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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2000
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
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. [ ]
1
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 June 5, 2000,
was $157,000,000. The number of shares of common stock outstanding as of June 5,
2000, was 14,308,917 shares.
2
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 IV: None
3
PART I
ITEM 1. BUSINESS
- --------------------------------------------------------------------------------
Flow International Corporation ("Flow" or the "Company") designs,
develops, manufactures, markets, and services ultrahigh-pressure ("UHP")
products including waterjet cutting and cleaning systems, specialized robotics
systems, and food safety applications. Flow provides technologically-advanced,
environmentally-sound solutions to the manufacturing, industrial, marine
cleaning and food preparation markets. The Company's waterjet cutting systems
pressurize water from 30,000 to over 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, tile and other stone cutting, and paper industries.
Additionally, the Company manufactures a product line for use in industrial
cleaning, surface preparation, construction, nuclear decontamination, and
petro-chemical and oil field applications. The Company also manufactures the
robotic articulation equipment used in the cutting and cleaning processes which
may also include assembly, pick and place and load/unload operations. The March,
1999 acquisition of Flow Pressure Systems ("Pressure Systems") from Asea Brown
Boveri AB ("ABB") increased the Company's product offering with the addition of
patented UHP pressure vessel technology used in the automotive, medical and food
industries.
In addition to UHP cutting and cleaning, the Company has developed a
food safety technology known as "Fresher Under Pressure"(R). By exposing foods
to pressures from 50,000 psi to over 100,000 psi for a short time, typically 30
seconds to slightly more than 2 minutes, UHP achieves the effects of
pasteurization without heat. Not only are spoilage microorganisms destroyed, the
process also destroys harmful pathogens such as E. coli, listeria, and
salmonella, 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 and color of the food. Flow has
developed a technology which features a `continuous flow' concept whereby
pumpable foods such as juice, salsas, guacamole, liquid eggs and salad dressings
are pumped into the 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 UHP 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 leader in both the continuous feed and batch UHP food
processing technology. During fiscal 2000 the Company began to recognize
revenues from the Fresher Under Pressure technology, which totaled $7.2 million.
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.
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In December 1994, the Company purchased certain net assets of
Dynovation Machine Systems, Inc. ("Flow Automation"). Flow Automation designs
and manufactures robotic waterjet cutting cells and automated assembly systems
for the automotive and other industries.
In January 1995, the Company purchased certain net assets of ASI
Robotics Systems, Inc. ("Flow Robotics"). Flow Robotics designs and manufactures
high accuracy gantry-type robots and related systems used in waterjet and
factory automation applications. This manufacturing facility supplies products
to the aerospace, automotive, job shop, marble and tile and other industries.
In May 1995, the Company took a 51% interest in a joint venture with
Okura & Co., Ltd., its exclusive Japanese distributor. This joint venture, Flow
Japan, supplies UHP products in Japan and to Japanese companies throughout Asia.
During fiscal 1998 the Company increased its ownership interest to 95% and
during fiscal 2000 the Company obtained 100% ownership.
In May 1997, the Company purchased the stock of Foracon Maschinen und
Anlagenbau GmbH & CO.KG ("Foracon"). Foracon supplies UHP and related systems to
the European market.
In September 1997, the Company re-focused on its core
ultrahigh-pressure technology and divested itself of its non-core Access and
Services business. The Company recorded a $4.9 million restructuring charge
during fiscal 1998 and $9 million restructuring charge in fiscal 1997 associated
with the divestiture of these operations.
In April 1998, the Company purchased certain net assets of CIS Robotics
Inc. ("CIS") and acquired the stock of Robot Simulations Limited ("Flow Software
Technologies Ltd.") of the U.K. CIS provides robot programming services,
primarily to the automotive industry, while Flow Software Technologies Ltd
markets a PC software program for control systems and off-line programming of
pedestal robots.
