-----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, BGh9KDtkO8edOCeTpDARUhXkCY6qNfjHeHpMvD8pAzjuWUVE/KemsTt0iRlFXybE Snt6YZoTSvAwdPaQk7dLZg== 0000912057-99-009122.txt : 19991214 0000912057-99-009122.hdr.sgml : 19991214 ACCESSION NUMBER: 0000912057-99-009122 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991213 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: WA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12448 FILM NUMBER: 99773293 BUSINESS ADDRESS: STREET 1: 23500 64TH AVE S STREET 2: P O BOX 97040 CITY: KENT STATE: WA ZIP: 98032 BUSINESS PHONE: 2538503500 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-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 31, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission file number 0-12448 FLOW INTERNATIONAL CORPORATION WASHINGTON 91-1104842 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 23500 - 64TH AVENUE SOUTH KENT, WASHINGTON 98032 (253) 850-3500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- The number of shares outstanding of common stock, as of November 21, 1999: 14,727,082 shares. -1- FLOW INTERNATIONAL CORPORATION INDEX
Page ---- Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Consolidated Balance Sheets - October 31, 1999 and April 30, 1999.................................... 3 Condensed Consolidated Statements of Income - Three Months Ended October 31, 1999 and 1998........................... 4 Condensed Consolidated Statements of Income - Six Months Ended October 31, 1999 and 1998............................. 5 Condensed Consolidated Statements of Cash Flows - Six Months Ended October 31, 1999 and 1998............................. 6 Consolidated Statements of Comprehensive Income - Three and Six Months Ended October 31, 1999 and 1998................... 7 Notes to Condensed Consolidated Financial Statements..................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 10 Part II - OTHER INFORMATION Item 1. Legal Proceedings................................................... 17 Item 2. Changes in Securities............................................... 17 Item 3. Defaults Upon Senior Securities..................................... 17 Item 4. Submission of Matters to a Vote of Security Holders............................................. 17 Item 5. Other Information................................................... 17 Item 6. Exhibits and Reports on Form 8-K.................................... 17 Signatures....................................................................... 18
-2- FLOW INTERNATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
October 31, April 30, 1999 1999 --------- --------- (unaudited) ASSETS Current Assets: Cash $ 8,555 $ 10,403 Trade Accounts Receivable, less allowances for doubtful accounts of $894 and $766, respectively 58,198 55,783 Inventories, net 51,271 47,771 Deferred Income Taxes 1,658 1,658 Other Current Assets 5,552 4,849 --------- --------- Total Current Assets 125,234 120,464 Property and Equipment, net 19,179 17,723 Intangible Assets, net of accumulated amortization of $8,450 and $6,212, respectively 38,875 36,211 Deferred Income Taxes 1,071 1,314 Other Assets 4,773 3,440 --------- --------- $ 189,132 $ 179,152 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes Payable $ 268 $ 419 Current Portion of Long-Term Obligations 4,190 4,185 Accounts Payable 11,295 18,411 Accrued Payroll and Related Liabilities 5,474 6,801 Other Accrued Taxes 501 851 Other Accrued Liabilities 13,619 9,804 --------- --------- Total Current Liabilities 35,347 40,471 Long-Term Obligations 66,450 64,614 Customer Deposits 18,542 8,931 Minority Interest 1,873 1,114 Stockholders' Equity: Series A 8% Convertible Preferred Stock - $.01 par value, 1,000,000 shares authorized, none issued Common Stock - $.01 par value, 20,000,000 shares authorized, 14,726,590 shares outstanding at October 31, 1999 14,665,700 shares outstanding at April 30, 1999 147 147 Capital in Excess of Par 40,631 40,260 Retained Earnings 30,799 28,037 Cumulative Translation Adjustment (3,964) (3,882) Unrealized Loss on Equity Securities Available For Sale (693) (540) --------- --------- Total Stockholders' Equity 66,920 64,022 --------- --------- $ 189,132 $ 179,152 --------- --------- --------- ---------
See Accompanying Notes to Condensed Consolidated Financial Statements -3- FLOW INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited; in thousands, except per share data)
