<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 31, 1999
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
WASHINGTON 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
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
The number of shares outstanding of common stock, as of November 21, 1999:
14,727,082 shares.
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<PAGE>
FLOW INTERNATIONAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheets -
October 31, 1999 and April 30, 1999.................................... 3
Condensed Consolidated Statements of Income -
Three Months Ended October 31, 1999 and 1998........................... 4
Condensed Consolidated Statements of Income -
Six Months Ended October 31, 1999 and 1998............................. 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended October 31, 1999 and 1998............................. 6
Consolidated Statements of Comprehensive Income -
Three and Six Months Ended October 31, 1999 and 1998................... 7
Notes to Condensed Consolidated Financial Statements..................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 10
Part II - OTHER INFORMATION
Item 1. Legal Proceedings................................................... 17
Item 2. Changes in Securities............................................... 17
Item 3. Defaults Upon Senior Securities..................................... 17
Item 4. Submission of Matters to a Vote
of Security Holders............................................. 17
Item 5. Other Information................................................... 17
Item 6. Exhibits and Reports on Form 8-K.................................... 17
Signatures....................................................................... 18
</TABLE>
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<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
October 31, April 30,
1999 1999
--------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 8,555 $ 10,403
Trade Accounts Receivable, less allowances
for doubtful accounts of $894 and $766, respectively 58,198 55,783
Inventories, net 51,271 47,771
Deferred Income Taxes 1,658 1,658
Other Current Assets 5,552 4,849
--------- ---------
Total Current Assets 125,234 120,464
Property and Equipment, net 19,179 17,723
Intangible Assets, net of accumulated
amortization of $8,450 and $6,212, respectively 38,875 36,211
Deferred Income Taxes 1,071 1,314
Other Assets 4,773 3,440
--------- ---------
$ 189,132 $ 179,152
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 268 $ 419
Current Portion of Long-Term Obligations 4,190 4,185
Accounts Payable 11,295 18,411
Accrued Payroll and Related Liabilities 5,474 6,801
Other Accrued Taxes 501 851
Other Accrued Liabilities 13,619 9,804
--------- ---------
Total Current Liabilities 35,347 40,471
Long-Term Obligations 66,450 64,614
Customer Deposits 18,542 8,931
Minority Interest 1,873 1,114
Stockholders' Equity:
Series A 8% Convertible Preferred Stock -
$.01 par value, 1,000,000 shares authorized, none issued
Common Stock - $.01 par value, 20,000,000 shares authorized,
14,726,590 shares outstanding at October 31, 1999
14,665,700 shares outstanding at April 30, 1999 147 147
Capital in Excess of Par 40,631 40,260
Retained Earnings 30,799 28,037
Cumulative Translation Adjustment (3,964) (3,882)
Unrealized Loss on Equity Securities Available For Sale (693) (540)
--------- ---------
Total Stockholders' Equity 66,920 64,022
--------- ---------
$ 189,132 $ 179,152
--------- ---------
--------- ---------
</TABLE>
See Accompanying Notes to Condensed
Consolidated Financial Statements
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<PAGE>
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
---------------------------
1999 1998
<S> <C> <C>
Revenues $ 46,471 $ 38,383
Cost of Sales 27,896 21,455
-------- --------
Gross Profit 18,575 16,928
-------- --------
Expenses:
Marketing 6,597 6,254
Research and Engineering 3,718 2,963
General and Administrative 4,618 3,755
-------- --------
14,933 12,972
-------- --------
Operating Income 3,642 3,956
Interest Expense (1,175) (836)
Other Expense (379) (111)
-------- --------
Income Before Provision for Income Taxes 2,088 3,009
Provision for Income Taxes 626 820
-------- --------
Net Income $ 1,462 $ 2,189
-------- --------
-------- --------
Basic Earnings Per Share $ .10 $ .15
-------- --------
-------- --------
Diluted Earnings Per Share $ .10 $ .15
-------- --------
-------- --------
</TABLE>
See Accompanying Notes to Condensed
Consolidated Financial Statements
-4-
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
October 31,
---------------------------
1999 1998
<S> <C> <C>
Revenues $ 87,732 $ 74,805
Cost of Sales 52,023 42,042
-------- --------
Gross Profit 35,709 32,763
-------- --------
Expenses:
Marketing 13,561 11,988
Research and Engineering 6,590 6,022
General and Administrative 8,583 7,476
-------- --------
28,734 25,486
