-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, jQLe+i5ofRIjkcZzpZQld9mj9LXowWum7E731sRibvGRNQZs0EOJW1KRh8UuffvG LUgAZ0pLAbnM43T8i7uABg== 0000891020-95-000286.txt : 19950728 0000891020-95-000286.hdr.sgml : 19950728 ACCESSION NUMBER: 0000891020-95-000286 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950430 FILED AS OF DATE: 19950727 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLOW INTERNATIONAL CORP CENTRAL INDEX KEY: 0000713002 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 911104842 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12448 FILM NUMBER: 95556471 BUSINESS ADDRESS: STREET 1: 23500 64TH AVE S STREET 2: P O BOX 97040 CITY: KENT STATE: WA ZIP: 98032 BUSINESS PHONE: 2068503500 MAIL ADDRESS: STREET 1: 23500 64TH AVENUE SOUTH CITY: KENT STATE: WA ZIP: 98032 FORMER COMPANY: FORMER CONFORMED NAME: FLOW SYSTEMS INC DATE OF NAME CHANGE: 19890320 10-K 1 FLOW INTERNATIONAL CORPORATION, FORM 10-K 1 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, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission file number 2-81315 FLOW INTERNATIONAL CORPORATION DELAWARE 91-1104842 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.)
23500 - 64TH AVENUE SOUTH KENT, WASHINGTON 98032 (206) 850-3500 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. [ ] 2 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, 1995, was $124,645,257. The number of shares of common stock outstanding as of May 31, 1995, was 14,350,219 shares. 3 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 4 PART I Item 1. Business Flow International Corporation ("Flow" or the "Company") designs, develops, manufactures, markets, and services ultrahigh-pressure ("UHP") (over 30,000 psi) waterjet cutting and cleaning systems, and is a provider of access systems, robotics and factory automation equipment. Flow provides technologically advanced, environmentally sound solutions to the manufacturing, industrial cleaning and construction services markets. The Company's waterjet systems are used to cut both metallic and nonmetallic materials in many industry segments, including the aerospace, automotive, disposable products, food processing, glass, job shop, marble, oil field services and paper industries. The Company also provides the robotic articulation equipment used in the cutting process as well as other factory automation systems such as 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 many of the same applications. The Company also provides, as a service, the removal of deteriorated concrete from bridges and parking garages using UHP waterjets ("HydroMilling(R)"), and the removal of rubber, paint and grout from commercial and military runways ("HydroCleaning(TM)"). The Company was formed in 1974 as a division of Flow Industries, Inc. ("Flow Industries"). In March 1983, the Company completed its initial public offering. During the year ended April 30, 1990, the Company acquired and retired Flow Industries' remaining interest in 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 infrastructure-related markets. In April 1993, the Company acquired substantially all of the assets of Power Climber, Inc. ("Power Climber"), and affiliated companies. Power Climber was, prior to the acquisition, a supplier to Spider, and designs and markets access systems, 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 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 market and other industries. 5 On January 3, 1995, the Company purchased certain net assets of ASI Robotics Systems ("ASI"). ASI designs and manufactures high accuracy gantry robots and related systems used in waterjet and other applications. ASI supplies it's products to the aerospace, automotive and other similar industries. 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) 1995 1994 1993 Revenue % Revenue % Revenue % ---------------------------------------------------------------------- UHP Waterjet and Factory Automation Systems $36,600 33 $20,645 23 $24,160 31 UHP Spare Parts and Services 28,529 26 26,319 30 24,818 31 Access Systems and Services 33,566 31 28,888 33 22,015 28 HydroMilling(R) and HydroCleaning(TM) Services 11,315 10 12,780 14 8,086 10 ---------------------------------------------------------------------- Total Revenues $110,010 100 $88,632 100 $79,079 100 ======================================================================
UHP WATERJET AND FACTORY AUTOMATION SYSTEMS, SPARE PARTS AND SERVICES The Company offers a variety of UHP waterjet and factory automation system products and accessories, including related robotic articulation equipment. 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 waterjet. The Company's unique direct- drive pressure-compensated pump pressurizes water utilizing triplex piston technology. In order to cut metallic and other hard materials, abrasives are added to the waterjet stream creating an abrasivejet. The Company's abrasivejet cuts with little heat, causes no metallurgical changes, and leaves a high-quality edge that usually requires no additional finishing. Flow also produces a range of tools and accessories which incorporate waterjet technology, and sells aftermarket spare parts and services for its products. The Company also provides factory automation equipment used in applications such as pick and place operations, waterjet cutting and inspection. A UHP waterjet system consists of an ultrahigh-pressure intensifier pump, one or more waterjet cutting heads, and a motion control system. Sales of UHP waterjet and factory automation systems, and replacement parts and services, accounted for 33% and 26%, respectively, of fiscal 1995 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. System sales generate an after-market in consumable spare parts and service. Higher system sales therefore have a corresponding positive impact on spare parts and services revenue. The Company has placed UHP waterjet cutting systems worldwide and in many different industries, including the aerospace, automotive, disposable products, food processing, glass, job shop, metal cutting, marble and other stone 6 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, ship hull and heat exchanger cleaning. ACCESS SYSTEMS AND SERVICES The Company designs, manufactures, rents, sells, and services access systems for use in structural and facade maintenance and construction applications. The Company's 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, and missile silos. The Company's permanently installed systems provide access to exterior surfaces of high-rise buildings for window washing, painting, building restoration and exterior maintenance. The Company is also the exclusive U.S. distributor of a line of permanently installed access systems produced by Mannesmann of Germany, and is the North American distributor of the Nihon Bisoh automatic exterior maintenance systems. In fiscal 1995, sales and rental of access systems and services amounted to 31% 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 bridge 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 rotating ultrahigh-pressure waterjet, mounted on a robot, to remove concrete. The depth of the cutting per pass can be controlled by adjusting the pressure and traverse speed of the waterjet. In January 1993, the Company began work on the John F. Kennedy Center for the Performing Arts parking garage in Washington, D. C., where Flow will remove and replace deteriorated concrete in this 500,000 square foot facility. This $13.8 million contract is expected to be completed in early fiscal 1997. The Company recently announced the award of two other contracts totaling $5.5 million. HydroCleaning services are provided to commercial and military airfields. Ultrahigh-pressure waterjets are mounted on a vehicle to remove rubber, paint and grout from airport runways. In fiscal 1995, HydroMilling and HydroCleaning revenues were 10% of total revenues. MARKETING The Company markets its products worldwide through its headquarters in Kent, Washington (a suburb of Seattle), 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; and Hsinchu, Taiwan; and through branch offices in sixteen North American cities. The Company sells directly to customers in the U.S., Europe and parts of Asia, and has distributors or agents in most other countries. 7 No customer accounted for 10% or more of the Company's revenues during any of the three years ended April 30, 1995. Marketing efforts are focused on certain target industries. To enhance the effectiveness of sales efforts, the marketing staff and sales force acquire detailed information on the manufacturing and construction processes in targeted industries. 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 publications. The Company markets its proprietary HydroMilling and HydroCleaning services primarily in the United States due to the location of service staff and equipment. HydroMilling services are provided primarily in the Northeast and Midwest areas of the country. Roadway concrete deteriorates faster in these areas 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 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 patents held in the name of Flow Industries, the Company's former parent. 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. The Company believes the patents it holds, along with the proprietary application and manufacturing know-how, act as a barrier of entry into the markets it serves. 8 BACKLOG At April 30, 1995, the Company reported a year-end backlog of $23.5 million, up 54% from $15.3 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, 1995 is expected to be realized during fiscal 1996. Amounts expected to be billed after April 30, 1996 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 over a million 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, which use saws, knives, shears, lasers, abrasive wheels, grinders, routers, drills, dies, and abrasive cleaning techniques, often have a lower initial cost. A UHP waterjet cutting system has many advantages over conventional cutting systems, including the generation of little 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 certain circumstances enhance manufacturing productivity. Waterjet cleaning offers many advantages over other cleaning methods, such as the ability to remove difficult-to-clean 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 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 recent robotics acquisitions give Flow a competitive advantage as the only total system provider of a complete line of articulation equipment used in waterjet cutting. 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 9 elimination of micro-cracks, rebar damage, vibration, dust, and 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. 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 approach, (3) an active research and development program that allows it to maintain technical leadership, (4) the ability to provide complete turnkey systems, (5) strong position in key markets, such as the U.S., Japan, southeast Asia and Europe, (6) strong OEM customer ties, and (7) efficient production facilities. RESEARCH AND ENGINEERING The Company has allocated over 6% of revenues to research and engineering during each of the three years ended April 30, 1995. Research and engineering expenses were approximately $6,784,000, $5,361,000, and $4,983,000 in fiscal years 1995, 1994, and 1993, respectively. EMPLOYEES As of April 30, 1995, the Company employed 792 full time and 6 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. 10 Item 2. Properties 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, Japan and three facilities in France; and sales, manufacturing and warehouse facilities in Johnstown, Pennsylvania; Burlington, Canada; Hsinchu, Taiwan; Antwerp, Belgium; and Darmstadt, Germany. In connection with the acquisition of certain assets of ASI, the Company owns the land and building in which ASI operates. The plant is located in Jeffersonville, Indiana. All other facilities of the Company are leased with the exception of a warehouse and sales facility in Chicago, Illinois. 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 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 An annual stockholders' meeting was held on August 31, 1994, during which three persons were elected to be members of the Board of Directors. Daniel J. Evans, Kenneth M. Roberts and Ronald W. Tarrant were elected to three-year terms ending with the 1997 Annual Meeting of Stockholders receiving, respectively, 11,229,042, 11,238,915 and 11,214,996 votes in favor, and 85,307, 75,434 and 99,353 votes withheld. There were no broker non-votes for any of the above submitted for vote. 11 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters. See page 12 Item 6. Selected Financial Data. See page12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. See pages 13 through 17 Item 8. Financial Statements and Supplementary Data. See pages 18 through 40 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 12 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 1995 Fiscal Year 1994 High Low High Low ------------------------------------------------------- First Quarter $6.88 $4.63 $8.25 $5.75 Second Quarter 7.25 5.63 8.75 6.25 Third Quarter 7.88 6.13 8.75 6.88 Fourth Quarter 8.50 6.50 8.50 5.38
There were 1,592 stockholders of record as of May 31, 1995. 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 - ---------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992(1) 1991(1) ------------------------------------------------------------------------ Income Statement Data: Revenue $110,010 $88,632 $79,079 $69,071 $60,509 Pretax Income (Loss) 9,259 3,112 5,791 4,272 (704) Net Income (Loss) 7,728 2,953 4,641 3,511 (865) Earnings (Loss) Per Share 0.53 0.21 0.33 0.25 (0.11) Balance Sheet Data: Working Capital 44,592 25,415 25,060 16,399 16,806 Total Assets 105,484 78,228 69,276 57,448 54,329 Short-Term Debt 2,412 16,504 10,403 8,477 11,472 Long-Term Obligations 33,359 10,559 12,549 7,899 8,903 Stockholders' Equity 49,803 37,948 34,225 28,873 24,748
- ---------- (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. 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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) 1995 1994 1993 Revenue % Revenue % Revenue % ---------------------------------------------------------------------- UHP Waterjet and Factory Automation Systems $ 36,600 33 $20,645 23 $24,160 31 UHP Spare Parts and Services 28,529 26 26,319 30 24,818 31 Access Systems and Services 33,566 31 28,888 33 22,015 28 HydroMilling(R) and HydroCleaning(TM) Services 11,315 10 12,780 14 8,086 10 ---------------------------------------------------------------------- Total Revenues $110,010 100 $88,632 100 $79,079 100 ======================================================================
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. Consolidation of the sales and marketing force began during the third quarter of fiscal 1995, and integration of other functions will continue into fiscal 1996. 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 relationship with Consortium Europeen du Materiel ("CEM") in France, 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. The Company funded these transactions through a short-term bridge loan facility from the Company's principal bank. 14 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 business acquisitions and partnerships made during fiscal 1995. Sales into Asia were similar to those of the prior year. The Company typically sells its products at higher prices outside the United States due to the costs of servicing these markets. UHP waterjet spare parts and services revenues increased by $2.2 million (8%), reflecting an increased base of UHP waterjet systems installed throughout the world. 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. 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. Spare parts are composed primarily of consumables used in the cutting or cleaning process. 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. The $13.8 million contract for parking garage rehabilitation services at the John F. Kennedy Center for the Performing Arts in Washington, D.C. remains on target, with the job approximately 70% complete at the end of fiscal 1995. Gross margin 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 in fiscal 1994, the gross margin percentage would have also been 42%. Since the Company's products have different gross margins, product mix variations can have a significant impact on overall gross margins. In general, UHP systems sales have gross margins less than 40% and spare parts sales have margins in excess of 50%. The margin in the 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 $112,000, net of disposals. Expenses increased by $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. Research and engineering expense exceeded 6% of revenues, reflecting the Company's continued emphasis on increased product development efforts. 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 $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. 