<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
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
DELAWARE 91-1104842
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
23500 - 64TH AVENUE SOUTH
KENT, WASHINGTON 98032
(206) 850-3500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
----- -----
The number of shares outstanding of common stock, as of August 30, 1996:
14,586,969 shares.
<PAGE>
FLOW INTERNATIONAL CORPORATION
INDEX
Page
----
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
July 31, 1996 and April 30, 1996............................... 3
Condensed Consolidated Statements of Income -
Three Months Ended July 31, 1996 and 1995...................... 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended July 31, 1996 and 1995...................... 5
Notes to Condensed Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 7
Part II - OTHER INFORMATION
Item 1. Legal Proceedings............................................ 9
Item 2. Changes in Securities........................................ 9
Item 3. Defaults Upon Senior Securities.............................. 9
Item 4. Submission of Matters to a Vote
of Security Holders.......................................... 9
Item 5. Other Information............................................ 9
Item 6. Exhibits and Reports on Form 8-K............................. 9
Signatures................................................................10
-2-
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
July 31, April 30,
1996 1996
--------- ---------
(unaudited)
<S> <C> <C>
ASSETS
------
Current Assets:
Cash $ 3,273 $ 3,845
Trade Accounts Receivable, less allowances for
doubtful accounts of $1,373 and $1,186, respectively 36,464 35,467
Inventories 36,261 34,589
Deferred Income Taxes 1,965 1,965
Other Current Assets 4,574 4,978
--------- ---------
Total Current Assets 82,537 80,844
Property and Equipment, net 27,533 27,083
Intangible Assets, net of accumulated
amortization of $3,651 and $3,294, respectively 13,544 13,901
Deferred Income Taxes 712 699
Other Assets 4,196 3,966
--------- ---------
$ 128,522 $ 126,493
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Notes Payable $ 2,130 $ 2,304
Current Portion of Long-Term Obligations 926 1,035
Accounts Payable 12,334 12,088
Accrued Payroll and Related Liabilities 4,446 3,942
Other Accrued Taxes 858 590
Other Accrued Liabilities 3,778 3,019
--------- ---------
Total Current Liabilities 24,472 22,978
Long-Term Obligations 44,050 45,590
Minority Interest 755 865
Shareholders' 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
14,857,297 and 14,580,894 shares issued and outstanding,
respectively, at July 31, 1996
14,784,647 and 14,508,244 shares issued and outstanding,
respectively, at April 30, 1996 149 148
Capital in Excess of Par 38,299 38,038
Retained Earnings 20,773 18,541
Treasury Common Stock of 276,403 shares at cost (556) (556)
Cumulative Translation Adjustment 649 981
Loan to Employee Stock Ownership Plan & Trust (69) (92)
--------- ---------
Total Stockholders' Equity 59,245 57,060
--------- ---------
$ 128,522 $ 126,493
--------- ---------
--------- ---------
</TABLE>
See Accompanying Notes to Condensed
Consolidated Financial Statements
-3-
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended
July 31,
-----------------------
1996 1995
Revenue:
Sales $32,353 $24,900
Services 5,236 5,341
Rentals 3,340 2,772
-------- --------
Total Revenues 40,929 33,013
Cost of Sales:
Sales 19,244 14,063
Services 3,808 3,788
Rentals 1,604 1,257
-------- --------
Total Cost of Sales 24,656 19,108
-------- --------
Gross Profit 16,273 13,905
Expenses:
Marketing 6,232 5,254
Research and Engineering 2,167 1,824
General and Administrative 4,102 3,668
-------- --------
12,501 10,746
-------- --------
Operating Income 3,772 3,159
Interest and Other Expense, net (629) (501)
-------- --------
Income Before Provision for Income Taxes 3,143 2,658
Provision for Income Taxes 911 598
-------- --------
Net Income $ 2,232 $ 2,060
-------- --------
-------- --------
Earnings Per Common and Equivalent Shares $ .15 $ .14
-------- --------
-------- --------
See Accompanying Notes to Condensed
Consolidated Financial Statements
-4-
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
July 31,
-------------------
1996 1995
Cash Flows from Operating Activities:
Net Income $ 2,232 $ 2,060
Adjustments to Reconcile Net Income to Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization 1,949 1,721