-------- --------
Operating Income 6,975 7,277
Interest Expense (2,524) (1,599)
Other Expense (504) (66)
-------- --------
Income Before Provision for Income Taxes 3,947 5,612
Provision for Income Taxes 1,185 1,627
-------- --------
Net Income $ 2,762 $ 3,985
-------- --------
-------- --------
Basic Earnings Per Share $ .19 $ .27
-------- --------
-------- --------
Diluted Earnings Per Share $ .18 $ .26
-------- --------
-------- --------
</TABLE>
See Accompanying Notes to Condensed
Consolidated Financial Statements
-5-
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
<TABLE>
<CAPTION>
Six Months Ended
October 31,
---------------------------
1999 1998
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 2,762 $ 3,985
Adjustments to Reconcile Net Income to Cash
Used by Operating Activities:
Depreciation and Amortization 4,008 2,212
Increase in assets (5,043) (424)
Decrease / (increase) in liabilities 2,917 (3,385)
-------- --------
Cash provided by operating activities 4,644 2,388
-------- --------
Cash Flows from Investing Activities:
Expenditures for property and equipment (4,210) (3,066)
Payment for Business Combinations, Net of Cash Acquired (4,499)
Other (20) (421)
-------- --------
Cash used by investing activities (8,729) (3,487)
-------- --------
Cash Flows from Financing Activities:
Borrowings under line of credit agreements, net 4,885 7,104
Payments of long-term debt (2,934) (2,026)
Purchase of Flow common stock (3,267)
Proceeds from issuance of common stock 368 713
-------- --------
Cash provided by financing activities 2,319 2,524
-------- --------
Effect of exchange rate changes (82) 265
-------- --------
(Decrease) increase in cash and cash equivalents (1,848) 1,690
Cash and cash equivalents at beginning of period 10,403 3,006
-------- --------
Cash and cash equivalents at end of period $ 8,555 $ 4,696
-------- --------
-------- --------
</TABLE>
See Accompanying Notes to Condensed
Consolidated Financial Statements
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<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-------------------------
1999 1998
<S> <C> <C>
Net Income $ 1,462 $ 2,189
Other Comprehensive Income:
Unrealized Loss on Equity Securities Available
for Sale, net of tax (158) (150)
Cumulative Translation Adjustment (226) 1,191
------- -------
Comprehensive Income $ 1,078 $ 3,230
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
October 31,
-------------------------
1999 1998
<S> <C> <C>
Net Income $ 2,762 $ 3,985
Other Comprehensive Income:
Unrealized Loss on Equity Securities Available
for Sale, net of tax (153) (514)
Cumulative Translation Adjustment (82) 265
------- -------
Comprehensive Income $ 2,527 $ 3,736
------- -------
------- -------
</TABLE>
See Accompanying Notes to Condensed
Consolidated Financial Statements
-7-
<PAGE>
FLOW INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended October 31, 1999
(unaudited)
1. In the opinion of the management of Flow International Corporation
("the Company"), the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position,
results of operations and cash flows. These interim financial
statements should be read in conjunction with the April 30, 1999
consolidated financial statements included in the Company's Annual
Report filed with the Securities and Exchange Commission on Form 10-K.
Operating results for the six months ended October 31, 1999 may not be
indicative of future results.
2. 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, where appropriate.
Basic shares outstanding for the three months ended October 31, 1999
and 1998 were 14,701,000 and 14,749,000, respectively. For the six
months ended October 31, 1999 and 1998, basic shares outstanding were
14,693,000 and 14,823,000, respectively. Diluted shares outstanding for
the three months ended October 31, 1999 and 1998 were 15,084,000 and
15,027,000, respectively. The diluted shares outstanding include
potential dilutive common shares from employee stock options of 383,000
and 278,000 for the three months ended October 31, 1999 and 1998,
respectively. For the six months ended October 31, 1999 and 1998,
diluted shares outstanding were 15,071,000 and 15,194,000,
respectively. The diluted shares outstanding include potential dilutive
common shares from employee stock options of 378,000 and 371,000 for
the six months ended October 31, 1999 and 1998, respectively.
3. Inventories consist of the following:
(in thousands)
<TABLE>
<CAPTION>
October 31, 1999 April 30, 1999
---------------- --------------
<S> <C> <C>
Raw Materials and Parts $22,637 $26,776
Work in Process 17,129 11,223
Finished Goods 11,505 9,772
------- -------
$51,271 $47,771
------- -------
------- -------
</TABLE>
-8-
<PAGE>
FLOW INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended October 31, 1999
(unaudited)
4. In September 1999 the Company purchased substantially all of the assets
and selected liabilities of Spearhead Automated Systems, Inc.
