annual Meeting of Stockholders receiving,
respectively, 11,229,042, 11,238,915 and 11,214,996 votes in favor, and 85,307,
75,434 and 99,353 votes withheld. There were no broker non-votes for any of the
above submitted for vote.
<PAGE> 11
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
See page 12
Item 6. Selected Financial Data.
See page12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
See pages 13 through 17
Item 8. Financial Statements and Supplementary Data.
See pages 18 through 40
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
<PAGE> 12
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The principal market for the Company's common stock is the
over-the-counter market. The Company's stock is traded on the NASDAQ National
Market under the symbol "FLOW." The range of high and low sales prices for the
Company's common stock for the last two fiscal years is set forth in the table
below.
<TABLE>
<CAPTION>
Fiscal Year 1995 Fiscal Year 1994
High Low High Low
-------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $6.88 $4.63 $8.25 $5.75
Second Quarter 7.25 5.63 8.75 6.25
Third Quarter 7.88 6.13 8.75 6.88
Fourth Quarter 8.50 6.50 8.50 5.38
</TABLE>
There were 1,592 stockholders of record as of May 31, 1995.
The Company has not paid dividends to common stockholders in the past.
The Board of Directors intends to retain future earnings to finance development
and expansion of the Company's business and does not expect to declare
dividends to common stockholders in the near future.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
(In thousands, except per share data) Year Ended April 30
- ----------------------------------------------------------------------------------------------------------
1995 1994 1993 1992(1) 1991(1)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue $110,010 $88,632 $79,079 $69,071 $60,509
Pretax Income (Loss) 9,259 3,112 5,791 4,272 (704)
Net Income (Loss) 7,728 2,953 4,641 3,511 (865)
Earnings (Loss) Per Share 0.53 0.21 0.33 0.25 (0.11)
Balance Sheet Data:
Working Capital 44,592 25,415 25,060 16,399 16,806
Total Assets 105,484 78,228 69,276 57,448 54,329
Short-Term Debt 2,412 16,504 10,403 8,477 11,472
Long-Term Obligations 33,359 10,559 12,549 7,899 8,903
Stockholders' Equity 49,803 37,948 34,225 28,873 24,748
</TABLE>
- ----------
(1) Results for the fiscal year have been restated to include the results
of Spider Staging Corporation, which was acquired in a pooling-of-interests
transaction on September 30, 1992.
<PAGE> 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
The Company provides ultrahigh-pressure ("UHP") waterjet, factory
automation and access systems, and related products and services to a wide
variety of industries. The following table sets forth the Company's
consolidated revenues by major product categories.
CONSOLIDATED REVENUES BY MAJOR PRODUCT CATEGORIES
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
Revenue % Revenue % Revenue %
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UHP Waterjet and Factory
Automation Systems $ 36,600 33 $20,645 23 $24,160 31
UHP Spare Parts and Services 28,529 26 26,319 30 24,818 31
Access Systems and Services 33,566 31 28,888 33 22,015 28
HydroMilling(R) and
HydroCleaning(TM) Services 11,315 10 12,780 14 8,086 10
----------------------------------------------------------------------
Total Revenues $110,010 100 $88,632 100 $79,079 100
======================================================================
</TABLE>
FISCAL 1995 COMPARED TO FISCAL 1994
During the year ended April 30, 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 growth plan. Both companies are, and had
previously been, integrators of the Company's products. Consolidation of the
sales and marketing force began during the third quarter of fiscal 1995, and
integration of other functions will continue into fiscal 1996. During the year
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 also entered
into a joint venture relationship with Consortium Europeen du Materiel ("CEM")
in France, for the distribution of access system equipment in France. The
Company's consolidated statements of income include the results of Dynovation,
ASI, Ark and CEM from the dates of acquisition or agreement. 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. The investments in Ark and CEM have
not been material to date. The Company funded these transactions through a
short-term bridge loan facility from the Company's principal bank.
<PAGE> 14
Revenues for the year ended April 30, 1995 increased $21.4 million
(24%) from the prior year period. This increase arose primarily from the
strong advances in the European and domestic UHP markets, where revenues
increased 46% and 18%, respectively and from business acquisitions and
partnerships made during fiscal 1995. Sales into Asia were similar to those of
the prior year. The Company typically sells its products at higher prices
outside the United States due to the costs of servicing these markets. UHP
waterjet spare parts and services revenues increased by $2.2 million (8%),
reflecting an increased base of UHP waterjet systems installed throughout the
world. Spare parts and services are a continuing and significant part of the
Company's business, and generally have a higher profit margin than new systems.
As a percentage of total revenues, spare parts and services decreased as
compared to the prior year because the acquired systems manufacturers carry a
lower relative percentage of such revenues. Spare parts are composed primarily
of consumables used in the cutting or cleaning process. Access system revenues
increased $4.7 million (16%), reflecting continued domestic strength of the
sales and rental of temporary access equipment as well as the recent licensing
agreement with Ark. HydroMilling and HydroCleaning services revenues decreased
by $1.5 million (11%). Management of this division has focused on contracts
which maintain its target margins, in a market which softened slightly during
the year. The $13.8 million contract for parking garage rehabilitation
services at the John F. Kennedy Center for the Performing Arts in Washington,
D.C. remains on target, with the job approximately 70% complete at the end of
fiscal 1995.
Gross margin expressed as a percent of sales was 42% in fiscal 1995
compared with 40% in fiscal 1994. Excluding the effect of certain
non-recurring charges in fiscal 1994, the gross margin percentage would have
also been 42%. Since the Company's products have different gross margins,
product mix variations can have a significant impact on overall gross margins.
In general, UHP systems sales have gross margins less than 40% and spare parts
sales have margins in excess of 50%. The margin in the HydroMilling and
HydroCleaning revenue is dependent on the mix of services provided and the
utilization of the equipment. Services margins approximate 30% of sales,
while rental margins typically exceed 50% of sales. Slow moving and obsolete
inventory provisions increased by $112,000, net of disposals.
Expenses increased by $3.6 million (12%), in part as a result of the
acquisitions completed during 1995. However, expressed as a percentage of
revenues, expenses decreased from 35% in 1994 to 31% in 1995. Excluding the
effect of certain non-recurring charges in fiscal 1994, the expense percentage
would have been 34%. Marketing, and general and administrative expenses both
declined by two percentage points. This was achieved by a continued focus on
cost control by Company management during fiscal 1995. Research and
engineering expense exceeded 6% of revenues, reflecting the Company's continued
emphasis on increased product development efforts.
Operating income can vary significantly for domestic and foreign
operations (see Note 13 of Notes to Consolidated Financial Statements), but is
primarily the result of product mix variations and volume from year to year.
There are no known trends that management expects to result in a materially
unfavorable impact on revenues or income from operations.
Net interest expense increased by $825,000 in fiscal 1995 compared to
1994. This was as a result of the higher borrowings related to the
acquisitions, and to the increased interest rates during fiscal 1995. Cash flow
from operations enabled the Company to decrease debt $4.3 million during fiscal
1995.
<PAGE> 15
During fiscal 1995, other expense, net, totaled $30,000, compared to
other income, net, of $652,000 in 1994. The 1994 results included a $445,000
gain on the sale of a vacated manufacturing facility.
Income tax expense for fiscal 1995 was 17% of income before tax as
compared to 18% in the previous year. Income tax expense was lower than the
statutory rate in both fiscal 1995 and 1994 primarily due to lower tax rates in
certain foreign jurisdictions, the benefit of the Company's foreign sales
corporation and changes in the Company's FAS 109 valuation allowance. In the
first quarter of fiscal 1994, the Company recorded income of $401,000, related
to the mandatory adoption of Statement of Financial Accounting Standards No.
109 ("FAS 109"), "Accounting for Income Taxes." This is reflected as a change
in accounting principle.
FISCAL 1994 COMPARED TO FISCAL 1993
Revenues for the year ended April 30, 1994 increased $9.6 million
(12%) from the prior year period. UHP waterjet system sales declined by $3.5
million (15%), reflecting the soft economies in Europe and Japan that were
prevalent throughout the year. UHP waterjet replacement spare parts and
services revenues increased by $1.5 million (6%). Access system revenues
increased $6.9 million (31%), reflecting primarily the acquisition of Power
Climber at the end of fiscal 1993. HydroMilling and HydroCleaning services
revenues increased $4.7 million (58%), relating primarily to the performance of
parking garage rehabilitation services at the John F. Kennedy Center for the
Performing Arts in Washington, D.C.
North American and Asian sales (excluding Japan) increased by 20% and
34%, respectively; European and Japanese sales decreased by 5% and 44%,
respectively, as their soft economies reduced the demand for machine tools.
Gross margin expressed as a percent of sales was 40% in fiscal 1994
compared with 43% in fiscal 1993. The reduction in gross margin is primarily
attributable to a construction services project terminated in the third quarter
of fiscal 1994 for which the Company recorded cost of sales of $2.6 million and
revenues of $400,000. Excluding this project, gross margin would have been 42%
in fiscal 1994. Slow moving and obsolete inventory provisions increased by
$86,000, net of disposals.
Expenses increased by $3.8 million in fiscal 1994. However, they were
35% of sales in both years. Marketing expenses increased by $2.5 million.
This increase includes approximately $600,000 related to Power Climber, whose
expenses were nominal in fiscal 1993 as the acquisition was completed in April
1993. Additionally, marketing expenses increased in the domestic access system
and waterjet marketing areas by approximately $700,000 and $900,000,
respectively, primarily from increased efforts directed at expanding the
Company's access system and field cleaning markets and operations. The
$378,000 increase in research and engineering expenses resulted from increased
product development efforts. General and administrative expenses increased by
$863,000, which includes Power Climber expenses of $1.3 million. Additionally,
during the third and fourth quarters of the fiscal year the Company incurred
approximately $400,000 in expenses associated with a letter of intent to
acquire the assets of the Waterjet Cutting Systems Division of Ingersoll-Rand
Company. The Company terminated the letter of intent subsequent to
<PAGE> 16
year end but has written off these costs to general and administrative expense
in fiscal 1994. These increases were offset partially by reduced domestic
general and administrative expenses.
Net interest expense increased by $347,000 in fiscal 1994 and was
related to increased borrowings.
Other income, net, increased by $649,000 which was composed of a
$445,000 gain on the sale of a vacated manufacturing facility and greater
realized and unrealized foreign exchange gains in fiscal 1994 over 1993.
Income tax expense for fiscal 1994 was 18% of income before tax as
compared to 28% in the previous year. In the previous year, net operating loss
carryforwards were recognized as an extraordinary item and reduced the net tax
expense to 20% of income before tax. In the first quarter of fiscal year 1994,
the Company recorded income of $401,000, related to the mandatory adoption of
Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting
for Income Taxes." This is reflected as a change in accounting principle.
Income tax expense was lower than the statutory rate in fiscal 1994 due
primarily to lower tax rates in certain foreign jurisdictions, the benefit of
the Company's foreign sales corporation and the change in the Company's FAS 109
valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
Subsequent to year end the Company received an irrevocable long-term
commitment from its bank to replace its domestic borrowings. Such borrowings
arose from a working capital line, equipment purchase notes, and the financing
required to complete various acquisitions and business partnerships and
agreements during fiscal 1995. The new financing arrangement comprises a $60
million five-year reducing line of credit. The interest rate will be at prime
or linked to IBOR, at the Company's option. Debt as of April 30, 1995, which
will be replaced by the new financing arrangement, has been classified
accordingly.
See Note 7 of Notes to Consolidated Financial Statements for a
schedule of long-term debt maturities. Long-term debt obligations are expected
to be met from working capital provided by operations and, as necessary, by
other indebtedness.
Capital spending plans currently provide for outlays of approximately
$6 to $7 million in fiscal 1996. It is expected that funds necessary for these
expenditures will be generated internally, and through available credit
facilities.
The 22% increase in gross trade accounts receivable at April 30, 1995
from April 30, 1994 was principally due to higher fourth quarter revenues, and
to the new businesses acquired during fiscal 1995. Days' sales outstanding in
gross accounts receivable are impacted by sales outside the United States.
Additionally, longer payment terms are sometimes negotiated on large system
orders. The Company's management does not believe these timing issues will
present a material adverse impact on the Company's short-term liquidity
requirements.
<PAGE> 17
The inventory increase of $5 million (23%) is related primarily to the
higher levels of business and the new businesses acquired during fiscal 1995.
Certain products manufactured by ASI and Dynovation can require an extended
manufacturing period, and therefore involve higher levels of work in process.
Higher inventory levels also reflect new product introductions and the
Company's efforts to reduce lead times associated with customer orders. The
amount provided for obsolete and slow-moving goods at April 30, 1995, increased
$112,000, net of disposals, from April 30, 1994.
It is the Company's policy to hedge net assets denominated in foreign
currencies (primarily the German Mark) where significant currency rate
fluctuations may impact profitability.
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
Management is responsible for the fair and accurate presentation of
information in this annual report. The financial statements and related notes
have been prepared in accordance with generally accepted accounting principles.
Financial and operating information comes from Company records and other
sources. Certain amounts are, of necessity, based on judgment and estimation.
We believe that adequate accounting systems and financial controls are
maintained to ensure that the Company's records are free from material
misstatement and to protect the Company's assets from loss or unauthorized use.
In addition, the Audit Committee of the Board of Directors periodically meets
with Price Waterhouse LLP and management to review the work of each, to discuss
financial reporting matters, and to review auditing and internal control
procedures.
/s/ Lee M. Andrews
LEE M. ANDREWS
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
<PAGE> 18
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements are filed as a part of
this report:
<TABLE>
<CAPTION>
Index to Financial Statements Page in This Report
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Report of Independent Accountants 19
Consolidated Balance Sheets at April 30, 1995 and 1994 20
Consolidated Statements of Income for each of the three
years in the period ended April 30, 1995 21
Consolidated Statements of Cash Flows for each of
the three years in the period ended April 30, 1995 22
Consolidated Statements of Changes in Stockholders'
Equity for each of the three years in the period ended April 30, 1995 24
Notes to Consolidated Financial Statements 25
Financial Statement Schedules
- -----------------------------
VIII -- Valuation and Qualifying Accounts 40
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Flow International Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Flow International Corporation and its subsidiaries at April 30,
1995 and 1994, and the results of their operations and their cash flows for
each of the three years in the period ended April 30, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 8 to the financial statements, the Company
changed its method of accounting for income taxes in fiscal 1994.
