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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1996
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 Par Value
Preferred Stock Purchase Rights
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 .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non affiliates of the
registrant based upon the closing price reported by the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") as of May 31, 1996,
was $126,740,000. The number of shares of common stock outstanding as of May
31, 1996, was 14,514,244 shares.
DOCUMENTS INCORPORATED BY REFERENCE
- --------------------------------------------------------------------------------
PART I: None
PART II: None
PART III: All Items -- See Registrant's definitive proxy statement which
involves the election of directors and which will be filed with
the Commission within 120 days after the close of the fiscal
year.
Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management
Item 13 Certain Relationships and Related Transactions
PART I
ITEM 1. BUSINESS
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Flow International Corporation ("Flow" or the "Company") designs, develops,
manufactures, markets, and services ultrahigh-pressure ("UHP") waterjet cutting
and cleaning systems, and specialized robotics and factory automation systems;
and is a leading provider of access equipment. Flow provides technologically-
advanced, environmentally-sound solutions to the manufacturing, industrial
cleaning and construction services markets. The Company's waterjet systems
pressurize water from 30,000 to 60,000 pounds per square inch (psi) and are used
to cut both metallic and nonmetallic materials in many industry segments,
including the aerospace, automotive, disposable products, food, glass, job shop,
sign, metal cutting, marble and other stone cutting, oil field services and
paper industries. The Company also manufactures the robotic articulation
equipment used in the cutting and cleaning processes, as well as other factory
automation systems, such as assembly, pick and place and load/unload operations.
The Company's infrastructure products include UHP waterjets for use in
industrial cleaning, surface preparation, construction, nuclear decontamination,
and petro-chemical applications, as well as access systems for use in these
applications. The Company also provides, as a service, the removal of
deteriorated concrete from bridges and parking garages using UHP waterjets
("HydroMilling-Registered Trademark-"), and the removal of rubber, paint and
grout from commercial and military runways ("HydroCleaning-TM-").
The Company was formed in 1974, incorporated in 1980, and completed its
initial public offering in March 1983. In 1991, the Company's founder retired,
and Ronald W. Tarrant was appointed President and Chief Executive Officer.
Since 1991, the Company has grown as a result of continued new product
development, expanded marketing strategies, and certain strategic acquisitions.
In January 1992, the Company acquired the stock of Rampart Waterblast, Inc.
("Rampart"). Rampart uses UHP waterjet technology to remove rubber and paint
from airport runway surfaces. Prior to the acquisition, Rampart licensed its
technology from the Company.
In September 1992, the Company acquired all of the outstanding stock of
Spider Staging Corporation ("Spider"). Spider designs, manufactures, rents,
sells, and services access systems to a variety of industrial and construction
related markets.
In April 1993, the Company acquired substantially all of the assets of
Power Climber, Inc. ("Power Climber"), and affiliated companies. Prior to the
acquisition, Power Climber was a supplier to Spider, and designs and markets
access systems in the U.S., Europe and Asia using traction hoist technology.
On November 4, 1994, the Company entered into a licensing agreement with
Ark Systems, Inc. ("Ark"). Ark designs and manufactures a range of access
containment systems which are used in under-bridge and other applications for
surface preparation, lead-paint abatement, cleaning and maintenance. The
agreement gives Spider the exclusive worldwide marketing and manufacturing
rights for the Ark product line for five years.
On December 15, 1994, the Company purchased certain net assets of
Dynovation Machine Systems, Inc. ("Dynovation"). Dynovation designs and
manufactures robotic waterjet cutting cells and automated assembly systems for
the automotive and other industries, as well as a line of proprietary vibratory
feeder bowls for these industries.
On January 3, 1995, the Company purchased certain net assets of ASI
Robotics Systems ("ASI"). ASI designs and manufactures high accuracy gantry-
type robots and related systems used in waterjet and factory automation
applications. ASI supplies its products to the aerospace, automotive, job shop,
marble and tile and other industries.
In April 1995, the Company became a majority partner in a joint venture
with Consortium Europeen du Materiel ("CEM"). CEM has offices in Paris, Lyon,
and Marseilles for the sale and rental of access products in France.
In May 1995, the Company invested in a majority interest in a joint venture
with Okura & Co., Ltd., its exclusive Japanese distributor. This joint venture
supplies UHP products in Japan and to Japanese companies in Asia.
PRODUCTS AND SERVICES
The Company provides UHP waterjets and related products and services to a
wide variety of industries. The Company divides its revenues into four primary
categories of product:
(In thousands) 1996 1995 1994
Revenue % Revenue % Revenue %
------------------------------------------------------
UHP Waterjet and Factory
Automation Systems $56,495 39 $36,600 33 $20,645 23
UHP Spare Parts and Services 36,076 25 28,529 26 26,319 30
Access Systems and Services 38,857 27 33,566 31 28,888 33
HydroMilling-Registered Trademark-
and HydroCleaning-TM- Services 13,477 9 11,315 10 12,780 14
------------------------------------------------------
Total Revenues $144,905 100 $110,010 100 $88,632 100
------------------------------------------------------
------------------------------------------------------
UHP WATERJET AND FACTORY AUTOMATION SYSTEMS, SPARE PARTS AND SERVICES
The Company offers a variety of UHP waterjet equipment and factory
automation system products and accessories, including robotic articulation
equipment. UHP intensifier and direct-drive pumps are currently the core
components of the Company's products. An intensifier pump pressurizes water up
to 60,000 psi and forces it through a small nozzle, generating a high-velocity
stream of water. The Company's unique direct-drive pressure-compensated pumps
pressurize water to in excess of 40,000 psi
utilizing triplex piston technology. In order to cut metallic and other hard
materials, abrasive is added to the waterjet stream creating an abrasivejet.
The Company's abrasivejet cuts with no heat, causes no metallurgical changes,
and leaves a high-quality edge that usually requires no additional finishing.
A UHP waterjet system consists of an ultrahigh-pressure intensifier pump or
direct drive, one or more waterjet cutting and cleaning heads with necessary
robotics, motion control and automation systems. The Company has placed UHP
waterjet cutting systems worldwide and in many different industries, including
the aerospace, automotive, disposable products, food, glass, job shop, sign,
metal cutting, marble and other stone cutting, oil field services and paper
industries. The Company's UHP waterjet systems are also used in industrial
cleaning applications such as paint removal, surface preparation, factory
cleaning, ship hull preparation, and heat exchanger cleaning. The Company's
factory automation equipment is used in applications such as pick and place
operations, inspection, assembly, and other automated processes. Sales of UHP
waterjet and factory automation systems accounted for 39% of fiscal 1996
revenues.
Flow produces a range of tools and accessories which incorporate waterjet
technology, and sells aftermarket spare parts and services for its products.
Sales of UHP spare parts and services accounted for 25% of fiscal 1996 revenues.
Spare parts sales help to insulate the Company from the adverse effects of
economic swings, when industrial customers tend to reduce investment in new
capital equipment.
ACCESS SYSTEMS AND SERVICES
The Company designs, manufactures, rents, sells, and services access
systems for use in industrial, structural and facade maintenance and
construction applications. The Company's permanent, mobile or temporary work
platforms provide access to exterior building surfaces and construction sites,
bridges, ships, offshore oil rigs, radio towers, sports stadiums, and
hydroelectric dams; and internal access to large water and chemical tanks, power
plant boilers, missile silos, and other industrial applications. The Company's
permanently installed systems provide access to exterior surfaces of high-rise
buildings for exterior maintenance, window washing, painting and building
restoration. The Company is the North American distributor of the Nihon Bisoh
automatic exterior maintenance systems and the exclusive U.S. distributor of a
line of permanently installed access systems produced by Mannesmann of Germany.
In fiscal 1996, sales, rental and service of access systems amounted to 27% of
total revenues.
HYDROMILLING AND HYDROCLEANING SERVICES
The Company provides HydroMilling services on a contract and subcontract
basis for the removal of deteriorated concrete from bridges and parking garage
surfaces. The Company's proprietary HydroMilling systems operate in the pressure
range of 25,000 to 40,000 psi, and use a proprietary rotating ultrahigh-pressure
waterjet, mounted on a robot, to remove concrete. The depth of removal can be
controlled by adjusting the pressure and traverse speed of the waterjet nozzle.
In January 1993, the Company began work on the John F. Kennedy Center for the
Performing Arts 500,000 square foot parking garage in Washington, D. C., where
Flow is removing and replacing deteriorated concrete. This $14.4 million
contract is expected to be completed in early fiscal 1997. Flow's Rampart unit
provides HydroCleaning
services to commercial and military airfields. Ultrahigh-pressure waterjets are
used for the removal of rubber, paint and grout from airport runways. In fiscal
1996, HydroMilling and HydroCleaning revenues were 9% of total revenues.
MARKETING AND SALES
The Company markets and sells its products worldwide through its
headquarters in Kent, Washington (a suburb of Seattle) and through subsidiaries,
divisions and joint ventures in Pittsburgh, Pennsylvania; Johnstown,
Pennsylvania; Jeffersonville, Indiana; Burlington, Canada; Darmstadt, Germany;
Antwerp, Belgium; Paris, France; Lyon, France; Marseilles, France; Tokyo, Japan;
Nagoya, Japan; and Hsinchu, Taiwan; and through branch offices in sixteen North
American cities. The Company sells directly to customers in the U.S., Canada,
Europe, and Asia, and has distributors or agents in most other countries. In
the U.S., the Company uses a select group of machine tool distributors for sales
distribution and services of its Bengal product line.
No customer accounted for 10% or more of the Company's revenues during any
of the three years ended April 30, 1996.
