-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q/kGKZb7gmp9/M97P2OtGbojn8dN9keeCD7CgIJ0RxCNH4mICoTWXxy6GqL5IfAg ORwkGDvsV8hRf9fHcX6Lcw== 0000912057-96-015259.txt : 19960725 0000912057-96-015259.hdr.sgml : 19960725 ACCESSION NUMBER: 0000912057-96-015259 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960724 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: 96598011 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 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 30, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission file number 2-81315 FLOW INTERNATIONAL CORPORATION DELAWARE 91-1104842 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 23500 - 64TH AVENUE SOUTH KENT, WASHINGTON 98032 (206) 850-3500 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock $.01 Par Value Preferred Stock Purchase Rights Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non affiliates of the registrant based upon the closing price reported by the National Association of Securities Dealers' Automated Quotation System ("NASDAQ") as of May 31, 1996, was $126,740,000. The number of shares of common stock outstanding as of May 31, 1996, was 14,514,244 shares. DOCUMENTS INCORPORATED BY REFERENCE - -------------------------------------------------------------------------------- PART I: None PART II: None PART III: All Items -- See Registrant's definitive proxy statement which involves the election of directors and which will be filed with the Commission within 120 days after the close of the fiscal year. Item 10 Directors and Executive Officers of the Registrant Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners and Management Item 13 Certain Relationships and Related Transactions PART I ITEM 1. BUSINESS - -------------------------------------------------------------------------------- Flow International Corporation ("Flow" or the "Company") designs, develops, manufactures, markets, and services ultrahigh-pressure ("UHP") waterjet cutting and cleaning systems, and specialized robotics and factory automation systems; and is a leading provider of access equipment. Flow provides technologically- advanced, environmentally-sound solutions to the manufacturing, industrial cleaning and construction services markets. The Company's waterjet systems pressurize water from 30,000 to 60,000 pounds per square inch (psi) and are used to cut both metallic and nonmetallic materials in many industry segments, including the aerospace, automotive, disposable products, food, glass, job shop, sign, metal cutting, marble and other stone cutting, oil field services and paper industries. The Company also manufactures the robotic articulation equipment used in the cutting and cleaning processes, as well as other factory automation systems, such as assembly, pick and place and load/unload operations. The Company's infrastructure products include UHP waterjets for use in industrial cleaning, surface preparation, construction, nuclear decontamination, and petro-chemical applications, as well as access systems for use in these applications. The Company also provides, as a service, the removal of deteriorated concrete from bridges and parking garages using UHP waterjets ("HydroMilling-Registered Trademark-"), and the removal of rubber, paint and grout from commercial and military runways ("HydroCleaning-TM-"). The Company was formed in 1974, incorporated in 1980, and completed its initial public offering in March 1983. In 1991, the Company's founder retired, and Ronald W. Tarrant was appointed President and Chief Executive Officer. Since 1991, the Company has grown as a result of continued new product development, expanded marketing strategies, and certain strategic acquisitions. In January 1992, the Company acquired the stock of Rampart Waterblast, Inc. ("Rampart"). Rampart uses UHP waterjet technology to remove rubber and paint from airport runway surfaces. Prior to the acquisition, Rampart licensed its technology from the Company. In September 1992, the Company acquired all of the outstanding stock of Spider Staging Corporation ("Spider"). Spider designs, manufactures, rents, sells, and services access systems to a variety of industrial and construction related markets. In April 1993, the Company acquired substantially all of the assets of Power Climber, Inc. ("Power Climber"), and affiliated companies. Prior to the acquisition, Power Climber was a supplier to Spider, and designs and markets access systems in the U.S., Europe and Asia using traction hoist technology. On November 4, 1994, the Company entered into a licensing agreement with Ark Systems, Inc. ("Ark"). Ark designs and manufactures a range of access containment systems which are used in under-bridge and other applications for surface preparation, lead-paint abatement, cleaning and maintenance. The agreement gives Spider the exclusive worldwide marketing and manufacturing rights for the Ark product line for five years. On December 15, 1994, the Company purchased certain net assets of Dynovation Machine Systems, Inc. ("Dynovation"). Dynovation designs and manufactures robotic waterjet cutting cells and automated assembly systems for the automotive and other industries, as well as a line of proprietary vibratory feeder bowls for these industries. On January 3, 1995, the Company purchased certain net assets of ASI Robotics Systems ("ASI"). ASI designs and manufactures high accuracy gantry- type robots and related systems used in waterjet and factory automation applications. ASI supplies its products to the aerospace, automotive, job shop, marble and tile and other industries. In April 1995, the Company became a majority partner in a joint venture with Consortium Europeen du Materiel ("CEM"). CEM has offices in Paris, Lyon, and Marseilles for the sale and rental of access products in France. In May 1995, the Company invested in a majority interest in a joint venture with Okura & Co., Ltd., its exclusive Japanese distributor. This joint venture supplies UHP products in Japan and to Japanese companies in Asia. PRODUCTS AND SERVICES The Company provides UHP waterjets and related products and services to a wide variety of industries. The Company divides its revenues into four primary categories of product:
(In thousands) 1996 1995 1994 Revenue % Revenue % Revenue % ------------------------------------------------------ UHP Waterjet and Factory Automation Systems $56,495 39 $36,600 33 $20,645 23 UHP Spare Parts and Services 36,076 25 28,529 26 26,319 30 Access Systems and Services 38,857 27 33,566 31 28,888 33 HydroMilling-Registered Trademark- and HydroCleaning-TM- Services 13,477 9 11,315 10 12,780 14 ------------------------------------------------------ Total Revenues $144,905 100 $110,010 100 $88,632 100 ------------------------------------------------------ ------------------------------------------------------
UHP WATERJET AND FACTORY AUTOMATION SYSTEMS, SPARE PARTS AND SERVICES The Company offers a variety of UHP waterjet equipment and factory automation system products and accessories, including robotic articulation equipment. UHP intensifier and direct-drive pumps are currently the core components of the Company's products. An intensifier pump pressurizes water up to 60,000 psi and forces it through a small nozzle, generating a high-velocity stream of water. The Company's unique direct-drive pressure-compensated pumps pressurize water to in excess of 40,000 psi utilizing triplex piston technology. In order to cut metallic and other hard materials, abrasive is added to the waterjet stream creating an abrasivejet. The Company's abrasivejet cuts with no heat, causes no metallurgical changes, and leaves a high-quality edge that usually requires no additional finishing. A UHP waterjet system consists of an ultrahigh-pressure intensifier pump or direct drive, one or more waterjet cutting and cleaning heads with necessary robotics, motion control and automation systems. The Company has placed UHP waterjet cutting systems worldwide and in many different industries, including the aerospace, automotive, disposable products, food, glass, job shop, sign, metal cutting, marble and other stone cutting, oil field services and paper industries. The Company's UHP waterjet systems are also used in industrial cleaning applications such as paint removal, surface preparation, factory cleaning, ship hull preparation, and heat exchanger cleaning. The Company's factory automation equipment is used in applications such as pick and place operations, inspection, assembly, and other automated processes. Sales of UHP waterjet and factory automation systems accounted for 39% of fiscal 1996 revenues. Flow produces a range of tools and accessories which incorporate waterjet technology, and sells aftermarket spare parts and services for its products. Sales of UHP spare parts and services accounted for 25% of fiscal 1996 revenues. Spare parts sales help to insulate the Company from the adverse effects of economic swings, when industrial customers tend to reduce investment in new capital equipment. ACCESS SYSTEMS AND SERVICES The Company designs, manufactures, rents, sells, and services access systems for use in industrial, structural and facade maintenance and construction applications. The Company's permanent, mobile or temporary work platforms provide access to exterior building surfaces and construction sites, bridges, ships, offshore oil rigs, radio towers, sports stadiums, and hydroelectric dams; and internal access to large water and chemical tanks, power plant boilers, missile silos, and other industrial applications. The Company's permanently installed systems provide access to exterior surfaces of high-rise buildings for exterior maintenance, window washing, painting and building restoration. The Company is the North American distributor of the Nihon Bisoh automatic exterior maintenance systems and the exclusive U.S. distributor of a line of permanently installed access systems produced by Mannesmann of Germany. In fiscal 1996, sales, rental and service of access systems amounted to 27% of total revenues. HYDROMILLING AND HYDROCLEANING SERVICES The Company provides HydroMilling services on a contract and subcontract basis for the removal of deteriorated concrete from bridges and parking garage surfaces. The Company's proprietary HydroMilling systems operate in the pressure range of 25,000 to 40,000 psi, and use a proprietary rotating ultrahigh-pressure waterjet, mounted on a robot, to remove concrete. The depth of removal can be controlled by adjusting the pressure and traverse speed of the waterjet nozzle. In January 1993, the Company began work on the John F. Kennedy Center for the Performing Arts 500,000 square foot parking garage in Washington, D. C., where Flow is removing and replacing deteriorated concrete. This $14.4 million contract is expected to be completed in early fiscal 1997. Flow's Rampart unit provides HydroCleaning services to commercial and military airfields. Ultrahigh-pressure waterjets are used for the removal of rubber, paint and grout from airport runways. In fiscal 1996, HydroMilling and HydroCleaning revenues were 9% of total revenues. MARKETING AND SALES The Company markets and sells its products worldwide through its headquarters in Kent, Washington (a suburb of Seattle) and through subsidiaries, divisions and joint ventures in Pittsburgh, Pennsylvania; Johnstown, Pennsylvania; Jeffersonville, Indiana; Burlington, Canada; Darmstadt, Germany; Antwerp, Belgium; Paris, France; Lyon, France; Marseilles, France; Tokyo, Japan; Nagoya, Japan; and Hsinchu, Taiwan; and through branch offices in sixteen North American cities. The Company sells directly to customers in the U.S., Canada, Europe, and Asia, and has distributors or agents in most other countries. In the U.S., the Company uses a select group of machine tool distributors for sales distribution and services of its Bengal product line. No customer accounted for 10% or more of the Company's revenues during any of the three years ended April 30, 1996. Marketing efforts are focused on various target industries, applications, and markets. To enhance the effectiveness of sales efforts, the marketing staff and sales force acquire detailed information on the manufacturing applications and construction processes in targeted markets. This information is used to develop standardized and customized solutions using both UHP waterjet and robotics technologies, and access systems. In selling both standard and custom- designed waterjet and access systems, the Company provides turnkey systems, including system design, specification, hardware and software integration, equipment testing and simulation, installation, start-up services, technical training and service. One of the Company's marketing techniques utilizes a telemarketing program to identify and qualify sales leads, thus increasing the efficiency of the direct sales staff. Market responses to these activities are carefully screened to identify new areas of interest and new potential applications. The Company also attends trade shows for targeted market segments and advertises in selected industry publications. The Company markets its proprietary HydroMilling and HydroCleaning services primarily in the United States. HydroMilling services are provided primarily in the Northeast and Midwest areas of the country where concrete deteriorates faster due to the freeze-thaw cycle and use of salt on roadways. HydroCleaning services are provided throughout the United States. Services are marketed directly to customers by the Company's sales force. Application of the Company's products and services in the construction industry vary with construction cycles. Sales in the March through October period tend to be higher than sales in the remaining months of the year. PATENTS AND LICENSES The Company holds a large number of patents relating to UHP waterjet technology and systems, and to access system products and applications. Some of these patents are subject to sub-licenses. In addition, the Company has been granted licenses with respect to other patents used in the business. While the Company believes the patents it uses are valid, it does not consider its business dependent on patent protection. In addition, the Company has over the years developed non-patented proprietary expertise and know-how in waterjet and access system applications, and in the manufacture of these systems, which sets it technologically ahead. The Company believes the patents it holds and has in process, along with the proprietary application and manufacturing know-how, act as a barrier of entry into the markets it