/s/ Price Waterhouse LLP
Seattle, Washington
July 6, 1995
<PAGE> 20
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
April 30
---------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS:
- -------
Current Assets:
Cash $1,074 $1,351
Trade Accounts Receivable, less
allowances for doubtful accounts of $1,150 and $908, respectively 31,638 25,887
Inventories 27,219 22,160
Deferred Income Taxes 1,335 1,422
Other Current Assets 4,719 4,316
----------------------
Total Current Assets 65,985 55,136
Property and Equipment, net 24,533 20,030
Deferred Income Taxes - 113
Intangible Assets, net of accumulated amortization of
$2,275 and $1,736, respectively 13,361 1,809
Other Assets 1,605 1,140
----------------------
$105,484 $78,228
======================
LIABILITIES AND STOCKHOLDERS' EQUITY:
- -------------------------------------
Current Liabilities:
Notes Payable to Banks $1,614 $12,126
Current Portion of Long-Term Obligations 798 4,378
Accounts Payable 12,221 7,968
Accrued Payroll and Related Liabilities 3,542 2,027
Other Accrued Taxes 638 178
Other Accrued Liabilities 2,580 3,044
---------------------
Total Current Liabilities 21,393 29,721
Long-Term Obligations 33,359 10,559
Deferred Income Taxes 248 -
Minority Interest 681 -
Stockholders' Equity:
Series A 8% Convertible Preferred Stock -
$.01 par value, $500 liquidation preference, 1,000,000 shares authorized, 0 issued
Common Stock - $.01 par value, 20,000,000 shares authorized,
14,603,233 and 14,326,830 shares issued and outstanding, respectively, in 1995
14,031,262 and 13,754,859 shares issued and outstanding, respectively, in 1994 146 140
Capital in Excess of Par 37,602 33,889
Retained Earnings 11,456 3,728
Treasury Common Stock of 276,403 shares at cost (556) (556)
Cumulative Translation Adjustment 1,339 1,023
Loan to Employee Stock Ownership Plan & Trust (184) (276)
----------------------
Total Stockholders' Equity 49,803 37,948
----------------------
Commitments and Contingencies (Note 12) - -
----------------------
$105,484 $78,228
======================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 21
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
April 30
------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenue:
Sales $84,800 $63,808 $60,663
Services 15,256 16,110 11,146
Rentals 9,954 8,714 7,270
------------------------------------
Total Revenues 110,010 88,632 79,079
Cost of Sales:
Sales 48,454 36,223 33,414
Services 10,850 13,351 7,788
Rentals 4,395 3,980 3,574
------------------------------------
Total Cost of Sales 63,699 53,554 44,776
------------------------------------
Gross Profit 46,311 35,078 34,303
Expenses:
Marketing 16,582 15,106 12,591
Research and Engineering 6,784 5,361 4,983
General and Administrative 11,282 10,602 9,739
------------------------------------
34,648 31,069 27,313
------------------------------------
Operating Income 11,663 4,009 6,990
Interest Expense, net (2,374) (1,549) (1,202)
Other Income (Expense), net (30) 652 3
------------------------------------
Income before Provision for Income Taxes,
Extraordinary Item and Change in Accounting Principle 9,259 3,112 5,791
Provision for Income Taxes 1,531 560 1,600
------------------------------------
Income before Extraordinary Item and Change in
Accounting Principle 7,728 2,552 4,191
Extraordinary Item:
Realization of Operating Loss Carryforwards -- -- 450
Change in Accounting Principle -- 401 --
------------------------------------
Net Income $ 7,728 $2,953 $4,641
====================================
Earnings per Common and Equivalent Shares:
Income before Extraordinary Item and Change
in Accounting Principle $ .53 $ .18 $ .30
Extraordinary Item and Change in Accounting Principle -- .03 .03
------------------------------------
Net Income $ .53 $ .21 $ .33
====================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 22
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 7,728 $ 2,953 $ 4,641
Adjustments to Reconcile Net Income to Cash
Provided (Used) by Operating Activities:
Depreciation and amortization 5,199 4,236 3,763
Gain on sale of Spider facility - (445) -
Change in accounting principle and extraordinary item - (401) (450)
Provision for losses on trade accounts receivable 480 324 237
Provision for slow moving and obsolete inventory 324 269 312
Tax effect of exercised stock options 164 554 175
Other 92 92 92
(Increase) Decrease in Current Assets,
net of effects of business combinations:
Trade Accounts Receivable (2,651) (4,325) (2,807)
Inventories (1,516) (2,552) (3,033)
Other Current Assets (29) (1,878) 636
Deferred Income Taxes 87 (686) 36
Increase (Decrease) in Current Liabilities,
net of effects of business combinations:
Accounts Payable (1,378) 513 181
Accrued Payroll and Related Liabilities 796 (87) (433)
Other Accrued Taxes 372 (257) (282)
Other Accrued Liabilities (813) 1,119 (472)
(Increase) in Intangible Assets (400) - -
(Increase) Decrease in Other Long-Term Assets (39) 195 175
Increase in Other Long-Term Liabilities 192 - -
------- ------- -------
Cash provided (used) by operating activities 8,608 (376) 2,771
------- ------- -------
Cash Flows from Investing Activities:
Expenditures for property and equipment (5,584) (6,228) (7,222)
Payment for business combinations (11,850) - -
Payment received on Flow Industries note - 2,744 -
Investment in Preferred Stock - - (609)
Proceeds from sale of property and equipment - 156 -
Other 17 702 644
------- ------- -------
Cash used by investing activities (17,417) (2,626) (7,187)
------- ------- -------
Cash Flows from Financing Activities:
Borrowings under line of credit agreements 81,895 73,213 52,581
Repayments under line of credit agreements (82,127) (67,768) (50,418)
Proceeds from bridge loan 12,364 - -
Proceeds from long-term obligations 287 2,340 2,552
Payments of long-term obligations (4,397) (3,674) (1,144)
Proceeds from issuance of common stock 194 315 488
Payment of Preferred Stock Dividends - (50) (200)
------- ------- -------
Cash provided by financing activities 8,216 4,376 3,859
------- ------- -------
Effect of exchange rate changes on cash 316 (141) (102)
------- ------- -------
Increase (decrease) in cash and cash equivalents (277) 1,233 (659)
Cash and cash equivalents at beginning of period 1,351 118 777
------- ------- -------
Cash and cash equivalents at end of period $ 1,074 $ 1,351 $ 118
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 23
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information
- -------------------------------------------------
Cash paid during the year for
Interest $2,273 $1,756 $1,434
Income Taxes 740 531 878
Supplemental schedule of non-cash investing and financing activities
- --------------------------------------------------------------------
Fair value of assets acquired (Note 2) $ 23,175 $4,054
Cash paid, stock issued and notes assumed for assets acquired (14,965) (2,262)
-------- ------
Liabilities assumed $ 8,210 $1,792
======== ======
Net proceeds from sale of the Spider manufacturing facility $ 1,031
Less one year note receivable (875)
-------
Cash proceeds $ 156
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 24
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Series A
Convertible Retained
Preferred Stock Common Stock Earnings/
----------------- ------------------ Capital (Accumu- Cumulative
Par Par In Excess lated Translation Treasury
Shares Value Shares Value of Par Deficit) Adjustment Stock
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, April 30, 1992 5 $ -- 12,843 $128 $32,089 $(3,616) $1,266 $(534)
Repayment of Director Loan 83
Exercise of Stock Options 464 5 833
Dividends on Preferred Stock (200)
Cumulative Translation Adjustment (102)
Net Income 4,641
---------------------------------------------------------------------------------------
Balances, April 30, 1993 5 $ -- 13,307 $133 $33,005 $ 825 $1,164 $(534)
=======================================================================================
Exercise of Stock Options 205 2 748 (22)
Conversion of Convertible
Preferred Stock (5) 519 5
Dividends on Preferred Stock (50)
Cumulative Translation Adjustment (141)
Other 136
Net Income 2,953
---------------------------------------------------------------------------------------
Balances, April 30, 1994 - $ -- 14,031 $140 $33,889 $ 3,728 $1,023 $(556)
=======================================================================================
Issuance of Stock 445 5 3,111
Exercise of Stock Options 127 1 356
Cumulative Translation Adjustment 316
Other 246
Net Income 7,728
---------------------------------------------------------------------------------------
Balances, April 30, 1995 - $ -- 14,603 $146 $37,602 $11,456 $1,339 $(556)
=======================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three years ended April 30, 1995
(All tabular dollar amounts in thousands, except per share amounts)
Note 1 - Summary of Significant Accounting Policies:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include Flow International
Corporation, ("Flow" or the "Company"), and its wholly-owned subsidiaries, Flow
Europe GmbH ("Flow Europe"), Flow Services Corporation, Flow Asia Corporation
("Flow Asia"), Rampart Waterblast, Inc., Spider Staging Corporation ("Spider"),
Power Climber and affiliated companies ("Power Climber"), Dynovation Inc.
("Dynovation") and two majority owned joint ventures. All significant
intercompany transactions have been eliminated.
OPERATIONS
The Company develops and manufactures ultrahigh-pressure waterjet
cutting, cleaning and factory automation systems, and powered access equipment
for the manufacturing, industrial cleaning and construction services markets.
Equipment is designed, developed, and primarily manufactured at the Company's
principal facilities in Kent, Washington, and at manufacturing facilities in
Johnstown, Pennsylvania; Jeffersonville, Indiana; and in Burlington, Canada.
The Company markets its products to customers worldwide through its principal
offices in Kent, its subsidiaries in Germany, Taiwan, Canada, and Belgium, and
through regional offices in major U.S. cities.
REVENUE RECOGNITION
Revenues are recognized at the time of shipment for products and
certain types of systems, and under the percentage of completion accounting
method for other types of systems, and at the time of service or rental with
respect to service and rental revenues. Products are warranted to be free from
material defects for a period of one year from the date of shipment. Warranty
obligations are limited to the repair or replacement of products. The
Company's warranty accrual is reviewed quarterly by management for adequacy
based upon recent shipments and historical warranty expense. Credit is issued
for product returns upon receipt of the returned goods, or, if material, at the
time of notification and approval.
Services revenue primarily consist of revenues related to
hydrodemolition services. Rental revenues consist of charges to customers for
the temporary use of access system equipment.
PRODUCT LIABILITY
The Company is obligated under terms of its product liability
insurance contracts to pay all costs up to deductible amounts. Included in
general and administrative expense are insurance, investigation and legal
defense costs. Legal settlements, if any, are included in other expense.
<PAGE> 26
INVENTORIES
Inventories are stated at the lower of cost, determined by using the
first-in, first-out method, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation for financial
reporting purposes is provided using the straight-line method over the
estimated useful lives of the assets which range from three to eleven years.
Leasehold improvements are amortized over the related lease term.
PATENTS AND GOODWILL
Patents are amortized on a straight-line basis over the shorter of the
estimated economic life of the patent or seven years. Goodwill is amortized on
a straight-line basis over fifteen years.
INCOME TAXES
In May 1993, the Company prospectively adopted Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes". The
adoption of FAS 109 resulted in income recognition of $401,000 which was
reflected as a change in accounting principle in the year ended April 30, 1994
(see Note 8).
EARNINGS PER SHARE
Primary earnings per share is computed by dividing net income
available to common stockholders by the weighted average number of shares
outstanding plus the common stock equivalents attributable to dilutive stock
options during each period.
Net income available to common stockholders is computed by subtracting
preferred stock dividends from net income. The weighted average number of
shares outstanding, including equivalent shares where required, for the years
ended April 30, 1995, 1994, and 1993 were 14,460,000, 14,091,000, and
13,517,000, respectively. Fully diluted earnings per share do not differ
materially from primary earnings per share. Equivalent shares are not included
as part of the shares outstanding in loss per share calculations.
FOREIGN CURRENCY TRANSLATION
The functional currency of Flow Asia is the New Taiwan dollar; of Flow
Europe, the U.S. dollar; of Dynovation, the Canadian dollar; and of Power
Climber N.V. (part of Power Climber), the Belgian franc. All appropriate assets
and liabilities of these foreign subsidiaries are translated at year-end or
historical exchange rates. Income and expense accounts of the foreign
subsidiaries are translated at the average rates in effect during the year,
except that Flow Europe depreciation and cost of sales are translated at
historical rates. Adjustments resulting from the translation of
<PAGE> 27
Flow Asia, Dynovation, and Power Climber N.V.'s financial statements are
recorded in the cumulative translation adjustment account in the stockholders'
equity section of the Consolidated Balance Sheets. Adjustments resulting from
the foreign currency translations of Flow Europe are included in the
Consolidated Statements of Income.
STATEMENTS OF CASH FLOWS
For the purposes of the Consolidated Statements of Cash Flows, the
Company considers short-term investments with maturities from the date of
purchase of three months or less, if any, to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company sells products to a wide variety of industries, including
the automotive, aerospace, disposable products, food processing, and
construction industries on a worldwide basis.
In countries or industries where the Company is exposed to material
credit risk, sufficient collateral, including cash deposits and/or letters of
credit, is required prior to the completion of a transaction. The Company does
not believe there is a material credit risk beyond that provided for in the
financial statements in the ordinary course of business. The Company makes use
of foreign exchange contracts to cover some transactions denominated in foreign
currencies, and does not believe there is an associated material credit or
financial statement risk.
RECLASSIFICATIONS
Certain 1994 and 1993 amounts have been reclassified to conform with the 1995
presentation
Note 2 - Business Combinations:
In September 1992, the Company acquired all of the outstanding stock
of Spider in a pooling-of-interests transaction. Spider is a supplier of
access systems to the construction services industry. Pursuant to the merger
agreement, Flow issued 1,152,253 shares of its own common stock to holders of
shares of Spider common stock.
In April 1993, the Company acquired certain assets of Power Climber
and the stock of Power Climber N.V., for promissory notes totaling $2,262,000.
Additionally, Flow pays a royalty based upon net sales to the former
shareholders of Power Climber until 2003. Power Climber is a supplier of
access systems to the construction services industry. Its products are
complementary to those sold by the Spider organization. Results have been
included in the consolidated financial statements from the date of acquisition
based upon the purchase method of accounting.
<PAGE> 28
On November 11, 1994, Spider entered into a licensing agreement with
Ark Systems, Inc. ("Ark") at a cost of $400,000. Ark, a division of the
Company, designs and manufactures a range of access containment systems which
are used in under-bridge applications for surface preparation, lead-paint
abatement, cleaning and maintenance. The agreement gives Spider the exclusive
worldwide marketing and manufacturing rights for the Ark product line for five
years.
On December 15, 1994, the Company purchased substantially all of the
assets and assumed substantially all of the liabilities of Dynovation Machine
Systems, Inc. for consideration of $7,970,000. The difference between the net
fair market value of assets acquired and consideration given has been recorded
as goodwill. Dynovation designs and manufactures robotic waterjet cutting
cells and automated assembly systems. Results have been included in the
consolidated financial statements from the date of acquisition based upon the
purchase method of accounting.
On January 3, 1995, the Company purchased certain net assets of ASI
Robotics Systems ("ASI") for consideration of $3,500,000 and 445,000 shares of
Company common stock. The difference between the net fair market value of
assets acquired and consideration given has been recorded as goodwill. ASI
designs and manufactures high accuracy gantry robots and related systems used
in waterjet and other applications. Results of this division have been
included in the consolidated financial statements from the date of acquisition
based upon the purchase method of accounting.
In April 1995 Power Climber N.V. became a majority partner in a joint
venture with Consortium Europeen du Materiel ("CEM"). CEM operates three
access systems sales, service and rental operations in France.
Note 3 - Pro Forma Financial Information (Unaudited):
If Dynovation Machine Systems, Inc.'s net assets had been acquired at
the beginning of each of the years ended April 30, 1995 and 1994, the results
of the operations of Flow would be adjusted as follows on a pro forma basis.
For the year ended April 30, 1995, total revenues would have been $117,190,000,
and net income would have been $7,178,000, or 50 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 $96,453,000, and net income would have
been $2,067,000, or 15 cents per share. The adjustments to net income include
additional interest expense of $565,000, and additional goodwill amortization
of $472,000.
The pro forma consolidated financial information is presented for
information purposes only, does not take into account savings which may have
been realized from the combination of the Company and Dynovation Machine
Systems, Inc., and is not indicative of the actual consolidated financial
position or results of operations in the future.
<PAGE> 29
Note 4 - Related Party Transactions:
During fiscal year 1994, the Company received $2,744,000 in principal
and interest in full settlement of notes due from Flow Industries, Inc. ("Flow
Industries"), former parent of the Company. Interest was payable at prime plus
1.5% and was due upon maturity. During the years ended April 30, 1994 and
1993, the Company recognized interest income of $238,000 and $201,000,
respectively, related to the notes.
On July 31, 1993, Okura America, a subsidiary of the Company's
Japanese distributor, Okura & Co., Ltd. ("Okura")., exercised its option to
convert its remaining one half of Series A Convertible Preferred Stock into
518,995 shares of common stock at $4.817 per common share.
In August 1992, the Company entered into a stock purchase agreement
with Phenix Composites, Incorporated. The Company contributed cash and certain
equipment valued at cost. The book value is $609,000 at April 30, 1995 and
1994, and is being accounted for under the cost method. Currently, the
Company's president is a member of the board of directors of Phenix Composites,
Inc.
Note 5 - Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
April 30,
1995 1994
---------------------------
<S> <C> <C>
Raw Materials and Parts $17,999 $14,510
Work in Process 4,432 1,819
Finished Goods 6,993 7,924
--------------------------
29,424 24,253
Less: Provision for Slow-Moving
and Obsolete Inventory 2,205 2,093
--------------------------
$27,219 $22,160
========================
</TABLE>
Note 6 - Property and Equipment:
Property and equipment are as follows:
<TABLE>
<CAPTION>
April 30,
1995 1994
---------------------------
<S> <C> <C>
Land and Buildings $592 $292
Machinery and Equipment 43,426 33,704
Furniture and Fixtures 2,097 1,626
Leasehold Improvements 4,560 4,001
Construction in Progress 507 189
--------------------------
51,182 39,812
Less: Accumulated Depreciation and
Amortization 26,649 19,782
-------------------------
$24,533 $20,030
========================
</TABLE>
<PAGE> 30
Note 7 - Notes Payable to Banks and Long-Term Obligations:
Current notes payable to banks are as follows:
<TABLE>
<CAPTION>
April 30,
1995 1994
-------------------------
<S> <C> <C>
Revolving Line of Credit - Flow $ - $11,672
Notes Payable to Banks by Flow Asia 617 328
Notes Payable to Banks by Power Climber N.V. 646 126
Notes Payable to Banks by Dynovation 351 -
-------------------------
$1,614 $12,126
=========================
</TABLE>
Long-term obligations are as follows:
<TABLE>
<CAPTION>
April 30,
1995 1994
-------------------------
<S> <C> <C>
Flow Term Loans Payable $32,679 $12,862
Guarantee of ESOP Loan 184 276
Power Climber Acquisition Note 1,294 1,799
------------------------
34,157 14,937
Less: Current Portion 798 4,378
------------------------
$33,359 $10,559
========================
</TABLE>
In July 1995, the Company received an irrevocable long-term commitment
from its principal bank for a new facility of $60 million to replace its
Revolving Credit and Term Loan Agreement (the "Loan Agreement"), and equipment
notes (collectively, "Domestic Financing"). Accordingly, all Domestic
Financings have been reclassified as long-term, and are included in Flow Term
Loans Payable above. Under the terms of the bank's commitment, interest rates
will be comparable to those of the Loan Agreement, and the facility will be
collateralized by a general lien on the Company's business assets.
