<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 January 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 February 21, 2000:
14,729,488 shares.
<PAGE>
FLOW INTERNATIONAL CORPORATION
INDEX
PAGE
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheets -
January 31, 2000 and April 30, 1999.............................. 3
Consolidated Statements of Income -
Three Months Ended January 31, 2000 and 1999..................... 4
Consolidated Statements of Income -
Nine Months Ended January 31, 2000 and 1999...................... 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended January 31, 2000 and 1999...................... 6
Consolidated Statements of Comprehensive Income -
Three and Nine Months Ended January 31, 2000 and 1999............ 7
Notes to Condensed Consolidated Financial Statements............... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 11
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
-2-
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
January 31, April 30,
2000 1999
----------- ---------
<S> <C> <C>
ASSETS (unaudited)
Current Assets:
Cash $ 5,673 $ 10,403
Trade Accounts Receivable, less allowances
for doubtful accounts of $990 and $766, respectively 64,553 55,783
Inventories, net 49,434 47,771
Deferred Income Taxes 1,658 1,658
Other Current Assets 6,076 4,849
--------- --------
Total Current Assets 127,394 120,464
Property and Equipment, net 19,555 17,723
Intangible Assets, net of accumulated
amortization of $9,226 and $7,000, respectively 38,100 36,211
Deferred Income Taxes 1,085 1,314
Other Assets 4,772 3,440
--------- --------
$190,906 $179,152
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 434 $ 419
Current Portion of Long-Term Obligations 4,043 4,185
Accounts Payable 14,203 18,411
Accrued Payroll and Related Liabilities 4,802 6,801
Deferred Revenue 4,358 431
Other Accrued Liabilities 9,292 10,224
--------- --------
Total Current Liabilities 37,132 40,471
Long-Term Obligations 69,035 64,614
Customer Deposits 15,570 8,931
Minority Interest 1,845 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, 14,728,921
shares outstanding at January 31, 2000
14,665,700 shares outstanding at April 30, 1999 147 147
Capital in Excess of Par 40,764 40,260
Retained Earnings 32,262 28,037
Cumulative Translation Adjustment (5,070) (3,882)
Unrealized Loss on Equity Securities Available For
Sale, net of tax (779) (540)
--------- --------
Total Stockholders' Equity 67,324 64,022
--------- --------
$190,906 $179,152
========= ========
</TABLE>
See Accompanying Notes to Condensed
Consolidated Financial Statements
-3-
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
-------------------------
2000 1999
<S> <C> <C>
Revenues $50,810 $33,554
Cost of Sales 30,482 17,969
------- -------
Gross Profit 20,328 15,585
------- -------
Expenses:
Marketing 7,472 5,885
Research and Engineering 3,776 3,131
General and Administrative 5,160 3,535
------- -------
16,408 12,551
------- -------
Operating Income 3,920 3,034
Interest Expense (1,198) (744)
Other Expense, net (632) (285)
-------- -------
Income Before Provision for Income Taxes 2,090 2,005
Provision for Income Taxes 627 562
------- -------
Net Income $ 1,463 $ 1,443
======= =======
Basic Earnings Per Share $ .10 $ .10
======= =======
Diluted Earnings Per Share $ .10 $ .10
======= =======
</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>
Nine Months Ended
January 31,
--------------------------
2000 1999
<S> <C> <C>
Revenues $138,542 $108,359
Cost of Sales 82,505 60,011
-------- --------
Gross Profit 56,037 48,348
-------- --------
Expenses:
Marketing 21,033 17,873
Research and Engineering 10,366 9,153
General and Administrative 13,743 11,011
-------- --------
45,142 38,037
-------- --------
Operating Income 10,895 10,311
Interest Expense (3,722) (2,343)
Other Expense, net (1,136) (351)
-------- --------
Income Before Provision for Income Taxes 6,037 7,617
Provision for Income Taxes 1,812 2,189
-------- --------
Net Income $ 4,225 $ 5,428
======== ========
Basic Earnings Per Share $ .29 $ .37
======== ========
Diluted Earnings Per Share $ .28 $ .36
======== ========
</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>
