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, 1998
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
(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 March 11, 1998:
14,952,893 shares.
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FLOW INTERNATIONAL CORPORATION
INDEX
Page
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Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
January 31, 1998 and April 30, 1997..................................3
Condensed Consolidated Statements of Income -
Three Months Ended January 31, 1998 and 1997.........................4
Condensed Consolidated Statements of Income -
Nine Months Ended January 31, 1998 and 1997..........................5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended January 31, 1998 and 1997..........................6
Notes to Condensed 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..............................................16
Item 2. Changes in Securities..........................................16
Item 3. Defaults Upon Senior Securities................................16
Item 4. Submission of Matters to a Vote
of Security Holders..........................................16
Item 5. Other Information..............................................16
Item 6. Exhibits and Reports on Form 8-K...............................16
Signatures...................................................................17
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FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
January 31, April 30,
1998 * 1997
----------- ---------
(unaudited)
ASSETS
Current Assets:
Cash $ 3,325 $ 2,479
Trade Accounts Receivable, less allowances
for doubtful accounts of $672 and $1,008, respectively 32,390 40,050
Inventories 36,459 38,471
Deferred Income Taxes 4,758 4,758
Other Current Assets 5,113 4,959
-------- --------
Total Current Assets 82,045 90,717
Property and Equipment, net 11,507 25,594
Intangible Assets, net of accumulated
amortization of $5,242 and $4,441, respectively 13,563 11,471
Deferred Income Taxes 515 515
Other Assets 2,562 5,169
-------- --------
$110,192 $133,466
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 1,583 $ 1,651
Current Portion of Long-Term Obligations 4,252 79
Accounts Payable 8,344 11,619
Accrued Payroll and Related Liabilities 3,844 4,564
Other Accrued Taxes 281 1,139
Other Accrued Liabilities 5,134 3,539
-------- --------
Total Current Liabilities 23,438 22,591
Long-Term Obligations 27,895 53,569
Minority Interest 613 553
Stockholders' 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,
15,333,710 and 14,952,893 shares issued and outstanding,
respectively, at January 31, 1998
14,925,627 and 14,544,810 shares issued and outstanding,
respectively, at April 30, 1997 153 149
Capital in Excess of Par 40,494 38,871
Retained Earnings 21,931 19,266
Treasury Common Stock of 380,817 shares at cost (1,429) (1,429)
Cumulative Translation Adjustment (2,228) 101
Unrealized Loss on Equity Securities Available For Sale (675) (205)
-------- --------
Total Stockholders' Equity 58,246 56,753
-------- --------
$110,192 $133,466
-------- --------
* See Note 2 which describes the disposition of certain business units during
fiscal 1998
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
January 31,
------------------
1998 * 1997
Revenue:
Sales $34,463 $31,943
Services 4,573
Rentals 3,145
------- -------
Total Revenues 34,463 39,661
Cost of Sales:
Sales 19,996 18,870
Services 3,407
Rentals 1,605
------- -------
Total Cost of Sales 19,996 23,882
------- -------
Gross Profit 14,467 15,779
Expenses:
Marketing 5,175 6,906
Research and Engineering 2,613 2,201
General and Administrative 3,342 3,789
------- -------
11,130 12,896
------- -------
Operating Income 3,337 2,883
Interest and Other Expense, net (553) (1,036)
------- -------
Income Before Provision for Income Taxes 2,784 1,847
Provision for Income Taxes 974 535
------- -------
Net Income $ 1,810 $ 1,312
------- -------
Earnings Per Common and Equivalent Shares $ .12 $ .09
------- -------