Marketing efforts are focused on various target industries, applications,
and markets. To enhance the effectiveness of sales efforts, the marketing staff
and sales force acquire detailed information on the manufacturing applications
and construction processes in targeted markets. This information is used to
develop standardized and customized solutions using both UHP waterjet and
robotics technologies, and access systems. In selling both standard and custom-
designed waterjet and access systems, the Company provides turnkey systems,
including system design, specification, hardware and software integration,
equipment testing and simulation, installation, start-up services, technical
training and service.
One of the Company's marketing techniques utilizes a telemarketing program
to identify and qualify sales leads, thus increasing the efficiency of the
direct sales staff. Market responses to these activities are carefully screened
to identify new areas of interest and new potential applications. The Company
also attends trade shows for targeted market segments and advertises in selected
industry publications.
The Company markets its proprietary HydroMilling and HydroCleaning services
primarily in the United States. HydroMilling services are provided primarily in
the Northeast and Midwest areas of the country where concrete deteriorates
faster due to the freeze-thaw cycle and use of salt on roadways. HydroCleaning
services are provided throughout the United States. Services are marketed
directly to customers by the Company's sales force.
Application of the Company's products and services in the construction
industry vary with construction cycles. Sales in the March through October
period tend to be higher than sales in the remaining months of the year.
PATENTS AND LICENSES
The Company holds a large number of patents relating to UHP waterjet
technology and systems, and to access system products and applications. Some of
these patents are subject to sub-licenses. In addition, the Company has been
granted licenses with respect to other patents used in the business.
While the Company believes the patents it uses are valid, it does not
consider its business dependent on patent protection. In addition, the Company
has over the years developed non-patented proprietary expertise and know-how in
waterjet and access system applications, and in the manufacture of these
systems, which sets it technologically ahead.
The Company believes the patents it holds and has in process, along with
the proprietary application and manufacturing know-how, act as a barrier of
entry into the markets it serves.
BACKLOG
At April 30, 1996, the Company's backlog was $25.1 million, up 7% from
$23.5 million at the prior year end. Based upon the terms of the customer
contracts and the Company's manufacturing schedule, all of the revenue backlog
as of April 30, 1996 is expected to be realized during fiscal 1997. Amounts
expected to be billed after April 30, 1997 have been excluded from this backlog
presentation. The unit sales price for most of the Company's products and
services is relatively high (typically ranging from tens of thousands to
millions of dollars) and individual orders can involve the delivery of several
hundred thousand dollars of products or services at one time. Furthermore, some
items in backlog can be shipped more quickly than others, and some have higher
profit margins than others. Consequently, even sizable variations in the amount
of the Company's backlog between particular dates are not necessarily indicative
of comparable variations in sales or earnings.
COMPETITION
The major competitors for UHP waterjet systems are conventional cutting and
cleaning methods. These methods are saws, knives, shears, torches, lasers,
abrasive wheels, grinders, routers, drills, dies, and abrasive cleaning
techniques. A UHP waterjet cutting system has many advantages over conventional
cutting systems, including the generation of no heat and airborne dust, easy
adaptability to complex cutting programs, and the ability to leave clean-cut
edges. These factors in addition to elimination of secondary processing in most
circumstances enhance manufacturing productivity. Waterjet cleaning offers many
advantages over other cleaning methods, such as the ability to remove difficult
coatings or deposits from a surface without damaging underlying material. A UHP
waterjet system is an environmentally-friendly answer to many difficult cutting
and cleaning applications and can often be justified solely on the basis of the
removal of hazardous materials or reduction of secondary operations from the
production process.
The Company also competes with other waterjet cutting equipment
manufacturers in the United States, Europe and Asia. Certain of these
competitors have greater financial resources than the Company. The Company's
robotics acquisitions give Flow a competitive advantage as the only total
solution supplier of a complete waterjet cutting system. Although independent
market information is not generally available, based upon data assembled from
internal and external sources, Company management believes it is the largest
manufacturer of UHP waterjet cutting systems in the world.
With respect to access systems, the Company believes that service, price,
product performance, and reliability are the key competitive factors.
Management believes that its products are priced competitively and that the
strength of its North American branch system and its product reliability are key
to its results. In the permanently installed access system markets, the Company
believes there are 15 to 20 firms with which it competes. None of these firms
dominate the market.
The primary competitors to HydroMilling services are traditional concrete
removal operators. The advantages of the UHP approach of HydroMilling over
other concrete removal systems, such as jackhammers, include increased speed,
reduced cost, depth control, better concrete bonding; and the elimination of
micro-cracks, rebar damage, vibration, and dust and reduced noise. HydroMilling
also competes with other hydrodemolition contractors, most of which use
waterjets at 10,000 to 25,000 psi with significantly higher volumes of water and
lower productivity. The Company believes that its process, operating with
pressures to 36,000 psi, produces a higher quality bonding surface and that the
size of its fleet as compared to competitors enables it to complete larger
projects more quickly.
HydroCleaning competitors include companies using chemical processes and
other mechanical means. The Company believes that the speed and
environmentally-friendly aspects of its process are key advantages.
Overall, the Company believes that its competitive position is enhanced by
(1) technically advanced, proprietary products that provide excellent
reliability, low operating costs, and user-friendly features, (2) a strong
application-oriented, problem-solving marketing and sales approach, (3) an
active research and development program that allows it to maintain technical
leadership, (4) the ability to provide complete turnkey systems, (5) a strong
position in key markets, such as the U.S., Canada, Japan, southeast Asia and
Europe, (6) strong OEM customer ties, and (7) efficient production facilities.
RESEARCH AND ENGINEERING
The Company has allocated approximately 6% of revenues to research and
engineering during each of the three years ended April 30, 1996. Research and
engineering expenses were approximately $8,110,000, $6,784,000, and $5,361,000
in fiscal years 1996, 1995, and 1994, respectively.
EMPLOYEES
As of April 30, 1996, the Company employed 805 full time and 9 part time
personnel. There are no material collective bargaining agreements to which the
Company is a party.
FOREIGN AND DOMESTIC OPERATIONS
See Note 13 of Notes to Consolidated Financial Statements for information
regarding foreign and domestic operations.
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.
Significant factors which may affect future Company performance include the
following:
The Company's financial goals assume that it completes one or more
acquisitions, and the Company's ability to achieve these goals may be adversely
affected if it is unable to either locate suitable acquisition candidates,
complete these acquisitions, or successfully integrate acquired companies into
its existing businesses.
The Company's growth depends, in part, on the successful development of
improvements to its equipment and on the introduction of new products and
technologies. Improvements in competing technologies could affect the Company's
ability to market its products.
The Company's financial performance could fall short of its goals if a
change in overall economic conditions results in a decrease in the purchase of
capital goods by its customers. Changes in the mix of products sold by the
Company can also affect the gross margin achieved. Also, unfavorable or
inclement weather could affect the results of the Company's Access and Flow
Services divisions, which are somewhat seasonal in nature.
ITEM 2. PROPERTIES
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The Company's headquarters and primary manufacturing facilities are located
in one leased facility in Kent, Washington. In addition, the Company maintains
HydroMilling office and shop facilities in Pittsburgh, Pennsylvania;
manufacturing facilities in Jeffersonville, Indiana; sales facilities in sixteen
North American cities; Tokyo and Nagoya, Japan and three facilities in France;
and sales, manufacturing and warehouse facilities in Johnstown, Pennsylvania;
Burlington, Canada; Hsinchu, Taiwan; Antwerp, Belgium; and Darmstadt, Germany.
All facilities of the Company are leased with the exception of a warehouse
and sales facility in Chicago, Illinois and a manufacturing facility in
Jeffersonville, Indiana.
The Company believes that its facilities are suitable for its current
operations and that expansion in the near term will not require additional
space. The Company further considers that its primary manufacturing facility
will be adequate to meet production requirements for the next three to five
years.
ITEM 3. LEGAL PROCEEDINGS
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The Company is party to various legal actions incident to the normal
operation of its business, none of which is believed to be material to the
financial condition of the Company. See Notes 1 and 12 of Notes to Consolidated
Financial Statements for a description of the Company's product liability
insurance coverage and estimated exposure.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
- --------------------------------------------------------------------------------
See page 13
ITEM 6. SELECTED FINANCIAL DATA.
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See page 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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See pages 14 through 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- --------------------------------------------------------------------------------
See pages 20 through 42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
- --------------------------------------------------------------------------------
None.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
- --------------------------------------------------------------------------------
The principal market for the Company's common stock is the over-the-counter
market. The Company's stock is traded on the NASDAQ National Market under the
symbol "FLOW." The range of high and low sales prices for the Company's common
stock for the last two fiscal years is set forth in the table below.
Fiscal Year 1996 Fiscal Year 1995
High Low High Low
--------------------------------------------------
First Quarter $10.50 $8.13 $6.88 $4.63
Second Quarter 13.25 9.38 7.25 5.63
Third Quarter 12.13 7.88 7.88 6.13
Fourth Quarter 10.88 7.88 8.50 6.50
There were 1,604 stockholders of record as of May 31, 1996.
The Company has not paid dividends to common stockholders in the past. The
Board of Directors intends to retain future earnings to finance development and
expansion of the Company's business and does not expect to declare dividends to
common stockholders in the near future.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
(In thousands, except per share data) Year Ended April 30
- -------------------------------------------------------------------------------
1996 1995 1994 1993 1992(1)
----------------------------------------------------
Income Statement Data:
Revenue $144,905 $110,010 $88,632 $79,079 $69,071
Pretax Income 8,902 9,259 3,112 5,791 4,272
Net Income 7,085 7,728 2,953 4,641 3,511
Earnings Per Share 0.47 0.53 0.21 0.33 0.25
Balance Sheet Data:
Working Capital 57,866 44,592 25,415 25,060 16,399
Total Assets 126,493 105,484 78,228 69,276 57,448
Short-Term Debt 3,339 2,412 16,504 10,403 8,477
Long-Term Obligations 45,590 33,359 10,559 12,549 7,899
Stockholders' Equity 57,060 49,803 37,948 34,225 28,873
__________
(1) Results for the fiscal year have been restated to include the results of
Spider Staging Corporation, which was acquired in a pooling-of-interests
transaction on September 30, 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
The Company provides ultrahigh-pressure ("UHP") waterjet, factory
automation and access systems, and related products and services to a wide
variety of industries. The following table sets forth the Company's
consolidated revenues by major product categories.