In March 1999, the Company purchased the stock of Pressure Systems from
ABB and acquired a 51% voting interest in a related U.S. joint venture, Flow
Autoclave Systems Inc. ("Flow Autoclave"). Pressure Systems is the leading
supplier of large, bulk ultrahigh-pressure systems to the food industry and the
world leader in isostatic press systems for the aerospace and automotive
industries. Flow Autoclave markets the Pressure Systems product domestically.
In September 1999 the Company purchased certain net assets of Spearhead
Automated Systems, Inc. ("Spearhead"). Spearhead manufactures advanced cutting,
trimming and tooling equipment for the automotive and related industries.
5
PRODUCTS AND SERVICES
The Company provides UHP systems and related products and services to a
wide variety of industries. The Company divides its UHP revenues into two
primary categories of product, `UHP Systems' and `UHP Consumable Parts and
Services'. In addition to UHP revenue, the Company's fiscal 1998 consolidated
revenue also includes the non-core Access and Services operations, which were
sold in September 1997:
(In thousands) Year Ended April 30,
2000 % 1999 % 1998 %
--------------------------------------------------------------
UHP Systems $138,379 71 $94,040 63 $94,728 66
UHP Consumable Parts and Services 55,708 29 54,162 37 47,904 34
--------------------------------------------------------------
Total UHP Revenue $194,087 100 $148,202 100 $142,632 100
==============================================================
Access and Services - - 16,850
--------------------------------------------------------------
Total Consolidated Revenues $194,087 $148,202 $159,482
==============================================================
UHP SYSTEMS, CONSUMABLE PARTS AND SERVICES
The Company offers a variety of UHP equipment system products,
including waterjet cutting tables, waterjet cleaning systems, food safety
systems and isostatic press systems, as well as accessories, including robotic
articulation equipment. UHP pumps, intensifier and direct-drive, are currently
the core components of the Company's product line. An intensifier pump
pressurizes water to in excess of 100,000 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 50,000
psi utilizing triplex piston technology. In order to cut metallic and other hard
materials, an abrasive substance is added to the waterjet stream, usually
garnet, 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 secondary operation.
A UHP waterjet system consists of an ultrahigh-pressure intensifier or
direct drive pump, one or more waterjet cutting or cleaning heads with the
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, tile and other stone cutting and paper industries.
The Company's waterjet systems are also used in industrial cleaning applications
such as paint removal, surface preparation, factory and industrial cleaning,
ship hull preparation, oil field services and heat exchanger cleaning.
Additionally, the Company manufactures systems which
6
combine waterjet applications with other processes such as pick and place
operations, inspection, assembly, and other automated processes. UHP systems
revenue includes $7.2 million associated with the Company's "Fresher Under
Pressure" technology. Sales of UHP systems accounted for 71% of fiscal 2000
revenues.
Flow sells various tools and accessories which incorporate waterjet
technology, as well as aftermarket consumable parts and service for its
products. Consumables primarily represent parts used by the pump and cutting
head during operation. Many of these parts are proprietary in nature. Sales of
consumable parts and service accounted for 29% of fiscal 2000 revenues.
The Company's products are considered productivity enhancing tools and
can be cost justified over traditional cutting methods. The Company's sales will
be affected by worldwide economic changes, however the Company should continue
to gain market share in the machine cutting tool market even in `down' economies
due to the cost savings generated by waterjet technology.
ACCESS SYSTEMS AND SERVICES
Prior to the divestiture of its non-core Access and Services business
in September 1997, the Company designed, manufactured, rented, sold, and
serviced powered access systems for use in industrial, structural and facade
maintenance and construction applications. The Company also provided as a
service, the removal of deteriorated concrete from bridges and parking garage
surfaces.
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 Columbus, Ohio; Detroit, Michigan;
Jeffersonville, Indiana; Lafayette, Louisiana; Birmingham, England; Bretton and
Darmstadt, Germany; Buenos Aires, Argentina; Burlington and Windsor, Canada;
Hsinchu, Taiwan; Sao Paulo, Brazil; Nagoya and Tokyo, Japan and Stockholm,
Sweden. The Company sells directly to customers in North and South America,
Europe, and Asia, and has distributors or agents in most other countries.
