<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, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 0-12448
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 21, 1997:
14,722,205 shares
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FLOW INTERNATIONAL CORPORATION
INDEX
PAGE
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
July 31, 1997 and April 30, 1997. . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income -
Three Months Ended July 31, 1997 and 1996 . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended July 31, 1997 and 1996 . . . . . . . . . . . . . 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
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FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
JULY 31, APRIL 30,
1997 1997
--------- ---------
(unaudited)
ASSETS
Current Assets:
Cash $ 7,824 $ 2,479
Trade Accounts Receivable, less allowances
for doubtful accounts of $953 and
$1,008, respectively 42,940 40,050
Inventories 41,882 38,471
Deferred Income Taxes 4,758 4,758
Other Current Assets 4,338 4,959
--------- ---------
Total Current Assets 101,742 90,717
Property and Equipment, net 27,774 25,594
Intangible Assets, net of accumulated
amortization of $4,682 and $4,441, respectively 14,033 11,471
Deferred Income Taxes 515 515
Other Assets 3,091 5,169
--------- ---------
$ 147,155 $ 133,466
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 1,843 $ 1,651
Current Portion of Long-Term Obligations 2,985 79
Accounts Payable 12,027 11,619
Accrued Payroll and Related Liabilities 4,324 4,564
Other Accrued Taxes 985 1,139
Other Accrued Liabilities 6,116 3,539
--------- ---------
Total Current Liabilities 28,280 22,591
Long-Term Obligations 61,640 53,569
Minority Interest 518 553
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
15,091,611 and 14,710,794 shares issued
and outstanding, respectively, at
July 31, 1997 14,925,627 and 14,544,810
shares issued and outstanding,
respectively, at April 30, 1997 151 149
Capital in Excess of Par 39,012 38,871
Retained Earnings 21,508 19,266
Treasury Common Stock of 380,817 shares at cost (1,429) (1,429)
Cumulative Translation Adjustment (2,184) 101
Unrealized Loss on Equity Securities
Available For Sale (341) (205)
--------- ---------
Total Stockholders' Equity 56,717 56,753
--------- ---------
$ 147,155 $ 133,466
--------- ---------
--------- ---------
See Accompanying Notes to Condensed
Consolidated Financial Statements
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FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED
JULY 31,
-----------------------
1997 1996
Revenue:
Sales $ 37,446 $ 32,353
Services 6,423 5,236
Rentals 3,645 3,340
--------- ---------
Total Revenues 47,514 40,929
Cost of Sales:
Sales 22,468 19,244
Services 5,887 3,808
Rentals 1,099 1,604
--------- ---------
Total Cost of Sales 29,454 24,656
--------- ---------
Gross Profit 18,060 16,273
Expenses:
Marketing 6,895 6,232
Research and Engineering 2,500 2,167
General and Administrative 4,160 4,102
--------- ---------
13,555 12,501
--------- ---------
Operating Income 4,505 3,772
Interest and Other Expense, net (1,055) (629)
--------- ---------
Income Before Provision for Income Taxes 3,450 3,143
Provision for Income Taxes 1,208 911
--------- ---------
Net Income $ 2,242 $ 2,232
--------- ---------
--------- ---------
Earnings Per Common and Equivalent Shares $ .15 $ .15
--------- ---------
--------- ---------
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,
----------------------
1997 1996
Cash Flows from Operating Activities:
Net Income $ 2,242 $ 2,232
Adjustments to Reconcile Net Income to Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization 1,186 1,949
Other 23
Increase in assets (2,434) (2,508)
Increase in liabilities 1,475 1,667
--------- ---------
Cash provided by operating activities 2,469 3,363
--------- ---------
Cash Flows from Investing Activities:
Expenditures for property and equipment (2,922) (2,023)
Payment for business combination, net of
cash acquired (2,528)
Other 135 (19)
--------- ---------
Cash used by investing activities (5,315) (2,042)
--------- ---------
Cash Flows from Financing Activities:
Borrowings (repayments) under line
of credit agreements, net 10,345 (1,785)
Payments of long-term debt (12) (38)
Proceeds from issuance of common stock 143 262
--------- ---------
Cash provided (used) by financing activities 10,476 (1,561)
--------- ---------
Effect of exchange rate changes (2,285) (332)
--------- ---------
Increase (decrease) in cash and cash equivalents 5,345 (572)
Cash and cash equivalents at beginning of period 2,479 3,845
--------- ---------
Cash and cash equivalents at end of period $ 7,824 $ 3,273
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Fair value of assets acquired $4,735
Cash paid and stock issued for assets acquired (2,818)
---------
Liabilities assumed $1,917
See Accompanying Notes to Condensed
Consolidated Financial Statements
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<PAGE>
FLOW INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended July 31, 1997
(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, 1997
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, 1997 and 1996
were 15,198,000 and 15,025,000, respectively. Fully diluted earnings per
share do not differ materially from primary earnings per share.
Statement of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings
Per Share" will be adopted at the end of fiscal 1998. Applying the
provisions of FAS 128, the proforma basic earnings per share and the
proforma diluted earnings per share would not differ from the amounts
reported in the accompanying Consolidated Statements of Income.