Other 23 23
Increase in assets (2,508) (3,213)
Increase (decrease) in liabilities 1,667 (1,562)
-------- --------
Cash provided (used) by operating activities 3,363 (971)
-------- --------
Cash Flows from Investing Activities:
Expenditures for property and equipment (2,023) (2,002)
Payment for business combination, net of cash acquired (186)
Other (19) 129
-------- --------
Cash used by investing activities (2,042) (2,059)
-------- --------
Cash Flows from Financing Activities:
Borrowings (repayments) under line of
credit agreements, net (1,785) 4,992
Payments of long-term debt (38) (1,004)
Proceeds from issuance of common stock 262 70
-------- --------
Cash provided (used) by financing activities (1,561) 4,058
-------- --------
Effect of exchange rate changes on cash (332) (193)
-------- --------
Increase (decrease) in cash and cash equivalents (572) 835
Cash and cash equivalents at beginning of period 3,845 1,074
-------- --------
Cash and cash equivalents at end of period $ 3,273 $ 1,909
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Fair value of assets acquired $ 2,860
Cash paid for assets acquired (597)
--------
Liabilities assumed $ 2,263
--------
--------
See Accompanying Notes to Condensed
Consolidated Financial Statements
-5-
<PAGE>
FLOW INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended July 31, 1996
(unaudited)
1. In the opinion of the management of Flow International Corporation (the
"Company"), the accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position, statements of
income, and cash flows for the interim periods presented. These interim
financial statements should be read in conjunction with the April 30, 1996
consolidated financial statements.
2. Primary earnings per common share is computed by dividing net income
available to common stockholders by the weighted average number of shares
outstanding plus the equivalent shares attributable to dilutive stock
options during each period.
The weighted average number of shares outstanding, including equivalent
shares where required, for the three months ended July 31, 1996 and 1995
were 15,025,000 and 15,002,000, respectively. Fully diluted earnings per
share do not differ materially from primary earnings per share.
3. Inventories consist of the following:
(in thousands)
July 31, 1996 April 30, 1996
------------- --------------
Raw Materials and Parts $21,321 $20,982
Work in Process 7,548 6,339
Finished Goods 7,392 7,268
------- -------
$36,261 $34,589
------- -------
------- -------
-6-
<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 31, 1996 AND 1995
Total revenues for the three months ended July 31, 1996 were $40.9 million,
representing an increase of $7.9 million (24%) over the comparable period in the
prior year. The increase in sales revenues of $7.5 million (30%) to $32.4
million came primarily from growth in the ultra-high pressure ("UHP") business.
Waterjet system sales increased 49% over the prior year. Spare parts also
recorded double digit growth and the increase in system sales lays the
foundation for further growth of the spares business. Strength in the UHP
market was demonstrated in North America where sales increased 50% and in Europe
which posted a 29% growth over the prior year. Access related revenues grew 13%
as compared to the prior year. Service revenues decreased slightly over the
prior year while rental revenues increased 20%.
Gross profit as a percentage of revenues (gross margin rate) was 40% for
the quarter as compared to 42% in the prior year. Comparison of gross margin
rates is dependent on the mix of revenue types, which includes sales, services,
and rentals; and the mix of spare parts and systems in sales revenues. Robotic
systems typically carry lower gross margin rates than the Company's pump, spare
parts, and access systems businesses. The decrease in gross margin rate for the
quarter was primarily due to a shift in mix towards total system sales.
Operating expenses of $12.5 million for the quarter ended July 31, 1996
were 31% of revenues as compared to 33% in the prior year. This decrease is
reflective of the efforts of management to control costs and will remain a focus
of management as the Company grows.
Interest and other expense, net, of $629,000 represents an increase of
$128,000 (26%) over the prior year. This difference relates primarily to
foreign exchange gains recorded in the previous year.