No customer accounted for 10% or more of the Company's revenues during
any of the three years ended April 30, 2000.
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 requirements in targeted market segments. This
information is used to develop standardized and customized solutions using UHP
and robotics technologies. 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.
7
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 in our
target markets. The Company also attends trade shows for targeted market
segments and advertises in selected industry publications.
PATENTS AND LICENSES
The Company holds a large number of patents relating to UHP technology
and related systems. 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 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, 2000, the Company's backlog was $43 million compared to
the prior year end backlog of $35.8 million. The nature of the Company's
business is that most products, exclusive of the Pressure Systems and Fresher
Under Pressure product, can be shipped within a four to ten week period and thus
backlog and the changes in the Company's backlog are not necessarily indicative
of comparable variations in sales or earnings. The April 30, 2000, backlog
represented 22.1% of fiscal 2000 sales. Based upon the terms of the customer
contracts and the Company's manufacturing schedule, all of the revenue backlog
as of April 30, 2000 is expected to be realized during fiscal 2001. 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.
COMPETITION
The major competitors for UHP waterjet systems are conventional cutting
and cleaning methods. These methods include saws, knives, shears, plasma,
lasers, abrasive wheels, grinders, routers, drills, and abrasive cleaning
techniques. A UHP waterjet cutting system has many advantages over conventional
cutting systems, including no generation of heat or airborne dust, easy
adaptability to complex cutting programs, versatility in the different types of
product that
8
can be cut, cutting speed 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 hazardous
material containment or reduction of secondary operations in the cleaning
process. The many advantages of a waterjet over traditional cutting and cleaning
methods have positioned it in the market as a productivity enhancing tool.
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 technology acquisitions provide a competitive advantage as the only
total solution supplier of complete waterjet cutting systems. 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.
Pasteurization is the primary method used today to help ensure that
food is safe to eat. "Fresher Under Pressure" represents a break-through
technology which destroys harmful pathogens such as E. coli bacteria, as well as
the spoilage microorganisms, thus increasing shelf life while ensuring a safe,
healthy product. There are several other companies throughout the world which
are trying to develop a similar UHP processing technology. These companies
efforts are in the development stages only and management believes the Company's
patents and know-how make it the leader in this technology. Currently Flow's
equipment is the only equipment being used in any significant commercial
applications. In addition, Flow has a very strong backlog of food safety
equipment. There are also other technologies being developed related to food
safety, including irradiation and ultra-violet light.
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 technological
leadership, (4) the ability to provide complete turnkey systems, (5) a strong
position in key markets, such as in 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 spent between 6% and 9% of revenues in research and
engineering during each of the three years ended April 30, 2000. Research and
engineering expenses were $14.7 million in 2000, $12.4 million in 1999, and
$10.3 million in 1998. The Company will continue a high level of research and
engineering spending to maintain its technological
9
leadership position through development of new products and applications as
well as enhancing its current product line.
EMPLOYEES
As of April 30, 2000, the Company employed 998 full time and 12 part
time personnel. There are no material collective bargaining agreements to which
the Company is a party.
FOREIGN AND DOMESTIC OPERATIONS
See Note 16 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 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 be affected 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.
The success of "Fresher Under Pressure" will be dependent on consumer
acceptance of the technology, as well as the Company's ability to conform the
technology to any food and beverage regulations.
ITEM 2. PROPERTIES
- --------------------------------------------------------------------------------
The Company's headquarters and primary manufacturing facilities are
located in two leased facilities in Kent, Washington. The Company also
manufactures product in Detroit, Michigan; Jeffersonville, Indiana; Bretton and
Darmstadt, Germany; Burlington, Canada; Hsinchu, Taiwan and Stockholm, Sweden.
The Company sells products through all of these locations, in addition to
offices located in Columbus, Ohio; Lafayette, Louisiana; Birmingham, England;
Buenos Aires, Argentina; Nagoya and Tokyo, Japan; Sao Paulo, Brazil and Windsor,
Canada.
