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, 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 .
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The number of shares outstanding of common stock, as of November 28, 1995:
14,417,844 shares.
FLOW INTERNATIONAL CORPORATION
INDEX
Page
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Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
October 31, 1995 and April 30, 1995.. . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income -
Three Months Ended October 31, 1995 and 1994. . . . . . . . . . 4
Condensed Consolidated Statements of Income -
Six Months Ended October 31, 1995 and 1994. . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended October 31, 1995 and 1994. . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . 8
Part II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . 10
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote
of Security Holders. . . . . . . . . . . . . . . . . . . . 10
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
October 31, April 30,
1995 1995
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(unaudited)
ASSETS
------
Current Assets:
Cash $ 1,836 $ 1,074
Trade Accounts Receivable, less allowances
for doubtful accounts of $1,166 and $1,150, respectively 31,309 31,638
Inventories 32,067 27,219
Deferred Income Taxes 2,334 1,335
Other Current Assets 5,707 4,719
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Total Current Assets 73,253 65,985
Property and Equipment, net 25,751 24,533
Intangible Assets, net of accumulated
amortization of $2,746 and $2,275, respectively 13,848 13,361
Other Assets 3,176 1,605
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$116,028 $105,484
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Notes Payable to Banks $ 3,251 $ 1,614
Current Portion of Long-Term Obligations 3,528 798
Accounts Payable 9,945 12,221
Accrued Payroll and Related Liabilities 3,696 3,542
Other Accrued Taxes 422 638
Other Accrued Liabilities 3,674 2,580
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Total Current Liabilities 24,516 21,393
Long-Term Obligations 37,215 33,359
Deferred Income Taxes - 248
Minority Interest 978 681
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
14,688,507 and 14,412,104 shares issued and outstanding,
respectively, at October 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 37,622 37,602
Retained Earnings 15,322 11,456
Treasury Common Stock of 276,403 shares at cost (556) (556)
Cumulative Translation Adjustment 918 1,339
Loan to Employee Stock Ownership Plan and Trust (134) (184)
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Total Stockholders' Equity 53,319 49,803
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$116,028 $105,484
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-------- --------
See Accompanying Notes to Condensed
Consolidated Financial Statements
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FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in thousands, except per share data)
Three Months Ended
October 31,
------------------
1995 1994
Revenue:
Sales $27,238 $19,132
Services 5,127 4,342
Rentals 3,257 3,284
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Total Revenues 35,622 26,758
Cost of Sales:
Sales 16,328 10,717
Services 3,750 3,098
Rentals 1,353 1,343
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Total Cost of Sales 21,431 15,158
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Gross Profit 14,191 11,600
Expenses:
Marketing 5,359 4,088
Research and Engineering 2,031 1,470
General and Administrative 3,713 2,871
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11,103 8,429
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Operating Income 3,088 3,171
Interest and Other Expense, net 758 468
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Income Before Provision for Income Taxes 2,330 2,703
Provision for Income Taxes 524 541
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Net Income $ 1,806 $ 2,162
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Earnings Per Common and Equivalent Shares $ .12 $ .15
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Average Common and Equivalent Shares Outstanding 15,233 14,299
See Accompanying Notes to Condensed
Consolidated Financial Statements
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FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in thousands, except per share data)
Six Months Ended
October 31,
------------------
1995 1994
Revenue:
Sales $52,138 $36,736
Services 10,468 8,625
Rentals 6,029 5,906
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Total Revenues 68,635 51,267
Cost of Sales:
Sales 30,391 20,569
Services 7,538 6,147
Rentals 2,610 2,513
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Total Cost of Sales 40,539 29,229
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Gross Profit 28,096 22,038
Expenses:
Marketing 10,613 7,903
Research and Engineering 3,855 2,849
General and Administrative 7,381 5,626
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21,849 16,378
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Operating Income 6,247 5,660
Interest and Other Expense, net 1,259 896
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Income Before Provision for Income Taxes 4,988 4,764
Provision for Income Taxes 1,122 953
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Net Income $ 3,866 $ 3,811
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Earnings Per Common and Equivalent Shares $ .26 $ .27
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Average Common and Equivalent Shares Outstanding 15,117 14,254
See Accompanying Notes to Condensed
Consolidated Financial Statements