("Spearhead") for $4.5 million. Spearhead manufactures advanced
cutting, trimming and tooling equipment for the automotive and related
industries.
5. Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, ("FAS 133"),
"Accounting for Derivative Instruments and Hedging Activities", is
effective beginning in fiscal 2002, with early adoption permitted. FAS
133 standardizes the accounting for derivative instruments by requiring
that an entity recognize those items as assets or liabilities in the
financial statements and measure them at fair value. The Company is
currently reviewing the requirements of FAS 133 and assessing its
impact on the Company's financial statements. The Company has not made
a decision regarding the period of adoption.
Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use", is effective
beginning in fiscal 2000. SOP 98-1 requires companies to capitalize the
cost of computer software developed or obtained for internal use. The
adoption of SOP 98-1 during the first quarter of fiscal 2000 did not
have a material impact on the Company.
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-up Activities", is effective beginning in fiscal 2000. SOP 98-5
requires companies to expense costs associated with start-up
operations, including costs previously deferred. The adoption of SOP
98-5 during the first quarter of fiscal 2000 did not have a material
impact on the Company.
-9-
<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues for Flow International Corporation ("Flow" or the "Company")
for the six month period ended October 31, 1999 increased $12.9 million (17%) to
$87.7 million as compared to $74.8 million in the prior year. Revenue for the
three month period ended October 31, 1999 was $46.5 million, an increase of $8.1
million (21%) as compared to $38.4 million in the prior year. The revenue
increase results from the recent acquisitions of Flow Pressure Systems Vasteras
AB ("Pressure Systems") in March 1999 and Spearhead Automated Systems, Inc.
("Spearhead") in September 1999. Excluding these acquisitions, revenue decreased
11% for the quarter ended October 31, 1999 and 12% year to date, as compared to
the prior year period. In contrast, according to the Association for
Manufacturing Technology, the domestic metal cutting market declined 34% year
over year, through September 1999. During that same nine month period, Flow's
domestic sales, excluding acquisitions, have decreased 12% compared to the prior
year. Geographically, domestic and European revenues for the quarter ended
October 31, 1999 increased $1.5 million (7%) and $5.3 million (55%),
respectively, as compared to the prior year period. Increases in both of these
areas resulted from inclusion of the recent acquisitions. Domestic revenues in
the quarter totaled $23.5 million while European revenues represented 32% of
consolidated revenues at $14.9 million. Asian revenues decreased 11% for the
three months ended October 31, 1999 as compared to the prior year period, and
represented 8% of total revenues. Revenue in Japan, which is included in the
Asian region, for the quarter ended October 31, 1999 was comparable to the prior
year period. For the six months ended October 31, 1999 domestic and European
revenues increased $1.9 million (4%) and $9.1 million (47%), respectively, as
compared to the prior year period. Similar to the quarter, the revenue increases
are the result of the recent acquisitions. Asian revenues decreased 8% for the
six months ended October 31, 1999 as compared to the prior year period, and
represented 8% of total revenues.
The Company's revenues can be segregated into systems sales and
consumables sales. In general a system sale is comprised of a pump along with
the robotics or articulation to move the cutting head, and may also include
automation capabilities. In addition, the Company's food and isostatic press
systems, which are built by Pressure systems, are included in systems sales.
Consumables represent parts used by the pump and cutting head during operation.
Systems revenues increased 35% and 27% for the three and six months ended
October 31, 1999, respectively, over the prior year periods, due to the recent
acquisitions. Consumables revenues decreased 2% for the quarter ended October
31, 1999 and increased 1% for the six month period ended October 31, 1999, due
to a slowdown in the domestic economy, as well as the Company's development of
longer lived consumable parts. There have not been any significant price
increases or decreases for the Company's products.
-10-
<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company has begun to apply ultrahigh-pressure ("UHP") technology to
food, trademarked as "Fresher Under Pressure"-TM-. By exposing foods to
pressures up to 100,000 psi for a short time, typically 30 seconds to slightly
more than two minutes, UHP achieves the effects of pasteurization without heat.