Nine Months Ended
January 31,
---------------------------
2000 1999
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 4,225 $ 5,428
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization 5,939 3,402
Increase in assets (11,478) (2,237)
Increase /(Decrease) in liabilities 2,974 (4,014)
Other 114
-------- -------
Cash provided by operating activities 1,660 2,693
-------- -------
Cash Flows from Investing Activities:
Expenditures for property and equipment (5,797) (6,118)
Payment for business combinations, net of cash acquired (4,499)
Other 743
-------- -------
Cash used by investing activities (9,553) (6,118)
-------- -------
Cash Flows from Financing Activities:
Borrowings under line of credit agreements, net 7,242 9,807
Payments on long-term obligations (3,395) (2,734)
Purchase of Flow common stock (3,267)
Proceeds from issuance of common stock 504 850
-------- -------
Cash provided by financing activities 4,351 4,656
-------- -------
Effect of foreign exchange rate changes (1,188) (528)
-------- -------
(Decrease) increase in cash and cash equivalents (4,730) 703
Cash and cash equivalents at beginning of period 10,403 3,006
-------- -------
Cash and cash equivalents at end of period $ 5,673 $ 3,709
======== =======
</TABLE>
See Accompanying Notes to Condensed
Consolidated Financial Statements
-6-
<PAGE>
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
--------------------------
2000 1999
<S> <C> <C>
Net Income $ 1,463 $1,443
Other Comprehensive Income:
Unrealized (Loss) / Gain on Equity Securities Available
for Sale, net of tax (86) 105
Cumulative Translation Adjustment (1,106) (793)
------- ------
Comprehensive Income $ 271 $ 755
======= ======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
--------------------------
2000 1999
<S> <C> <C>
Net Income $ 4,225 $5,428
Other Comprehensive Income:
Unrealized Loss on Equity Securities Available
for Sale, net of tax (239) (409)
Cumulative Translation Adjustment (1,188) (528)
------- ------
Comprehensive Income $ 2,798 $4,491
======= ======
</TABLE>
See Accompanying Notes to Condensed
Consolidated Financial Statements
-7-
<PAGE>
FLOW INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended January 31, 2000
(unaudited)
1. The Company:
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 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 generally accepted accounting principles and 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 three and nine months ended January 31, 2000 may not be indicative
of future results.
2. 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, where appropriate.
Basic shares outstanding for the three months ended January 31, 2000
and 1999 were 14,728,000 and 14,623,000, respectively. For the nine
months ended January 31, 2000 and 1999, basic shares outstanding were
14,711,000 and 14,757,000, respectively. Diluted shares outstanding for
the three months ended January 31, 2000 and 1999 were 15,136,000 and
14,957,000, respectively. The diluted shares outstanding include
potential dilutive common shares from employee stock options of 408,000
and 334,000 for the three months ended January 31, 2000 and 1999,
respectively. For the nine months ended January 31, 2000 and 1999,
diluted shares outstanding were 15,098,000 and 15,110,000,
respectively. The diluted shares outstanding include potential dilutive
common shares from employee stock options of 387,000 and 353,000 for
the nine months ended January 31, 2000 and 1999, respectively.
-8-
<PAGE>
FLOW INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended January 31, 2000
(unaudited)
3. Inventories:
(in thousands)
<TABLE>
<CAPTION>
JANUARY 31, 2000 APRIL 30, 1999
---------------- --------------
<S> <C> <C>
Raw Materials and Parts, net $26,243 $26,776
Work in Process 11,551 11,223
Finished Goods 11,640 9,772
------- -------
$49,434 $47,771
======= =======
</TABLE>
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. In addition, during fiscal 2000 a pre-acquisition
contingency related to the valuation of work in process inventory of a
March 1999 acquisition was reevaluated. This resulted in additional
goodwill being recorded.