serves. BACKLOG At April 30, 1996, the Company's backlog was $25.1 million, up 7% from $23.5 million at the prior year end. Based upon the terms of the customer contracts and the Company's manufacturing schedule, all of the revenue backlog as of April 30, 1996 is expected to be realized during fiscal 1997. Amounts expected to be billed after April 30, 1997 have been excluded from this backlog presentation. The unit sales price for most of the Company's products and services is relatively high (typically ranging from tens of thousands to millions of dollars) and individual orders can involve the delivery of several hundred thousand dollars of products or services at one time. Furthermore, some items in backlog can be shipped more quickly than others, and some have higher profit margins than others. Consequently, even sizable variations in the amount of the Company's backlog between particular dates are not necessarily indicative of comparable variations in sales or earnings. COMPETITION The major competitors for UHP waterjet systems are conventional cutting and cleaning methods. These methods are saws, knives, shears, torches, lasers, abrasive wheels, grinders, routers, drills, dies, and abrasive cleaning techniques. A UHP waterjet cutting system has many advantages over conventional cutting systems, including the generation of no heat and airborne dust, easy adaptability to complex cutting programs, and the ability to leave clean-cut edges. These factors in addition to elimination of secondary processing in most circumstances enhance manufacturing productivity. Waterjet cleaning offers many advantages over other cleaning methods, such as the ability to remove difficult coatings or deposits from a surface without damaging underlying material. A UHP waterjet system is an environmentally-friendly answer to many difficult cutting and cleaning applications and can often be justified solely on the basis of the removal of hazardous materials or reduction of secondary operations from the production process. The Company also competes with other waterjet cutting equipment manufacturers in the United States, Europe and Asia. Certain of these competitors have greater financial resources than the Company. The Company's robotics acquisitions give Flow a competitive advantage as the only total solution supplier of a complete waterjet cutting system. Although independent market information is not generally available, based upon data assembled from internal and external sources, Company management believes it is the largest manufacturer of UHP waterjet cutting systems in the world. With respect to access systems, the Company believes that service, price, product performance, and reliability are the key competitive factors. Management believes that its products are priced competitively and that the strength of its North American branch system and its product reliability are key to its results. In the permanently installed access system markets, the Company believes there are 15 to 20 firms with which it competes. None of these firms dominate the market. The primary competitors to HydroMilling services are traditional concrete removal operators. The advantages of the UHP approach of HydroMilling over other concrete removal systems, such as jackhammers, include increased speed, reduced cost, depth control, better concrete bonding; and the elimination of micro-cracks, rebar damage, vibration, and dust and reduced noise. HydroMilling also competes with other hydrodemolition contractors, most of which use waterjets at 10,000 to 25,000 psi with significantly higher volumes of water and lower productivity. The Company believes that its process, operating with pressures to 36,000 psi, produces a higher quality bonding surface and that the size of its fleet as compared to competitors enables it to complete larger projects more quickly. HydroCleaning competitors include companies using chemical processes and other mechanical means. The Company believes that the speed and environmentally-friendly aspects of its process are key advantages. Overall, the Company believes that its competitive position is enhanced by (1) technically advanced, proprietary products that provide excellent reliability, low operating costs, and user-friendly features, (2) a strong application-oriented, problem-solving marketing and sales approach, (3) an active research and development program that allows it to maintain technical leadership, (4) the ability to provide complete turnkey systems, (5) a strong position in key markets, such as the U.S., Canada, Japan, southeast Asia and Europe, (6) strong OEM customer ties, and (7) efficient production facilities. RESEARCH AND ENGINEERING The Company has allocated approximately 6% of revenues to research and engineering during each of the three years ended April 30, 1996. Research and engineering expenses were approximately $8,110,000, $6,784,000, and $5,361,000 in fiscal years 1996, 1995, and 1994, respectively. EMPLOYEES As of April 30, 1996, the Company employed 805 full time and 9 part time personnel. There are no material collective bargaining agreements to which the Company is a party. FOREIGN AND DOMESTIC OPERATIONS See Note 13 of Notes to Consolidated Financial Statements for information regarding foreign and domestic operations. SAFE HARBOR STATEMENT Statements in this report that are not strictly historical are "forward looking" statements which should be considered as subject to the many uncertainties that exist in the Company's operations and business environment. Significant factors which may affect future Company performance include the following: The Company's financial goals assume that it completes one or more acquisitions, and the Company's ability to achieve these goals may be adversely affected if it is unable to either locate suitable acquisition candidates, complete these acquisitions, or successfully integrate acquired companies into its existing businesses. The Company's growth depends, in part, on the successful development of improvements to its equipment and on the introduction of new products and technologies. Improvements in competing technologies could affect the Company's ability to market its products. The Company's financial performance could fall short of its goals if a change in overall economic conditions results in a decrease in the purchase of capital goods by its customers. Changes in the mix of products sold by the Company can also affect the gross margin achieved. Also, unfavorable or inclement weather could affect the results of the Company's Access and Flow Services divisions, which are somewhat seasonal in nature. ITEM 2. PROPERTIES - -------------------------------------------------------------------------------- The Company's headquarters and primary manufacturing facilities are located in one leased facility in Kent, Washington. In addition, the Company maintains HydroMilling office and shop facilities in Pittsburgh, Pennsylvania; manufacturing facilities in Jeffersonville, Indiana; sales facilities in sixteen North American cities; Tokyo and Nagoya, Japan and three facilities in France; and sales, manufacturing and warehouse facilities in Johnstown, Pennsylvania; Burlington, Canada; Hsinchu, Taiwan; Antwerp, Belgium; and Darmstadt, Germany. All facilities of the Company are leased with the exception of a warehouse and sales facility in Chicago, Illinois and a manufacturing facility in Jeffersonville, Indiana. The Company believes that its facilities are suitable for its current operations and that expansion in the near term will not require additional space. The Company further considers that its primary manufacturing facility will be adequate to meet production requirements for the next three to five years. ITEM 3. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- The Company is party to various legal actions incident to the normal operation of its business, none of which is believed to be material to the financial condition of the Company. See Notes 1 and 12 of Notes to Consolidated Financial Statements for a description of the Company's product liability insurance coverage and estimated exposure. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - -------------------------------------------------------------------------------- None PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. - -------------------------------------------------------------------------------- See page 13 ITEM 6. SELECTED FINANCIAL DATA. - -------------------------------------------------------------------------------- See page 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - -------------------------------------------------------------------------------- See pages 14 through 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. - -------------------------------------------------------------------------------- See pages 20 through 42 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. - -------------------------------------------------------------------------------- None. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS - -------------------------------------------------------------------------------- The principal market for the Company's common stock is the over-the-counter market. The Company's stock is traded on the NASDAQ National Market under the symbol "FLOW." The range of high and low sales prices for the Company's common stock for the last two fiscal years is set forth in the table below. Fiscal Year 1996 Fiscal Year 1995 High Low High Low -------------------------------------------------- First Quarter $10.50 $8.13 $6.88 $4.63 Second Quarter 13.25 9.38 7.25 5.63 Third Quarter 12.13 7.88 7.88 6.13 Fourth Quarter 10.88 7.88 8.50 6.50 There were 1,604 stockholders of record as of May 31, 1996. The Company has not paid dividends to common stockholders in the past. The Board of Directors intends to retain future earnings to finance development and expansion of the Company's business and does not expect to declare dividends to common stockholders in the near future. ITEM 6. SELECTED FINANCIAL DATA - -------------------------------------------------------------------------------- (In thousands, except per share data) Year Ended April 30 - ------------------------------------------------------------------------------- 1996 1995 1994 1993 1992(1) ---------------------------------------------------- Income Statement Data: Revenue $144,905 $110,010 $88,632 $79,079 $69,071 Pretax Income 8,902 9,259 3,112 5,791 4,272 Net Income 7,085 7,728 2,953 4,641 3,511 Earnings Per Share 0.47 0.53 0.21 0.33 0.25 Balance Sheet Data: Working Capital 57,866 44,592 25,415 25,060 16,399 Total Assets 126,493 105,484 78,228 69,276 57,448 Short-Term Debt 3,339 2,412 16,504 10,403 8,477 Long-Term Obligations 45,590 33,359 10,559 12,549 7,899 Stockholders' Equity 57,060 49,803 37,948 34,225 28,873 __________ (1) Results for the fiscal year have been restated to include the results of Spider Staging Corporation, which was acquired in a pooling-of-interests transaction on September 30, 1992. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS The Company provides ultrahigh-pressure ("UHP") waterjet, factory automation and access systems, and related products and services to a wide variety of industries. The following table sets forth the Company's consolidated revenues by major product categories. CONSOLIDATED REVENUES BY MAJOR PRODUCT CATEGORIES
(In thousands) 1996 1995 1994 Revenue % Revenue % Revenue % ------------------------------------------------------ UHP Waterjet and Factory Automation Systems $56,495 39 $36,600 33 $20,645 23 UHP Spare Parts and Services 36,076 25 28,529 26 26,319 30 Access Systems and Services 38,857 27 33,566 31 28,888 33 HydroMilling-Registered Trademark- and HydroCleaning-TM- Services 13,477 9 11,315 10 12,780 14 ------------------------------------------------------ Total Revenues $144,905 100 $110,010 100 $88,632 100 ------------------------------------------------------ ------------------------------------------------------
FISCAL 1996 COMPARED TO FISCAL 1995 Revenues for the year ended April 30, 1996 increased $34.9 million (32%) from the prior year period. UHP revenues, including HydroMilling and HydroCleaning services, increased $29.6 million (39%), while access systems revenues increased $5.3 million (16%) over the prior year period. The European and domestic UHP markets continued their strong growth with revenue increases of 57% and 13%, respectively over the prior year. Also contributing to overall growth was the effect of the businesses acquired and partnerships entered into during the third and fourth quarters of fiscal 1995 and the first quarter of fiscal 1996. In May 1995, the Company invested in a majority interest in a joint venture with Okura & Co., Ltd., its exclusive Japanese distributor. This joint venture supplies UHP products in Japan and to Japanese companies in Asia. Sales into Asia increased 140% over the prior year, however, most of this represented sales by the recent Japanese joint venture. The Company typically sells its products at higher prices outside the United States due to the costs of servicing these markets. UHP spare parts and services revenues increased by $7.5 million (26%), reflecting an increased base of UHP waterjet systems installed throughout the world, as well as inclusion of the Japanese joint venture. Exclusive of this joint venture, spare parts sales were up 11% over the prior year. Spare parts and services are a continuing and significant part of the Company's business, and generally have a higher profit margin than new systems. Spare parts are composed primarily of consumables used in the cutting or cleaning process. The increase in access systems revenues came principally from international markets as domestic revenues increased less than 3% over the prior year. HydroMilling and HydroCleaning services revenues increased $2.2 million (19%) reflecting several large contracts received during the year. The $14.4 million contract for parking garage rehabilitation services at the John F. Kennedy Center for the Performing Arts in Washington, D.C. is expected to be completed during fiscal 1997. Gross profit expressed as a percent of revenue was 40% in fiscal 1996 compared with 42% in fiscal 1995. Comparison of gross profit percent is dependent on the mix of revenue types, which includes sales, services, and rentals; and the mix of spare parts and systems in sales revenues. The decrease in the gross profit percent for the year was primarily due to a shift in revenue mix towards complex systems involving the robotics and factory automation