Other than the reclassification of certain of the Company's borrowings
from short-term to long-term as described above, the terms of its Loan
Agreement and other financing are as follows. The Company's Loan Agreement
provides for revolving lines of credit of up to $17 million which are
collateralized by, and are subject to limitations based on trade accounts
receivable and inventory; and an acquisition bridge loan facility of $14
million, which is secured by a general lien on the Company's assets. Interest
rates under the Loan Agreement are at the bank's prime rate or are linked to
LIBOR, at the Company's option. Based on the Company's election, borrowings
under the Loan Agreement are primarily at LIBOR plus 1.5% or at LIBOR plus 2%.
The Company had borrowed $22.8 million under the Loan Agreement as of April 30,
1995. The Company pays 3/16% as an unused commitment fee. As of April 30,
1995 the Company had approximately $8.2 million in domestic unused lines of
credit. The Company elected a 30-day LIBOR rate, which at April 30, 1995 was
6.1%.
<PAGE> 31
The unsecured notes payable to banks by Flow Asia are denominated in
New Taiwan dollars, and provide for interest at rates ranging from 7.8% to 9.8%
at April 30, 1995. Flow Asia's total available lines of credit were
approximately $5.8 million at April 30, 1995.
The unsecured notes payable to banks by Power Climber N.V. are
denominated in Belgian francs, and provide for interest at 7.0% at April 30,
1995.
The notes payable to banks by Dynovation are collateralized by trade
accounts receivable and inventory, and are denominated in Canadian dollars.
Dynovation has approximately $175,000 in unused credit facilities at April 30,
1995. The interest rate is Canadian prime plus 0.5%.
Term loans payable at April 30, 1995 include domestic equipment notes
of $6.3 million, and $3.5 million of foreign debt. The equipment loans are
collateralized by capital equipment, and bear interest at prime plus 1/4%, or a
7.5% fixed rate, and amortize through April 1997.
A $2.5 million standby letter of credit has been issued by the
Company's principal bank to the Company's German bank, to secure a credit
facility for use by Flow Europe. This letter of credit expires on April 30,
1996. Interest and principal on the outstanding term loans of $2,056,000 is
payable quarterly at fixed rates ranging from 6.25% to 9.6%, with payments
amortized over a four-year period. At April 30, 1995, Flow Europe had an
unused $830,000 credit facility.
The Company has approximately $900,000 in term debt denominated in
Belgian francs at interest rates ranging from 8.5% to 9.8% at April 30, 1995.
Principal and interest is paid monthly through fiscal 1998.
In September 1989, the Company guaranteed a loan of $844,000 funding
the purchase of 250,000 shares of the Company's common stock by the Flow
International Corporation Employee Stock Ownership Plan and Trust (the "ESOP").
The loan bears interest, payable quarterly, at 93% of the bank's prime rate and
is due in annual installments of $92,000 through fiscal 1997 (see Note 9). The
loan is secured by the Company's common stock owned by the ESOP; security for
the Company's guarantee is provided in conjunction with the Loan Agreement.
In April 1993, the Company executed promissory notes totaling
$2,262,000 to the previous owners of Power Climber in conjunction with the
acquisition of assets. The notes are secured by inventory, equipment and
intellectual property obtained in the acquisition and have an interest rate of
7.25%. The notes require monthly payments of principal and interest through
fiscal 1998 except for one note which requires payments through fiscal 2003.
The Company is required to comply with certain covenants including
restrictions on dividends and transactions with affiliates, limitations on
additional indebtedness, limitations on capital expenditures, and maintenance
of tangible net worth, current working capital, debt to tangible net worth, and
cash flow coverage ratios. As of April 30, 1995, the Company was in compliance
with all such covenants.
<PAGE> 32
Long-term obligation retirements for the next five years and
thereafter are as follows: $798,000 in 1996, $3,641,000 in 1997, $387,000 in
1998, $48,000 in 1999, $48,000 in 2000, and $29,235,000 thereafter.
Note 8 - Income Taxes:
The components of consolidated income before income taxes,
extraordinary item and change in accounting principle, and the provision for
income taxes for the years ended April 30, 1995 and April 30, 1994 under FAS
109, and the year ended April 30, 1993 under APB 11, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Income before Income Taxes,
Extraordinary Item and Change in
Accounting Principle:
Domestic $8,994 $3,319 $5,662
Foreign 265 (207) 129
------ ------ ------
Total $9,259 $3,112 $5,791
====== ====== ======
</TABLE>
The provision for income taxes comprises:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Current Tax Expense
Domestic $ 749 $ 652 $ 1,975
State and Local 271 42
Foreign 63 552 (375)
------- ------- -------
Total 1,083 1,246 1,600
Deferred Tax Liability (Benefit) 448 (686)
------- ------- -------
Total Provision for Income Taxes $ 1,531 $ 560 $ 1,600
======= ======= =======
</TABLE>
<PAGE> 33
Net deferred tax assets (liabilities) under FAS 109 comprise the
following:
<TABLE>
<CAPTION>
April 30, 1995 April 30, 1994
-------------- --------------
<S> <C> <C>
Fixed assets ($ 435) ($ 594)
Obsolete inventory provisions 491 526
Net operating loss carryover 2,605 5,024
Subpart F income 298 228
Foreign taxes (190) 378
Accounts receivable allowances 179 169
Inventory capitalization 187 135
All other 412 633
------ ------
Subtotal 3,547 6,499
Valuation allowance (2,460) (4,964)
------ ------
Total Net Deferred Taxes $1,087 $1,535
====== ======
</TABLE>
A reconciliation of income taxes at the federal statutory rate to the
provision for income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Income taxes at federal statutory rate $3,148 $1,058 $2,112
Foreign sales corporation benefit (162) (143) (136)
Foreign operations (benefit)/expense 541 244 (375)
Change in FAS 109 valuation allowance (2,504) (599) -
State and local taxes 179 28 66
Alternative minimum tax - domestic 200 - -
Other 129 (28) (67)
------ ------ ------
Income tax provision $1,531 $ 560 $1,600
====== ====== ======
</TABLE>
As of May 1, 1995, the Company had approximately $8 million of net
operating loss carryforwards to offset certain Flow earnings for federal income
tax purposes. Of the $8 million carryforward, $1 million was currently
available. An additional $943,000 becomes available each fiscal year. These
net operating loss carryforwards expire in varying amounts through the year
2003. Also, as of May 1, 1995, $256,000 of net operating loss carryforwards to
offset earnings of Spider were available for federal income tax purposes.
Spider net operating loss carryforwards expire in varying amounts through the
year 2007.
Because of current and expected future earnings, the Company expects
increased utilization of its net operating loss carryforwards. Therefore, the
FAS 109 valuation allowance was reduced by a net tax effected amount of
$2,504,000.
Provision has not been made for U.S. or foreign taxes on $2,360,000 of
undistributed earnings of foreign subsidiaries. Those earnings have been and
will continue to be reinvested. These earnings could become subject to
additional tax if they were remitted as dividends, if foreign earnings were
lent to the Company or a U.S. affiliate, or if the Company should sell its
<PAGE> 34
stock in the subsidiaries. It is not practicable to estimate the amount of
additional tax that might be payable on the foreign earnings; however, the
Company believes that U.S. foreign tax credits would largely eliminate any U.S.
tax and offset any foreign tax.
Note 9 - Voluntary Pension and Salary Deferral Plan:
The Company has a 401(k) savings plan in which employees may
contribute a percentage of their compensation. The Company makes contributions
based on employee contributions and length of employee service. Company
contributions and expenses under the plan for the years ended April 30, 1995,
1994, and 1993 were $531,000, $520,000, and $510,000, respectively.
In September 1989, the Company established an ESOP for all employees
meeting certain service requirements. Company contributions to the ESOP are
discretionary; however, the Company has agreed to make contributions as
necessary to fund the repayment of the ESOP loan (see Note 7). During the
years ended April 30, 1995, 1994 and 1993, the Company recorded compensation
and interest expense related to the ESOP of $109,000, $110,000 and $116,000,
respectively.
Note 10 - Stock Options:
The Company has stock options outstanding under various option plans
described below.
1984 RESTATED STOCK OPTION PLAN (THE "1984 RESTATED PLAN"). Approved
by the Company's shareholders in September 1984 and subsequently amended and
restated, the 1984 Restated Plan provides for grants to employees and
contractors to purchase a maximum of 1,800,000 shares of the Company's common
stock. The 1984 Restated Plan allows for the grant of either incentive or
nonqualified stock options.
ADMAC 1984 INCENTIVE STOCK OPTION PLAN (THE "ADMAC PLAN"). The ADMAC
Plan was adopted in September 1983. Options vested under the plan were
converted into Flow stock options when the Company acquired ADMAC, Inc. in
February 1989. No further grants can be made under the ADMAC Plan.
1987 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS (THE "1987
NONEMPLOYEE DIRECTORS PLAN"). Approved by the Company's stockholders in
September 1987, the 1987 Nonemployee Directors Plan, as subsequently amended,
provides for the automatic grant of nonqualified options for 10,000 shares of
Company common stock to a nonemployee director when initially elected or
appointed, and currently, the issuance of 5,000 shares annually thereafter
during the term of directorship.
<PAGE> 35
OTHER NONEMPLOYEE DIRECTOR OPTIONS. In fiscal 1988, two separate
stock options were granted for 45,000 and 10,000 shares to two nonemployee
directors.
1991 STOCK OPTION PLAN (THE "1991 SO PLAN"). The 1991 SO Plan was
adopted in October 1991 and amended in August 1993. Incentive and nonqualified
stock options up to 700,000 shares may be issued under this plan.
During the years ended April 30, 1995, 1994 and 1993, a total of
127,011, 205,000 and 464,000 options, respectively, were exercised under all
stock option plans of the Company at an average price of $1.52, $1.67 and $1.44
per share, respectively.
All options become exercisable upon a change in control of the
Company. Options have a two-year vesting schedule, and are granted at fair
market value.
The following chart summarizes the status of the options at April 30, 1995:
<TABLE>
<CAPTION>
1984 Restated 1987 and Other
and Nonemployee 1991
ADMAC Plan Directors Plan SO Plan Total
------------------ -------------- ------- -----
<S> <C> <C> <C> <C>
Number of options outstanding 415,524 245,000 652,300 1,312,824
Number of options vested 415,524 209,000 476,000 1,100,524
Average exercise price per share $2.09 $5.00 $5.53 $4.34
</TABLE>
Note 11 - Preferred Share Rights Purchase Plan:
On June 7, 1990, the Board of Directors of the Company adopted a
Preferred Share Rights Purchase Plan under which a Preferred Share Purchase
Right (a "Right") is attached to each share of Company common stock. The
Rights will be exercisable only if a person or group acquires 20% or more of
the Company's common stock or announces a tender offer, the consummation of
which would result in ownership by a person or group of 20% or more of the
common stock. Each Right entitles stockholders to buy one one-hundredth of a
share of Series B Junior Participating Preferred Stock (the "Series B Preferred
Shares") of the Company at a price of $15. If the Company is acquired in a
merger or other business combination transaction, each Right will entitle its
holder to purchase a number of the acquiring company's common shares having a
value equal to twice the exercise price of the Right. If a person or group
acquires 20% or more of the Company's outstanding common stock, each Right will
entitle its holder (other than such person or members of such group) to
receive, upon exercise, a number of the Company's common shares having a value
equal to two times the exercise price of the Right. Following the acquisition
by a person or group of 20% or more of the Company's common stock and prior to
an acquisition of 50% or more of such common stock, the Board of Directors may
exchange each Right (other than Rights owned by such person or group) for one
share of common stock or for one one-hundredth of a Series B Preferred Share.
Prior to the acquisition
<PAGE> 36
by a person or group of 20% of the Company's common stock, the Rights are
redeemable, at the option of the Board, for $.01 per Right. The Rights expire
on June 17, 2000. The Rights do not have voting or dividend rights, and until
they become exercisable, have no dilutive effect on the earnings of the
Company.
Note 12 - Commitments and Contingencies:
The Company rents certain facilities and equipment under agreements
treated for financial reporting purposes as operating leases. The majority of
leases currently in effect are renewable for periods of two to five years.
Rent expense under these leases was approximately $2,724,000, $2,687,000, and
$2,744,000 for the years ended April 30, 1995, 1994 and 1993, respectively.
Future minimum rents payable under operating leases for years ending
April 30 are as follows:
<TABLE>
<S> <C>
1996 $ 2,387
1997 2,233
1998 1,887
1999 1,615
2000 1,495
Thereafter 4,966
-----
$14,583
=======
</TABLE>
The Ark licensing agreement includes an obligation for the Company to
pay significant additional consideration if and when certain future criteria
are achieved. The Company does not believe the criteria will be met in the
next year. Payment of this consideration will give the Company ownership of
all patents and legal rights related to the Ark product line.
The Company has been subject to product liability claims primarily
through its Spider subsidiary. To minimize the financial impact of product
liability risks and adverse judgments, product liability insurance has been
purchased in amounts and under terms considered acceptable to management.
At any point in time covered by these financial statements, there are
outstanding product liability claims against the Company, and incidents are
known to management which may result in future claims. Management, in
conjunction with defense counsel, periodically reviews the likelihood that such
product claims and incidents will result in adverse judgments, the estimated
amount of such judgments, and costs of defense, and provides reserves as
appropriate.
Recoveries, if any, may be realized from indemnitors, codefendants,
insurers or insurance guaranty funds. Management, based on estimates provided
by the Company's legal counsel on such claims, believes its insurance coverage
is adequate.
<PAGE> 37
Management estimates the range of the Company's future exposure
amounts relating to unresolved claims at April 30, 1995, aggregate from
approximately $0 to $300,000 before recoveries and between $0 and $100,000 net
of recoveries.
Included in Other Income (Expense), net, in the year ended April 30,
1995, 1994 and 1993 are product liability claim settlements of approximately
$32,000, $20,000, and $85,000, respectively.
<PAGE> 38
Note 13 - Foreign Operations:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
UNITED OTHER ADJUSTMENTS &
STATES EUROPE FOREIGN ELIMINATIONS CONSOLIDATED
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 (3)
========================================================================================================
Revenues:
Customers (1) $79,406 $19,714 $10,890 $ - $110,010
Inter-area (2) 8,347 - 1,094 (9,441) -
- --------------------------------------------------------------------------------------------------------
Total revenues 87,753 19,714 11,984 (9,441) 110,010
- --------------------------------------------------------------------------------------------------------
Operating Income Before
Corporate Expenses 15,413 366 511 16,290
Corporate Expenses (4,627)
--------
Operating Income $ 11,663
========
Identifiable Assets 70,357 16,316 18,811 $105,484
1994
========================================================================================================
Revenues:
Customers (1) $69,205 $13,476 $5,951 $ - $ 88,632
Inter-area (2) 8,203 - 718 (8,921) -
- --------------------------------------------------------------------------------------------------------
Total revenues 77,408 13,476 6,669 (8,921) 88,632
- --------------------------------------------------------------------------------------------------------
Operating Income (Loss) Before
Corporate Expenses 8,512 (753) 518 8,277
Corporate Expenses (4,268)
--------
Operating Income $ 4,009
========
Identifiable Assets 60,339 12,066 5,823 $ 78,228
========
1993
========================================================================================================
Revenues:
Customers (1) $62,234 $11,467 $5,378 $ - $ 79,079
Inter-area (2) 5,297 - 77 (5,374) -
- --------------------------------------------------------------------------------------------------------
Total revenues 67,531 11,467 5,455 (5,374) 79,079
- --------------------------------------------------------------------------------------------------------
Operating Income (Loss) Before
Corporate Expenses 9,605 (373) 600 9,832
Corporate Expenses (2,842)
--------
Operating Income $ 6,990
========
Identifiable Assets 53,249 10,289 5,738 $ 69,276
========
</TABLE>
(1) U.S. sales to unaffiliated customers in foreign countries were
$6,881,000, $5,058,000 and $8,135,000 in fiscal 1995, 1994, and 1993,
respectively.
(2) Inter-area sales to affiliates represent products which were transferred
between geographic areas at negotiated prices. These amounts have
been eliminated in the consolidation.
(3) Other Foreign includes the assets of Dynovation and its operating
results from the date of acquisition.