Average Common and Equivalent Shares Outstanding 15,444 15,069
* See Note 2 which describes the disposition of certain business units during
fiscal 1998
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)
Nine Months Ended
January 31,
---------------------
1998 * 1997
Revenue:
Sales $107,071 $ 96,598
Services 6,423 15,098
Rentals 3,645 10,217
-------- --------
Total Revenues 117,139 121,913
Cost of Sales:
Sales 62,940 56,393
Services 5,887 11,190
Rentals 1,099 4,967
-------- --------
Total Cost of Sales 69,926 72,550
-------- --------
Gross Profit 47,213 49,363
Expenses:
Marketing 17,397 19,685
Research and Engineering 7,263 6,453
General and Administrative 10,922 12,239
Restructuring (Note 2) 4,910 -
-------- --------
40,492 38,377
-------- --------
Operating Income 6,721 10,986
Interest and Other Expense, net (2,622) (2,582)
-------- --------
Income Before Provision for Income Taxes 4,099 8,404
Provision for Income Taxes 1,434 2,436
-------- --------
Net Income $ 2,665 $ 5,968
-------- --------
Earnings Per Common and Equivalent Shares $ .17 $ .40
-------- --------
Average Common and Equivalent Shares Outstanding 15,306 15,095
* See Note 2 which describes the disposition of certain business units during
fiscal 1998
See Accompanying Notes to Condensed
Consolidated Financial Statements
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FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
Nine Months Ended
January 31,
---------------------
1998 * 1997
Cash Flows from Operating Activities:
Net Income $ 2,665 $ 5,968
Adjustments to Reconcile Net Income to Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization 3,212 5,465
Restructuring Provision 4,910
Other 92
Increase in assets, net of disposition (9,005) (5,551)
Decrease in liabilities, net of disposition (882) (1,041)
------- -------
Cash provided (used) by operating activities 900 4,933
------- -------
Cash Flows from Investing Activities:
Expenditures for property and equipment (4,566) (6,346)
Payment for business combination, net of cash acquired (2,528) (1,500)
Other (147) 387
------- -------
Cash used by investing activities (7,241) (7,459)
------- -------
Cash Flows from Financing Activities:
Borrowings (repayments) under line of credit agreements, net 10,070 4,422
Payments of long-term debt (1,286) (729)
Proceeds from issuance of common stock 1,627 503
Purchase of treasury stock (498)
------- -------
Cash provided by financing activities 10,411 3,698
------- -------
Effect of exchange rate changes (3,224) (363)
------- -------
Increase (decrease) in cash and cash equivalents 846 809
Cash and cash equivalents at beginning of period 2,479 3,845
------- -------
Cash and cash equivalents at end of period $ 3,325 $ 4,654
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Fair value of assets acquired $ 4,735
Cash paid for assets acquired (2,818)
-------
Liabilities assumed $ 1,917
* See Note 2 which describes the disposition of certain business units during
fiscal 1998
See Accompanying Notes to Condensed
Consolidated Financial Statements
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FLOW INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended January 31, 1998
(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, 1997
consolidated financial statements.
2. THE COMPANY SOLD THE ASSETS AND CERTAIN LIABILITIES OF THE ACCESS AND
SERVICES BUSINESSES. OPERATIONS OF THE DISPOSED ACCESS AND SERVICES
BUSINESSES ARE NOT INCLUDED IN THE SECOND OR THIRD QUARTER OF FISCAL 1998.
THE PRIMARY BUSINESS UNITS INCLUDED IN THIS TRANSACTION WERE SPIDER STAGING
CORPORATION, POWER CLIMBER, INC. AND AFFILIATED COMPANIES, RAMPART
WATERBLAST, INC. AND THE FLOW SERVICES DIVISION. ASSOCIATED WITH THE SALE,
THE COMPANY RECORDED A $4.9 MILLION CHARGE DURING THE FIRST QUARTER OF
FISCAL 1998 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 IN THE
ACCOMPANYING CONSOLIDATED STATEMENTS OF INCOME. DURING FISCAL 1997, THE
COMPANY RECORDED A $9 MILLION RESTRUCTURING PROVISION RELATED TO THE
PLANNED DIVESTITURE OF THE ACCESS AND SERVICES BUSINESSES.