CONSOLIDATED REVENUES BY MAJOR PRODUCT CATEGORIES
(In thousands) 1996 1995 1994
Revenue % Revenue % Revenue %
------------------------------------------------------
UHP Waterjet and Factory
Automation Systems $56,495 39 $36,600 33 $20,645 23
UHP Spare Parts and Services 36,076 25 28,529 26 26,319 30
Access Systems and Services 38,857 27 33,566 31 28,888 33
HydroMilling-Registered Trademark- and
HydroCleaning-TM- Services 13,477 9 11,315 10 12,780 14
------------------------------------------------------
Total Revenues $144,905 100 $110,010 100 $88,632 100
------------------------------------------------------
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FISCAL 1996 COMPARED TO FISCAL 1995
Revenues for the year ended April 30, 1996 increased $34.9 million (32%)
from the prior year period. UHP revenues, including HydroMilling and
HydroCleaning services, increased $29.6 million (39%), while access systems
revenues increased $5.3 million (16%) over the prior year period. The European
and domestic UHP markets continued their strong growth with revenue increases of
57% and 13%, respectively over the prior year. Also contributing to overall
growth was the effect of the businesses acquired and partnerships entered into
during the third and fourth quarters of fiscal 1995 and the first quarter of
fiscal 1996. In May 1995, the Company invested in a majority interest in a
joint venture with Okura & Co., Ltd., its exclusive Japanese distributor. This
joint venture supplies UHP products in Japan and to Japanese companies in Asia.
Sales into Asia increased 140% over the prior year, however, most of this
represented sales by the recent Japanese joint venture. The Company typically
sells its products at higher prices outside the United States due to the costs
of servicing these markets. UHP spare parts and services revenues increased by
$7.5 million (26%), reflecting an increased base of UHP waterjet systems
installed throughout the world, as well as inclusion of the Japanese joint
venture. Exclusive of this joint venture, spare parts sales were up 11% over
the prior year. Spare parts and services are a continuing and significant part
of the Company's business, and generally have a higher profit margin than new
systems. Spare parts are composed primarily of consumables used in the cutting
or cleaning process. The increase in access systems revenues came principally
from international markets as domestic revenues increased less
than 3% over the prior year. HydroMilling and HydroCleaning services revenues
increased $2.2 million (19%) reflecting several large contracts received during
the year. The $14.4 million contract for parking garage rehabilitation services
at the John F. Kennedy Center for the Performing Arts in Washington, D.C. is
expected to be completed during fiscal 1997.
Gross profit expressed as a percent of revenue was 40% in fiscal 1996
compared with 42% in fiscal 1995. Comparison of gross profit percent 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 the gross profit percent for the year was primarily due to a shift in revenue
mix towards complex systems involving the robotics and factory automation
technology acquired in the third quarter of fiscal 1995. These types of systems
generally carry lower gross profit percents than other UHP products.
Additionally, the gross margin percent was negatively impacted from the under-
capacity utilization of the robotics unit. Rental gross profit percent decreased
to 53% from 56% in the prior year. This was primarily a result of increased
depreciation expense associated with additions to the Company's rental assets.
In general, UHP systems sales have gross margins less than 40% and spare parts
sales have margins in excess of 50%. The margin on HydroMilling and
HydroCleaning revenue is dependent on the mix of services provided and the
utilization of the equipment. Services margins approximate 30% of sales, while
rental margins typically exceed 50% of sales. Slow moving and obsolete
inventory provisions increased by $147,000, net of disposals.
Expenses increased by $11 million (32%), primarily as a result of the
inclusion of acquisitions completed during late fiscal 1995 and early fiscal
1996. Exclusive of the acquisitions, operating expenses increased $3.5 million
(11%) over the prior year. However, expressed as a percentage of revenues,
total expenses remain comparable to the prior year at 31.5%. The resolution of
a pre-acquisition contingency related to the valuation of work in process
inventory of a fiscal 1995 acquisition resulted in an additional $600,000 of
goodwill being recorded during fiscal 1996. Goodwill amortization increased
approximately $480,000 over the prior year.
Operating income can vary significantly for domestic and foreign operations
(see Note 13 of Notes to Consolidated Financial Statements), but is primarily
the result of product mix variations and volume from year to year. There are no
known trends that management expects to result in a materially unfavorable
impact on revenues or income from operations.
Net interest expense increased by $1.1 million (48%) in fiscal 1996
compared to 1995. Approximately $650,000 of the increase relates to borrowings
to finance fiscal 1995 acquisitions and a joint venture during the first quarter
of fiscal 1996.
During fiscal 1996, other income, net, totaled $648,000, compared to other
expense, net, of $30,000 in 1995. The 1996 results include $493,000 of income
associated with minority interest in net losses of the joint ventures and a
$175,000 gain on the sale of stock held by the Company.
Income tax expense for fiscal 1996 was 20% of income before tax as compared
to 17% in the previous year. Income tax expense was lower than the statutory
rate in both fiscal 1996 and 1995
primarily due to lower tax rates in certain foreign jurisdictions, the benefit
of the Company's foreign sales corporation and changes in the Company's
valuation allowance.
FISCAL 1995 COMPARED TO FISCAL 1994
During the year ended April 30, 1995, the Company purchased certain net
assets of two robotics systems manufacturers, Dynovation Machine Systems, Inc.
("Dynovation") and ASI Robotics, Inc. ("ASI"). These acquisitions are part of
the Company's long-term strategic growth plan. Both companies are, and had
previously been, integrators of the Company's products. During the year the
Company also entered into a licensing agreement with Ark Systems, Inc. ("Ark"),
for the exclusive worldwide marketing and manufacturing rights for the Ark
product line. Ark produces access system equipment used in the cleaning and
maintenance of the under-structure of bridges. The Company also entered into a
joint venture with Consortium Europeen du Materiel ("CEM"), for the distribution
of access system equipment in France. The Company's consolidated statements of
income include the results of Dynovation, ASI, Ark and CEM from the dates of
acquisition or agreement. The Company paid total cash of $11.5 million and
issued 445,000 shares of common stock to acquire the assets of Dynovation and
ASI. The investments in Ark and CEM have not been material to date.
Revenues for the year ended April 30, 1995 increased $21.4 million (24%)
from the prior year period. This increase arose primarily from the strong
advances in the European and domestic UHP markets, where revenues increased 46%
and 18%, respectively and from businesses acquired and partnerships entered into
during fiscal 1995. Sales into Asia were similar to those of the prior year.
UHP spare parts and services revenues increased by $2.2 million (8%). As a
percentage of total revenues, spare parts and services decreased as compared to
the prior year because the acquired systems manufacturers carry a lower relative
percentage of such revenues. Access system revenues increased $4.7 million
(16%), reflecting continued domestic strength of the sales and rental of
temporary access equipment as well as the recent licensing agreement with Ark.
HydroMilling and HydroCleaning services revenues decreased by $1.5 million
(11%). Management of this division has focused on contracts which maintain its
target margins, in a market which softened slightly during the year.
Gross profit expressed as a percent of sales was 42% in fiscal 1995
compared with 40% in fiscal 1994. Excluding the effect of certain non-recurring
charges related to a terminated construction services contract, the fiscal 1994
gross margin percentage would have also been 42%. Slow moving and obsolete
inventory provisions increased by $112,000, net of disposals.
Expenses increased $3.6 million (12%), in part as a result of the
acquisitions completed during 1995. However, expressed as a percentage of
revenues, expenses decreased from 35% in 1994 to 31% in 1995. Excluding the
effect of certain non-recurring charges in fiscal 1994, the expense percentage
would have been 34%. Marketing, and general and administrative expenses both
declined by two percentage points. This was achieved by a continued focus on
cost control by Company management during fiscal 1995.
Operating income can vary significantly for domestic and foreign operations
(see Note 13 of Notes to Consolidated Financial Statements), but is primarily
the result of product mix variations and volume from year to year.
Net interest expense increased by $825,000 in fiscal 1995 compared to 1994.
This was as a result of the higher borrowings related to the acquisitions, and
to the increased interest rates during fiscal 1995. Cash flow from operations
enabled the Company to decrease debt $4.3 million during fiscal 1995.
During fiscal 1995, other expense, net, totaled $30,000, compared to other
income, net, of $652,000 in 1994. The 1994 results included a $445,000 gain on
the sale of a vacated manufacturing facility.
Income tax expense for fiscal 1995 was 17% of income before tax as compared
to 18% in the previous year. Income tax expense was lower than the statutory
rate in both fiscal 1995 and 1994 primarily due to lower tax rates in certain
foreign jurisdictions, the benefit of the Company's foreign sales corporation
and changes in the Company's valuation allowance. In the first quarter of fiscal
1994, the Company recorded income of $401,000, related to the mandatory adoption
of Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting
for Income Taxes." This is reflected as a change in accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
In September 1995, the Company signed a five-year secured credit agreement
(the "Credit Agreement") to refinance its domestic borrowings and to provide a
source of available cash. The Credit Agreement comprises a $60 million
reducing line of credit split equally between two financial institutions. In
September 1995, the Company also completed a ten-year $15 million private
placement of debt financing (the "Private Placement"). The Company believes
that the new financings, together with other available credit facilities, will
provide sufficient resources to meet its operating and capital requirements in
the foreseeable future. The Credit Agreement and Private Placement require the
Company to comply with certain financial covenants. As of April 30, 1996, the
Company was in compliance with all such covenants.