<PAGE> 39
Note 14 - Selected Quarterly Financial Data (unaudited):
<TABLE>
<S> <C> <C> <C> <C> <C>
Fiscal 1995 Quarters First Second Third Fourth Total
- -------------------- ----- ------ ----- ------ -----
Revenue $24,509 $26,758 $27,187 $31,556 $110,010
Gross Profit 10,438 11,600 10,954 13,319 46,311
Net Income 1,649 2,162 1,616 2,301 7,728
Earnings Per Share .12 .15 .11 .15 .53
Fiscal 1994 Quarters First Second Third Fourth Total
- -------------------- ----- ------ ----- ------ -----
Revenue $19,355 $24,591 $20,555 $24,131 $88,632
Gross Profit 8,809 10,206 6,008 10,055 35,078
Income (Loss) Before Change in Accounting
Principle 1,109 1,802 (1,794) 1,435 2,552
Net Income (Loss) 1,510 1,802 (1,794) 1,435 2,953
Earnings (Loss) Per Share Before Change in
Accounting Principle .08 .13 (.13) .10 .18
Earnings (Loss) Per Share .11 .13 (.13) .10 .21
Fiscal 1993 Quarters First Second Third Fourth Total
- -------------------- ----- ------ ----- ------ -----
Revenue $19,340 $20,874 $18,783 $20,082 $79,079
Gross Profit 8,947 9,465 7,569 8,322 34,303
Income Before Extraordinary Item 1,088 1,167 820 1,116 4,191
Net Income 1,194 1,347 973 1,127 4,641
Earnings Per Share Before Extraordinary Item .07 .09 .06 .08 .30
Earnings Per Share .08 .10 .07 .08 .33
</TABLE>
<PAGE> 40
FLOW INTERNATIONAL CORPORATION
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Additions
-----------------------
Balance at Charged to Charged Balance
Beginning Costs and to Other at End
Classification of Period Expenses Accounts Deductions* of Period
- -------------- --------- -------- -------- ---------- ---------
Year Ended April 30:
- --------------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
- -------------------------------
1995 $ 908 $ 480 $ - $ (238) $ 1,150
1994 846 324 - (262) 908
1993 748 237 - (139) 846
Provision for Slow-Moving and Obsolete Inventory
- ------------------------------------------------
1995 $2,093 $ 324 $ - $ (212) $2,205
1994 2,007 269 - (183) 2,093
1993 2,346 312 - (651) 2,007
</TABLE>
__________
* Write-offs of uncollectible accounts and disposal of obsolete
inventory.
<PAGE> 41
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information regarding directors and executive officers of the
registrant is incorporated herein by reference from the Company's Proxy
Statement.
Item 11. Executive Compensation.
Information regarding executive compensation is incorporated herein by
reference from the Company's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information regarding security ownership of certain beneficial owners
and management is incorporated herein by reference from the Company's Proxy
Statement.
Item 13. Certain Relationships and Related Transactions.
Information regarding certain relationships and related transactions
is incorporated herein by reference from the Company's Proxy Statement.
<PAGE> 42
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements.
See Item 8 of Part II for a list of the Financial Statements filed
as part of this report.
2. Financial Statement Schedules.
See Item 8 of Part II for a list of the Financial Statement
Schedules filed as part of this report.
3. Exhibits. See subparagraph (c) below.
(b) No reports on Form 8-K were filed during the fourth quarter of fiscal
1995.
(c) Exhibits.
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
<S> <C>
3.1 Restated Certificate of Incorporation, filed with the state of Delaware September 14, 1989. (Incorporated by reference
to Exhibit 3.1 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1990.)
3.2 By-Laws of Flow International Corporation. (Incorporated by reference to Exhibit 3.2 to the registrant's Annual Report
on Form 10-K for the year ended April 30, 1990.)
4.1 Certificate of Designation of Series B Junior Participating Preferred Stock. (Incorporated by reference to Exhibit 4.5
to the registrant's Annual Report on Form 10-K for the year ended April 30, 1990.)
4.2 Rights Agreement dated as of June 7, 1990, between Flow International Corporation and First Interstate Bank, Ltd.
(Incorporated by reference to Exhibit 4.1 to the registrant's Current Report on Form 8-K dated June 8, 1990.)
10.1 Flow International Corporation 1984 Restated Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10.1
to the registrant's Annual Report on Form 10-K for the year ended April 30, 1990.)
10.2 Flow International Corporation 1987 Stock Option Plan for Nonemployee Directors, as amended. (Incorporated by reference
to Exhibit 10.5 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1994.)
10.3 Flow International Corporation 1991 Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10.6 to the
registrant's Annual Report on Form 10-K for the year ended April 30, 1994.)
10.4 Flow International Corporation 1995 Long-Term Incentive Plan
10.5 Flow International Corporation Employee Stock Ownership Plan and Trust Agreement, as amended and restated effective
January 1, 1994, and certain later dates, between Flow International Corporation and Seattle-First National Bank, as
trustee. (Incorporated by reference to Exhibit 10.7 to the registrant's Annual Report on Form 10-K for the year ended
April 30, 1994).
10.6 Stock Purchase Agreement dated as of September 26, 1989, between Flow International Corporation Employee Stock Ownership
Plan and Trust and Seattle-First National Bank. (Incorporated by reference to Exhibit 10.7 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1990.)
10.7 ESOT Loan and Guaranty Agreement dated September 26, 1989, among U.S. Bank of Washington, N.A., Flow International
Corporation Employee Stock Ownership Plan and Trust and Flow International Corporation. (Incorporated by reference to
Exhibit 10.8 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1990).
10.8 Replacement ESOT Note dated September 1992. (Incorporated by reference to Exhibit 10.10 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1993).
10.9 Pledge Agreement dated September 26, 1989, among U.S. Bank of Washington, N.A., Flow International Corporation. Employee
Stock Ownership Plan and Trust and Flow
</TABLE>
<PAGE> 44
<TABLE>
<S> <C>
International Corporation. (Incorporated by reference to Exhibit 10.10 to the registrant's Annual Report on Form 10-K
for the year ended April 30, 1990.)
10.10 Unconditional Guaranty dated September 26, 1989, by Flow International Corporation for the benefit of U.S. Bank of
Washington, N.A. (Incorporated by reference to Exhibit 10.11 to the registrant's Annual Report on Form 10-K for the year
ended April 30, 1990.)
10.11 Flow International Corporation Voluntary Pension and Salary Deferral Plan and Trust Agreement, as restated effective
January 1, 1992. (Incorporated by reference to Exhibit 10.13 to the registrant's Annual Report on Form 10-K for the year
ended April 30, 1993).
10.12 Amendment to Flow International Corporation Voluntary Pension and Salary Deferral Plan. (Incorporated by reference to
Exhibit 10.13 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1994).
10.13 Lease dated September 24, 1991, between Flow International and Birtcher LP/LC Partnership, together with Addendum to Lease.
(Incorporated by reference to Exhibit 10.25 to the registrant's Annual Report on Form 10-K for the year ended April 30,
1992.)
10.14 Credit Agreement dated October 14, 1992 among U.S. Bank of Washington, N.A., Flow International Corporation and Spider
Staging Corporation, together with First Amendment dated April 28, 1993. (Incorporated by reference to Exhibit 10.22 to
the registrant's Annual Report on Form 10-K for the year ended April 30, 1993).
10.15 Second Amendment to Credit Agreement dated September 30, 1993, between U.S. Bank of Washington, N.A. and Flow International
Corporation. (Incorporated by reference to Exhibit 10.23 to the registrant's Annual Report on Form 10-K for the year
ended April 30, 1994.)
10.16 Dynovation Agreement. (Incorporated by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K dated
December 15, 1994.)
10.17 Third Amendment to Credit Agreement dated October 28, 1994, between U.S. Bank of Washington, N.A. and Flow International
Corporation.
10.18 Fourth Amendment to Credit Agreement dated December 13, 1994, between U.S. Bank of Washington, N.A. and Flow International
Corporation.
10.19 Commitment letter dated July 12, 1995, between U.S. Bank of Washington, N.A. and Flow International Corporation.
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
</TABLE>
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FLOW INTERNATIONAL CORPORATION
July 27, 1995
/s/ Ronald W. Tarrant
------------------------------
RONALD W. TARRANT
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on the behalf of the
registrant and in the capacities on this 27th day of July, 1995
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Ronald W. Tarrant Chairman, President, Chief
- --------------------------------------- Executive Officer
Ronald W. Tarrant (Principal Executive Officer)
/s/ Lee M. Andrews Executive Vice President and
- --------------------------------------- Chief Financial Officer
Lee M. Andrews (Principal Financial Officer &
Principal Accounting Officer)
/s/ Louis J. Alpinieri Director
- ---------------------------------------
Louis J. Alpinieri
/s/ Lloyd J. Andrews Director
- ---------------------------------------
Lloyd J. Andrews
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ John S. Cargill Director
- -------------------------------------------
John S. Cargill
/s/ Daniel J. Evans Director
- -------------------------------------------
Daniel J. Evans
/s/ Rita A. O'Brien Director
- -------------------------------------------
Rita A. O'Brien
/s/ Arlen I. Prentice Director
- -------------------------------------------
Arlen I. Prentice
/s/ Kenneth M. Roberts Director
- -------------------------------------------
Kenneth M. Roberts
/s/ Dean D. Thornton Director
- -------------------------------------------
Dean D. Thornton
</TABLE>
<PAGE> 47
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
10.4 Flow International Corporation 1995 Long-Term
Incentive Plan
10.17 Third Amendment to Credit Agreement dated
October 28, 1994, between U.S. Bank of
Washington, N.A. and Flow International
Corporation
10.18 Fourth Amendment to Credit Agreemet dated
December 13, 1994, between U.S. Bank of
Washington, N.A. and Flow International
Corporation
10.19 Commitment letter dated July 12, 1995, between
U.S. Bank of Washington, N.A. and Flow
International Corporation
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT A
FLOW INTERNATIONAL CORPORATION
1995 LONG-TERM INCENTIVE COMPENSATION PLAN
SECTION 1.
PURPOSE
The purpose of the Flow International Corporation 1995 Long-Term Incentive
Compensation Plan (the "Plan") is to enhance the long-term profitability and
stockholder value of Flow International Corporation, a Delaware corporation (the
"Company"), by offering incentives and rewards to those employees, consultants
and agents of the Company and its Subsidiaries (as defined in Section 2 below)
who are key to the Company's growth and success, and to encourage them to remain
in the service of the Company and its Subsidiaries and to acquire and maintain
stock ownership in the Company.
SECTION 2.
DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
2.1 AWARD
"Award" means an award or grant made to a Participant pursuant to the Plan,
including, without limitation, awards or grants of Options, Stock Appreciation
Rights, Stock Awards, Other Stock-Based Awards or any combination of the
foregoing (including any Dividend Equivalent Rights granted in connection with
such Awards).
2.2 BOARD
"Board" means the Board of Directors of the Company.
2.3 CAUSE
"Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, and its determination shall be conclusive and binding.
2.4 CODE
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.5 COMMON STOCK
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
2.6 CORPORATE TRANSACTION
"Corporate Transaction" means any of the following events:
(a) Approval by the holders of the Common Stock of any merger or
consolidation of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of Common Stock are converted
into cash, securities or other property, other than a merger of the Company in
which the holders of the Common Stock immediately prior to the merger have
substantially the same proportionate ownership of common stock of the surviving
corporation immediately after the merger;
(b) Approval by the holders of the Common Stock of any sale, lease,
exchange or other transfer in one transaction or a series of related
transactions of all or substantially all of the Company's assets other than a
transfer of the Company's assets to a majority-owned subsidiary (as the term
"subsidiary" is defined in Section 8.3 of the Plan) of the Company; or
(c) Approval by the holders of the Common Stock of any plan or proposal
for the liquidation or dissolution of the Company.
2.7 DISABILITY
"Disability" means "disability" as that term is defined for purposes of the
Company's Long Term Disability Income Plan or other similar successor plan
applicable to salaried employees.
2.8 DIVIDEND EQUIVALENT RIGHT
"Dividend Equivalent Right" means an Award granted under Section 12 of the
Plan.
2.9 EARLY RETIREMENT
"Early Retirement" means retirement as that term is defined by the Plan
Administrator from time to time for purposes of the Plan.
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EXHIBIT A
2.10 EXCHANGE ACT
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.11 FAIR MARKET VALUE
"Fair Market Value" means the closing price for the Common Stock as
reported in The Wall Street Journal NASDAQ National Market Issues (or similar
successor transactions reports) for a single trading day.
2.12 GOOD REASON
"Good Reason" means the occurrence of any of the following events or
conditions:
(a) a change in the Holder's status, title, position or responsibilities
(including reporting responsibilities) that, in the Holder's reasonable
judgment, represents a substantial reduction of the status, title, position or
responsibilities as in effect immediately prior thereto; the assignment to the
Holder of any duties or responsibilities that, in the Holder's reasonable
judgment, are inconsistent with such status, title, position or
responsibilities; or any removal of the Holder from or failure to reappoint or
reelect the Holder to any of such positions, except in connection with the
termination of the Holder's employment for Cause, for Disability or as a result
of his or her death, or by the Holder other than for Good Reason;
(b) a reduction in the Holder's annual base salary;
(c) the Company's requiring the Holder (without the Holder's consent) to
be based at any place outside a 35-mile radius of his or her place of employment
prior to a Corporate Transaction, except for reasonably required travel on the
Company's business that is not materially greater than such travel requirements
prior to the Corporate Transaction;
(d) the Company's failure to (i) continue in effect any material
compensation or benefit plan (or the substantial equivalent thereof in which the
Holder was participating at the time of a Corporate Transaction, including, but
not limited to, the Plan, or (ii) provide the Holder with compensation and
benefits at least equal (in terms of benefit levels and/or reward opportunities)
to those provided for under each employee benefit plan, program and practice as
in effect immediately prior to the Corporate Transaction (or as in effect
following the Corporate Transaction, if greater);
(e) any material breach by the Company of any provision of the Plan; or
(f) any purported termination of the Holder's employment or service for
Cause by the Company that does not comply with the terms of the Plan.
2.13 GRANT DATE
"Grant Date" means the date designated in a resolution of the Plan
Administrator as the date an Award is granted. If the Plan Administrator does
not designate a Grant Date in the resolution, the Grant Date shall be the date
the Plan Administrator adopted the resolution.
2.14 HOLDER
"Holder" means the Participant to whom an Award is granted, or the
personal representative of a Holder who has died.
2.15 INCENTIVE STOCK OPTION
"Incentive Stock Option" means an option to purchase Common Stock granted
under Section 7 of the Plan with the intention that it qualify as an "incentive
stock option" as that term is defined in Section 422 of the Code.
2.16 NONQUALIFIED STOCK OPTION
"Nonqualified Stock Option" means an option to purchase Common Stock
granted under Section 7 of the Plan other than an Incentive Stock Option.
2.17 OPTION
"Option" means the right to purchase Common Stock granted under Section 7
of the Plan.
2.18 OTHER STOCK-BASED AWARD
"Other Stock-Based Award" means an Award granted under Section 11 of the
Plan.
2.19 PARTICIPANT
"Participant" means an individual who is a Holder of an Award or, as the
context may require, any employee, consultant or agent of the Company or a
Subsidiary who has been designated by the Plan Administrator as eligible to
participate in the Plan.
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EXHIBIT A
2.20 PLAN ADMINISTRATOR
"Plan Administrator" means any committee of the Board designated to
administer the Plan under Section 3.1 of the Plan.
2.21 RESTRICTED STOCK
"Restricted Stock" means shares of Common Stock granted under Section 10
of the Plan, the rights of ownership of which are subject to restrictions
prescribed by the Plan Administrator.
2.22 RETIREMENT
"Retirement" means retirement as of the individual's normal retirement
date under the Company's Voluntary Pension and Salary Deferral Plan or other
similar successor plan applicable to salaried employees.
2.23 STOCK APPRECIATION RIGHT
"Stock Appreciation Right" means an Award granted under Section 9 of the
Plan.
2.24 STOCK AWARD
"Stock Award" means an Award granted under Section 10 of the Plan.
2.25 SUBSIDIARY
"Subsidiary," except as expressly provided otherwise, means any entity
that is directly or indirectly controlled by the Company or in which the Company
has a significant ownership interest, as determined by the Plan Administrator,
and any entity that may become a direct or indirect parent of the Company.
2.26 WINDOW PERIOD
"Window Period" means a period of 10 days on which there is trading in the
Common Stock on the NASDAQ National Market, beginning with the second trading
day after disclosure by the Company to the public of its earnings for the fiscal
period just ended and ending with the eleventh such day.
2.27 WINDOW PERIOD FAIR
MARKET VALUE
"Window Period Fair Market Value" means the highest Fair Market Value
during a Window Period.
SECTION 3.
ADMINISTRATION
3.1 PLAN ADMINISTRATOR
The Plan shall be administered by a committee or committees (which term
includes subcommittees) appointed by, and consisting of one or more members of,
the Board. The Board may delegate the responsibility for administering the Plan
with respect to designated classes of eligible Participants to different
committees, subject to such limitations as the Board deems appropriate.
Committee members shall serve for such term as the Board may determine, subject
to removal by the Board at any time. The composition of any committee
responsible for administering the Plan with respect to officers and directors of
the Company who are subject to Section 16 of the Exchange Act with respect to
securities of the Company shall comply with the requirements of Rule 16b-3
promulgated under Section 16(b) of the Exchange Act, or any successor provision.
3.2 ADMINISTRATION AND
INTERPRETATION BY THE PLAN
ADMINISTRATOR
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Plan Administrator shall also have exclusive authority to
interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration.
The Plan Administrator's interpretation of the Plan and its rules and
regulations, and all actions taken and determinations made by the Plan
Administrator pursuant to the Plan, shall be conclusive and binding on all
parties involved or affected. The Plan Administrator may delegate administrative
duties to such of the Company's officers as it so determines.
SECTION 4.
