<PAGE>
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, 1998
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
(253) 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. [ ]
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 June 23,
1998, was $169,000,000. The number of shares of common stock outstanding as
of June 23, 1998, was 15,061,354 shares.
<PAGE>
- ------------------------------------------------------------------------------
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>
PART I
ITEM 1. BUSINESS
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Flow International Corporation ("Flow" or the "Company") designs,
develops, manufactures, markets, and services ultrahigh-pressure ("UHP")
waterjet cutting and cleaning systems, and specialized robotics systems. Flow
provides technologically-advanced, environmentally-sound solutions to the
manufacturing, industrial and marine cleaning markets. The Company's waterjet
systems pressurize water from 30,000 to 100,000 pounds per square inch (psi)
and are used to cut both metallic and nonmetallic materials in many industry
segments, including the aerospace, automotive, disposable products, food,
glass, job shop, sign, metal cutting, marble, tile and other stone cutting,
and paper industries. The Company also manufactures the robotic articulation
equipment used in the cutting and cleaning processes which may also include
assembly, 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 and oil field applications.
In addition to UHP cutting and cleaning, the Company has begun to apply
UHP technology to pumpable foods. By exposing foods to pressures from 50,000
psi to 100,000 psi for a short time, typically 30 seconds to slightly more
than 2 minutes, UHP achieves the effects of pasteurization without heat. Not
only are spoilage microorganisms destroyed, the process also destroys harmful
pathogens such as E. coli bacteria, thus increasing shelf life while
maintaining all of the product's fresh taste and health qualities. Unlike
thermal treatment (pasteurization), UHP technology does not destroy or alter
the nutritional qualities, taste, texture and color of the food. Flow's
technology features a `continuous process' concept whereby pumpable foods
such as juice, salsas, guacamole, coffee extracts, liquid eggs and salad
dressings are pumped into the pressure chambers, pressurized and then pumped
into the next stage of the process.
The Company was formed in 1974, incorporated in 1980, and completed its
initial public offering in March 1983. In 1991, the Company's founder
retired, and Ronald W. Tarrant was appointed President and Chief Executive
Officer. Since 1991, the Company has grown as a result of continued new
product development, expanded marketing strategies, and certain strategic
acquisitions.
On December 15, 1994, the Company purchased certain net assets of
Dynovation Machine Systems, Inc. ("Flow Automation"). Flow Automation designs
and manufactures robotic waterjet cutting cells and automated assembly
systems for the automotive and other industries, as well as a line of
proprietary vibratory feeder bowls for these industries.
On January 3, 1995, the Company purchased certain net assets of ASI
Robotics Systems ("Flow Robotics"). Flow Robotics designs and manufactures
high accuracy gantry-type robots and related systems used in waterjet and
factory automation applications. This manufacturing facility supplies product
to the aerospace, automotive, job shop, marble and tile and other industries.
<PAGE>
In May 1995, the Company invested in a 51% majority interest in a joint
venture with Okura & Co., Ltd., its exclusive Japanese distributor. This
joint venture supplies UHP products in Japan and to Japanese companies in
Asia. During March 1998 the Company increased its ownership interest in Flow
Japan to 95%.
In May 1997 the Company purchased the stock of Foracon Maschinen und
Anlagenbau GmbH & CO.KG ("Foracon"). Foracon supplies ultrahigh-pressure and
related systems to the European market and further increases the Company's
strength in that market.
In September 1997 the Company re-focused on its core ultrahigh-pressure
technology and divested itself of its Access and Services business. The
Access business was comprised of Spider Staging Corporation ("Spider"), Power
Climber and affiliated companies, the Ark Systems division and Consortium
Europeen du Materiel ("CEM"). These companies were purchased at various times
between fiscal 1993 and fiscal 1995. The Services business represented the
HydroMilling and HydroCleaning operations. The Company recorded a $4.9
million restructuring charge during fiscal 1998 and $9 million restructuring
charge in fiscal 1997 associated with the divestiture of these operations.
In April 1998 the Company purchased certain net assets of CIS Robotics
Inc. ("CIS") and acquired the stock of Robot Simulations Limited ("RSL") of
the U.K. CIS provides robot programming services, primarily to the automotive
industry, while RSL markets a PC software program for control systems and
off-line programming of pedestal robots.
<PAGE>
PRODUCTS AND SERVICES
The Company provides UHP waterjets and related products and services to
a wide variety of industries. The Company divides its UHP revenues into two
primary categories of product, `UHP Waterjet Systems' and `UHP Consumable
Parts and Services':
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
Revenue % Revenue % Revenue %
-------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C>
UHP Waterjet Systems $ 94,728 66 $ 71,658 64 $56,495 61
UHP Consumable Parts and Services 47,904 34 40,774 36 36,076 39
-------- --- -------- --- -------- ---
Total UHP Revenue $142,632 100 $112,432 100 $92,571 100
</TABLE>
In addition to UHP revenue, the Company's consolidated revenues also
include the divested Access and Services business revenues as represented by
`Access Systems and Services' and `HydroMilling-Registered Trademark- and
HydroCleaning-TM- Services'. These two operations were sold during the second
quarter of fiscal 1998, and the reported results reflect only three months of
operations in fiscal 1998:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
Revenue % Revenue % Revenue %
-------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Total UHP Revenues $142,632 90 $112,432 67 $ 92,571 64
Access Systems and Services 11,480 7 40,978 24 38,857 27
HydroMilling-Resgistered Trademark-
and HydroCleaning-TM- Services 5,370 3 14,783 9 13,477 9
-------- --- -------- --- -------- ---
Total Consolidated Revenues $159,482 100 $168,193 100 $144,905 100
</TABLE>
UHP WATERJET SYSTEMS, CONSUMABLE PARTS AND SERVICES
The Company offers a variety of UHP waterjet equipment system products
and accessories, including robotic articulation equipment. UHP pumps,
intensifier and direct-drive, are currently the core components of the
Company's product line. An intensifier pump pressurizes water up to 100,000
psi and forces it through a small nozzle, generating a high-velocity stream
of water. The Company's unique direct-drive pressure-compensated pumps
pressurize water to in excess of 55,000 psi utilizing triplex piston
technology. In order to cut metallic and other hard materials, abrasive is
added to the waterjet stream creating an abrasivejet. The Company's
abrasivejet cuts with no heat, causes no metallurgical changes, and leaves a
high-quality edge that usually requires no secondary operation.
<PAGE>
A UHP waterjet system consists of an ultrahigh-pressure intensifier or
direct drive pump, one or more waterjet cutting or cleaning heads with the
necessary robotics, motion control and automation systems. The Company has
placed UHP waterjet cutting systems worldwide and in many different
industries, including the aerospace, automotive, disposable products, food,
glass, job shop, sign, metal cutting, marble, tile and other stone cutting
and paper industries. The Company's UHP waterjet systems are also used in
industrial cleaning applications such as paint removal, surface preparation,
factory and industrial cleaning, ship hull preparation, oil field services
and heat exchanger cleaning. Additionally, the Company manufactures systems
which combine waterjet applications with other processes such as pick and
place operations, inspection, assembly, and other automated processes. Sales
of UHP waterjet systems accounted for 66% of fiscal 1998 UHP revenues.
Flow sells various tools and accessories which incorporate waterjet
technology, as well as aftermarket consumable parts and service for its
products. Many of these parts are proprietary in nature. Sales of UHP
consumable parts and service accounted for 34% of fiscal 1998 UHP revenues.
Total UHP sales represented 90% of total consolidated revenues in fiscal 1998.
While the Company is generally associated with providing capital goods
equipment, historical performance does not indicate the Company follows
capital spending cycles. The Company has generated double digit revenue
growth even in weak capital goods markets as the Company's products are
considered productivity enhancing tools which are easily cost justified.
Additionally, consumable parts sales represent a base level of business that
is not significantly affected by the capital goods sales cycle.
ACCESS SYSTEMS AND SERVICES
Prior to the divestiture of its Access business in September 1997, the
Company designed, manufactured, rented, sold, and serviced powered access
systems for use in industrial, structural and facade maintenance and
construction applications. In fiscal 1998, sales, rental and service of
access systems amounted to 7% of total consolidated revenues.
HYDROMILLING AND HYDROCLEANING SERVICES
Prior to the divestiture of its Services business in September 1997, the
Company provided HydroMilling services on a contract and subcontract basis
for the removal of deteriorated concrete from bridges and parking garage
surfaces. Flow's Rampart subsidiary provided HydroCleaning services to
commercial and military airfields. Ultrahigh-pressure waterjets were used for
the removal of rubber, paint and grout from airport runways. In fiscal 1998,
HydroMilling and HydroCleaning revenues were 3% of total revenues.
<PAGE>
MARKETING AND SALES
The Company markets and sells its UHP products worldwide through its
headquarters in Kent, Washington (a suburb of Seattle) and through
subsidiaries, divisions and joint ventures in Birmingham, England; Bretton
and Darmstadt, Germany; Burlington and Windsor, Canada; Detroit, Michigan;
Hsinchu, Taiwan; Jeffersonville, Indiana; Lafayette, Louisiana and Nagoya and
Tokyo, Japan. The Company sells directly to customers in North America,
Europe, and Asia, and has distributors or agents in most other countries. In
the U.S., the Company uses a select group of machine tool distributors for
sales, distribution and services of its Bengal product line.
No customer accounted for 10% or more of the Company's revenues during
any of the three years ended April 30, 1998.
Marketing efforts are focused on various target industries,
applications, and markets. To enhance the effectiveness of sales efforts, the
marketing staff and sales force acquire detailed information on the
manufacturing applications and requirements in targeted market segments. This
information is used to develop standardized and customized solutions using
UHP waterjet and robotics technologies. 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 in
our target markets. The Company also attends trade shows for targeted market
segments and advertises in selected industry publications.
PATENTS AND LICENSES
The Company holds a large number of patents relating to UHP waterjet
technology and systems. Some of these patents are subject to sub-licenses. In
addition, the Company has been granted licenses with respect to other patents
used in the business.
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, which sets it technologically ahead.
The Company believes the patents it holds and has in process, along with
the proprietary application and manufacturing know-how, act as a barrier of
entry into the markets it serves.