technology acquired in the third quarter of fiscal 1995. These types of systems generally carry lower gross profit percents than other UHP products. Additionally, the gross margin percent was negatively impacted from the under- capacity utilization of the robotics unit. Rental gross profit percent decreased to 53% from 56% in the prior year. This was primarily a result of increased depreciation expense associated with additions to the Company's rental assets. In general, UHP systems sales have gross margins less than 40% and spare parts sales have margins in excess of 50%. The margin on HydroMilling and HydroCleaning revenue is dependent on the mix of services provided and the utilization of the equipment. Services margins approximate 30% of sales, while rental margins typically exceed 50% of sales. Slow moving and obsolete inventory provisions increased by $147,000, net of disposals. Expenses increased by $11 million (32%), primarily as a result of the inclusion of acquisitions completed during late fiscal 1995 and early fiscal 1996. Exclusive of the acquisitions, operating expenses increased $3.5 million (11%) over the prior year. However, expressed as a percentage of revenues, total expenses remain comparable to the prior year at 31.5%. The resolution of a pre-acquisition contingency related to the valuation of work in process inventory of a fiscal 1995 acquisition resulted in an additional $600,000 of goodwill being recorded during fiscal 1996. Goodwill amortization increased approximately $480,000 over the prior year. Operating income can vary significantly for domestic and foreign operations (see Note 13 of Notes to Consolidated Financial Statements), but is primarily the result of product mix variations and volume from year to year. There are no known trends that management expects to result in a materially unfavorable impact on revenues or income from operations. Net interest expense increased by $1.1 million (48%) in fiscal 1996 compared to 1995. Approximately $650,000 of the increase relates to borrowings to finance fiscal 1995 acquisitions and a joint venture during the first quarter of fiscal 1996. During fiscal 1996, other income, net, totaled $648,000, compared to other expense, net, of $30,000 in 1995. The 1996 results include $493,000 of income associated with minority interest in net losses of the joint ventures and a $175,000 gain on the sale of stock held by the Company. Income tax expense for fiscal 1996 was 20% of income before tax as compared to 17% in the previous year. Income tax expense was lower than the statutory rate in both fiscal 1996 and 1995 primarily due to lower tax rates in certain foreign jurisdictions, the benefit of the Company's foreign sales corporation and changes in the Company's valuation allowance. FISCAL 1995 COMPARED TO FISCAL 1994 During the year ended April 30, 1995, the Company purchased certain net assets of two robotics systems manufacturers, Dynovation Machine Systems, Inc. ("Dynovation") and ASI Robotics, Inc. ("ASI"). These acquisitions are part of the Company's long-term strategic growth plan. Both companies are, and had previously been, integrators of the Company's products. During the year the Company also entered into a licensing agreement with Ark Systems, Inc. ("Ark"), for the exclusive worldwide marketing and manufacturing rights for the Ark product line. Ark produces access system equipment used in the cleaning and maintenance of the under-structure of bridges. The Company also entered into a joint venture with Consortium Europeen du Materiel ("CEM"), for the distribution of access system equipment in France. The Company's consolidated statements of income include the results of Dynovation, ASI, Ark and CEM from the dates of acquisition or agreement. The Company paid total cash of $11.5 million and issued 445,000 shares of common stock to acquire the assets of Dynovation and ASI. The investments in Ark and CEM have not been material to date. Revenues for the year ended April 30, 1995 increased $21.4 million (24%) from the prior year period. This increase arose primarily from the strong advances in the European and domestic UHP markets, where revenues increased 46% and 18%, respectively and from businesses acquired and partnerships entered into during fiscal 1995. Sales into Asia were similar to those of the prior year. UHP spare parts and services revenues increased by $2.2 million (8%). As a percentage of total revenues, spare parts and services decreased as compared to the prior year because the acquired systems manufacturers carry a lower relative percentage of such revenues. Access system revenues increased $4.7 million (16%), reflecting continued domestic strength of the sales and rental of temporary access equipment as well as the recent licensing agreement with Ark. HydroMilling and HydroCleaning services revenues decreased by $1.5 million (11%). Management of this division has focused on contracts which maintain its target margins, in a market which softened slightly during the year. Gross profit expressed as a percent of sales was 42% in fiscal 1995 compared with 40% in fiscal 1994. Excluding the effect of certain non-recurring charges related to a terminated construction services contract, the fiscal 1994 gross margin percentage would have also been 42%. Slow moving and obsolete inventory provisions increased by $112,000, net of disposals. Expenses increased $3.6 million (12%), in part as a result of the acquisitions completed during 1995. However, expressed as a percentage of revenues, expenses decreased from 35% in 1994 to 31% in 1995. Excluding the effect of certain non-recurring charges in fiscal 1994, the expense percentage would have been 34%. Marketing, and general and administrative expenses both declined by two percentage points. This was achieved by a continued focus on cost control by Company management during fiscal 1995. Operating income can vary significantly for domestic and foreign operations (see Note 13 of Notes to Consolidated Financial Statements), but is primarily the result of product mix variations and volume from year to year. Net interest expense increased by $825,000 in fiscal 1995 compared to 1994. This was as a result of the higher borrowings related to the acquisitions, and to the increased interest rates during fiscal 1995. Cash flow from operations enabled the Company to decrease debt $4.3 million during fiscal 1995. During fiscal 1995, other expense, net, totaled $30,000, compared to other income, net, of $652,000 in 1994. The 1994 results included a $445,000 gain on the sale of a vacated manufacturing facility. Income tax expense for fiscal 1995 was 17% of income before tax as compared to 18% in the previous year. Income tax expense was lower than the statutory rate in both fiscal 1995 and 1994 primarily due to lower tax rates in certain foreign jurisdictions, the benefit of the Company's foreign sales corporation and changes in the Company's valuation allowance. In the first quarter of fiscal 1994, the Company recorded income of $401,000, related to the mandatory adoption of Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes." This is reflected as a change in accounting principle. LIQUIDITY AND CAPITAL RESOURCES In September 1995, the Company signed a five-year secured credit agreement (the "Credit Agreement") to refinance its domestic borrowings and to provide a source of available cash. The Credit Agreement comprises a $60 million reducing line of credit split equally between two financial institutions. In September 1995, the Company also completed a ten-year $15 million private placement of debt financing (the "Private Placement"). The Company believes that the new financings, together with other available credit facilities, will provide sufficient resources to meet its operating and capital requirements in the foreseeable future. The Credit Agreement and Private Placement require the Company to comply with certain financial covenants. As of April 30, 1996, the Company was in compliance with all such covenants. See Note 7 of Notes to Consolidated Financial Statements for a schedule of long-term debt maturities. Long-term debt obligations are expected to be met from working capital provided by operations and, as necessary, by other indebtedness. Capital spending plans currently provide for outlays of approximately $8 to $10 million in fiscal 1997. It is expected that funds necessary for these expenditures will be generated internally, and through available credit facilities. The $3.9 million (12%) increase in gross trade accounts receivable at April 30, 1996 from April 30, 1995 was principally due to higher fourth quarter revenues. Days' sales outstanding in gross accounts receivable has improved over the prior year but continues to be negatively impacted by the traditionally longer payment cycle outside the United States. Additionally, longer payment terms are sometimes negotiated on large system orders. The Company's management does not believe these timing issues will present a material adverse impact on the Company's short-term liquidity requirements. The inventory increase of $7.4 million (27%) is related primarily to higher levels of business and inclusion of the newly formed Japanese joint venture. Certain products manufactured by the Company's robotic and automation divisions require an extended manufacturing period, and therefore involve higher levels of work in process. The amount provided for obsolete and slow-moving goods at April 30, 1996, increased $147,000, net of disposals, from April 30, 1995. It is the Company's policy to hedge net assets denominated in foreign currencies (primarily the German Mark) where significant currency rate fluctuations may impact profitability. MANAGEMENT'S STATEMENT OF RESPONSIBILITY Management is responsible for the fair and accurate presentation of information in this annual report. The financial statements and related notes have been prepared in accordance with generally accepted accounting principles. Financial and operating information comes from Company records and other sources. Certain amounts are, of necessity, based on judgment and estimation. We believe that adequate accounting systems and financial controls are maintained to ensure that the Company's records are free from material misstatement and to protect the Company's assets from loss or unauthorized use. In addition, the Audit Committee of the Board of Directors periodically meets with Price Waterhouse LLP and management to review the work of each, to discuss financial reporting matters, and to review auditing and internal control procedures. /s/ Stephen D. Reichenbach -------------------------- Stephen D. Reichenbach Vice President Finance, Treasurer and Interim Chief Financial Officer ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - -------------------------------------------------------------------------------- The following consolidated financial statements are filed as a part of this report: INDEX TO FINANCIAL STATEMENTS PAGE IN THIS REPORT - -------------------------------------------------------------------------------- Report of Independent Accountants 20 Consolidated Balance Sheets at April 30, 1996 and 1995 21 Consolidated Statements of Income for each of the three years in the period ended April 30, 1996 22 Consolidated Statements of Cash Flows for each of the three years in the period ended April 30, 1996 23 Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended April 30, 1996 25 Notes to Consolidated Financial Statements 26 FINANCIAL STATEMENT SCHEDULES VIII -- Valuation and Qualifying Accounts 42 All other schedules are omitted because they are not applicable. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Flow International Corporation In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Flow International Corporation and its subsidiaries at April 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 8 to the consolidated financial statements, the Company changed its method of accounting for income taxes in fiscal 1994. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Seattle, Washington July 3, 1996 FLOW INTERNATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
April 30, ----------------------- 1996 1995 ---- ---- ASSETS: Current Assets: Cash $3,845 $1,074 Trade Accounts Receivable, less allowances for doubtful accounts of $1,186 and $1,150, respectively 35,467 31,638 Inventories 34,589 27,219 Deferred Income Taxes 1,965 1,335 Other Current Assets 4,978 4,719 ----------------------- Total Current Assets 80,844 65,985 Property and Equipment, net 27,083 24,533 Intangible Assets, net of accumulated amortization of $3,294 and $2,275, respectively 13,901 13,361 Deferred Income Taxes 699 - Other Assets 3,966 1,605 ----------------------- $126,493 $105,484 ----------------------- ----------------------- LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: Notes Payable $2,304 $1,614 Current Portion of Long-Term Obligations 1,035 798 Accounts Payable 12,088 12,221 Accrued Payroll and Related Liabilities 3,942 3,542 Other Accrued Taxes 590 638 Other Accrued Liabilities 3,019 2,580 ----------------------- Total Current Liabilities 22,978 21,393 Long-Term Obligations 45,590 33,359 Deferred Income Taxes 248 Minority Interest 865 681 Stockholders' Equity: Series A 8% Convertible Preferred Stock - $.01 par value, $500 liquidation preference, 1,000,000 shares authorized, 0 issued Common Stock - $.01 par value, 20,000,000 shares authorized, 14,784,647 and 14,508,244 shares issued and outstanding, respectively, in 1996 14,603,233 and 14,326,830 shares issued and outstanding, respectively, in 1995 148 146 Capital in Excess of Par 38,038 37,602 Retained Earnings 18,541 11,456 Treasury Common Stock of 276,403 shares at cost (556) (556) Cumulative Translation Adjustment 981 1,339 Loan to Employee Stock Ownership Plan & Trust (92) (184) ----------------------- Total Stockholders' Equity 57,060 49,803 ----------------------- Commitments and Contingencies (Note 12) ----------------------- $126,493 $105,484 ----------------------- -----------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. FLOW INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