See Note 7 of Notes to Consolidated Financial Statements for a schedule of
long-term debt maturities. Long-term debt obligations are expected to be met
from working capital provided by operations and, as necessary, by other
indebtedness.
Capital spending plans currently provide for outlays of approximately $8 to
$10 million in fiscal 1997. It is expected that funds necessary for these
expenditures will be generated internally, and through available credit
facilities.
The $3.9 million (12%) increase in gross trade accounts receivable at April
30, 1996 from April 30, 1995 was principally due to higher fourth quarter
revenues. Days' sales outstanding in gross accounts receivable has improved
over the prior year but continues to be negatively impacted by the traditionally
longer payment cycle outside the United States. Additionally, 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.
The inventory increase of $7.4 million (27%) is related primarily to higher
levels of business and inclusion of the newly formed Japanese 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. The amount provided for obsolete and slow-moving goods at
April 30, 1996, increased $147,000, net of disposals, from April 30, 1995.
It is the Company's policy to hedge net assets denominated in foreign
currencies (primarily the German Mark) where significant currency rate
fluctuations may impact profitability.
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
Management is responsible for the fair and accurate presentation of
information in this annual report. The financial statements and related notes
have been prepared in accordance with generally accepted accounting principles.
Financial and operating information comes from Company records and other
sources. Certain amounts are, of necessity, based on judgment and estimation.
We believe that adequate accounting systems and financial controls are
maintained to ensure that the Company's records are free from material
misstatement and to protect the Company's assets from loss or unauthorized use.
In addition, the Audit Committee of the Board of Directors periodically meets
with Price Waterhouse LLP and management to review the work of each, to discuss
financial reporting matters, and to review auditing and internal control
procedures.
/s/ Stephen D. Reichenbach
--------------------------
Stephen D. Reichenbach
Vice President Finance, Treasurer and
Interim Chief Financial Officer
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
The following consolidated financial statements are filed as a part of this
report:
INDEX TO FINANCIAL STATEMENTS PAGE IN THIS REPORT
- --------------------------------------------------------------------------------
Report of Independent Accountants 20
Consolidated Balance Sheets at April 30, 1996 and 1995 21
Consolidated Statements of Income for each of the three
years in the period ended April 30, 1996 22
Consolidated Statements of Cash Flows for each of
the three years in the period ended April 30, 1996 23
Consolidated Statements of Changes in Stockholders'
Equity for each of the three years in the period ended
April 30, 1996 25
Notes to Consolidated Financial Statements 26
FINANCIAL STATEMENT SCHEDULES
VIII -- Valuation and Qualifying Accounts 42
All other schedules are omitted because they are not applicable.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Flow International Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Flow International Corporation and its subsidiaries at April 30,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended April 30, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 8 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in fiscal 1994.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Seattle, Washington
July 3, 1996
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
April 30,
-----------------------
1996 1995
---- ----
ASSETS:
Current Assets:
Cash $3,845 $1,074
Trade Accounts Receivable, less
allowances for doubtful accounts of $1,186 and $1,150, respectively 35,467 31,638
Inventories 34,589 27,219
Deferred Income Taxes 1,965 1,335
Other Current Assets 4,978 4,719
-----------------------
Total Current Assets 80,844 65,985
Property and Equipment, net 27,083 24,533
Intangible Assets, net of accumulated amortization of
$3,294 and $2,275, respectively 13,901 13,361
Deferred Income Taxes 699 -
Other Assets 3,966 1,605
-----------------------
$126,493 $105,484
-----------------------
-----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Notes Payable $2,304 $1,614
Current Portion of Long-Term Obligations 1,035 798
Accounts Payable 12,088 12,221
Accrued Payroll and Related Liabilities 3,942 3,542
Other Accrued Taxes 590 638
Other Accrued Liabilities 3,019 2,580
-----------------------
Total Current Liabilities 22,978 21,393
Long-Term Obligations 45,590 33,359
Deferred Income Taxes 248
Minority Interest 865 681
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,
14,784,647 and 14,508,244 shares issued and outstanding, respectively, in 1996
14,603,233 and 14,326,830 shares issued and outstanding, respectively, in 1995 148 146
Capital in Excess of Par 38,038 37,602
Retained Earnings 18,541 11,456
Treasury Common Stock of 276,403 shares at cost (556) (556)
Cumulative Translation Adjustment 981 1,339
Loan to Employee Stock Ownership Plan & Trust (92) (184)
-----------------------
Total Stockholders' Equity 57,060 49,803
-----------------------
Commitments and Contingencies (Note 12)
-----------------------
$126,493 $105,484
-----------------------
-----------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Year Ended April 30,
--------------------------------------
1996 1995 1994
---- ---- ----
Revenue:
Sales $117,090 $84,800 $63,808
Services 17,355 15,256 16,110
Rentals 10,460 9,954 8,714
--------------------------------------
Total Revenues 144,905 110,010 88,632
Cost of Sales:
Sales 69,889 48,454 36,223
Services 12,653 10,850 13,351
Rentals 4,933 4,395 3,980
--------------------------------------
Total Cost of Sales 87,475 63,699 53,554
--------------------------------------
Gross Profit 57,430 46,311 35,078
Expenses:
Marketing 22,281 16,582 15,106
Research and Engineering 8,110 6,784 5,361
General and Administrative 15,282 11,282 10,602
--------------------------------------
45,673 34,648 31,069
--------------------------------------
Operating Income 11,757 11,663 4,009
Interest Expense, net (3,503) (2,374) (1,549)
Other Income (Expense), net 648 (30) 652
--------------------------------------
Income Before Provision for Income Taxes
and Change in Accounting Principle 8,902 9,259 3,112
Provision for Income Taxes 1,817 1,531 560
--------------------------------------
Income Before Change in Accounting Principle 7,085 7,728 2,552
Change in Accounting Principle - 401
--------------------------------------
Net Income $7,085 $7,728 $2,953
--------------------------------------
--------------------------------------
Earnings per Common and Equivalent Shares:
Income before Change in Accounting Principle $ .47 $ .53 $ .18
Change in Accounting Principle .03
--------------------------------------
Net Income $ .47 $ .53 $ .21
--------------------------------------
--------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended April 30,
-------------------------------------
1996 1995 1994
---- ---- ----
Cash Flows from Operating Activities:
Net Income $ 7,085 $ 7,728 $ 2,953
Adjustments to Reconcile Net Income to Cash
Provided (Used) by Operating Activities:
Depreciation and amortization 6,856 5,199 4,236
Gain on sale of Spider facility (445)
Change in accounting principle (401)
Provision for losses on trade accounts receivable 576 480 324
Provision for slow moving and obsolete inventory 207 324 269
Tax effect of exercised stock options 170 164 554
Other 92 92 92
(Increase) Decrease in Current Assets,
net of effects of business combinations:
Trade Accounts Receivable (4,032) (2,651) (4,325)
Inventories (6,482) (1,516) (2,552)
Other Current Assets (248) (29) (1,878)
Deferred Income Taxes (630) 87 (686)
Increase (Decrease) in Current Liabilities,
net of effects of business combinations:
Accounts Payable (1,135) (1,378) 513
Accrued Payroll and Related Liabilities 383 796 (87)
Other Accrued Taxes (48) 372 (257)
Other Accrued Liabilities 229 (813) 1,119
(Increase) in Intangible Assets (601) (400)
(Increase) Decrease in Other Long-Term Assets (2,361) (39) 195
(Decrease) Increase in Other Long-Term Liabilities (1,336) 192 -
------- ------- -------
Cash (used) provided by operating activities (1,275) 8,608 (376)
------- ------- -------
Cash Flows from Investing Activities:
Expenditures for property and equipment (8,820) (5,584) (6,228)
Payment for business combinations (186) (11,850)
Payment received on Flow Industries note 2,744
Proceeds from sale of property and equipment 156
Other 445 17 702
------- ------- -------
Cash used by investing activities (8,561) (17,417) (2,626)
------- ------- -------
Cash Flows from Financing Activities:
Borrowings (repayments) under line of credit agreements, net 16,771 (232) 5,445
Proceeds from bridge loan 1,636 12,364
Repayment of bridge loan (14,000)
Proceeds from long-term obligations 17,366 287 2,340
Payments of long-term obligations (9,076) (4,397) (3,674)
Proceeds from issuance of common stock 268 194 315
Payment of Preferred Stock Dividends - - (50)
------- ------- -------
Cash provided by financing activities 12,965 8,216 4,376
------- ------- -------
Effect of exchange rate changes on cash (358) 316 (141)
------- ------- -------
Increase (decrease) in cash and cash equivalents 2,771 (277) 1,233
Cash and cash equivalents at beginning of period 1,074 1,351 118
------- ------- -------
Cash and cash equivalents at end of period $ 3,845 $ 1,074 $ 1,351
------- ------- -------
------- ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
Year Ended April 30,
-------------------------------------
1996 1995 1994
---- ---- ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $3,572 $2,273 $1,756
Income Taxes 3,024 740 531
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value of assets acquired (Note 2) $2,860 $23,175
Cash paid, stock issued and notes assumed for assets acquired (597) (14,965)
------ -------
Liabilities assumed $2,263 $ 8,210
------ -------
------ -------
Net proceeds from sale of the Spider manufacturing facility $ 1,031
Less one year note receivable (875)
-------
Cash proceeds $ 156
-------
-------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
Series A
Convertible
Preferred Stock Common Stock
--------------- --------------------- Capital Cumulative
Par Par In Excess Retained Translation Treasury
Shares Value Shares Value of Par Earnings Adjustment Stock
------------------------------------------------------------------------------------------------
Balances, April 30, 1993 5 $ 13,307 $ 133 $33,005 $825 $1,164 $(534)
Exercise of Stock Options 205 2 748 (22)
Conversion of Convertible
Preferred Stock (5) 519 5
Dividends on Preferred Stock (50)
Cumulative Translation Adjustment (141)
Other 136
Net Income 2,953
----------------------------------------------------------------------------------------
Balances, April 30, 1994 $ 14,031 $ 140 $33,889 $ 3,728 $ 1,023 $(556)
----------------------------------------------------------------------------------------
Issuance of Stock 445 5 3,111
Exercise of Stock Options 127 1 356
Cumulative Translation Adjustment 316
Other 246
Net Income 7,728
----------------------------------------------------------------------------------------
Balances, April 30, 1995 $ 14,603 $ 146 $37,602 $11,456 $1,339 $(556)
----------------------------------------------------------------------------------------
Issuance of Stock
Exercise of Stock Options 182 2 436
Cumulative Translation Adjustment (358)
Net Income 7,085
----------------------------------------------------------------------------------------
Balances, April 30, 1996 $ 14,785 $ 148 $38,038 $18,541 $981 $(556)
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three years ended April 30, 1996
(All tabular dollar amounts in thousands, except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- ------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include Flow International
Corporation, ("Flow" or the "Company"), and its wholly-owned subsidiaries, Flow
Europe GmbH ("Flow Europe"), Flow Asia Corporation ("Flow Asia"), Rampart
Waterblast, Inc., Spider Staging Corporation, Power Climber and affiliated
companies ("Power Climber"), Dynovation Inc. ("Dynovation") and three majority
owned joint ventures including Flow Japan Corporation ("Flow Japan"). All
significant intercompany transactions have been eliminated.
