FORM 10-Q/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1997 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 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 September 30, 1997: 14,840,672 shares FLOW INTERNATIONAL CORPORATION INDEX Page ---- Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets - July 31, 1997 (as restated) and April 30, 1997. . . . . . . . . . . . . 3 Condensed Consolidated Statements of Operations - Three Months Ended July 31, 1997 (as restated) and July 31, 1996. . . . 4 Condensed Consolidated Statements of Cash Flows - Three Months Ended July 31, 1997 (as restated) and July 31, 1996. . . . 5 Notes to Condensed Consolidated Financial Statements (as restated) . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (as restated).. . . . . . 8 Part II - OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . . . 11 Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . 11 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . 11 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 11 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2 FLOW INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited, in thousands, except share amounts) July 31, April 30, 1997 1997 -------- -------- (as restated) ASSETS Current Assets: Cash $ 7,824 $ 2,479 Trade Accounts Receivable, less allowances for doubtful accounts of $953 and $1,008, respectively 42,940 40,050 Inventories 41,882 38,471 Deferred Income Taxes 4,758 4,758 Other Current Assets 4,338 4,959 -------- -------- Total Current Assets 101,742 90,717 Property and Equipment, net 27,774 25,594 Intangible Assets, net of accumulated amortization of $4,682 and $4,441, respectively 14,033 11,471 Deferred Income Taxes 515 515 Other Assets 3,091 5,169 -------- -------- $147,155 $133,466 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes Payable $ 1,843 $ 1,651 Current Portion of Long-Term Obligations 2,985 79 Accounts Payable 12,027 11,619 Accrued Payroll and Related Liabilities 4,324 4,564 Other Accrued Taxes 985 1,139 Other Accrued Liabilities 9,307 3,539 -------- -------- Total Current Liabilities 31,471 22,591 Long-Term Obligations 61,640 53,569 Minority Interest 518 553 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 15,091,611 and 14,710,794 shares issued and outstanding, respectively, at July 31, 1997 14,925,627 and 14,544,810 shares issued and outstanding, respectively, at April 30, 1997 151 149 Capital in Excess of Par 39,012 38,871 Retained Earnings 18,317 19,266 Treasury Common Stock of 380,817 shares at cost (1,429) (1,429) Cumulative Translation Adjustment (2,184) 101 Unrealized Loss on Equity Securities Available For Sale (341) (205) -------- -------- Total Stockholders' Equity 53,526 56,753 -------- -------- $147,155 $133,466 -------- -------- -------- -------- See Accompanying Notes to Condensed Consolidated Financial Statements 3 FLOW INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except per share data) Three Months Ended July 31, ----------------------------- 1997 1996 (as restated) Revenue: Sales $ 37,446 $ 32,353 Services 6,423 5,236 Rentals 3,645 3,340 -------- -------- Total Revenues 47,514 40,929 Cost of Sales: Sales 22,468 19,244 Services 5,887 3,808 Rentals 1,099 1,604 -------- -------- Total Cost of Sales 29,454 24,656 -------- -------- Gross Profit 18,060 16,273 Expenses: Marketing 6,895 6,232 Research and Engineering 2,500 2,167 General and Administrative 4,160 4,102 Restructuring (Note 1) 4,910 - -------- -------- 18,465 12,501 -------- -------- Operating Income (Loss) (405) 3,772 Interest and Other Expense, net (1,055) (629) -------- -------- Income (Loss) Before Provision for Income Taxes (1,460) 3,143 Provision (Benefit) for Income Taxes (511) 911 -------- -------- Net Income (Loss) $ (949) $ 2,232 -------- -------- -------- -------- Earnings (Loss) Per Common and Equivalent Shares $ (.06) $ .15 -------- -------- -------- -------- See Accompanying Notes to Condensed Consolidated Financial Statements 4 FLOW INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Three Months Ended July 31, ----------------------------- 1997 1996 (as restated) Cash Flows from Operating Activities: Net Income (Loss) $ (949) $ 2,232 Adjustments to Reconcile Net Income to Cash Provided (Used) by Operating Activities: Depreciation and Amortization 1,186 1,949 Restructuring provision 4,910 Other 23 Increase in assets (2,434) (2,508) Increase (decrease) in liabilities, net of effects of restructuring (244) 1,667 ------- ------- Cash provided by operating activities 2,469 3,363 ------- ------- Cash Flows from Investing Activities: Expenditures for property and equipment (2,922) (2,023) Payment for business combination, net of cash acquired (2,528) Other 135 (19) ------- ------- Cash used by investing activities (5,315) (2,042) ------- ------- Cash Flows from Financing Activities: Borrowings (repayments) under line of credit agreements, net 10,345 (1,785) Payments of long-term debt (12) (38) Proceeds from issuance of