STOCK SUBJECT TO THE PLAN
4.1 AUTHORIZED NUMBER OF SHARES
Subject to adjustment from time to time as provided in Section 16.1, a
maximum of 750,000 shares of Common Stock shall be available for issuance under
the Plan, except that any shares of Common Stock that, as of the date the Plan
is approved by the Company's stockholders, are avail-
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EXHIBIT A
able for issuance under the Company's 1991 Stock Option Plan and 1984 Restated
Stock Option Plan (or that thereafter become available for issuance under those
plans in accordance with their terms as in effect on such date) and that are not
issued under those plans shall be added to the aggregate number of shares
available for issuance under the Plan. No more than 250,000 shares may be issued
as Stock Awards or Other Stock-Based Awards under the Plan. Shares issued under
the Plan shall be drawn from authorized and unissued shares or shares now held
or subsequently acquired by the Company as treasury shares.
4.2 INDIVIDUAL AWARD LIMIT
Subject to adjustment from time to time as provided in Section 16.1, not
more than 250,000 shares of Common Stock may be made subject to Awards under the
Plan to any Participant in any one fiscal year of the Company, such limitation
to be applied in a manner consistent with the requirements of, and only to the
extent required for compliance with, the exclusion from the limitation on
deductibility of compensation under Section 162(m) of the Code.
4.3 REUSE OF SHARES
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares), including,
without limitation, in connection with the cancellation of an Award and the
grant of a replacement Award, shall again be available for issuance in
connection with future grants of Awards under the Plan. Shares that are subject
to tandem Awards shall be counted only once.
SECTION 5.
ELIGIBILITY
Awards may be granted under the Plan to those officers and key employees
(including directors who are also employees) of the Company and its Subsidiaries
as the Plan Administrator from time to time selects. Awards may also be made to
consultants and agents who provide services to the Company and its Subsidiaries.
SECTION 6.
AWARDS
6.1 FORM AND GRANT OF AWARDS
The Plan Administrator shall have the authority, in its sole discretion,
to determine the type or types of Awards to be made under the Plan. Such Awards
may include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Stock Awards, Other Stock-Based Awards and
Dividend Equivalent Rights. Awards may be granted singly, in combination or in
tandem so that the settlement or payment of one automatically reduces or cancels
the other. Awards may also be made in combination or in tandem with, in
replacement of, as alternatives to, or as the payment form for, grants or rights
under any other employee or compensation plan of the Company.
6.2 ACQUIRED COMPANY AWARDS
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other entities ("Acquired Entities") (or
the parent of the acquired entity) and the new Award is substituted, or the old
award is assumed, by reason of a merger, consolidation, acquisition of property
or of stock, reorganization or liquidation (the "Acquisition Transaction"). In
the event that a written agreement pursuant to which the Acquisition Transaction
is completed is approved by the Board and said agreement sets forth the terms
and conditions of the substitution for or assumption of outstanding awards of
the acquired entity, said terms and conditions shall be deemed to be the action
of the Plan Administrator without any further action by the Plan Administrator,
except as may be required for compliance with Rule 16b-3 under the Exchange Act,
and the persons holding such Awards shall be deemed to be Participants and
Holders.
SECTION 7.
AWARDS OF OPTIONS
7.1 GRANT OF OPTIONS
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 OPTION EXERCISE PRICE
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the
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EXHIBIT A
Grant Date with respect to Incentive Stock Options.
7.3 TERM OF OPTIONS
The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be 10 years from the Grant Date.
7.4 EXERCISE OF OPTIONS
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall become exercisable, which provisions may be waived or modified by
the Plan Administrator at any time. If not so established in the instrument
evidencing the Option, the Option will become exercisable according to the
following schedule, which may be waived or modified by the Plan Administrator at
any time:
<TABLE>
<CAPTION>
PERIOD OF HOLDER'S CONTINUOUS
EMPLOYMENT OR SERVICE WITH THE
COMPANY OR ITS SUBSIDIARIES PERCENT OF TOTAL OPTION
FROM THE OPTION GRANT DATE THAT IS EXERCISABLE
- ------------------------------ -----------------------
<S> <C>
after one year 50%
after two years 100%
</TABLE>
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised and
accompanied by payment in full as described in Section 7.5.
7.5 PAYMENT OF EXERCISE PRICE
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash, except that the Plan Administrator may, either at the time
the Option is granted or at any time before it is exercised and subject to such
limitations as the Plan Administrator may determine, authorize payment in cash
and/or one or more of the following alternative forms: (i) Common Stock already
owned by the Holder for at least six months (or any shorter period necessary to
avoid a charge to the Company's earnings for financial reporting purposes)
having a Fair Market Value on the day prior to the exercise date equal to the
aggregate Option exercise price;
(ii) a promissory note authorized pursuant to Section 13; (iii) delivery of a
properly executed exercise notice, together with irrevocable instructions, to
(a) a brokerage firm designated by the Company to deliver promptly to the
Company the aggregate amount of sale or loan proceeds to pay the Option exercise
price and any withholding tax obligations that may arise in connection with the
exercise and (b) the Company to deliver the certificates for such purchased
shares directly to such brokerage firm, all in accordance with the regulations
of the Federal Reserve Board; or (iv) such other consideration as the Plan
Administrator may permit.
7.6 POST-TERMINATION EXERCISES
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if a Holder ceases to be employed by,
or to provide services to, the Company or its Subsidiaries, which provisions may
be waived or modified by the Plan Administrator at any time. If not so
established in the instrument evidencing the Option, the Option will be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time. In case of termination of the
Holder's employment or services other than by reason of death or Cause, the
Option shall be exercisable, to the extent of the number of shares purchasable
by the Holder at the date of such termination, only: (i) within three years if
the termination of the Holder's employment or services are coincident with
Retirement, Early Retirement at the Company's request or Disability or (ii)
within three months after the date the Holder ceases to be an employee,
consultant or agent of the Company or a Subsidiary if termination of the
Holder's employment or services is for any reason other than Retirement, Early
Retirement at the Company's request, or Disability, but in no event later than
the remaining term of the Option. Any Option exercisable at the time of the
Holder's death may be exercised, to the extent of the number of shares
purchasable by the Holder at the date of the Holder's death by the personal
representative of the Holder's estate entitled thereto at any time or from time
to time within three years after the date of death, but in no event later than
the remaining term of the Option. In case of termination of the Holder's
employment or services for Cause, the Option shall automatically terminate upon
first notification to
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EXHIBIT A
the Holder of such termination, unless the Plan Administrator determines
otherwise. If a Holder's employment or services with the Company are suspended
pending an investigation of whether the Holder shall be terminated for Cause,
all the Holder's rights under any Option likewise shall be suspended during the
period of investigation. A transfer of employment or services between or among
the Company and its Subsidiaries shall not be considered a termination of
employment or services. Unless the Plan Administrator determines otherwise, a
leave of absence approved in accordance with Company procedures shall not be
considered a termination of employment or services, except that with respect to
Incentive Stock Options such leave of absence shall be subject to any
requirements of Section 422 of the Code.
SECTION 8.
INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 DOLLAR LIMITATION
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event
the Participant holds two or more such Options that become exercisable for the
first time in the same calendar year, such limitation shall be applied on the
basis of the order in which such Options are granted.
8.2 10% STOCKHOLDERS
If a Participant owns 10% or more of the total voting power of all classes of
the Company's stock, then the exercise price per share of an Incentive Stock
Option shall not be less than 110% of the Fair Market Value of the Common Stock
on the Grant Date and the Option term shall not exceed five years.
8.3 ELIGIBLE EMPLOYEES
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
8.4 TERM
The term of an Incentive Stock Option shall not exceed 10 years.
8.5 EXERCISABILITY
An Option designated as an Incentive Stock Option must be exercised within three
months after termination of employment for reasons other than death or one year
after termination of employment or services due to Disability to qualify for
Incentive Stock Option tax treatment.
SECTION 9.
STOCK APPRECIATION RIGHTS
9.1 GRANT OF STOCK APPRECIATION RIGHTS
The Plan Administrator may grant a Stock Appreciation Right separately or in
tandem with a related Option.
9.2 TANDEM STOCK APPRECIATION RIGHTS
A Stock Appreciation Right granted in tandem with a related Option will give
the Holder the right to surrender to the Company all or a portion of the related
Option and to receive an appreciation distribution (in shares of Common Stock or
cash or any combination of shares and cash, as the Plan administrator shall
determine at any time) in an amount equal to the excess of the Fair Market Value
for the Window Period during which the Stock appreciation Right is exercised
over the exercise price per share of the right, which shall be the same as the
exercise price of the related Option, except that if the right is exercised
during a Window Period, the amount will be equal to the excess of the Window
Period Fair Market Value for the Window Period during which the Stock
Appreciation Plight is exercised over the exercise price per share of the right.
A tandem Stock Appreciation Right will have the same other terms and provisions
as the related Option. Upon and to the extent a tandem Stock Appreciation Right
is exercised, the related Option will terminate.
9.3 STAND-ALONE STOCK
APPRECIATION RIGHTS
A Stock Appreciation Right granted separately and not in tandem with an
Option will give the Holder the right to receive an appreciation distribu-
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EXHIBIT A
tion in an amount equal to the excess of the Fair Market Value for the date the
Stock Appreciation Right is exercised over the per share exercise price of the
right, except that if the right is exercised during a Window Period, the amount
will be equal to the excess of the Window Period Fair Market Value for the
Window Period during which the right is exercised over the per share exercise
price of the right. A standalone Stock Appreciation Right will have such terms
as the Plan Administrator may determine, except that the term of the right, if
not otherwise established by the Plan Administrator, shall be 10 years from the
Grant Date.
9.4 EXERCISE OF STOCK APPRECIATION RIGHTS
Unless otherwise provided by the Plan Administrator in the instrument that
evidences the Stock Appreciation Right, the provisions of Section 7.6 relating
to the termination of a Holder's employment or services shall apply equally, to
the extent applicable, to the Holder of a Stock Appreciation Right. Stock
Appreciation Rights held by Participants who are subject to Section 16 of the
Exchange Act may be exercised solely in accordance with the requirements for
compliance with Rule 16b-3 under the Exchange Act.
SECTION 10.
STOCK AWARDS
10.1 GRANT OF STOCK AWARDS
The Plan Administrator is authorized to make Awards of Common Stock to
Participants on such terms and conditions and subject to such restrictions, if
any (whether based on performance standards, periods of service or otherwise),
as the Plan Administrator shall determine, which terms, conditions and
restrictions shall be set forth in the instrument evidencing the Award. The
terms, conditions and restrictions that the Plan Administrator shall have the
power to determine shall include, without limitation, the manner in which shares
subject to Stock Awards are held during the periods they are subject to
restrictions and the circumstances under which forfeiture of Restricted Stock
shall occur by reason of termination of the Holder's services.
10.2 ISSUANCE OF SHARES
Upon the satisfaction of any terms, conditions and restrictions prescribed in
respect to a Stock Award, or upon the Holder's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall deliver, as soon as practicable, to the Holder
or, in the case of the Holder's death, to the personal representative of the
Holder's estate or as the appropriate court directs, a stock certificate for the
appropriate number of shares of Common Stock.
10.3 WAIVER OF RESTRICTIONS
Notwithstanding any other provisions of the Plan, the Plan Administrator may,
in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Restricted Stock under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
SECTION 11.
OTHER STOCK-BASED AWARDS
The Plan Administrator may grant other Awards under the Plan pursuant to
which shares of Common Stock (which may, but need not, be shares of Restricted
Stock pursuant to Section 10) are or may in the future be acquired, or Awards
denominated in stock units, including ones valued using measures other than
market value. Such Other Stock-Based Awards may be granted alone or in addition
to or in tandem with any Award of any type granted under the Plan and must be
consistent with the Plan's purpose.
SECTION 12.
DIVIDEND EQUIVALENT RIGHTS
Any Awards under the Plan may, in the Plan Administrator's discretion, earn
Dividend Equivalent Rights. In respect of any Award that is outstanding on the
dividend record date for Common Stock, the Participant may be credited with an
amount equal to the cash or stock dividends or other distributions that would
have been paid on the shares of Common Stock covered by such Award had such
covered shares been issued and outstanding on such dividend record date. The
Plan Administrator shall establish such rules and procedures governing the
crediting of Dividend Equivalent Plights, including the timing, form of payment
and payment contingencies of such Dividend Equivalent Rights, as it deems are
appropriate or necessary.
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EXHIBIT A
SECTION 13.
LOANS, LOAN GUARANTEES AND INSTALLMENT PAYMENTS
To assist a Holder (including a Holder who is an officer or director of the
Company) in acquiring shares of Common Stock pursuant to an Award granted under
the Plan, the Plan Administrator may authorize, either at the Grant Date or at
any time before the acquisition of Common Stock pursuant to the Award, (i) the
extension of a loan to the Holder by the Company, (ii) the payment by the Holder
of the purchase price, if any, of the Common Stock in installments, or (iii) the
guarantee by the Company of a loan obtained by the grantee from a third party.
The terms of any loans, installment payments or guarantees, including the
interest rate and terms of repayment, will be subject to the Plan
Administrator's discretion. Loans, installment payments and guarantees may be
granted with or without security. The maximum credit available is the purchase
price, if any, of the Common Stock acquired plus the maximum federal and state
income and employment tax liability that may be incurred in connection with the
acquisition.
SECTION 14.
ASSIGNABILITY
No Option, Stock Appreciation Right, Other Stock-Based Award or Dividend
Equivalent Right granted under the Plan may be assigned or transferred by the
Holder other than by will or by the laws of descent and distribution, and during
the Holder's lifetime, such Awards may be exercised only by the Holder.
Notwithstanding the foregoing, and to the extent permitted by Rule 16b-3 under
the Exchange Act and Section 422 of the Code, the Plan Administrator, in its
sole discretion, may permit such assignment, transfer and exercisability and may
permit a Holder of such Awards to designate a beneficiary who may exercise the
Award or receive compensation under the Award after the Holder's death.
SECTION 15.
ADJUSTMENTS
15.1 ADJUSTMENT OF SHARES
In the event that at any time or from time to time a stock dividend, stock
split, spin-off, combination or exchange of shares, recapitalization, merger,
consolidation, distribution to stockholders other than a normal cash dividend,
or other change in the Company's corporate or capital structure results in (i)
the outstanding shares, or any securities exchanged therefor or received in
their place, being exchanged for a different number or class of securities of
the Company or of any other corporation or (ii) new, different or additional
securities of the Company or of any other corporation being received by the
holders of shares of Common Stock of the Company, then the Plan Administrator,
in its sole discretion, shall make such equitable adjustments as it shall deem
appropriate in the circumstances in (a) the maximum number of and class of
securities subject to the Plan as set forth in Section 4. 1, (b) the maximum
number and class of securities that may be made subject to Awards to any
individual Participant as set forth in Section 4.2, and (e) the number and class
of securities that are subject to any outstanding Award and the per share price
of such securities, without any change in the aggregate price to be paid
therefor. The determination by the Plan Administrator as to the terms of any of
the foregoing adjustments shall be conclusive and binding.
15.2 CORPORATE TRANSACTION
Except as otherwise provided in the instrument that evidences the Award, in
the event of any Corporate Transaction, each Option, Stock Appreciation Right or
Stock Award that is at the time outstanding shall automatically accelerate so
that each such Award shall, immediately prior to the specified effective date
for the Corporate Transaction, become 100% vested, except that such acceleration
will not occur if in the opinion of the Company's accountants it would render
unavailable "pooling of interest" accounting for a Corporate Transaction that
would otherwise qualify for such accounting treatment. All such Awards shall
terminate and cease to remain outstanding immediately following the consummation
of the Corporate Transaction, except to the extent assumed by the successor
corporation or its parent corporation. Any such Awards that are assumed or
replaced in the Corporate Transaction and do not otherwise accelerate at that
time shall be accelerated in the event the Holder's employment or services
should subsequently terminate within two years following such Corporate
Transaction, unless such employment or services are terminated by the Company
for Cause or by the Holder voluntarily without Good Reason. Notwithstanding the
foregoing, no Incentive Stock
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EXHIBIT A
Option shall become exercisable pursuant to this Section 15.2 without the
Holder's consent, if the result would be to cause such Option not to be treated
as an Incentive Stock Option (whether by reason of the annual limitation
described in Section 8.1 or otherwise).
15.3 FURTHER ADJUSTMENT OF AWARDS
Without limiting the preceding Section 15.2, and subject to the limitations
set forth in Section 11, the Plan Administrator shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation or change in control of the Company, as defined by the Plan
Administrator, to take such further action as it determines to be necessary or
advisable, and fair and equitable to Participants, with respect to Awards. Such
authorized action may include (but shall not be limited to) establishing,
amending or waiving the type, terms, conditions or duration of, or restrictions
on, Awards so as to provide for earlier, later, extended or additional time for
exercise, payment or settlement or lifting restrictions, differing methods for
calculating payments or settlements, alternate forms and amounts of payments and
settlements and other modifications, and the Plan Administrator may take such
actions with respect to all Participants, to certain categories of Participants
or only to individual Participants. The Plan Administrator may take such actions
before or after granting Awards to which the action relates and before or after
any public announcement with respect to such sale, merger, consolidation,
reorganization, liquidation or change in control that is the reason for such
action.