OPERATIONS
The Company develops and manufactures ultrahigh-pressure ("UHP") waterjet
cutting, cleaning and factory automation systems, and powered access equipment
for the manufacturing, industrial cleaning and construction services markets.
The Company provides products to a wide variety of industries, including the
automotive, aerospace, disposable products, food processing, and construction
industries. Equipment is designed, developed, and manufactured at the Company's
principal facilities in Kent, Washington, and at manufacturing facilities in
Johnstown, Pennsylvania; Jeffersonville, Indiana; and in Burlington, Canada.
The Company markets its products to customers worldwide through its principal
offices in Kent, its subsidiaries in Belgium, Canada, Germany, Japan, and
Taiwan, and through regional offices in major U.S. cities.
REVENUE RECOGNITION
Revenues are recognized at the time of shipment for products and certain
types of systems, and under percentage of completion, measured by the cost to
cost method, for other types of systems, and at the time of service or rental
with respect to service and rental revenues. Products are warranted to be free
from material defects for a period of one year from the date of shipment.
Warranty obligations are limited to the repair or replacement of products. The
Company's warranty accrual is reviewed quarterly by management for adequacy
based upon recent shipments and historical warranty expense. Credit is issued
for product returns upon receipt of the returned goods, or, if material, at the
time of notification and approval.
Services revenues primarily consist of revenues related to hydrodemolition
services. Rental revenues consist of charges to customers for the temporary use
of access system equipment.
PRODUCT LIABILITY
The Company is obligated under terms of its product liability insurance
contracts to pay all costs up to deductible amounts. Included in general and
administrative expense are insurance, investigation and legal defense costs.
Legal settlements, if any, are included in other expense.
INVENTORIES
Inventories are stated at the lower of cost, determined by using the first-
in, first-out method, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation for financial
reporting purposes is provided using the straight-line method over the estimated
useful lives of the assets which range from three to eleven years. Leasehold
improvements are amortized over the related lease term.
INTANGIBLE ASSETS
Intangible assets represent goodwill which is amortized on a straight-line
basis over fifteen years.
In March 1995, the Financial Accounting Standards Board issued FAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," ("FAS 121"). The Company plans to adopt FAS 121 in fiscal
1997, however the Company does not expect the adoption to result in a material
impact on the financial position, results of operations or cash flows of the
Company.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method,
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. If it is more likely than
not that some portion of a deferred tax asset will not be realized, a valuation
allowance is recorded.
EARNINGS PER SHARE
Primary earnings per share is computed by dividing net income available to
common stockholders by the weighted average number of shares outstanding plus
the common stock equivalents attributable to dilutive stock options during each
period.
Net income available to common stockholders is computed by subtracting
preferred stock dividends from net income. The weighted average number of
shares outstanding, including
equivalent shares where required, for the years ended April 30, 1996, 1995,
and 1994 were 15,071,000, 14,460,000, and 14,091,000, respectively. Fully
diluted earnings per share do not differ materially from primary earnings per
share. Equivalent shares are not included as part of the shares outstanding
in loss per share calculations.
FOREIGN CURRENCY TRANSLATION
The functional currency of Flow Asia is the New Taiwan dollar; of Flow
Europe, the U.S. dollar; of Dynovation, the Canadian dollar; of Power Climber
N.V. (part of Power Climber), the Belgian franc; and of Flow Japan, the Japanese
yen. All assets and liabilities of these foreign subsidiaries are translated at
year-end or historical exchange rates, as appropriate. Income and expense
accounts of the foreign subsidiaries are translated at the average rates in
effect during the year, except that Flow Europe depreciation and cost of sales
are translated at historical rates. Adjustments resulting from the translation
of Flow Asia, Dynovation, Power Climber N.V., and Flow Japan's financial
statements are recorded in the cumulative translation adjustment account in the
stockholders' equity section of the Consolidated Balance Sheets. Adjustments
resulting from the remeasurement of Flow Europe's accounts are included in the
Consolidated Statements of Income.
STATEMENTS OF CASH FLOWS
For the purposes of the Consolidated Statements of Cash Flows, the Company
considers short-term investments with maturities from the date of purchase of
three months or less, if any, to be cash equivalents.
CONCENTRATION OF CREDIT RISK
In countries or industries where the Company is exposed to material credit
risk, sufficient collateral, including cash deposits and/or letters of credit,
is required prior to the completion of a transaction. The Company does not
believe there is a material credit risk beyond that provided for in the
financial statements in the ordinary course of business. The Company makes use
of foreign exchange contracts to cover some transactions denominated in foreign
currencies, and does not believe there is an associated material credit or
financial statement risk. As of April 30, 1996 the Company had option dated
forward contracts totaling $1.1 million to sell German marks at an average price
of 1.49 German marks to the US dollar. These contracts will be settled during
fiscal 1997. The current year gains and losses were not significant.
FAIR VALUE OF FINANCIAL INSTRUMENTS
All financial instruments on the balance sheet as of April 30, 1996 and
1995 are valued at cost which approximates fair value with the exception of the
Company's investment in Phenix Biocomposites, Incorporated, ("Phenix") (see Note
4).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
that are particularly susceptible to significant change in the near term are
percentage of completion estimates and the adequacy of the allowance for
obsolete inventory, warranty obligations and doubtful accounts receivable.
RECLASSIFICATIONS
Certain 1995 and 1994 amounts have been reclassified to conform with the 1996
presentation.
NOTE 2 - BUSINESS COMBINATIONS:
- -------------------------------------------------------------------------------
On November 11, 1994, Spider entered into a licensing agreement with Ark
Systems, Inc. at a cost of $400,000. This division of the Company, designs and
manufactures a range of access containment systems which are used in under-
bridge applications for surface preparation, lead-paint abatement, cleaning and
maintenance. The agreement gives Spider the exclusive worldwide marketing and
manufacturing rights to the Ark product line for five years.
On December 15, 1994, the Company purchased substantially all of the assets
and assumed substantially all of the liabilities of Dynovation Machine Systems,
Inc. for consideration of $7,970,000. The difference between the net fair market
value of assets acquired and consideration given has been recorded as goodwill.
Dynovation designs and manufactures robotic waterjet cutting cells and automated
assembly systems. Results have been included in the consolidated financial
statements from the date of acquisition based upon the purchase method of
accounting.
On January 3, 1995, the Company purchased certain net assets of ASI
Robotics Systems ("ASI") for consideration of $3,500,000 and 445,000 shares of
Company common stock. The difference between the net fair market value of assets
acquired and consideration given has been recorded as goodwill. ASI designs and
manufactures high accuracy gantry robots and related systems used in waterjet
and other applications. Results of this division have been included in the
consolidated financial statements from the date of acquisition based upon the
purchase method of accounting.
In April 1995, Power Climber N.V. invested approximately $380,000 to become
a majority partner in a joint venture with Consortium Europeen du Materiel
("CEM"). CEM operates three access systems sales, service and rental operations
in France.
In May 1995, the Company invested approximately $600,000 in a majority
interest in a joint venture with Okura & Co., Ltd. ("Okura"), its exclusive
Japanese distributor, to form Flow Japan. The joint venture supplies the
Japanese market with UHP equipment.
During fiscal 1996, a pre-acquisition contingency related to the valuation
of work in process inventory of a fiscal 1995 acquisition was resolved. This
resulted in an additional $600,000 of goodwill being recorded.
NOTE 3 - PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
- -------------------------------------------------------------------------------
If Dynovation Machine Systems, Inc.'s net assets had been acquired at the
beginning of each of the years ended April 30, 1995 and 1994, the results of the
operations of Flow would be adjusted as follows on a pro forma basis. For the
year ended April 30, 1995, total revenues would have been $117,190,000, and net
income would have been $7,178,000, or 50 cents per share. The adjustments to
net income include additional interest expense of $369,000, and additional
goodwill amortization of $317,000. For the comparative period in 1994, total
revenues would have been $96,453,000, and net income would have been $2,067,000,
or 15 cents per share. The adjustments to net income include additional
interest expense of $565,000, and additional goodwill amortization of $472,000.