Three Months Ended October 31, --------------------------- 1999 1998 Revenues $ 46,471 $ 38,383 Cost of Sales 27,896 21,455 -------- -------- Gross Profit 18,575 16,928 -------- -------- Expenses: Marketing 6,597 6,254 Research and Engineering 3,718 2,963 General and Administrative 4,618 3,755 -------- -------- 14,933 12,972 -------- -------- Operating Income 3,642 3,956 Interest Expense (1,175) (836) Other Expense (379) (111) -------- -------- Income Before Provision for Income Taxes 2,088 3,009 Provision for Income Taxes 626 820 -------- -------- Net Income $ 1,462 $ 2,189 -------- -------- -------- -------- Basic Earnings Per Share $ .10 $ .15 -------- -------- -------- -------- Diluted Earnings Per Share $ .10 $ .15 -------- -------- -------- --------
See Accompanying Notes to Condensed Consolidated Financial Statements -4- FLOW INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited; in thousands, except per share data)
Six Months Ended October 31, --------------------------- 1999 1998 Revenues $ 87,732 $ 74,805 Cost of Sales 52,023 42,042 -------- -------- Gross Profit 35,709 32,763 -------- -------- Expenses: Marketing 13,561 11,988 Research and Engineering 6,590 6,022 General and Administrative 8,583 7,476 -------- -------- 28,734 25,486 -------- -------- Operating Income 6,975 7,277 Interest Expense (2,524) (1,599) Other Expense (504) (66) -------- -------- Income Before Provision for Income Taxes 3,947 5,612 Provision for Income Taxes 1,185 1,627 -------- -------- Net Income $ 2,762 $ 3,985 -------- -------- -------- -------- Basic Earnings Per Share $ .19 $ .27 -------- -------- -------- -------- Diluted Earnings Per Share $ .18 $ .26 -------- -------- -------- --------
See Accompanying Notes to Condensed Consolidated Financial Statements -5- FLOW INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited; in thousands)
Six Months Ended October 31, --------------------------- 1999 1998 Cash Flows from Operating Activities: Net Income $ 2,762 $ 3,985 Adjustments to Reconcile Net Income to Cash Used by Operating Activities: Depreciation and Amortization 4,008 2,212 Increase in assets (5,043) (424) Decrease / (increase) in liabilities 2,917 (3,385) -------- -------- Cash provided by operating activities 4,644 2,388 -------- -------- Cash Flows from Investing Activities: Expenditures for property and equipment (4,210) (3,066) Payment for Business Combinations, Net of Cash Acquired (4,499) Other (20) (421) -------- -------- Cash used by investing activities (8,729) (3,487) -------- -------- Cash Flows from Financing Activities: Borrowings under line of credit agreements, net 4,885 7,104 Payments of long-term debt (2,934) (2,026) Purchase of Flow common stock (3,267) Proceeds from issuance of common stock 368 713 -------- -------- Cash provided by financing activities 2,319 2,524 -------- -------- Effect of exchange rate changes (82) 265 -------- -------- (Decrease) increase in cash and cash equivalents (1,848) 1,690 Cash and cash equivalents at beginning of period 10,403 3,006 -------- -------- Cash and cash equivalents at end of period $ 8,555 $ 4,696 -------- -------- -------- --------
See Accompanying Notes to Condensed Consolidated Financial Statements -6- FLOW INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited, in thousands)
Three Months Ended October 31, ------------------------- 1999 1998 Net Income $ 1,462 $ 2,189 Other Comprehensive Income: Unrealized Loss on Equity Securities Available for Sale, net of tax (158) (150) Cumulative Translation Adjustment (226) 1,191 ------- ------- Comprehensive Income $ 1,078 $ 3,230 ------- ------- ------- -------
Six Months Ended October 31, ------------------------- 1999 1998 Net Income $ 2,762 $ 3,985 Other Comprehensive Income: Unrealized Loss on Equity Securities Available for Sale, net of tax (153) (514) Cumulative Translation Adjustment (82) 265 ------- ------- Comprehensive Income $ 2,527 $ 3,736 ------- ------- ------- -------
See Accompanying Notes to Condensed Consolidated Financial Statements -7- FLOW INTERNATIONAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the Six Months Ended October 31, 1999 (unaudited) 1. In the opinion of the management of Flow International Corporation ("the Company"), the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows. These interim financial statements should be read in conjunction with the April 30, 1999 consolidated financial statements included in the Company's Annual Report filed with the Securities and Exchange Commission on Form 10-K. Operating results for the six months ended October 31, 1999 may not be indicative of future results. 