Not only are spoilage microorganisms destroyed, but the process also destroys
harmful pathogens such as E. coli bacteria, thus increasing shelf life while
ensuring a safe, healthy product. Unlike thermal treatment (pasteurization), UHP
technology does not destroy or alter the nutritional qualities, taste, texture
or color of the food. Flow has developed a technology that features a
`continuous flow' concept whereby pumpable foods such as juices, salsas,
guacamole, liquid eggs and salad dressings are pumped into pressure chambers,
pressurized and then pumped into the next stage of the process, such as
bottling. This continuous flow process is fully automated and requires just a
single operator. The Company also has the ability to process non-pumpable foods
as a result of the acquisition of Pressure Systems. Pressure Systems provides
Flow the patented large batch system vessel technology. Flow is the only
supplier in the world to have full capabilities in both the continuous flow and
batch UHP food processing technology.
The Company anticipates leasing the continuous flow technology, while
the batch processing systems manufactured by Pressure Systems will generally be
sold. The leases have a fixed monthly rental charge plus a per gallon or per
pound usage fee. Revenue recognition on the batch systems will be on the
percentage of completion cost to cost method. Included in revenues for the three
and six month periods ended October 31, 1999 is approximately $250,000 and
$550,000, respectively, associated with the Fresher Under Pressure technology,
which meets management expectations. The Company estimates fiscal 2000 Fresher
Under Pressure revenues will be between $7 million and $10 million depending on
when clients place orders and launch their new fresh products. Management also
anticipates this market will double each year for the next three years.
Gross profit for the quarter was $18.6 million, an increase of $1.7
million (10%) over the prior year period. Gross profit expressed as a percentage
of revenues (gross margin rate) was 40% for the quarter and 41% year to date, as
compared to 44% and 44%, respectively, in the prior year periods. Comparison of
gross margin rates is dependent on the mix of sales revenue types, which
includes special system, standard system and consumables sales. Systems
typically carry lower gross margin rates than the Company's consumable parts.
Additionally, special systems are generally custom designed and carry lower
margins than the Company's standard systems such as the Bengal, Flying Bridge,
Husky, Eagle and A-series. Also included in current year system sales are the
press systems manufactured at Pressure Systems. The gross margin rate
-11-
<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
decrease in fiscal 2000 as compared to the prior year is primarily due to the
inclusion of Pressure Systems' products.
Excluding Pressure Systems and Spearhead, operating expenses decreased
$1.1 million (9%) and $1 million (4%) for the three and six months ended October
31, 1999, respectively, as compared to the prior year periods. Total
consolidated operating expenses of $14.9 million increased $2 million (15%) for
the quarter ended October 31, 1999, compared to the prior year period and were
$28.7 million, up $3.2 million (13%) for the six months ended October 31, 1999
versus the prior year period. Marketing expenses increased $343,000 (5%) and
$1.6 million (13%) for the three and six month periods ended October 31, 1999,
respectively, as compared to the prior year periods. Excluding Pressure Systems
and Spearhead, marketing expenses decreased $362,000 (6%) and increased $464,000
(4%) for the three and six months ended October 31, 1999, respectively, as
compared to the prior year periods. The six month increase, net of acquisitions,
is related to expenses associated with the new South American operations.
Research and engineering expense increased $755,000 (25%) and $568,000 (9%) for
the three and six month periods ended October 31, 1999 respectively, as compared
to the prior year periods. Research and engineering expenses expressed as a
percentage of revenues were the same for both the three and six month periods
ended October 31, 1999, as well as the prior year periods at 8%. General and
administrative expense increased $863,000 (23%) and $1.1 million (15%) for the
three and six month periods ended October 31, 1999 respectively, as compared to
the prior year periods. Excluding Pressure Systems and Spearhead, general and
administrative expense decreased $320,000 (9%) and $530,000 (7%) for the three
and six months ended October 31, 1999, respectively, as compared to the prior
year periods. Expressed as a percentage of consolidated revenue, general and
administrative expenses were the same for both the three and six month periods
ended October 31, 1999, as well as the prior year periods at 10%.
Operating income for the quarter ended October 31, 1999 was $3.6
million, a decrease of $314,000 (8%) over the prior year quarter. For the year,
operating income was $7 million, a decrease of $302,000 (4%) over the prior year
period.
Interest expense of $1.2 million increased $339,000 (41%) for the
quarter ended October 31, 1999, compared to the prior year period and was $2.5
million, up $925,000 (58%) for the six months ended October 31, 1999 versus the
prior year period. The increase in interest expense is due to higher debt levels
associated with the March 1999 purchase of Pressure Systems and September 1999
purchase of Spearhead, as well as additional financing related to the further
development of the Fresher Under Pressure program. Other expense of $379,000
increased $268,000 (241%) for the quarter ended
-12-
<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
October 31, 1999, compared to the prior year period and was $504,000, up
$438,000 (664%) for the six months ended October 31, 1999 versus the prior year
period. This increase is due to the expense associated with the minority
interest in joint ventures at Pressure Systems.