15 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 FAS 109 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. FISCAL 1994 COMPARED TO FISCAL 1993 Revenues for the year ended April 30, 1994 increased $9.6 million (12%) from the prior year period. UHP waterjet system sales declined by $3.5 million (15%), reflecting the soft economies in Europe and Japan that were prevalent throughout the year. UHP waterjet replacement spare parts and services revenues increased by $1.5 million (6%). Access system revenues increased $6.9 million (31%), reflecting primarily the acquisition of Power Climber at the end of fiscal 1993. HydroMilling and HydroCleaning services revenues increased $4.7 million (58%), relating primarily to the performance of parking garage rehabilitation services at the John F. Kennedy Center for the Performing Arts in Washington, D.C. North American and Asian sales (excluding Japan) increased by 20% and 34%, respectively; European and Japanese sales decreased by 5% and 44%, respectively, as their soft economies reduced the demand for machine tools. Gross margin expressed as a percent of sales was 40% in fiscal 1994 compared with 43% in fiscal 1993. The reduction in gross margin is primarily attributable to a construction services project terminated in the third quarter of fiscal 1994 for which the Company recorded cost of sales of $2.6 million and revenues of $400,000. Excluding this project, gross margin would have been 42% in fiscal 1994. Slow moving and obsolete inventory provisions increased by $86,000, net of disposals. Expenses increased by $3.8 million in fiscal 1994. However, they were 35% of sales in both years. Marketing expenses increased by $2.5 million. This increase includes approximately $600,000 related to Power Climber, whose expenses were nominal in fiscal 1993 as the acquisition was completed in April 1993. Additionally, marketing expenses increased in the domestic access system and waterjet marketing areas by approximately $700,000 and $900,000, respectively, primarily from increased efforts directed at expanding the Company's access system and field cleaning markets and operations. The $378,000 increase in research and engineering expenses resulted from increased product development efforts. General and administrative expenses increased by $863,000, which includes Power Climber expenses of $1.3 million. Additionally, during the third and fourth quarters of the fiscal year the Company incurred approximately $400,000 in expenses associated with a letter of intent to acquire the assets of the Waterjet Cutting Systems Division of Ingersoll-Rand Company. The Company terminated the letter of intent subsequent to 16 year end but has written off these costs to general and administrative expense in fiscal 1994. These increases were offset partially by reduced domestic general and administrative expenses. Net interest expense increased by $347,000 in fiscal 1994 and was related to increased borrowings. Other income, net, increased by $649,000 which was composed of a $445,000 gain on the sale of a vacated manufacturing facility and greater realized and unrealized foreign exchange gains in fiscal 1994 over 1993. Income tax expense for fiscal 1994 was 18% of income before tax as compared to 28% in the previous year. In the previous year, net operating loss carryforwards were recognized as an extraordinary item and reduced the net tax expense to 20% of income before tax. In the first quarter of fiscal year 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. Income tax expense was lower than the statutory rate in fiscal 1994 due primarily to lower tax rates in certain foreign jurisdictions, the benefit of the Company's foreign sales corporation and the change in the Company's FAS 109 valuation allowance. LIQUIDITY AND CAPITAL RESOURCES Subsequent to year end the Company received an irrevocable long-term commitment from its bank to replace its domestic borrowings. Such borrowings arose from a working capital line, equipment purchase notes, and the financing required to complete various acquisitions and business partnerships and agreements during fiscal 1995. The new financing arrangement comprises a $60 million five-year reducing line of credit. The interest rate will be at prime or linked to IBOR, at the Company's option. Debt as of April 30, 1995, which will be replaced by the new financing arrangement, has been classified accordingly. 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 $6 to $7 million in fiscal 1996. It is expected that funds necessary for these expenditures will be generated internally, and through available credit facilities. The 22% increase in gross trade accounts receivable at April 30, 1995 from April 30, 1994 was principally due to higher fourth quarter revenues, and to the new businesses acquired during fiscal 1995. Days' sales outstanding in gross accounts receivable are impacted by sales 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. 17 The inventory increase of $5 million (23%) is related primarily to the higher levels of business and the new businesses acquired during fiscal 1995. Certain products manufactured by ASI and Dynovation can require an extended manufacturing period, and therefore involve higher levels of work in process. Higher inventory levels also reflect new product introductions and the Company's efforts to reduce lead times associated with customer orders. The amount provided for obsolete and slow-moving goods at April 30, 1995, increased $112,000, net of disposals, from April 30, 1994. 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/ Lee M. Andrews LEE M. ANDREWS VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 18 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 19 Consolidated Balance Sheets at April 30, 1995 and 1994 20 Consolidated Statements of Income for each of the three years in the period ended April 30, 1995 21 Consolidated Statements of Cash Flows for each of the three years in the period ended April 30, 1995 22 Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended April 30, 1995 24 Notes to Consolidated Financial Statements 25 Financial Statement Schedules - ----------------------------- VIII -- Valuation and Qualifying Accounts 40
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. 19 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 1995, 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 financial statements, the Company changed its method of accounting for income taxes in fiscal 1994. /s/ Price Waterhouse LLP Seattle, Washington July 6, 1995 20 FLOW INTERNATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
April 30 --------------------- 1995 1994 ---- ---- ASSETS: - ------- Current Assets: Cash $1,074 $1,351 Trade Accounts Receivable, less allowances for doubtful accounts of $1,150 and $908, respectively 31,638 25,887 Inventories 27,219 22,160 Deferred Income Taxes 1,335 1,422 Other Current Assets 4,719 4,316 ---------------------- Total Current Assets 65,985 55,136 Property and Equipment, net 24,533 20,030 Deferred Income Taxes - 113 Intangible Assets, net of accumulated amortization of $2,275 and $1,736, respectively 13,361 1,809 Other Assets 1,605 1,140 ---------------------- $105,484 $78,228 ====================== LIABILITIES AND STOCKHOLDERS' EQUITY: - ------------------------------------- Current Liabilities: Notes Payable to Banks $1,614 $12,126 Current Portion of Long-Term Obligations 798 4,378 Accounts Payable 12,221 7,968 Accrued Payroll and Related Liabilities 3,542 2,027 Other Accrued Taxes 638 178 Other Accrued Liabilities 2,580 3,044 --------------------- Total Current Liabilities 21,393 29,721 Long-Term Obligations 33,359 10,559 Deferred Income Taxes 248 - Minority Interest 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, 14,603,233 and 14,326,830 shares issued and outstanding, respectively, in 1995 14,031,262 and 13,754,859 shares issued and outstanding, respectively, in 1994 146 140 Capital in Excess of Par 37,602 33,889 Retained Earnings 11,456 3,728 Treasury Common Stock of 276,403 shares at cost (556) (556) Cumulative Translation Adjustment 1,339 1,023 Loan to Employee Stock Ownership Plan & Trust (184) (276) ---------------------- Total Stockholders' Equity 49,803 37,948 ---------------------- Commitments and Contingencies (Note 12) - - ---------------------- $105,484 $78,228 ======================
The accompanying notes are an integral part of these consolidated financial statements. 21 FLOW INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
April 30 ------------------------------------ 1995 1994 1993 ---- ---- ---- Revenue: Sales $84,800 $63,808 $60,663 Services 15,256 16,110 11,146 Rentals 9,954 8,714 7,270 ------------------------------------ Total Revenues 110,010 88,632 79,079 Cost of Sales: Sales 48,454 36,223 33,414 Services 10,850 13,351 7,788 Rentals 4,395 3,980 3,574 ------------------------------------ Total Cost of Sales 63,699 53,554 44,776 ------------------------------------ Gross Profit 46,311 35,078 34,303 Expenses: Marketing 16,582 15,106 12,591 Research and Engineering 6,784 5,361 4,983 General and Administrative 11,282 10,602 9,739 ------------------------------------ 34,648 31,069 27,313 ------------------------------------ Operating Income 11,663 4,009 6,990 Interest Expense, net (2,374) (1,549) (1,202) Other Income (Expense), net (30) 652 3 ------------------------------------ Income before Provision for Income Taxes, Extraordinary Item and Change in Accounting Principle 9,259 3,112 5,791 Provision for Income Taxes 1,531 560 1,600 ------------------------------------ Income before Extraordinary Item and Change in Accounting Principle 7,728 2,552 4,191 Extraordinary Item: Realization of Operating Loss Carryforwards -- -- 450 Change in Accounting Principle -- 401 -- ------------------------------------ Net Income $ 7,728 $2,953 $4,641 ==================================== Earnings per Common and Equivalent Shares: Income before Extraordinary Item and Change in Accounting Principle $ .53 $ .18 $ .30 Extraordinary Item and Change in Accounting Principle -- .03 .03 ------------------------------------ Net Income $ .53 $ .21 $ .33 ====================================
The accompanying notes are an integral part of these consolidated financial statements. 22 FLOW INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended April 30, ---------------------------------------- 1995 1994 1993 ---- ---- ---- Cash Flows from Operating Activities: Net Income $ 7,728 $ 2,953 $ 4,641 Adjustments to Reconcile Net Income to Cash Provided (Used) by Operating Activities: Depreciation and amortization 5,199 4,236 3,763 Gain on sale of Spider facility - (445) - Change in accounting principle and extraordinary item - (401) (450) Provision for losses on trade accounts receivable 480 324 237 Provision for slow moving and obsolete inventory 324 269 312 Tax effect of exercised stock options 164 554 175 Other 92 92 92 (Increase) Decrease in Current Assets, net of effects of business combinations: Trade Accounts Receivable (2,651) (4,325) (2,807) Inventories (1,516) (2,552) (3,033) Other Current Assets (29) (1,878) 636 Deferred Income Taxes 87 (686) 36 Increase (Decrease) in Current Liabilities, net of effects of business combinations: Accounts Payable (1,378) 513 181 Accrued Payroll and Related Liabilities 796 (87) (433) Other Accrued Taxes 372 (257) (282) Other Accrued Liabilities (813) 1,119 (472) (Increase) in Intangible Assets (400) - - (Increase) Decrease in Other Long-Term Assets (39) 195 175 Increase in Other Long-Term Liabilities 192 - - ------- ------- ------- Cash provided (used) by operating activities 8,608 (376) 2,771 ------- ------- ------- Cash Flows from Investing Activities: Expenditures for property and equipment (5,584) (6,228) (7,222) Payment for business combinations (11,850) - - Payment received on Flow Industries note - 2,744 - Investment in Preferred Stock - - (609) Proceeds from sale of property and equipment - 156 - Other 17 702 644 ------- ------- ------- Cash used by investing activities (17,417) (2,626) (7,187) ------- ------- ------- Cash Flows from Financing Activities: Borrowings under line of credit agreements 81,895 73,213 52,581 Repayments under line of credit agreements (82,127) (67,768) (50,418) Proceeds from bridge loan 12,364 - - Proceeds from long-term obligations 287 2,340 2,552 Payments of long-term obligations (4,397) (3,674) (1,144) Proceeds from issuance of common stock 194 315 488 Payment of Preferred Stock Dividends - (50) (200) ------- ------- ------- Cash provided by financing activities 8,216 4,376 3,859 ------- ------- ------- Effect of exchange rate changes on cash 316 (141) (102) ------- ------- ------- Increase (decrease) in cash and cash equivalents (277) 1,233 (659) Cash and cash equivalents at beginning of period 1,351 118 777 ------- ------- ------- Cash and cash equivalents at end of period $ 1,074 $ 1,351 $ 118 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 23 FLOW INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands)
Year Ended April 30, -------------------------------------- 1995 1994 1993 ------- ------- ------- Supplemental disclosures of cash flow information - ------------------------------------------------- Cash paid during the year for Interest $2,273 $1,756 $1,434 Income Taxes 740 531 878 Supplemental schedule of non-cash investing and financing activities - -------------------------------------------------------------------- Fair value of assets acquired (Note 2) $ 23,175 $4,054 Cash paid, stock issued and notes assumed for assets acquired (14,965) (2,262) -------- ------ Liabilities assumed $ 8,210 $1,792 ======== ====== 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. 24 FLOW INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands)
Series A Convertible Retained Preferred Stock Common Stock Earnings/ ----------------- ------------------ Capital (Accumu- Cumulative Par Par In Excess lated Translation Treasury Shares Value Shares Value of Par Deficit) Adjustment Stock --------------------------------------------------------------------------------------- Balances, April 30, 1992 5 $ -- 12,843 $128 $32,089 $(3,616) $1,266 $(534) Repayment of Director Loan 83 Exercise of Stock Options 464 5 833 Dividends on Preferred Stock (200) Cumulative Translation Adjustment (102) Net Income 4,641 --------------------------------------------------------------------------------------- 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) =======================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the three years ended April 30, 1995 (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 Services Corporation, Flow Asia Corporation ("Flow Asia"), Rampart Waterblast, Inc., Spider Staging Corporation ("Spider"), Power Climber and affiliated companies ("Power Climber"), Dynovation Inc. ("Dynovation") and two majority owned joint ventures. All significant intercompany transactions have been eliminated. OPERATIONS The Company develops and manufactures ultrahigh-pressure waterjet cutting, cleaning and factory automation systems, and powered access equipment for the manufacturing, industrial cleaning and construction services markets. Equipment is designed, developed, and primarily 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 Germany, Taiwan, Canada, and Belgium, 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 the percentage of completion accounting 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 revenue 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. 26 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. PATENTS AND GOODWILL Patents are amortized on a straight-line basis over the shorter of the estimated economic life of the patent or seven years. Goodwill is amortized on a straight-line basis over fifteen years. 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 (see Note 8). 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, 1995, 1994, and 1993 were 14,460,000, 14,091,000, and 13,517,000, 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; and of Power Climber N.V. (part of Power Climber), the Belgian franc. All appropriate assets and liabilities of these foreign subsidiaries are translated at year-end or historical exchange rates. 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 27 Flow Asia, Dynovation, and Power Climber N.V.'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 foreign currency translations of Flow Europe 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 The Company sells products to a wide variety of industries, including the automotive, aerospace, disposable products, food processing, and construction industries on a worldwide basis. 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. RECLASSIFICATIONS Certain 1994 and 1993 amounts have been reclassified to conform with the 1995 presentation Note 2 - Business Combinations: In September 1992, the Company acquired all of the outstanding stock of Spider in a pooling-of-interests transaction. Spider is a supplier of access systems to the construction services industry. Pursuant to the merger agreement, Flow issued 1,152,253 shares of its own common stock to holders of shares of Spider common stock. In April 1993, the Company acquired certain assets of Power Climber and the stock of Power Climber N.V., for promissory notes totaling $2,262,000. Additionally, Flow pays a royalty based upon net sales to the former shareholders of Power Climber until 2003. Power Climber is a supplier of access systems to the construction services industry. Its products are complementary to those sold by the Spider organization. Results have been included in the consolidated financial statements from the date of acquisition based upon the purchase method of accounting. 28 On November 11, 1994, Spider entered into a licensing agreement with Ark Systems, Inc. ("Ark") at a cost of $400,000. Ark, a 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 for 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. became 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. 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. 29 Note 4 - Related Party Transactions: During fiscal year 1994, the Company received $2,744,000 in principal and interest in full settlement of notes due from Flow Industries, Inc. ("Flow Industries"), former parent of the Company. Interest was payable at prime plus 1.5% and was due upon maturity. During the years ended April 30, 1994 and 1993, the Company recognized interest income of $238,000 and $201,000, respectively, related to the notes. On July 31, 1993, Okura America, a subsidiary of the Company's Japanese distributor, Okura & Co., Ltd. ("Okura")., exercised its option to convert its remaining one half of 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 Composites, Incorporated. The Company contributed cash and certain equipment valued at cost. The book value is $609,000 at April 30, 1995 and 1994, and is being accounted for under the cost method. Currently, the Company's president is a member of the board of directors of Phenix Composites, Inc. Note 5 - Inventories: Inventories consist of the following:
April 30, 1995 1994 --------------------------- Raw Materials and Parts $17,999 $14,510 Work in Process 4,432 1,819 Finished Goods 6,993 7,924 -------------------------- 29,424 24,253 Less: Provision for Slow-Moving and Obsolete Inventory 2,205 2,093 -------------------------- $27,219 $22,160 ========================
Note 6 - Property and Equipment: Property and equipment are as follows:
April 30, 1995 1994 --------------------------- Land and Buildings $592 $292 Machinery and Equipment 43,426 33,704 Furniture and Fixtures 2,097 1,626 Leasehold Improvements 4,560 4,001 Construction in Progress 507 189 -------------------------- 51,182 39,812 Less: Accumulated Depreciation and Amortization 26,649 19,782 ------------------------- $24,533 $20,030 ========================
30 Note 7 - Notes Payable to Banks and Long-Term Obligations: Current notes payable to banks are as follows:
April 30, 1995 1994 ------------------------- Revolving Line of Credit - Flow $ - $11,672 Notes Payable to Banks by Flow Asia 617 328 Notes Payable to Banks by Power Climber N.V. 646 126 Notes Payable to Banks by Dynovation 351 - ------------------------- $1,614 $12,126 =========================
Long-term obligations are as follows:
April 30, 1995 1994 ------------------------- Flow Term Loans Payable $32,679 $12,862 Guarantee of ESOP Loan 184 276 Power Climber Acquisition Note 1,294 1,799 ------------------------ 34,157 14,937 Less: Current Portion 798 4,378 ------------------------ $33,359 $10,559 ========================
In July 1995, the Company received an irrevocable long-term commitment from its principal bank for a new facility of $60 million to replace its Revolving Credit and Term Loan Agreement (the "Loan Agreement"), and equipment notes (collectively, "Domestic Financing"). Accordingly, all Domestic Financings have been reclassified as long-term, and are included in Flow Term Loans Payable above. Under the terms of the bank's commitment, interest rates will be comparable to those of the Loan Agreement, and the facility will be collateralized by a general lien on the Company's business assets. Other than the reclassification of certain of the Company's borrowings from short-term to long-term as described above, the terms of its Loan Agreement and other financing are as follows. The Company's Loan Agreement provides for revolving lines of credit of up to $17 million which are collateralized by, and are subject to limitations based on trade accounts receivable and inventory; and an acquisition bridge loan facility of $14 million, which is secured by a general lien on the Company's assets. Interest rates under the Loan Agreement are at the bank's prime rate or are linked to LIBOR, at the Company's option. Based on the Company's election, borrowings under the Loan Agreement are primarily at LIBOR plus 1.5% or at LIBOR plus 2%. The Company had borrowed $22.8 million under the Loan Agreement as of April 30, 1995. The Company pays 3/16% as an unused commitment fee. As of April 30, 1995 the Company had approximately $8.2 million in domestic unused lines of credit. The Company elected a 30-day LIBOR rate, which at April 30, 1995 was 6.1%. 31 The unsecured notes payable to banks by Flow Asia are denominated in New Taiwan dollars, and provide for interest at rates ranging from 7.8% to 9.8% at April 30, 1995. Flow Asia's total available lines of credit were approximately $5.8 million at April 30, 1995. The unsecured notes payable to banks by Power Climber N.V. are denominated in Belgian francs, and provide for interest at 7.0% at April 30, 1995. The notes payable to banks by Dynovation are collateralized by trade accounts receivable and inventory, and are denominated in Canadian dollars. Dynovation has approximately $175,000 in unused credit facilities at April 30, 1995. The interest rate is Canadian prime plus 0.5%. Term loans payable at April 30, 1995 include domestic equipment notes of $6.3 million, and $3.5 million of foreign debt. The equipment loans are collateralized by capital equipment, and bear interest at prime plus 1/4%, or a 7.5% fixed rate, and amortize through April 1997. 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. This letter of credit expires on April 30, 1996. Interest and principal on the outstanding term loans of $2,056,000 is payable quarterly at fixed rates ranging from 6.25% to 9.6%, with payments amortized over a four-year period. At April 30, 1995, Flow Europe had an unused $830,000 credit facility. The Company has approximately $900,000 in term debt denominated in Belgian francs at interest rates ranging from 8.5% to 9.8% at April 30, 1995. Principal and interest is paid monthly through fiscal 1998. 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 Loan 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. The notes are secured by inventory, equipment and intellectual property obtained in the acquisition and have an interest rate of 7.25%. The notes require monthly payments of principal and interest through fiscal 1998 except for one note which requires payments through fiscal 2003. The Company is required to comply with certain covenants including restrictions on dividends and transactions with affiliates, limitations on additional indebtedness, limitations on capital expenditures, and maintenance of tangible net worth, current working capital, debt to tangible net worth, and cash flow coverage ratios. As of April 30, 1995, the Company was in compliance with all such covenants. 32 Long-term obligation retirements for the next five years and thereafter are as follows: $798,000 in 1996, $3,641,000 in 1997, $387,000 in 1998, $48,000 in 1999, $48,000 in 2000, and $29,235,000 thereafter. Note 8 - Income Taxes: The components of consolidated income before income taxes, extraordinary item and change in accounting principle, and the provision for income taxes for the years ended April 30, 1995 and April 30, 1994 under FAS 109, and the year ended April 30, 1993 under APB 11, are as follows:
1995 1994 1993 ------ ------ ------ Income before Income Taxes, Extraordinary Item and Change in Accounting Principle: Domestic $8,994 $3,319 $5,662 Foreign 265 (207) 129 ------ ------ ------ Total $9,259 $3,112 $5,791 ====== ====== ======
The provision for income taxes comprises:
1995 1994 1993 ------ ------ ------ Current Tax Expense Domestic $ 749 $ 652 $ 1,975 State and Local 271 42 Foreign 63 552 (375) ------- ------- ------- Total 1,083 1,246 1,600 Deferred Tax Liability (Benefit) 448 (686) ------- ------- ------- Total Provision for Income Taxes $ 1,531 $ 560 $ 1,600 ======= ======= =======
33 Net deferred tax assets (liabilities) under FAS 109 comprise the following:
April 30, 1995 April 30, 1994 -------------- -------------- Fixed assets ($ 435) ($ 594) Obsolete inventory provisions 491 526 Net operating loss carryover 2,605 5,024 Subpart F income 298 228 Foreign taxes (190) 378 Accounts receivable allowances 179 169 Inventory capitalization 187 135 All other 412 633 ------ ------ Subtotal 3,547 6,499 Valuation allowance (2,460) (4,964) ------ ------ Total Net Deferred Taxes $1,087 $1,535 ====== ======
A reconciliation of income taxes at the federal statutory rate to the provision for income taxes is as follows:
Year Ended April 30, 1995 1994 1993 ------- ------- ------- Income taxes at federal statutory rate $3,148 $1,058 $2,112 Foreign sales corporation benefit (162) (143) (136) Foreign operations (benefit)/expense 541 244 (375) Change in FAS 109 valuation allowance (2,504) (599) - State and local taxes 179 28 66 Alternative minimum tax - domestic 200 - - Other 129 (28) (67) ------ ------ ------ Income tax provision $1,531 $ 560 $1,600 ====== ====== ======
As of May 1, 1995, the Company had approximately $8 million of net operating loss carryforwards to offset certain Flow earnings for federal income tax purposes. Of the $8 million carryforward, $1 million 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. Also, as of May 1, 1995, $256,000 of net operating loss carryforwards to offset earnings of Spider were available for federal income tax purposes. Spider net operating loss carryforwards expire in varying amounts through the year 2007. Because of current and expected future earnings, the Company expects increased utilization of its net operating loss carryforwards. Therefore, the FAS 109 valuation allowance was reduced by a net tax effected amount of $2,504,000. Provision has not been made for U.S. or foreign taxes on $2,360,000 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 34 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: The Company has a 401(k) savings plan in which employees may contribute a percentage of their compensation. The Company makes contributions based on employee contributions and length of employee service. Company contributions and expenses under the plan for the years ended April 30, 1995, 1994, and 1993 were $531,000, $520,000, and $510,000, 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, 1995, 1994 and 1993, the Company recorded compensation and interest expense related to the ESOP of $109,000, $110,000 and $116,000, 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. 35 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. During the years ended April 30, 1995, 1994 and 1993, a total of 127,011, 205,000 and 464,000 options, respectively, were exercised under all stock option plans of the Company at an average price of $1.52, $1.67 and $1.44 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, 1995:
1984 Restated 1987 and Other and Nonemployee 1991 ADMAC Plan Directors Plan SO Plan Total ------------------ -------------- ------- ----- Number of options outstanding 415,524 245,000 652,300 1,312,824 Number of options vested 415,524 209,000 476,000 1,100,524 Average exercise price per share $2.09 $5.00 $5.53 $4.34
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 36 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 $2,724,000, $2,687,000, and $2,744,000 for the years ended April 30, 1995, 1994 and 1993, respectively. Future minimum rents payable under operating leases for years ending April 30 are as follows: 1996 $ 2,387 1997 2,233 1998 1,887 1999 1,615 2000 1,495 Thereafter 4,966 ----- $14,583 =======
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 provides reserves 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. 37 Management estimates the range of the Company's future exposure amounts relating to unresolved claims at April 30, 1995, aggregate from approximately $0 to $300,000 before recoveries and between $0 and $100,000 net of recoveries. Included in Other Income (Expense), net, in the year ended April 30, 1995, 1994 and 1993 are product liability claim settlements of approximately $32,000, $20,000, and $85,000, respectively. 38 Note 13 - Foreign Operations:
- -------------------------------------------------------------------------------------------------------- UNITED OTHER ADJUSTMENTS & STATES EUROPE FOREIGN ELIMINATIONS CONSOLIDATED - -------------------------------------------------------------------------------------------------------- 1995 (3) ======================================================================================================== 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 ======== 1993 ======================================================================================================== Revenues: Customers (1) $62,234 $11,467 $5,378 $ - $ 79,079 Inter-area (2) 5,297 - 77 (5,374) - - -------------------------------------------------------------------------------------------------------- Total revenues 67,531 11,467 5,455 (5,374) 79,079 - -------------------------------------------------------------------------------------------------------- Operating Income (Loss) Before Corporate Expenses 9,605 (373) 600 9,832 Corporate Expenses (2,842) -------- Operating Income $ 6,990 ======== Identifiable Assets 53,249 10,289 5,738 $ 69,276 ========
(1) U.S. sales to unaffiliated customers in foreign countries were $6,881,000, $5,058,000 and $8,135,000 in fiscal 1995, 1994, and 1993, 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. (3) Other Foreign includes the assets of Dynovation and its operating results from the date of acquisition. 39 Note 14 - Selected Quarterly Financial Data (unaudited): 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 in 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 Fiscal 1993 Quarters First Second Third Fourth Total - -------------------- ----- ------ ----- ------ ----- Revenue $19,340 $20,874 $18,783 $20,082 $79,079 Gross Profit 8,947 9,465 7,569 8,322 34,303 Income Before Extraordinary Item 1,088 1,167 820 1,116 4,191 Net Income 1,194 1,347 973 1,127 4,641 Earnings Per Share Before Extraordinary Item .07 .09 .06 .08 .30 Earnings Per Share .08 .10 .07 .08 .33
40 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 - ------------------------------- 1995 $ 908 $ 480 $ - $ (238) $ 1,150 1994 846 324 - (262) 908 1993 748 237 - (139) 846 Provision for Slow-Moving and Obsolete Inventory - ------------------------------------------------ 1995 $2,093 $ 324 $ - $ (212) $2,205 1994 2,007 269 - (183) 2,093 1993 2,346 312 - (651) 2,007
__________ * Write-offs of uncollectible accounts and disposal of obsolete inventory. 41 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. 42 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. 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) No reports on Form 8-K were filed during the fourth quarter of fiscal 1995. (c) Exhibits. 43
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 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
44 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 Credit Agreement dated October 14, 1992 among U.S. Bank of Washington, N.A., Flow International Corporation and Spider Staging Corporation, together with First Amendment dated April 28, 1993. (Incorporated by reference to Exhibit 10.22 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1993). 10.15 Second Amendment to Credit Agreement dated September 30, 1993, between U.S. Bank of Washington, N.A. and Flow International Corporation. (Incorporated by reference to Exhibit 10.23 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1994.) 10.16 Dynovation Agreement. (Incorporated by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K dated December 15, 1994.) 10.17 Third Amendment to Credit Agreement dated October 28, 1994, between U.S. Bank of Washington, N.A. and Flow International Corporation. 10.18 Fourth Amendment to Credit Agreement dated December 13, 1994, between U.S. Bank of Washington, N.A. and Flow International Corporation. 10.19 Commitment letter dated July 12, 1995, between U.S. Bank of Washington, N.A. and Flow International Corporation. 21.1 Subsidiaries of the Registrant 23.1 Consent of Independent Accountants 27.1 Financial Data Schedule
45 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 27, 1995 /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 27th day of July, 1995
Signature Title --------- ----- /s/ Ronald W. Tarrant Chairman, President, Chief - --------------------------------------- Executive Officer Ronald W. Tarrant (Principal Executive Officer) /s/ Lee M. Andrews Executive Vice President and - --------------------------------------- Chief Financial Officer Lee M. Andrews (Principal Financial Officer & Principal Accounting Officer) /s/ Louis J. Alpinieri Director - --------------------------------------- Louis J. Alpinieri /s/ Lloyd J. Andrews Director - --------------------------------------- Lloyd J. Andrews
46
Signature Title --------- ----- /s/ John S. Cargill Director - ------------------------------------------- John S. Cargill /s/ Daniel J. Evans Director - ------------------------------------------- Daniel J. Evans /s/ Rita A. O'Brien Director - ------------------------------------------- Rita A. O'Brien /s/ Arlen I. Prentice Director - ------------------------------------------- Arlen I. Prentice /s/ Kenneth M. Roberts Director - ------------------------------------------- Kenneth M. Roberts /s/ Dean D. Thornton Director - ------------------------------------------- Dean D. Thornton