The pro forma consolidated financial information is presented for
information purposes only, does not take into account savings which may have
been realized from the combination of the Company and Dynovation Machine
Systems, Inc., and is not indicative of the actual consolidated financial
position or results of operations in the future.
NOTE 4 - RELATED PARTY TRANSACTIONS:
- -------------------------------------------------------------------------------
On July 31, 1993, Okura America, a subsidiary of Okura, exercised its
option to convert its Series A Convertible Preferred Stock into 518,995 shares
of common stock at $4.817 per common share.
In August 1992, the Company entered into a stock purchase agreement with
Phenix. The Company contributed cash and certain equipment valued at cost. The
book value of the investment is $484,000 and $609,000 at April 30, 1996 and
1995, respectively and is being accounted for under the cost method. During
fiscal 1996 the Company sold 46,153 shares representing 20.6% of its holdings of
Phenix and recorded a gain of $175,000 which is included in other income.
Currently, the Company's CEO and president is a member of the board of directors
of Phenix.
NOTE 5 - INVENTORIES:
- ------------------------------------------------------------------------------
Inventories consist of the following:
April 30,
1996 1995
------- -------
Raw Materials and Parts $23,334 $17,999
Work in Process 6,339 4,432
Finished Goods 7,268 6,993
------- -------
36,941 29,424
Less: Provision for Slow-Moving
and Obsolete Inventory 2,352 2,205
------- -------
$34,589 $27,219
------- -------
------- -------
NOTE 6 - PROPERTY AND EQUIPMENT:
- ------------------------------------------------------------------------------
Property and equipment are as follows:
April 30,
1996 1995
------ -----
Land and Buildings $592 $592
Machinery and Equipment 47,132 43,426
Furniture and Fixtures 2,730 2,097
Leasehold Improvements 5,864 4,560
Construction in Progress 2,132 507
------ ------
58,450 51,182
Less: Accumulated Depreciation and
Amortization 31,367 26,649
------ ------
$27,083 $24,533
------ ------
------ ------
NOTE 7 - NOTES PAYABLE AND LONG-TERM OBLIGATIONS:
- ------------------------------------------------------------------------------
Current notes payable are as follows:
April 30,
1996 1995
------ -------
Flow Japan Notes Payable $1,523 $ -
Power Climber N.V. Notes Payable 460 646
Dynovation Notes Payable 77 351
Other Notes Payable 244 617
------ ------
$2,304 $1,614
------ ------
------ ------
Long-term obligations are as follows:
April 30,
1996 1995
------ ------
Flow Line of Credit and Term Loans Payable $31,239 $32,679
Private Debt Placement 15,000 -
Guarantee of ESOP Loan 92 184
Power Climber Acquisition Note 294 1,294
------- -------
46,625 34,157
Less: Current Portion 1,035 798
------- -------
$45,590 $33,359
------- -------
------- -------
In September 1995, the Company signed a five-year secured credit agreement
(the "Credit Agreement") to refinance its domestic borrowings. In September
1995 the Company also completed a ten-year $15 million private placement of debt
(the "Private Placement").
The Company's Credit Agreement provides for a revolving line of credit of
up to $60 million, split equally between two financial institutions, which
expires on November 30, 2000. The amount which can be borrowed is limited based
upon certain debt covenant restrictions. Interest rates under the Credit
Agreement are at the bank's prime rate or are linked to LIBOR, at the Company's
option. The funded debt ratio determines the LIBOR based interest rate. Based
on the Company's election, borrowings under the Credit Agreement are primarily
at LIBOR plus 1.35%. The Company had borrowed $28.1 million under the Credit
Agreement as of April 30, 1996. The Company pays 0.1% as an unused commitment
fee. As of April 30, 1996, the Company had approximately $9.3 million of
available domestic unused line of credit. The Company elected a 30-day LIBOR,
which at April 30, 1996 was 5.4%. The Private Placement is a ten-year note with
seven equal principal payments beginning in September 1999. The Company pays
interest semi-annually at a fixed rate of 7.2%. The Credit Agreement and
Private Placement are collateralized by a general lien on the Company's assets.
The unsecured notes payable by Power Climber N.V. are denominated in
Belgian francs, and provide for interest at 7.5% at April 30, 1996. Power
Climber N.V. has approximately $90,000 in unused credit facilities at April 30,
1996.
The notes payable by Dynovation are collateralized by trade accounts
receivable and inventory, and are denominated in Canadian dollars at an interest
rate of Canadian prime plus 0.5%. Dynovation has approximately $480,000 in
unused credit facilities at April 30, 1996.
A $1 million standby letter of credit has been issued by the Company's
principal bank to the Company's Japanese bank, to secure a credit facility for
use by Flow Japan. The notes payable by Flow Japan are denominated in Japanese
yen at interest rates ranging from 1.7% to 1.9% at April 30, 1996. Flow Japan
has approximately $285,000 in unused credit facilities at April 30, 1996.
Line of credit and term loans payable at April 30, 1996 include the
domestic borrowings of $28.1 million, and $3.1 million of foreign debt in
Germany, Belgium and France as discussed below.
A $2.5 million standby letter of credit has been issued by the Company's
principal bank to the Company's German bank, to secure a credit facility for use
by Flow Europe. As of April 30, 1996, Flow Europe had approximately $1.4
million in term loans outstanding. Interest is payable monthly at a rate of
4.75%, with principle due in fiscal 1998. At April 30, 1996, Flow Europe had an
unused $1.1 million credit facility.
The Company has approximately $1 million in term debt denominated in
Belgian francs at interest rates ranging from 6.6% to 9.8% at April 30, 1996.
Principal and interest is paid monthly through fiscal 1999.
The Company has approximately $700,000 in term debt denominated in French
francs at interest rates ranging from 7.6% to 8.3% at April 30, 1996. Principal
and interest is paid monthly through fiscal 1999.
In September 1989, the Company guaranteed a loan of $844,000 funding the
purchase of 250,000 shares of the Company's common stock by the Flow
International Corporation Employee Stock Ownership Plan and Trust (the "ESOP").
The loan bears interest, payable quarterly, at 93% of the bank's prime rate and
is due in annual installments of $92,000 through fiscal 1997 (see Note 9). The
loan is secured by the Company's common stock owned by the ESOP; security for
the Company's guarantee is provided in conjunction with the Credit Agreement.
In April 1993, the Company executed promissory notes totaling $2,262,000 to
the previous owners of Power Climber in conjunction with the acquisition of
assets. During fiscal 1996 the Company elected to payoff all but one of the
promissory notes. The remaining note requires monthly payment of principal and
interest, at 7.25%, through fiscal 2003.
The Company is required to comply with certain covenants relating to the
Credit Agreement and Private Placement including restrictions on dividends and
transactions with affiliates, limitations on additional indebtedness, and
maintenance of tangible net worth, working
capital, fixed charge coverage, funded debt and debt service ratios. As of
April 30, 1996, the Company was in compliance with all such covenants.
Principal payments under long-term obligations for the next five years and
thereafter are as follows: $1,035,000 in 1997, $2,091,000 in 1998, $270,000 in
1999, $48,000 in 2000, $28,127,000 in 2001, and $15,054,000 thereafter.
NOTE 8 - INCOME TAXES:
- ------------------------------------------------------------------------------
In May 1993, the Company prospectively adopted Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes". The
adoption of FAS 109 resulted in income recognition of $401,000 which was
reflected as a change in accounting principle in the year ended April 30, 1994.
The components of consolidated income before income taxes and change in
accounting principle, and the provision for income taxes are as follows:
Year Ended April 30,
------------------------
1996 1995 1994
---- ---- ----
Income Before Income Taxes and Change
in Accounting Principle:
Domestic $8,038 $8,994 $3,319
Foreign 864 265 (207)
------ ------ ------
Total $8,902 $9,259 $3,112
------ ------ ------
------ ------ ------
The provision for income taxes comprises:
Year Ended April 30,
------------------------------------
1996 1995 1994
------ ------ ------
Current Tax Expense:
Domestic $2,309 $ 749 $ 652
State and Local 425 271 42
Foreign 630 63 552
------ ----- -----
Total 3,364 1,083 1,246
Deferred Tax Liability (Benefit) (1,547) 448 (686)
------ ----- -----
Total Provision for Income Taxes $1,817 $1,531 $ 560
------ ----- -----
------ ----- -----
Net deferred tax assets (liabilities) comprise the following:
April 30, 1996 April 30, 1995
-------------- --------------
Fixed assets ($ 525) ($ 435)
Obsolete inventory provisions 543 491
Net operating loss carryover 3,420 3,603
Subpart F income 228 298
Foreign taxes (412) (190)
Accounts receivable allowances 66 179
Inventory capitalization 134 187
AMT Credits 1,234 1,234
All other 383 412
------ -----
Subtotal 5,071 5,779
Valuation allowance (2,407) (4,692)
------ -----
Total Net Deferred Taxes $2,664 $1,087
------ -----
------ -----
A reconciliation of income taxes at the federal statutory rate to the
provision for income taxes is as follows:
Year Ended April 30,
-----------------------------------
1996 1995 1994
------ ------ ------
Income taxes at federal statutory rate $3,026 $3,148 $1,058
Foreign sales corporation benefit (196) (162) (143)
Foreign operations expense 279 541 244
Change in valuation allowance (2,285) (2,504) (599)
State and local taxes 281 179 28
Alternative minimum tax - domestic 822 200 -
Other (110) 129 (28)
------ ------ ------
Income tax provision $1,817 $1,531 $ 560
------ ------ ------
------ ------ ------
As of May 1, 1996, the Company had approximately $6 million of net
operating loss carryforwards to offset certain Flow earnings for federal income
tax purposes. Of the $6 million carryforward, $943,000 was currently available
An additional $943,000 becomes available each fiscal year. These net operating
loss carryforwards expire in varying amounts through the year 2003.
