<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 July 31, 2000
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 August 28, 2000:
14,761,565 shares.
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<PAGE>
FLOW INTERNATIONAL CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
July 31, 2000 and April 30, 2000................................................................ 3
Consolidated Statements of Income -
Three Months Ended July 31, 2000 and 1999....................................................... 4
Consolidated Statements of Cash Flows -
Three Months Ended July 31, 2000 and 1999....................................................... 5
Consolidated Statements of Comprehensive Income -
Three Months Ended July 31, 2000 and 1999....................................................... 6
Notes to Consolidated Financial Statements........................................................ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................... 9
Part II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................................ 14
Item 2. Changes in Securities........................................................................ 14
Item 3. Defaults Upon Senior Securities.............................................................. 14
Item 4. Submission of Matters to a Vote
of Security Holders...................................................................... 14
Item 5. Other Information............................................................................ 14
Item 6. Exhibits and Reports on Form 8-K............................................................. 14
Signatures................................................................................................ 15
</TABLE>
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<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
July 31, April 30,
2000 2000
--------- ---------
ASSETS (unaudited)
<S> <C> <C>
Current Assets:
Cash $ 7,473 $ 6,383
Receivables, less allowances
for doubtful accounts of $877 and $899, respectively 53,020 67,793
Inventories, net 54,193 49,168
Deferred Income Taxes 1,931 1,900
Other Current Assets 5,477 5,963
--------- ---------
Total Current Assets 122,094 131,207
Property and Equipment, net 21,912 21,024
Intangible Assets, net of accumulated
amortization of $11,097 and $10,306, respectively 38,334 39,124
Deferred Income Taxes 392 572
Other Assets 4,487 5,114
--------- ---------
$ 187,219 $ 197,041
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 953 $ 5,290
Current Portion of Long-Term Obligations 3,945 3,926
Accounts Payable 11,705 15,648
Accrued Payroll and Related Liabilities 5,747 5,948
Other Accrued Taxes 325 523
Deferred Revenue 4,563 2,476
Other Accrued Liabilities 7,469 9,844
--------- ---------
Total Current Liabilities 34,707 43,655
Long-Term Obligations 74,595 70,397
Customer Deposits 9,056 14,483
Minority Interest 2,137 1,837
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,
14,761,565 shares outstanding at July 31, 2000
14,736,081 shares outstanding at April 30, 2000 148 147
Capital in Excess of Par 41,182 41,041
Retained Earnings 35,993 34,514
Accumulated Other Comprehensive Loss (10,599) (9,033)
--------- ---------
Total Stockholders' Equity 66,724 66,669
--------- ---------
$ 187,219 $ 197,041
========= =========
</TABLE>
See Accompanying Notes to
Consolidated Financial Statements
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<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
--------------------
2000 1999
<S> <C> <C>
Revenues $ 50,427 $ 41,261
Cost of Sales 29,008 23,303
-------- --------
Gross Profit 21,419 17,958
Expenses:
Marketing 7,806 6,964
Research and Engineering 4,578 3,696
General and Administrative 4,924 3,965
-------- --------
17,308 14,625
-------- --------
Operating Income 4,111 3,333
Interest Expense (1,802) (1,349)
Other Expense, net (196) (125)
-------- --------
Income Before Provision for Income Taxes 2,113 1,859
Provision for Income Taxes 634 559
-------- --------
Net Income $ 1,479 $ 1,300
======== ========
Basic Earnings Per Share $ .10 $ .09
======== ========
Diluted Earnings Per Share $ .10 $ .09
======== ========
</TABLE>
See Accompanying Notes to
Consolidated Financial Statements
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<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
--------------------
2000 1999
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 1,479 $ 1,300
Adjustments to Reconcile Net Income to Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization 1,990 1,949
Unrealized (Gain) Loss on Securities 57 (5)
Decrease / (Increase) in assets 10,840 (5,842)
Decrease in liabilities (9,757) (1,948)
-------- --------
Cash provided (used) by operating activities 4,609 (4,546)
-------- --------
Cash Flows from Investing Activities:
Expenditures for property and equipment (2,032) (2,100)