2. Basic earnings per share represents net income available to common stockholders divided by the weighted average number of shares outstanding during the period. Diluted earnings per share represents net income available to common stockholders divided by the weighted average number of shares outstanding including the potentially dilutive impact of stock options, where appropriate. Basic shares outstanding for the three months ended October 31, 1999 and 1998 were 14,701,000 and 14,749,000, respectively. For the six months ended October 31, 1999 and 1998, basic shares outstanding were 14,693,000 and 14,823,000, respectively. Diluted shares outstanding for the three months ended October 31, 1999 and 1998 were 15,084,000 and 15,027,000, respectively. The diluted shares outstanding include potential dilutive common shares from employee stock options of 383,000 and 278,000 for the three months ended October 31, 1999 and 1998, respectively. For the six months ended October 31, 1999 and 1998, diluted shares outstanding were 15,071,000 and 15,194,000, respectively. The diluted shares outstanding include potential dilutive common shares from employee stock options of 378,000 and 371,000 for the six months ended October 31, 1999 and 1998, respectively. 3. Inventories consist of the following: (in thousands)
October 31, 1999 April 30, 1999 ---------------- -------------- Raw Materials and Parts $22,637 $26,776 Work in Process 17,129 11,223 Finished Goods 11,505 9,772 ------- ------- $51,271 $47,771 ------- ------- ------- -------
-8- FLOW INTERNATIONAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the Six Months Ended October 31, 1999 (unaudited) 4. In September 1999 the Company purchased substantially all of the assets and selected liabilities of Spearhead Automated Systems, Inc. ("Spearhead") for $4.5 million. Spearhead manufactures advanced cutting, trimming and tooling equipment for the automotive and related industries. 5. Recently Issued Accounting Pronouncements Statement of Financial Accounting Standards No. 133, ("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities", is effective beginning in fiscal 2002, with early adoption permitted. FAS 133 standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or liabilities in the financial statements and measure them at fair value. The Company is currently reviewing the requirements of FAS 133 and assessing its impact on the Company's financial statements. The Company has not made a decision regarding the period of adoption. Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use", is effective beginning in fiscal 2000. SOP 98-1 requires companies to capitalize the cost of computer software developed or obtained for internal use. The adoption of SOP 98-1 during the first quarter of fiscal 2000 did not have a material impact on the Company. Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-up Activities", is effective beginning in fiscal 2000. SOP 98-5 requires companies to expense costs associated with start-up operations, including costs previously deferred. The adoption of SOP 98-5 during the first quarter of fiscal 2000 did not have a material impact on the Company. -9- FLOW INTERNATIONAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Revenues for Flow International Corporation ("Flow" or the "Company") for the six month period ended October 31, 1999 increased $12.9 million (17%) to $87.7 million as compared to $74.8 million in the prior year. Revenue for the three month period ended October 31, 1999 was $46.5 million, an increase of $8.1 million (21%) as compared to $38.4 million in the prior year. The revenue increase results from the recent acquisitions of Flow Pressure Systems Vasteras AB ("Pressure Systems") in March 1999 and Spearhead Automated Systems, Inc. ("Spearhead") in September 1999. Excluding these acquisitions, revenue decreased 11% for the quarter ended October 31, 1999 and 12% year to date, as compared to the prior year period. In contrast, according to the Association for Manufacturing Technology, the domestic metal cutting market declined 34% year over year, through September 1999. During that same nine month period, Flow's domestic sales, excluding acquisitions, have decreased 12% compared to the prior year. Geographically, domestic and European revenues for the quarter ended October 31, 1999 increased $1.5 million (7%) and $5.3 million (55%), respectively, as compared to the prior year period. Increases in both of these areas resulted from inclusion of the recent acquisitions. Domestic revenues in the quarter totaled $23.5 million while European revenues represented 32% of consolidated revenues at $14.9 million. Asian revenues decreased 11% for the three months ended October 31, 1999 as compared to the prior year period, and represented 8% of total revenues. Revenue in Japan, which is included in the Asian region, for the quarter ended October 31, 1999 was comparable to the prior year