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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended January 31, 2000
(unaudited)
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 believes that the impact of SAB 101 would have no
material effect on the financial position or results of operations of
the Company.
-10-
<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 nine month period ended January 31, 2000 increased $30.1 million (28%)
to $138.5 million as compared to $108.4 million in the prior year. Revenue for
the three month period ended January 31, 2000 was $50.8 million, an increase of
$17.2 million (51%) as compared to $33.6 million in the prior year. Excluding
recent acquisitions, revenue increased 7% for the quarter ended January 31, 2000
and decreased 6% year to date, as compared to the prior year periods. In
contrast, according to the Association for Manufacturing Technology, the
domestic metal cutting market declined 28% year over year, through December
1999. Included in the current year are the acquisitions of Flow Pressure Systems
Vasteras AB ("Pressure Systems") in March 1999 and Spearhead Automated Systems,
Inc. ("Spearhead") in September 1999. Geographically, domestic, European and
Asian revenues for the nine months ended January 31, increased $12.6 million
(22%), $13.2 million (45%) and $446,000 (4%), respectively, as compared to the
prior year period. For the quarter ended January 31, 2000, domestic, European
and Asian revenue increased $10.7 million (65%), $4.2 million (41%) and $1
million (27%), respectively, 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. In addition, the Company's food and isostatic press
systems, which are built by Pressure Systems, are included in systems sales.
Consumables sales represent parts used by the pump and cutting head during
operation. Systems revenues increased $17.5 million (85%) and $30.2 million
(44%) for the three and nine months ended January 31, 2000, respectively, over
the prior year periods, due to the recent acquisitions. Consumables sales
decreased 2% and were comparable for the three and nine months ended January 31,
2000, respectively, due to a slowdown in the domestic machine tool cutting
market, 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.
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
-11-
<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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 is on the percentage
of completion cost to cost method. Included in revenues for the three and nine
month periods ended January 31, 2000 is approximately $2.1 million and $2.7
million, respectively, associated with the Fresher Under Pressure technology.
The Company estimates fiscal 2000 Fresher Under Pressure revenues will be in
excess of $7 million. Management also anticipates this market will double each
year for the next three years.
Gross profit for the quarter was $20.3 million, an increase of $4.7
million (30%) over the prior year period. Gross profit expressed as a percentage
of revenues (gross margin rate) was 40% for the quarter and 40% year to date, as
compared to 46% and 45%, 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, Integrated
Flying Bridge, Husky, and Waterjet Machining Center-TM-. Also included in
current year system sales are the press systems manufactured at Pressure
Systems. The gross margin rate decrease for both the three and nine month
periods of fiscal 2000 as compared to the prior year is primarily due to the
higher percentage of special systems revenues.
Excluding Pressure Systems and Spearhead, operating expenses increased
$565,000 (5%) and decreased $434,000 (1%) for the three and nine months ended
January 31, 2000, respectively, as compared to the prior year periods. Total
consolidated operating expenses of $16.4 million increased $3.9 million (31%)
for the quarter ended January 31, 2000, compared to the prior year period and
were $45.1 million, up $7.1 million (19%) for the nine months ended January 31,
2000 versus the prior year period. Marketing expenses increased $1.6 million
(27%) and $3.2 million (18%) for the three and nine month periods ended January
31, 2000, respectively, as compared to the prior year
-12-
<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
periods. Expressed as a percentage of revenue, marketing expenses were 15% for
both the three and nine month periods ended January 31, 2000, as compared to 18%
and 16% for the prior year periods, respectively. Excluding Pressure Systems and
Spearhead, marketing expenses increased $774,000 (13%) and $1.2 million (7%) for
the three and nine months ended January 31, 2000, respectively, as compared to
the prior year periods. These increases include the impact of Flow's South
American operations. Research and engineering expense increased $645,000 (21%)
and $1.2 million (13%) for the three and nine month periods ended January 31,
2000 respectively, as compared to the prior year periods. Research and
engineering expenses expressed as a percentage of revenues were 7% for both the
three and nine month periods ended January 31, 2000, as compared to 9% and 8%
for the prior year periods, respectively. Excluding Pressure Systems and
Spearhead, research and engineering expenses decreased $701,000 (22%) and $1.6
million (18%) for the three and nine months ended January 31, 2000,
respectively, as compared to the prior year periods. General and administrative
expense increased $1.6 million (46%) and $2.7 million (25%) for the three and
nine month periods ended January 31, 2000 respectively, as compared to the prior
year periods. Expressed as a percentage of revenue, general and administrative
expenses were 10% for both the three and nine month periods ended January 31,
2000, as compared to 11% and 10% for the prior year periods, respectively.