-------- --------
Cash used by investing activities (2,032) (2,100)
-------- --------
Cash Flows from Financing Activities:
Borrowings under line of credit agreements, net 201 1,957
Payments of long-term obligations (321) (473)
Proceeds from issuance of common stock 142 180
-------- --------
Cash provided by financing activities 22 1,664
-------- --------
Effect of exchange rate changes (1,509) 144
-------- --------
Increase (decrease) in cash and cash equivalents 1,090 (4,838)
Cash and cash equivalents at beginning of period 6,383 10,403
-------- --------
Cash and cash equivalents at end of period $ 7,473 $ 5,565
======== ========
</TABLE>
See Accompanying Notes to
Consolidated Financial Statements
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<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
------------------
2000 1999
<S> <C> <C>
Net Income $ 1,479 $ 1,300
Other Comprehensive Income:
Unrealized (Loss) Gain on Equity Securities Available (57) 5
for Sale, net of tax
Cumulative Translation Adjustment (1,509) 144
------- -------
Comprehensive Income (Loss) $ (87) $ 1,449
======= =======
</TABLE>
See Accompanying Notes to
Consolidated Financial Statements
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<PAGE>
FLOW INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended July 31, 2000
(unaudited)
1. In the opinion of the management of Flow International Corporation ("the
Company"), the accompanying unaudited consolidated financial statements
contain all adjustments necessary to fairly present the financial position,
results of operations and cash flows of the Company. These interim
financial statements do not include all information and footnote disclosure
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States, and should
be read in conjunction with the April 30, 2000 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
three months ended July 31, 2000 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 July 31, 2000 and 1999
were 14,742,000 and 14,685,000, respectively. Diluted shares outstanding
for the three months ended July 31, 2000 and 1999 were 15,108,000 and
15,068,000, respectively. The diluted shares outstanding include potential
dilutive common shares from employee stock options of 366,000 and 383,000
for the three months ended July 31, 2000 and 1999, respectively.
3. Inventories consist of the following:
(in thousands)
<TABLE>
<CAPTION>
July 31, 2000 April 30, 2000
------------- --------------
<S> <C> <C>
Raw Materials and Parts $24,178 $26,925
Work in Process 17,269 11,760
Finished Goods 12,746 10,483
------- -------
$54,193 $49,168
======= =======
</TABLE>
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<PAGE>
FLOW INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended July 31, 2000
(unaudited)
4. Business Acquisitions:
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 2001, 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.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements filed with the SEC. SAB 101 outlines the
basic criteria that must be met to recognize revenue and provides guidance
for disclosures related to revenue recognition policies. Management has not
yet determined the impact SAB 101 would have on the financial position or
results of operations of the Company. This statement will be adopted by the
Company no later than February 1, 2001.
6. Certain 2000 amounts have been reclassified to conform with the 2001
presentation. These reclassifications had no effect on previously reported
net income.
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<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenue for Flow International Corporation ("Flow" or the "Company") for
the three month period ended July 31, 2000 was $50.4 million, an increase of
$9.2 million (22%) as compared to the prior year period. This growth included
revenues from the September 1999 acquisition of Spearhead Automated Systems,
Inc. ("Spearhead"), as well as a quarter-over-quarter increase in Fresher Under
Pressure(R) revenues of $2.5 million. Excluding Spearhead and Fresher Under
Pressure, revenue increased 10% for the quarter ended July 31, 2000 as compared
to the prior year period. 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. Also included in systems sales are Fresher
Under Pressure revenues and sales of isostatic and flex form press systems from
the Company's Swedish subsidiary, Flow Pressure Systems. Consumables represent
parts used by the pump and cutting head during operation. Systems revenues for
the three months ended July 31, 2000 were $36.7 million, an increase of $9.1
million (33%) compared to the prior year. Consumables revenues were $13.7
million for the three months ended July 31, 2000, a $103,000 (1%) increase
versus the prior year period. There have not been any significant price
increases or decreases for the Company's products.