Because of current and expected future earnings, the Company expects
increased utilization of its net operating loss carryforwards and tax credits.
Therefore, the valuation allowance was reduced by a net tax effected amount of
$2,285,000 in fiscal 1996.
Provision has not been made for U.S. income taxes or foreign withholding
taxes on $2,553,000 of undistributed earnings of foreign subsidiaries. Those
earnings have been and will continue to be reinvested. These earnings could
become subject to additional tax if they were remitted as dividends, if foreign
earnings were lent to the Company or a U.S. affiliate, or if the
Company should sell its stock in the subsidiaries. It is not practicable to
estimate the amount of additional tax that might be payable on the foreign
earnings; however, the Company believes that U.S. foreign tax credits would
largely eliminate any U.S. tax and offset any foreign tax.
NOTE 9 - VOLUNTARY PENSION AND SALARY DEFERRAL PLAN AND ESOP PLAN:
- ------------------------------------------------------------------------------
The Company has a 401(k) savings plan in which employees may contribute a
percentage of their compensation. The Company makes contributions based on
emplyee contributions and length of employee service. Company contributions
and expenses under the plan for the years ended April 30, 1996, 1995, and 1994
were $689,000, $531,000, and $520,000, respectively.
In September 1989, the Company established an ESOP for all employees
meeting certain service requirements. Company contributions to the ESOP are
discretionary; however, the Company has agreed to make contributions as
necessary to fund the repayment of the ESOP loan (see Note 7). During the
years ended April 30, 1996, 1995 and 1994, the Company recorded compensation
and interest expense related to the ESOP of $121,000, $109,000 and $110,000,
respectively.
NOTE 10 - STOCK OPTIONS:
- ------------------------------------------------------------------------------
The Company has stock options outstanding under various option plans
described below.
1984 RESTATED STOCK OPTION PLAN (THE "1984 RESTATED PLAN"). Approved by
the Company's shareholders in September 1984 and subsequently amended and
restated, the 1984 Restated Plan provides for grants to employees and
contractors to purchase a maximum of 1,800,000 shares of the Company's common
stock. The 1984 Restated Plan allows for the grant of either incentive or
nonqualified stock options.
ADMAC 1984 INCENTIVE STOCK OPTION PLAN (THE "ADMAC PLAN"). The ADMAC Plan
was adopted in September 1983. Options vested under the plan were converted
into Flow stock options when the Company acquired ADMAC, Inc. in February 1989.
No further grants can be made under the ADMAC Plan.
1987 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS (THE "1987 NONEMPLOYEE
DIRECTORS PLAN"). Approved by the Company's stockholders in September 1987, the
1987 Nonemployee Directors Plan, as subsequently amended, provides for the
automatic grant of nonqualified options for 10,000 shares of Company common
stock to a nonemployee director when initially elected or appointed, and
currently, the issuance of 5,000 shares annually thereafter during the term of
directorship.
OTHER NONEMPLOYEE DIRECTOR OPTIONS. In fiscal 1988, two separate stock
options were granted for 45,000 and 10,000 shares to two nonemployee directors.
1991 STOCK OPTION PLAN (THE "1991 SO PLAN"). The 1991 SO Plan was adopted
in October 1991 and amended in August 1993. Incentive and nonqualified stock
options up to 700,000 shares may be issued under this plan.
1995 LONG-TERM INCENTIVE PLAN (THE "1995 LTI PLAN"). The 1995 LTI Plan was
adopted in August 1995. Incentive and nonqualified stock options up to 750,000
shares may be issued under this plan.
During the years ended April 30, 1996, 1995 and 1994, a total of 182,000,
127,000 and 205,000 options, respectively, were exercised under all stock option
plans of the Company at an average price of $3.04, $1.52 and $1.67 per share,
respectively.
All options become exercisable upon a change in control of the Company.
Options have a two-year vesting schedule, and are granted at fair market value.
The following chart summarizes the status of the options at April 30, 1996:
1987 and 1991
1984 Restated Other SO Plan and
and Nonemployee 1995
ADMAC Plan Directors Plan LTI Plan Total
------------- -------------- ---------- -------
Number of options 310,250 241,000 947,575 1,498,825
outstanding
Number of options 310,250 207,000 588,175 1,105,425
vested
Average exercise $2.32 $6.46 $6.66 $5.73
price per share
In October 1995 the Financial Accounting Standards Board issued FAS 123
"Accounting for Stock Based Compensation," ("FAS 123"), which establishes
financial accounting and reporting standards for stock based employee
compensation plans and for the issuance of equity instruments to acquire goods
and services from non-employees. The Company plans to adopt FAS 123 in fiscal
1997 through disclosure only.
NOTE 11 - PREFERRED SHARE RIGHTS PURCHASE PLAN:
- ------------------------------------------------------------------------------
On June 7, 1990, the Board of Directors of the Company adopted a Preferred
Share Rights Purchase Plan under which a Preferred Share Purchase Right (a
"Right") is attached to each share of Company common stock. The Rights will
be exercisable only if a person or group acquires 20% or more of the Company's
common stock or announces a tender offer, the consummation of which would result
in ownership by a person or group of 20% or more of the common stock. Each
Right entitles stockholders to buy one one-hundredth of a share of Series B
Junior Participating Preferred Stock (the "Series B Preferred Shares") of the
Company at a price of $15. If the Company is acquired in a merger or other
business combination transaction, each Right will entitle its holder to purchase
a number of the acquiring company's common shares having a value equal to twice
the exercise price of the Right. If a person or group acquires 20% or more of
the Company's outstanding common stock, each Right will entitle its holder
(other than such person or members of such group) to receive, upon exercise, a
number of the Company's common shares having a value equal to two times the
exercise price of the Right. Following the acquisition by a person or group of
20% or more of the Company's common stock and prior to an acquisition of 50% or
more of such common stock, the Board of Directors may exchange each Right (other
than Rights owned by such person or group) for one share of common stock or for
one one-hundredth of a Series B Preferred Share. Prior to the acquisition by a
person or group of 20% of the Company's common stock, the Rights are redeemable,
at the option of the Board, for $.01 per Right. The Rights expire on June 17,
2000. The Rights do not have voting or dividend rights, and until they become
exercisable, have no dilutive effect on the earnings of the Company.
NOTE 12 - COMMITMENTS AND CONTINGENCIES:
- ------------------------------------------------------------------------------
The Company rents certain facilities and equipment under agreements
treated for financial reporting purposes as operating leases. The majority
of leases currently in effect are renewable for periods of two to five years.
Rent expense under these leases was approximately $4,041,000, $2,724,000,
and $2,687,000 for the years ended April 30, 1996, 1995 and 1994,
respectively.
Future minimum rents payable under operating leases for years ending
April 30 are as follows:
Year Ending April 30,
----------------------
1997 $ 3,318
1998 2,480
1999 1,858
2000 1,705
2001 1,660
Thereafter 5,911
-------
$16,932
-------
-------
The Ark licensing agreement includes an obligation for the Company to
pay significant additional consideration if and when certain future criteria
are achieved. The Company does not believe the criteria will be met in the
next year. Payment of this consideration will give the Company ownership of
all patents and legal rights related to the Ark product line.
The Company has been subject to product liability claims primarily
through its Spider subsidiary. To minimize the financial impact of product
liability risks and adverse judgments,
product liability insurance has been purchased in amounts and under terms
considered acceptable to management.
At any point in time covered by these financial statements, there are
outstanding product liability claims against the Company, and incidents are
known to management which may result in future claims. Management, in
conjunction with defense counsel, periodically reviews the likelihood that
such product claims and incidents will result in adverse judgments, the
estimated amount of such judgments and costs of defense, and accrues
liabilities as appropriate.
Recoveries, if any, may be realized from indemnitors, codefendants,
insurers or insurance guaranty funds. Management, based on estimates
provided by the Company's legal counsel on such claims, believes its
insurance coverage is adequate.
Management estimates the range of the Company's future exposure amounts
relating to unresolved claims at April 30, 1996, aggregate from approximately
$0 to $400,000 before recoveries and between $0 and $200,000 net of
recoveries.
Included in Other Income (Expense), net, in the years ended April 30,
1996, 1995 and 1994 are product liability claim settlements of approximately
$102,000, $32,000, and $20,000, respectively.
NOTE 13 - FOREIGN OPERATIONS:
- ------------------------------------------------------------------------------
UNITED OTHER ADJUSTMENTS &
STATES EUROPE FOREIGN ELIMINATIONS CONSOLIDATED
- ------------------------------------------------------------------------------
1996
- ------------------------------------------------------------------------------
Revenues:
Customers (1) $85,810 $32,394 $26,701 $ - $144,905
Inter-area (2) 13,284 - 897 (14,181) -
- ------------------------------------------------------------------------------
Total revenues 99,094 32,394 27,598 (14,181) 144,905
- ------------------------------------------------------------------------------
Operating Income Before
Corporate
Expenses 15,223 1,556 196 16,975
Corporate
Expenses (5,218)
-------
Operating Income $11,757
-------
Identifiable
Assets $93,725 $13,065 $19,703 $126,493
--------
1995
- ------------------------------------------------------------------------------
Revenues:
Customers (1) $79,406 $19,714 $10,890 $ - $110,010
Inter-area (2) 8,347 - 1,094 (9,441) -
- ------------------------------------------------------------------------------
Total revenues 87,753 19,714 11,984 (9,441) 110,010
- ------------------------------------------------------------------------------
Operating Income
Before Corporate
Expenses 15,413 366 511 16,290
Corporate Expenses (4,627)
-------
Operating Income $11,663
-------
Identifiable Assets $70,357 $16,316 $18,811 $105,484
-------
1994
- ------------------------------------------------------------------------------
Revenues:
Customers (1) $69,205 $13,476 $5,951 $ - $88,632
Inter-area (2) 8,203 - 718 (8,921) -
- ------------------------------------------------------------------------------
Total revenues 77,408 13,476 6,669 (8,921) 88,632
- ------------------------------------------------------------------------------
Operating Income
(Loss) Before
Corporate Expenses 8,512 (753) 518 8,277
Corporate Expenses (4,268)
------
Operating Income $4,009
------
Identifiable Assets $60,339 $12,066 $5,823 $78,228
------
(1) U.S. sales to unaffiliated customers in foreign countries were $5,978,000,
$6,881,000 and $5,058,000 in fiscal 1996, 1995, and 1994, respectively.