<PAGE>
BACKLOG
At April 30, 1998, the Company's UHP backlog was $18.5 million,
essentially flat with the prior year end backlog of $18.3 million. The nature
of the Company's business is that most products can be shipped within a four
to eight week period and thus backlog and the changes in the Company's
backlog are not necessarily indicative of comparable variations in sales or
earnings. The April 30, 1998 backlog represented 13% of fiscal 1998 sales.
Based upon the terms of the customer contracts and the Company's
manufacturing schedule, all of the revenue backlog as of April 30, 1998 is
expected to be realized during fiscal 1999. The unit sales price for most of
the Company's products and services is relatively high (typically ranging
from tens of thousands to millions of 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.
COMPETITION
The major competitors for UHP waterjet systems are conventional cutting
and cleaning methods. These methods are saws, knives, shears, torches,
lasers, abrasive wheels, grinders, routers, drills, dies, and abrasive
cleaning techniques. A UHP waterjet cutting system has many advantages over
conventional cutting systems, including no generation of heat or 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 most circumstances, enhance manufacturing productivity.
Waterjet cleaning offers many advantages over other cleaning methods, such as
the ability to remove difficult 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 hazardous
material containment or reduction of secondary operations in the production
process. The many advantages of a waterjet over traditional cutting and
cleaning methods have positioned it in the market as a productivity enhancing
tool.
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 Company's
robotics acquisitions give Flow a competitive advantage as the only total
solution supplier of complete waterjet cutting systems. 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.
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 and sales approach, (3) an
active research and development program that allows it to maintain technical
leadership, (4) the ability to provide complete turnkey systems, (5) a strong
position in key markets, such as the U.S., Canada, Japan, southeast Asia and
Europe, (6) strong OEM customer ties, and (7) efficient production facilities.
<PAGE>
RESEARCH AND ENGINEERING
The Company has allocated an amount, between 5% and 7% of revenues to
research and engineering during each of the three years ended April 30, 1998.
Research and engineering expenses were approximately $10,253,000, $8,749,000,
and $8,110,000 in fiscal years 1998, 1997, and 1996, respectively.
EMPLOYEES
As of April 30, 1998, the Company employed 813 full time and 7 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.
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. Significant factors which may affect future Company performance
include the following:
The Company's growth depends, in part, on the successful development of
improvements to its equipment and on the introduction of new products and
technologies. Improvements in competing technologies could affect the
Company's ability to market its products.
The Company's financial performance could fall short of its goals if a
change in overall economic conditions results in a decrease in the purchase
of capital goods by its customers. Changes in the mix of products sold by the
Company can also affect the gross margin achieved.
The Company's performance may also be affected by factors related to the
recent divestiture of its Access and Services businesses.
The success of the Company's most recently announced technology,
"Fresher Under Pressure" will be dependent on consumer acceptance of the
technology as well as the Company's ability to conform the technology to any
food and beverage regulations.
<PAGE>
ITEM 2. PROPERTIES
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The Company's headquarters and primary manufacturing facilities are
located in one leased facility in Kent, Washington. The Company also
manufactures product in Bretton and Darmstadt, Germany; Burlington, Canada;
Hsinchu, Taiwan and Jeffersonville, Indiana. The Company sells product
through all of these locations in addition to offices located in Birmingham,
England; Detroit, Michigan; Nagoya and Tokyo, Japan and Windsor, Canada.
All facilities of the Company are leased with the exception of a
manufacturing facility in Jeffersonville, Indiana.
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
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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.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------------------------
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
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See page 13
ITEM 6. SELECTED FINANCIAL DATA.
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See page 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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See pages 14 through 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- -------------------------------------------------------------------------------
See pages 25 through 49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
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None.
<PAGE>
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
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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 following table.
<TABLE>
<CAPTION>
Fiscal Year 1998 Fiscal Year 1997
High Low High Low
---------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $10.38 $7.88 $10.13 $6.50
Second Quarter 11.75 9.13 9.38 7.38
Third Quarter 11.25 9.13 10.00 7.38
Fourth Quarter 10.69 9.56 10.13 8.38
</TABLE>
There were 1,258 stockholders of record as of June 23, 1998.
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
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<TABLE>
<CAPTION>
(In thousands, except per share amounts) Year Ended April 30,
- -------------------------------------------------------------------------------------------------------------
1998* 1997* 1996 1995 1994
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue $159,482 $168,193 $144,905 $110,010 $88,632
Pretax Income 6,505 963 8,902 9,259 3,112
Net Income 4,803 725 7,085 7,728 2,953
Basic Earnings Per Share 0.33 0.05 0.49 0.55 0.21
Diluted Earnings Per Share 0.32 0.05 0.47 0.53 0.21
Balance Sheet Data:
Working Capital 59,863 68,126 57,866 44,592 25,415
Total Assets 121,181 133,466 126,493 105,484 78,228
Short-Term Debt 6,905 1,730 3,339 2,412 16,504
Long-Term Obligations 32,076 53,569 45,590 33,359 10,559
Stockholders' Equity 61,195 56,753 57,060 49,803 37,948
</TABLE>
* See Note 3 of the Consolidated Financial Statements which describes the
disposition of certain business units during fiscal 1998 as well as a
related restructuring provision in fiscal 1997.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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RESULTS OF OPERATIONS
The Company provides ultrahigh-pressure ("UHP") waterjets and related
products and services to a wide variety of industries. The Company divides its
UHP revenues into two primary categories of product, `UHP Waterjet Systems' and
`UHP Consumable Parts and Services'.
CONSOLIDATED REVENUES BY MAJOR PRODUCT CATEGORIES
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
Revenue % Revenue % Revenue %
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UHP Waterjet Systems $ 94,728 66 $ 71,658 64 $56,495 61
UHP Consumable Parts and Services 47,904 34 40,774 36 36,076 39
--------------------------------------------------------------
Total UHP Revenues $142,632 100 $112,432 100 $92,571 100
--------------------------------------------------------------
</TABLE>
In addition to UHP sales, the Company's consolidated revenues also include
the Access and Services businesses as represented by `Access Systems and
Services' and `HydroMilling(R) and HydroCleaning(TM) Services', respectively.
These non-core operations were sold during the second quarter of fiscal 1998:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
Revenue % Revenue % Revenue %
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total UHP Revenues $142,632 90 $112,432 67 $ 92,571 64
Access Systems and Services 11,480 7 40,978 24 38,857 27
HydroMilling(R)and
HydroCleaning Services 5,370 3 14,783 9 13,477 9
---------------------------------------------------------------
Total Consolidated Revenues $159,482 100 $168,193 100 $144,905 100
---------------------------------------------------------------
</TABLE>
FISCAL 1998 COMPARED TO FISCAL 1997
During the second quarter of fiscal 1998 the Company sold its non-core
Access and Services operations. Access was comprised of the following business
units: Spider Staging Corporation, Power Climber and affiliated companies, the
Ark Systems division and Consortium Europeen du Materiel. The HydroMilling
division and the HydroCleaning operations of Flow's subsidiary Rampart,
comprised Services. Fiscal 1998 results included these operations only during
the first quarter, while fiscal 1997 included these operations for the entire
year. The Access and Services business units accounted for approximately 10% and
33% of fiscal 1998 and 1997 revenues, respectively. The Company recorded a total
of $13.9 million in restructuring charges during fiscal 1998 and 1997 to write
down the Access and
<PAGE>
Services assets sold to net realizable value and provide for transaction
expenses and probable future obligations associated with the sale. These
charges are included as a separate component of operating expenses in the
accompanying Consolidated Statements of Income.
Given this significant disposition of operations during fiscal 1998, two
separate Results of Operations reviews have been provided. The "UHP RESULTS OF
OPERATIONS ANALYSIS" provides a review of the UHP operations for fiscal 1998 as
compared to 1997 and the "ACCESS AND SERVICES OPERATIONS ANALYSIS" is a review
of the results of operations for Access and Services for fiscal 1998 as compared
to 1997.
The following pro forma table separates the Company's consolidated income
statement into the ongoing operations (UHP) and the divested operations (Access
and Services). The Access and Services results include the restructuring
charges:
<TABLE>
<CAPTION>
(In thousands) Year Ended April 30, 1998 Year Ended April 30, 1997
----------------------------------------- ------------------------------------------
Access & Access &
UHP Services Consolidated UHP Services Consolidated
----------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 142,632 $ 16,850 $ 159,482 $ 112,432 $ 55,761 $ 168,193
Gross profit 58,958 5,247 64,205 46,635 19,516 66,151
Operating expenses 45,593 8,427 54,020 37,431 23,874 61,305
Operating income / (loss) 13,365 (3,180) 10,185 9,204 (4,358) 4,846
Interest / other exp., net (3,303) (377) (3,680) (2,918) (965) (3,883)
Pretax income / (loss) 10,062 (3,557) 6,505 6,286 (5,323) 963
</TABLE>
UHP RESULTS OF OPERATIONS ANALYSIS -
The following analysis presents a year over year comparison of the ongoing
UHP operations. The following pro forma table presents the results of operations
of the Company's UHP business only and excludes the divested business units:
<TABLE>
<CAPTION>
(In thousands) Year ended
April 30,
-------------------------
1998 1997
-------------------------
<S> <C> <C>
Revenue $ 142,632 $ 112,432
Gross profit 58,958 46,635
Operating expenses:
Marketing 21,952 18,924
Research & engineering 9,990 7,706
General & administrative 13,651 10,801
--------- ---------
Total operating expenses 45,593 37,431
--------- ---------
Operating income 13,365 9,204
Interest expense, net (2,886) (2,248)
Other expense, net (417) (670)
--------- ---------
Pretax income $ 10,062 $ 6,286
</TABLE>
<PAGE>
Total revenues for the year ended April 30, 1998 were $142.6 million, an
increase of $30.2 million (27%) over the prior year period. The Company's
revenues can be segregated into two primary categories, systems sales and
consumables sales. Systems are generally comprised of a pump along with the
robotics or articulation to move the cutting or cleaning head. Systems sales in
fiscal 1998 were $94.7 million, an increase of $23.1 million (32%) over the
prior year. This growth was driven by the continued increasing recognition that
waterjet cutting is a better alternative to traditional cutting methods. The
Company's standard systems: the Flying Bridge(TM), the Bengal and the A-series
represent the majority of the increase in systems sales. Consumables are
primarily parts used by the pump and cutting head during operation. Consumable
parts and services revenues increased $7.1 million (17%) to $47.9 million in
fiscal 1998. The consumable parts increase reflects the expanding base of
waterjet systems installed throughout the world. Revenues grew in all three
primary geographic markets, The Americas, Europe and Asia, with increases of
27%, 25% and 29%, respectively, over the prior year. The Company typically sells
its products at higher prices outside the United States due to the costs of
servicing these markets. The Company did not significantly raise prices during
fiscal 1998.