3. 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. An
additional 97,601 shares of Flow common stock will be paid as consideration
if Foracon achieves certain financial targets. Foracon supplies ultra
high-pressure and related systems to the European market and further
increases the Company's strength in that market.
4. 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 January 31, 1998 and 1997
were 15,444,000 and 15,069,000, respectively, and for the nine months ended
January 31, 1998 and 1997 were 15,306,000 and 15,095,000, 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 would be $.12
and $.09 for the quarters ended January 31, 1998 and 1997, respectively and
$.18 and $.41 for the nine months ended January 31, 1998 and 1997,
respectively. Diluted earnings per share under FAS 128 would not differ
from the amounts reported in the accompanying Consolidated Statements of
Income.
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FLOW INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended January 31, 1998
(unaudited)
5. Inventories consist of the following:
(in thousands)
January 31, 1998 April 30, 1997
---------------- --------------
Raw Materials and Parts $22,238 $23,896
Work in Process 8,590 5,872
Finished Goods 5,631 8,703
------- -------
$36,459 $38,471
------- -------
-8-
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the second quarter of fiscal 1998 Flow International Corporation
("Flow" or the "Company") sold its non-core Access and Services operations.
As such, results for the quarter ended January 31, 1998 represent only the
core ultrahigh-pressure ("UHP") operations, while the first quarter of fiscal
1998 ended July 31, 1997 as well as the fiscal 1997 three and nine month
periods ended January 31, 1997 include the operating results of UHP as well
as Access and Services. The Access and Services business units accounted for
approximately 33% of fiscal 1997 revenue. Additionally, the Company recorded
a $4.9 million restructuring provision during the quarter ended July 31, 1997
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 in the accompanying
Consolidated Statements of Income.
Given the significant disposition of part of the Company, management has
provided below two separate Results of Operations reviews. The first one
"UHP RESULTS OF OPERATIONS ANALYSIS" provides a detailed review of the three
and nine month periods ended January 31, 1998 and 1997 for THE UHP OPERATIONS
ONLY. In the opinion of management this review is most appropriate as it
compares the current and prior year results of operations of the core UHP
business which remains after the disposition. Management also provides the
"Historical Results of Operations Analysis" which is a comparison of the
three and nine month periods ended January 31, 1998 and 1997 as presented on
the Consolidated Statements of Income.
UHP RESULTS OF OPERATIONS ANALYSIS -
Included in the accompanying Consolidated Statements of Income for all
periods presented are the results of operations for the UHP business. The
Access and Services results from operations are included only in the nine
months ended January 31, 1998 and the three and nine months ended January 31,
1997. The following pro-forma table presents the results of operations
related to the Company's UHP business only and excludes the divested business
units:
Pro-forma, in (000's) Three months ended Nine months ended
January 31, January 31,
------------------ --------------------
1998 1997 1998 1997
------------------ --------------------
Revenue $34,463 $27,458 $100,289 $80,377
Gross Profit 14,467 11,968 41,966 34,208
Operating Expenses 11,130 9,124 32,065 27,294
Operating Income 3,337 2,844 9,901 6,914
Interest / other exp., net (553) (726) (2,245) (1,812)
Pre-tax profit 2,784 2,118 7,656 5,102
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FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
THE FOLLOWING ANALYSIS COMPARES THE RESULTS OF OPERATIONS FOR THE UHP
BUSINESS ONLY FOR THE THREE AND NINE MONTH PERIODS ENDED JANUARY 31, 1998 AND
1997 AS OUTLINED IN THE TABLE.
Revenues for the three months ended January 31, 1998 were $34.5 million,
an increase of $7 million (26%) as compared to the prior year quarter of
$27.5 million. For the nine month period ended January 31, 1998 revenues
grew $19.9 million (25%) to $100.3 million as compared to $80.4 million in
the prior year. Revenue increased in both the quarter and year to date
periods as compared to the prior year in all three major geographic markets
served by the Company. Quarter over quarter revenue growth in North America,
Europe and Asia was 33%, 20% and 5% while year over year revenue increased
28%, 17% and 23% for the nine months ended January 31, 1998, respectively.