47 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 10.4 Flow International Corporation 1995 Long-Term Incentive Plan 10.17 Third Amendment to Credit Agreement dated October 28, 1994, between U.S. Bank of Washington, N.A. and Flow International Corporation 10.18 Fourth Amendment to Credit Agreemet dated December 13, 1994, between U.S. Bank of Washington, N.A. and Flow International Corporation 10.19 Commitment letter dated July 12, 1995, between U.S. Bank of Washington, N.A. and Flow International Corporation 21.1 Subsidiaries of the Registrant 23.1 Consent of Independent Accountants 27.1 Financial Data Schedule EX-10.4 2 EXHIBIT 10.4: LONG-TERM INCENTIVE PLAN 1 EXHIBIT A FLOW INTERNATIONAL CORPORATION 1995 LONG-TERM INCENTIVE COMPENSATION PLAN SECTION 1. PURPOSE The purpose of the Flow International Corporation 1995 Long-Term Incentive Compensation Plan (the "Plan") is to enhance the long-term profitability and stockholder value of Flow International Corporation, a Delaware corporation (the "Company"), by offering incentives and rewards to those employees, consultants and agents of the Company and its Subsidiaries (as defined in Section 2 below) who are key to the Company's growth and success, and to encourage them to remain in the service of the Company and its Subsidiaries and to acquire and maintain stock ownership in the Company. SECTION 2. DEFINITIONS For purposes of the Plan, the following terms shall be defined as set forth below: 2.1 AWARD "Award" means an award or grant made to a Participant pursuant to the Plan, including, without limitation, awards or grants of Options, Stock Appreciation Rights, Stock Awards, Other Stock-Based Awards or any combination of the foregoing (including any Dividend Equivalent Rights granted in connection with such Awards). 2.2 BOARD "Board" means the Board of Directors of the Company. 2.3 CAUSE "Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure of confidential information or trade secrets, or conviction or confession of a crime punishable by law (except minor violations), in each case as determined by the Plan Administrator, and its determination shall be conclusive and binding. 2.4 CODE "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.5 COMMON STOCK "Common Stock" means the common stock, par value $.01 per share, of the Company. 2.6 CORPORATE TRANSACTION "Corporate Transaction" means any of the following events: (a) Approval by the holders of the Common Stock of any merger or consolidation of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of Common Stock are converted into cash, securities or other property, other than a merger of the Company in which the holders of the Common Stock immediately prior to the merger have substantially the same proportionate ownership of common stock of the surviving corporation immediately after the merger; (b) Approval by the holders of the Common Stock of any sale, lease, exchange or other transfer in one transaction or a series of related transactions of all or substantially all of the Company's assets other than a transfer of the Company's assets to a majority-owned subsidiary (as the term "subsidiary" is defined in Section 8.3 of the Plan) of the Company; or (c) Approval by the holders of the Common Stock of any plan or proposal for the liquidation or dissolution of the Company. 2.7 DISABILITY "Disability" means "disability" as that term is defined for purposes of the Company's Long Term Disability Income Plan or other similar successor plan applicable to salaried employees. 2.8 DIVIDEND EQUIVALENT RIGHT "Dividend Equivalent Right" means an Award granted under Section 12 of the Plan. 2.9 EARLY RETIREMENT "Early Retirement" means retirement as that term is defined by the Plan Administrator from time to time for purposes of the Plan. 1 2 EXHIBIT A 2.10 EXCHANGE ACT "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.11 FAIR MARKET VALUE "Fair Market Value" means the closing price for the Common Stock as reported in The Wall Street Journal NASDAQ National Market Issues (or similar successor transactions reports) for a single trading day. 2.12 GOOD REASON "Good Reason" means the occurrence of any of the following events or conditions: (a) a change in the Holder's status, title, position or responsibilities (including reporting responsibilities) that, in the Holder's reasonable judgment, represents a substantial reduction of the status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Holder of any duties or responsibilities that, in the Holder's reasonable judgment, are inconsistent with such status, title, position or responsibilities; or any removal of the Holder from or failure to reappoint or reelect the Holder to any of such positions, except in connection with the termination of the Holder's employment for Cause, for Disability or as a result of his or her death, or by the Holder other than for Good Reason; (b) a reduction in the Holder's annual base salary; (c) the Company's requiring the Holder (without the Holder's consent) to be based at any place outside a 35-mile radius of his or her place of employment prior to a Corporate Transaction, except for reasonably required travel on the Company's business that is not materially greater than such travel requirements prior to the Corporate Transaction; (d) the Company's failure to (i) continue in effect any material compensation or benefit plan (or the substantial equivalent thereof in which the Holder was participating at the time of a Corporate Transaction, including, but not limited to, the Plan, or (ii) provide the Holder with compensation and benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit plan, program and practice as in effect immediately prior to the Corporate Transaction (or as in effect following the Corporate Transaction, if greater); (e) any material breach by the Company of any provision of the Plan; or (f) any purported termination of the Holder's employment or service for Cause by the Company that does not comply with the terms of the Plan. 2.13 GRANT DATE "Grant Date" means the date designated in a resolution of the Plan Administrator as the date an Award is granted. If the Plan Administrator does not designate a Grant Date in the resolution, the Grant Date shall be the date the Plan Administrator adopted the resolution. 2.14 HOLDER "Holder" means the Participant to whom an Award is granted, or the personal representative of a Holder who has died. 2.15 INCENTIVE STOCK OPTION "Incentive Stock Option" means an option to purchase Common Stock granted under Section 7 of the Plan with the intention that it qualify as an "incentive stock option" as that term is defined in Section 422 of the Code. 2.16 NONQUALIFIED STOCK OPTION "Nonqualified Stock Option" means an option to purchase Common Stock granted under Section 7 of the Plan other than an Incentive Stock Option. 2.17 OPTION "Option" means the right to purchase Common Stock granted under Section 7 of the Plan. 2.18 OTHER STOCK-BASED AWARD "Other Stock-Based Award" means an Award granted under Section 11 of the Plan. 2.19 PARTICIPANT "Participant" means an individual who is a Holder of an Award or, as the context may require, any employee, consultant or agent of the Company or a Subsidiary who has been designated by the Plan Administrator as eligible to participate in the Plan. 2 3 EXHIBIT A 2.20 PLAN ADMINISTRATOR "Plan Administrator" means any committee of the Board designated to administer the Plan under Section 3.1 of the Plan. 2.21 RESTRICTED STOCK "Restricted Stock" means shares of Common Stock granted under Section 10 of the Plan, the rights of ownership of which are subject to restrictions prescribed by the Plan Administrator. 2.22 RETIREMENT "Retirement" means retirement as of the individual's normal retirement date under the Company's Voluntary Pension and Salary Deferral Plan or other similar successor plan applicable to salaried employees. 2.23 STOCK APPRECIATION RIGHT "Stock Appreciation Right" means an Award granted under Section 9 of the Plan. 2.24 STOCK AWARD "Stock Award" means an Award granted under Section 10 of the Plan. 2.25 SUBSIDIARY "Subsidiary," except as expressly provided otherwise, means any entity that is directly or indirectly controlled by the Company or in which the Company has a significant ownership interest, as determined by the Plan Administrator, and any entity that may become a direct or indirect parent of the Company. 2.26 WINDOW PERIOD "Window Period" means a period of 10 days on which there is trading in the Common Stock on the NASDAQ National Market, beginning with the second trading day after disclosure by the Company to the public of its earnings for the fiscal period just ended and ending with the eleventh such day. 2.27 WINDOW PERIOD FAIR MARKET VALUE "Window Period Fair Market Value" means the highest Fair Market Value during a Window Period. SECTION 3. ADMINISTRATION 3.1 PLAN ADMINISTRATOR The Plan shall be administered by a committee or committees (which term includes subcommittees) appointed by, and consisting of one or more members of, the Board. The Board may delegate the responsibility for administering the Plan with respect to designated classes of eligible Participants to different committees, subject to such limitations as the Board deems appropriate. Committee members shall serve for such term as the Board may determine, subject to removal by the Board at any time. The composition of any committee responsible for administering the Plan with respect to officers and directors of the Company who are subject to Section 16 of the Exchange Act with respect to securities of the Company shall comply with the requirements of Rule 16b-3 promulgated under Section 16(b) of the Exchange Act, or any successor provision. 3.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR Except for the terms and conditions explicitly set forth in the Plan, the Plan Administrator shall have exclusive authority, in its discretion, to determine all matters relating to Awards under the Plan, including the selection of individuals to be granted Awards, the type of Awards, the number of shares of Common Stock subject to an Award, all terms, conditions, restrictions and limitations, if any, of an Award and the terms of any instrument that evidences the Award. The Plan Administrator shall also have exclusive authority to interpret the Plan and may from time to time adopt, and change, rules and regulations of general application for the Plan's administration. The Plan Administrator's interpretation of the Plan and its rules and regulations, and all actions taken and determinations made by the Plan Administrator pursuant to the Plan, shall be conclusive and binding on all parties involved or affected. The Plan Administrator may delegate administrative duties to such of the Company's officers as it so determines. SECTION 4. STOCK SUBJECT TO THE PLAN 4.1 AUTHORIZED NUMBER OF SHARES Subject to adjustment from time to time as provided in Section 16.1, a maximum of 750,000 shares of Common Stock shall be available for issuance under the Plan, except that any shares of Common Stock that, as of the date the Plan is approved by the Company's stockholders, are avail- 3 4 EXHIBIT A able for issuance under the Company's 1991 Stock Option Plan and 1984 Restated Stock Option Plan (or that thereafter become available for issuance under those plans in accordance with their terms as in effect on such date) and that are not issued under those plans shall be added to the aggregate number of shares available for issuance under the Plan. No more than 250,000 shares may be issued as Stock Awards or Other Stock-Based Awards under the Plan. Shares issued under the Plan shall be drawn from authorized and unissued shares or shares now held or subsequently acquired by the Company as treasury shares. 4.2 INDIVIDUAL AWARD LIMIT Subject to adjustment from time to time as provided in Section 16.1, not more than 250,000 shares of Common Stock may be made subject to Awards under the Plan to any Participant in any one fiscal year of the Company, such limitation to be applied in a manner consistent with the requirements of, and only to the extent required for compliance with, the exclusion from the limitation on deductibility of compensation under Section 162(m) of the Code. 4.3 REUSE OF SHARES Any shares of Common Stock that have been made subject to an Award that cease to be subject to the Award (other than by reason of exercise or payment of the Award to the extent it is exercised for or settled in shares), including, without limitation, in connection with the cancellation of an Award and the grant of a replacement Award, shall again be available for issuance in connection with future grants of Awards under the Plan. Shares that are subject to tandem Awards shall be counted only once. SECTION 5. ELIGIBILITY Awards may be granted under the Plan to those officers and key employees (including directors who are also employees) of the Company and its Subsidiaries as the Plan Administrator from time to time selects. Awards may also be made to consultants and agents who provide services to the Company and its Subsidiaries. SECTION 6. AWARDS 6.1 FORM AND GRANT OF AWARDS The Plan Administrator shall have the authority, in its sole discretion, to determine the type or types of Awards to be made under the Plan. Such Awards may include, but are not limited to, Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Stock Awards, Other Stock-Based Awards and Dividend Equivalent Rights. Awards may be granted singly, in combination or in tandem so that the settlement or payment of one automatically reduces or cancels the other. Awards may also be made in combination or in tandem with, in replacement of, as alternatives to, or as the payment form for, grants or rights under any other employee or compensation plan of the Company. 6.2 ACQUIRED COMPANY AWARDS Notwithstanding anything in the Plan to the contrary, the Plan Administrator may grant Awards under the Plan in substitution for awards issued under other plans, or assume under the Plan awards issued under other plans, if the other plans are or were plans of other entities ("Acquired Entities") (or the parent of the acquired entity) and the new Award is substituted, or the old award is assumed, by reason of a merger, consolidation, acquisition of property or of stock, reorganization or liquidation (the "Acquisition Transaction"). In the event that a written agreement pursuant to which the Acquisition Transaction is completed is approved by the Board and said agreement sets forth the terms and conditions of the substitution for or assumption of outstanding awards of the acquired entity, said terms and conditions shall be deemed to be the action of the Plan Administrator without any further action by the Plan Administrator, except as may be required for compliance with Rule 16b-3 under the Exchange Act, and the persons holding such Awards shall be deemed to be Participants and Holders. SECTION 7. AWARDS OF OPTIONS 7.1 GRANT OF OPTIONS The Plan Administrator is authorized under the Plan, in its sole discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock Options, which shall be appropriately designated. 7.2 OPTION EXERCISE PRICE The exercise price for shares purchased under an Option shall be as determined by the Plan Administrator, but shall not be less than 100% of the Fair Market Value of the Common Stock on the 4 5 EXHIBIT A Grant Date with respect to Incentive Stock Options. 7.3 TERM OF OPTIONS The term of each Option shall be as established by the Plan Administrator or, if not so established, shall be 10 years from the Grant Date. 7.4 EXERCISE OF OPTIONS The Plan Administrator shall establish and set forth in each instrument that evidences an Option the time at which or the installments in which the Option shall become exercisable, which provisions may be waived or modified by the Plan Administrator at any time. If not so established in the instrument evidencing the Option, the Option will become exercisable according to the following schedule, which may be waived or modified by the Plan Administrator at any time:
PERIOD OF HOLDER'S CONTINUOUS EMPLOYMENT OR SERVICE WITH THE COMPANY OR ITS SUBSIDIARIES PERCENT OF TOTAL OPTION FROM THE OPTION GRANT DATE THAT IS EXERCISABLE - ------------------------------ ----------------------- after one year 50% after two years 100%