Gross profit expressed as a percentage of revenue (the gross margin rate)
was 41% in both fiscal 1998 and 1997. In general, gross margin rates on systems
sales are less than 40% and on consumables sales are in excess of 50%. As such,
the gross margin rate can vary depending on the revenue mix between systems and
consumables sales. Systems sales represented 66% of fiscal 1998 revenues, up
from 64% in the prior year and consumables sales represented 34% of fiscal 1998
revenues, down from 36% in the prior year. The gross margin rate remained
constant in fiscal 1998 with 1997 even with the continuing shift in revenue mix
towards systems versus consumables sales. This reflects, in part, the benefit of
lower costs on the standard product line as a result of increased production
levels.
Operating expenses of $45.6 million increased $8.2 million (22%) over the
prior year, however expressed as a percentage of revenues, operating expenses
decreased to 32% from 33% in fiscal 1997. Sales and marketing expense of $22
million increased $3 million (16%) as compared to the prior year; however,
expressed as a percentage of revenues, sales and marketing expense decreased to
15% from 17% in the prior year. This reduction reflected management's ability to
leverage marketing activities against a higher revenue base. Research and
engineering expense in fiscal 1998 increased $2.3 million (30%) to $10 million
as compared to fiscal 1997. This increased spending included continued
development of the "Fresher Under Pressure" technology as well as research in
other areas of the Company's products and applications. Management will continue
to aggressively pursue technological advances through increased research and
engineering spending. As a percent of revenues however, research and engineering
expenses were 7% in both fiscal 1998 and 1997. General & administrative expense
of $13.7 million increased $2.9 million (26%) for the year as compared to the
prior year. Over one half of this increase is attributable to the inclusion of
the fiscal 1998 acquisitions of Foracon and CIS. Expressed as a percent of
revenues, general and administrative expenses were comparable to the prior year.
<PAGE>
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. Management
continues to monitor the situation in Asia resulting from the recent
fluctuations in currency exchange rates against the U.S. dollar. Fiscal 1998
sales into Asia, including Japan totaled $19.2 million, approximately 14% of
revenues. While the Asian situation did not negatively impact the Company's
fiscal 1998 results, management anticipates percentage revenue growth in Asia
will be less in fiscal 1999 than in fiscal 1998. Besides the slower growth in
Asia, there are no known trends that management expects to result in a
materially unfavorable impact on revenues or income from operations.
Net interest expense of $2.9 million increased $638,000 (28%) in fiscal
1998 compared to 1997. This increase results from higher debt levels associated
with an increased level of production and capital additions as well as
borrowings related to the fiscal 1998 acquisitions. During fiscal 1998, other
expense, net, totaled $417,000 compared to other expense, net, of $670,000 in
1997.
Fiscal 1998 income tax expense for UHP operations was estimated to be 29%
of income before tax as compared to 25% in the previous year. The income tax
rates were lower than the statutory rates 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.
In fiscal 1998 the Company adopted Statement of Financial Accounting
Standards No. 128 ("FAS 128"), "Earnings per Share" which changed the Company's
presentation and calculation of earnings per share. Earnings per share for
fiscal 1997 have been restated to conform to the requirements of FAS 128. The
weighted average number of shares outstanding for the calculation of Basic and
Diluted earnings per share are 14,707,000 and 15,037,000, respectively, for
fiscal 1998 and 14,561,000 and 14,932,000, respectively, for fiscal 1997.
Utilizing the respective tax rates of 29% and 25%, the Company recorded
fiscal 1998 UHP net income of $7.1 million, or $.48 Basic and $.47 Diluted
earnings per share as compared to $4.7 million, or $.33 Basic and $.32 Diluted
earnings per share in fiscal 1997.
<PAGE>
ACCESS AND SERVICES OPERATIONS ANALYSIS -
The following pro forma table presents the results of operations of the
Access and Services business units, including the restructuring charges:
<TABLE>
<CAPTION>
(In thousands) Year ended
April 30,
-----------------------
1998 1997
-----------------------
<S> <C> <C>
Revenue $ 16,850 $ 55,761
Gross profit 5,247 19,516
Operating expenses 8,427 23,874
Operating loss (3,180) (4,358)
Interest / other expense, net (377) (965)
Pretax loss (3,557) (5,323)
</TABLE>
The year over year differences between fiscal 1998 and 1997 occurred as a
result of the sale of these businesses during the second quarter of fiscal 1998.
Additionally, the operating expenses include restructuring costs associated with
the divestiture of $4.9 million and $9 million in fiscal 1998 and 1997,
respectively.
FISCAL 1997 COMPARED TO FISCAL 1996
As discussed in the operations analysis of fiscal 1998 to fiscal 1997, the
Company divested itself of its Access and Services operations in September 1997.
Consistent with the fiscal 1998 to 1997 presentation, two operations analyses
for fiscal 1997 as compared to fiscal 1996 have been provided. The "UHP RESULTS
OF OPERATIONS ANALYSIS" provides a review of fiscal 1997 as compared to fiscal
1996 for the UHP operations, the ongoing business, and the "ACCESS AND SERVICES
OPERATIONS ANALYSIS" is a review of the results of operations for Access and
Services for fiscal 1997 as compared to 1996.
The following pro forma table separates the Company's consolidated income
statement into the ongoing operations (UHP) and the divested operations (Access
and Services). The fiscal 1997 Access and Services results include a $9 million
restructuring charge:
<TABLE>
<CAPTION>
(In thousands) Year Ended April 30, 1997 Year Ended April 30, 1996
----------------------------------------- ----------------------------------------
Access & Access &
UHP Services Consolidated UHP Services Consolidated
----------------------------------------- ----------------------------------------
<S> <C> <C> <C> <S> <C> <C>
Revenue $ 112,432 $ 55,761 $ 168,193 $ 92,571 $ 52,334 $ 144,905
Gross profit 46,635 19,516 66,151 39,144 18,286 57,430
Operating expenses 37,431 23,874 61,305 32,896 12,777 45,673
Operating income/(loss) 9,204 (4,358) 4,846 6,248 5,509 11,757
Interest / other exp., net (2,918) (965) (3,883) (1,797) (1,058) (2,855)
Pretax income/(loss) 6,286 (5,323) 963 4,451 4,451 8,902
</TABLE>
<PAGE>
UHP RESULTS OF OPERATIONS ANALYSIS -
The following analysis presents a year over year comparison of the
ongoing UHP operations. The following pro forma table presents the results of
operations of the Company's UHP business only and excludes the divested
business units:
<TABLE>
<CAPTION>
(In thousands) YEAR ENDED
APRIL 30,
------------------------
1997 1996
------------------------
<S> <C> <C>
Revenue $ 112,432 $ 92,571
Gross profit 46,635 39,144
Operating expenses:
Marketing 18,924 15,249
Research & engineering 7,706 7,051
General & administrative 10,801 10,596
--------- --------
Total operating expenses 37,431 32,896
--------- --------
Operating income 9,204 6,248
Interest expense, net (2,248) (1,964)
Other (expense) / income, net (670) 167
--------- --------
Pretax income $ 6,286 $ 4,451
</TABLE>
Total UHP revenues for the year ended April 30, 1997 were $112.4
million, an increase of $19.9 million (21%) over the prior year period.
Within UHP, systems sales increased $15.2 million (27%) while consumable
parts and services revenues increased $4.7 million (13%). Sales of the
Company's standard systems: the Flying Bridge, the Bengal and the A-series,
represented the primary increase in systems sales. The growth in consumable
parts reflects the increased base of waterjet systems installed throughout
the world. Revenues grew in all three primary geographic markets, The
Americas, Asia and Europe, with increases of 27%, 16% and 11%, respectively,
over the prior year.
The gross margin rate was 41% in fiscal 1997 compared with 42% in fiscal
1996. The gross margin rate is dependent on the mix of sales between systems
and consumable parts. This gross margin rate decrease was primarily a result
of a revenue mix shift towards systems sales. Systems sales represented 64%
of fiscal 1997 revenues, up from 61% in the prior year.
Operating expenses increased $4.5 million (14%) over the prior year,
however expressed as a percentage of revenues, total expenses decreased to
33% from 36% in the prior year. Marketing expenses increased $3.7 million
(24%). This increase results from higher expenses associated with increased
marketing activity. Marketing expenses represented 17% of revenues in fiscal
1997 as compared to 16% of revenues in fiscal 1996. Research and engineering
expenses increased $655,000 (9%), however as a percent of revenues they
decreased to 7% from 8% in the prior year. General and administrative
expenses of $10.8 million increased $205,000 (2%), but decreased to 10% of
revenues from 11% as compared to the prior year.
<PAGE>
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.
Net interest expense increased by $284,000 (14%) in fiscal 1997 compared to
1996. This increase results from higher debt levels which include borrowings for
a $1.5 million equity investment in Western Garnet International Ltd., the
primary supplier of the Company's garnet. During fiscal 1997, other expense,
net, totaled $670,000 compared to other income, net, of $167,000 in 1996.
Included in the current year is approximately $600,000 associated with foreign
exchange losses related to the strengthening U.S. Dollar versus the Deutsche
mark. Fiscal 1996 contained a $175,000 gain on the sale of stock held by the
Company.
Income tax expense for UHP operations for fiscal 1997 was estimated at
25% of income before tax as compared to 20% in the previous year. The income
tax rate was lower than the statutory rates 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.
Utilizing the respective tax rates of 25% and 20%, the Company recorded
fiscal 1997 UHP net income of $4.7 million, or $.33 Basic and $.32 Diluted
earnings per share as compared to $3.5 million, or $.25 Basic and $.24
Diluted earnings per share in fiscal 1996.