The quarterly Asian revenue growth was impacted by sales into Japan which
were flat with the prior year quarter. Management believes this slow down is
the result of timing of shipments versus any other factors. On a year to
date basis, Japanese revenues have increased 32%. The Company's revenues can
be segregated into two primary groups, 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. Consumables represent parts used by
the pump during operation. Systems and consumables revenues of $23.7 million
and $10.8 million increased 30% and 17% for the quarter and revenues of
$67 million and $33.3 million increased 30% and 15% for the nine months ended
January 31, 1998, respectively over the prior year periods. The consumable
revenue growth will be less than systems growth as
Gross profit expressed as a percentage of revenues (gross margin rate)
was 42% for the quarter as compared to 44% in the prior year quarter and on a
year to date basis was 42% for fiscal 1998 as compared to 43% in fiscal 1997.
Comparison of gross margin rates is dependent on the mix of sales revenue
types, which includes special system, standard system and consumables sales.
In general, UHP systems sales have gross margin rates less than 40% and
consumable parts sales have margins in excess of 50%. The gross margin rate
decrease in the quarter was primarily due to a higher percentage of systems
sales relative to consumable sales in the current quarter versus the prior
year period as well as continued competitive pressure on margins in Europe.
Operating expenses of $11.1 million increased $2 million (22%) for the
quarter ended January 31, 1998, compared to the prior year and were
$32.1 million, up $4.8 million (17%) for the nine months ended January 31, 1998
versus the prior year period. Sales and marketing expenses increased $389,000
(8%) to $5.2 million for the quarter and increased $1.7 million (12%) to
$15.4 million for the year as compared to the prior year periods. Expressed
as a percentage of revenues, sales and marketing expenses decreased
-10-
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
to 15% from 17% for both the quarter and year to date periods versus the
prior year. This improvement is reflective of the increased leverage of a
higher revenue base. Research and engineering expense increased $654,000
(33%) to $2.6 million for the quarter and increased $1.3 million (23%) to
$7 million for the year to date period. Research on the "Fresher Under
Pressure" technology represents a significant portion of the increase in
research and engineering expense. As a percent of revenues, research and
engineering expenses in fiscal 1998 remain comparable to the prior year. The
Company will continue to aggressively pursue technological advances through
increased research and engineering spending. General & administrative
expense of $3.3 million increased $963,000 (40%) for the quarter and on a
year to date basis was $9.7 million, a $1.8 million (22%) increase as
compared to the prior year period. General and administrative expenses
expressed as a percent of revenues were approximately one percentage point
higher during the third quarter as compared to the prior year. This increase
is attributable to the inclusion of the May 1997 Foracon acquisition. For
the year, general & administrative expenses as a percent of revenues have
remained comparable. Total operating expenses expressed as a percent of
revenues were 32% for the current quarter, an improvement from 33% of
revenues in the prior year quarter. For the nine months ended January 31,
1998 operating expenses as a percent of revenues were 32%, an improvement
from 34% in the comparable period last year.
Operating income for the quarter ended January 31, 1998 was $3.3 million,
an increase of $493,000 (17%) over the prior year quarter. For the year,
operating income was $9.9 million, an improvement of 43% over the like period
in the prior year.
Third quarter fiscal 1998 interest and other expense, net of $553,000
represents a decrease of $173,000 (24%) compared to the prior year. This
decrease is primarily a result of reduced interest expense associated with
lower debt levels quarter over quarter. Year-to-date, interest and other
expense, net totaled $2.2 million, an increase of $433,000 (24%) compared to
the same period in fiscal 1997. This increase is primarily related to higher
interest expense on increased average borrowings versus the comparable period
in the prior year.
Pre-tax income increased $666,000 (31%) to $2.8 million in the quarter
and was $7.7 million for the nine months ended January 31, 1998, a $2.6
million (50%) improvement over the prior year period.