period. For the six months ended October 31, 1999 domestic and European revenues increased $1.9 million (4%) and $9.1 million (47%), respectively, as compared to the prior year period. Similar to the quarter, the revenue increases are the result of the recent acquisitions. Asian revenues decreased 8% for the six months ended October 31, 1999 as compared to the prior year period, and represented 8% of total revenues. The Company's revenues can be segregated into systems sales and consumables sales. In general a system sale is comprised of a pump along with the robotics or articulation to move the cutting head, and may also include automation capabilities. In addition, the Company's food and isostatic press systems, which are built by Pressure systems, are included in systems sales. Consumables represent parts used by the pump and cutting head during operation. Systems revenues increased 35% and 27% for the three and six months ended October 31, 1999, respectively, over the prior year periods, due to the recent acquisitions. Consumables revenues decreased 2% for the quarter ended October 31, 1999 and increased 1% for the six month period ended October 31, 1999, due to a slowdown in the domestic economy, as well as the Company's development of longer lived consumable parts. There have not been any significant price increases or decreases for the Company's products. -10- FLOW INTERNATIONAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The Company has begun to apply ultrahigh-pressure ("UHP") technology to food, trademarked as "Fresher Under Pressure"-TM-. By exposing foods to pressures up to 100,000 psi for a short time, typically 30 seconds to slightly more than two minutes, UHP achieves the effects of pasteurization without heat. Not only are spoilage microorganisms destroyed, but the process also destroys harmful pathogens such as E. coli bacteria, thus increasing shelf life while ensuring a safe, healthy product. Unlike thermal treatment (pasteurization), UHP technology does not destroy or alter the nutritional qualities, taste, texture or color of the food. Flow has developed a technology that features a `continuous flow' concept whereby pumpable foods such as juices, salsas, guacamole, liquid eggs and salad dressings are pumped into pressure chambers, pressurized and then pumped into the next stage of the process, such as bottling. This continuous flow process is fully automated and requires just a single operator. The Company also has the ability to process non-pumpable foods as a result of the acquisition of Pressure Systems. Pressure Systems provides Flow the patented large batch system vessel technology. Flow is the only supplier in the world to have full capabilities in both the continuous flow and batch UHP food processing technology. The Company anticipates leasing the continuous flow technology, while the batch processing systems manufactured by Pressure Systems will generally be sold. The leases have a fixed monthly rental charge plus a per gallon or per pound usage fee. Revenue recognition on the batch systems will be on the percentage of completion cost to cost method. Included in revenues for the three and six month periods ended October 31, 1999 is approximately $250,000 and $550,000, respectively, associated with the Fresher Under Pressure technology, which meets management expectations. The Company estimates fiscal 2000 Fresher Under Pressure revenues will be between $7 million and $10 million depending on when clients place orders and launch their new fresh products. Management also anticipates this market will double each year for the next three years. Gross profit for the quarter was $18.6 million, an increase of $1.7 million (10%) over the prior year period. Gross profit expressed as a percentage of revenues (gross margin rate) was 40% for the quarter and 41% year to date, as compared to 44% and 44%, respectively, in the prior year periods. Comparison of gross margin rates is dependent on the mix of sales revenue types, which includes special system, standard system and consumables sales. Systems typically carry lower gross margin rates than the Company's consumable parts. Additionally, special systems are generally custom designed and carry lower margins than the Company's standard systems such as the Bengal, Flying Bridge, Husky, Eagle and A-series. Also included in current year system sales are the press systems manufactured at Pressure Systems. The gross margin rate -11- FLOW INTERNATIONAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) decrease in fiscal 2000 as compared to the prior year is primarily due to the inclusion of Pressure Systems' products. Excluding Pressure