ACCESS AND SERVICES OPERATIONS ANALYSIS -
The following pro forma table presents the results of operations of the
Access and Services business units, including the restructuring charge in
fiscal 1997:
<TABLE>
<CAPTION>
(In thousands) YEAR ENDED
APRIL 30,
------------------------
1997 1996
------------------------
<S> <C> <C>
Revenue $ 55,761 $ 52,334
Gross profit 19,516 18,286
Operating expenses 23,874 12,777
------
Operating (loss) income (4,358) 5,509
Interest / other expense, net (965) (1,058)
Pretax (loss) income (5,323) 4,451
</TABLE>
Total revenues for the year ended April 30, 1997 were $55.8 million, an
increase of $3.4 million (7%) over the prior year period. Revenues were
comprised of sales, service and rentals. The Access operations generated
revenues in all categories, while the Services unit revenues were classified
as service. Sales decreased $1 million (4%) to $23.5 million versus fiscal
1996. Rental revenues rose $2.3 million (22%) to $12.8 million and service
revenues increased $2.2 million (12%) to $19.5 million as compared to the
prior year. The Services division represented $1.3 million of the service
revenue increase. The $14.4
<PAGE>
million contract for parking garage rehabilitation services at the John F.
Kennedy Center for the Performing Arts in Washington, D.C. was completed
during early fiscal 1997. Domestic markets represent the growth in Access
revenues, as international Access revenues decreased 5% over the prior year.
The gross margin rate was 35% in both fiscal 1997 and 1996. The gross
margin rate is dependent on the mix of sales, service, and rental revenues.
The gross margin rate on sales improved to 36% from 33%, primarily as a
result of product mix. The gross margin rate of the Services unit decreased
to 25% from 27% in the prior year as several large HydroMilling and
HydroCleaning projects had lower than expected gross margins. The rental
gross margin rate decreased to 48% from 53% in the prior year. This was
primarily a result of increased depreciation expense associated with
additions of rental assets.
With the increasing acceptance of UHP technology as the machine tool of
choice, as well as recent developments which utilize core UHP technology in
pumpable food processing, management determined that refocusing Flow solely
back to UHP was in the best interests of the Company. As a result, during the
fourth quarter of fiscal 1997 the Company announced its intent to divest
itself of its Access and Services businesses. During fiscal 1997 the Company
recorded $9 million in expenses associated with the planned sale of these
businesses. The primary components of these expenses were: write down of
assets to net realizable value: $7.4 million; restructuring costs to be
incurred in fiscal 1998: $1.3 million; restructuring costs incurred during
fiscal 1997: $300,000.
The following discussion of operating expenses excludes the
restructuring charge of $9 million. Operating expenses increased by $2.1
million (17%) over the prior year. Expressed as a percentage of revenues,
total expenses increased to 27% from 24% in the prior year. Approximately
$1.2 million of the increase represented additional marketing expenses while
the remaining $900,000 increase was in general & administrative expense.
Research and engineering was flat year over year.
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.
Net interest expense increased by $50,000 (3%) to $1.6 million and other
income, net, increased $143,000 (30%) to $624,000 as compared to fiscal 1996.
The increase in other income, net, resulted from higher income associated
with minority interest in net losses of the joint ventures over the prior
year.
Income tax expense for fiscal 1997 was 25% of income before tax as
compared to 20% in the previous year. Income tax expense was lower than the
statutory rate in both fiscal 1997 and 1996 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 valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $2.7 million in cash flow from operations during
the year as compared to $3.7 million in the prior year. The current year
Consolidated Statement of Cash Flows reflects the
<PAGE>
disposition of the Access and Services businesses. Cash flow in fiscal 1998
was impacted by increases in both trade accounts receivable and inventory as
discussed further below. The Company invested $6.6 million in property and
equipment during fiscal 1998 of which Access and Services was $1.9 million.
Additionally, the Company spent $7.7 million to purchase two businesses as
well as increase its ownership in the Flow Japan and HydroDynamic Cutting
Services joint ventures. Total debt at April 30, 1998 was $39 million, down
$16.3 million (30%) from April 30, 1997. This reduction reflects the receipt
of cash proceeds from the sale of Access and Services, offset by borrowings
related to the business combinations. Management believes that the available
credit facilities and working capital generated by operations will provide
sufficient resources to meet its operating and capital requirements for the
next twelve months. The Company's Credit Agreement and Private Placement
require the Company to comply with certain financial covenants. The covenants
were amended so as to take into consideration the restructuring charges
associated with the divestiture of the Access and Services businesses. As of
April 30, 1998, the Company was in compliance with all such covenants, as
amended.
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 $4
million to $5 million in fiscal 1999. It is expected that funds necessary for
these expenditures will be generated internally, and through available credit
facilities.
Gross trade accounts receivable of $38 million at April 30, 1998
decreased $3 million (7%) from April 30, 1997. This decrease results from the
divestiture of the Access and Services operations. Excluding these non-core
operations, gross trade accounts receivable increased $11 million (41%)
principally due to the acquisition of Foracon and CIS as well as higher
fourth quarter revenues. Days' sales outstanding in gross accounts receivable
is negatively impacted by the traditionally longer payment cycle outside the
United States. Additionally, longer payment terms are sometimes negotiated on
large system orders. Management does not believe these timing issues will
present a material adverse impact on the Company's short-term liquidity
requirements.
Inventory of $37 million decreased $1.5 million (4%). This was related
to the divestiture of the Access and Services businesses. Excluding these
non-core operations, inventory increased $4.4 million (16%) principally due
to the acquisition of Foracon and higher inventory levels associated with
increased production levels and new product introductions. Certain products
manufactured by the Company's robotics and automation divisions require an
extended manufacturing period, and therefore involve higher levels of work in
process.
The Company is currently converting its existing computer applications
to help ensure readiness for the potential impact of the year 2000 date.
Additionally, the Company is interviewing key suppliers and customers to
ensure readiness on their part. Management currently estimates the project
will be completed in early calendar 1999 and the associated costs will be
less than $100,000.
<PAGE>
It is the Company's policy to hedge net assets denominated in foreign
currencies (primarily the Deutsche mark) where significant currency rate
fluctuations may impact profitability.
In fiscal 1998 the Company adopted Statement of Financial Accounting
Standards No. 128 ("FAS 128"), `Earnings per Share" which changed the
Company's presentation, disclosure and calculation of earnings per share. The
adoption of FAS 128 did not have a material impact on the Company's earnings
per share.
Statement of Financial Accounting Standards No. 130 ("FAS 130"),
"Reporting Comprehensive Income" is effective beginning in fiscal 1999. FAS
130 requires the Company present in the same prominence as other financial
statements a Comprehensive Income statement. Comprehensive income for the
Company consists of net income adjusted for any changes in certain
Shareholders' Equity accounts including the Cumulative Translation Adjustment
as well as the Unrealized Loss on Equity Securities. The Company will adopt
FAS 130 in the first quarter of fiscal 1999.
Statement of Financial Accounting Standards No. 131 ("FAS 131"),
"Disclosures about Segments of an Enterprise and Related Information" is
effective beginning in fiscal 1999. FAS 131 requires the Company to report
information about operating segments both annually as well as condensed data
quarterly. Operating segments are determined based upon the manner in which
internal financial information is produced and evaluated. Additionally
certain geographical information is required regardless of how internal
financial information is generated. The Company will adopt FAS 131 in the
first quarter of fiscal 1999. Management is evaluating the impact, if any,
FAS 131 will have on the Company's present reporting.
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 PricewaterhouseCoopers LLP and management to review the work of
each, to discuss financial reporting matters, and to review auditing and
internal control procedures.
/S/ STEPHEN D. REICHENBACH
Stephen D. Reichenbach
Executive Vice President, Treasurer
and Chief Financial Officer
<PAGE>
<TABLE>
<CAPTION>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------------------------------------------------------
The following consolidated financial statements are filed as
a part of this report:
INDEX TO FINANCIAL STATEMENTS PAGE IN THIS REPORT
- ----------------------------------------------------------------------------------------------------
<S> <C>
Report of Independent Accountants 25
Consolidated Balance Sheets at April 30, 1998 and 1997 26
Consolidated Statements of Income for each of the three
years in the period ended April 30, 1998 27
Consolidated Statements of Cash Flows for each of
the three years in the period ended April 30, 1998 28
Consolidated Statements of Changes in Stockholders'
Equity for each of the three years in the period ended April 30, 1998 30
Notes to Consolidated Financial Statements 31
FINANCIAL STATEMENT SCHEDULES
VIII -- Valuation and Qualifying Accounts 49
</TABLE>
All other schedules are omitted because they are not applicable.