To the extent that the right to purchase shares has accrued thereunder, an Option may be exercised from time to time by written notice to the Company, in accordance with procedures established by the Plan Administrator, setting forth the number of shares with respect to which the Option is being exercised and accompanied by payment in full as described in Section 7.5. 7.5 PAYMENT OF EXERCISE PRICE The exercise price for shares purchased under an Option shall be paid in full to the Company by delivery of consideration equal to the product of the Option exercise price and the number of shares purchased. Such consideration must be paid in cash, except that the Plan Administrator may, either at the time the Option is granted or at any time before it is exercised and subject to such limitations as the Plan Administrator may determine, authorize payment in cash and/or one or more of the following alternative forms: (i) Common Stock already owned by the Holder for at least six months (or any shorter period necessary to avoid a charge to the Company's earnings for financial reporting purposes) having a Fair Market Value on the day prior to the exercise date equal to the aggregate Option exercise price; (ii) a promissory note authorized pursuant to Section 13; (iii) delivery of a properly executed exercise notice, together with irrevocable instructions, to (a) a brokerage firm designated by the Company to deliver promptly to the Company the aggregate amount of sale or loan proceeds to pay the Option exercise price and any withholding tax obligations that may arise in connection with the exercise and (b) the Company to deliver the certificates for such purchased shares directly to such brokerage firm, all in accordance with the regulations of the Federal Reserve Board; or (iv) such other consideration as the Plan Administrator may permit. 7.6 POST-TERMINATION EXERCISES The Plan Administrator shall establish and set forth in each instrument that evidences an Option whether the Option will continue to be exercisable, and the terms and conditions of such exercise, if a Holder ceases to be employed by, or to provide services to, the Company or its Subsidiaries, which provisions may be waived or modified by the Plan Administrator at any time. If not so established in the instrument evidencing the Option, the Option will be exercisable according to the following terms and conditions, which may be waived or modified by the Plan Administrator at any time. In case of termination of the Holder's employment or services other than by reason of death or Cause, the Option shall be exercisable, to the extent of the number of shares purchasable by the Holder at the date of such termination, only: (i) within three years if the termination of the Holder's employment or services are coincident with Retirement, Early Retirement at the Company's request or Disability or (ii) within three months after the date the Holder ceases to be an employee, consultant or agent of the Company or a Subsidiary if termination of the Holder's employment or services is for any reason other than Retirement, Early Retirement at the Company's request, or Disability, but in no event later than the remaining term of the Option. Any Option exercisable at the time of the Holder's death may be exercised, to the extent of the number of shares purchasable by the Holder at the date of the Holder's death by the personal representative of the Holder's estate entitled thereto at any time or from time to time within three years after the date of death, but in no event later than the remaining term of the Option. In case of termination of the Holder's employment or services for Cause, the Option shall automatically terminate upon first notification to 5 6 EXHIBIT A the Holder of such termination, unless the Plan Administrator determines otherwise. If a Holder's employment or services with the Company are suspended pending an investigation of whether the Holder shall be terminated for Cause, all the Holder's rights under any Option likewise shall be suspended during the period of investigation. A transfer of employment or services between or among the Company and its Subsidiaries shall not be considered a termination of employment or services. Unless the Plan Administrator determines otherwise, a leave of absence approved in accordance with Company procedures shall not be considered a termination of employment or services, except that with respect to Incentive Stock Options such leave of absence shall be subject to any requirements of Section 422 of the Code. SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS To the extent required by Section 422 of the Code, Incentive Stock Options shall be subject to the following additional terms and conditions: 8.1 DOLLAR LIMITATION To the extent the aggregate Fair Market Value (determined as of the Grant Date) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time during any calendar year (under the Plan and all other stock option plans of the Company) exceeds $100,000, such portion in excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event the Participant holds two or more such Options that become exercisable for the first time in the same calendar year, such limitation shall be applied on the basis of the order in which such Options are granted. 8.2 10% STOCKHOLDERS If a Participant owns 10% or more of the total voting power of all classes of the Company's stock, then the exercise price per share of an Incentive Stock Option shall not be less than 110% of the Fair Market Value of the Common Stock on the Grant Date and the Option term shall not exceed five years. 8.3 ELIGIBLE EMPLOYEES Individuals who are not employees of the Company or one of its parent corporations or subsidiary corporations may not be granted Incentive Stock Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary corporation" shall have the meanings attributed to those terms for purposes of Section 422 of the Code. 8.4 TERM The term of an Incentive Stock Option shall not exceed 10 years. 8.5 EXERCISABILITY An Option designated as an Incentive Stock Option must be exercised within three months after termination of employment for reasons other than death or one year after termination of employment or services due to Disability to qualify for Incentive Stock Option tax treatment. SECTION 9. STOCK APPRECIATION RIGHTS 9.1 GRANT OF STOCK APPRECIATION RIGHTS The Plan Administrator may grant a Stock Appreciation Right separately or in tandem with a related Option. 9.2 TANDEM STOCK APPRECIATION RIGHTS A Stock Appreciation Right granted in tandem with a related Option will give the Holder the right to surrender to the Company all or a portion of the related Option and to receive an appreciation distribution (in shares of Common Stock or cash or any combination of shares and cash, as the Plan administrator shall determine at any time) in an amount equal to the excess of the Fair Market Value for the Window Period during which the Stock appreciation Right is exercised over the exercise price per share of the right, which shall be the same as the exercise price of the related Option, except that if the right is exercised during a Window Period, the amount will be equal to the excess of the Window Period Fair Market Value for the Window Period during which the Stock Appreciation Plight is exercised over the exercise price per share of the right. A tandem Stock Appreciation Right will have the same other terms and provisions as the related Option. Upon and to the extent a tandem Stock Appreciation Right is exercised, the related Option will terminate. 9.3 STAND-ALONE STOCK APPRECIATION RIGHTS A Stock Appreciation Right granted separately and not in tandem with an Option will give the Holder the right to receive an appreciation distribu- 6 7 EXHIBIT A tion in an amount equal to the excess of the Fair Market Value for the date the Stock Appreciation Right is exercised over the per share exercise price of the right, except that if the right is exercised during a Window Period, the amount will be equal to the excess of the Window Period Fair Market Value for the Window Period during which the right is exercised over the per share exercise price of the right. A standalone Stock Appreciation Right will have such terms as the Plan Administrator may determine, except that the term of the right, if not otherwise established by the Plan Administrator, shall be 10 years from the Grant Date. 9.4 EXERCISE OF STOCK APPRECIATION RIGHTS Unless otherwise provided by the Plan Administrator in the instrument that evidences the Stock Appreciation Right, the provisions of Section 7.6 relating to the termination of a Holder's employment or services shall apply equally, to the extent applicable, to the Holder of a Stock Appreciation Right. Stock Appreciation Rights held by Participants who are subject to Section 16 of the Exchange Act may be exercised solely in accordance with the requirements for compliance with Rule 16b-3 under the Exchange Act. SECTION 10. STOCK AWARDS 10.1 GRANT OF STOCK AWARDS The Plan Administrator is authorized to make Awards of Common Stock to Participants on such terms and conditions and subject to such restrictions, if any (whether based on performance standards, periods of service or otherwise), as the Plan Administrator shall determine, which terms, conditions and restrictions shall be set forth in the instrument evidencing the Award. The terms, conditions and restrictions that the Plan Administrator shall have the power to determine shall include, without limitation, the manner in which shares subject to Stock Awards are held during the periods they are subject to restrictions and the circumstances under which forfeiture of Restricted Stock shall occur by reason of termination of the Holder's services. 10.2 ISSUANCE OF SHARES Upon the satisfaction of any terms, conditions and restrictions prescribed in respect to a Stock Award, or upon the Holder's release from any terms, conditions and restrictions of a Stock Award, as determined by the Plan Administrator, the Company shall deliver, as soon as practicable, to the Holder or, in the case of the Holder's death, to the personal representative of the Holder's estate or as the appropriate court directs, a stock certificate for the appropriate number of shares of Common Stock. 10.3 WAIVER OF RESTRICTIONS Notwithstanding any other provisions of the Plan, the Plan Administrator may, in its sole discretion, waive the forfeiture period and any other terms, conditions or restrictions on any Restricted Stock under such circumstances and subject to such terms and conditions as the Plan Administrator shall deem appropriate. SECTION 11. OTHER STOCK-BASED AWARDS The Plan Administrator may grant other Awards under the Plan pursuant to which shares of Common Stock (which may, but need not, be shares of Restricted Stock pursuant to Section 10) are or may in the future be acquired, or Awards denominated in stock units, including ones valued using measures other than market value. Such Other Stock-Based Awards may be granted alone or in addition to or in tandem with any Award of any type granted under the Plan and must be consistent with the Plan's purpose. SECTION 12. DIVIDEND EQUIVALENT RIGHTS Any Awards under the Plan may, in the Plan Administrator's discretion, earn Dividend Equivalent Rights. In respect of any Award that is outstanding on the dividend record date for Common Stock, the Participant may be credited with an amount equal to the cash or stock dividends or other distributions that would have been paid on the shares of Common Stock covered by such Award had such covered shares been issued and outstanding on such dividend record date. The Plan Administrator shall establish such rules and procedures governing the crediting of Dividend Equivalent Plights, including the timing, form of payment and payment contingencies of such Dividend Equivalent Rights, as it deems are appropriate or necessary. 7 8 EXHIBIT A SECTION 13. LOANS, LOAN GUARANTEES AND INSTALLMENT PAYMENTS To assist a Holder (including a Holder who is an officer or director of the Company) in acquiring shares of Common Stock pursuant to an Award granted under the Plan, the Plan Administrator may authorize, either at the Grant Date or at any time before the acquisition of Common Stock pursuant to the Award, (i) the extension of a loan to the Holder by the Company, (ii) the payment by the Holder of the purchase price, if any, of the Common Stock in installments, or (iii) the guarantee by the Company of a loan obtained by the grantee from a third party. The terms of any loans, installment payments or guarantees, including the interest rate and terms of repayment, will be subject to the Plan Administrator's discretion. Loans, installment payments and guarantees may be granted with or without security. The maximum credit available is the purchase price, if any, of the Common Stock acquired plus the maximum federal and state income and employment tax liability that may be incurred in connection with the acquisition. SECTION 14. ASSIGNABILITY No Option, Stock Appreciation Right, Other Stock-Based Award or Dividend Equivalent Right granted under the Plan may be assigned or transferred by the Holder other than by will or by the laws of descent and distribution, and during the Holder's lifetime, such Awards may be exercised only by the Holder. Notwithstanding the foregoing, and to the extent permitted by Rule 16b-3 under the Exchange Act and Section 422 of the Code, the Plan Administrator, in its sole discretion, may permit such assignment, transfer and exercisability and may permit a Holder of such Awards to designate a beneficiary who may exercise the Award or receive compensation under the Award after the Holder's death. SECTION 15. ADJUSTMENTS 15.1 ADJUSTMENT OF SHARES In the event that at any time or from time to time a stock dividend, stock split, spin-off, combination or exchange of shares, recapitalization, merger, consolidation, distribution to stockholders other than a normal cash dividend, or other change in the Company's corporate or capital structure results in (i) the outstanding shares, or any securities exchanged therefor or received in their place, being exchanged for a different number or class of securities of the Company or of any other corporation or (ii) new, different or additional securities of the Company or of any other corporation being received by the holders of shares of Common Stock of the Company, then the Plan Administrator, in its sole discretion, shall make such equitable adjustments as it shall deem appropriate in the circumstances in (a) the maximum number of and class of securities subject to the Plan as set forth in Section 4. 1, (b) the maximum number and class of securities that may be made subject to Awards to any individual Participant as set forth in Section 4.2, and (e) the number and class of securities that are subject to any outstanding Award and the per share price of such securities, without any change in the aggregate price to be paid therefor. The determination by the Plan Administrator as to the terms of any of the foregoing adjustments shall be conclusive and binding. 15.2 CORPORATE TRANSACTION Except as otherwise provided in the instrument that evidences the Award, in the event of any Corporate Transaction, each Option, Stock Appreciation Right or Stock Award that is at the time outstanding shall automatically accelerate so that each such Award shall, immediately prior to the specified effective date for the Corporate Transaction, become 100% vested, except that such acceleration will not occur if in the opinion of the Company's accountants it would render unavailable "pooling of interest" accounting for a Corporate Transaction that would otherwise qualify for such accounting treatment. All such Awards shall terminate and cease to remain outstanding immediately following the consummation of the Corporate Transaction, except to the extent assumed by the successor corporation or its parent corporation. Any such Awards that are assumed or replaced in the Corporate Transaction and do not otherwise accelerate at that time shall be accelerated in the event the Holder's employment or services should subsequently terminate within two years following such Corporate Transaction, unless such employment or services are terminated by the Company for Cause or by the Holder voluntarily without Good Reason. Notwithstanding the foregoing, no Incentive Stock 8 9 EXHIBIT A Option shall become exercisable pursuant to this Section 15.2 without the Holder's consent, if the result would be to cause such Option not to be treated as an Incentive Stock Option (whether by reason of the annual limitation described in Section 8.1 or otherwise). 15.3 FURTHER ADJUSTMENT OF AWARDS Without limiting the preceding Section 15.2, and subject to the limitations set forth in Section 11, the Plan Administrator shall have the discretion, exercisable at any time before a sale, merger, consolidation, reorganization, liquidation or change in control of the Company, as defined by the Plan Administrator, to take such further action as it determines to be necessary or advisable, and fair and equitable to Participants, with respect to Awards. Such authorized action may include (but shall not be limited to) establishing, amending or waiving the type, terms, conditions or duration of, or restrictions on, Awards so as to provide for earlier, later, extended or additional time for exercise, payment or settlement or lifting restrictions, differing methods for calculating payments or settlements, alternate forms and amounts of payments and settlements and other modifications, and the Plan Administrator may take such actions with respect to all Participants, to certain categories of Participants or only to individual Participants. The Plan Administrator may take such actions before or after granting Awards to which the action relates and before or after any public announcement with respect to such sale, merger, consolidation, reorganization, liquidation or change in control that is the reason for such action. 15.4 LIMITATIONS The grant of Awards will in no way affect the Company's right to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. SECTION 16. WITHHOLDING OF TAXES The Company may require the Holder to pay to the Company the amount of any withholding taxes that the Company is required to withhold with respect to the grant, exercise, payment or settlement of any Award. In such instances, the Plan Administrator may, in its discretion and subject to the Plan and applicable law, permit the Holder to satisfy withholding obligations, in whole or in part, by paying cash, by electing to have the Company withhold shares of Common Stock or by transferring shares of Common Stock to the Company, in such amounts as are equivalent to the Fair Market Value of the withholding obligation. SECTION 17. AMENDMENT AND TERMINATION OF PLAN 17.1 AMENDMENT OF PLAN The Plan may be amended by the stockholders of the Company. The Board may also amend the Plan in such respects as it shall deem advisable; however, to the extent required for compliance with Rule 16b-3 under the Exchange Act, Section 422 of the Code or any applicable law or regulation, stockholder approval will be required for any amendment that will (i) increase the total number of shares as to which Options may be granted or which may be used in payment of Stock Appreciation Rights, Performance Awards, Other Stock-Based Awards or Dividend Equivalent Rights under the Plan or that may be issued as Restricted Stock, (ii) materially modify the class of persons eligible to receive Awards, (iii) materially increase the benefits accruing to Participants under the Plan, or (iv) otherwise require stockholder approval under any applicable law or regulation. 