The income tax rate was lower than the statutory rate in both the current
and prior year due primarily to lower foreign tax rates, benefits from the
foreign sales corporation, and an ongoing review of the Company's FAS 109
valuation allowance. Based upon the expected tax position of the Company for
fiscal 1997, taxes have been provided for at 29% versus 22% in the prior year.
As a result of the above, the Company recorded net income of $2.2 million,
or 15 cents per share for the three months ended July 31, 1996, compared to $2.1
million, or 14 cents per share for the same period last year.
-7-
<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $3.4 million in cash from operations during the three
months ended July 31, 1996. For the like period in the prior year, the Company
used $1 million in its operating activities. Total debt at July 31, 1996 was
$47.1 million, down $1.8 million from April 30, 1996. The Company believes that
the available credit facilities and working capital generated by operations,
will provide sufficient resources to meet its operating and capital
requirements. The Company's Credit Agreement and Private Placement require the
Company to comply with certain financial covenants. As of July 31, 1996, the
Company was in compliance with all such covenants.
Gross trade receivables at July 31, 1996 increased $1.2 million (3%), from
April 30, 1995. This is a function of an increase in sales as well as a change
in the mix towards large system sales. Longer payment terms are sometimes
negotiated on large system orders. Days sales in gross accounts receivable can
be negatively impacted by the traditionally longer payment cycle outside the
United States. The Company's management does not believe these timing issues
will present a material adverse impact on the Company's short-term liquidity
requirements.
Inventories at July 31, 1996 increased $1.7 million (5%), from April 30,
1996. This increase is primarily in work in process and represents products
manufactured by ASI and Dynovation which can require an extended manufacturing
period.
SAFE HARBOR STATEMENT:
STATEMENTS IN THIS REPORT THAT ARE NOT STRICTLY HISTORICAL ARE "FORWARD-LOOKING"
STATEMENTS WHICH SHOULD BE CONSIDERED AS SUBJECT TO THE MANY UNCERTAINTIES THAT
EXIST IN THE COMPANY'S OPERATIONS AND BUSINESS ENVIRONMENT. THESE
UNCERTAINTIES, WHICH INCLUDE ECONOMIC AND CURRENCY CONDITIONS, MARKET DEMAND AND
PRICING, COMPETITIVE AND COST FACTORS, AND THE LIKE, ARE SET FORTH IN THE FLOW
INTERNATIONAL CORPORATION FORM 10-K REPORT FOR 1996 FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION.
-8-
<PAGE>
FLOW INTERNATIONAL CORPORATION
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is party to various legal actions incident to the normal
operations of its business, none of which is believed to be material to the
financial condition of the Company.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
-9-
<PAGE>
FLOW INTERNATIONAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLOW INTERNATIONAL CORPORATION
Date: September 5, 1996 /s/ Ronald W. Tarrant
----------------------------------
Ronald W. Tarrant
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: September 5, 1996 /s/ Stephen D. Reichenbach
----------------------------------
Stephen D. Reichenbach
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer and Principal Accounting
Officer)
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 3,273
<SECURITIES> 0
<RECEIVABLES> 37,837
<ALLOWANCES> 1,373
<INVENTORY> 36,261
<CURRENT-ASSETS> 82,537
<PP&E> 60,492
<DEPRECIATION> 32,959
<TOTAL-ASSETS> 128,522
<CURRENT-LIABILITIES> 24,472
<BONDS> 0
0
0
<COMMON> 149
<OTHER-SE> 59,096
<TOTAL-LIABILITY-AND-EQUITY> 128,522
<SALES> 32,353
<TOTAL-REVENUES> 40,929
<CGS> 19,249
<TOTAL-COSTS> 37,157
<OTHER-EXPENSES> (204)
<LOSS-PROVISION> 187
<INTEREST-EXPENSE> 833
<INCOME-PRETAX> 3,143
<INCOME-TAX> 911
<INCOME-CONTINUING> 2,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,232
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