Year Ended April 30, -------------------------------------- 1996 1995 1994 ---- ---- ---- Revenue: Sales $117,090 $84,800 $63,808 Services 17,355 15,256 16,110 Rentals 10,460 9,954 8,714 -------------------------------------- Total Revenues 144,905 110,010 88,632 Cost of Sales: Sales 69,889 48,454 36,223 Services 12,653 10,850 13,351 Rentals 4,933 4,395 3,980 -------------------------------------- Total Cost of Sales 87,475 63,699 53,554 -------------------------------------- Gross Profit 57,430 46,311 35,078 Expenses: Marketing 22,281 16,582 15,106 Research and Engineering 8,110 6,784 5,361 General and Administrative 15,282 11,282 10,602 -------------------------------------- 45,673 34,648 31,069 -------------------------------------- Operating Income 11,757 11,663 4,009 Interest Expense, net (3,503) (2,374) (1,549) Other Income (Expense), net 648 (30) 652 -------------------------------------- Income Before Provision for Income Taxes and Change in Accounting Principle 8,902 9,259 3,112 Provision for Income Taxes 1,817 1,531 560 -------------------------------------- Income Before Change in Accounting Principle 7,085 7,728 2,552 Change in Accounting Principle - 401 -------------------------------------- Net Income $7,085 $7,728 $2,953 -------------------------------------- -------------------------------------- Earnings per Common and Equivalent Shares: Income before Change in Accounting Principle $ .47 $ .53 $ .18 Change in Accounting Principle .03 -------------------------------------- Net Income $ .47 $ .53 $ .21 -------------------------------------- --------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. FLOW INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended April 30, ------------------------------------- 1996 1995 1994 ---- ---- ---- Cash Flows from Operating Activities: Net Income $ 7,085 $ 7,728 $ 2,953 Adjustments to Reconcile Net Income to Cash Provided (Used) by Operating Activities: Depreciation and amortization 6,856 5,199 4,236 Gain on sale of Spider facility (445) Change in accounting principle (401) Provision for losses on trade accounts receivable 576 480 324 Provision for slow moving and obsolete inventory 207 324 269 Tax effect of exercised stock options 170 164 554 Other 92 92 92 (Increase) Decrease in Current Assets, net of effects of business combinations: Trade Accounts Receivable (4,032) (2,651) (4,325) Inventories (6,482) (1,516) (2,552) Other Current Assets (248) (29) (1,878) Deferred Income Taxes (630) 87 (686) Increase (Decrease) in Current Liabilities, net of effects of business combinations: Accounts Payable (1,135) (1,378) 513 Accrued Payroll and Related Liabilities 383 796 (87) Other Accrued Taxes (48) 372 (257) Other Accrued Liabilities 229 (813) 1,119 (Increase) in Intangible Assets (601) (400) (Increase) Decrease in Other Long-Term Assets (2,361) (39) 195 (Decrease) Increase in Other Long-Term Liabilities (1,336) 192 - ------- ------- ------- Cash (used) provided by operating activities (1,275) 8,608 (376) ------- ------- ------- Cash Flows from Investing Activities: Expenditures for property and equipment (8,820) (5,584) (6,228) Payment for business combinations (186) (11,850) Payment received on Flow Industries note 2,744 Proceeds from sale of property and equipment 156 Other 445 17 702 ------- ------- ------- Cash used by investing activities (8,561) (17,417) (2,626) ------- ------- ------- Cash Flows from Financing Activities: Borrowings (repayments) under line of credit agreements, net 16,771 (232) 5,445 Proceeds from bridge loan 1,636 12,364 Repayment of bridge loan (14,000) Proceeds from long-term obligations 17,366 287 2,340 Payments of long-term obligations (9,076) (4,397) (3,674) Proceeds from issuance of common stock 268 194 315 Payment of Preferred Stock Dividends - - (50) ------- ------- ------- Cash provided by financing activities 12,965 8,216 4,376 ------- ------- ------- Effect of exchange rate changes on cash (358) 316 (141) ------- ------- ------- Increase (decrease) in cash and cash equivalents 2,771 (277) 1,233 Cash and cash equivalents at beginning of period 1,074 1,351 118 ------- ------- ------- Cash and cash equivalents at end of period $ 3,845 $ 1,074 $ 1,351 ------- ------- ------- ------- ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. FLOW INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands)
Year Ended April 30, ------------------------------------- 1996 1995 1994 ---- ---- ---- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for Interest $3,572 $2,273 $1,756 Income Taxes 3,024 740 531 SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Fair value of assets acquired (Note 2) $2,860 $23,175 Cash paid, stock issued and notes assumed for assets acquired (597) (14,965) ------ ------- Liabilities assumed $2,263 $ 8,210 ------ ------- ------ ------- Net proceeds from sale of the Spider manufacturing facility $ 1,031 Less one year note receivable (875) ------- Cash proceeds $ 156 ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. FLOW INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands)
Series A Convertible Preferred Stock Common Stock --------------- --------------------- Capital Cumulative Par Par In Excess Retained Translation Treasury Shares Value Shares Value of Par Earnings Adjustment Stock ------------------------------------------------------------------------------------------------ Balances, April 30, 1993 5 $ 13,307 $ 133 $33,005 $825 $1,164 $(534) Exercise of Stock Options 205 2 748 (22) Conversion of Convertible Preferred Stock (5) 519 5 Dividends on Preferred Stock (50) Cumulative Translation Adjustment (141) Other 136 Net Income 2,953 ---------------------------------------------------------------------------------------- Balances, April 30, 1994 $ 14,031 $ 140 $33,889 $ 3,728 $ 1,023 $(556) ---------------------------------------------------------------------------------------- Issuance of Stock 445 5 3,111 Exercise of Stock Options 127 1 356 Cumulative Translation Adjustment 316 Other 246 Net Income 7,728 ---------------------------------------------------------------------------------------- Balances, April 30, 1995 $ 14,603 $ 146 $37,602 $11,456 $1,339 $(556) ---------------------------------------------------------------------------------------- Issuance of Stock Exercise of Stock Options 182 2 436 Cumulative Translation Adjustment (358) Net Income 7,085 ---------------------------------------------------------------------------------------- Balances, April 30, 1996 $ 14,785 $ 148 $38,038 $18,541 $981 $(556) ---------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the three years ended April 30, 1996 (All tabular dollar amounts in thousands, except per share amounts) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - ------------------------------------------------------------------------------ PRINCIPLES OF CONSOLIDATION The consolidated financial statements include Flow International Corporation, ("Flow" or the "Company"), and its wholly-owned subsidiaries, Flow Europe GmbH ("Flow Europe"), Flow Asia Corporation ("Flow Asia"), Rampart Waterblast, Inc., Spider Staging Corporation, Power Climber and affiliated companies ("Power Climber"), Dynovation Inc. ("Dynovation") and three majority owned joint ventures including Flow Japan Corporation ("Flow Japan"). All significant intercompany transactions have been eliminated. OPERATIONS The Company develops and manufactures ultrahigh-pressure ("UHP") waterjet cutting, cleaning and factory automation systems, and powered access equipment for the manufacturing, industrial cleaning and construction services markets. The Company provides products to a wide variety of industries, including the automotive, aerospace, disposable products, food processing, and construction industries. Equipment is designed, developed, and manufactured at the Company's principal facilities in Kent, Washington, and at manufacturing facilities in Johnstown, Pennsylvania; Jeffersonville, Indiana; and in Burlington, Canada. The Company markets its products to customers worldwide through its principal offices in Kent, its subsidiaries in Belgium, Canada, Germany, Japan, and Taiwan, and through regional offices in major U.S. cities. REVENUE RECOGNITION Revenues are recognized at the time of shipment for products and certain types of systems, and under percentage of completion, measured by the cost to cost method, for other types of systems, and at the time of service or rental with respect to service and rental revenues. Products are warranted to be free from material defects for a period of one year from the date of shipment. Warranty obligations are limited to the repair or replacement of products. The Company's warranty accrual is reviewed quarterly by management for adequacy based upon recent shipments and historical warranty expense. Credit is issued for product returns upon receipt of the returned goods, or, if material, at the time of notification and approval. Services revenues primarily consist of revenues related to hydrodemolition services. Rental revenues consist of charges to customers for the temporary use of access system equipment. PRODUCT LIABILITY The Company is obligated under terms of its product liability insurance contracts to pay all costs up to deductible amounts. Included in general and administrative expense are insurance, investigation and legal defense costs. Legal settlements, if any, are included in other expense. INVENTORIES Inventories are stated at the lower of cost, determined by using the first- in, first-out method, or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets which range from three to eleven years. Leasehold improvements are amortized over the related lease term. INTANGIBLE ASSETS Intangible assets represent goodwill which is amortized on a straight-line basis over fifteen years. In March 1995, the Financial Accounting Standards Board issued FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," ("FAS 121"). The Company plans to adopt FAS 121 in fiscal 1997, however the Company does not expect the adoption to result in a material impact on the financial position, results of operations or cash flows of the Company. INCOME TAXES The Company accounts for income taxes under the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. If it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recorded. EARNINGS PER SHARE Primary earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding plus the common stock equivalents attributable to dilutive stock options during each period. Net income available to common stockholders is computed by subtracting preferred stock dividends from net income. The weighted average number of shares outstanding, including equivalent shares where required, for the years ended April 30, 1996, 1995, and 1994 were 15,071,000, 14,460,000, and 14,091,000, respectively. Fully diluted earnings per share do not differ materially from primary earnings per share. Equivalent shares are not included as part of the shares outstanding in loss per share calculations. FOREIGN CURRENCY TRANSLATION The functional currency of Flow Asia is the New Taiwan dollar; of Flow Europe, the U.S. dollar; of Dynovation, the Canadian dollar; of Power Climber N.V. (part of Power Climber), the Belgian franc; and of Flow Japan, the Japanese yen. All assets and liabilities of these foreign subsidiaries are translated at year-end or historical exchange rates, as appropriate. Income and expense accounts of the foreign subsidiaries are translated at the average rates in effect during the year, except that Flow Europe depreciation and cost of sales are translated at historical rates. Adjustments resulting from the translation of Flow Asia, Dynovation, Power Climber N.V., and Flow Japan's financial statements are recorded in the cumulative translation adjustment account in the stockholders' equity section of the Consolidated Balance Sheets. Adjustments resulting from the remeasurement of Flow Europe's accounts are included in the Consolidated Statements of Income. STATEMENTS OF CASH FLOWS For the purposes of the Consolidated Statements of Cash Flows, the Company considers short-term investments with maturities from the date of purchase of three months or less, if any, to be cash equivalents. CONCENTRATION OF CREDIT RISK In countries or industries where the Company is exposed to material credit risk, sufficient collateral, including cash deposits and/or letters of credit, is required prior to the completion of a transaction. The Company does not believe there is a material credit risk beyond that provided for in the financial statements in the ordinary course of business. The Company makes use of foreign exchange contracts to cover some transactions denominated in foreign currencies, and does not believe there is an associated material credit or financial statement risk. As of April 30, 1996 the Company had option dated forward contracts totaling $1.1 million to sell German marks at an average price of 1.49 German marks to the US dollar. These contracts will be settled during fiscal 1997. The current year gains and losses were not significant. FAIR VALUE OF FINANCIAL INSTRUMENTS All financial instruments on the balance sheet as of April 30, 1996 and 1995 are valued at cost which approximates fair value with the exception of the Company's investment in Phenix Biocomposites, Incorporated, ("Phenix") (see Note 4). USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates that are particularly susceptible to significant change in the near term are percentage of completion estimates and the adequacy of the allowance for obsolete inventory, warranty obligations and doubtful accounts receivable. RECLASSIFICATIONS Certain 1995 and 1994 amounts have been reclassified to conform with the 1996 presentation. NOTE 2 - BUSINESS COMBINATIONS: - ------------------------------------------------------------------------------- On November 11, 1994, Spider entered into a licensing agreement with Ark Systems, Inc. at a cost of $400,000. This division of the Company, designs and manufactures a range of access containment systems which are used in under- bridge applications for surface preparation, lead-paint abatement, cleaning and maintenance. The agreement gives Spider the exclusive worldwide marketing and manufacturing rights to the Ark product line for five years. On December 15, 1994, the Company purchased substantially all of the assets and assumed substantially all of the liabilities of Dynovation Machine Systems, Inc. for consideration of $7,970,000. The difference between the net fair market value of assets acquired and consideration given has been recorded as goodwill. Dynovation designs and manufactures robotic waterjet cutting cells and automated assembly systems. Results have been included in the consolidated financial statements from the date of acquisition based upon the purchase method of accounting. On January 3, 1995, the Company purchased certain net assets of ASI Robotics Systems ("ASI") for consideration of $3,500,000 and 445,000 shares of Company common stock. The difference