17.2 TERMINATION OF PLAN The stockholders or the Board may suspend or terminate the Plan at any time. The Plan will have no fixed expiration date; provided, however, that no Incentive Stock Options may be granted more than 10 years after the Plan s effective date. 17.3 CONSENT OF HOLDER The amendment or termination of the Plan shall not, without the consent of the Holder of any Award under the Plan, alter or impair any rights or obligations under any Award theretofore granted under the Plan. SECTION 18. GENERAL 18.1 NOTIFICATION The Plan Administrator shall promptly notify a Participant of an Award, and a written grant shall promptly be executed and delivered by or on behalf of the Company. 9 10 EXHIBIT A 18.2 CONTINUED EMPLOYMENT OR SERVICES; RIGHTS IN AWARDS Neither the Plan, participation in the Plan as a Participant nor any action of the Plan Administrator taken under the Plan shall be construed as giving any Participant or employee of the Company any right to be retained in the employ of the Company or limit the Company's right to terminate the employment or services of the Participant. 18.3 REGISTRATION; CERTIFICATES FOR SHARES The Company shall be under no obligation to any Participant to register for offering or resale under the Securities Act of 1933, as amended, or register or qualify under state securities laws, any shares of Common Stock, security or interest in a security paid or issued under, or created by, the Plan. The Company may issue certificates for shares with such legends and subject to such restrictions on transfer and stop-transfer instructions as counsel for the Company deems necessary or desirable for compliance by the Company with federal and state securities laws. 18.4 NO RIGHTS AS A STOCKHOLDER No Option, Stock Appreciation Right or Other Stock-Based Award shall entitle the Holder to any dividend (except to the extent provided in an Award of Dividend Equivalent Rights), voting or other right of a stockholder unless and until the date of issuance under the Plan of the shares that are the subject of such Awards, free of all applicable restrictions. 18.5 COMPLIANCE WITH LAWS AND REGULATIONS It is the Company's intention that, so long as any of the Company's equity securities are registered pursuant to Section 12(b) or 12(g) of the Exchange Act, the Plan shall comply in all respects with Rule 16b-3 under the Exchange Act and, if any Plan provision is later found not to be in compliance with such Rule, the provision shall be deemed null and void, and in all events the Plan shall be construed in favor of its meeting the requirements of Rule 16b-3. Notwithstanding anything in the Plan to the contrary, the Board, in its sole discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan to Participants who are officers or directors subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other Participants. Additionally, in interpreting and applying the provisions of the Plan, any Option granted as an Incentive Stock Option pursuant to the Plan shall, to the extent permitted by law, be construed as an "Incentive stock option" within the meaning of Section 422 of the Code. 18.6 NO TRUST OR FUND The Plan is intended to constitute an "unfunded" plan. Nothing contained herein shall require the Company to segregate any monies or other property, or shares of Common Stock, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Participant, and no Participant shall have any rights that are greater than those of a general unsecured creditor of the Company. 18.7 GOVERNING LAW The Plan and all interpretations of its provisions shall be governed by the laws of the state of Washington and applicable federal laws. 18.8 SEVERABILITY If any provision of the Plan or any Award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Award under any law deemed applicable by the Plan Administrator, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Plan Administrator's determination, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect. SECTION 19. EFFECTIVE DATE The Plan's effective date is the date on which it is adopted by the Board, so long as it is approved by the Company's stockholders at any time within 12 months of such adoption or, if earlier, and to the extent required for compliance with Rule 16b-3 under the Exchange Act, at the next annual meeting of the Company's stockholders after adoption of the Plan by the Board. Adopted by the Board on ______________, 1995 and approved by the Company's stockholders on _____________, 1995. 10 EX-10.17 3 EXHIBIT 10.17: THIRD AMENDMENT TO 10/28/94 AGRMT. 1 EXHIBIT 10.17 THIRD AMENDMENT TO CREDIT AGREEMENT This third amendment to credit agreement ("Amendment") is made and entered into as of the 28th day of October, 1994, by and among U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION ("U.S. Bank") and FLOW INTERNATIONAL CORPORATION, a Delaware corporation ("Flow") and SPIDER STAGING CORPORATION, a Washington corporation ("SSC"). RECITALS: A. On or about October 14, 1992, U.S. Bank, Flow, and SSC entered into that certain credit agreement (together with all amendments, supplements, exhibits, and modifications thereto, the "Credit Agreement"), which amended, restated, and combined the Original Loan Agreement, as amended, between U.S. Bank and Flow with the SSC Loan Agreement between U.S. Bank and SSC. The Credit Agreement also set forth the terms and conditions under which U.S. Bank agreed to continue making certain loans and advances of credit to Flow and SSC. On or about April 28, 1993, U.S. Bank, Flow, and SSC entered into that certain first amendment to credit agreement ("First Amendment") whereby U.S. Bank agreed to extend a new $9,659,174 loan to Flow which was used to replace certain existing loans from U.S. Bank to Flow and from U.S. Bank to Flow and SSC and to pay down the Revolving Loan. On or about September 2, 1993, U.S. Bank agreed to increase the Revolving Loan to $14,000,000 and Flow executed and delivered to U.S. Bank a new promissory note in such amount that replaced the Revolving Note. On or about September 30, 1993, U.S. Bank, Flow and SSC entered into that certain second amendment to credit agreement ("Second Amendment") whereby U.S. Bank agreed to extend a new $3,000,000 loan to Flow (Revolving Equipment Loan) along with making other changes to various other loan/commitments. B. Flow and SSC have requested U.S. Bank to: (i) increase Flow's Revolving Line of Credit to $17,000,000, (ii) make a new $4,500,000 equipment loan to Flow which would include the consolidation of two existing term loans, and (iii) reduce the interest and make other miscellaneous amendments to the existing credit agreement. The purpose of this Amendment is to set forth the terms and conditions upon which U.S. Bank will do the foregoing pursuant to Flows and SSC's request. ARTICLE I. DEFINITIONS As used herein, capitalized terms shall have the meanings given to them in the Credit Agreement, except as otherwise defined herein or as the context otherwise requires. Article I of the Credit Agreement is modified to add or amend. (as the case may be) the definitions of the terms set forth below: -1- 2 "Applicable Law" means all applicable provisions and requirements of all (a) constitutions, statutes, ordinances, rules, regulations, standards, orders, and directives of any Governmental Bodies, (b) authorizations, consents, approvals, certificates of compliance, licenses, permits, or exemptions from, contracts with, registrations or filings with, or reports or notices to, any Governmental Body, and (c) orders, decisions, decrees, judgments, injunctions, and writs of all courts and arbitrators; whither such Applicable Laws presently exist, or are modified, promulgated, or implemented after the date hereof. "Cash Flow" means Flow's Consolidated net income before taxes, plus noncash items (such as depreciation and amortization), less unfunded capital expenditures and extraordinary items. "Current Ratio" means the ratio of Flow's Consolidated current assets to Flow's Consolidated current liabilities. "Governmental Body" means the government of the United States, any state, or any foreign country, or any governmental or regulatory official, body, department, bureau, subdivision, agency, commission, court arbitrator, or authority, or any instrumentality thereof, whether federal, state, or local. "Interest Periods" means for LIBOR Rate Borrowing the one month period designated by Flow in a Borrowing Notice. In the event that the last day of any Interest Period would fall on a day other than a Business Day, the Interest Period shall be extended to the next succeeding Business Day. Flow may not elect any Interest Period which extends beyond the maturity date of the Revolving Loan. "LIBOR Rate" means a fixed rate of interest equal to the London Interbank Offered Rate, which is the per annum rate of interest determined by U.S. Bank to be the rate at which deposits in U.S. dollars are offered in the London Interbank market at approximately 11:00 a.m. (London time), and two Business Days prior to the commencement of the applicable Interest Period for a period of time comparable to such Interest Rate Borrowing, which rate shall be adjusted from time to time to take into account the cost to U.S. Bank to maintain any reserves for a Eurodollar deposit required to fund the amount of the applicable LIBOR Rate Borrowing, and also to take into account any required statutory reserves for foreign loans to United States residents, whether or not the applicable LIBOR Rate Borrowing is so funded by U.S. Bank. "LIBOR Rate Borrowing" means any borrowing under the Revolving Loan for which Flow has elected a rate based upon the LIBOR Rate to apply. Computations of interest for a LIBOR Rate Borrowing shall be based upon a 360-day year for the actual number of days elapsed. -2- 3 "Loans" means the Revolving Loan, the BHF Letter of Credit, the Letters of Credit, the Controlled Disbursement Loan, the Combined Loan, and the Revolving Equipment Loan, as well as all renewals and modifications thereof. "Notes" means the Revolving Note, the Demand Note, the Controlled Disbursement Note, and Combined Note, and the Revolving Equipment Note, as well as all replacements and modifications thereof. "Prime Rate Borrowing" means any Funding or portion of the Revolving Loan pursuant to the terms of the Agreement that bears interest at the Prime Rate. "Revolving Equipment Loan" has the meaning set forth in Section 3.1 of this Amendment, as well as all renewals and modifications thereof. "Revolving Equipment Note" has the meaning set forth in Section 3.3 of this Amendment, as well as all renewals and modifications thereof. "Working Capital" means the amount by which Flows Consolidated current assets exceeds Flow's Consolidated current liabilities. ARTICLE II. AMENDMENT The Credit Agreement, as well as all of the other Loan Documents, are hereby amended as set forth herein. Except as specifically provided for herein, all of the terms and conditions of the Credit Agreement and each of the other Loan Documents shall remain in full force and effect throughout the term of the Loans, as well as any extensions or renewals thereof. ARTICLE III REVOLVING EQUIPMENT LOAN 3.1 Commitment. Subject to and upon the terms and conditions set forth herein, and in reliance upon the representations, warranties, and covenants of Flow contained herein or in the Credit Agreement or make pursuant hereto or pursuant to the Credit Agreement, U.S. Bank will make Fundings to Flow from time to time and during the period ending on November 30, 1996, but such Fundings shall not exceed, in the aggregate principal amount at any one time outstanding, $4,500,000 (the "Revolving Equipment Loan"). Flow may borrow, repay, and reborrow hereunder either the full amount of the Revolving Equipment Loan or any lesser sum. 3.2 Use of Proceeds. The proceeds of the Revolving Equipment loan shall only be used by Flow for the purchase of equipment related to its business. -3- 4 3.3 Revolving Equipment Note. The Revolving Equipment Loan shall be evidenced by a promissory note in the form attached hereto as Exhibit A (the "Revolving Equipment Note"). 3.4 Interest Rates. The Revolving Equipment Loan shall bear interest on the principal amount thereof remaining unpaid from time to time, at a rate of interest equal to: (a) The Prime Rate plus 0.25 percent per annum; or (b) The LIBOR Rate plus 175 basis points per annum. 3.5 Payment of Interest. Flow shall pay U.S. Bank an amount equal to all accrued interest under the Revolving Equipment Loan on the first day of each month until the principal balance under the Revolving Equipment Loan has been paid in full, commencing on the first such day after any Funding has been disbursed under the Revolving Equipment Loan. 3.6 Reduction of Commitment. On a monthly basis, the principal amount of this commitment shall be reduced by 1/60th. 3.7 Repayment of Principal. All outstanding principal, accrued interest, and other charges shall be due in full by November 30, 1996. 3.8 Revolving Equipment Loan Fee. Flow shall be assessed a 0.25 percent fee on the amount of each Funding under the Revolving Equipment Loan which shall be due and payable concurrently with the disbursement of each Funding. 3.9 Limitation on Fundings. (a) The aggregate principal balance of the Revolving Equipment Loan shall not exceed an amount equal to 75 percent of the cost to Flow of the equipment purchased with Fundings under the Revolving Equipment Loan. (b) If at any time the aggregate principal balance of the Revolving Equipment loan exceeds the amount determined pursuant to subparagraph (a) above, Flow shall immediately repay such outstanding portion of the Revolving Equipment Loan in an amount equal to such excess. 4.0 Fundings. Flow shall submit to U.S. Bank prior to each Funding under the Revolving Equipment Loan, a Borrowing Notice as set forth in Section 12.3 of the Credit Agreement, which shall set forth the purchase price of the equipment to be purchased with the requested Funding. Section 12.3 of the Credit Agreement is hereby amended to include Fundings under the Revolving Equipment Loan. -4- 5 ARTICLE IV. REVOLVING LOAN MODIFICATIONS 4.1 Revolving Loan Increase and Extension of Expiry Date. Section 2.1 of the Credit Agreement is hereby amended to reflect that U.S. Bank will make Fundings to Flow under the Revolving Loan from time to time and during the period ending on November 30, 1995, but such Fundings (together with the outstanding Letters of Credit with the exception of the BHF Letter of Credit) shall not exceed, in the aggregate principal amount at any one time outstanding, $17,000,000. 4.2 Replacement Revolving Note. Concurrently with the execution hereof, Flow shall execute and deliver a replacement revolving note in the form attached hereto as Exhibit B ("Replacement Revolving Note") which shall replace that certain promissory note dated September 30, 1993. All references in the Credit Agreement to the Revolving Note shall hereafter constitute reference to the Replacement Revolving Note, U.S. Bank shall mark the promissory note dated September 30, 1993 "replaced" and shall retain the note until the Revolving Loan has been paid in full. 4.3 Extension of Maturity Date. Section 2.5 (b) of the Credit Agreement is hereby amended to reflect that Flow shall pay U.S. Bank all outstanding principal, accrued interest, and other charges with respect to the Revolving Loan on November 30, 1995. 4.4 Decrease in Interest Rate. Section 2.4 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: 2.4 Interest. Each time Flow requests a Funding under the Revolving Loan or prior to the expiration of each Interest Period for all LIBOR Rate Borrowings or at any other time with respect to Prime Rate Borrowings so long as there exists no Event of Default, Flow may elect one of the following described interest rates in a Borrowing Notice: (a) The Prime Rate per annum; or (b) The LIBOR Rate plus 150 basis points per annum. Upon the following permanent reduction to the maximum Funding based upon Eligible Inventory, the LIBOR Rate option will be adjusted as follows: Maximum Inventory Reliance LIBOR Rate Formula -------------------------- ------------------ $3,000,000 LIBOR + 140 basis points per annum -0- LIBOR + 125 basis points per annum -5- 6 In the event Flow does not specify an interest rate election as provided for above for a requested Funding or at the end of any Interest Period with respect to a LIBOR Rate Borrowing, then such Funding shall be deemed to constitute a Prime Rate Borrowing. 4.5 Illegality. (a) If after the date of this Amendment the adoption of any Applicable Law or any change therein or any change in the interpretation or administration thereof by any Governmental Body, central bank, or comparable agency charged with the interpretation or administration thereof, or if compliance by U.S. Bank with any request or directive (whether or not having the force of Applicable Law) of any such Governmental Body, central bank, or comparable agency makes it against Applicable Law or impossible for U.S. Bank to maintain the Revolving Loan at the LIBOR Rate, U.S. Bank shall immediately give notice thereof to Flow. (b) Upon receipt by Flow of notice set forth in Section 4.5 (a) herein, the interest rate of the Revolving Loan shall automatically be converted to the Prime Rate per annum. 