common stock 143 262 ------- ------- Cash provided (used) by financing activities 10,476 (1,561) ------- ------- Effect of exchange rate changes (2,285) (332) ------- ------- Increase (decrease) in cash and cash equivalents 5,345 (572) Cash and cash equivalents at beginning of period 2,479 3,845 ------- ------- Cash and cash equivalents at end of period $ 7,824 $ 3,273 ------- ------- ------- ------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Fair value of assets acquired $ 4,735 Cash paid and stock issued for assets acquired (2,818) ------- Liabilities assumed $ 1,917 See Accompanying Notes to Condensed Consolidated Financial Statements 5 FLOW INTERNATIONAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the Three Months Ended July 31, 1997, as restated (unaudited) 1. On August 25, 1997 Flow International Corporation (the "Company") entered into an agreement to sell the assets and certain liabilities of the Access and Services businesses. The sale was completed on September 30, 1997. The primary business units included in this transaction are Spider Staging Corporation, Power Climber, Inc. and affiliated companies, Rampart Waterblast, Inc. and the Flow Services division. As a result of the terms of the Asset Purchase and Sale Agreement, the Company has restated first quarter results in accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of". The Company has restated its results to include a $4.9 million charge to write down the assets sold to net realizable value as well as provide for probable future obligations associated with the sale. The charge is included as a separate component of operating expenses. During fiscal 1997, the Company recorded a $9 million restructuring provision related to the planned divestiture of the Access and Services businesses. As restated, the Company had a net loss of $949,000 or six cents per share for the quarter as compared to net income of $2.2 million or $.15 per share as previously reported. 2. In the opinion of the management of 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 operations, and cash flows for the interim periods presented. These interim financial statements should be read in conjunction with the April 30, 1997 consolidated financial statements. 3. 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, 1997 and 1996 were 14,690,000 and 15,025,000, respectively. Fully diluted earnings per share do not differ materially from primary earnings per share. Statement of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings Per Share" will be adopted at the end of fiscal 1998. Applying the provisions of FAS 128, the proforma basic earnings per share and the proforma diluted earnings per share would not differ from the amounts reported in the accompanying Consolidated Statements of Operations. 4. Inventories consist of the following: (in thousands) July 31, 1997 April 30, 1997 ------------- -------------- Raw Materials and Parts $25,062 $23,896 Work in Process 8,345 5,872 Finished Goods 8,475 8,703 ------- ------- $41,882 $38,471 6 FLOW INTERNATIONAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the Three Months Ended July 31, 1997 (unaudited) 5. In May 1997 the Company purchased the stock of Foracon Maschinen Anlagenbau ("Foracon") for $2.3 million and 33,655 shares of Flow common stock. The acquisition further increases the Company's strength in the European market. An additional 97,601 shares of Flow common stock will be paid as consideration if Foracon achieves certain financial targets. Foracon supplies ultrahigh-pressure and related systems to the German market. 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, 1997, AS RESTATED, AND 1996 Total revenues for the three months ended July 31, 1997 were $47.5 million, representing an increase of $6.6 million (16%) over the comparable prior year period. Total product sales increased $5.1 million (16%) versus the prior year quarter. Product sales from the Company's ultrahigh-pressure ("UHP") and Automation business increased $4.7 million (18%). Included in this increase was a 23% increase in system sales and a 12% increase in spare parts sales. The current year includes the results of Foracon Maschinen Anlagenbau ("Foracon") which was acquired in May 1997 to increase the Companys capacity as well as strengthen the Company's market position in Europe. Excluding the effect of Foracon, UHP revenues increased $3.3 million (13%). This $3.3 million increase includes the negative effect of the stronger dollar versus the Deutschemark, an approximate $1 million reduction in revenues in the current year. All primary UHP and Automation sales territories experienced revenue gains with North America, Asia and Europe increasing 11%, 45% and 27%, respectively. Access product sales increased $392,000 (6%) as compared to the prior year. Service revenues of $6.4 million represent a $1.2 million increase (23%) over last year and rental revenues increased $305,000 (9%). Gross profit as a percentage of