15.4 LIMITATIONS
The grant of Awards will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 16.
WITHHOLDING OF TAXES
The Company may require the Holder to pay to the Company the amount of any
withholding taxes that the Company is required to withhold with respect to the
grant, exercise, payment or settlement of any Award. In such instances, the Plan
Administrator may, in its discretion and subject to the Plan and applicable law,
permit the Holder to satisfy withholding obligations, in whole or in part, by
paying cash, by electing to have the Company withhold shares of Common Stock or
by transferring shares of Common Stock to the Company, in such amounts as are
equivalent to the Fair Market Value of the withholding obligation.
SECTION 17.
AMENDMENT AND TERMINATION OF PLAN
17.1 AMENDMENT OF PLAN
The Plan may be amended by the stockholders of the Company. The Board may
also amend the Plan in such respects as it shall deem advisable; however, to the
extent required for compliance with Rule 16b-3 under the Exchange Act, Section
422 of the Code or any applicable law or regulation, stockholder approval will
be required for any amendment that will (i) increase the total number of shares
as to which Options may be granted or which may be used in payment of Stock
Appreciation Rights, Performance Awards, Other Stock-Based Awards or Dividend
Equivalent Rights under the Plan or that may be issued as Restricted Stock, (ii)
materially modify the class of persons eligible to receive Awards, (iii)
materially increase the benefits accruing to Participants under the Plan, or
(iv) otherwise require stockholder approval under any applicable law or
regulation.
17.2 TERMINATION OF PLAN
The stockholders or the Board may suspend or terminate the Plan at any time.
The Plan will have no fixed expiration date; provided, however, that no
Incentive Stock Options may be granted more than 10 years after the Plan s
effective date.
17.3 CONSENT OF HOLDER
The amendment or termination of the Plan shall not, without the consent of
the Holder of any Award under the Plan, alter or impair any rights or
obligations under any Award theretofore granted under the Plan.
SECTION 18.
GENERAL
18.1 NOTIFICATION
The Plan Administrator shall promptly notify a Participant of an Award, and a
written grant shall promptly be executed and delivered by or on behalf of the
Company.
9
<PAGE> 10
EXHIBIT A
18.2 CONTINUED EMPLOYMENT OR SERVICES; RIGHTS IN AWARDS
Neither the Plan, participation in the Plan as a Participant nor any action
of the Plan Administrator taken under the Plan shall be construed as giving any
Participant or employee of the Company any right to be retained in the employ of
the Company or limit the Company's right to terminate the employment or services
of the Participant.
18.3 REGISTRATION; CERTIFICATES FOR SHARES
The Company shall be under no obligation to any Participant to register for
offering or resale under the Securities Act of 1933, as amended, or register or
qualify under state securities laws, any shares of Common Stock, security or
interest in a security paid or issued under, or created by, the Plan. The
Company may issue certificates for shares with such legends and subject to such
restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
18.4 NO RIGHTS AS A STOCKHOLDER
No Option, Stock Appreciation Right or Other Stock-Based Award shall entitle
the Holder to any dividend (except to the extent provided in an Award of
Dividend Equivalent Rights), voting or other right of a stockholder unless and
until the date of issuance under the Plan of the shares that are the subject of
such Awards, free of all applicable restrictions.
18.5 COMPLIANCE WITH LAWS AND REGULATIONS
It is the Company's intention that, so long as any of the Company's equity
securities are registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, the Plan shall comply in all respects with Rule 16b-3 under the Exchange
Act and, if any Plan provision is later found not to be in compliance with such
Rule, the provision shall be deemed null and void, and in all events the Plan
shall be construed in favor of its meeting the requirements of Rule 16b-3.
Notwithstanding anything in the Plan to the contrary, the Board, in its sole
discretion, may bifurcate the Plan so as to restrict, limit or condition the use
of any provision of the Plan to Participants who are officers or directors
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other Participants. Additionally, in
interpreting and applying the provisions of the Plan, any Option granted as an
Incentive Stock Option pursuant to the Plan shall, to the extent permitted by
law, be construed as an "Incentive stock option" within the meaning of Section
422 of the Code.
18.6 NO TRUST OR FUND
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
18.7 GOVERNING LAW
The Plan and all interpretations of its provisions shall be governed by the
laws of the state of Washington and applicable federal laws.
18.8 SEVERABILITY
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
SECTION 19.
EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the Board, so
long as it is approved by the Company's stockholders at any time within 12
months of such adoption or, if earlier, and to the extent required for
compliance with Rule 16b-3 under the Exchange Act, at the next annual meeting of
the Company's stockholders after adoption of the Plan by the Board.
Adopted by the Board on ______________, 1995 and approved by the Company's
stockholders on _____________, 1995.
10
<PAGE> 1
EXHIBIT 10.17
THIRD AMENDMENT TO CREDIT AGREEMENT
This third amendment to credit agreement ("Amendment") is made and
entered into as of the 28th day of October, 1994, by and among U.S. BANK OF
WASHINGTON, NATIONAL ASSOCIATION ("U.S. Bank") and FLOW INTERNATIONAL
CORPORATION, a Delaware corporation ("Flow") and SPIDER STAGING CORPORATION, a
Washington corporation ("SSC").
RECITALS:
A. On or about October 14, 1992, U.S. Bank, Flow, and SSC entered
into that certain credit agreement (together with all amendments, supplements,
exhibits, and modifications thereto, the "Credit Agreement"), which amended,
restated, and combined the Original Loan Agreement, as amended, between U.S.
Bank and Flow with the SSC Loan Agreement between U.S. Bank and SSC. The
Credit Agreement also set forth the terms and conditions under which U.S. Bank
agreed to continue making certain loans and advances of credit to Flow and SSC.
On or about April 28, 1993, U.S. Bank, Flow, and SSC entered into that certain
first amendment to credit agreement ("First Amendment") whereby U.S. Bank
agreed to extend a new $9,659,174 loan to Flow which was used to replace
certain existing loans from U.S. Bank to Flow and from U.S. Bank to Flow and
SSC and to pay down the Revolving Loan. On or about September 2, 1993, U.S.
Bank agreed to increase the Revolving Loan to $14,000,000 and Flow executed and
delivered to U.S. Bank a new promissory note in such amount that replaced the
Revolving Note. On or about September 30, 1993, U.S. Bank, Flow and SSC
entered into that certain second amendment to credit agreement ("Second
Amendment") whereby U.S. Bank agreed to extend a new $3,000,000 loan to Flow
(Revolving Equipment Loan) along with making other changes to various other
loan/commitments.
B. Flow and SSC have requested U.S. Bank to: (i) increase Flow's
Revolving Line of Credit to $17,000,000, (ii) make a new $4,500,000 equipment
loan to Flow which would include the consolidation of two existing term loans,
and (iii) reduce the interest and make other miscellaneous amendments to the
existing credit agreement. The purpose of this Amendment is to set forth the
terms and conditions upon which U.S. Bank will do the foregoing pursuant to
Flows and SSC's request.
ARTICLE I. DEFINITIONS
As used herein, capitalized terms shall have the meanings given to
them in the Credit Agreement, except as otherwise defined herein or as the
context otherwise requires. Article I of the Credit Agreement is modified to
add or amend. (as the case may be) the definitions of the terms set forth
below:
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<PAGE> 2
"Applicable Law" means all applicable provisions and requirements of
all (a) constitutions, statutes, ordinances, rules, regulations, standards,
orders, and directives of any Governmental Bodies, (b) authorizations,
consents, approvals, certificates of compliance, licenses, permits, or
exemptions from, contracts with, registrations or filings with, or reports or
notices to, any Governmental Body, and (c) orders, decisions, decrees,
judgments, injunctions, and writs of all courts and arbitrators; whither such
Applicable Laws presently exist, or are modified, promulgated, or implemented
after the date hereof.
"Cash Flow" means Flow's Consolidated net income before taxes, plus
noncash items (such as depreciation and amortization), less unfunded capital
expenditures and extraordinary items.
"Current Ratio" means the ratio of Flow's Consolidated current assets
to Flow's Consolidated current liabilities.
"Governmental Body" means the government of the United States, any
state, or any foreign country, or any governmental or regulatory official,
body, department, bureau, subdivision, agency, commission, court arbitrator, or
authority, or any instrumentality thereof, whether federal, state, or local.
"Interest Periods" means for LIBOR Rate Borrowing the one month period
designated by Flow in a Borrowing Notice. In the event that the last day of
any Interest Period would fall on a day other than a Business Day, the Interest
Period shall be extended to the next succeeding Business Day. Flow may not
elect any Interest Period which extends beyond the maturity date of the
Revolving Loan.
"LIBOR Rate" means a fixed rate of interest equal to the London
Interbank Offered Rate, which is the per annum rate of interest determined by
U.S. Bank to be the rate at which deposits in U.S. dollars are offered in the
London Interbank market at approximately 11:00 a.m. (London time), and two
Business Days prior to the commencement of the applicable Interest Period for a
period of time comparable to such Interest Rate Borrowing, which rate shall be
adjusted from time to time to take into account the cost to U.S. Bank to
maintain any reserves for a Eurodollar deposit required to fund the amount of
the applicable LIBOR Rate Borrowing, and also to take into account any required
statutory reserves for foreign loans to United States residents, whether or not
the applicable LIBOR Rate Borrowing is so funded by U.S. Bank.
"LIBOR Rate Borrowing" means any borrowing under the Revolving Loan
for which Flow has elected a rate based upon the LIBOR Rate to apply.
Computations of interest for a LIBOR Rate Borrowing shall be based upon a
360-day year for the actual number of days elapsed.
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<PAGE> 3
"Loans" means the Revolving Loan, the BHF Letter of Credit, the
Letters of Credit, the Controlled Disbursement Loan, the Combined Loan, and the
Revolving Equipment Loan, as well as all renewals and modifications thereof.
"Notes" means the Revolving Note, the Demand Note, the Controlled
Disbursement Note, and Combined Note, and the Revolving Equipment Note, as well
as all replacements and modifications thereof.
"Prime Rate Borrowing" means any Funding or portion of the Revolving
Loan pursuant to the terms of the Agreement that bears interest at the Prime
Rate.
"Revolving Equipment Loan" has the meaning set forth in Section 3.1 of
this Amendment, as well as all renewals and modifications thereof.
"Revolving Equipment Note" has the meaning set forth in Section 3.3 of
this Amendment, as well as all renewals and modifications thereof.
"Working Capital" means the amount by which Flows Consolidated current
assets exceeds Flow's Consolidated current liabilities.
ARTICLE II. AMENDMENT
The Credit Agreement, as well as all of the other Loan Documents, are
hereby amended as set forth herein. Except as specifically provided for
herein, all of the terms and conditions of the Credit Agreement and each of the
other Loan Documents shall remain in full force and effect throughout the term
of the Loans, as well as any extensions or renewals thereof.
ARTICLE III REVOLVING EQUIPMENT LOAN
3.1 Commitment. Subject to and upon the terms and conditions set
forth herein, and in reliance upon the representations, warranties, and
covenants of Flow contained herein or in the Credit Agreement or make pursuant
hereto or pursuant to the Credit Agreement, U.S. Bank will make Fundings to
Flow from time to time and during the period ending on November 30, 1996, but
such Fundings shall not exceed, in the aggregate principal amount at any one
time outstanding, $4,500,000 (the "Revolving Equipment Loan"). Flow may
borrow, repay, and reborrow hereunder either the full amount of the Revolving
Equipment Loan or any lesser sum.
3.2 Use of Proceeds. The proceeds of the Revolving Equipment loan
shall only be used by Flow for the purchase of equipment related to its
business.
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<PAGE> 4
3.3 Revolving Equipment Note. The Revolving Equipment Loan shall
be evidenced by a promissory note in the form attached hereto as Exhibit A (the
"Revolving Equipment Note").
3.4 Interest Rates. The Revolving Equipment Loan shall bear
interest on the principal amount thereof remaining unpaid from time to time, at
a rate of interest equal to:
(a) The Prime Rate plus 0.25 percent per annum; or
(b) The LIBOR Rate plus 175 basis points per annum.
3.5 Payment of Interest. Flow shall pay U.S. Bank an amount equal
to all accrued interest under the Revolving Equipment Loan on the first day of
each month until the principal balance under the Revolving Equipment Loan has
been paid in full, commencing on the first such day after any Funding has been
disbursed under the Revolving Equipment Loan.
3.6 Reduction of Commitment. On a monthly basis, the principal
amount of this commitment shall be reduced by 1/60th.
3.7 Repayment of Principal. All outstanding principal, accrued
interest, and other charges shall be due in full by November 30, 1996.
3.8 Revolving Equipment Loan Fee. Flow shall be assessed a 0.25
percent fee on the amount of each Funding under the Revolving Equipment Loan
which shall be due and payable concurrently with the disbursement of each
Funding.
3.9 Limitation on Fundings.
(a) The aggregate principal balance of the Revolving Equipment
Loan shall not exceed an amount equal to 75 percent of the cost to Flow of the
equipment purchased with Fundings under the Revolving Equipment Loan.
(b) If at any time the aggregate principal balance of the
Revolving Equipment loan exceeds the amount determined pursuant to subparagraph
(a) above, Flow shall immediately repay such outstanding portion of the
Revolving Equipment Loan in an amount equal to such excess.
4.0 Fundings. Flow shall submit to U.S. Bank prior to each
Funding under the Revolving Equipment Loan, a Borrowing Notice as set forth in
Section 12.3 of the Credit Agreement, which shall set forth the purchase price
of the equipment to be purchased with the requested Funding. Section 12.3 of
the Credit Agreement is hereby amended to include Fundings under the Revolving
Equipment Loan.
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<PAGE> 5
ARTICLE IV. REVOLVING LOAN MODIFICATIONS
4.1 Revolving Loan Increase and Extension of Expiry Date. Section
2.1 of the Credit Agreement is hereby amended to reflect that U.S. Bank will
make Fundings to Flow under the Revolving Loan from time to time and during the
period ending on November 30, 1995, but such Fundings (together with the
outstanding Letters of Credit with the exception of the BHF Letter of Credit)
shall not exceed, in the aggregate principal amount at any one time
outstanding, $17,000,000.
4.2 Replacement Revolving Note. Concurrently with the execution
hereof, Flow shall execute and deliver a replacement revolving note in the form
attached hereto as Exhibit B ("Replacement Revolving Note") which shall replace
that certain promissory note dated September 30, 1993. All references in the
Credit Agreement to the Revolving Note shall hereafter constitute reference to
the Replacement Revolving Note, U.S. Bank shall mark the promissory note dated
September 30, 1993 "replaced" and shall retain the note until the Revolving
Loan has been paid in full.
4.3 Extension of Maturity Date. Section 2.5 (b) of the Credit
Agreement is hereby amended to reflect that Flow shall pay U.S. Bank all
outstanding principal, accrued interest, and other charges with respect to the
Revolving Loan on November 30, 1995.
4.4 Decrease in Interest Rate. Section 2.4 of the Loan Agreement
is hereby deleted in its entirety and replaced with the following:
2.4 Interest. Each time Flow requests a Funding under
the Revolving Loan or prior to the expiration of each Interest Period for
all LIBOR Rate Borrowings or at any other time with respect to Prime Rate
Borrowings so long as there exists no Event of Default, Flow may elect one
of the following described interest rates in a Borrowing Notice:
(a) The Prime Rate per annum; or
(b) The LIBOR Rate plus 150 basis points per annum. Upon the
following permanent reduction to the maximum Funding
based upon Eligible Inventory, the LIBOR Rate option
will be adjusted as follows:
Maximum Inventory Reliance LIBOR Rate Formula
-------------------------- ------------------
$3,000,000 LIBOR + 140 basis points per annum
-0- LIBOR + 125 basis points per annum
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In the event Flow does not specify an interest rate election as provided for
above for a requested Funding or at the end of any Interest Period with respect
to a LIBOR Rate Borrowing, then such Funding shall be deemed to constitute a
Prime Rate Borrowing.
4.5 Illegality.
(a) If after the date of this Amendment the adoption of any
Applicable Law or any change therein or any change in the interpretation or
administration thereof by any Governmental Body, central bank, or comparable
agency charged with the interpretation or administration thereof, or if
compliance by U.S. Bank with any request or directive (whether or not having
the force of Applicable Law) of any such Governmental Body, central bank, or
comparable agency makes it against Applicable Law or impossible for U.S. Bank
to maintain the Revolving Loan at the LIBOR Rate, U.S. Bank shall immediately
give notice thereof to Flow.
(b) Upon receipt by Flow of notice set forth in Section 4.5 (a)
herein, the interest rate of the Revolving Loan shall automatically be
converted to the Prime Rate per annum.