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 higher
tax rate in fiscal 1998 is reflective of the projected change in mix of
pre-tax income to higher taxing jurisdictions as well as greater utilization
in the prior year of net operating loss carryforward benefits.
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FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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. Had the current year tax rate of 35% been applied to
the prior year, earnings per share for the prior year third quarter fiscal
1997 would have been reduced $.01 to $.09 and the nine months ended January 31,
1997 would have been reduced $.02 to $.22.
The weighted average number of average shares outstanding for the
quarter increased to 15,444,000 from 15,069,000 as compared to fiscal 1997.
Year-to-date average shares outstanding increased to 15,306,000 from
15,095,000 over the prior year. This increase includes the issuance of stock
related to the acquisition of Foracon.
The Company recorded net income of $1.8 million, or $.12 per share for
the three months ended January 31, 1998, compared to $1.5 million, or $.10 per
share for the same period in the prior year. Year-to-date, net income for
fiscal 1998 totaled $5 million, or $.33 per share, compared to $3.6 million,
or $.24 per share, for fiscal 1997.
HISTORICAL RESULTS OF OPERATIONS ANALYSIS (INCLUDES DIVESTED OPERATIONS)-
The following analysis compares the three and nine month periods ended
January 31, 1998 and 1997 as presented in the accompanying Consolidated
Statements of Income.
Revenues for the three months ended January 31, 1998 were $34.5 million,
a decrease of $5.2 million (13%) as compared to the prior year quarter of
$39.7 million. For the nine month period ending January 31, 1998 revenues
decreased $4.8 million (4%) to $117.1 million as compared to $121.9 million
in the prior year. These decreases result from the fact that the Access and
Services operations of the Company were sold during the second quarter of
fiscal 1998 and thus revenues were not recorded during the quarter ended
January 31, 1998. Excluding the Access and Services operations, whose
revenues were $12.2 million in the third quarter of fiscal 1997, revenues in
the current quarter increased $7 million (26%) versus the prior year. For
the nine months ended January 31, 1998, consolidated revenues decreased
$4.8 million. This decrease is comprised of a increase in UHP revenues of
$19.9 million (25%) and a decrease in Access and Services revenues of
$19 million (62%). See the "UHP Results of Operations Analysis" for more in
depth discussion of revenue fluctuations within the UHP business.
-12-
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The gross margin rate was 42% for the current quarter, an improvement
from 40% in the prior year third quarter. On a year to date basis gross
margin rates remain comparable at 40%. The Access and Services businesses
historically carry a lower gross margin rate then the Company's UHP product
line. See the "UHP Results of Operations Analysis" for additional discussion
of gross margin rate fluctuations in the UHP business.
Operating expenses of $11.1 million decreased $1.8 million (14%) for the
quarter ended January 31, 1998, compared to the prior year and were
$40.5 million, up $2.1 million (6%) for the nine months ended January 31, 1998
versus the prior year period. Excluding the restructuring charge, year to
date operating expenses decreased $2.8 million (7%) as compared to the prior
year period. Current quarter and year to date UHP operating expenses have
increased 22% and 17% versus the prior year, respectively. This increase is
offset by the exclusion of Access and Services expenses during the second and
third quarters of fiscal 1998. Operating expenses expressed as a percent of
revenues were 32% for the current quarter as compared to 33% in the prior
year period. For the nine months ending January 31, 1998 operating expenses
as a percent of revenues were 35% versus 31% in the comparable period last
year. Excluding the $4.9 million restructuring charge, operating expenses
improved to 30% of revenues in the nine months ended January 31, 1998. See
the "UHP Results of Operations Analysis" for more in depth discussion of
operating expenses in the UHP business.
Operating income for the quarter ended January 31, 1998 was $3.3 million,
an increase of $454,000 (16%) over the prior year quarter. For the year,
operating income was $6.7 million, a decrease of $4.3 million (39%) over the
like period in the prior year.