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FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
Six Months Ended
October 31,
-----------------
1995 1994
Cash Flows from Operating Activities:
Net Income $ 3,866 $ 3,811
Adjustments to Reconcile Net Income to Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization 3,508 2,503
Other 50 (50)
Increase in assets (6,598) (3,139)
Increase (decrease) in liabilities (2,997) 641
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Cash provided (used) by operating activities (2,171) 3,766
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Cash Flows from Investing Activities:
Expenditures for property and equipment (5,055) (3,302)
Payment for business combination, net of cash acquired (186)
Other 812 (168)
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Cash used by investing activities (4,429) (3,470)
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Cash Flows from Financing Activities:
Borrowings under line of credit agreements 57,784 40,455
Repayments under line of credit agreements (57,716) (39,088)
Proceeds from private debt placement 15,000
Payments of long-term debt (7,306) (3,066)
Proceeds from issuance of common stock 21 141
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Cash provided (used) by financing activities 7,783 (1,558)
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Effect of exchange rate changes on cash (421) 100
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Increase (decrease) in cash and cash equivalents 762 (1,162)
Cash and cash equivalents at beginning of period 1,074 1,351
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Cash and cash equivalents at end of period $ 1,836 $ 189
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Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Fair value of assets acquired $ 2,860
Cash paid for assets acquired (597)
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Liabilities assumed $ 2,263
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-------
See Accompanying Notes to Condensed
Consolidated Financial Statements
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FLOW INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended October 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 October 31, 1995 and 1994
were 15,233,000 and 14,299,000, respectively, and for the six months ended
October 31, 1995 and 1994 were 15,117,000 and 14,254,000, respectively.
Fully diluted earnings per share do not differ materially from primary
earnings per share.
3. Inventories consist of the following:
(in thousands)
October 31, 1995 April 30, 1995
---------------- --------------
Raw Materials and Parts $18,204 $15,794
Work in Process 6,164 4,432
Finished Goods 7,699 6,993
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$32,067 $27,219
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4. In September 1995, the Company signed a five-year secured revolving credit
agreement with its principal bank to refinance its domestic borrowings and
to provide a source of available cash. The new financing arrangement
comprises a $60 million reducing line of credit. In September 1995, the
Company also completed a ten-year $15 million private placement of debt
financing. The revolving credit agreement and private debt financing
require the Company to comply with certain financial covenants. As of
October 31, 1995, the Company was in compliance with all such covenants.
5. In May 1995, the Company invested in a joint venture with Okura & Co.,
Ltd., its exclusive Japanese distributor. The Company is the majority
partner of the joint venture, Flow Japan Corporation.
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FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues for the three months ended October 31, 1995 were
$35,622,000, an increase of 33%, or $8,864,000, compared to the like period in
the prior year. Year-to-date, total revenues were $68,635,000, an increase of
34%, or $17,368,000 compared to the first half of fiscal 1995. The increase for
the quarter and year-to-date compared to the like period in the prior year was
attributable to revenue growth in the Company's ultra-high pressure ("UHP")
business and access systems business. UHP revenues increased approximately 45%
for the quarter and 49% year-to-date compared to the prior year, while access
systems revenues increased approximately 18% for the quarter and 12% year-to-
date compared to the prior year. The Company's robotics and automation units,
acquired during the third quarter of fiscal 1995, significantly contributed to
the UHP revenue growth. The Company's UHP European operations recorded a 23%
increase in revenues compared to the same quarter of fiscal 1995.
Gross profit as a percentage of revenues decreased from 43% in the second
quarter of fiscal 1995 to 40% in the second quarter of fiscal 1996. Year-to-
date, gross profit as a percentage of revenues decreased from 43% in fiscal 1995
to 41% in fiscal 1996. Comparison of the total gross profit percentage is
dependent on the mix of revenue types, which includes sales, services, and
rentals; and the mix of spare parts and systems in sales revenues. The decrease
in gross profit as a percentage of revenues for the quarter and year-to-date was
primarily due to the change in UHP (sales) business mix resulting from the
Company's acquisitions of robotics and automation technology. Robotics systems
typically carry lower gross profits as a percentage of revenues than the
Company's pump, spare parts, and access systems businesses.
Operating expenses of $11,103,000 increased $2,674,000 for the quarter
ended October 31, 1995, compared to the same quarter of the prior year.