4.6 Interest Cost. If after the date hereof any revision of
Regulation D announced by the Board of Governors of the Federal Reserve Board,
or if the adoption of any Applicable Law related to Regulation D or any change
therein or any change in the interpretation or administration thereof by any
Governmental Body, central bank, or comparable agency charged with the
interpretation or administration thereof, or if compliance by U.S. Bank with
any request or directive (whether or not having the force of Applicable Law) of
any such Governmental Body, central bank, or comparable agency related to
Regulation D:
(a) Shall subject U.S. Bank to any tax, duty, or other charge with
regard to its maintenance of the interest rate under the Revolving Loan at the
LIBOR Rate; or
(b) Shall impose or modify any reserve (including but not limited
to any reserve imposed by the Board of Governors of the Federal Reserve
System), special deposit, or similar requirement against assets of, deposits
with, or for the account of, or credit extended by U.S. Bank or shall impose
on U.S. Bank any other condition affecting the Revolving Loan with interest
accruing at the LIBOR Rate;
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and the result of any of the foregoing is to increase the cost to U.S. Bank of
maintaining the interest rate on the Revolving Loan at the LIBOR Rate or to
reduce the return of U.S. Bank under this Amendment, then from time to time,
within ten days after demand by U.S. Bank, Flow shall pay to U.S. Bank such
additional amount or amounts as will compensate U.S. Bank for such increase in
cost or reduction in return. In no event shall Flow have any liability for
changes in or imposition of new taxes by any Governmental Agency based on the
net or gross income of U.S. Bank.
4.7 Borrowing Base Modification. Section 2.6 of the Credit
Agreement is hereby amended to reflect that the Borrowing Base is (a) 80
percent of Eligible Accounts Receivable plus (b) 50 percent of Eligible
Inventory up to a maximum Funding based upon Eligible Inventory in the amount
of $7,000,000.
ARTICLE V. LETTERS OF CREDIT MODIFICATION
Section 3.1 of the Credit Agreement is hereby amended to reflect, that
the maximum aggregate amount of Letters of Credit at any one time outstanding
shall not exceed $2,500,000.
ARTICLE VI. BHF LETTER OF CREDIT MODIFICATION
6.1 Extension.
(a) Section 7.1 of the Credit Agreement is hereby amended to
reflect that the expiration date of the BHF Letter of Credit is March 1, 1996.
(b) Section 7.4 of the Credit Agreement is hereby amended to
reflect that any draw on the BHF Letter of Credit issued by U.S. Bank shall be
repaid by Flow within the earlier of 60 days of such Funding or March 1, 1996.
6.2 Interest Rate. Section 7.3 of the Credit Agreement is hereby
amended to reflect that the Demand Note shall bear interest on the principal
amount thereof remaining unpaid from time to time, at a rate of interest equal
to the Prime Rate plus 0.25 percent per annum.
6.3 Replacement Letter of Credit Note. Concurrently with the
execution hereof, Flow and SSC shall execute and deliver a replacement letter
of credit note in the form attached hereto as Exhibit "C" ("Replacement Letter
of Credit Note").
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ARTICLE VII. CONTROLLED DISBURSEMENT LOAN MODIFICATION
7.1 Extension of Expiry Date. Section 11.1 of the Credit
Agreement is hereby amended to reflect that U.S. Bank will make Fundings to
Flow and SSC from time to time and during the period ending on November 30,
1995, but such Fundings shall not exceed, in the aggregate principal amount at
any one time outstanding, $500,000.
7.2 Replacement Controlled Disbursement Note. Concurrently with
the execution hereof Flow and SSC shall execute and deliver a replacement
controlled disbursement note in the form attached hereto as Exhibit D
("Replacement Controlled Disbursement Note") which shall replace the Controlled
Disbursement Note executed in conjunction with the Credit Agreement. All
references in the Credit Agreement to the Controlled Disbursement Note shall
hereafter constitute references to the Replacement Controlled Disbursement
Note. U.S. Bank shall mark the Controlled Disbursement Note "replaced" and
shall retain it until the Controlled Disbursement Loan has been paid in full.
7.3 Loan Fee. In the event of any Fundings under the Controlled
Disbursement Loan, Flow and SSC shall pay U.S. Bank a loan fee of $1,250
concurrently with the Funding under the Controlled Disbursement Loan.
ARTICLE VIII. CONDITIONS PRECEDENT
8.1 Conditions Precedent for Initial Funding Under the Revolving
Equipment Loan. U.S. Bank shall not be required to make the initial Funding
under the Revolving Equipment Loan unless or until the following conditions
have been fulfilled to the satisfaction of U.S. Bank:
(a) U.S. Bank shall have received this Amendment and the Revolving
Equipment Note, duly executed and delivered by Flow.
(b) U.S. Bank shall have received a certified resolution of the
directors of Flow and incumbency certificate in a form reasonably satisfactory
to U.S. Bank authorizing Flow to enter into this Amendment and execute the
Revolving Equipment Note and all other instruments, agreements, and documents
related thereto.
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<PAGE> 9
8.2 Conditions Precedent to Each Funding Under the Revolving
Equipment Loan. The obligation of U.S. Bank to make any Funding (including the
initial Funding) under the Revolving Equipment Loan is subject to the
fulfillment, to the satisfaction of U.S. Bank, of the following:
(a) U.S. Bank shall have received a Borrowing Notice with respect
to the requested Funding, duly executed and delivered by Flow.
(b) U.S. Bank shall have received evidence deemed satisfactory to
U.S. Bank reflecting that the requested Funding is less than or equal to 75
percent of the purchase price of the equipment to be purchased with the
requested Funding.
(c) There shall not then exist any Default or Event of Default
under the Credit Agreement, or after having given effect to the requested
Funding, there would not exist a Default or Event of Default.
(d) Each of the conditions provided for in Section 15.3 of the
Credit Agreement shall have been satisfied.
8.3 Conditions Precedent to Each Subsequent Funding. There shall
be added to Section 15.3 of the Credit Agreement the following:
(f) There shall not then exist any Default or Event of Default
hereunder, or after having given effect to the requested Funding, there would
not exist a Default or Event of Default.
ARTICLE IX. COVENANT MODIFICATIONS
9.1 Sections 17.17, 17.18, 17.19, 17.20 and 17.21 of the Credit
Agreement are hereby deleted in their entirety and replaced with the following:
17.17 Capital Ratio. Permit the Capital Ratio to be
greater than 1.25:1.00 from the date of this Amendment until April 29,
1995, and greater than 1.05:1.00 at any time thereafter.
17.18 Tangible Net Worth. Permit Tangible Net Worth to be
less than $33,000,000 any time during the terms of the Loans.
17.19 Debt Service Coverage Ratio. Permit the Debt Service
Coverage Ratio to be less than 1.50:1.00 at any time during the terms
of the Loans.
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17.16 Working Capital. Permit Working Capital to be less
than $21,000,000 any time during the terms of the Loans.
17.15 Current Ratio. Permit the Current Ratio to be less
than 1.70:1.00 any time during the terms of the Loans.
ARTICLE X. GENERAL PROVISIONS
10.1 Notices. Section 20.1 of the Credit Agreement is hereby
amended to reflect U.S. Bank's new address:
(b) If to U.S. Bank:
U.S. Bank of Washington, National Association
10800 N.E. 8th Street
Suite 1000
Bellevue, Washington 98004
Attention: Mark E. Tsutakawa, Vice President
Facsimile No.: (206) 450-5989
10.2 Representations and Warranties. Flow and SSC hereby represent
and warrant to U.S. Bank that as of the date of this Amendment, there exists no
Default or Event of Default. All representations and warranties of Flow and
SSC contained in the Credit Agreement and the other Loan Documents, or
otherwise made in writing in connection therewith, are true and correct as of
the date of the Amendment. Flow and SSC acknowledge and agree that all of
Flow's Indebtedness to U.S. Bank is payable without offset, defense, or
counterclaim.
10.3 Security Each of the Loan Documents evidencing U.S. Bank's
security interest in the Collateral shall remain in full force and effect and
shall secure the payment and performance of the Revolving Equipment Loan, as
well as the Revolving Loan, the SSC Term Loan, the BHF Letter of Credit, the
Letters of Credit, the Controlled Disbursement Loan, and the Combined Loan, as
amended hereunder.
10.4 SSC Guaranty. SSC acknowledges and agrees that the SSC
Guaranty shall remain in full force and effect; affirms that the SSC Guaranty
shall secure all of the past, present, and future Indebtedness of Flow to U.S.
Bank, including without limitation, the Revolving Equipment Loan, and the
Revolving Loan as increased hereunder; and agrees that its obligation under the
SSC Guaranty is enforceable without defense, offset, or counterclaim.
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<PAGE> 11
10.5 Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original agreement, but all of
which together shall constitute one and the same agreement.
10.6 Statutory Notice, ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
IN WITNESS WHEREOF, U.S. Bank, Flow, and SSC have caused this
Amendment to be duly executed by their respective duly authorized signatories
as of the date first above written.
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By: MARK TSUTAKAWA
---------------------------
Mark Tsutakawa
FLOW INTERNATIONAL CORPORATION,
a Delaware Corporation
By: R.W. TARRANT
---------------------------
R.W. Tarrant
Title: Chairman President & CEO
------------------------
SPIDER STAGING CORPORATION, a
Washington Corporation
By: R.W. TARRANT
---------------------------
R.W. Tarrant
Title: President & CEO
------------------------
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EXHIBIT 10.18
FOURTH AMENDMENT TO CREDIT AGREEMENT
This fourth amendment to credit agreement ("Amendment") is made and
entered into as of the 13th day of December, 1994, by and among U. S. BANK OF
WASHINGTON, NATIONAL ASSOCIATION ("U. S. Bank"), FLOW INTERNATIONAL
CORPORATION, a Delaware corporation ("Flow"), and SPIDER STAGING CORPORATION, a
Washington corporation ("SSC").
RECITALS:
A. On or about October 14, 1992, U. S. Bank, Flow, and SSC
entered into that certain credit agreement (together with all amendments,
supplements, exhibits, and modifications thereto, the "Credit Agreement"),
which amended, restated, and combined the Original Loan Agreement, as amended,
between U. S. Bank and Flow with the SSC Loan Agreement between U. S. Bank and
SSC. The Credit Agreement also set forth the terms and conditions under which
U. S. Bank agreed to continue making certain loans and advances of credit to
Flow and SSC. The Credit Agreement was amended by those certain first, second,
and third amendments to credit agreement dated April 28, 1993, September 30,
1993, and October 28, 1994, respectively, whereby U. S. Bank agreed to (a)
replace certain existing loans from U. S. Bank to Flow and from U. S. Bank to
Flow and SSC with a combined loan of $9,659,174; (b) increase the Revolving
Loan, first to $14,000,000 and then to $17,000,000; (c) increase the Controlled
Disbursement Loan from $100,000 to $500,000; and (d) make a Revolving Equipment
Loan in the original principal amount of $3,000,000 that was increased to
$4,500,000.
B. Flow is negotiating the acquisition of the assets or stock of
several companies that are engaged in business operations that are related or
complimentary to those of Flow's. Permanent financing of Flow's proposed
acquisitions will be funded with proceeds from the issuance and sale of
subordinated debentures, placement of private debt, or other bank facilities,
or a combination thereof ("Permanent Financing") in an amount estimated to be
from $15,000,000 to $30,000,000.
C. Flow and SSC have requested that U. S. Bank make a bridge loan
of $15,000,000 to Flow until Flow has completed its Permanent Financing. To
take account of the short-term nature of the bridge financing to be provided by
U. S. Bank, Flow and SSC also have requested that U. S. Bank modify certain
financial covenants. The purpose of this Amendment is to set forth the terms
and conditions upon which U. S. Bank will provide the bridge financing to Flow
and modify certain financial covenants pursuant to Flow's and SSC's request.
-1-
<PAGE> 2
ARTICLE 1. DEFINITIONS
As used herein, capitalized terms shall have the meanings given to
them in the Credit Agreement, except as otherwise defined herein or as the
context otherwise requires. Article I of the Credit Agreement is modified to
add or amend (as the case may be) the definitions of the terms set forth below:
"Acquisition Loan" has the meaning set forth in Section 3.1 of this
Amendment, and includes all renewals and modifications of the Acquisition Loan.
"Acquisition Loan Note" has the meaning set forth in Section 3.3 of
this Amendment, and includes all renewals, replacements, and modifications of
the Acquisition Loan Note.
"Capital Ratio" means the ratio of Flow's Consolidated Indebtedness
(less subordinated debt, if any, and contingent liabilities) to Flow's Tangible
Net Worth.
"Cash Flow" means Flow's Consolidated net income after taxes, plus
noncash items (such as depreciation and amortizations, plus interest expense,
less unfunded capital expenditures and extraordinary items.
"Debt Service" means the current portion of Flow's Consolidated
Indebtedness, plus interest expense as of the last day of the applicable fiscal
quarter.
"Interest Periods" means for any LIBOR Rate Borrowing the 30, 60, or
90-day period designated by Flow in a Borrowing Notice. In the event that the
last day of any Interest Period would fall on a day other than a Business Day,
the Interest Period shall be extended to the next succeeding Business Day.
Flow may not elect any Interest Period that extends beyond the maturity date of
the Revolving Loan, the Revolving Equipment Loan or the Acquisition loan.
"LIBOR Rate Borrowing" means any borrowing under the Revolving Loan,
the Revolving Equipment Loan or the Acquisition Loan for which Flow has elected
a rate based upon the LIBOR Rate to apply. Computations of interest for a
LIBOR Rate Borrowing shall be based upon a 360-day year for the actual number
of days elapsed.
"Loans" means the Revolving Loan, the SSC Term Loan, the BHF Letter of
Credit, the Letters of Credit, the Controlled Disbursement Loan, the Combined
Loan, the Revolving Equipment Loan, and the Acquisition Loan, and includes all
renewals and modifications thereof.
"Notes" means the Revolving Note, the SSC Term Note, the Demand Note,
the Controlled Disbursement Note, the Combined Note, the Revolving Equipment
Note, and
-2-
<PAGE> 3
the Acquisition Loan Note, and includes all renewals, replacements, and
modifications thereof.
"Permanent Financing" means the issuance and sale of subordinated
debentures, placement of private debt, or other bank facilities, or a
combination thereof in an amount estimated to be from $15,000,000 to
$30,000,000.
"Prime Rate Borrowing" means any Funding or portion of the Revolving
Loan, the Revolving Equipment Loan or Acquisition Loan pursuant to the terms of
this Agreement that bears interest at the Prime Rate.
"Tangible Net Worth" means Flow's Consolidated net worth determined in
accordance with generally accepted accounting principles, plus subordinated
debt, if any; less (a) all intangible assets, including without limitation,
goodwill, licenses, franchises, trademarks, trade names, service marks,
patents, and copyrights; (b) unamortized debt discount and expenses; (c) the
cost of capital stock of an Affiliate; (d) any Indebtedness owing to Flow by an
Affiliate thereof, unless such Indebtedness arose in connection with the sale
or lease of goods or property in the ordinary course of business, or the
performance of services in the ordinary course of business, and would otherwise
constitute current assets in accordance with generally accepted accounting
principles; and (e) the amount of a write-up in book value of the assets of
Flow or Flow Services resulting from any revaluation of assets.
ARTICLE II. AMENDMENT
The Credit Agreement, as well as all of the other Loan Documents, are
hereby amended as set forth herein. Except as specifically provided for
herein, all of the terms and conditions of the Credit Agreement and each of the
other Loan Documents shall remain in full force and effect throughout the terms
of the Loans, as well as any extensions or renewals thereof.
ARTICLE III. ACQUISITION LOAN
3.1 Commitment.
Subject to and upon the terms and conditions set forth herein, and in
reliance upon the representations, warranties, and covenants of Flow and SSC
contained herein or in the Credit Agreement or made pursuant hereto or pursuant
to the Credit Agreement, U. S. Bank will make Fundings to Flow from time to
time, commencing on the date of this Amendment, and ending on December 31,
1995, in an aggregate principal amount not to exceed $15,000,000 (the
"Acquisition Loan"). The Acquisition Loan is a nonrevolving term loan, and
once borrowed, Flow may not reborrow any repaid principal of the Acquisition
Loan.
-3-
<PAGE> 4
3.2 Use of Proceeds. The proceeds of the Acquisition Loan shall
be used by Flow only for the acquisition of the assets or stock of companies
approved by U. S. Bank.
3.3 Acquisition Loan Note. The Acquisition Loan shall be
evidenced by a promissory note in the form attached hereto as Exhibit A (the
"Acquisition Loan Note").
3.4 Interest Rates. Each time Flow requests a Funding under the
Acquisition Loan or prior to the expiration of each Interest Period for all
LIBOR Rate Borrowings or at any other time with respect to Prime Rate
Borrowings so long as there exists no Event of Default, Flow may elect one of
the following described interest rates in a Borrowing Notice:
(a) The Prime Rate per annum; or
(b) The LIBOR Rate plus 200 basis points per annum.
In the event Flow does not specify an interest rate election as
provided for above for a requested Funding or at the end of any Interest Period
with respect to a LIB0R Rate Borrowing, then such Funding shall be deemed to
constitute a Prime Rate Borrowing.
3.5 LIBOR Rate Borrowing. Sections 4.5 and 4.6 of the third
amendment to credit agreement, dated as of October 28, 1994, are hereby amended
to apply to the Revolving Equipment Loan and the Acquisition Loan, in addition
to the Revolving Loan.