10
All facilities of the Company are leased with the exception of 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 in
Kent 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 position and results of operations of the Company. See Notes 1 and 14
of Notes to Consolidated Financial Statements for a description of the Company's
product liability insurance coverage and estimated exposure.
11
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 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- --------------------------------------------------------------------------------
See page 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- --------------------------------------------------------------------------------
See pages 24 through 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
- --------------------------------------------------------------------------------
None.
12
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
The principal market for Flow International Corporation's ("Flow" or
the "Company") 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 following table.
Fiscal Year 2000 Fiscal Year 1999
High Low High Low
-----------------------------------------------------------
First Quarter $11.88 $9.75 $12.75 $10.69
Second Quarter 11.97 9.94 10.75 8.38
Third Quarter 12.44 10.00 12.06 9.13
Fourth Quarter 12.88 10.25 11.13 8.44
There were 1,161 shareholders of record as of June 5, 2000.
The Company has not paid dividends to common shareholders 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 shareholders in the near future.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
(in thousands, except per share amounts) Year Ended April 30,
- --------------------------------------------------------------------------------------------------------------
2000 1999 1998* 1997* 1996
-------------------------------------------------------------------
Income Statement Data:
Revenue $194,087 $148,202 $159,482 $168,193 $144,905
Pretax Income 8,995 9,336 6,505 963 8,902
Net Income 6,477 6,722 4,803 725 7,085
Basic Earnings Per Share 0.44 0.46 0.33 0.05 0.49
Diluted Earnings Per Share 0.43 0.45 0.32 0.05 0.47
Balance Sheet Data:
Working Capital $87,552 $79,993 $59,863 $68,126 $57,866
Total Assets 197,041 179,152 121,181 133,466 126,493
Short-Term Debt 9,216 4,604 6,905 1,730 3,339
Long-Term Obligations 70,397 64,614 32,076 53,569 45,590
Shareholders' Equity 66,669 64,022 61,195 56,753 57,060
* See Note 4 of the Consolidated Financial Statements which describes the
disposition of certain business units during fiscal 1998 and the related
restructuring provisions in fiscal 1998 and 1997.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
The Company provides ultrahigh-pressure ("UHP") systems and related
products and services to a wide variety of industries. Waterjet cutting is
recognized as a better alternative to traditional cutting methods such as saws,
plasma or laser systems. It is faster, has greater versatility in the types of
products it can cut and eliminates the need for secondary processing operations.
The Company divides its UHP revenues into two primary categories of product,
`UHP Systems' and `UHP Consumable Parts and Services'. In addition to UHP
revenue, the Company's fiscal 1998 consolidated revenues also include the
non-core Access and Services operations that were sold in September 1997.
CONSOLIDATED REVENUES BY MAJOR PRODUCT CATEGORIES
Year Ended April 30,
(In thousands) 2000 1999 1998
Revenues % Revenues % Revenues %
----------------------------------------------------------------------
UHP Systems $138,379 71 $94,040 63 $94,728 66
UHP Consumable Parts and Services 55,708 29 54,162 37 47,904 34
---------------------------------------------------------------------
Total UHP Revenues 194,087 100 148,202 100 142,632 100
=====================================================================
Access and Services - - 16,850
----------------------------------------------------------------------
Total Consolidated Revenues $194,087 $148,202 $159,482
======================================================================
FISCAL 2000 COMPARED TO FISCAL 1999
Revenues for the year ended April 30, 2000 were $194.1 million, an
increase of $45.9 million (31%) over the prior year period. This growth was
the result of recent acquisitions, as well as revenues generated from the
recently commercialized food safety technology, "Fresher Under Pressure"(R).
The Company acquired Flow Pressure Systems Vasteras AB ("Pressure Systems")
in March 1999 and Spearhead Automated Systems ("Spearhead") in September
1999. Excluding acquisitions and "Fresher Under Pressure", revenues decreased
3% both domestically and internationally; however, this performance was
better than the overall machine cutting tool market. The United States
machine cutting tool market declined 14% for the 12 months ended April 30,
2000 according to the Association for Manufacturing Technology ("AMT").