(2) Inter-area sales to affiliates represent products which were transferred
between geographic areas at negotiated prices. These amounts have been
eliminated in the consolidation.
NOTE 14 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
- ------------------------------------------------------------------------------
Fiscal 1996 Quarters First Second Third Fourth Total
- -------------------- ----- ------ ----- ------ -----
Revenue $33,013 $35,622 $35,641 $40,629 $144,905
Gross Profit 13,905 14,191 13,826 15,508 57,430
Net Income 2,060 1,806 1,151 2,068 7,085
Earnings Per Share* .14 .12 .08 .14 .47
Fiscal 1995 Quarters First Second Third Fourth Total
- -------------------- ----- ------ ----- ------ -----
Revenue $24,509 $26,758 $27,187 $31,556 $110,010
Gross Profit 10,438 11,600 10,954 13,319 46,311
Net Income 1,649 2,162 1,616 2,301 7,728
Earnings Per Share .12 .15 .11 .15 .53
Fiscal 1994 Quarters First Second Third Fourth Total
- -------------------- ----- ------ ----- ------ -----
Revenue $19,355 $24,591 $20,555 $24,131 $88,632
Gross Profit 8,809 10,206 6,008 10,055 35,078
Income (Loss) Before
Change Accounting
Principle 1,109 1,802 (1,794) 1,435 2,552
Net Income (Loss) 1,510 1,802 (1,794) 1,435 2,953
Earnings (Loss) Per
Share Before Change in
Accounting Principle .08 .13 (.13) .10 .18
Earnings (Loss) Per Share .11 .13 (.13) .10 .21
*The total of the four quarters does not equal the year due to rounding.
FLOW INTERNATIONAL CORPORATION
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Additions
---------------------
Balance at Charged to Charged Balance
Beginning Costs and to Other at End
Classification of Period Expenses Accounts Deductions* of Period
- -------------- --------- ---------- -------- ---------- ----------
Year Ended April 30:
- --------------------
Allowance for
Doubtful Accounts
- ------------------
1996 $1,150 $576 $ (540) $1,186
1995 908 480 (238) 1,150
1994 846 324 (262) 908
Provision for Slow-Moving
and Obsolete Inventory
- -----------------------
1996 $2,205 $248 $ (101) $2,352
1995 2,093 324 (212) 2,205
1994 2,007 269 (183) 2,093
__________
* Write-offs of uncollectible accounts and disposal of obsolete inventory.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------------------------------------------------------------------------------
Information regarding directors and executive officers of the registrant
is incorporated herein by reference from the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
- ------------------------------------------------------------------------------
Information regarding executive compensation is incorporated herein by
reference from the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------------------------------------------------------------------------------
Information regarding security ownership of certain beneficial owners and
management is incorporated herein by reference from the Company's Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ------------------------------------------------------------------------------
Information regarding certain relationships and related transactions is
incorporated herein by reference from the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
1. Consolidated Financial Statements.
See Item 8 of Part II for a list of the Financial Statements filed as
part of this report.
2. Financial Statement Schedules.
See Item 8 of Part II for a list of the Financial Statement Schedules
filed as part of this report.
3. Exhibits. See subparagraph (c) below.
(b) Reports on Form 8-K -
The Company filed a Current Report on Form 8-K on May 21, 1996
reporting the resignation of Elaine P. Scherba, Vice President and
Chief Financial Officer.
(c) Exhibits.
EXHIBIT
NUMBER
3.1 Restated Certificate of Incorporation, filed with the state of
Delaware September 14, 1989. (Incorporated by reference to Exhibit
3.1 to the registrant's Annual Report on Form 10-K for the year ended
April 30, 1990.)
3.2 By-Laws of Flow International Corporation. (Incorporated by reference
to Exhibit 3.2 to the registrant's Annual Report on Form 10-K for the
year ended April 30, 1990.)
4.1 Certificate of Designation of Series B Junior Participating Preferred
Stock. (Incorporated by reference to Exhibit 4.5 to the registrant's
Annual Report on Form 10-K for the year ended April 30, 1990.)
4.2 Rights Agreement dated as of June 7, 1990, between Flow International
Corporation and First Interstate Bank, Ltd. (Incorporated by
reference to Exhibit 4.1 to the registrant's Current Report on Form 8-
K dated June 8, 1990.)
10.1 Flow International Corporation 1984 Restated Stock Option Plan, as
amended. (Incorporated by reference to Exhibit 10.1 to the
registrant's Annual Report on Form 10-K for the year ended April 30,
1990.)
10.2 Flow International Corporation 1987 Stock Option Plan for Nonemployee
Directors, as amended. (Incorporated by reference to Exhibit 10.5 to
the registrant's Annual Report on Form 10-K for the year ended April
30, 1994.)
10.3 Flow International Corporation 1991 Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10.6 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1994.)
10.4 Flow International Corporation 1995 Long-Term Incentive Plan.
(Incorporated by reference to Exhibit 10.4 to the registrant's
Annual Report on Form 10-K for the year ended April 30, 1995.)
10.5 Flow International Corporation Employee Stock Ownership Plan and Trust
Agreement, as amended and restated effective January 1, 1994, and
certain later dates, between Flow International Corporation and
Seattle-First National Bank, as trustee. (Incorporated by reference
to Exhibit 10.7 to the registrant's Annual Report on Form 10-K for the
year ended April 30, 1994).
10.6 Stock Purchase Agreement dated as of September 26, 1989, between Flow
International Corporation Employee Stock Ownership Plan and Trust and
Seattle-First National Bank. (Incorporated by reference to Exhibit
10.7 to the registrant's Annual Report on Form 10-K for the year ended
April 30, 1990.)
10.7 ESOT Loan and Guaranty Agreement dated September 26, 1989, among U.S.
Bank of Washington, N.A., Flow International Corporation Employee
Stock Ownership Plan and Trust and Flow International Corporation.
(Incorporated by reference to Exhibit 10.8 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1990).
10.8 Replacement ESOT Note dated September 1992. (Incorporated by
reference to Exhibit 10.10 to the registrant's Annual Report on Form
10-K for the year ended April 30, 1993).
10.9 Pledge Agreement dated September 26, 1989, among U.S. Bank of
Washington, N.A., Flow International Corporation. Employee Stock
Ownership Plan and Trust and Flow
International Corporation. (Incorporated by reference to
Exhibit 10.10 to the registrant's Annual Report on Form 10-K for
the year ended April 30, 1990.)
10.10 Unconditional Guaranty dated September 26, 1989, by Flow International
Corporation for the benefit of U.S. Bank of Washington, N.A.
(Incorporated by reference to Exhibit 10.11 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1990.)
10.11 Flow International Corporation Voluntary Pension and Salary Deferral
Plan and Trust Agreement, as restated effective January 1, 1992.
(Incorporated by reference to Exhibit 10.13 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1993).
10.12 Amendment to Flow International Corporation Voluntary Pension and
Salary Deferral Plan. (Incorporated by reference to Exhibit 10.13 to
the registrant's Annual Report on Form 10-K for the year ended April
30, 1994).
10.13 Lease dated September 24, 1991, between Flow International and
Birtcher LP/LC Partnership, together with Addendum to Lease.
(Incorporated by reference to Exhibit 10.25 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1992.)
10.14 Dynovation Agreement. (Incorporated by reference to Exhibit 2.1 to
the registrant's Current Report on Form 8-K dated December 15, 1994.)
10.15 Credit agreement amount 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. (Incorporated by
reference to Exhibit 10.1 to the registrant's Quarterly Report on Form
10-Q for the period ended October 31, 1995.)
10.16 Note purchase agreement dated September 1, 1995. (Incorporated by
reference to Exhibit 10.2 to the registrant's Quarterly Report on Form
10-Q for the period ended October 31, 1995.)
10.17 Form of Change in Control Agreement
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
July 22, 1996
/s/ Ronald W. Tarrant
----------------------------
Ronald W. Tarrant
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on the behalf of the
registrant and in the capacities on this 22th day of July, 1996
Signature Title
--------- -----
/s/ Ronald W. Tarrant Chairman, President, Chief Executive Officer
- -------------------------- (Principal Executive Officer)
Ronald W. Tarrant
/s/ Stephen D. Reichenbach Vice President Finance, Treasurer and Interim
- -------------------------- Chief Financial Officer
Stephen D. Reichenbach (Principal Financial Officer & Principal
Accounting Officer)
/s/ Ronald D. Barbaro Director
- --------------------------
Ronald D. Barbaro
/s/ John S. Cargill Director
- --------------------------
John S. Cargill
/s/ Daniel J. Evans Director
- --------------------------
Daniel J. Evans
Signature Title
--------- -----
/s/ Arlen I. Prentice Director
- --------------------------
Arlen I. Prentice
/s/ J. Michael Ribaudo Director
- -------------------------
J. Michael Ribaudo
/s/ Kenneth M. Roberts Director
- -------------------------
Kenneth M. Roberts
/s/ Dean D. Thornton Director
- -------------------------
Dean D. Thornton