Third quarter fiscal 1998 interest and other expense, net of $553,000
was down $483,000 (47%) as compared with the prior year. This decrease is
primarily a result of reduced interest expense associated with decreased debt
levels. Year-to-date, interest and other expense, net totaled $2.6 million,
essentially flat with the prior year. See the "UHP Results of Operations
Analysis" for more in depth discussion of interest and other expense, net in
the UHP business.
Pre-tax income was $2.8 million in the current quarter versus $1.8 million
in the prior year. The UHP operations recorded a $666,000 (31%) improvement
during the current quarter while Access and Services recorded a loss of
$271,000 in the prior year quarter but were not included in the current
quarter. For the year, pre-tax income was $4.1 million as compared to
$8.4 million in the prior year period. See the "UHP Results of Operations
Analysis" for more in depth discussion of pre-tax income in the UHP business.
-13-
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 1998,
taxes have been provided for at 35% versus 29% in the prior year. The higher
tax rate in fiscal 1998 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 an
ongoing review of the Company's FAS 109 valuation allowance.
The weighted average number of average shares outstanding for the
quarter increased to 15,444,000 from 15,069,000 as compared to fiscal 1997.
Year-to-date average shares outstanding increased to 15,306,000 from
15,095,000 over the prior year. This increase includes the issuance of stock
related to the acquisition of Foracon.
As a result the Company recorded net income of $1.8 million or $.12 per
share in the current quarter versus $1.3 million or $.09 per share in the
prior year period. For the nine months ended January 31, 1998 the Company
recorded net income of $2.7 million or $.17 per share as compared to $6 million
or $.40 per share in the like period last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $900,000 of cashflow from its operating activities
during the nine months ended January 31, 1998. For the like period in the
prior year, the Company generated $4.9 million from operations. The current
year Consolidated Statement of Cashflows reflects the disposition of the
Access and Services businesses. A significant portion of cashflow generated
from operations during the prior year period related to the Access and
Services units. However the expenditures for property and equipment for
these same units exceeded the cashflow they generated from operations. Total
notes payable and term obligations at January 31, 1998 were $33.7 million,
down $21.6 million (39%) from April 30, 1997. This decrease reflects
application of cash proceeds from the sale of Access and Services offset in
part by borrowings to purchase Foracon. The Company believes that the
available credit facilities and future working capital generated by
operations will provide sufficient resources to meet its operating and
capital requirements for the next twelve months. The Company's Credit
Agreement and Private Placement require the Company to comply with certain
financial covenants. As of January 31, 1998, the Company was in compliance
with all such covenants.
Gross trade receivables at January 31, 1998 decreased $8 million (19%),
from April 30, 1997. Excluding Access and Services, the gross trade
receivables of $33.1 million have increased $5.9 million (22%). This is the
result of the increase in sales.
-14-
FLOW INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Days sales in gross accounts receivable can be negatively impacted by the
traditionally longer payment cycle outside the United States. 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, 1998 decreased $2 million (5%), from April 30,
1997. Excluding Access and Services, inventory at January 31, 1998 of
$36.5 million has increased $3.5 million (11%) from April 30, 1997. This
increase is a result of the acquisition of Foracon and increases in work in
process as well as raw materials and parts.
The Company is currently converting its existing computer applications
to ensure compliance with the potential date impact of the year 2000.
Additionally the Company is interviewing key suppliers and customers to
ensure compliance on their part. Management currently feels the project will
be completed in early calendar 1999 and the associated costs will not be
material to the Company.
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 RISKS ASSOCIATED WITH THE
RESTRUCTURING, 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.
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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
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
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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: March 16, 1998 /s/ Ronald W. Tarrant
---------------------
Ronald W. Tarrant
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: March 16, 1998 /s/ Stephen D. Reichenbach
--------------------------
Stephen D. Reichenbach
Executive Vice President, Chief
Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
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