<PAGE>
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,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended April 30, 1998, 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.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Seattle, Washington
June 1, 1998
<PAGE>
<TABLE>
<CAPTION>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
APRIL 30,
----------------------
1998 * 1997
------ ----
<S> <C> <C>
ASSETS:
Current Assets:
Cash $ 3,006 $ 2,479
Trade Accounts Receivable, less
allowances for doubtful accounts of $669 and $1,008, respectively 37,359 40,050
Inventories, net 36,976 38,471
Deferred Income Taxes 2,493 4,758
Other Current Assets 7,846 4,959
-------------------------
Total Current Assets 87,680 90,717
Property and Equipment, net 11,992 25,594
Intangible Assets, net of accumulated amortization of
$5,546 and $4,441, respectively 16,561 11,471
Deferred Income Taxes 1,562 515
Other Assets 3,386 5,169
--------------------------
$121,181 $133,466
--------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Notes Payable $ 1,450 $ 1,651
Current Portion of Long-Term Obligations 5,455 79
Accounts Payable 11,338 11,619
Accrued Payroll and Related Liabilities 5,428 4,564
Other Accrued Taxes 374 1,139
Other Accrued Liabilities 3,772 3,539
--------------------------
Total Current Liabilities 27,817 22,591
Long-Term Obligations 32,076 53,569
Minority Interest 93 553
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,
15,227,725 and 14,846,908 shares issued and outstanding, respectively, in 1998
14,925,627 and 14,544,810 shares issued and outstanding, respectively, in 1997 152 149
Capital in Excess of Par 41,030 38,871
Retained Earnings 24,069 19,266
Treasury Common Stock, 380,817 shares at cost (1,429) (1,429)
Cumulative Translation Adjustment (2,286) 101
Unrealized loss on equity securities available for sale (341) (205)
--------------------------
Total Stockholders' Equity 61,195 56,753
--------------------------
--------------------------
Commitments and Contingencies (Note 12)
$121,181 $133,466
--------------------------
--------------------------
</TABLE>
* - SEE NOTE 3 WHICH DESCRIBES THE DISPOSITION OF CERTAIN BUSINESS UNITS DURING
FISCAL 1998
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------------------------
1998 * 1997 1996
------ ---- ----
<S> <C> <C> <C>
Revenue:
Sales $149,414 $135,908 $117,090
Services 6,423 19,515 17,355
Rentals 3,645 12,770 10,460
----------------------------------------
Total Revenues 159,482 168,193 144,905
Cost of Sales:
Sales 88,291 80,735 69,889
Services 5,887 14,657 12,653
Rentals 1,099 6,650 4,933
---------------------------------------
Total Cost of Sales 95,277 102,042 87,475
---------------------------------------
---------------------------------------
Gross Profit 64,205 66,151 57,430
Expenses:
Marketing 23,972 27,173 22,281
Research and Engineering 10,253 8,749 8,110
General and Administrative 14,885 16,432 15,282
Restructuring 4,910 8,951
---------------------------------------
54,020 61,305 45,673
--------------------------------------
Operating Income 10,185 4,846 11,757
Interest Expense, net (3,246) (3,837) (3,503)
Other (Expense) Income, net (434) (46) 648
---------------------------------------
Income Before Provision for Income Taxes 6,505 963 8,902
Provision for Income Taxes 1,702 238 1,817
--------------------------------------
Net Income $ 4,803 $ 725 $ 7,085
--------------------------------------
--------------------------------------
Basic Earnings Per Share $ .33 $ .05 $ .49
---------------------------------------
---------------------------------------
Diluted Earnings Per Share $ .32 $ .05 $ .47
---------------------------------------
---------------------------------------
</TABLE>
* SEE NOTE 3 WHICH DESCRIBES THE DISPOSITION OF CERTAIN BUSINESS UNITS DURING
FISCAL 1998
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------
1998 * 1997 1996
------ ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 4,803 $ 725 $ 7,085
Adjustments to Reconcile Net Income to Cash
Provided (Used) by Operating Activities:
Depreciation and amortization 4,369 7,472 6,856
Restructuring provision 4,910 8,951
Provision for losses on trade accounts receivable 508 704 576
Tax effect of exercised stock options 373 284 170
Other 92 92
(Increase) Decrease in Current Assets,
net of effects of restructuring and business combinations:
Trade Accounts Receivable (13,007) (5,960) (4,032)
Inventories (2,377) (3,946) (6,275)
Other Current Assets (3,078) (46) (248)
Deferred Income Taxes 2,265 (2,793) (630)
Increase (Decrease) in Current Liabilities, net of effects of
restructuring and business combinations:
Accounts Payable 2,009 (469) (1,135)
Accrued Payroll and Related Liabilities 1,562 622 383
Other Accrued Taxes (515) 549 (48)
Other Accrued Liabilities 71 (878) 229
Decrease (Increase) in Other Long-Term Assets 778 (1,165) (2,962)
Increase (Decrease) in Other Long-Term Liabilities 38 (484) (1,336)
------------ ---------- ----------
Cash provided (used) by operating activities 2,709 3,658 (1,275)
------------ ---------- ----------
Cash Flows from Investing Activities:
Expenditures for property and equipment (6,600) (9,153) (8,820)
Investment in equity securities (1,500)
Payment for business combinations (7,735) (186)
Proceeds from sale of certain business units 31,189
Other (186) 462 445
------------ ---------- ----------
Cash provided (used) by investing activities 16,668 (10,191) (8,561)
------------ ---------- ----------
Cash Flows from Financing Activities:
Borrowings under line of credit agreements, net (24,512) 8,585 16,771
Proceeds from bridge loan 1,636
Repayment of bridge loan (14,000)
Proceeds from long-term obligations 8,544 184 17,366
Payments of long-term obligations (1,389) (2,399) (9,076)
Proceeds from issuance of common stock 1,789 550 268
Treasury stock repurchased and received in settlement of obligations - (873) -
------------ ---------- ----------
Cash (used) provided by financing activities (15,568) 6,047 12,965
------------ ---------- ----------
Effect of exchange rate changes (3,282) (880) (358)
------------ ---------- ----------
Increase (decrease) in cash and cash equivalents 527 (1,366) 2,771
Cash and cash equivalents at beginning of period 2,479 3,845 1,074
------------ ---------- ----------
Cash and cash equivalents at end of period $ 3,006 $ 2,479 $ 3,845
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
* - SEE NOTE 3 WHICH DESCRIBES THE DISPOSITION OF CERTAIN BUSINESS UNITS
DURING FISCAL 1998
<PAGE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
Year Ended April 30,
---------------------------------------
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $3,504 $3,707 $3,572
Income Taxes 1,656 2,091 3,024
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value of assets acquired (Note 2) $10,144 $2,860
Cash paid, stock issued and notes assumed for assets acquired (7,466) (597)
-------- -------
Liabilities assumed $2,278 $2,263
-------- -------
-------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Loan to
Common Stock Employee Unrealized
----------------- Capital Cumulative Treasury Stock Loss on
Par In Excess Retained Translation Common Ownership Equity
Shares Value of Par Earnings Adjustment Stock Plan & Trust Securities
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, April 30, 1995 14,603 $146 $37,602 $11,456 $ 1,339 $ (556) $(184)
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Exercise of Stock Options 182 2 266
Effect of Exchange Rate Changes (358)
Other 170 92
Net Income 7,085
--------------------------------------------------------------------------------------
Balances, April 30, 1996 14,785 148 38,038 18,541 981 (556) (92)
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Exercise of Stock Options 141 1 549
Effect of Exchange Rate Changes (880)
Repurchase of Treasury Stock (498)
Other 284 (375) 92 $(205)
Net Income 725
--------------------------------------------------------------------------------------
Balances, April 30, 1997 14,926 149 38,871 19,266 101 (1,429) - (205)
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Exercise of Stock Options 302 3 1,786
Effect of Exchange Rate Changes (2,387)
Other 373 (136)
Net Income 4,803
--------------------------------------------------------------------------------------
Balances, April 30, 1998 15,228 $152 $41,030 $24,069 $(2,286) $(1,429) $ - $(341)
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three years ended April 30, 1998
(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"), Foracon Maschinen und Anlagenbau GmbH &
CO.KG ("Foracon"), Flow Asia Corporation ("Flow Asia"), Flow Automation Inc.
("Flow Automation"), RSL Ltd. ("RSL"), and two majority owned joint ventures
including Flow Japan Corporation ("Flow Japan"). In addition, periods through
the first quarter of fiscal 1998, included the wholly-owned subsidiaries
Rampart Waterblast, Inc., Spider Staging Corporation ("Spider"), Power
Climber and affiliated companies ("Power Climber") as well as a joint
venture, Consortium Europeen du Materiel ("CEM") and the HydroMilling
division, collectively ("Access and Services") (see Note 3). All significant
intercompany transactions have been eliminated.
OPERATIONS
The Company develops and manufactures ultrahigh-pressure ("UHP")
waterjet cutting, cleaning and specialized robotic systems for the
manufacturing, industrial and marine cleaning markets. The Company provides
products to a wide variety of industries, including the automotive,
aerospace, disposable products, food processing, job shop, marble, tile and
other stone cutting, and paper industries. Equipment is designed, developed,
and manufactured at the Company's principal facilities in Kent, Washington,
and at manufacturing facilities in Jeffersonville, Indiana; and in
Burlington, Canada. The Company markets its products to customers worldwide
through its principal offices in Kent and its subsidiaries in Canada,
Germany, Japan, Taiwan, and the United Kingdom.
REVENUE RECOGNITION
Revenues are recognized at the time of shipment for products and certain
types of systems, and under percentage of completion, measured by the cost to
cost 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 revenues primarily consist of revenues related to
hydrodemolition services. Rental revenues consist of charges to customers for
the temporary use of access system equipment.
<PAGE>
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.
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.
RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS
The Company reviews most long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used in its
business annually for impairment, or whenever events or changes in
circumstances indicate that the carrying amount of an asset or group of
assets may not be recoverable in accordance with Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". An impaired asset is
written down to its estimated fair market value based on the best information
available. The Company generally measures estimated fair market value by
discounting estimated future cash flows. Accordingly, actual results could
vary significantly from such estimates.
INTANGIBLE ASSETS
Intangible assets represent goodwill which is amortized on a
straight-line basis over fifteen years.
INCOME TAXES
The Company accounts for income taxes under the asset and liability
method, which requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. If it is more
likely than not that some portion of a deferred tax asset will not be
realized, a valuation allowance is recorded.
<PAGE>
EARNINGS PER SHARE
In fiscal 1998 the Company adopted Statement of Financial Accounting
Standards No. 128 ("FAS 128"), "Earnings per Share" which changed the
Company's presentation and calculation of earnings per share. Basic earnings
per share represents net income available to common stockholders divided by
the weighted average number of shares outstanding during the period. Diluted
earnings per share represents net income available to common stockholders
divided by the weighted average number of shares outstanding including the
potentially dilutive impact of stock options. Common stock options are
converted using the treasury stock method. Earnings per share for 1997 and
1996 have been restated to conform to the requirements of FAS 128. The
adoption of FAS 128 did not have a material impact on the Company's earnings
per share.
The following table sets forth the computation of Basic and Diluted
earnings per share for the years ended April 30, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Year Ended April 30,
1998 1997 1996
---------------------------------
<S> <C> <C> <C>
Numerator:
Net income $ 4,803 $ 725 $ 7,085
Denominator:
Denominator for basic earnings
per share - weighted average shares 14,707 14,561 14,422
Dilutive potential common shares from-
Employee stock options 330 371 517
---------------------------------
Denominator for diluted earnings
per share - weighted average shares
and assumed conversions 15,037 14,932 14,939
Basic earnings per share $ .33 $ .05 $ .49
Diluted earnings per share $ .32 $ .05 $ .47
</TABLE>
<PAGE>
FOREIGN CURRENCY TRANSLATION
The functional currency of Flow Asia is the New Taiwan dollar; of Flow
Europe and Foracon, the German mark; of Flow Automation, the Canadian dollar;
of Power Climber N.V. (part of Power Climber), the Belgian franc; and of Flow
Japan, the Japanese yen. The functional currency of Flow Europe was converted
from the U.S. dollar to the German mark as of the beginning of fiscal 1998.
The acquisition of Foracon by Flow Europe in May 1997 made this change
preferable. All assets and liabilities of these foreign subsidiaries are
translated at year-end or historical exchange rates, as appropriate. Income
and expense accounts of the foreign subsidiaries are translated at the
average rates in effect during the year. Adjustments resulting from the
translation of Flow Asia, Flow Automation, Flow Europe, Foracon, Power
Climber N.V., and Flow Japan's financial statements are recorded in the
cumulative translation adjustment account in the stockholders' equity section
of the accompanying Consolidated Balance Sheets.