Flow's UHP technology continued to gain market share in spite of a decreasing
market. The Company's revenues can be segregated into two primary categories,
systems sales and consumables sales. Systems are generally comprised of a
pump along with the robotics or articulation used to move the cutting or
cleaning head. Systems are further broken down between standard systems such
as
14
the Bengal-Registered Tradmark-, Integrated Flying Bridge, A-Series, Waterjet
Machining Center (R) ("WMC") and standard automotive systems, and special or
custom designed systems used primarily in the aerospace and automotive
markets. UHP systems also include food safety revenues, as well as isostatic
press systems. Systems sales in fiscal 2000 were $138.4 million, an increase
of $44.3 million (47%) over the prior year. Excluding acquisitions and
"Fresher Under Pressure", systems revenues were down slightly. Consumables
are primarily parts used by the pump and cutting head during operation.
Consumable parts and services revenues increased $1.5 million (3%) to $55.7
million in fiscal 2000. The slowdown in the consumable sales growth reflects
a decrease in the worldwide machine tool market, as well as the Company's
goal of providing lower operating costs through longer lived parts.
Total domestic revenues increased 42% to $110.3 million and
represented 57% of fiscal 2000 sales. European revenues posted a 28% gain to
$53.9 million and represented 28% of total revenues. Asian revenues increased
11% to $16.5 million and accounted for 8% of consolidated revenues. Sales in
the remainder of the world, primarily Canada, Mexico and South America,
decreased 4% to $13.3 million. Growth in both the domestic and European
markets resulted from recent acquisitions. While waterjet technology
continues to gain market share due to its advantages over traditional cutting
technologies, its sales growth year over year is affected by the overall
performance of the machine cutting tool market. According to AMT data, it
appears that the machine cutting tool market is beginning to rebound as
compared to the prior year. While the Company's sales growth rate has
historically exceeded the cutting tool market, the Company's fiscal 2001
performance will be affected by the extent of the broader machine tool market
rebound. The Company typically sells its products at higher prices outside
the United States due to the costs of servicing these markets. The Company
did not significantly raise prices during fiscal 2000.
Fiscal 2000 revenues included $7.2 million related to food safety or
"Fresher Under Pressure". By exposing foods to pressures up to 100,000 pounds
per square inch ("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, listeria and salmonella, thus increasing
shelf life, while ensuring a safe, healthy product. Unlike thermal treatment
(pasteurization) or other methods such as irradiation, UHP technology does not
destroy or alter the nutritional qualities, taste, texture or color of the food.
Flow has 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 UHP process non-pumpable
foods as a result of the March 1999 acquisition of Pressure Systems. Pressure
Systems provides Flow the patented large vessel technology to make batch
systems. This makes Flow the only supplier of complete UHP systems to the food
industry. The Company anticipates leasing the continuous flow systems and
selling the batch systems. The leases have a fixed monthly charge plus a per
gallon or per pound usage fee. Lease revenue is recognized monthly based on
throughput. Revenue for the batch systems is recognized on the percentage of
completion method. In total, the Company has over 50
15
pressure vessels in operation or on order. Management also anticipates
"Fresher Under Pressure" revenues will double each year for the next three
years.
Gross profit for the year ended April 30, 2000 increased $13.6
million (21%). Gross profit expressed as a percentage of revenue was 41% in
fiscal 2000 as compared to 44% in fiscal 1999. In general, gross margin rates
on systems sales are less than 45% and on consumables sales are in excess of
50%. On average, standard systems carry higher margins than the custom
engineered systems, which include the isostatic pressure vessels manufactured
by Pressure Systems. As such, the gross margin percentage varies depending on
the revenue mix between systems, both standard and special, and consumables
sales. Systems sales represented 71% of fiscal 2000 revenues, up from 63% in
the prior year, and consumables sales represented 29% of fiscal 2000
revenues, down from 37% in the prior year. The decrease in current year gross
margin was a function of the shift in revenue towards a greater percentage of
systems sales, as well as the inclusion of the isostatic press systems in
fiscal 2000.