4.6 Interest Cost. If after the date hereof any revision of Regulation D announced by the Board of Governors of the Federal Reserve Board, or if the adoption of any Applicable Law related to Regulation D or any change therein or any change in the interpretation or administration thereof by any Governmental Body, central bank, or comparable agency charged with the interpretation or administration thereof, or if compliance by U.S. Bank with any request or directive (whether or not having the force of Applicable Law) of any such Governmental Body, central bank, or comparable agency related to Regulation D: (a) Shall subject U.S. Bank to any tax, duty, or other charge with regard to its maintenance of the interest rate under the Revolving Loan at the LIBOR Rate; or (b) Shall impose or modify any reserve (including but not limited to any reserve imposed by the Board of Governors of the Federal Reserve System), special deposit, or similar requirement against assets of, deposits with, or for the account of, or credit extended by U.S. Bank or shall impose on U.S. Bank any other condition affecting the Revolving Loan with interest accruing at the LIBOR Rate; -6- 7 and the result of any of the foregoing is to increase the cost to U.S. Bank of maintaining the interest rate on the Revolving Loan at the LIBOR Rate or to reduce the return of U.S. Bank under this Amendment, then from time to time, within ten days after demand by U.S. Bank, Flow shall pay to U.S. Bank such additional amount or amounts as will compensate U.S. Bank for such increase in cost or reduction in return. In no event shall Flow have any liability for changes in or imposition of new taxes by any Governmental Agency based on the net or gross income of U.S. Bank. 4.7 Borrowing Base Modification. Section 2.6 of the Credit Agreement is hereby amended to reflect that the Borrowing Base is (a) 80 percent of Eligible Accounts Receivable plus (b) 50 percent of Eligible Inventory up to a maximum Funding based upon Eligible Inventory in the amount of $7,000,000. ARTICLE V. LETTERS OF CREDIT MODIFICATION Section 3.1 of the Credit Agreement is hereby amended to reflect, that the maximum aggregate amount of Letters of Credit at any one time outstanding shall not exceed $2,500,000. ARTICLE VI. BHF LETTER OF CREDIT MODIFICATION 6.1 Extension. (a) Section 7.1 of the Credit Agreement is hereby amended to reflect that the expiration date of the BHF Letter of Credit is March 1, 1996. (b) Section 7.4 of the Credit Agreement is hereby amended to reflect that any draw on the BHF Letter of Credit issued by U.S. Bank shall be repaid by Flow within the earlier of 60 days of such Funding or March 1, 1996. 6.2 Interest Rate. Section 7.3 of the Credit Agreement is hereby amended to reflect that the Demand Note shall bear interest on the principal amount thereof remaining unpaid from time to time, at a rate of interest equal to the Prime Rate plus 0.25 percent per annum. 6.3 Replacement Letter of Credit Note. Concurrently with the execution hereof, Flow and SSC shall execute and deliver a replacement letter of credit note in the form attached hereto as Exhibit "C" ("Replacement Letter of Credit Note"). -7- 8 ARTICLE VII. CONTROLLED DISBURSEMENT LOAN MODIFICATION 7.1 Extension of Expiry Date. Section 11.1 of the Credit Agreement is hereby amended to reflect that U.S. Bank will make Fundings to Flow and SSC from time to time and during the period ending on November 30, 1995, but such Fundings shall not exceed, in the aggregate principal amount at any one time outstanding, $500,000. 7.2 Replacement Controlled Disbursement Note. Concurrently with the execution hereof Flow and SSC shall execute and deliver a replacement controlled disbursement note in the form attached hereto as Exhibit D ("Replacement Controlled Disbursement Note") which shall replace the Controlled Disbursement Note executed in conjunction with the Credit Agreement. All references in the Credit Agreement to the Controlled Disbursement Note shall hereafter constitute references to the Replacement Controlled Disbursement Note. U.S. Bank shall mark the Controlled Disbursement Note "replaced" and shall retain it until the Controlled Disbursement Loan has been paid in full. 7.3 Loan Fee. In the event of any Fundings under the Controlled Disbursement Loan, Flow and SSC shall pay U.S. Bank a loan fee of $1,250 concurrently with the Funding under the Controlled Disbursement Loan. ARTICLE VIII. CONDITIONS PRECEDENT 8.1 Conditions Precedent for Initial Funding Under the Revolving Equipment Loan. U.S. Bank shall not be required to make the initial Funding under the Revolving Equipment Loan unless or until the following conditions have been fulfilled to the satisfaction of U.S. Bank: (a) U.S. Bank shall have received this Amendment and the Revolving Equipment Note, duly executed and delivered by Flow. (b) U.S. Bank shall have received a certified resolution of the directors of Flow and incumbency certificate in a form reasonably satisfactory to U.S. Bank authorizing Flow to enter into this Amendment and execute the Revolving Equipment Note and all other instruments, agreements, and documents related thereto. -8- 9 8.2 Conditions Precedent to Each Funding Under the Revolving Equipment Loan. The obligation of U.S. Bank to make any Funding (including the initial Funding) under the Revolving Equipment Loan is subject to the fulfillment, to the satisfaction of U.S. Bank, of the following: (a) U.S. Bank shall have received a Borrowing Notice with respect to the requested Funding, duly executed and delivered by Flow. (b) U.S. Bank shall have received evidence deemed satisfactory to U.S. Bank reflecting that the requested Funding is less than or equal to 75 percent of the purchase price of the equipment to be purchased with the requested Funding. (c) There shall not then exist any Default or Event of Default under the Credit Agreement, or after having given effect to the requested Funding, there would not exist a Default or Event of Default. (d) Each of the conditions provided for in Section 15.3 of the Credit Agreement shall have been satisfied. 8.3 Conditions Precedent to Each Subsequent Funding. There shall be added to Section 15.3 of the Credit Agreement the following: (f) There shall not then exist any Default or Event of Default hereunder, or after having given effect to the requested Funding, there would not exist a Default or Event of Default. ARTICLE IX. COVENANT MODIFICATIONS 9.1 Sections 17.17, 17.18, 17.19, 17.20 and 17.21 of the Credit Agreement are hereby deleted in their entirety and replaced with the following: 17.17 Capital Ratio. Permit the Capital Ratio to be greater than 1.25:1.00 from the date of this Amendment until April 29, 1995, and greater than 1.05:1.00 at any time thereafter. 17.18 Tangible Net Worth. Permit Tangible Net Worth to be less than $33,000,000 any time during the terms of the Loans. 17.19 Debt Service Coverage Ratio. Permit the Debt Service Coverage Ratio to be less than 1.50:1.00 at any time during the terms of the Loans. -9- 10 17.16 Working Capital. Permit Working Capital to be less than $21,000,000 any time during the terms of the Loans. 17.15 Current Ratio. Permit the Current Ratio to be less than 1.70:1.00 any time during the terms of the Loans. ARTICLE X. GENERAL PROVISIONS 10.1 Notices. Section 20.1 of the Credit Agreement is hereby amended to reflect U.S. Bank's new address: (b) If to U.S. Bank: U.S. Bank of Washington, National Association 10800 N.E. 8th Street Suite 1000 Bellevue, Washington 98004 Attention: Mark E. Tsutakawa, Vice President Facsimile No.: (206) 450-5989 10.2 Representations and Warranties. Flow and SSC hereby represent and warrant to U.S. Bank that as of the date of this Amendment, there exists no Default or Event of Default. All representations and warranties of Flow and SSC contained in the Credit Agreement and the other Loan Documents, or otherwise made in writing in connection therewith, are true and correct as of the date of the Amendment. Flow and SSC acknowledge and agree that all of Flow's Indebtedness to U.S. Bank is payable without offset, defense, or counterclaim. 10.3 Security Each of the Loan Documents evidencing U.S. Bank's security interest in the Collateral shall remain in full force and effect and shall secure the payment and performance of the Revolving Equipment Loan, as well as the Revolving Loan, the SSC Term Loan, the BHF Letter of Credit, the Letters of Credit, the Controlled Disbursement Loan, and the Combined Loan, as amended hereunder. 10.4 SSC Guaranty. SSC acknowledges and agrees that the SSC Guaranty shall remain in full force and effect; affirms that the SSC Guaranty shall secure all of the past, present, and future Indebtedness of Flow to U.S. Bank, including without limitation, the Revolving Equipment Loan, and the Revolving Loan as increased hereunder; and agrees that its obligation under the SSC Guaranty is enforceable without defense, offset, or counterclaim. -10- 11 10.5 Counterparts. This Amendment may be executed in one or more counterparts, each of which shall constitute an original agreement, but all of which together shall constitute one and the same agreement. 10.6 Statutory Notice, ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. IN WITNESS WHEREOF, U.S. Bank, Flow, and SSC have caused this Amendment to be duly executed by their respective duly authorized signatories as of the date first above written. U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION By: MARK TSUTAKAWA --------------------------- Mark Tsutakawa FLOW INTERNATIONAL CORPORATION, a Delaware Corporation By: R.W. TARRANT --------------------------- R.W. Tarrant Title: Chairman President & CEO ------------------------ SPIDER STAGING CORPORATION, a Washington Corporation By: R.W. TARRANT --------------------------- R.W. Tarrant Title: President & CEO ------------------------ -11- EX-10.18 4 EXHIBIT 10.18: FOURTH AMENDMENT TO 12/13/94 AGRMT. 1 EXHIBIT 10.18 FOURTH AMENDMENT TO CREDIT AGREEMENT This fourth amendment to credit agreement ("Amendment") is made and entered into as of the 13th day of December, 1994, by and among U. S. BANK OF WASHINGTON, NATIONAL ASSOCIATION ("U. S. Bank"), FLOW INTERNATIONAL CORPORATION, a Delaware corporation ("Flow"), and SPIDER STAGING CORPORATION, a Washington corporation ("SSC"). RECITALS: A. On or about October 14, 1992, U. S. Bank, Flow, and SSC entered into that certain credit agreement (together with all amendments, supplements, exhibits, and modifications thereto, the "Credit Agreement"), which amended, restated, and combined the Original Loan Agreement, as amended, between U. S. Bank and Flow with the SSC Loan Agreement between U. S. Bank and SSC. The Credit Agreement also set forth the terms and conditions under which U. S. Bank agreed to continue making certain loans and advances of credit to Flow and SSC. The Credit Agreement was amended by those certain first, second, and third amendments to credit agreement dated April 28, 1993, September 30, 1993, and October 28, 1994, respectively, whereby U. S. Bank agreed to (a) replace certain existing loans from U. S. Bank to Flow and from U. S. Bank to Flow and SSC with a combined loan of $9,659,174; (b) increase the Revolving Loan, first to $14,000,000 and then to $17,000,000; (c) increase the Controlled Disbursement Loan from $100,000 to $500,000; and (d) make a Revolving Equipment Loan in the original principal amount of $3,000,000 that was increased to $4,500,000. B. Flow is negotiating the acquisition of the assets or stock of several companies that are engaged in business operations that are related or complimentary to those of Flow's. Permanent financing of Flow's proposed acquisitions will be funded with proceeds from the issuance and sale of subordinated debentures, placement of private debt, or other bank facilities, or a combination thereof ("Permanent Financing") in an amount estimated to be from $15,000,000 to $30,000,000. C. Flow and SSC have requested that U. S. Bank make a bridge loan of $15,000,000 to Flow until Flow has completed its Permanent Financing. To take account of the short-term nature of the bridge financing to be provided by U. S. Bank, Flow and SSC also have requested that U. S. Bank modify certain financial covenants. The purpose of this Amendment is to set forth the terms and conditions upon which U. S. Bank will provide the bridge financing to Flow and modify certain financial covenants pursuant to Flow's and SSC's request. -1- 2 ARTICLE 1. DEFINITIONS As used herein, capitalized terms shall have the meanings given to them in the Credit Agreement, except as otherwise defined herein or as the context otherwise requires. Article I of the Credit Agreement is modified to add or amend (as the case may be) the definitions of the terms set forth below: "Acquisition Loan" has the meaning set forth in Section 3.1 of this Amendment, and includes all renewals and modifications of the Acquisition Loan. "Acquisition Loan Note" has the meaning set forth in Section 3.3 of this Amendment, and includes all renewals, replacements, and modifications of the Acquisition Loan Note. "Capital Ratio" means the ratio of Flow's Consolidated Indebtedness (less subordinated debt, if any, and contingent liabilities) to Flow's Tangible Net Worth. "Cash Flow" means Flow's Consolidated net income after taxes, plus noncash items (such as depreciation and amortizations, plus interest expense, less unfunded capital expenditures and extraordinary items. "Debt Service" means the current portion of Flow's Consolidated Indebtedness, plus interest expense as of the last day of the applicable fiscal quarter. "Interest Periods" means for any LIBOR Rate Borrowing the 30, 60, or 90-day period designated by Flow in a Borrowing Notice. In the event that the last day of any Interest Period would fall on a day other than a Business Day, the Interest Period shall be extended to the next succeeding Business Day. Flow may not elect any Interest Period that extends beyond the maturity date of the Revolving Loan, the Revolving Equipment Loan or the Acquisition loan. "LIBOR Rate Borrowing" means any borrowing under the Revolving Loan, the Revolving Equipment Loan or the Acquisition Loan for which Flow has elected a rate based upon the LIBOR Rate to apply. Computations of interest for a LIBOR Rate Borrowing shall be based upon a 360-day year for the actual number of days elapsed. "Loans" means the Revolving Loan, the SSC Term Loan, the BHF Letter of Credit, the Letters of Credit, the Controlled Disbursement Loan, the Combined Loan, the Revolving Equipment Loan, and the Acquisition Loan, and includes all renewals and modifications thereof. "Notes" means the Revolving Note, the SSC Term Note, the Demand Note, the Controlled Disbursement Note, the Combined Note, the Revolving Equipment Note, and -2- 3 the Acquisition Loan Note, and includes all renewals, replacements, and modifications thereof. "Permanent Financing" means the issuance and sale of subordinated debentures, placement of private debt, or other bank facilities, or a combination thereof in an amount estimated to be from $15,000,000 to $30,000,000. "Prime Rate Borrowing" means any Funding or portion of the Revolving Loan, the Revolving Equipment Loan or Acquisition Loan pursuant to the terms of this Agreement that bears interest at the Prime Rate. "Tangible Net Worth" means Flow's Consolidated net worth determined in accordance with generally accepted accounting principles, plus subordinated debt, if any; less (a) all intangible assets, including without limitation, goodwill, licenses, franchises, trademarks, trade names, service marks, patents, and copyrights; (b) unamortized debt discount and expenses; (c) the cost of capital stock of an Affiliate; (d) any Indebtedness owing to Flow by an Affiliate thereof, unless such Indebtedness arose in connection with the sale or lease of goods or property in the ordinary course of business, or the performance of services in the ordinary course of business, and would otherwise constitute current assets in accordance with generally accepted accounting principles; and (e) the amount of a write-up in book value of the assets of Flow or Flow Services resulting from any revaluation of assets. ARTICLE II. AMENDMENT The Credit Agreement, as well as all of the other Loan Documents, are hereby amended as set forth herein. Except as specifically provided for herein, all of the terms and conditions of the Credit Agreement and each of the other Loan Documents shall remain in full force and effect throughout the terms of the Loans, as well as any extensions or renewals thereof. ARTICLE III. ACQUISITION LOAN 3.1 Commitment. Subject to and upon the terms and conditions set forth herein, and in reliance upon the representations, warranties, and covenants of Flow and SSC contained herein or in the Credit Agreement or made pursuant hereto or pursuant to the Credit Agreement, U. S. Bank will make Fundings to Flow from time to time, commencing on the date of this Amendment, and ending on December 31, 1995, in an aggregate principal amount not to exceed $15,000,000 (the "Acquisition Loan"). The Acquisition Loan is a nonrevolving term loan, and once borrowed, Flow may not reborrow any repaid principal of the Acquisition Loan. -3- 4 3.2 Use of Proceeds. The proceeds of the Acquisition Loan shall be used by Flow only for the acquisition of the assets or stock of companies approved by U. S. Bank. 3.3 Acquisition Loan Note. The Acquisition Loan shall be evidenced by a promissory note in the form attached hereto as Exhibit A (the "Acquisition Loan Note"). 