Systems and Spearhead, operating expenses decreased $1.1 million (9%) and $1 million (4%) for the three and six months ended October 31, 1999, respectively, as compared to the prior year periods. Total consolidated operating expenses of $14.9 million increased $2 million (15%) for the quarter ended October 31, 1999, compared to the prior year period and were $28.7 million, up $3.2 million (13%) for the six months ended October 31, 1999 versus the prior year period. Marketing expenses increased $343,000 (5%) and $1.6 million (13%) for the three and six month periods ended October 31, 1999, respectively, as compared to the prior year periods. Excluding Pressure Systems and Spearhead, marketing expenses decreased $362,000 (6%) and increased $464,000 (4%) for the three and six months ended October 31, 1999, respectively, as compared to the prior year periods. The six month increase, net of acquisitions, is related to expenses associated with the new South American operations. Research and engineering expense increased $755,000 (25%) and $568,000 (9%) for the three and six month periods ended October 31, 1999 respectively, as compared to the prior year periods. Research and engineering expenses expressed as a percentage of revenues were the same for both the three and six month periods ended October 31, 1999, as well as the prior year periods at 8%. General and administrative expense increased $863,000 (23%) and $1.1 million (15%) for the three and six month periods ended October 31, 1999 respectively, as compared to the prior year periods. Excluding Pressure Systems and Spearhead, general and administrative expense decreased $320,000 (9%) and $530,000 (7%) for the three and six months ended October 31, 1999, respectively, as compared to the prior year periods. Expressed as a percentage of consolidated revenue, general and administrative expenses were the same for both the three and six month periods ended October 31, 1999, as well as the prior year periods at 10%. Operating income for the quarter ended October 31, 1999 was $3.6 million, a decrease of $314,000 (8%) over the prior year quarter. For the year, operating income was $7 million, a decrease of $302,000 (4%) over the prior year period. Interest expense of $1.2 million increased $339,000 (41%) for the quarter ended October 31, 1999, compared to the prior year period and was $2.5 million, up $925,000 (58%) for the six months ended October 31, 1999 versus the prior year period. The increase in interest expense is due to higher debt levels associated with the March 1999 purchase of Pressure Systems and September 1999 purchase of Spearhead, as well as additional financing related to the further development of the Fresher Under Pressure program. Other expense of $379,000 increased $268,000 (241%) for the quarter ended -12- FLOW INTERNATIONAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) October 31, 1999, compared to the prior year period and was $504,000, up $438,000 (664%) for the six months ended October 31, 1999 versus the prior year period. This increase is due to the expense associated with the minority interest in joint ventures at Pressure Systems. Based upon the expected tax position of the Company for fiscal 2000, year to date taxes have been provided for at 30% of pre-tax income. Year to date fiscal 1999 taxes were provided for at 29% of pre-tax income. The increased rate to 30% in fiscal 2000 as compared to the net twelve month fiscal 1999 rate of 28% is reflective of the projected change in mix of pre-tax income to higher taxing jurisdictions. The income tax rate was lower than the statutory rate in both the current and prior year due primarily to lower foreign tax rates, benefits from the foreign sales corporation, and adjustments to the Company's deferred tax valuation allowance. Basic shares outstanding for the three months ended October 31, 1999 and 1998 were 14,701,000 and 14,749,000, respectively. For the six months ended October 31, 1999 and 1998, basic shares outstanding were 14,693,000 and 14,823,000, respectively. Diluted shares outstanding for the three months ended October 31, 1999 and 1998 were 15,084,000 and 15,027,000, respectively. The diluted shares outstanding include potential dilutive common shares from employee stock options of 383,000 and 278,000 for the three months ended October 31, 1999 and 1998, respectively. For the six months ended October 31, 1999 and 1998, diluted shares outstanding were 15,071,000 and 15,194,000, respectively. The diluted shares outstanding include potential dilutive common shares from employee stock options of 378,000 and 371,000 for the six month periods ended October 31, 1999 and 