Excluding Pressure Systems and Spearhead, operating expenses
increased $395,000 (1%) as compared to the prior year. Expressed as a
percentage of revenues, total operating expenses decreased to 32% in fiscal
2000 from 35% in fiscal 1999. Marketing expenses of $29 million increased
$4.2 million (17%) as compared to the prior year, and expressed as a
percentage of revenues, decreased to 15% from 17% in the prior year. Research
and engineering expenses in fiscal 2000 increased $2.3 million (18%) to $14.7
million as compared to the prior year. As a percentage of revenues, research
and engineering expenses were 8% in both fiscal 2000 and fiscal 1999.
Management will continue to aggressively pursue technological advances
through increased research and engineering spending to maintain the Company's
technological superiority. General and administrative expenses of $19.1
million increased $4.2 million (28%) for the year as compared to the prior
year. Expressed as a percentage of revenues however, general and
administrative expenses were comparable to the prior year at 10%.
Operating income can vary significantly for domestic and foreign
operations, but is primarily the result of product mix variations and volume
from year to year. Management continues to monitor the economic situation
throughout all principal geographic areas. The domestic machine tool market
experienced weakness in fiscal 2000, but appeared to begin to rebound during
the fourth quarter of fiscal 2000. While the Company's business has
historically performed better than the overall market, fiscal 2001 domestic
performance will be affected by the strength and timing of the rebound in the
machine cutting tool market. Fiscal 2001 European growth is expected to
continue but at a lower level than in fiscal 2000.
Net interest expense of $5 million increased $1.8 million (57%) in
fiscal 2000 compared to fiscal 1999. The increase in interest expense is due
to higher debt levels associated with the purchase of Pressure Systems and
Spearhead, as well as additional financing related to the development of the
"Fresher Under Pressure" program, and increased interest rates. During fiscal
2000, other expense, net, totaled $2 million compared to other expense, net,
of $587,000 in fiscal 1999. This change is due to the increase in the
minority interest for majority owned joint ventures.
16
For both fiscal 2000 and fiscal 1999, the provision for income taxes
was 28% of income before tax. The income tax rates were lower than the statutory
rates in both the current and prior years due primarily to lower foreign tax
rates and benefits from the foreign sales corporation. Additionally, the Company
regularly evaluates the likelihood of utilizing its deferred tax assets and
adjusts the valuation allowance thereon based on an evaluation of both positive
and negative evidence related to these deferred tax assets.
The weighted average number of shares outstanding used for the
calculation of Basic and Diluted earnings per share is 14,716,000 and
15,127,000, respectively, for fiscal 2000 and 14,730,000 and 15,059,000,
respectively, for fiscal 1999.
The Company recorded fiscal 2000 net income of $6.5 million, or $.44
Basic and $.43 Diluted earnings per share as compared to $6.7 million, or $.46
Basic and $.45 Diluted earnings per share in fiscal 1999.
FISCAL 1999 COMPARED TO FISCAL 1998
During the second quarter of fiscal 1998 the Company sold its non-core
Access and Services operations. The following pro forma table separates the
Company's fiscal 1998 consolidated income statement into ongoing operations
(UHP) and divested operations (Access and Services). The Access and Services
results include an associated $4.9 million restructuring charge. This charge is
included as a separate component of operating expenses in the accompanying
Consolidated Statements of Income.
(In thousands) Year Ended April 30, 1998
------------------------------------
Access &
UHP Services Consolidated
------------------------------------
Revenue $142,632 $16,850 $159,482
Gross profit 58,958 5,247 64,205
Operating expenses 45,593 8,427 54,020
Operating income / (loss) 13,365 (3,180) 10,185
Interest / other expense, net (3,303) (377) (3,680)
Pretax income / (loss) $10,062 $(3,557) $6,505
As fiscal 1999 does not include the divested Access and Services operations, the
following Results of Operations review compares only the ongoing UHP operations.