3.4 Interest Rates. Each time Flow requests a Funding under the Acquisition Loan or prior to the expiration of each Interest Period for all LIBOR Rate Borrowings or at any other time with respect to Prime Rate Borrowings so long as there exists no Event of Default, Flow may elect one of the following described interest rates in a Borrowing Notice: (a) The Prime Rate per annum; or (b) The LIBOR Rate plus 200 basis points per annum. In the event Flow does not specify an interest rate election as provided for above for a requested Funding or at the end of any Interest Period with respect to a LIB0R Rate Borrowing, then such Funding shall be deemed to constitute a Prime Rate Borrowing. 3.5 LIBOR Rate Borrowing. Sections 4.5 and 4.6 of the third amendment to credit agreement, dated as of October 28, 1994, are hereby amended to apply to the Revolving Equipment Loan and the Acquisition Loan, in addition to the Revolving Loan. 3.6 Payment of Interest. Flow shall pay U. S. Bank an amount equal to all accrued interest on the Acquisition Loan on the last day of each month until the principal balance of the Acquisition Loan has been paid in full, commencing on the last day of the month in which the initial Funding has been disbursed under the Acquisition Loan. 3.7 Repayment of Principal. Flow shall pay U. S. Bank all outstanding principal, accrued interest, and other charges with respect to the Acquisition Loan on the earlier of December 31, 1995, or the date on which Flow has received the proceeds from Permanent Financing. 3.8 Acquisition Loan Fee. Concurrently with the execution of this Amendment, Flow shall pay a loan fee of $140,000 to U. S. Bank. -4- 5 ARTICLE IV. CONDITIONS PRECEDENT 4.1 Conditions Precedent for Initial Funding Under the Acquisition Equipment Loan. U. S. Bank shall not be required to make the initial Funding under the Acquisition Loan unless or until the following conditions have been fulfilled to the satisfaction of U. S. Bank: (a) U. S. Bank shall have received this Amendment and the Acquisition Loan Note, duly executed and delivered by Flow. (b) U. S. Bank shall have received a certified resolution of the directors of Flow and incumbency certificate in a form reasonably satisfactory to U. S. Bank authorizing Flow to enter into this Amendment and execute the Acquisition Loan Note and all other instruments, agreements, and documents related thereto. 4.2 Conditions Precedent to Each Funding Under the Acquisition Loan. The obligation of U. S. Bank to make any Funding (including the initial Funding) under the Acquisition Loan is subject to the fulfillment, to the satisfaction of U. S. Bank, of the following: (a) U. S. Bank shall have received a Borrowing Notice with respect to the requested Funding, duly executed and delivered by Flow. (b) U. S. Bank shall have received all documents, information, and other materials requested by U. S. Bank relating to Flow's proposed acquisition and shall have approved such proposed acquisition in writing. (c) There shall not then exist any Default or Event of Default under the Credit Agreement, or after having given effect to the requested Funding, there would not exist a Default or Event of Default. (d) Each of the conditions provided for in Section 15.3 of the Credit Agreement shall have been satisfied. (e) Flow and SSC shall have delivered such guaranties, third-party pledge agreements, security agreements, and financing statements, duly executed by Flow, SSC, or any Subsidiary, as may be reasonably necessary in the opinion of U. S. Bank to further secure and guarantee the obligations of Flow and SSC under the Credit Agreement. ARTICLE V. COVENANT MODIFICATIONS 5.1 Financial Covenants. Sections 17.15 through 17.19 of the Credit Agreement are hereby deleted in their entirety and replaced with the following: -5- 6 17.15 Current Ratio. Permit the Current Ratio to be less than 1.2:1.0 from the date of this Amendment until Flow has received the proceeds from the Permanent Financing, and less than 1.7:1 at any time thereafter. 17.16 Working Capital. Permit the Working Capital to be less than $13,000,000 from the date of this Amendment until Flow has received the initial proceeds from the Permanent Financing, and less than $25,000,000 at any time thereafter. 17.17 Capital Ratio. Permit the Capital Ratio to be greater than 1.65:1.0 from the date of this Amendment until Flow has received the initial proceeds from the Permanent Financing, and greater than 1.05:1.0 at anytime thereafter. 17.18 Tangible Net Worth. Permit Tangible Net Worth to be less than $33,000,000 any time during the terms of the Loans. 17.19 Debt Service Coverage Ratio. Permit the Debt Service Coverage Ratio to be less than 1.4: 1.0 for any fiscal quarter from the date of this Amendment until Flow has received the proceeds from the Permanent Financing, and less than 1.5:1.0 for any fiscal quarter thereafter. 5.2 Subordination of Permanent Financing. Flow shall not become obligated with respect to any Permanent Financing unless (a) such Permanent Financing provides that any payment on or any security granted for the repayment of the Permanent Financing are subordinated to the prior payment of all Indebtedness of Flow and SSC to U. S. Bank to the extent approved by U. S. Bank, and (b) U. S. Bank has given its written approval to Flow of the form of documents evidencing the Permanent Financing. ARTICLE VI. GENERAL PROVISIONS 6.1 Representations and Warranties. Flow and SSC hereby represent and warrant to U. S. Bank that as of the date of this Amendment, there exists no Default or Event of Default. All representations and warranties of Flow and SSC contained in the Credit Agreement and the other Loan Documents, or otherwise made in writing in connection therewith, are true and correct as of the date of this Amendment. Flow and SSC acknowledge and agree that all of Flow's Indebtedness to U. S. Bank is payable without offset, defense, or counterclaim. 6.2 Security. Each of the Loan Documents evidencing U. S. Bank's security interest in the Collateral shall remain in full force and effect and shall secure the payment and performance by Flow and SSC of all Indebtedness of Flow and SSC to U. S. Bank as amended hereunder, including, without limitation, the Acquisition Loan. -6- 7 6.3 SSC Guaranty. SSC acknowledges and agrees that the SSC Guaranty shall remain in full force and effect; affirms that the SSC Guaranty shall secure all of the past, present, and future Indebtedness of Flow to U. S. Bank, including without limitation, the Acquisition Loan; and agrees that its obligation under the SSC Guaranty is enforceable without defense, offset, or counterclaim. 6.4 Counterparts. This Amendment may be executed in one or more counterparts, each of which shall constitute an original agreement, but all of which together shall constitute one and the same agreement. 6.5 Statutory Notice. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. IN WITNESS WHEREOF, U. S. Bank, Flow, and SSC have caused this Amendment to be duly executed by their respective duly authorized signatories as of the date first above written. U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION By MARK E. TSUTAKAWA ------------------------------ Mark E. Tsutakawa Vice President FLOW INTERNATIONAL CORPORATION, a Delaware corporation By R.W. TARRANT ------------------------------ R.W. Tarrant Title Chairman President & CEO --------------------------- -7- 8 SPIDER STAGING CORPORATION, a Washington corporation By R.W. TARRANT ------------------------------- R.W. Tarrant Title Chairman, President & C.E.O. ---------------------------- -8- EX-10.19 5 EXHIBIT 10.19: COMMITMENT LETTER 1 EXHIBIT 10.19 U.S BANK LOGO MARK E. TSUTAKAWA Vice President Washington Corporate Banking 10800 Northeast 8th Street, Suite 1000 Bellevue, Washington 98004 206-450-5914 206-450-5989 Fax July 12, 1995 Mr. Ronald W. Tarrant, Chairman, President & CEO FLOW INTERNATIONAL CORPORATION 23500 - 64th Avenue South Kent, Washington 98032 RE: FLOW INTERNATIONAL CORPORATION AMENDMENT TO COMMITMENT LETTER DATED JULY 6, 1995 Dear Ron: I am extremely pleased to confirm U.S. Bank of Washington, National Association's (U.S. Bank) commitment to provide Flow International Corporation (Flow) with a credit facility as described below: BORROWER: Flow AMOUNT: $60,000,000 USE OF PROCEEDS: Proceeds to be used for general operating and acquisition funding requirements. Facility to allow for the issuance of letters of credits up to an aggregate limit of $20,000,000. STRUCTURE/TERMS: Credit facility to be set up as a 5 year reducing revolver. Commitment to be reduced as follows: Year 1: -0- Year 2: -0- Beginning of Year 3: $8,000,000 Beginning of Year 4: $8,000,000 Beginning of Year 5: $8,000,000 End of Year 5: Outstanding Balance Due.
2 MR. RONALD W. TARRANT, CHAIRMAN, PRESIDENT & CEO JULY 12, 1995 PAGE 2 INTEREST RATE/ FEES: U.S. Bank's Prime Rate adjusted on the same day as any change in U.S. Bank's Prime Rate, and/or an IBOR (Inter-Bank Offering Rate) based matrix summarized as follows (borrower's option of 30, 60, 90, and 360 days): Spread Over IBOR Funded Debt Multiple ---------------- -------------------- 1.00% < 1.50 Times 1.35% 1.50 to 3.00 Times An upfront fee of $220,000. A 10 basis point per annum fee to be assessed quarterly on the unused portion of the commitment. REPAYMENT: Interest to paid monthly. All outstanding principal and accrued interest shall be paid in full on or before maturity. COLLATERAL: Blanket lien on the assets of Flow International Corporation. Bank will retain the option of requiring a priority lien on the acquired company's assets and/or stock. Secured on a pari-passu basis with a proposed $15,000,000 private placement of senior debt. CONDITIONS With the exception of the following conditions, this commitment is irrevocable by U.S. Bank. The closing of the Facility committed to herein and U.S. Bank's commitment to make advances under the Facility is subject to the following conditions 1. NO CHANGE IN CONDITION. There must be no material adverse change in the financial condition, assets, operating status or financial prospects of Flow or any of its subsidiaries from the period beginning with the date of this commitment through the date of closing. As of the date of this letter, U.S. Bank is not aware of any adverse change in Flow's financial condition. 2. LOAN DOCUMENTS. At the closing, Flow and any of its subsidiaries shall execute such documents at U.S. Bank in its discretion deems necessary in order to render itself secure. Among the documents to be executed at closing will be a loan agreement, promissory notes and various certifications regarding the parties' authority to enter into this transaction. 3 MR. RONALD W. TARRANT, CHAIRMAN, PRESIDENT & CEO JULY 12, 1995 PAGE 3 3. CERTAIN PROVISIONS. Among the provisions of the loan documents will be representations and warranties concerning, among other things, securities offerings, pension plans, the absence of litigation, corporate authorization and existence, and government approval and licenses. There will be a number of affirmative and negative covenants treating such matters as the use of the proceeds, maintenance of financial condition, the keeping of books and records, U.S. Bank's inspection rights, insurance, financial reporting, payment of dividends, other indebtedness, encumbrance of assets, investments and the sale of assets and securities. Various events of default shall be identified. Among the provisions to be contained in the loan documents will be the following: 3.1 Flow shall maintain minimum consolidated working capital of $40,000,000. The minimum working capital covenant shall be increased as follows: $50,000,000 by 04/30/96; $55,000,000 by 04/30/97; and $60,000,000 by 04/30/98 and thereafter. 3.2 Flow shall maintain a minimum current ratio of 2.00:1. 3.3 Flow shall maintain minimum consolidated Tangible Net Worth of $33,000,000. The minimum Tangible Net Worth covenant shall be increased as follows: $35,000,000 by 04/30/96; $50,000,000 by 04/30/97; and $65,000,000 by 04/30/98 and thereafter. 3.4 Flow shall maintain a maximum Funded Debt Multiple of 3.00 times. The Funded Debt Multiple covenant shall be decreased as follows: 2.50 times by 05/01/97; 2.25 times by 05/01/98; and 2.00 times by 05/01/99 and thereafter. The Funded Debt Multiple is defined as follows: Total Funded Senior Debt (including capital leases) divided by EBITDA (based on the trailing four quarters). EBITDA attributed to acquisitions shall be considered (based on their trailing four quarters) in the Funded Debt Multiple calculation. 3.5 Flow shall maintain a minimum Cash Flow Coverage of 1.50 times. Cash Flow Coverage is defined as: (Net Income after taxes + Depreciation + Amortization + interest expense - dividends - unfunded capital expenditures) divided by (Current Portion of Long Term Debt + interest expense). This covenant shall be tested annually. 4 MR. RONALD W. TARRANT, CHAIRMAN, PRESIDENT & CEO JULY 12, 1995 PAGE 4 3.6 Flow shall advise U.S. Bank of any litigation in excess of $250,000. 3.7 Flow shall not sell, pledge or otherwise encumber any title or rights in technology, patents, etc. without prior written notification and approved by U.S. Bank. 3.8 With the exception of Cash Flow Coverage which will be tested annually, financial covenants will be tested quarterly. 3.9 U.S. Bank reserves the right to require the guarantees of the other Flow subsidiaries. 4. REPORTING. The loan documents shall require financial reporting requirements of Flow and any of its subsidiaries. Among the provisions to be contained in the loan documents shall be the following: 4.1 Quarterly agings of accounts receivable and accounts payable. 4.2 Annual consolidated audited financial statements and 10K. 4.3 Quarterly 10Q reports to be provided to U.S. Bank together with quarterly compliance certificates. 4.4 Annual financial projections of Flow and its affiliates on a fiscal year basis. 5. ACQUISITIONS. All acquisitions by Flow and any of its subsidiaries shall be subject to U.S. Bank's prior written approval, which approval shall not be unreasonably withheld, and shall be based upon all information available to U.S. Bank and Flow with respect to any proposed acquisition. MISCELLANEOUS 1. INTEREST RATES. U.S. Bank's Prime rate is the rate of interest announced or published by U.S. Bank from time to time as its "Prime Rate", but is not necessarily the lowest or best rate charged to any classification of U.S. Bank customers. The Prime rate is a floating rate, changes in which shall be effective on the day announced or published by U.S. Bank. IBOR is the Interbank Offering Rate. All interest shall be calculated on a 360 day basis for the actual number of days elapsed. The loan documents shall provide for default interest rates and late fees. 5 MR. RONALD W. TARRANT, CHAIRMAN, PRESIDENT & CEO JULY 12, 1995 PAGE 5 2. PREPAYMENT. Flow may prepay all or any portion of any facilities tied to U.S. Bank's Prime rate without premium or penalty, Any prepayment of loan balances utilizing IBOR based interest rates will be subject to the prepayment penalties stated in the IBOR addendums. 3. NO ASSIGNMENT; EXPENSES. This commitment is not assignable by operation of law or otherwise without U.S. Bank's prior written consent. Flow shall reimburse U.S. Bank for all of its reasonable out-of-pocket expenses incurred in connection with any of its facilities promptly upon demand, whether or not this transaction closes or is funded. Such expenses shall include, without limitation, attorney fees, examination expenses and filing fees. This obligation shall survive the expiration or termination of this commitment. This letter may be relied upon by any third party, and except as required by law, shall be treated as confidential. 4. EXPIRATION OF COMMITMENT; CLOSING. If not accepted by Flow, this commitment shall Expire on August 15, 1994. This commitment may be extended or modified only by written agreement by U.S. Bank and Flow We are pleased to extend this commitment to Flow and we look forward to continuing our relationship. "ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW." U.S. BANK OF WASHINGTON MARK TSUTAKAWA - ----------------------- Mark Tsutakawa Vice President MET/lkh Accepted by: FLOW INTERNATIONAL CORPORATION \s\ Ronald W. Tarrant Chairman, President & CEO 13 July 1995 - ----------------------------------------------- ------------ Title Date EX-21.1 6 EXHIBIT 21.1: SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21.1 SUBSIDIARIES OF FLOW INTERNATIONAL CORPORATION
State or other Jurisdiction of Subsidiary Incorporation or Organization ---------- ------------------------------ Rampart Waterblast, Inc. Florida Spider Staging Corporation Washington Spider Staging Corporation British Columbia Flow International Sales Corporation Guam Flow Europe, GmbH Germany Flow Asia Corporation Taiwan Flow Holdings, N.V. Belgium Power Climber, N.V. Belgium Power Climber, Inc. California Astro Hoist, Inc. California Scaffold Climber, Inc. California Suspended Scaffold Systems, Inc. California Power Operated Staging, Inc. California Flow Japan Japan CEM-FLOW France Dynovation, Inc. Ontario
EX-23.1 7 EXHIBIT 23.1: CONSENT OF INDEPENDENT ACCOUNTANTS 1 CONSENT OF INDEPENDENT ACCOUNTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-57100) and in the Registration Statement on Form S-8 (No. 33-40397 and No. 33-44776) of Flow International Corporation of our report dated July 6, 1995, appearing on page 19 of this Form 10-K. /s/ Price Waterhouse LLP - ------------------------- Seattle, Washington July 25, 1995 EX-27.1 8 EXHIBIT 27.1: FINANCIAL DATA SCHEDULE
5 U.S. DOLLARS YEAR APR-30-1995 MAY-01-1994 APR-30-1995 1 1,074 0 32,788 1,150 27,219 65,985 51,182 26,649 105,484 21,393 0 146 0 0 49,657 105,984 84,800 110,010 48,454 98,347 (30) 480 2,374 9,259 1,531 7,728 0 0 0 7,728 .53 .53
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