Operating expenses for the second quarter of fiscal 1996 were 31% of revenues,
approximately the same percentage of revenues as the second quarter of fiscal
1995. Year-to-date, operating expenses totalled $21,849,000 for fiscal 1996,
compared to $16,378,000 for fiscal 1995. Operating expenses were approximately
32% of revenues year-to-date for fiscal 1996 and fiscal 1995. The dollar
increase from the prior year for the quarter and year-to-date arose primarily
from the acquisitions made during the second half of fiscal 1995 and a Japanese
joint venture created during the first quarter of fiscal 1996.
Second quarter fiscal 1996 interest and other expense, net, of $758,000
represented an increase of $290,000 compared to the prior year. Year-to-date,
interest and other expense, net, totalled $1,259,000 for fiscal 1996, an
increase of $363,000 compared to the same period in fiscal 1995. Included in
current quarter and year-to-date interest and other expense, net, is
approximately $260,000 and $520,000, respectively, of additional interest
related to increased borrowings to finance the fiscal 1995 acquisitions and a
joint venture during the first quarter of fiscal 1996.
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FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Income tax expense was lower than the statutory rate primarily due to lower
foreign tax rates, benefits from the foreign sales corporation, and a change in
the Company's FAS 109 valuation allowance.
The number of average shares outstanding for the second quarter increased
from 14,299,000 for fiscal 1995 to 15,233,000 for fiscal 1996. Year-to-date,
the average number of shares outstanding increased from 14,254,000 for fiscal
1995 to 15,117,000 for fiscal 1996.
As a result of the above, the Company recorded net income of $1,806,000, or
12 cents per share for the three months ended October 31, 1995, compared to
$2,162,000, or 15 cents per share for the same period in the prior year. Year-
to-date, net income for fiscal 1996 totalled $3,866,000, or 26 cents per share,
compared to $3,811,000, or 27 cents per share, for fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was $2.2 million for the six months
ended October 31, 1995, primarily due to an increase in inventory and a decrease
in accounts payable. Net cash provided by operating activities was $3.8 million
during the same period a year ago.
In September 1995, the Company signed a five-year secured credit agreement
with 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 reducing line of credit. In September
1995, the Company also completed a ten-year $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
in the foreseeable future. The revolving credit agreement and private debt
financing require the Company to comply with certain financial covenants. As of
October 31, 1995, the Company was in compliance with all such covenants.
Gross trade receivables at October 31, 1995 decreased by $313,000, or 1%,
from April 30, 1995. Days sales outstanding 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 October 31, 1995 increased $4.8 million, or 18%, 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 the
Company's robotic and automation divisions require an extended manufacturing
period, and therefore involve higher levels of work in process.
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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 1995 Annual Meeting of Stockholders on August 30,
1995. At the meeting four directors were elected. Ron D. Barbaro, Arlen I.
Prentice and J. Michael Ribaudo were elected to three year terms ending with the
1998 Annual Meeting of Stockholders receiving, respectively, 12,511,055,
12,503,458 and 12,451,966 votes in favor, and 141,633, 149,180 and 200,672 votes
withheld. John S. Cargill was elected to a one year term ending with the 1996
Annual Meeting of Stockholders receiving, respectively, 12,492,986 votes in
favor, and 159,652 votes withheld. In addition, the Company's 1995 Long-Term
Incentive Compensation Plan (the "Plan") was approved. The Plan received
7,102,783 shares for approval, 2,265,397 shares against approval and 125,665
shares abstained. There were no broker non-votes for any of the above matters
submitted for vote.
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
10.1 - Credit Agreement among Flow International
Corporation, as borrower, the Lenders listed herein, as lenders, and US Bank of
Washington, N.A. as agent for lenders dated September 25, 1995.
10.2 - Note purchase agreement dated September 25, 1995
(b) Reports on Form 8-K -
The Company filed a Current Report on Form 8-K on September 25,
1995 reporting the Company had completed a $75 million long-term financing
package, which included a $60 million, five-year revolving credit facility
provided by its principal bank and a $15 million, ten-year private note
placement.
The Company filed a Current Report on Form 8-K on September 25,
1995 reporting the resignation of Lee M. Andrews, Vice President and Chief
Financial Officer.
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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 6, 1995 /s/ Ronald W. Tarrant
---------------------
Ronald W. Tarrant
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: December 6, 1995 /s/ Elaine P. Scherba
---------------------
Elaine P. Scherba
Vice President, Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer)
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