between the net fair market value of assets acquired and consideration given has been recorded as goodwill. ASI designs and manufactures high accuracy gantry robots and related systems used in waterjet and other applications. Results of this division have been included in the consolidated financial statements from the date of acquisition based upon the purchase method of accounting. In April 1995, Power Climber N.V. invested approximately $380,000 to become a majority partner in a joint venture with Consortium Europeen du Materiel ("CEM"). CEM operates three access systems sales, service and rental operations in France. In May 1995, the Company invested approximately $600,000 in a majority interest in a joint venture with Okura & Co., Ltd. ("Okura"), its exclusive Japanese distributor, to form Flow Japan. The joint venture supplies the Japanese market with UHP equipment. During fiscal 1996, a pre-acquisition contingency related to the valuation of work in process inventory of a fiscal 1995 acquisition was resolved. This resulted in an additional $600,000 of goodwill being recorded. NOTE 3 - PRO FORMA FINANCIAL INFORMATION (UNAUDITED): - ------------------------------------------------------------------------------- If Dynovation Machine Systems, Inc.'s net assets had been acquired at the beginning of each of the years ended April 30, 1995 and 1994, the results of the operations of Flow would be adjusted as follows on a pro forma basis. For the year ended April 30, 1995, total revenues would have been $117,190,000, and net income would have been $7,178,000, or 50 cents per share. The adjustments to net income include additional interest expense of $369,000, and additional goodwill amortization of $317,000. For the comparative period in 1994, total revenues would have been $96,453,000, and net income would have been $2,067,000, or 15 cents per share. The adjustments to net income include additional interest expense of $565,000, and additional goodwill amortization of $472,000. The pro forma consolidated financial information is presented for information purposes only, does not take into account savings which may have been realized from the combination of the Company and Dynovation Machine Systems, Inc., and is not indicative of the actual consolidated financial position or results of operations in the future. NOTE 4 - RELATED PARTY TRANSACTIONS: - ------------------------------------------------------------------------------- On July 31, 1993, Okura America, a subsidiary of Okura, exercised its option to convert its Series A Convertible Preferred Stock into 518,995 shares of common stock at $4.817 per common share. In August 1992, the Company entered into a stock purchase agreement with Phenix. The Company contributed cash and certain equipment valued at cost. The book value of the investment is $484,000 and $609,000 at April 30, 1996 and 1995, respectively and is being accounted for under the cost method. During fiscal 1996 the Company sold 46,153 shares representing 20.6% of its holdings of Phenix and recorded a gain of $175,000 which is included in other income. Currently, the Company's CEO and president is a member of the board of directors of Phenix. NOTE 5 - INVENTORIES: - ------------------------------------------------------------------------------ Inventories consist of the following: April 30, 1996 1995 ------- ------- Raw Materials and Parts $23,334 $17,999 Work in Process 6,339 4,432 Finished Goods 7,268 6,993 ------- ------- 36,941 29,424 Less: Provision for Slow-Moving and Obsolete Inventory 2,352 2,205 ------- ------- $34,589 $27,219 ------- ------- ------- ------- NOTE 6 - PROPERTY AND EQUIPMENT: - ------------------------------------------------------------------------------ Property and equipment are as follows: April 30, 1996 1995 ------ ----- Land and Buildings $592 $592 Machinery and Equipment 47,132 43,426 Furniture and Fixtures 2,730 2,097 Leasehold Improvements 5,864 4,560 Construction in Progress 2,132 507 ------ ------ 58,450 51,182 Less: Accumulated Depreciation and Amortization 31,367 26,649 ------ ------ $27,083 $24,533 ------ ------ ------ ------ NOTE 7 - NOTES PAYABLE AND LONG-TERM OBLIGATIONS: - ------------------------------------------------------------------------------ Current notes payable are as follows: April 30, 1996 1995 ------ ------- Flow Japan Notes Payable $1,523 $ - Power Climber N.V. Notes Payable 460 646 Dynovation Notes Payable 77 351 Other Notes Payable 244 617 ------ ------ $2,304 $1,614 ------ ------ ------ ------ Long-term obligations are as follows: April 30, 1996 1995 ------ ------ Flow Line of Credit and Term Loans Payable $31,239 $32,679 Private Debt Placement 15,000 - Guarantee of ESOP Loan 92 184 Power Climber Acquisition Note 294 1,294 ------- ------- 46,625 34,157 Less: Current Portion 1,035 798 ------- ------- $45,590 $33,359 ------- ------- ------- ------- In September 1995, the Company signed a five-year secured credit agreement (the "Credit Agreement") to refinance its domestic borrowings. In September 1995 the Company also completed a ten-year $15 million private placement of debt (the "Private Placement"). The Company's Credit Agreement provides for a revolving line of credit of up to $60 million, split equally between two financial institutions, which expires on November 30, 2000. The amount which can be borrowed is limited based upon certain debt covenant restrictions. Interest rates under the Credit Agreement are at the bank's prime rate or are linked to LIBOR, at the Company's option. The funded debt ratio determines the LIBOR based interest rate. Based on the Company's election, borrowings under the Credit Agreement are primarily at LIBOR plus 1.35%. The Company had borrowed $28.1 million under the Credit Agreement as of April 30, 1996. The Company pays 0.1% as an unused commitment fee. As of April 30, 1996, the Company had approximately $9.3 million of available domestic unused line of credit. The Company elected a 30-day LIBOR, which at April 30, 1996 was 5.4%. The Private Placement is a ten-year note with seven equal principal payments beginning in September 1999. The Company pays interest semi-annually at a fixed rate of 7.2%. The Credit Agreement and Private Placement are collateralized by a general lien on the Company's assets. The unsecured notes payable by Power Climber N.V. are denominated in Belgian francs, and provide for interest at 7.5% at April 30, 1996. Power Climber N.V. has approximately $90,000 in unused credit facilities at April 30, 1996. The notes payable by Dynovation are collateralized by trade accounts receivable and inventory, and are denominated in Canadian dollars at an interest rate of Canadian prime plus 0.5%. Dynovation has approximately $480,000 in unused credit facilities at April 30, 1996. A $1 million standby letter of credit has been issued by the Company's principal bank to the Company's Japanese bank, to secure a credit facility for use by Flow Japan. The notes payable by Flow Japan are denominated in Japanese yen at interest rates ranging from 1.7% to 1.9% at April 30, 1996. Flow Japan has approximately $285,000 in unused credit facilities at April 30, 1996. Line of credit and term loans payable at April 30, 1996 include the domestic borrowings of $28.1 million, and $3.1 million of foreign debt in Germany, Belgium and France as discussed below. A $2.5 million standby letter of credit has been issued by the Company's principal bank to the Company's German bank, to secure a credit facility for use by Flow Europe. As of April 30, 1996, Flow Europe had approximately $1.4 million in term loans outstanding. Interest is payable monthly at a rate of 4.75%, with principle due in fiscal 1998. At April 30, 1996, Flow Europe had an unused $1.1 million credit facility. The Company has approximately $1 million in term debt denominated in Belgian francs at interest rates ranging from 6.6% to 9.8% at April 30, 1996. Principal and interest is paid monthly through fiscal 1999. The Company has approximately $700,000 in term debt denominated in French francs at interest rates ranging from 7.6% to 8.3% at April 30, 1996. Principal and interest is paid monthly through fiscal 1999. In September 1989, the Company guaranteed a loan of $844,000 funding the purchase of 250,000 shares of the Company's common stock by the Flow International Corporation Employee Stock Ownership Plan and Trust (the "ESOP"). The loan bears interest, payable quarterly, at 93% of the bank's prime rate and is due in annual installments of $92,000 through fiscal 1997 (see Note 9). The loan is secured by the Company's common stock owned by the ESOP; security for the Company's guarantee is provided in conjunction with the Credit Agreement. In April 1993, the Company executed promissory notes totaling $2,262,000 to the previous owners of Power Climber in conjunction with the acquisition of assets. During fiscal 1996 the Company elected to payoff all but one of the promissory notes. The remaining note requires monthly payment of principal and interest, at 7.25%, through fiscal 2003. The Company is required to comply with certain covenants relating to the Credit Agreement and Private Placement including restrictions on dividends and transactions with affiliates, limitations on additional indebtedness, and maintenance of tangible net worth, working capital, fixed charge coverage, funded debt and debt service ratios. As of April 30, 1996, the Company was in compliance with all such covenants. Principal payments under long-term obligations for the next five years and thereafter are as follows: $1,035,000 in 1997, $2,091,000 in 1998, $270,000 in 1999, $48,000 in 2000, $28,127,000 in 2001, and $15,054,000 thereafter. NOTE 8 - INCOME TAXES: - ------------------------------------------------------------------------------ In May 1993, the Company prospectively adopted Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes". The adoption of FAS 109 resulted in income recognition of $401,000 which was reflected as a change in accounting principle in the year ended April 30, 1994. The components of consolidated income before income taxes and change in accounting principle, and the provision for income taxes are as follows: Year Ended April 30, ------------------------ 1996 1995 1994 ---- ---- ---- Income Before Income Taxes and Change in Accounting Principle: Domestic $8,038 $8,994 $3,319 Foreign 864 265 (207) ------ ------ ------ Total $8,902 $9,259 $3,112 ------ ------ ------ ------ ------ ------ The provision for income taxes comprises: Year Ended April 30, ------------------------------------ 1996 1995 1994 ------ ------ ------ Current Tax Expense: Domestic $2,309 $ 749 $ 652 State and Local 425 271 42 Foreign 630 63 552 ------ ----- ----- Total 3,364 1,083 1,246 Deferred Tax Liability (Benefit) (1,547) 448 (686) ------ ----- ----- Total Provision for Income Taxes $1,817 $1,531 $ 560 ------ ----- ----- ------ ----- ----- Net deferred tax assets (liabilities) comprise the following: April 30, 1996 April 30, 1995 -------------- -------------- Fixed assets ($ 525) ($ 435) Obsolete inventory provisions 543 491 Net operating loss carryover 3,420 3,603 Subpart F income 228 298 Foreign taxes (412) (190) Accounts receivable allowances 66 179 Inventory capitalization 134 187 AMT Credits 1,234 1,234 All other 383 412 ------ ----- Subtotal 5,071 5,779 Valuation allowance (2,407) (4,692) ------ ----- Total Net Deferred Taxes $2,664 $1,087 ------ ----- ------ ----- A reconciliation of income taxes at the federal statutory rate to the provision for income taxes is as follows: Year Ended April 30, ----------------------------------- 1996 1995 1994 ------ ------ ------ Income taxes at federal statutory rate $3,026 $3,148 $1,058 Foreign sales corporation benefit (196) (162) (143) Foreign operations expense 279 541 244 Change in valuation allowance (2,285) (2,504) (599) State and local taxes 281 179 28 Alternative minimum tax - domestic 822 200 - Other (110) 129 (28) ------ ------ ------ Income tax provision $1,817 $1,531 $ 560 ------ ------ ------ ------ ------ ------ As of May 1, 1996, the Company had approximately $6 million of net operating loss carryforwards to offset certain Flow earnings for federal income tax purposes. Of the $6 million carryforward, $943,000 was currently available An additional $943,000 becomes available each fiscal year. These net operating loss carryforwards expire in varying amounts through the year 2003. Because of current and expected future earnings, the Company expects increased utilization of its net operating loss carryforwards and tax credits. Therefore, the valuation allowance was reduced by a net tax effected amount of $2,285,000 in fiscal 1996. Provision has not been made for U.S. income taxes or foreign withholding taxes on $2,553,000 of undistributed earnings of foreign subsidiaries. Those earnings have been and will continue to be reinvested. These earnings could become subject to additional tax if they were remitted as dividends, if foreign earnings were lent to the Company or a U.S. affiliate, or if the Company should sell its stock in the subsidiaries. It is not practicable to estimate the amount of additional tax that might be payable on the foreign earnings; however, the Company believes that U.S. foreign tax credits would largely eliminate any U.S. tax and offset any foreign tax. NOTE 9 - VOLUNTARY PENSION AND SALARY DEFERRAL PLAN AND ESOP PLAN: - ------------------------------------------------------------------------------ The Company has a 401(k) savings plan in which employees may contribute a percentage of their compensation. The Company makes contributions based on emplyee contributions and length of employee service. Company contributions and expenses under the plan for the years ended April 30, 1996, 1995, and 1994 were $689,000, $531,000, and $520,000, respectively. In September 1989, the Company established an ESOP for all employees meeting certain service requirements. Company contributions to the ESOP are discretionary; however, the Company has agreed to make contributions as necessary to fund the repayment of the ESOP loan (see Note 7). During the years ended April 30, 1996, 1995 and 1994, the Company recorded compensation and interest expense related to the ESOP of $121,000, $109,000 and $110,000, respectively. NOTE 10 - STOCK OPTIONS: - ------------------------------------------------------------------------------ The Company has stock options outstanding under various option plans described below. 