The Company utilizes forward exchange contracts and local currency
borrowings to hedge its exposure to exchange rate fluctuations in connection
with monetary assets and liabilities held in foreign currencies. The Company
held no forward exchange contracts at April 30, 1998 but held forward
exchange contracts with a face value of approximately $480,000 at April 30,
1997. Unrealized gains associated with these forward contracts of $17,000 at
April 30, 1997 are included in the caption Other (Expense) Income, net, in
the accompanying Consolidated Statements of Income. For the years ended April
30, 1998, 1997 and 1996 a net foreign exchange loss of $75,000, $590,000 and
$183,000, respectively, is included in the caption Other (Expense) Income,
net, in the accompanying 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
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
All financial instruments on the balance sheet as of April 30, 1998 and
1997 are valued at cost which approximates fair value with the exception of
the Company's investment in Phenix Composites, Incorporated, ("Phenix") (see
Note 4).
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
that are particularly susceptible to significant change in the near term are
the percentage of completion estimates and the adequacy of the allowance for
obsolete inventory, warranty obligations and doubtful accounts receivable.
MINORITY INTERESTS IN JOINT VENTURES
The Company includes income or expense associated with the minority
interest in joint ventures as part of Other (Expense) Income, net in the
accompanying Consolidated Statements of Income.
RECLASSIFICATIONS
Certain 1997 and 1996 amounts have been reclassified to conform with the 1998
presentation.
NOTE 2 - BUSINESS COMBINATIONS:
- -------------------------------------------------------------------------------
In May 1997 the Company purchased the stock of Foracon. Foracon supplies
UHP and related systems to the European market. In April 1998 the Company
purchased substantially all the assets and selected liabilities of CIS Robotics
Inc. and the stock of RSL. These companies develop software used to program
industrial robots as well as provide, as a service, industrial robot
programming.
Total cash consideration for the above two acquisitions was $6.9 million.
The difference between the net fair market value of assets acquired and
consideration given totaled $6.3 million and has been recorded as goodwill.
Results have been included in the Consolidated Financial Statements from the
date of acquisition based upon the purchase method of accounting. Unaudited pro
forma results are not presented as they are not materially different from the
results reported in the Consolidated Financial Statements.
During fiscal 1998 the Company invested an additional $800,000 to increase
its ownership in two joint ventures, Flow Japan and HCS.
<PAGE>
NOTE 3 - BUSINESS DIVESTITURE:
- -------------------------------------------------------------------------------
During the second quarter of fiscal 1998 the Company sold its Access and
Services operations. The Company recorded a $4.9 million restructuring provision
during fiscal 1998 associated with this sale. The primary components of this
expense were: write down of assets to net realizable value: $4 million; probable
future obligations associated with the sale: $900,000. In addition, during
fiscal 1997 the Company recorded a $9 million restructuring provision associated
with the then proposed divestiture. The primary components of this expense were:
write down of assets to net realizable value: $7.4 million; restructuring costs
to be incurred in fiscal 1998: $1.3 million; restructuring costs incurred during
fiscal 1997: $300,000. These charges are included as a separate component of
operating expenses in the accompanying Consolidated Statements of Income.
The following table summarizes the operating results of the Access and
Services operations, excluding the restructuring provisions, for the year ended
April 30,
1998 1997 1996
---- ---- ----
Revenue $16,850 $55,761 $52,334
Gross Profit 5,427 19,516 18,286
Operating Income 1,730 4,593 5,509
Pretax Income 1,353 3,628 4,451
NOTE 4 - RELATED PARTY TRANSACTIONS:
- -------------------------------------------------------------------------------
In August 1992, the Company entered into a stock purchase agreement with
Phenix and contributed cash and certain equipment valued at cost. The book value
of the investment is $484,000 at April 30, 1998 and 1997 and is being accounted
for under the cost method. During fiscal 1996 the Company sold 46,153 shares
representing 20.6% of its holdings of Phenix and recorded a gain of $175,000
which is included in other income. Currently, the Company's CEO and president is
a member of the board of directors of Phenix.
During fiscal 1997 the Company purchased 369,791 shares or 3.1% of Western
Garnet International Ltd. ("Western Garnet") for $1.5 million. Western Garnet is
a publicly traded on the Toronto stock exchange. This investment was made to
secure a long term relationship with the Company's supplier of its high quality
garnet. Garnet is sold by the company as a consumable used in abrasivejet
cutting. The Company classifies this investment as available-for-sale under
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Based upon the April 30, 1998
closing stock price of Western Garnet, the Company recorded an unrealized loss
of $341,000 which is reflected in the equity section of the accompanying
Consolidated Balance Sheets. Currently, the Company's CEO and president is a
member of the board of directors of Western Garnet.
<PAGE>
NOTE 5 - INVENTORIES:
- -------------------------------------------------------------------------------
Inventories consist of the following:
April 30,
1998 1997
-------------------------
Raw Materials and Parts $23,617 $25,793
Work in Process 9,312 5,872
Finished Goods 6,574 8,703
-------------------------
39,503 40,368
Less: Provision for Slow-Moving
and Obsolete Inventory 2,527 1,897
-------------------------
$36,976 $38,471
-------------------------
-------------------------
NOTE 6 - PROPERTY AND EQUIPMENT:
- -------------------------------------------------------------------------------
Property and equipment are as follows:
<TABLE>
<CAPTION>
April 30,
1998 1997
---------------------------
<S> <C> <C>
Land and Buildings $ 461 $ 511
Machinery and Equipment 23,674 51,334
Furniture and Fixtures 2,323 2,469
Leasehold Improvements 6,902 6,254
Construction in Progress 261 1,442
---------------------------
33,621 62,010
Less:
Accumulated Depreciation and Amortization 21,629 34,288
Net Realizable Value Provision - 2,128
---------------------------
$11,992 $25,594
---------------------------
---------------------------
</TABLE>
<PAGE>
NOTE 7 - LONG-TERM OBLIGATIONS AND NOTES PAYABLE:
- -------------------------------------------------------------------------------
Long-term obligations are as follows:
April 30,
1998 1997
-------------------------
Flow Line of Credit $12,414 $36,648
Private Debt Placement 15,000 15,000
Term Loans Payable 10,117 2,000
37,531 53,648
Less: Current Portion 5,455 79
-------------------------
$32,076 $53,569
-------------------------
-------------------------
Current notes payable are as follows:
April 30,
1998 1997
------------------------
Flow Japan Notes Payable $ 756 $1,261
Power Climber N.V. Notes Payable 360
Flow Automation Notes Payable 430
Other Notes Payable 264 30
------------------------
$1,450 $1,651
------------------------
------------------------
The Company's Credit Agreement provides for a revolving line of credit of
up to $60 million, split between two financial institutions, which expires on
November 30, 2000. The amount which can be borrowed is limited based upon
certain debt covenant restrictions. Interest rates under the Credit Agreement
are at the bank's prime rate or are linked to LIBOR, at the Company's option.
The funded debt ratio determines the LIBOR based interest rate. The Company has
borrowed $12.4 million under the Credit Agreement as of April 30, 1998, all of
which carries an interest rate of prime. Prime at April 30, 1998 was 8.5%. The
Company pays 0.1% as an unused commitment fee. As of April 30, 1998, the Company
has approximately $18 million of available domestic unused line of credit
The Private Debt Placement is a ten-year note with seven equal principal
payments beginning in September 1999. The Company pays interest semi-annually at
a fixed rate of 7.2%. The Credit Agreement and Private Debt Placement are
collateralized by a general lien on all of the Company's assets. The Company is
required to comply with certain covenants relating to the Credit Agreement and
Private Debt Placement including restrictions on dividends and transactions with
affiliates, limitations on additional indebtedness, and maintenance of tangible
net worth, working capital, fixed charge coverage, funded debt and debt service
ratios. The covenants were amended so as to exclude the effect of the
restructuring charges (see Note 3) associated with the divestiture of the Access
and Services businesses. As of April 30, 1998, the Company was in compliance
with all such covenants, as amended.
<PAGE>
Included in Term Loans Payable are the following:
A Deutsche mark denominated loan of $9.5 million. The Company's principal
bank has issued a $10.5 million standby letter of credit to the Company's German
bank, to secure a credit facility for use by Flow Europe. Principal and interest
is payable monthly at a rate of 4.6% through fiscal 2003. At April 30, 1998,
Flow Europe had an unused $1 million credit facility.
An unsecured Japanese yen denominated loan of $397,000. Principal and
interest is payable monthly at a rate of 1.7% through fiscal 2003.
An unsecured $198,000 note to a previous owner of Power Climber in
conjunction with the acquisition of assets. The note requires monthly payment of
principal and interest, at 7.25%, through fiscal 2003.
A 100 million Japanese yen standby letter of credit has been issued by the
Company's principal bank to the Company's Japanese bank, to secure a credit
facility for use by Flow Japan. The notes payable by Flow Japan are denominated
in Japanese yen at interest rates ranging from 1.6% to 2.3% at April 30, 1998.
As of April 30, 1998 Flow Japan's credit facility was fully utilized.
The notes payable by Flow Automation are collateralized by trade accounts
receivable and inventory, and are denominated in Canadian dollars at an interest
rate of Canadian prime plus 1.25%. Flow Automation has approximately $94,000 in
unused credit facilities at April 30, 1998.
Principal payments under long-term obligations for the next five years and
thereafter are as follows: $5,455,000 in 1999, $4,270,000 in 2000, $16,684,000
in 2001, $4,215,000 in 2002, $2,618,000 in 2003, and $4,289,000 thereafter.