1998, respectively. The Company recorded net income of $1.5 million or $.10 per basic and diluted share for the three months ended October 31, 1999, compared to $2.2 million, or $.15 per basic and diluted share for the same prior year period. Year to date, the Company recorded $2.8 million or $.19 per Basic and $.18 per Diluted share as compared to $4 million or $.27 per Basic and $.26 per Diluted share in fiscal 1999. LIQUIDITY AND CAPITAL RESOURCES The Company generated $4.6 million and $2.4 million from operations during the six month periods ended October 31, 1999 and 1998, respectively. At October 31, 1999, the Company had a total of $8.8 million in completed continuous feed Fresher Under Pressure units, work in progress and stores inventory. Of this amount, $4.1 million is classified as property and equipment and the remaining $4.7 million is included in -13- FLOW INTERNATIONAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) inventory on the Consolidated Balance Sheet. The Company believes that the available credit facilities and working capital generated by operations will provide sufficient resources to meet its operating and capital requirements. The Company's Credit Agreement and Private Placement require the Company to comply with certain financial covenants. In September 1999 the Company amended its covenants related to the acquisition of Spearhead. As of October 31, 1999, the Company was in compliance with all such covenants, as amended. Gross trade receivables at October 31, 1999 increased $2.5 million from April 30, 1999. Days sales in gross accounts receivable can be negatively impacted by the traditionally longer payment cycle outside the United States as well as timing of payments on large special system orders. The Company's management does not believe these timing issues will present a material adverse impact on the Company's short-term liquidity requirements. Inventories at October 31, 1999 increased $3.5 million (7%) from April 30, 1999. Excluding Pressure Systems and Spearhead, inventory decreased $3.7 million (8%) from April 30, 1999. Certain products manufactured by Pressure Systems, Flow Robotics and Flow Automation can require an extended manufacturing period and thus impact inventory levels from period to period. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the Company's market risk during the three and six month periods ended October 31, 1999. For additional information, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations as presented in the April 30, 1999 Form 10-K as filed with the Securities and Exchange Commission. Year 2000 Issues and Conversion: Background: Some computers, software, and other equipment include programming code that limits the "year" field to two digits. Thus, these systems could fail in the event that the last two digits "00" are interpreted to mean the year 1900. For this reason, the Company began the conversion process to upgrade its systems in fiscal 1998. Assessment: The Year 2000 issues could effect computers, software, and other equipment used, or maintained by the Company. The Company has reviewed its -14- FLOW INTERNATIONAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) internal computer programs and systems to determine if the programs and systems are Year 2000 ready. The Company believes that its computer systems will be Year 2000 ready in a timely manner. To date, the Company has converted and tested its computer systems. The estimated costs of these efforts are $250,000 and are not expected to be material to the Company's financial position or any of its financial results from operations. There can, however, be no assurance to this effect. To date, no other Information Technology projects that have a material effect on the Company's operations have been deferred. Software Sold to Customers: The Company develops its own proprietary software which controls the functions of some of its machines. The Company also sells software or other electronic control devices purchased from third party vendors. The Company believes that it has substantially identified and resolved all potential Year 2000 issues with any of its software products. However, the Company believes that it is not possible to determine with complete certainty that its products are entirely Year 2000 ready. As with most software, it is dependent upon hardware and other operating systems that are provided by other third party vendors not under the Company's control. Internal Infrastructure: The Company is in the process of reviewing all of its equipment that is used in the receiving, manufacturing, and shipping of its products as well at its copiers, fax