1984 RESTATED STOCK OPTION PLAN (THE "1984 RESTATED PLAN"). Approved by the Company's shareholders in September 1984 and subsequently amended and restated, the 1984 Restated Plan provides for grants to employees and contractors to purchase a maximum of 1,800,000 shares of the Company's common stock. The 1984 Restated Plan allows for the grant of either incentive or nonqualified stock options. ADMAC 1984 INCENTIVE STOCK OPTION PLAN (THE "ADMAC PLAN"). The ADMAC Plan was adopted in September 1983. Options vested under the plan were converted into Flow stock options when the Company acquired ADMAC, Inc. in February 1989. No further grants can be made under the ADMAC Plan. 1987 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS (THE "1987 NONEMPLOYEE DIRECTORS PLAN"). Approved by the Company's stockholders in September 1987, the 1987 Nonemployee Directors Plan, as subsequently amended, provides for the automatic grant of nonqualified options for 10,000 shares of Company common stock to a nonemployee director when initially elected or appointed, and currently, the issuance of 5,000 shares annually thereafter during the term of directorship. OTHER NONEMPLOYEE DIRECTOR OPTIONS. In fiscal 1988, two separate stock options were granted for 45,000 and 10,000 shares to two nonemployee directors. 1991 STOCK OPTION PLAN (THE "1991 SO PLAN"). The 1991 SO Plan was adopted in October 1991 and amended in August 1993. Incentive and nonqualified stock options up to 700,000 shares may be issued under this plan. 1995 LONG-TERM INCENTIVE PLAN (THE "1995 LTI PLAN"). The 1995 LTI Plan was adopted in August 1995. Incentive and nonqualified stock options up to 750,000 shares may be issued under this plan. During the years ended April 30, 1996, 1995 and 1994, a total of 182,000, 127,000 and 205,000 options, respectively, were exercised under all stock option plans of the Company at an average price of $3.04, $1.52 and $1.67 per share, respectively. All options become exercisable upon a change in control of the Company. Options have a two-year vesting schedule, and are granted at fair market value. The following chart summarizes the status of the options at April 30, 1996: 1987 and 1991 1984 Restated Other SO Plan and and Nonemployee 1995 ADMAC Plan Directors Plan LTI Plan Total ------------- -------------- ---------- ------- Number of options 310,250 241,000 947,575 1,498,825 outstanding Number of options 310,250 207,000 588,175 1,105,425 vested Average exercise $2.32 $6.46 $6.66 $5.73 price per share In October 1995 the Financial Accounting Standards Board issued FAS 123 "Accounting for Stock Based Compensation," ("FAS 123"), which establishes financial accounting and reporting standards for stock based employee compensation plans and for the issuance of equity instruments to acquire goods and services from non-employees. The Company plans to adopt FAS 123 in fiscal 1997 through disclosure only. NOTE 11 - PREFERRED SHARE RIGHTS PURCHASE PLAN: - ------------------------------------------------------------------------------ On June 7, 1990, the Board of Directors of the Company adopted a Preferred Share Rights Purchase Plan under which a Preferred Share Purchase Right (a "Right") is attached to each share of Company common stock. The Rights will be exercisable only if a person or group acquires 20% or more of the Company's common stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 20% or more of the common stock. Each Right entitles stockholders to buy one one-hundredth of a share of Series B Junior Participating Preferred Stock (the "Series B Preferred Shares") of the Company at a price of $15. If the Company is acquired in a merger or other business combination transaction, each Right will entitle its holder to purchase a number of the acquiring company's common shares having a value equal to twice the exercise price of the Right. If a person or group acquires 20% or more of the Company's outstanding common stock, each Right will entitle its holder (other than such person or members of such group) to receive, upon exercise, a number of the Company's common shares having a value equal to two times the exercise price of the Right. Following the acquisition by a person or group of 20% or more of the Company's common stock and prior to an acquisition of 50% or more of such common stock, the Board of Directors may exchange each Right (other than Rights owned by such person or group) for one share of common stock or for one one-hundredth of a Series B Preferred Share. Prior to the acquisition by a person or group of 20% of the Company's common stock, the Rights are redeemable, at the option of the Board, for $.01 per Right. The Rights expire on June 17, 2000. The Rights do not have voting or dividend rights, and until they become exercisable, have no dilutive effect on the earnings of the Company. NOTE 12 - COMMITMENTS AND CONTINGENCIES: - ------------------------------------------------------------------------------ The Company rents certain facilities and equipment under agreements treated for financial reporting purposes as operating leases. The majority of leases currently in effect are renewable for periods of two to five years. Rent expense under these leases was approximately $4,041,000, $2,724,000, and $2,687,000 for the years ended April 30, 1996, 1995 and 1994, respectively. Future minimum rents payable under operating leases for years ending April 30 are as follows: Year Ending April 30, ---------------------- 1997 $ 3,318 1998 2,480 1999 1,858 2000 1,705 2001 1,660 Thereafter 5,911 ------- $16,932 ------- ------- The Ark licensing agreement includes an obligation for the Company to pay significant additional consideration if and when certain future criteria are achieved. The Company does not believe the criteria will be met in the next year. Payment of this consideration will give the Company ownership of all patents and legal rights related to the Ark product line. The Company has been subject to product liability claims primarily through its Spider subsidiary. To minimize the financial impact of product liability risks and adverse judgments, product liability insurance has been purchased in amounts and under terms considered acceptable to management. At any point in time covered by these financial statements, there are outstanding product liability claims against the Company, and incidents are known to management which may result in future claims. Management, in conjunction with defense counsel, periodically reviews the likelihood that such product claims and incidents will result in adverse judgments, the estimated amount of such judgments and costs of defense, and accrues liabilities as appropriate. Recoveries, if any, may be realized from indemnitors, codefendants, insurers or insurance guaranty funds. Management, based on estimates provided by the Company's legal counsel on such claims, believes its insurance coverage is adequate. Management estimates the range of the Company's future exposure amounts relating to unresolved claims at April 30, 1996, aggregate from approximately $0 to $400,000 before recoveries and between $0 and $200,000 net of recoveries. Included in Other Income (Expense), net, in the years ended April 30, 1996, 1995 and 1994 are product liability claim settlements of approximately $102,000, $32,000, and $20,000, respectively. NOTE 13 - FOREIGN OPERATIONS:
- ------------------------------------------------------------------------------ UNITED OTHER ADJUSTMENTS & STATES EUROPE FOREIGN ELIMINATIONS CONSOLIDATED - ------------------------------------------------------------------------------ 1996 - ------------------------------------------------------------------------------ Revenues: Customers (1) $85,810 $32,394 $26,701 $ - $144,905 Inter-area (2) 13,284 - 897 (14,181) - - ------------------------------------------------------------------------------ Total revenues 99,094 32,394 27,598 (14,181) 144,905 - ------------------------------------------------------------------------------ Operating Income Before Corporate Expenses 15,223 1,556 196 16,975 Corporate Expenses (5,218) ------- Operating Income $11,757 ------- Identifiable Assets $93,725 $13,065 $19,703 $126,493 -------- 1995 - ------------------------------------------------------------------------------ Revenues: Customers (1) $79,406 $19,714 $10,890 $ - $110,010 Inter-area (2) 8,347 - 1,094 (9,441) - - ------------------------------------------------------------------------------ Total revenues 87,753 19,714 11,984 (9,441) 110,010 - ------------------------------------------------------------------------------ Operating Income Before Corporate Expenses 15,413 366 511 16,290 Corporate Expenses (4,627) ------- Operating Income $11,663 ------- Identifiable Assets $70,357 $16,316 $18,811 $105,484 ------- 1994 - ------------------------------------------------------------------------------ Revenues: Customers (1) $69,205 $13,476 $5,951 $ - $88,632 Inter-area (2) 8,203 - 718 (8,921) - - ------------------------------------------------------------------------------ Total revenues 77,408 13,476 6,669 (8,921) 88,632 - ------------------------------------------------------------------------------ Operating Income (Loss) Before Corporate Expenses 8,512 (753) 518 8,277 Corporate Expenses (4,268) ------ Operating Income $4,009 ------ Identifiable Assets $60,339 $12,066 $5,823 $78,228 ------
(1) U.S. sales to unaffiliated customers in foreign countries were $5,978,000, $6,881,000 and $5,058,000 in fiscal 1996, 1995, and 1994, respectively. (2) Inter-area sales to affiliates represent products which were transferred between geographic areas at negotiated prices. These amounts have been eliminated in the consolidation. NOTE 14 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): - ------------------------------------------------------------------------------ Fiscal 1996 Quarters First Second Third Fourth Total - -------------------- ----- ------ ----- ------ ----- Revenue $33,013 $35,622 $35,641 $40,629 $144,905 Gross Profit 13,905 14,191 13,826 15,508 57,430 Net Income 2,060 1,806 1,151 2,068 7,085 Earnings Per Share* .14 .12 .08 .14 .47 Fiscal 1995 Quarters First Second Third Fourth Total - -------------------- ----- ------ ----- ------ ----- Revenue $24,509 $26,758 $27,187 $31,556 $110,010 Gross Profit 10,438 11,600 10,954 13,319 46,311 Net Income 1,649 2,162 1,616 2,301 7,728 Earnings Per Share .12 .15 .11 .15 .53 Fiscal 1994 Quarters First Second Third Fourth Total - -------------------- ----- ------ ----- ------ ----- Revenue $19,355 $24,591 $20,555 $24,131 $88,632 Gross Profit 8,809 10,206 6,008 10,055 35,078 Income (Loss) Before Change Accounting Principle 1,109 1,802 (1,794) 1,435 2,552 Net Income (Loss) 1,510 1,802 (1,794) 1,435 2,953 Earnings (Loss) Per Share Before Change in Accounting Principle .08 .13 (.13) .10 .18 Earnings (Loss) Per Share .11 .13 (.13) .10 .21 *The total of the four quarters does not equal the year due to rounding. FLOW INTERNATIONAL CORPORATION SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS (In Thousands) Additions --------------------- Balance at Charged to Charged Balance Beginning Costs and to Other at End Classification of Period Expenses Accounts Deductions* of Period - -------------- --------- ---------- -------- ---------- ---------- Year Ended April 30: - -------------------- Allowance for Doubtful Accounts - ------------------ 1996 $1,150 $576 $ (540) $1,186 1995 908 480 (238) 1,150 1994 846 324 (262) 908 Provision for Slow-Moving and Obsolete Inventory - ----------------------- 1996 $2,205 $248 $ (101) $2,352 1995 2,093 324 (212) 2,205 1994 2,007 269 (183) 2,093 __________ * Write-offs of uncollectible accounts and disposal of obsolete inventory. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. - ------------------------------------------------------------------------------ Information regarding directors and executive officers of the registrant is incorporated herein by reference from the Company's Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION. - ------------------------------------------------------------------------------ Information regarding executive compensation is incorporated herein by reference from the Company's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. - ------------------------------------------------------------------------------ Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference from the Company's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. - ------------------------------------------------------------------------------ Information regarding certain relationships and related transactions is incorporated herein by reference from the Company's Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------------ (a) The following documents are filed as a part of this report: 1. Consolidated Financial Statements. See Item 8 of Part II for a list of the Financial Statements filed as part of this report. 2. Financial Statement Schedules. See Item 8 of Part II for a list of the Financial Statement Schedules filed as part of this report. 3. Exhibits. See subparagraph (c) below. (b) Reports on Form 8-K - The Company filed a Current Report on Form 8-K on May 21, 1996 reporting the resignation of Elaine P. Scherba, Vice President and Chief Financial Officer. (c) Exhibits. EXHIBIT NUMBER 3.1 Restated Certificate of Incorporation, filed with the state of Delaware September 14, 1989. (Incorporated by reference to Exhibit 3.1 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1990.) 3.2 By-Laws of Flow International Corporation. (Incorporated by reference to Exhibit 3.2 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1990.) 4.1 Certificate of Designation of Series B Junior Participating Preferred Stock. (Incorporated by reference to Exhibit 4.5 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1990.) 4.2 Rights Agreement dated as of June 7, 1990, between Flow International Corporation and First Interstate Bank, Ltd. (Incorporated by reference to Exhibit 4.1 to the registrant's Current Report on Form 8- K dated June 8, 1990.) 10.1 Flow International Corporation 1984 Restated Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10.1 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1990.) 10.2 Flow International Corporation 1987 Stock Option Plan for Nonemployee Directors, as amended. (Incorporated by reference to Exhibit 10.5 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1994.) 10.3 Flow International Corporation 1991 Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10.6 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1994.) 10.4 Flow International Corporation 1995 Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10.4 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1995.) 