revenues (gross margin rate) was 38% for the quarter as compared to 40% in the prior year. The gross margin rate on the core UHP and Automation business remained at 42% for both the current and prior year quarter. The change in consolidated gross margin is attributable to the Services division which experienced higher than anticipated costs on several projects. Comparison of gross margin rates 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. Robotic systems typically carry lower gross margin rates than the Company's pump, spare parts, and access systems businesses. On August 25, 1997 the Company entered into an agreement to sell the assets and certain liabilities of the Access and Services businesses. The sale was completed on September 30, 1997. The primary business units included in this transaction are Spider Staging Corporation, Power Climber, Inc. and affiliated companies, Rampart Waterblast, Inc. and the Flow Services division. As a result of the terms of the Asset Purchase and Sale Agreement, the Company has restated first quarter results to include a $4.9 million charge to write down the assets sold to net realizable value as well as provide for probable future obligations associated with the sale. This charge is included as a separate component of operating expenses. During fiscal 1997, the Company recorded a $9 million restructuring provision related to the planned divestiture of the Access and Services businesses. 8 FLOW INTERNATIONAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Exclusive of the restructuring charge as discussed above, operating expenses were $13.6 million for the quarter ended July 31, 1997 or 29% of revenues as compared to 31% in the prior year. This decrease primarily results from general and administrative expenses which were flat quarter over quarter. Interest and other expense, net, of $1.1 million represents an increase of $426,000 (68%) over the prior year. Interest expense increased $300,000 reflecting increased borrowings. The remaining difference relates primarily to minority interest in net losses of the joint ventures. Based upon the expected tax position of the Company for fiscal 1998, taxes have been provided for at 35% versus 29% in the prior year. 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 an ongoing review of the Company's FAS 109 valuation allowance. The weighted average number of shares outstanding for the quarter decreased to 14,690,000, as restated, from 15,025,000 in the prior year. This decrease relates primarily to exclusion of common stock equivalents as a net loss was incurred during the current quarter. As a result of the above, the Company recorded a net loss of $949,000, or 6 cents per share, as restated, for the three months ended July 31, 1997 as compared to net income of $2.2 million or $.15 cents per share in the first quarter of fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES The Company generated $2.5 million in cash from operations during the three months ended July 31, 1997 as compared to $3.4 million in the prior year. Total debt at July 31, 1997 was $66.5 million, up $11.2 million from April 30, 1997, while cash increased $5.3 million. The increase in debt was attributable to the purchase of Foracon, timing of cash receipts and paydown of debt, and the negative effect of several Services projects. Subsequent to quarter end the Company sold it's Access and Services business. The cash proceeds of $31.7 million will be used to paydown existing debt. 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, 1997, the Company was in compliance with all such covenants. 9 FLOW INTERNATIONAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Gross trade receivables at July 31, 1997 increased $2.8 million (7%), from April 30, 1997. This is a function of an increase in sales, the acquisition of Foracon receivables, as well as a shift in the mix towards large system sales. Days sales in gross accounts receivable can be negatively impacted by the traditionally longer payment cycle outside the United States as well as that longer payment terms are sometimes negotiated on large 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, 1997 increased $3.4 million (9%), from April 30, 1997. This increase is in large part work in process and represents products manufactured by Flow Robotics and Flow Automation which can require an extended manufacturing period, as well as the acquisition of Foracon inventory. 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 1997 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. 10 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 11 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: October 10, 1997 /s/ Ronald W. Tarrant --------------------- Ronald W. Tarrant Chairman, President and Chief Executive Officer (Principal Executive Officer) Date: October 10, 1997 /s/ Stephen D. Reichenbach -------------------------- Stephen D. Reichenbach Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 12