1 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, 1995 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 2-81315 FLOW INTERNATIONAL CORPORATION DELAWARE 91-1104842 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 23500 - 64th Avenue South Kent, Washington 98032 (206) 850-3500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No	. The number of shares outstanding of common stock, as of August 31, 1995: 14,680,147 shares. 2 FLOW INTERNATIONAL CORPORATION INDEX Page Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets - July 31, 1995 and April 30, 1995............................. 3 Condensed Consolidated Statements of Income - Three Months Ended July 31, 1995 and 1994.................... 4 Condensed Consolidated Statements of Cash Flows - Three Months Ended July 31, 1995 and 1994.................... 5 Notes to Condensed Consolidated Financial Statements.......... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 7 Part II - OTHER INFORMATION Item 1. Legal Proceedings........................................ 9 Item 2. Changes in Securities.................................... 9 Item 3. Defaults Upon Senior Securities.......................... 9 Item 4. Submission of Matters to a Vote of Security Holders...................................... 9 Item 5. Other Information........................................ 9 Item 6. Exhibits and Reports on Form 8-K......................... 9 Signatures.......................................................... 10 3 FLOW INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) July 31, April 30, 1995 1995 (unaudited) ----------- ----------- ASSETS Current Assets: Cash $ 1,909	 $ 1,074 Trade Accounts Receivable, less allowances for doubtful accounts of $1,124 and $1,150, respectively 33,211 31,638 Inventories 30,258 27,219 Deferred Income Taxes 1,340 1,335 Other Current Assets 4,969 4,719 ---------- ---------- Total Current Assets 71,687 65,985 Property and Equipment, net 24,933 24,533 Intangible Assets, net of accumulated amortization of $2,511 and $2,275, respectively 14,083 13,361 Other Assets 1,430 1,605 ----------- ---------- $112,133 $105,484 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes Payable to Banks $ 2,285 $ 1,614 Current Portion of Long-Term Obligations 3,832 798 Accounts Payable 10,959 12,221 Accrued Payroll and Related Liabilities 4,055 3,542 Other Accrued Taxes 477 638 Other Accrued Liabilities 3,258 2,580 -------- -------- Total Current Liabilities 24,866 21,393 Long-Term Obligations 34,103 33,359 Deferred Income Taxes 247 248 Minority Interest 1,154 681 Shareholders' Equity: Series A 8% Convertible Preferred Stock - $.01 par value, $500 liquidation preference, 1,000,000 shares authorized, 0 issued Common Stock - $.01 par value, 20,000,000 shares authorized 14,655,860 and 14,379,457 shares issued and outstanding, respectively, at July 31, 1995 14,603,233 and 14,326,830 shares issued and outstanding, respectively, at April 30, 1995 147 146 Capital in Excess of Par 37,671 37,602 Retained Earnings 13,516 11,456 Treasury Common Stock of 276,403 shares at cost (556) (556) Cumulative Translation Adjustment 1,146 1,339 Loan to Employee Stock Ownership Plan and Trust (161) (184) --------- --------- Total Stockholders' Equity 51,763 49,803 --------- --------- $112,133 $105,484 ========= ========= See Accompanying Notes to Condensed Consolidated Financial Statements 4 FLOW INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (unaudited) Three Months Ended July 31, ------------------- 1995 1994 Revenue: Sales $24,900 $17,604 Services 5,341 4,283 Rentals 2,772 2,622 -------- -------- Total Revenues 33,013 24,509 Cost of Sales: Sales 14,063 9,852 Services 3,788 3,049 Rentals 1,257 1,170 ------- -------- Total Cost of Sales 19,108 14,071 ------- -------- Gross Profit 13,905 10,438 Expenses: Marketing 5,254 3,815 Research and Engineering 1,824 1,379 General and Administrative 3,668 2,755 ------- ------- 10,746 7,949 ------- ------- Operating Income 3,159 2,489 Interest and Other Expense, net 501 428 ------- ------- Income Before Provision for Income Taxes 2,658 2,061 Provision for Income Taxes 598 412 ------- ------- Net Income $ 2,060 $ 1,649 ========= ======== Earnings Per Common and Equivalent Shares $ .14 $ .12 ========= ======== See Accompanying Notes to Condensed Consolidated Financial Statements 5 FLOW INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Ended July 31, 1995 1994 Cash Flows from Operating Activities: Net Income $ 2,060 $ 1,649 Adjustments to Reconcile Net Income to Cash Provided (Used) by Operating Activities: Depreciation and Amortization 1,721 1,308 Other 23 23 Increase in assets (3,213) (640) Increase (decrease) in liabilities (1,562) 236 -------- -------- Cash provided (used) by operating activities (971) 2,576 -------- -------- Cash Flows from Investing Activities: 	Expenditures for property and equipment (2,002) (2,334) 	Payment for business combination, net of cash acquired (186) 	Other 129 147 -------- -------- 	Cash used by investing activities (2,059) (2,187) -------- -------- Cash Flows from Financing Activities: 	Borrowings under line of credit agreements 27,815 18,783 	Repayments under line of credit agreements (22,823) (17,880) 	Payments of long-term debt (1,004) (1,901) 	Proceeds from issuance of common stock 70 120 -------- -------- 	Cash provided (used) by financing activities 4,058 (878) -------- -------- Effect of exchange rate changes on cash (193) (17) -------- -------- Increase (decrease) in cash and cash equivalents 835 (506) Cash and cash equivalents at beginning of period 1,074 1,351 -------- -------- Cash and cash equivalents at end of period $ 1,909 $ 845 ======== ======== Supplemental Disclosures of Cash Flow Information 	Fair value of assets acquired $ 2,860 	Cash paid for assets acquired (597) -------- 	Liabilities assumed $ 2,263 ======== See Accompanying Notes to Condensed Consolidated Financial Statement 6 FLOW INTERNATIONAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the Three Months Ended July 31, 1995 (unaudited) 1. In the opinion of the management of Flow International Corporation (the "Company"), the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position, statements of income, and cash flows for the interim periods presented. These interim financial statements should be read in conjunction with the April 30, 1995 consolidated financial statements. 