Based upon the expected tax position of the Company for fiscal 2000, year
to date taxes have been provided for at 30% of pre-tax income. Year to date
fiscal 1999 taxes were provided for at 29% of pre-tax income. The increased rate
to 30% in fiscal 2000 as compared to the net twelve month fiscal 1999 rate of
28% is reflective of the projected change in mix of pre-tax income to higher
taxing jurisdictions. The income tax rate was lower than the statutory rate in
both the current and prior year due primarily to lower foreign tax rates,
benefits from the foreign sales corporation, and adjustments to the Company's
deferred tax valuation allowance.
Basic shares outstanding for the three months ended October 31, 1999
and 1998 were 14,701,000 and 14,749,000, respectively. For the six months ended
October 31, 1999 and 1998, basic shares outstanding were 14,693,000 and
14,823,000, respectively. Diluted shares outstanding for the three months ended
October 31, 1999 and 1998 were 15,084,000 and 15,027,000, respectively. The
diluted shares outstanding include potential dilutive common shares from
employee stock options of 383,000 and 278,000 for the three months ended October
31, 1999 and 1998, respectively. For the six months ended October 31, 1999 and
1998, diluted shares outstanding were 15,071,000 and 15,194,000, respectively.
The diluted shares outstanding include potential dilutive common shares from
employee stock options of 378,000 and 371,000 for the six month periods ended
October 31, 1999 and 1998, respectively.
The Company recorded net income of $1.5 million or $.10 per basic and
diluted share for the three months ended October 31, 1999, compared to $2.2
million, or $.15 per basic and diluted share for the same prior year period.
Year to date, the Company recorded $2.8 million or $.19 per Basic and $.18 per
Diluted share as compared to $4 million or $.27 per Basic and $.26 per Diluted
share in fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $4.6 million and $2.4 million from operations
during the six month periods ended October 31, 1999 and 1998, respectively. At
October 31, 1999, the Company had a total of $8.8 million in completed
continuous feed Fresher Under Pressure units, work in progress and stores
inventory. Of this amount, $4.1 million is classified as property and equipment
and the remaining $4.7 million is included in
-13-
<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
inventory on the Consolidated Balance Sheet. The Company believes that the
available credit facilities and working capital generated by operations will
provide sufficient resources to meet its operating and capital requirements. The
Company's Credit Agreement and Private Placement require the Company to comply
with certain financial covenants. In September 1999 the Company amended its
covenants related to the acquisition of Spearhead. As of October 31, 1999, the
Company was in compliance with all such covenants, as amended.
Gross trade receivables at October 31, 1999 increased $2.5 million from
April 30, 1999. Days sales in gross accounts receivable can be negatively
impacted by the traditionally longer payment cycle outside the United States as
well as timing of payments on large special system orders. The Company's
management does not believe these timing issues will present a material adverse
impact on the Company's short-term liquidity requirements.
Inventories at October 31, 1999 increased $3.5 million (7%) from April
30, 1999. Excluding Pressure Systems and Spearhead, inventory decreased $3.7
million (8%) from April 30, 1999. Certain products manufactured by Pressure
Systems, Flow Robotics and Flow Automation can require an extended manufacturing
period and thus impact inventory levels from period to period.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk during the
three and six month periods ended October 31, 1999. For additional information,
refer to Management's Discussion and Analysis of Financial Condition and Results
of Operations as presented in the April 30, 1999 Form 10-K as filed with the
Securities and Exchange Commission.
Year 2000 Issues and Conversion:
Background: Some computers, software, and other equipment include programming
code that limits the "year" field to two digits. Thus, these systems could fail
in the event that the last two digits "00" are interpreted to mean the year
1900. For this reason, the Company began the conversion process to upgrade its
systems in fiscal 1998.
Assessment: The Year 2000 issues could effect computers, software, and other
equipment used, or maintained by the Company. The Company has reviewed its
-14-
<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
internal computer programs and systems to determine if the programs and systems
are Year 2000 ready. The Company believes that its computer systems will be Year
2000 ready in a timely manner. To date, the Company has converted and tested its
computer systems.