NOTE 8 - INCOME TAXES:
- -------------------------------------------------------------------------------
The components of consolidated income before income taxes and the provision for
income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income Before Income Taxes:
Domestic $3,237 $2,509 $8,038
Foreign 3,268 (1,546) 864
------ ------- ------
Total $6,505 $ 963 $8,902
------ ------- ------
------ ------- ------
</TABLE>
<PAGE>
The provision for income taxes comprises:
<TABLE>
<CAPTION>
Year Ended April 30,
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current Tax Expense:
Domestic $ (135) $ 1,952 $ 2,453
State and Local 219 261 281
Foreign 400 476 630
------ -------- --------
Total 484 2,689 3,364
Deferred Tax Liability (Benefit) 1,218 (2,451) (1,547)
------ -------- --------
Total Provision for Income Taxes $1,702 $ 238 $1,817
------ -------- --------
------ -------- --------
</TABLE>
Net deferred tax assets (liabilities) comprise the following:
<TABLE>
<CAPTION>
April 30, 1998 April 30, 1997
-------------- --------------
<S> <C> <C>
Fixed assets $ 471 $ (648)
Obsolete inventory provisions 513 400
Restructuring charge 292 3,043
Net operating loss carryover 3,712 4,394
Subpart F income 228 239
Foreign taxes (781) (500)
Accounts receivable allowances 108 82
Inventory capitalization 92 91
AMT Credits 1,076 225
All other 192 446
----- -----
Subtotal 5,903 7,772
Valuation allowance (1,848) (2,499)
----- -----
Total Net Deferred Taxes $4,055 $5,273
------ ------
------ ------
</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,
-------------------------------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Income taxes at federal statutory rate $2,212 $ 327 $ 3,026
Foreign sales corporation benefit (327) (228) (196)
Foreign operations expense 199 (199) 279
Change in valuation allowance (651) 92 (2,285)
State and local taxes 144 261 281
Alternative minimum tax - domestic 822
Other 125 (15) (110)
------- ------- -------
Income tax provision $1,702 $ 238 $1,817
------- ------- -------
------- ------- -------
</TABLE>
<PAGE>
As of May 1, 1998, the Company had approximately $5 million of domestic net
operating loss carryforwards to offset certain Flow earnings for federal income
tax purposes. Of the $5 million carryforward, $943,000 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.
Due to current and expected future earnings, the Company expects increased
utilization of its foreign net operating loss carryforwards of $4.8 million.
Therefore, the foreign valuation allowance was reduced by a net tax effected
amount of $651,000 in fiscal 1998.
Provision has not been made for U.S. income taxes or foreign withholding
taxes on $5 million 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 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 AND ESOP 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, 1998, 1997, and 1996 were
$763,000, $709,000, and $689,000, 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. During fiscal 1997 the ESOP
loan was repaid and the remaining ESOP stock was distributed. During the years
ended April 30, 1998, 1997 and 1996, the Company recorded compensation and
interest expense related to the ESOP of $0, $108,000 and $121,000, 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
<PAGE>
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 10,000 shares annually thereafter during the term of
directorship.
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.
1995 LONG-TERM INCENTIVE PLAN (THE "1995 LTI PLAN"). The 1995 LTI Plan was
adopted in August 1995. Incentive and nonqualified stock options up to 1,350,000
shares may be issued under this plan.
During the years ended April 30, 1998, 1997 and 1996, a total of 302,000,
141,000 and 182,000 options, respectively, were exercised under all stock option
plans of the Company at an average price of $5.93, $3.80 and $3.04 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.
No compensation expense has been recorded in fiscal 1998, 1997 or 1996. The
following chart summarizes the status of the options at April 30, 1998:
<TABLE>
<CAPTION>
----------------------- --------------------- ----------------- ----------------
1984 Restated 1987 and Other 1991 SO Plan
and Nonemployee and 1995
ADMAC Directors Plan LTI Plan Total
Plan
- --------------------------------- ----------------------- --------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Number of options outstanding 215,100 300,000 1,388,493 1,903,593
Number of options vested 215,100 280,000 736,452 1,231,552
Average exercise price per $2.57 $8.41 $8.32 $7.64
share of options outstanding
- --------------------------------- ----------------------- --------------------- ----------------- ----------------
</TABLE>
<PAGE>
In October 1995 Statement of Financial Accounting Standards No. 123 ("FAS
123") "Accounting for Stock Based Compensation," was issued , which establishes
financial accounting and reporting standards for stock based employee
compensation plans and for the issuance of equity instruments to acquire goods
and services from non-employees. In fiscal 1997, the Company adopted the
disclosure-only provisions of FAS 123. If the Company had elected to recognize
compensation costs based on the fair value at the date of grant for awards in
fiscal 1998, 1997 and 1996, consistent with the provisions of FAS 123, the
Company's net income (loss) and earnings (loss) per Basic and Diluted share
would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
- -------------------------------------------------------------- -------------------- -------------------- ---------------------
Year Ended April 30 1998 1997 1996
- -------------------------------------------------------------- -------------------- -------------------- ---------------------
<S> <C> <C> <C>
Income (Loss) from Continuing Operations:
As reported $4,803 $725 $7,085
Pro forma 3,808 ($1,110) $6,120
Earnings (Loss) Per Share - Basic:
As reported $ 0.33 $ 0.05 $ 0.49
Pro forma $ 0.26 ($ 0.08) $ 0.42
Earnings (Loss) Per Share - Diluted:
As reported $ 0.32 $ 0.05 $ 0.47
Pro forma $ 0.25 ($ 0.08) $ 0.41
- -------------------------------------------------------------- -------------------- -------------------- ---------------------
</TABLE>
The pro forma effect on net income for fiscal 1998, 1997 and 1996 may not
be representative of the pro forma effect on net income for future years because
the FAS 123 method of accounting for pro forma compensation expense has not been
applied to options granted prior to May 1, 1995.
The weighted-average fair values at date of grant for options granted in
fiscal 1998, 1997 and 1996 were estimated using the Black-Scholes option-pricing
model, based on the following assumptions: (i) no expected dividend yields for
fiscal years 1998, 1997 and 1996; (ii) expected volatility rates of 48.9%, 47.1%
and 49.7% for fiscal 1998, 1997 and 1996, respectively; and (iii) expected lives
of 6 years for fiscal 1998, 1997 and 1996. The risk-free interest rate applied
to fiscal 1998, 1997 and 1996 was 5.8%, 6.9% and 6.9%, respectively.
<PAGE>
The following table rolls forward the stock option activity for the years
ended April 30,:
<TABLE>
<CAPTION>
------------------------------ ------------------------------- ---------------------------------
1998 1997 1997
Shares Weighted Shares Weighted Shares Weighted
-Average -Average -Average
Exercise Price Exercise Price Exercise Price
- -------------------------------- --------------- -------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 1,887,199 $ 6.92 1,498,825 $ 5.73 1,312,824 $ 4.34
Granted during the year: 423,700 $10.21 622,195 $ 9.41 384,660 $ 8.96
Exercised during the year: 301,648 $ 5.93 140,980 $ 3.80 182,374 $3.04
Forfeited during the year: 105,658 $ 9.19 92,841 $ 9.31 16,285 $ 7.87
--------- ------ --------- ------ --------- ------
Outstanding, end of year 1,903,593 $ 7.64 1,887,199 $ 6.92 1,498,825 $ 5.73
Exercisable, end of year 1,231,552 $ 6.51 1,027,465 $ 5.52 1,105,425 $ 4.53
- -------------------------------- --------------- -------------- --------------- --------------- ---------------- ----------------
</TABLE>
The following table summarizes information about stock options
outstanding at April 30, 1998:
<TABLE>
<CAPTION>
----------------- ------------------ --------------- ----------------- ----------------
Range of Exercise Prices Number Weighted-Avg Weighted-Average Number Weighted-Average
Outstanding at Remaining Exercise Price Exercisable at Exercise Price
April 30, 1998 Contractual Life April 30, 1998
- ------------------------- ------------------ ------------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$1.25 - $4.99 260,100 2.87 $ 2.60 260,100 $ 2.60
$5.00 - $7.99 485,400 5.30 $ 5.94 475,400 $ 5.90
$8.00 - $12.25 1,158,093 7.44 $ 9.56 496,052 $ 9.14
- ---------------------------------------------------------------------------------------------------------------------
Total: 1,903,593 6.35 $ 7.64 1,231,552 $ 6.51
- ---------------------------------------------------------------------------------------------------------------------
</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
<PAGE>
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 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 $3,356,000, $3,716,000, and $4,041,000 for
the years ended April 30, 1998, 1997 and 1996, respectively.
Future minimum rents payable under operating leases for years ending April
30 are as follows:
<TABLE>
<CAPTION>
Year Ending April 30,
---------------------------
<S> <C>
1999 $ 2,666
2000 2,181
2001 1,714
2002 1,473
2003 872
Thereafter 1,532
-------
$10,438
-------
-------
</TABLE>
The Company has been subject to product liability claims primarily through
Spider, its former subsidiary which was sold in September 1997. 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.
<PAGE>
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 accrues liabilities 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.
Management estimates the range of the Company's future exposure amounts
relating to unresolved claims at April 30, 1998, aggregate from approximately $0
to $450,000.
Included in Other (Expense) Income, net, in the years ended April 30, 1998,
1997 and 1996 are settlements of approximately $134,000, $161,000, and $102,000,
respectively.
<PAGE>
NOTE 13 - FOREIGN OPERATIONS:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTMENTS
UNITED OTHER &
STATES EUROPE ASIA FOREIGN ELIMINATIONS CONSOLIDATED
- ------------------------------------ ------------- ------------- ------------- ------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
1998
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Revenues:
Customers (1) $86,561 $36,041 $18,807 $18,073 $ - $159,482
Inter-area (2) 16,772 3,053 (19,825)
- -------------------------------------------------------------------------------------------------------------------------------
Total revenues 103,333 36,041 21,860 18,073 (19,825) 159,482
- -------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) Before
Corporate Expenses 18,700 711 1,694 1,019 22,124
Corporate Expenses (11,939)
--------
Operating Income $10,185
--------
--------
Identifiable Assets $67,384 $25,049 $11,850 $16,898 $121,181
--------
--------
1997
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Revenues:
Customers (1) $103,721 $33,845 $17,231 $13,396 $ - $168,193
Inter-area (2) 17,711 - 2,293 (20,004) -
- -------------------------------------------------------------------------------------------------------------------------------
Total revenues 121,432 33,845 19,524 13,396 (20,004) 168,193
- -------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) Before
Corporate Expenses 14,085 (1,215) 1,880 (1,925) 12,825
Corporate Expenses (7,979)
--------
Operating Income $4,846
--------
--------
Identifiable Assets $87,677 $20,698 $11,302 $13,789 $133,466
--------
--------
1996
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Revenues:
Customers (1) $85,810 $32,394 $13,598 $13,103 $ - $144,905
Inter-area (2) 13,284 - 897 - (14,181) -
- -------------------------------------------------------------------------------------------------------------------------------
Total revenues 99,094 32,394 14,495 13,103 (14,181) 144,905
- -------------------------------------------------------------------------------------------------------------------------------
Operating Income Before Corporate
Expenses 15,223 1,556 320 (124) 16,975
Corporate Expenses (5,218)
--------
Operating Income $11,757
--------
--------
Identifiable Assets $81,342 $20,563 $10,541 $14,047 $126,493
--------
--------
</TABLE>
(1) U.S. sales to unaffiliated customers in foreign countries were $5,300,000,
$7,600,000 and $6,000,000 in fiscal 1998, 1997, and 1996, 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.