Geographically, domestic revenue was $33.9 million, an increase of $9.2
million (37%) as compared to the prior year period. Excluding the effect of
Spearhead and Fresher Under Pressure, domestic revenues increased 26%. This
performance was substantially better than the United States machine cutting tool
market as a whole which decreased 10% for the 3 months ended June 30, 2000
according to the Association for Manufacturing Technology. European revenue was
$11.8 million, a decrease of $1.5 million (11%) as compared to the prior year
period, and represented 23% of total revenues. This decrease resulted from the
growth in Fresher Under Pressure. Flow Pressure Systems manufactures product for
sale both in Europe and the United States. During the first quarter, Flow
Pressure Systems shifted their production to Fresher Under Pressure systems
which are being sold in the United States, which resulted in the reduction of
European revenues. Asian revenue was $4.8 million, an increase of $1.4 million
(44%) as compared to the prior year period, and represented 9% of total
revenues. This represents the third consecutive quarter of year-over-year growth
from Asia.
The Company has developed the technology to apply ultrahigh-pressure
("UHP") to food, calling it Fresher Under Pressure. By exposing foods to
pressures up to 100,000 pounds per square inch (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, the
process also destroys harmful pathogens such as E. coli, listeria and
salmonella, thus increasing shelf life while ensuring a safe, healthy product.
Unlike thermal treatment (pasteurization) or other methods such as irradiation,
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<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
UHP processing does not destroy or alter the nutritional qualities, taste,
texture or color of the food. Flow has 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 UHP process non-pumpable foods, such as meats and seafood via a
patented large pressure vessel batch system technology. Flow is the only
supplier of complete UHP systems to the food industry. The Company anticipates
leasing the continuous flow systems and selling the batch systems. The leases
have a fixed monthly charge plus a per gallon or per pound usage fee. Lease
revenue is recognized monthly based on throughput. Revenue for the batch systems
is recognized on the percentage of completion method. Included in revenues for
the three month period ended July 31, 2000 is approximately $2.8 million
associated with the Fresher Under Pressure technology, which meets management
expectations, compared with approximately $300,000 in the first quarter of
fiscal 2000. The Company estimates fiscal 2001 revenues related to both batch
and continuous flow food purification systems will exceed $14 million, a
doubling of fiscal 2000 revenues and also anticipates this market will double
each year for the next three years. Based upon research conducted by outside
consultants from Business Communications Corp, food safety spending on
non-thermal production equipment will exceed $440 million by 2003. The research
report also forecasts that UHP processing could be 50% of this market.
Management anticipates that the Company will be in a position to capture a
significant portion of this UHP market.
Gross profit for the quarter was $21.4 million, an increase of $3.5 million
(19%) over the prior year period. Gross profit expressed as a percentage of
revenues (gross margin rate) was 42% for the quarter, down from 44% in the
comparable prior year period. 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, Integrated Flying Bridge, Husky, and Waterjet Machining Center(TM).
Operating expenses of $17.3 million increased $2.7 million (18%) for the
three months ended July 31, 2000, compared to the prior year period. Marketing
expenses increased $842,000 (12%) as compared to the prior year period.
Expressed as a percentage of revenue, marketing expenses decreased to 15% for
the three months ended July 31, 2000, versus 17% in the prior year period.