10.5 Flow International Corporation Employee Stock Ownership Plan and Trust Agreement, as amended and restated effective January 1, 1994, and certain later dates, between Flow International Corporation and Seattle-First National Bank, as trustee. (Incorporated by reference to Exhibit 10.7 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1994). 10.6 Stock Purchase Agreement dated as of September 26, 1989, between Flow International Corporation Employee Stock Ownership Plan and Trust and Seattle-First National Bank. (Incorporated by reference to Exhibit 10.7 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1990.) 10.7 ESOT Loan and Guaranty Agreement dated September 26, 1989, among U.S. Bank of Washington, N.A., Flow International Corporation Employee Stock Ownership Plan and Trust and Flow International Corporation. (Incorporated by reference to Exhibit 10.8 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1990). 10.8 Replacement ESOT Note dated September 1992. (Incorporated by reference to Exhibit 10.10 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1993). 10.9 Pledge Agreement dated September 26, 1989, among U.S. Bank of Washington, N.A., Flow International Corporation. Employee Stock Ownership Plan and Trust and Flow International Corporation. (Incorporated by reference to Exhibit 10.10 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1990.) 10.10 Unconditional Guaranty dated September 26, 1989, by Flow International Corporation for the benefit of U.S. Bank of Washington, N.A. (Incorporated by reference to Exhibit 10.11 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1990.) 10.11 Flow International Corporation Voluntary Pension and Salary Deferral Plan and Trust Agreement, as restated effective January 1, 1992. (Incorporated by reference to Exhibit 10.13 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1993). 10.12 Amendment to Flow International Corporation Voluntary Pension and Salary Deferral Plan. (Incorporated by reference to Exhibit 10.13 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1994). 10.13 Lease dated September 24, 1991, between Flow International and Birtcher LP/LC Partnership, together with Addendum to Lease. (Incorporated by reference to Exhibit 10.25 to the registrant's Annual Report on Form 10-K for the year ended April 30, 1992.) 10.14 Dynovation Agreement. (Incorporated by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K dated December 15, 1994.) 10.15 Credit agreement amount Flow International Corporation, as borrower, the Lenders listed herein, as lenders, and US Bank of Washington, N.A. as agent for lenders dated September 25, 1995. (Incorporated by reference to Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the period ended October 31, 1995.) 10.16 Note purchase agreement dated September 1, 1995. (Incorporated by reference to Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the period ended October 31, 1995.) 10.17 Form of Change in Control Agreement 21.1 Subsidiaries of the Registrant 23.1 Consent of Independent Accountants 27.1 Financial Data Schedule SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FLOW INTERNATIONAL CORPORATION July 22, 1996 /s/ Ronald W. Tarrant ---------------------------- Ronald W. Tarrant Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on the behalf of the registrant and in the capacities on this 22th day of July, 1996 Signature Title --------- ----- /s/ Ronald W. Tarrant Chairman, President, Chief Executive Officer - -------------------------- (Principal Executive Officer) Ronald W. Tarrant /s/ Stephen D. Reichenbach Vice President Finance, Treasurer and Interim - -------------------------- Chief Financial Officer Stephen D. Reichenbach (Principal Financial Officer & Principal Accounting Officer) /s/ Ronald D. Barbaro Director - -------------------------- Ronald D. Barbaro /s/ John S. Cargill Director - -------------------------- John S. Cargill /s/ Daniel J. Evans Director - -------------------------- Daniel J. Evans Signature Title --------- ----- /s/ Arlen I. Prentice Director - -------------------------- Arlen I. Prentice /s/ J. Michael Ribaudo Director - ------------------------- J. Michael Ribaudo /s/ Kenneth M. Roberts Director - ------------------------- Kenneth M. Roberts /s/ Dean D. Thornton Director - ------------------------- Dean D. Thornton EX-10.17 2 EXHIBIT 10.17 CHANGE IN CONTROL AGREEMENT This Change In Control Agreement (this "Agreement") is made and entered into as of the ___ day of ___________, 1996, between Flow International Corporation, a Delaware corporation (the "Company"), and _________________________ ("Executive"). RECITALS A. Executive is currently employed by the Company as its _____________________. B. The Board of Directors of the Company has determined that it is appropriate to reinforce the continued attention and dedication of certain members of the company's management, including Executive, to their assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a change in control of the Company. AGREEMENT NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the Company and Executive agree as follows: 1. OPERATION OF AGREEMENT. This Agreement shall remain in effect until canceled by the Company. This Agreement shall be automatically canceled on the Cancellation Date, except that if a Change in Control occurs prior to such Cancellation Date, this Agreement shall remain in effect with respect to all rights accruing as a result of the occurrence of a Change in Control. This Agreement shall terminate and have no force or effect if Executive's employment is terminated for any reason prior to a Change in Control, provided, however, if Executive's employment is terminated during the term of this Agreement and if Executive reasonably demonstrates that such termination (a) was at the request of a third party who has indicated an intention to take or has taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control or (b) otherwise occurred in connection with, or in anticipation of, a Change in Control which actually occurs, then for all purposes of this Agreement, the date of a Change in Control with respect to Executive shall mean the date immediately prior to the date of such termination of Executive's employment. Once a Change in Control has occurred, this Agreement may not be terminated until the second anniversary of the Change in Control. Notwithstanding the termination of this Agreement, the Company shall remain liable for any rights or payments arising prior to such termination to which Executive is entitled under this Agreement. 2. SERVICE AFTER CHANGE IN CONTROL. Executive and the Company agree that once a Change in Control occurs no termination of Executive's employment with the Company, other than on account of death, shall be effective unless the party causing such termination of employment provides the other party 30 days' prior written notice of such termination in the form of a Notice of Termination. page 1 of 10 3. BENEFITS UPON CHANGE IN CONTROL. Executive shall be entitled to the following payments and benefits following a Change in Control, whether or not a Termination occurs: (a) STOCK PLANS. Unexercised installments of options to acquire securities of the company of which Executive is the Beneficial Owner on the date of such Change in Control shall vest and become immediately exercisable in full to the extent, but only to the extent, provided under the terms and conditions of any benefit plan or compensation program of the Company or any Subsidiary that employs Executive, including but not limited to, any stock purchase plan, stock option plan or similar plan or program (excluding any plan qualified under Section 401(a) of the Code). To the extent the vesting of such options is not accelerated under the terms of the applicable plan, such options shall continue to vest in accordance with their terms. (b) DEATH OF EXECUTIVE. In the event of Executive's death prior to Termination, but while employed by the Company or any Subsidiary, as the case may be, his or her spouse, if any, or otherwise the personal representative of his or her estate shall be entitled to receive Executive's salary at the rate then in effect for 2 months after the date of death, as provided under the Company's pay policy, as well as any Accrued Benefits for the periods of service prior to the date of death. (c) DISABILITY OF EXECUTIVE. In the event of Executive's Disability prior to Termination, but while employed by the Company or any Subsidiary, as the case may be, Executive shall be entitled to receive his or her salary at the rate then in effect through the date of the determination of Disability, as provided under the Company's pay policy, as well as any Accrued Benefits for the periods of service prior to the date of the determination of Disability and payments under the Company's short and long term disability plans following the determination of Disability. (d) CAUSE; OTHER THAN FOR GOOD REASON. If, prior to Termination, Executive's employment shall be terminated by the Company for Cause or by Executive other than for Good Reason, Executive shall be entitled to receive his or her salary at the rate then in effect through the date of such termination, as provided under the Company's pay policy, as well as any Accrued Benefits for the periods of service prior to the date of such termination. All options then vested become Executive's property whether exercised or not. (e) WITHHOLDING. All payments under paragraphs (b) through (d) above are subject to applicable federal and state payroll withholding or other applicable taxes. 4. PAYMENTS AND BENEFITS UPON TERMINATION. Executive shall be entitled to the following payments and benefits following Termination: (a) TERMINATION PAYMENT. In recognition of past services to the Company by Executive, the Company shall make a lump sum payment in cash to Executive as severance pay within ten business days following the date of Termination equal to three times the sum of: (i) Executive's annual base salary in effect immediately prior to the date that either a Change in page 2 of 10 Control shall occur or such date of Termination, whichever salary is higher (the product being the "Initial Amount"); plus (ii) a percentage of Executive's annual base salary specified in subparagraph (i) above, which percentage is equal to the percentage bonus paid to the Executive for the fiscal year ended immediately prior to the Change in Control pursuant to the Company's Incentive Compensation Plan or similar written plan adopted by the Compensation Committee of the Board; provided, however, that if Termination occurs prior to the determination of such percentage for a fiscal year that has ended or if Executive has not received a percentage bonus in the previous year, such percentage shall be 100%. At the election of Executive only, but subject to approval by the Board, the total amount payable to Executive pursuant to this Section 4(a) may be paid in cash in three equal installments, the first within ten business days following the date of Termination, the second on the first anniversary of the date of Termination, the third on the second anniversary of the date of Termination or by a salary continuation program if so selected by Executive. In the event a Parachute Payment excise tax is incurred by Executive under Section 4999 of the Code as a result of the receipt of either a payment or reimbursement under this Agreement, the Company shall increase the amount of the payment or the reimbursement by Seventy-Five Percent (75%) of the amount of such tax, including but not limited to taxes that are imposed in successive years as a result of income realized from any payments or reimbursements made in prior years and any interest and penalties on any such taxes. (b) ACCRUED BENEFITS. The Company shall also make a lump sum payment in cash to Executive in the amount of any Accrued Benefits for the periods of service prior to the date of Termination. (c) WELFARE PLAN BENEFITS. The Company shall at the Company's expense (except for the amount, if any, of any required employee contribution which would have been necessary for Executive to contribute as an active employee under the plan or program as in effect on the date of the Change in Control or, at Executive's option, on the date of Termination) continue to cover Executive (and his or her dependents) under, or provide Executive (and his or her dependents) with insurance coverage no less favorable than, the Company's life, disability, health, dental and any other employee welfare benefit plans or programs (as in effect on the date of the Change in Control or, at the option of Executive, on the date of Termination) for a period of two years following the date of Termination (or, at the Company's option, in lieu of providing such benefits, a lump sum cash payment may be made which will equal the then-present value of the cost to the Company of such Company-provided benefits). (d) DEATH OF EXECUTIVE. In the event of Executive's death subsequent to Termination and prior to receiving all benefits and payments provided for by this section 4, such benefits shall be paid to his or her spouse, if any, or otherwise to the personal representative of his or her estate, unless Executive has otherwise directed the Company in writing prior to his or her death. page 3 of 10 (e) EXCLUSIVE SOURCE OF SEVERANCE PAY. Benefits provided hereunder shall replace the amount of any severance payments to which Executive would otherwise be entitled under any severance plan or policy generally available to employees of the Company. (f) NONSEGREGATION. No assets of the Company need be segregated or earmarked to represent the liability for benefits payable hereunder. The rights of any person to receive benefits hereunder shall be only those of general unsecured creditor. (g) WITHHOLDING. All payments under this Section 4 are subject to applicable federal and state payroll withholding or other applicable taxes. 