17
UHP RESULTS OF OPERATIONS ANALYSIS
The following analysis presents a year over year comparison of the UHP
operations. The following pro forma table presents the results of operations of
the Company's UHP business only:
(In thousands) Year ended
April 30,
------------------------
1999 1998
------------------------
Revenue $148,202 $142,632
Gross profit 65,231 58,958
Operating expenses:
Marketing 24,847 21,952
Research and engineering 12,396 9,990
General and administrative 14,888 13,651
------ ------
52,131 45,593
------ ------
Operating income 13,100 13,365
Interest expense, net (3,177) (2,886)
Other expense, net (587) (417)
------ ------
Pretax income 9,336 10,062
Net income $ 6,722 $ 7,144
Revenues for the year ended April 30, 1999 were $148.2 million, an
increase of $5.6 million (4%) over the prior year period. Systems sales in
fiscal 1999 were $94 million, a decrease of $688,000 (1%) over the prior
year. Included in this decrease was an $8.5 million reduction in large custom
designed systems versus the prior year. Weakness in the automotive and
aerospace markets account for this decrease. In addition, the average
standard domestic system selling price has decreased by 10% as the lower cost
systems, such as the Integrated Flying Bridge and Bengal, now deliver
improved accuracy and feature enhancements that were formerly found only on
the more expensive models. Consumable parts and services revenues increased
$6.3 million (13%) to $54.2 million in fiscal 1999. The consumable parts
increase reflects the expanding base of waterjet systems installed throughout
the world.
Domestically, revenues increased 9% to $77.5 million and represented
52% of fiscal 1999 sales. This increase in revenues was achieved in spite of a
27% decrease in the U.S. cutting machine tool market for the 12 months ended
April 30, 1999 according to the AMT. The Company did, however, experience
weakness domestically during the fourth quarter of fiscal 1999 with an 8%
decline in domestic sales as compared to the prior year. According to AMT, the
domestic cutting machine tool market dropped 47% during the first calendar
quarter of 1999. Management believes the decline in fourth quarter domestic
sales is a function of a tightening economy as opposed to a reduction in the
benefits of the waterjet cutting technology over
18
competitive technologies. European revenues posted the strongest geographic
gain, 22% to $42 million and represented 28% of total revenues. The Company
experienced weakness in the Asian region, where revenues decreased $4.4
million (23%) to $14.9 million. Weakness in Japan accounted for $3.5 million
of this drop. Sales in the remainder of the world, primarily Canada, Mexico
and South America, also decreased 23% to $13.9 million. The Company did not
significantly raise prices during fiscal 1999.
Gross profit for the year ended April 30, 1999 increased $6.3 million
(11%) on just a 4% increase in sales. Gross profit expressed as a percentage of
revenue was 44% in fiscal 1999 as compared to 41% in fiscal 1998. The increase
in gross margin was a function of the shift in revenue towards a greater
percentage of consumables sales, as well as an increase in standard system
sales, as compared to special systems. Systems sales represented 63% of fiscal
1999 revenues, down from 66% in the prior year, and consumables sales
represented 37% of fiscal 1999 revenues, up from 34% in the prior year. On
average, standard systems carry higher margins than the custom engineered
systems. Additionally, production efficiencies and greater throughput resulted
in reduced costs.
Total operating expenses of $52.1 million increased $6.5 million (14%)
over the prior year. Expressed as a percentage of revenues, operating expenses
increased to 35% in fiscal 1999 from 32% in fiscal 1998. Marketing expenses of
$24.8 million increased $2.9 million (13%) as compared to the prior year, and
expressed as a percentage of revenues, increased to 17% from 15% in the prior
year. This increase includes marketing activity for "Fresher Under Pressure" and
several major trade shows. Research and engineering expenses in fiscal 1999
increased $2.4 million (24%) to $12.4 million as compared to the prior year.