machines, elevators, telephone systems and other equipment used to maintain daily operations. To date, the Company has not identified any material issues that would effect the ongoing operations. The Company is on schedule with its review of these systems and does not expect any required modifications to have a material adverse effect on its future financial results. However, the Company is continuing to monitor the process and this estimate will be revised if additional material information is discovered. Suppliers: The Company initiated communications with all of its critical suppliers in April 1998. The form of this communication was by questionnaire designed to determine the Year 2000 readiness of the suppliers business systems. To date, the Company has completed the mailing of all questionnaires. The Company has also completed the process of reviewing supplier responses and continues to monitor progress of supplier Year 2000 projects. Based upon responses to date, the Company believes that its critical suppliers will be Year 2000 compliant and does not currently expect any adverse effects on its daily operations. While the Company does not expect -15- FLOW INTERNATIONAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) any material adverse effects, the Company can provide no assurance that these suppliers will resolve all of their Year 2000 issues on a timely basis. Risks: While the Company is taking steps in all areas discussed above, there can be no assurance that all Year 2000 issues will be entirely resolved. Due to this inherent uncertainty, resulting in part from the uncertainty of the Year 2000 readiness of third- party suppliers and customers, there could be interruptions or failures that would materially impact normal business operations. The Year 2000 Project is expected to significantly reduce the potential of any such material adverse effects. Further, the Year 2000 Project includes the development of contingency plans for those systems that are critical to daily operations. Readers are cautioned that the forward-looking statements contained in the Year 2000 Issues and Conversion should be read in conjunction with the Company's disclosures under the heading: "Safe Harbor Statement'. SAFE HARBOR STATEMENT: STATEMENTS IN THIS REPORT THAT ARE NOT STRICTLY HISTORICAL ARE "FORWARD-LOOKING" STATEMENTS WHICH SHOULD BE CONSIDERED AS SUBJECT TO THE MANY UNCERTAINTIES THAT EXIST IN THE COMPANY'S OPERATIONS AND BUSINESS ENVIRONMENT. THESE UNCERTAINTIES, WHICH INCLUDE ECONOMIC AND CURRENCY CONDITIONS, MARKET DEMAND AND PRICING, COMPETITIVE AND COST FACTORS, AND THE LIKE, ARE SET FORTH IN THE FLOW INTERNATIONAL CORPORATION FORM 10-K REPORT FOR 1999 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. -16- FLOW INTERNATIONAL CORPORATION PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company is party to various legal actions incident to the normal operations of its business, none of which is believed to be material to the financial condition of the Company. Item 2. CHANGES IN SECURITIES None Item 3. DEFAULTS UPON SENIOR SECURITIES None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its 1999 Annual Meeting of Stockholders on August 25, 1999. At the meeting three directors, Kathryn L. Munro, Sandra F. Rorem and Dean D. Thornton were elected to three-year terms ending with the 2002 Annual Meeting of Stockholders receiving, respectively, 13,481,717, 13,484,383 and 13,490,580 votes in favor and 659,799, 657,133 and 650,936 votes withheld. An amendment to the 1995 Long-Term Incentive Compensation Plan (the "Plan") was also adopted. The Plan received 5,356,642 votes for approval, 4,503,101 shares against and 173,477 shares abstained. There were no non-broker votes for the vote on the directors. There were 4,108,296 broker non-votes for the amendment. Item 5. OTHER INFORMATION None Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - None (b) Reports on Form 8-K - None -17- FLOW INTERNATIONAL CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FLOW INTERNATIONAL CORPORATION Date: December 13, 1999 /s/ Ronald W. Tarrant --------------------- Ronald W. Tarrant Chairman, President and Chief Executive Officer (Principal Executive Officer) Date: December 13, 1999 /s/ Stephen D. Reichenbach -------------------------- Stephen D. Reichenbach Executive Vice President, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) -18- EX-27 2 EXHIBIT 27
5 6-MOS APR-30-2000 MAY-01-1999 OCT-31-1999 8,555 0 59,092 894 51,271 125,234 46,424 27,245 189,132 35,347 0 0 0 147 66,773 189,132 87,732 87,732 52,023 80,757 504 128 2,524 3,947 1,185 2,762 0 0 0 2,762 0.19 0.18
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