The estimated costs of these efforts are $250,000 and are not expected to be
material to the Company's financial position or any of its financial results
from operations. There can, however, be no assurance to this effect. To date, no
other Information Technology projects that have a material effect on the
Company's operations have been deferred.
Software Sold to Customers: The Company develops its own proprietary software
which controls the functions of some of its machines. The Company also sells
software or other electronic control devices purchased from third party vendors.
The Company believes that it has substantially identified and resolved all
potential Year 2000 issues with any of its software products. However, the
Company believes that it is not possible to determine with complete certainty
that its products are entirely Year 2000 ready. As with most software, it is
dependent upon hardware and other operating systems that are provided by other
third party vendors not under the Company's control.
Internal Infrastructure: The Company is in the process of reviewing all of its
equipment that is used in the receiving, manufacturing, and shipping of its
products as well at its copiers, fax machines, elevators, telephone systems and
other equipment used to maintain daily operations. To date, the Company has not
identified any material issues that would effect the ongoing operations. The
Company is on schedule with its review of these systems and does not expect any
required modifications to have a material adverse effect on its future financial
results. However, the Company is continuing to monitor the process and this
estimate will be revised if additional material information is discovered.
Suppliers: The Company initiated communications with all of its critical
suppliers in April 1998. The form of this communication was by questionnaire
designed to determine the Year 2000 readiness of the suppliers business systems.
To date, the Company has completed the mailing of all questionnaires. The
Company has also completed the process of reviewing supplier responses and
continues to monitor progress of supplier Year 2000 projects. Based upon
responses to date, the Company believes that its critical suppliers will be Year
2000 compliant and does not currently expect any adverse effects on its daily
operations. While the Company does not expect
-15-
<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
any material adverse effects, the Company can provide no assurance that these
suppliers will resolve all of their Year 2000 issues on a timely basis.
Risks: While the Company is taking steps in all areas discussed above, there can
be no assurance that all Year 2000 issues will be entirely resolved. Due to this
inherent uncertainty, resulting in part from the uncertainty of the Year 2000
readiness of third- party suppliers and customers, there could be interruptions
or failures that would materially impact normal business operations. The Year
2000 Project is expected to significantly reduce the potential of any such
material adverse effects. Further, the Year 2000 Project includes the
development of contingency plans for those systems that are critical to daily
operations.
Readers are cautioned that the forward-looking statements contained in the Year
2000 Issues and Conversion should be read in conjunction with the Company's
disclosures under the heading: "Safe Harbor Statement'.
SAFE HARBOR STATEMENT:
STATEMENTS IN THIS REPORT THAT ARE NOT STRICTLY HISTORICAL ARE "FORWARD-LOOKING"
STATEMENTS WHICH SHOULD BE CONSIDERED AS SUBJECT TO THE MANY UNCERTAINTIES THAT
EXIST IN THE COMPANY'S OPERATIONS AND BUSINESS ENVIRONMENT. THESE UNCERTAINTIES,
WHICH INCLUDE ECONOMIC AND CURRENCY CONDITIONS, MARKET DEMAND AND PRICING,
COMPETITIVE AND COST FACTORS, AND THE LIKE, ARE SET FORTH IN THE FLOW
INTERNATIONAL CORPORATION FORM 10-K REPORT FOR 1999 FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION.
-16-
<PAGE>
FLOW INTERNATIONAL CORPORATION
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is party to various legal actions incident to the normal
operations of its business, none of which is believed to be material to the
financial condition of the Company.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1999 Annual Meeting of Stockholders on
August 25, 1999. At the meeting three directors, Kathryn L. Munro, Sandra F.
Rorem and Dean D. Thornton were elected to three-year terms ending with the 2002
Annual Meeting of Stockholders receiving, respectively, 13,481,717, 13,484,383
and 13,490,580 votes in favor and 659,799, 657,133 and 650,936 votes withheld.
An amendment to the 1995 Long-Term Incentive Compensation Plan (the "Plan") was
also adopted. The Plan received 5,356,642 votes for approval, 4,503,101 shares
against and 173,477 shares abstained. There were no non-broker votes for the
vote on the directors. There were 4,108,296 broker non-votes for the amendment.
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
-17-
<PAGE>
FLOW INTERNATIONAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLOW INTERNATIONAL
CORPORATION
Date: December 13, 1999 /s/ Ronald W. Tarrant
---------------------
Ronald W. Tarrant
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: December 13, 1999 /s/ Stephen D. Reichenbach
--------------------------
Stephen D. Reichenbach
Executive Vice President, Chief
Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
-18-
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