3.6 Payment of Interest. Flow shall pay U. S. Bank an amount
equal to all accrued interest on the Acquisition Loan on the last day of each
month until the principal balance of the Acquisition Loan has been paid in
full, commencing on the last day of the month in which the initial Funding has
been disbursed under the Acquisition Loan.
3.7 Repayment of Principal. Flow shall pay U. S. Bank all
outstanding principal, accrued interest, and other charges with respect to the
Acquisition Loan on the earlier of December 31, 1995, or the date on which Flow
has received the proceeds from Permanent Financing.
3.8 Acquisition Loan Fee. Concurrently with the execution of this
Amendment, Flow shall pay a loan fee of $140,000 to U. S. Bank.
-4-
<PAGE> 5
ARTICLE IV. CONDITIONS PRECEDENT
4.1 Conditions Precedent for Initial Funding Under the Acquisition
Equipment Loan. U. S. Bank shall not be required to make the initial Funding
under the Acquisition Loan unless or until the following conditions have been
fulfilled to the satisfaction of U. S. Bank:
(a) U. S. Bank shall have received this Amendment and the
Acquisition Loan Note, duly executed and delivered by Flow.
(b) U. S. Bank shall have received a certified resolution of the
directors of Flow and incumbency certificate in a form reasonably satisfactory
to U. S. Bank authorizing Flow to enter into this Amendment and execute the
Acquisition Loan Note and all other instruments, agreements, and documents
related thereto.
4.2 Conditions Precedent to Each Funding Under the Acquisition
Loan. The obligation of U. S. Bank to make any Funding (including the initial
Funding) under the Acquisition Loan is subject to the fulfillment, to the
satisfaction of U. S. Bank, of the following:
(a) U. S. Bank shall have received a Borrowing Notice with respect
to the requested Funding, duly executed and delivered by Flow.
(b) U. S. Bank shall have received all documents, information, and
other materials requested by U. S. Bank relating to Flow's proposed acquisition
and shall have approved such proposed acquisition in writing.
(c) There shall not then exist any Default or Event of Default
under the Credit Agreement, or after having given effect to the requested
Funding, there would not exist a Default or Event of Default.
(d) Each of the conditions provided for in Section 15.3 of the
Credit Agreement shall have been satisfied.
(e) Flow and SSC shall have delivered such guaranties, third-party
pledge agreements, security agreements, and financing statements, duly executed
by Flow, SSC, or any Subsidiary, as may be reasonably necessary in the opinion
of U. S. Bank to further secure and guarantee the obligations of Flow and SSC
under the Credit Agreement.
ARTICLE V. COVENANT MODIFICATIONS
5.1 Financial Covenants. Sections 17.15 through 17.19 of the
Credit Agreement are hereby deleted in their entirety and replaced with the
following:
-5-
<PAGE> 6
17.15 Current Ratio. Permit the Current Ratio to be less
than 1.2:1.0 from the date of this Amendment until Flow has received
the proceeds from the Permanent Financing, and less than 1.7:1 at any
time thereafter.
17.16 Working Capital. Permit the Working Capital to be
less than $13,000,000 from the date of this Amendment until Flow has
received the initial proceeds from the Permanent Financing, and less
than $25,000,000 at any time thereafter.
17.17 Capital Ratio. Permit the Capital Ratio to be
greater than 1.65:1.0 from the date of this Amendment
until Flow has received the initial proceeds from the
Permanent Financing, and greater than 1.05:1.0 at anytime
thereafter.
17.18 Tangible Net Worth. Permit Tangible Net Worth to be
less than $33,000,000 any time during the terms of the
Loans.
17.19 Debt Service Coverage Ratio. Permit the Debt Service
Coverage Ratio to be less than 1.4: 1.0 for any fiscal quarter from
the date of this Amendment until Flow has received the proceeds from
the Permanent Financing, and less than 1.5:1.0 for any fiscal
quarter thereafter.
5.2 Subordination of Permanent Financing. Flow shall not become
obligated with respect to any Permanent Financing unless (a) such Permanent
Financing provides that any payment on or any security granted for the
repayment of the Permanent Financing are subordinated to the prior payment of
all Indebtedness of Flow and SSC to U. S. Bank to the extent approved by U. S.
Bank, and (b) U. S. Bank has given its written approval to Flow of the form of
documents evidencing the Permanent Financing.
ARTICLE VI. GENERAL PROVISIONS
6.1 Representations and Warranties. Flow and SSC hereby
represent and warrant to U. S. Bank that as of the date of this Amendment,
there exists no Default or Event of Default. All representations and
warranties of Flow and SSC contained in the Credit Agreement and the other Loan
Documents, or otherwise made in writing in connection therewith, are true and
correct as of the date of this Amendment. Flow and SSC acknowledge and agree
that all of Flow's Indebtedness to U. S. Bank is payable without offset,
defense, or counterclaim.
6.2 Security. Each of the Loan Documents evidencing U. S. Bank's
security interest in the Collateral shall remain in full force and effect and
shall secure the payment and performance by Flow and SSC of all Indebtedness of
Flow and SSC to U. S. Bank as amended hereunder, including, without
limitation, the Acquisition Loan.
-6-
<PAGE> 7
6.3 SSC Guaranty. SSC acknowledges and agrees that the SSC
Guaranty shall remain in full force and effect; affirms that the SSC Guaranty
shall secure all of the past, present, and future Indebtedness of Flow to U. S.
Bank, including without limitation, the Acquisition Loan; and agrees that its
obligation under the SSC Guaranty is enforceable without defense, offset, or
counterclaim.
6.4 Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original agreement, but all of
which together shall constitute one and the same agreement.
6.5 Statutory Notice. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
IN WITNESS WHEREOF, U. S. Bank, Flow, and SSC have caused this
Amendment to be duly executed by their respective duly authorized signatories
as of the date first above written.
U.S. BANK OF WASHINGTON, NATIONAL
ASSOCIATION
By MARK E. TSUTAKAWA
------------------------------
Mark E. Tsutakawa
Vice President
FLOW INTERNATIONAL CORPORATION, a
Delaware corporation
By R.W. TARRANT
------------------------------
R.W. Tarrant
Title Chairman President & CEO
---------------------------
-7-
<PAGE> 8
SPIDER STAGING CORPORATION, a Washington
corporation
By R.W. TARRANT
-------------------------------
R.W. Tarrant
Title Chairman, President & C.E.O.
----------------------------
-8-
<PAGE> 1
EXHIBIT 10.19
U.S BANK LOGO
MARK E. TSUTAKAWA
Vice President
Washington Corporate Banking
10800 Northeast 8th Street, Suite 1000
Bellevue, Washington 98004
206-450-5914
206-450-5989 Fax
July 12, 1995
Mr. Ronald W. Tarrant, Chairman, President & CEO
FLOW INTERNATIONAL CORPORATION
23500 - 64th Avenue South
Kent, Washington 98032
RE: FLOW INTERNATIONAL CORPORATION
AMENDMENT TO COMMITMENT LETTER DATED JULY 6, 1995
Dear Ron:
I am extremely pleased to confirm U.S. Bank of Washington, National
Association's (U.S. Bank) commitment to provide Flow International Corporation
(Flow) with a credit facility as described below:
BORROWER: Flow
AMOUNT: $60,000,000
USE OF PROCEEDS: Proceeds to be used for general operating and
acquisition funding requirements. Facility to allow
for the issuance of letters of credits up to
an aggregate limit of $20,000,000.
STRUCTURE/TERMS: Credit facility to be set up as a 5 year reducing
revolver. Commitment to be reduced as follows:
<TABLE>
<S> <C>
Year 1: -0-
Year 2: -0-
Beginning of Year 3: $8,000,000
Beginning of Year 4: $8,000,000
Beginning of Year 5: $8,000,000
End of Year 5: Outstanding Balance Due.
</TABLE>
<PAGE> 2
MR. RONALD W. TARRANT, CHAIRMAN, PRESIDENT & CEO
JULY 12, 1995
PAGE 2
INTEREST RATE/
FEES: U.S. Bank's Prime Rate adjusted on the same day as
any change in U.S. Bank's Prime Rate, and/or an IBOR
(Inter-Bank Offering Rate) based matrix summarized as
follows (borrower's option of 30, 60, 90, and 360
days):
Spread Over IBOR Funded Debt Multiple
---------------- --------------------
1.00% < 1.50 Times
1.35% 1.50 to 3.00 Times
An upfront fee of $220,000.
A 10 basis point per annum fee to be assessed quarterly
on the unused portion of the commitment.
REPAYMENT: Interest to paid monthly. All outstanding principal
and accrued interest shall be paid in full on or before
maturity.
COLLATERAL: Blanket lien on the assets of Flow International
Corporation. Bank will retain the option of
requiring a priority lien on the acquired
company's assets and/or stock. Secured on a
pari-passu basis with a proposed $15,000,000 private
placement of senior debt.
CONDITIONS
With the exception of the following conditions, this commitment is
irrevocable by U.S. Bank. The closing of the Facility committed to herein and
U.S. Bank's commitment to make advances under the Facility is subject to the
following conditions
1. NO CHANGE IN CONDITION. There must be no material adverse change in
the financial condition, assets, operating status or financial
prospects of Flow or any of its subsidiaries from the period beginning
with the date of this commitment through the date of closing. As of
the date of this letter, U.S. Bank is not aware of any adverse change
in Flow's financial condition.
2. LOAN DOCUMENTS. At the closing, Flow and any of its subsidiaries shall
execute such documents at U.S. Bank in its discretion deems necessary
in order to render itself secure. Among the documents to be executed
at closing will be a loan agreement, promissory notes and various
certifications regarding the parties' authority to enter into this
transaction.
<PAGE> 3
MR. RONALD W. TARRANT, CHAIRMAN, PRESIDENT & CEO
JULY 12, 1995
PAGE 3
3. CERTAIN PROVISIONS. Among the provisions of the loan documents will be
representations and warranties concerning, among other things,
securities offerings, pension plans, the absence of litigation,
corporate authorization and existence, and government approval and
licenses. There will be a number of affirmative and negative
covenants treating such matters as the use of the proceeds,
maintenance of financial condition, the keeping of books and records,
U.S. Bank's inspection rights, insurance, financial reporting, payment
of dividends, other indebtedness, encumbrance of assets, investments
and the sale of assets and securities. Various events of default
shall be identified. Among the provisions to be contained in the loan
documents will be the following:
3.1 Flow shall maintain minimum consolidated working capital of
$40,000,000. The minimum working capital covenant shall be
increased as follows: $50,000,000 by 04/30/96; $55,000,000 by
04/30/97; and $60,000,000 by 04/30/98 and thereafter.
3.2 Flow shall maintain a minimum current ratio of 2.00:1.
3.3 Flow shall maintain minimum consolidated Tangible Net Worth of
$33,000,000. The minimum Tangible Net Worth covenant shall be
increased as follows: $35,000,000 by 04/30/96;
$50,000,000 by 04/30/97; and $65,000,000 by 04/30/98 and
thereafter.
3.4 Flow shall maintain a maximum Funded Debt Multiple of 3.00
times. The Funded Debt Multiple covenant shall be decreased as
follows: 2.50 times by 05/01/97; 2.25 times by 05/01/98; and
2.00 times by 05/01/99 and thereafter. The Funded Debt Multiple
is defined as follows: Total Funded Senior Debt (including
capital leases) divided by EBITDA (based on the trailing four
quarters). EBITDA attributed to acquisitions shall be considered
(based on their trailing four quarters) in the Funded Debt
Multiple calculation.
3.5 Flow shall maintain a minimum Cash Flow Coverage of 1.50 times.
Cash Flow Coverage is defined as: (Net Income after taxes +
Depreciation + Amortization + interest expense - dividends -
unfunded capital expenditures) divided by (Current Portion of
Long Term Debt + interest expense). This covenant shall be
tested annually.
<PAGE> 4
MR. RONALD W. TARRANT, CHAIRMAN, PRESIDENT & CEO
JULY 12, 1995
PAGE 4
3.6 Flow shall advise U.S. Bank of any litigation in excess of
$250,000.
3.7 Flow shall not sell, pledge or otherwise encumber any title
or rights in technology, patents, etc. without prior written
notification and approved by U.S. Bank.
3.8 With the exception of Cash Flow Coverage which will be tested
annually, financial covenants will be tested quarterly.
3.9 U.S. Bank reserves the right to require the guarantees of the
other Flow subsidiaries.
4. REPORTING. The loan documents shall require financial reporting
requirements of Flow and any of its subsidiaries. Among the
provisions to be contained in the loan documents shall be the
following:
4.1 Quarterly agings of accounts receivable and accounts payable.
4.2 Annual consolidated audited financial statements and 10K.
4.3 Quarterly 10Q reports to be provided to U.S. Bank together
with quarterly compliance certificates.
4.4 Annual financial projections of Flow and its affiliates on a
fiscal year basis.
5. ACQUISITIONS. All acquisitions by Flow and any of its subsidiaries
shall be subject to U.S. Bank's prior written approval, which approval
shall not be unreasonably withheld, and shall be based upon all
information available to U.S. Bank and Flow with respect to any
proposed acquisition.
MISCELLANEOUS
1. INTEREST RATES. U.S. Bank's Prime rate is the rate of interest
announced or published by U.S. Bank from time to time as its "Prime
Rate", but is not necessarily the lowest or best rate charged to any
classification of U.S. Bank customers. The Prime rate is a floating
rate, changes in which shall be effective on the day announced or
published by U.S. Bank. IBOR is the Interbank Offering Rate. All
interest shall be calculated on a 360 day basis for the actual number
of days elapsed. The loan documents shall provide for default
interest rates and late fees.
<PAGE> 5
MR. RONALD W. TARRANT, CHAIRMAN, PRESIDENT & CEO
JULY 12, 1995
PAGE 5
2. PREPAYMENT. Flow may prepay all or any portion of any facilities tied
to U.S. Bank's Prime rate without premium or penalty, Any prepayment
of loan balances utilizing IBOR based interest rates will be subject
to the prepayment penalties stated in the IBOR addendums.
3. NO ASSIGNMENT; EXPENSES. This commitment is not assignable by
operation of law or otherwise without U.S. Bank's prior written
consent. Flow shall reimburse U.S. Bank for all of its reasonable
out-of-pocket expenses incurred in connection with any of its
facilities promptly upon demand, whether or not this transaction
closes or is funded. Such expenses shall include,
without limitation, attorney fees, examination expenses and filing
fees. This obligation shall survive the expiration or termination of
this commitment. This letter may be relied upon by any third party,
and except as required by law, shall be treated as confidential.
4. EXPIRATION OF COMMITMENT; CLOSING. If not accepted by Flow, this
commitment shall Expire on August 15, 1994. This commitment may be
extended or modified only by written agreement by U.S. Bank and Flow
We are pleased to extend this commitment to Flow and we look forward
to continuing our relationship.
"ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW."
U.S. BANK OF WASHINGTON
MARK TSUTAKAWA
- -----------------------
Mark Tsutakawa
Vice President
MET/lkh
Accepted by:
FLOW INTERNATIONAL CORPORATION
\s\ Ronald W. Tarrant Chairman, President & CEO 13 July 1995
- ----------------------------------------------- ------------
Title Date
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF
FLOW INTERNATIONAL CORPORATION
<TABLE>
<CAPTION>
State or other Jurisdiction of
Subsidiary Incorporation or Organization
---------- ------------------------------
<S> <C>
Rampart Waterblast, Inc. Florida
Spider Staging Corporation Washington
Spider Staging Corporation British Columbia
Flow International Sales Corporation Guam
Flow Europe, GmbH Germany
Flow Asia Corporation Taiwan
Flow Holdings, N.V. Belgium
Power Climber, N.V. Belgium
Power Climber, Inc. California
Astro Hoist, Inc. California
Scaffold Climber, Inc. California
Suspended Scaffold Systems, Inc. California
Power Operated Staging, Inc. California
Flow Japan Japan
CEM-FLOW France
Dynovation, Inc. Ontario
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-57100) and
in the Registration Statement on Form S-8 (No. 33-40397 and No. 33-44776) of
Flow International Corporation of our report dated July 6, 1995, appearing on
page 19 of this Form 10-K.
/s/ Price Waterhouse LLP
- -------------------------
Seattle, Washington
July 25, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> APR-30-1995
<EXCHANGE-RATE> 1
<CASH> 1,074
<SECURITIES> 0
<RECEIVABLES> 32,788
<ALLOWANCES> 1,150
<INVENTORY> 27,219
<CURRENT-ASSETS> 65,985
<PP&E> 51,182
<DEPRECIATION> 26,649
<TOTAL-ASSETS> 105,484
<CURRENT-LIABILITIES> 21,393
<BONDS> 0
<COMMON> 146
0
0
<OTHER-SE> 49,657
<TOTAL-LIABILITY-AND-EQUITY> 105,984
<SALES> 84,800
<TOTAL-REVENUES> 110,010
<CGS> 48,454
<TOTAL-COSTS> 98,347
<OTHER-EXPENSES> (30)
<LOSS-PROVISION> 480
<INTEREST-EXPENSE> 2,374
<INCOME-PRETAX> 9,259
<INCOME-TAX> 1,531
<INCOME-CONTINUING> 7,728
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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