5. CONFIDENTIALITY AND NONCOMPETITION. (a) CONFIDENTIALITY. Executive agrees to hold in confidence any and all Confidential Information known to Executive concerning the Company and its Subsidiaries and their respective businesses so long as such information is not otherwise publicly disclosed, or required to be disclosed to comply with any subpoena or other order issued by or in connection with any legal or administrative proceeding. Executive's obligations pursuant to this Section 5 are in addition to any other obligation of Executive to hold in confidence Confidential Information of the Company and its Subsidiaries and their customers, suppliers or agents, pursuant to contract or otherwise. (b) NONCOMPETITION. Executive also agrees that, for a period of one year after the termination of Executive's employment with the Company for any reason, Executive will not engage in any activities (including, without limitation, activities for any subsequent employer of Executive) with respect to any products or anything else directly competitive with the products or Inventions on which Executive worked at the Company, or about which Executive learned Confidential Information during Executive's employment with the Company. (c) COMPANY REMEDY. In the event of (i) a breach by Executive of his or her obligations set forth in Section 5(a) which has a material adverse effect on the Company, or (ii) any breach by Executive of the obligations set forth in Section 5(b), Executive agrees that the Company shall be entitled to recover an amount equal to the total of all amounts paid to Executive pursuant to this Agreement in addition to any other remedies available to the Company at law or in equity. 6. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Seattle, Washington, in accordance with the Rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any jurisdiction. 7. CONFLICT IN BENEFITS. This agreement is not intended to and shall not adversely affect, limit or terminate any other agreement or arrangement between Executive and the Company presently in effect or hereafter entered into, including any employee benefit plan under which Executive is entitled to benefits. page 4 of 10 8. AMENDMENT/TERMINATION. This Agreement may only be terminated or amended prior to the Cancellation Date with the written consent of the parties hereto. Following a Change in Control and until the third anniversary of the Change in Control, (a) this Agreement may not be terminated, and (b) no amendment or other action of the Board which adversely affects the rights of Executive hereunder is valid and enforceable without the prior written consent of Executive. On and after the third anniversary of the Change in Control, the Board may terminate or amend this Agreement without the prior written consent of Executive. 9. MISCELLANEOUS. (a) NO MITIGATION. All payments and benefits to which Executive is entitled under this Agreement shall be made and provided without offset, deduction or mitigation on account of income Executive could or may receive from other employment or otherwise, except as provided in Section 4(c) and Section 5 hereof. (b) EMPLOYMENT NOT GUARANTEED. Nothing contained in this Agreement, and no decision as to the eligibility for benefits or the determination of the amount of any benefits hereunder, shall give Executive any right to be retained in the employ of the Company or rehired, and the right and power of the Company to dismiss or discharge any employee for any reason is specifically reserved. Except as expressly provided herein, no employee or any person claiming under or through him or her shall have any right or interest herein, or in any benefit hereunder. (c) LEGAL EXPENSES. In connection with any litigation, arbitration or similar proceeding, whether or not instituted by the Company or Executive, with respect to the interpretation or enforcement of any provision of this Agreement, the prevailing party shall be entitled to recover from the other party all costs and expenses, including reasonable attorneys' fees and disbursements, in connection with such litigation, arbitration or similar proceeding. The Company agrees to pay prejudgment interest on any money judgment obtained by Executive as a result of such proceedings, calculated at the published commercial interest rate of Seattle-First National Bank for its best customers, as in effect from time to time from the date that payment should be been made to Executive under this Agreement. (d) NOTICES. Any notices required under the terms of this Agreement shall be effective when mailed, postage prepaid, by certified mail and addressed to, in the case of the Company: Flow International Corporation 23500 64th Avenue South Kent, Washington 98032 Attention: Chief Executive Officer page 5 of 10 and to, in the case of Executive: ____________________________________ ____________________________________ ____________________________________ Either party may designate a different address by giving written notice of change of address in the manner provided above. (e) WAIVER. Subject to the provisions of Section 9 hereof, no waiver or modification in whole or in part of this Agreement, or any term or condition hereof, shall be effective against any party unless in writing and duly signed by the party sought to be bound. Any waiver of any breach of any provision hereof or any right or power by any party on one occasion shall not be construed as a waiver of, or a bar to, the exercise of such right or power on any other occasion or as a waiver of any subsequent breach. (f) BINDING EFFECT; SUCCESSORS. Subject to the provisions hereof, nothing in this Agreement shall prevent the consolidation of the Company with, or its merger into, any other corporation, or the sale by the Company of all or substantially all of its properties and assets, or the assignment of this Agreement by the Company in connection with any of the foregoing actions. This Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 9(f) shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer. (g) SEPARABILITY. Any provision of this agreement which is held to be unenforceable or invalid in any respect in any jurisdiction shall be ineffective in such jurisdiction to the extent that it is unenforceable or invalid without affecting the remaining provisions hereof, which shall continue in full force and effect. The enforceability or invalidity of a provision of this Agreement in one jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (h) CONTROLLING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington applicable to contracts made and to be performed therein. (i) DEFINITIONS. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: page 6 of 10 "ACCRUED BENEFITS" means the aggregate of any compensation previously deferred by Executive (together with any accrued interest or earnings thereon), any accrued vacation pay and, if the date of Termination occurs after the end of a fiscal year for which bonus is payable to Executive pursuant to the Company's Incentive Compensation Plan or similar written plan adopted by the Compensation Committee or the Board then in effect, such bonus, in each case to the extent previously earned and not paid. "BENEFICIAL OWNER" and "Beneficial Ownership" have the meanings set forth in Rules 13d-3 and 13d-5 of the General Rules and Regulations promulgated under the Exchange Act. "BOARD" means the Company's Board of Directors. "BOARD CHANGE" means that a majority of the seats (other than vacant seats) on the Board have been occupied by individuals who were neither (i) nominated or appointed by a majority of the Incumbent Directors nor (ii) nominated or appointed by directors so nominated or appointed. "BUSINESS COMBINATION" means a reorganization, merger or consolidation or sale of substantially all of the assets of the Company. "CANCELLATION DATE" means a date that is one year after the date the Company gives Executive written notice of cancellation of this Agreement. "CAUSE" means (i) willful misconduct on the part of Executive that has a materially adverse effect on the Company and its Subsidiaries, taken as a whole, (ii) Executive's engaging in conduct which could reasonably result in his or her conviction of a felony, as determined in good faith by a written resolution duly adopted by the affirmative vote of not less than two-thirds of all of the directors who are not employees or officers of the Company, (iii) unreasonable refusal by Executive to perform the duties and responsibilities of his or her position in any material respect, or (iv) a willful breach by Executive of his or her obligations under Section 5(a) hereof which has a material adverse effect on the Company. No action, or failure to act, shall be considered "willful" if it is done by Executive in good faith and with reasonable belief that his or her action or omission was in the best interests of the Company. "CHANGE IN CONTROL" means, and shall be deemed to occur upon the happening of, any one of the following: (i) A Board Change; or (ii) The acquisition, directly or indirectly, by any Person of Beneficial Ownership of 20% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors, which acquisition is not approved in advance by a majority of the Incumbent Directors: (iii) The first purchase of the Company's Common Stock pursuant to a tender or exchange offer (other than a tender or exchange offer made by the Company); page 7 of 10 (iv) The consummation of a Business Combination unless, following such Business Combination, all or substantially all of the individuals and entities who were the beneficial owners of the outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the outstanding Voting Securities; or (v) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. "CODE" means the Internal Revenue Code of 1986, as amended. "CONFIDENTIAL INFORMATION" has the meaning set forth in the Flow International Corporation, Inc. Employee Confidentiality and Invention Agreement. "DISABILITY" means that (i) a person has been incapacitated by bodily injury or physical or mental disease so as to be prevented thereby from engaging in a comparable occupation or employment for remuneration or profit, (ii) such person will be subject to such incapacity for a period of at least six consecutive months, and (iii) such person is disabled for purposes of any and all of the plans or programs of the Company or any Subsidiary that employs Executive under which benefits, compensation or awards are contingent upon a finding of disability. The determination with respect to whether Executive is suffering from such a Disability will be determined by a mutually acceptable physician or, if there is no physician mutually acceptable to the Company and Executive, by a physician selected by the then Dean of the University of Washington Medical School. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FISCAL YEAR" means the 12-month period ending on April 30 in each year (or such other fiscal year period established by the Board). "GOOD REASON" means, without Executive's express written consent: (i) either (A) the assignment to Executive of duties, or limitation of Executive's responsibilities, inconsistent with Executive's title, position, duties, responsibilities and status with the Company or any Subsidiary that employs Executive as such duties and responsibilities existed immediately prior to the date of the Change in Control, or (B) removal of Executive from, or failure to re-elect Executive to, Executive's positions with the Company or any Subsidiary that employs Executive immediately prior to the Change in Control, except in connection with the involuntary termination of Executive's employment by the Company for Cause or as a result of Executive's death or Disability; or page 8 of 10 (ii) failure by the Company to pay, or reduction by the Company of, Executive's annual salary, as reflected in the Company's payroll records for Executive's last pay period preceding the Change in Control; (iii) reduction by the Company of more than 10% in the target bonus amount payable to Executive, or a material reduction in the achievability of the bonus by Executive because of a change in the structure or goals for the Company's Incentive Compensation Plan or similar written plan adopted by the Compensation Committee or the Board in effect immediately prior to a Change in Control; (iv) the relocation of the principal place of Executive's employment to a location that is more than 25 miles further from Executive's principal residence than such principal place of employment immediately prior to the Change in Control; or (v) the breach of any material provision of this Agreement by the Company. "INCENTIVE COMPENSATION PLAN" means the Company's bonus plan then applicable to Executive. "INCUMBENT DIRECTOR" means a member of the Board who has been either (i) nominated by a majority of the directors of the Company then in office or (ii) appointed by directors so nominated, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board. "INITIAL AMOUNT" has the meaning set forth in Section 4(a) hereof. "INVENTION" has the meaning set forth the Confidentiality and Invention Agreement. "NOTICE OF TERMINATION" means a written notice to Executive or to the Company, as the case may be, which shall indicate those specific provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for the termination of Executive's employment constituting a Termination under the provision so indicated. "PARACHUTE PAYMENT" means any payment deemed to constitute a "parachute payment" as defined in Section 280G of the Code. "PERSON" means any individual, entity or group (as such term is used in Section 13(d)(3) or 14(d)(2) of the Exchange Act). "SUBSIDIARY" with respect to the Company has the meaning set forth in Rule 12b-2 of the General Rules and Regulations promulgated under the Exchange Act. page 9 of 10 "TERMINATION" means, following the occurrence of any Change in Control, (i) the involuntary termination by the Company of the employment of Executive for any reason other than death, Disability or for Cause or (ii) the termination of employment by Executive for Good Reason. "VOTING SECURITIES" means the voting securities of the Company entitled to vote generally in the election of directors. IN WITNESS WHEREOF, the Company and Executive have executed this Agreement as of the day and year first above written. FLOW INTERNATIONAL CORPORATION By:______________________________________ Its:__________________________________ EXECUTIVE ______________________________________________ page 10 of 10 EX-21.1 3 EXHIBIT 21.1 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 4 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS 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 Statements on Form S-8 (No. 33-40397 and No. 33-44776) of Flow International Corporation of our report dated July 3, 1996, appearing on page 20 of this Form 10-K. /s/ Price Waterhouse LLP Seattle, Washington July 22, 1996 EX-27.1 5 EXHIBIT 27.1
5 YEAR APR-30-1996 MAY-01-1995 APR-30-1996 3,845 0 36,653 1,186 34,589 80,844 58,450 31,367 126,493 22,978 0 0 0 148 56,912 126,493 117,090 144,905 69,889 133,148 (648) 576 3,503 8,902 1,817 7,085 0 0 0 7,085 .47 .47
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