<PAGE>
NOTE 14- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal 1998 Quarters First Second Third Fourth Total
- -------------------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Revenue $47,514 $35,162 $34,463 $42,343 $159,482
Gross Profit 18,060 14,686 14,467 16,992 64,205
Net Income (Loss) (949) 1,804 1,810 2,138 4,803
Earnings (Loss) Per share:
Basic * (.07) .12 .12 .14 .33
Diluted * (.07) .12 .12 .14 .32
<CAPTION>
Fiscal 1997 Quarters First Second Third Fourth Total
- -------------------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Revenue $40,929 $41,323 $39,661 $46,280 $168,193
Gross Profit 16,273 17,311 15,779 16,788 66,151
Net Income (Loss) 2,232 2,424 1,312 (5,243) 725
Earnings (Loss) Per share :
Basic .15 .17 .09 (.36) .05
Diluted * .15 .16 .09 (.36) .05
<CAPTION>
Fiscal 1996 Quarters First Second Third Fourth Total
- -------------------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Revenue $33,013 $35,622 $35,641 $40,629 $144,905
Gross Profit 13,905 14,191 13,826 15,508 57,430
Net Income 2,060 1,806 1,151 2,068 7,085
Earnings Per Share:
Basic .14 .13 .08 .14 .49
Diluted * .14 .12 .08 .14 .47
</TABLE>
* The total of the four quarters does not equal the year due to rounding.
<PAGE>
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
- -------------- ---------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 30:
ALLOWANCE FOR DOUBTFUL ACCOUNTS
1998 $1,008 $508 $(377) $ (470) $ 669
1997 1,186 704 (882) 1,008
1996 1,150 576 (540) 1,186
PROVISION FOR SLOW-MOVING AND
OBSOLETE INVENTORY
1998 $1,897 $1,060 $ (224) $ (206) $2,527
1997 2,352 83 (538) 1,897
1996 2,205 207 (60) 2,352
</TABLE>
- ------------
* Write-offs of uncollectible accounts and disposal of obsolete inventory.
<PAGE>
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>
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. Consolidated 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) Reports on Form 8-K -
None
(c) Exhibits.
<PAGE>
<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.
(Incorporated by reference to Exhibit 10.4 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1995.)
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).
<PAGE>
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 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 amount Flow International Corporation, as borrower,
the Lenders listed herein, as lenders, and US Bank of Washington, N.A.
as agent for lenders dated September 25, 1995. (Incorporated by
reference to Exhibit 10.1 to the registrant's Quarterly Report on Form
10-Q for the period ended October 31, 1995.)
10.15 Letter agreement dated April 25, 1997 between Flow International
Corporation and U.S. Bank of Washington, N.A. (Incorporated by
reference to Exhibit 10.15 to the registrant's Annual Report on Form
10-K for the year ended April 30, 1997).
10.16 Letter agreement dated April 23, 1998 between Flow International
Corporation and U.S. Bank of Washington, N.A.
10.17 Note purchase agreement dated September 1, 1995. (Incorporated by
reference to Exhibit 10.2 to the registrant's Quarterly Report on Form
10-Q for the period ended October 31, 1995.)
10.18 First amendment to Note Purchase Agreement dated July 16, 1997.
(Incorporated by reference to Exhibit 10.17 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1997).
10.19 Form of Change in Control Agreement. (Incorporated by reference to
Exhibit 10.17 to the registrant's Annual Report on Form 10-K for the
year ended April 30, 1996.)
10.20 Asset Purchase and Sale Agreement dated as of August 25, 1997 between
Flow International Corporation, SafeWorks, LLC., etc. (Incorporated by
reference to Exhibit 2.1 to the registrants Current Report on Form 8-K
dated September 30, 1997.)
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
</TABLE>
<PAGE>
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 22, 1997
/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 22th day of July, 1997
<TABLE>
<CAPTION>
Signature Title
---------- -----
<S> <C>
/s/ Ronald W. Tarrant Chairman, President, Chief Executive
- ----------------------------------- Officer (Principal Executive Officer)
Ronald W. Tarrant
/s/ Stephen D. Reichenbach Executive Vice President,
- ------------------------------------ Chief Financial Officer
Stephen D. Reichenbach (Principal Financial Officer &
Principal Accounting Officer)
/s/ Ronald D. Barbaro Director
- ------------------------------------
Ronald D. Barbaro
/s/ Daniel J. Evans Director
- ------------------------------------
Daniel J. Evans
/s/ Kathryn L. Munro Director
- ------------------------------------
Kathryn L. Munro
<PAGE>
<CAPTION>
Signature Title
---------- -----
<S> <C>
/s/ Arlen I. Prentice Director
- ------------------------------------
Arlen I. Prentice
/s/ J. Michael Ribaudo Director
- ------------------------------------
J. Michael Ribaudo
/s/ Kenneth M. Roberts Director
- ------------------------------------
Kenneth M. Roberts
/s/ Sandra F. Rorem Director
- ------------------------------------
Sandra F. Rorem
/s/ Dean D. Thornton Director
- ------------------------------------
Dean D. Thornton
</TABLE>
<PAGE>
U.S. BANK
LETTERHEAD
April 23, 1998
Mr. Stephen D. Reichenbach, Executive Vice President and CFO
FLOW INTERNATIONAL CORPORATION
P. O. Box 97040
Kent, WA 98064-9740
Re: Amendment to Loan covenants
Dear Steve:
Please be advise effective immediately, that pursuant to the Credit Agreement
dated September 25, 1995 (including all subsequent amendments) the following
convenants have been amended as follows:
<TABLE>
<CAPTION>
BY
COVENANT 4/30/98
<S> <C>
Min. Working Capital ($M) 50,000
Min. Tang. Net Worth ($M) 40,000
</TABLE>
Each of the above convenants will be calculated as defined in the Credit
Agreement dated September 25, 1995 with the exception of the Funded Debt
Ratio and Debt Service Ratio which will be calculated pursuant to my
amendment letter dated April 25, 1997.
For clarification purposes, the following further defines Section 1.1 (Terms
Defined) under the sub-heading "Cash Flow", item (b) (i) "cash paid by
Borrower during the relevant period for Capital Expenditures". It is
Lender's intent to distinguish between cash paid by the Borrower and funds
provided by Interest Bearing Debt. For the purposes of defining of "Cash
Flow", cash paid by the Borrower during the relevant period for Capital
Expenditures DOES NOT include those funds which have been provided through
advances against Interest Bearing Debt. The method used to determine the
"cash paid by Borrower" amount utilizes the Borrower's Statement of Cash
Flows and can be illustrated as follows:
<PAGE>
Mr. Stephen D. Reichenbach
April 23, 1998
Page 2
<TABLE>
<CAPTION>
Example
FY 1997
<S> <C>
-------
Expenditures for Property & Equipment $9,153M
Less: Net (Increase) Decrease in Interest
Bearing Debt -$6,370M
-------
Equals: Cash Paid by Borrower $2,783M
</TABLE>
If the result of the above formula results in zero or a negative number, Cash
Paid by Borrower will be considered zero for purposes of calculating "Cash
Flow" or any other ratio utilizing "Cash Flow". It should be noted that this
is the way the Lenders have always calculated "Cash Flow".
Upon acceptance by all parties, this letter will become an amendment of the
Credit Agreement dated September 25, 1995.
Should you have any questions, please do not hesitate to call me.
U.S. BANK, NATIONAL ASSOCIATION
/s/ Mark E. Tsutakawa,
- -----------------------------
Vice President
SEATTLE-FIRST NATIONAL BANK
/s/ William P. Stivers, 4-28-98
- ----------------------------- ---------
Vice President Date
FLOW INTERNATIONAL CORPORATION
/s/ Stephen D. Reichenbach, 4-28-98
- ----------------------------- ---------
Executive Vice President and Chief Financial Officer Date
<PAGE>
SUBSIDIARIES OF
FLOW INTERNATIONAL CORPORATION
<TABLE>
<CAPTION>
State or other Jurisdiction of
Subsidiary Incorporation or Organization
---------- ------------------------------
<S> <C>
Flow International Sales Corporation Guam
Flow Europe, GmbH Germany
Flow Asia Corporation Taiwan
Flow Asia International Corporation Mauritius
Flow Japan Corporation Japan
Foracon Maschinen und Anlagenbau GmbH & CO.KG Germany
CEM-FLOW France
CIS Acquisition Corporation Michigan
Robotic Simulations Limited United Kingdom
Hydrodynamic Cutting Services Louisiana
Flow Automation Systems Corporation Ontario
</TABLE>
<PAGE>
Consent of Independent Accountants
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 Statements on Form S-8 (No. 33-40397 and No. 33-44776) of
Flow International Corporation of our report dated June 1, 1998 included in this
Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Seattle, Washington
July 20, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 3,006
<SECURITIES> 0
<RECEIVABLES> 38,028
<ALLOWANCES> 669
<INVENTORY> 36,976
<CURRENT-ASSETS> 87,680
<PP&E> 33,621
<DEPRECIATION> 21,629
<TOTAL-ASSETS> 121,181
<CURRENT-LIABILITIES> 27,817
<BONDS> 0
0
0
<COMMON> 152
<OTHER-SE> 61,043
<TOTAL-LIABILITY-AND-EQUITY> 121,181
<SALES> 149,414
<TOTAL-REVENUES> 159,482
<CGS> 88,291
<TOTAL-COSTS> 149,297
<OTHER-EXPENSES> 434
<LOSS-PROVISION> 508
<INTEREST-EXPENSE> 3,246
<INCOME-PRETAX> 6,505
<INCOME-TAX> 1,702
<INCOME-CONTINUING> 4,803
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,803
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.32
</TABLE>