Excluding Pressure Systems and Spearhead, general and administrative expense
increased $492,000 (14%) and decreased $38,000 for the three and nine months
ended January 31, 2000, respectively, as compared to the prior year periods.
Operating income for the quarter ended January 31, 2000 was $3.9
million, an increase of $886,000 (29%) over the prior year quarter. For the
year, operating income was $10.9 million, an increase of $584,000 (6%) over the
prior year period.
Interest expense of $1.2 million increased $454,000 (61%) for the
quarter ended January 31, 2000, compared to the prior year period and was $3.7
million, up $1.4 million (59%) for the nine months ended January 31, 2000 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, net of $632,000 increased $347,000 (122%) for the
quarter ended January 31, 2000, compared to the prior year period and was $1.1
million, up $785,000 (224%) for the nine months ended January 31, 2000 versus
the prior year period. This increase is due primarily to the expense arising
from the consolidation method of accounting for majority owned joint ventures.
-13-
<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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 January 31, 2000
and 1999 were 14,728,000 and 14,623,000, respectively. For the nine months ended
January 31, 2000 and 1999, basic shares outstanding were 14,711,000 and
14,757,000, respectively. Diluted shares outstanding for the three months ended
January 31, 2000 and 1999 were 15,136,000 and 14,957,000, respectively. The
diluted shares outstanding include potential dilutive common shares from
employee stock options of 408,000 and 334,000 for the three months ended January
31, 2000 and 1999, respectively. For the nine months ended January 31, 2000 and
1999, diluted shares outstanding were 15,098,000 and 15,110,000, respectively.
The diluted shares outstanding include potential dilutive common shares from
employee stock options of 387,000 and 353,000 for the nine months ended January
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 January 31, 2000, compared to $1.4
million, or $.10 per basic and diluted share for the same prior year period.
Year to date, the Company recorded $4.2 million or $.29 per basic and $.28 per
diluted share as compared to $5.4 million or $.37 per basic and $.36 per diluted
share in fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $1.7 million and $2.7 million from operations
during the nine month periods ended January 31, 2000 and 1999, respectively. At
January 31, 2000, the Company had a total of $9.5 million in completed
continuous feed Fresher Under Pressure units, work in progress and stores
inventory. Of this amount, $5.4 million is classified as property and equipment
and the remaining $4.1 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
-14-
<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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 January 31, 2000 one covenant under the
Private Placement was waived. Management anticipates being back in compliance
with this covenant at year end. As of January 31, 2000, the Company was in
compliance with all other such covenants, as amended.
Gross trade receivables at January 31, 2000 increased $9 million (16%)
from April 30, 1999. Days sales in gross accounts receivable can be negatively
impacted by the traditionally longer payment cycle outside the United States,
timing of payments on large special system orders and the use of the percentage
of completion revenue recognition method on large system projects. 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 January 31, 2000 increased $1.7 million (3%) from April
30, 1999. Excluding Pressure Systems and Spearhead, inventory decreased $1.7
million (4%) 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 nine month periods ended January 31, 2000. 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:
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.
-15-
<PAGE>
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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
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
-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: March 15, 2000 /s/ RONALD W. TARRANT
-----------------------------------------
Ronald W. Tarrant
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: March 15, 2000 /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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