2. Primary earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding plus the equivalent shares attributable to dilutive stock options during each period. The weighted average number of shares outstanding, including equivalent shares where required, for the three months ended July 31, 1995 and 1994 were 15,002,000 and 14,210,000, respectively. Fully diluted earnings per share do not differ materially from primary earnings per share. 3. Inventories consist of the following: (in thousands) July 31, 1995 April 30, 1995 Raw Materials and Parts $17,203 $15,794 Work in Process 5,362 4,432 Finished Goods 7,693 6,993 -------- -------- $30,258 $27,219 ======== ======== 4. In July 1995, the Company received an irrevocable long-term commitment from its principal bank for a new facility of $60 million to replace its Revolving Credit and Term Loan Agreement (the "Loan Agreement"), and equipment notes (collectively, "Domestic Financing"), and to provide a source of available cash. Accordingly, all Domestic Financings have been reclassified as long-term. The Loan Agreement requires the Company to comply with certain financial covenants. As of July 31, 1995, the Company was in compliance with all such covenants. 5. During the quarter the Company invested in a joint venture with Okura & Co., Ltd., its exclusive Japanese distributor. The Company is the majority partner, and the business will be know as Flow Japan Corporation. 7 FLOW INTERNATIONAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations for the Three Months Ended July 31, 1995 and 1994 Total revenues for the three months ended July 31, 1995 were $33,013,000, representing an increase of $8,504,000 (35%) over the comparable period in the prior year. The increase in sales revenues of $7,296,000 (41%) to $24,900,000 from the previous year was primarily attributable to the ultra- high pressure ("UHP") business. UHP sales were up approximately 57% compared to the prior year. This growth came from current year revenue contributions by the Company's two robotics acquisitions made during the third quarter of fiscal 1995, and from growth in the comparable UHP business units. Within the comparable UHP business units, the Company's European operations recorded revenue increases of 52% over the prior year, while domestic sales increased only 3%. A contributing factor to the lower domestic revenue growth is a softening of the domestic capital goods economy. As a percent of revenue, gross profit for the three months ended July 31, 1995 decreased by approximately one-half percent to 42% compared to the prior year. Comparison of the total gross profit percentage is dependent on the various mix of revenue types, and the level of spare parts and services activity compared to system sales. However, the gross profit percentage for the types of revenue shown in the income statement for the three months ended July 31, 1995 are similar to those of the same period in the prior year. As a result of the acquisitions made during fiscal 1995, the Company expects a higher percentage of system sales as it moves towards being a total system supplier. Operating expenses of $10,746,000 for the quarter ended July 31, 1995 were 33% of total revenues which is similar to that of the prior year. The dollar increase from the prior year arose primarily from the acquisitions made during the second half of fiscal 1995, a Japanese joint venture created during the quarter, and expenses associated with the integration of the new businesses into the organization. Interest and other expense, net, of $501,000 represents an increase of $73,000 (17%) over the prior year. Included in current year interest and other expense, net, is approximately $260,000 of additional interest related to increased borrowings to finance the acquisitions in fiscal 1995 and a joint venture during the first quarter of fiscal 1996. Offsetting some of the interest expense are foreign exchange gains and other income recognition, within several divisions, including the impact of minority interests. Income tax expense was lower than the statutory rate primarily due to lower foreign tax rates, benefits from the foreign sales corporation, and an ongoing review of the Company's FAS 109 valuation allowance. As a result of the above, the Company recorded net income of $2,060,000, or 14 cents per share for the three months ended July 31, 1995, compared to $1,649,000, or 12 cents per share for the same period in 1994. 8 FLOW INTERNATIONAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources In July 1995, the Company received an irrevocable long-term commitment from its principal bank, US Bank of Washington N.A., to refinance its domestic borrowings and to provide a source of available cash. The new financing arrangement comprises a $60 million five-year reducing line of credit. July 31, 1995 debt which will be replaced by the new financing arrangement, has been classified accordingly. The Company is also in negotiation to complete a $15 million private placement of debt financing. The Company believes that the new financings, together with other available credit facilities and working capital generated by operations, will provide sufficient resources to meet its operating and capital requirements. The Company's Revolving Credit and Term Loan Agreement requires the Company to comply with certain financial covenants. As of July 31, 1995, the Company was in compliance with all such covenants. Gross trade receivables at July 31, 1995 increased by $1.6 million, or 5%, from April 30, 1995, primarily reflecting higher quarterly sales and inclusion of the Company's Japanese joint venture. Increased days sales in gross accounts receivable can be attributed to higher foreign sales where account payment terms are typically longer than in the United States, and special payment terms negotiated on large system orders. The Company's management does not believe these timing issues will result in a material adverse impact on the Company's short-term liquidity requirements. Inventories at July 31, 1995 increased $3 million, or 11%, from April 30, 1995, primarily related to the higher levels of business and the inclusion of the newly formed joint venture. Certain products manufactured by ASI and Dynovation can require an extended manufacturing period, and therefore involve higher levels of work in process. 9 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 10 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 5, 1995 /s/ Ronald W. Tarrant ---------------------------------------- Ronald W. Tarrant Chairman, President and Chief Executive Officer (Principal Executive Officer) Date: September 5, 1995 /s/ Lee M. Andrews ----------------------------------------- Lee M. Andrews Vice President, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)