3. Inventories consist of the following:
(in thousands)
JULY 31, 1997 APRIL 30, 1997
------------ --------------
Raw Materials and Parts $25,062 $23,896
Work in Process 8,345 5,872
Finished Goods 8,475 8,703
--------- ---------
$41,882 $38,471
--------- ---------
4. In May 1997 the Company purchased the stock of Foracon Maschinen
Anlangenbau ("Foracon") for $2.3 million and 33,655 shares of Flow common
stock. The acquisition further increases the Company's strength in the
European market. An additional 97,601 shares of Flow common stock will be
paid as consideration if Foracon achieves certain financial targets.
Foracon supplies ultrahigh-pressure and related systems to the German
market.
5. In September 1997 the Company signed a definitive agreement to sell its
Access and Services businesses. The transaction is expected to close at
the end of September. The agreement provides for purchase of substantially
all the assets of the Access and Services businesses. In fiscal 1997 the
Company recorded a $9 million restructuring provision related to the
planned divestiture. Management has reviewed the allowance and is of the
opinion the provision as recorded is adequate.
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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, 1997 AND 1996
Total revenues for the three months ended July 31, 1997 were $47.5 million,
representing an increase of $6.6 million (16%) over the comparable prior year
period. Total product sales increased $5.1 million (16%) versus the prior year
quarter. Product sales from the Company's ultrahigh-pressure ("UHP") and
Automation business increased $4.7 million (18%). Included in this increase was
a 23% increase in system sales and a 12% increase in spare parts sales. The
current year includes the results of Foracon Maschinen Anlagenbau ("Foracon")
which was acquired in May 1997 to increase the Companys capacity as well as
strengthen the Company's market position in Europe. Excluding the effect of
Foracon, UHP revenues increased $3.3 million (13%). This $3.3 million increase
includes the negative effect of the stronger dollar versus the deutschemark, an
approximate $1 million reduction in revenues in the current year. All primary
UHP and Automation sales territories experienced revenue gains with North
America, Asia and Europe increasing 11%, 45% and 27%, respectively. Access
product sales increased $392,000 (6%) as compared to the prior year. Service
revenues of $6.4 million represent a $1.2 million increase (23%) over last year
and rental revenues increased $305,000 (9%).
Gross profit as a percentage of revenues (gross margin rate) was 38% for
the quarter as compared to 40% in the prior year. The gross margin rate on the
core UHP and Automation business remained at 42% for both the current and prior
year quarter. The change in consolidated gross margin is attributable to the
Services division which experienced higher than anticipated costs on several
projects. 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.
Operating expenses of $13.6 million for the quarter ended July 31, 1997
were 29% of revenues as compared to 31% in the prior year. This decrease
primarily results from general and administrative expenses which were flat
quarter over quarter.
Interest and other expense, net, of $1.1 million represents an increase of
$426,000 (68%) over the prior year. Interest expense increased $300,000
reflecting increased borrowings. The remaining difference relates primarily to
minority interest in net losses of the joint ventures.
Based upon the expected tax position of the Company for fiscal 1998, taxes
have been provided for at 35% versus 29% in the prior 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.
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<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The weighted average number of shares outstanding for the quarter increased
to 15,198,000 from 15,025,000 in the prior year. The increase relates primarily
to stock consideration associated with the Foracon acquisition.
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, 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $2.5 million in cash from operations during the three
months ended July 31, 1997 as compared to $3.4 million in the prior year. Total
debt at July 31, 1997 was $66.5 million, up $11.2 million from April 30, 1997,
while cash increased $5.3 million. The increase in debt was attributable to the
purchase of Foracon, timing of cash receipts and paydown of debt, and the
negative effect of several Services projects. Subsequent to quarter end the
Company signed a definitive agreement to sell the Access and Services business.
The cash proceeds will be used to paydown existing debt. In conjunction with
this sale, the Company anticipates re-negotiating its current credit facilities
to more properly reflect the anticipated credit needs in the future. 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,
1997, the Company was in compliance with all such covenants.
Gross trade receivables at July 31, 1997 increased $2.8 million (7%), from
April 30, 1997. This is a function of an increase in sales, the acquisition of
Foracon receivables, as well as a shift in the mix towards large system sales.
Days sales in gross accounts receivable can be negatively impacted by the
traditionally longer payment cycle outside the United States as well as that
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.
Inventories at July 31, 1997 increased $3.4 million (9%), from April 30,
1997. This increase is in large part work in process and represents products
manufactured by Flow Robotics and Flow Automation which can require an extended
manufacturing period, as well as the acquisition of Foracon inventory.
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 1997 FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION.
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<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
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<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 11, 1997 /s/ Ronald W. Tarrant
---------------------
Ronald W. Tarrant
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: September 11, 1997 /s/ Stephen D. Reichenbach
---------------------
Stephen D. Reichenbach
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JUL-31-1997
<CASH> 7824
<SECURITIES> 0
<RECEIVABLES> 43,893
<ALLOWANCES> 953
<INVENTORY> 41,882
<CURRENT-ASSETS> 101,742
<PP&E> 62,767
<DEPRECIATION> 34,993
<TOTAL-ASSETS> 147,155
<CURRENT-LIABILITIES> 28,280
<BONDS> 0
0
0
<COMMON> 151
<OTHER-SE> 56,566
<TOTAL-LIABILITY-AND-EQUITY> 147,155
<SALES> 37,446
<TOTAL-REVENUES> 47,514
<CGS> 22,468
<TOTAL-COSTS> 43,009
<OTHER-EXPENSES> (78)
<LOSS-PROVISION> (55)
<INTEREST-EXPENSE> 1,133
<INCOME-PRETAX> 3,450
<INCOME-TAX> 1,208
<INCOME-CONTINUING> 2,242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,242
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
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