Research and engineering expenses increased $882,000 (24%) as compared to the
prior year period. Expressed as a percentage of revenue, research and
engineering expense was comparable to the prior year
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<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
period at 9%. The increase in research and engineering expense includes the
impact of the Spearhead acquisition, additional expenses associated with two
large aerospace jobs and increased costs associated with engineering the Fresher
Under Pressure systems. General and administrative expenses increased $959,000
(24%) for the three month period ended July 31, 2000, as compared to the prior
year period. Expressed as a percentage of revenue, general and administrative
expense was comparable to the prior year period at 10%.
Operating income of $4.1 million increased $778,000 (23%) for the three
months ended July 31, 2000, compared to the prior year period.
Current quarter interest expense increased $453,000 (34%) versus the prior
year period due to a higher average debt level associated with the Spearhead
acquisition and Fresher Under Pressure development costs, as well as increased
interest rates.
Based upon the expected tax position of the Company for fiscal 2001, taxes
for the three months ended July 31, 2000 have been provided at 30% of pre-tax
income. First quarter fiscal 2000 taxes were also provided at 30% of pre-tax
income; however, the net tax rate for the twelve months in fiscal 2000 was 28%.
The increased rate of 30% in fiscal 2001 as compared to the net twelve month
fiscal 2000 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 and benefits from the foreign sales corporation.
Basic shares outstanding for the three months ended July 31, 2000 and 1999
were 14,742,000 and 14,685,000, respectively. Diluted shares outstanding for the
three months ended July 31, 2000 and 1999 were 15,108,000 and 15,068,000,
respectively. The diluted shares outstanding include potential dilutive common
shares from employee stock options of 366,000 and 383,000 for the three months
ended July 31, 2000 and 1999, respectively.
The Company recorded net income of $1.5 million or $.10 per basic and
diluted share for the three months ended July 31, 2000, compared to $1.3
million, or $.09 per basic and diluted share for the same prior year period.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $4.6 million from operations during the three months
ended July 31, 2000 compared to using $4.5 million from operating activities
during the three months ended July 31, 1999. At July 31, 2000, the Company had
$18 million in completed continuous feed Fresher Under Pressure units as well as
work in progress and
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<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
stores inventory. Of this amount, $7.3 million is classified as property and
equipment and the remaining $10.7 million is included in 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. As of July 31, 2000 the Company obtained a waiver of its
asset coverage covenant. The Company anticipates the covenant will be amended
during the second quarter. Exclusive of this one covenant, the Company was in
compliance with all other covenants as of July 31, 2000.
Gross receivables at July 31, 2000 decreased $14.8 million (22%) from April
30, 2000. This decrease includes collection of several large receivables, in
addition to a reduction in unbilled revenues which have been offset with
customer deposits upon system shipments during the quarter. 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 July 31, 2000 increased $5 million (10%) from April 30,
2000. Included in these totals is an increase in work in process of $5.5
million. 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. Flow Robotics and Pressure Systems
manufacturing contracts accounted for $3.9 million of this increase.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk during the
three months ended July 31, 2000. For additional information, refer to
Management's Discussion and Analysis of Financial Condition and Results of
Operations as presented in the fiscal 2000 Annual Report to Stockholders.
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<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Year 2000 Issues:
To date, the Company has not experienced any material issues with respect to
Year 2000 that have effected the ongoing operations. Throughout the remainder of
Year 2000, there may be dates which do cause interruptions or failures that
could materially impact normal business operations. While the Company has taken
steps to resolve Year 2000 issues, there can be no assurance that these issues
are entirely resolved as of this date.
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 2000 FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION.
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<PAGE>
FLOW INTERNATIONAL CORPORATION
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is party to various legal actions incident to the normal
operations of its business, none of which is believed to be material to the
financial condition of the Company.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
-14-
<PAGE>
FLOW INTERNATIONAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLOW INTERNATIONAL
CORPORATION
Date: September 13, 2000 /s/ Ronald W. Tarrant
----------------------
Ronald W. Tarrant
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: September 13, 2000 /s/ Stephen D. Reichenbach
--------------------------
Stephen D. Reichenbach
Executive Vice President, Chief
Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
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