Approximately $2.1 million of this increase was development of the "Fresher
Under Pressure" technology. As a percentage of revenues, research and
engineering expenses were 8% in fiscal 1999 as compared to 7% in fiscal 1998.
General and administrative expenses of $14.9 million increased $1.2 million (9%)
for the year as compared to the prior year. Expressed as a percentage of
revenues however, general and administrative expenses were comparable to the
prior year at 10%.
Operating income can vary significantly for domestic and foreign
operations, but is primarily the result of product mix variations and volume
from year to year. Management continues to monitor the economic situation
throughout all principal geographic areas. Domestic growth was weaker than past
years and the Asian region experienced a 23% decline.
Net interest expense of $3.2 million increased $291,000 (10%) in fiscal
1999 compared to fiscal 1998. This increase resulted from higher debt levels
associated with a $3.3 million stock repurchase program and inventory and
capital asset additions related to "Fresher Under Pressure" of approximately
$7.7 million. During fiscal 1999, other expense, net, totaled $587,000 compared
to other expense, net, of $417,000 in fiscal 1998.
Fiscal 1999 income tax expense was 28% of income before tax as compared
to 29% in the previous year. The income tax rates were lower than the statutory
rates in both the current and prior year due primarily to lower foreign tax
rates and benefits from the foreign sales
19
corporation. Additionally, the Company regularly evaluates the likelihood of
utilizing its deferred tax assets and adjusts the valuation allowance thereon
based on an evaluation of both positive and negative evidence related to
these deferred tax assets.
The weighted average number of shares outstanding used for the
calculation of Basic and Diluted earnings per share is 14,730,000 and
15,059,000, respectively, for fiscal 1999 and 14,707,000 and 15,037,000,
respectively, for fiscal 1998.
The Company recorded fiscal 1999 net income of $6.7 million, or $.46
Basic and $.45 Diluted earnings per share as compared to $7.1 million, or $.48
Basic and $.47 Diluted earnings per share in fiscal 1998. The Company's pretax
investment in "Fresher Under Pressure" in marketing, research and engineering
and the carrying costs of inventory and fixed assets was $2.5 million in fiscal
1999. Excluding the effects of "Fresher Under Pressure" spending, fiscal 1999
net income would have been $8.5 million or $.58 Basic and $.57 Diluted earnings
per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $1.8 million in cash flow from operations during
fiscal 2000 as compared to $2.9 million in fiscal 1999. Cash flow in fiscal 2000
was impacted by increases in both receivables and inventory as discussed further
below, as well as reductions in accounts payable. The Company invested $6.6
million in property and equipment during fiscal 2000 of which $2.4 million
related to "Fresher Under Pressure". Additionally, the Company paid $4.5
million, net of cash acquired, for Spearhead. Total debt at April 30, 2000 was
$79.6 million, an increase of $10.4 million (15%) from April 30, 1999.
Management believes that the available credit facilities and working capital
generated by operations will provide sufficient resources to meet its operating
and capital requirements for the next 12 months. The Company's Credit Agreement
and private placement require the Company to comply with certain financial
covenants. The covenants were amended as a result of recent acquisitions. As of
April 30, 2000, the Company was in compliance with all such covenants, as
amended. The fiscal 1998 Consolidated Statement of Cash Flows reflects the
disposition of the Access and Services businesses.
See Note 9 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 million to $11 million in fiscal 2001. Of this amount, approximately $4
million to $6 million relates to the manufacture of the continuous feed "Fresher
Under Pressure" assets. The timing of these continuous feed asset additions will
be determined by market demand. It is expected that funds necessary for these
expenditures will be generated internally and through available credit
facilities.
20
Gross receivables of $68.7 million at April 30, 2000 increased $12.1
million (21%) from April 30, 1999. This increase is a function of the 39%
increase in sales during the fourth quarter of fiscal 2000 as compared to fiscal
1999. Days' sales outstanding in gross accounts receivable is negatively
impacted by the traditionally longer payment cycle outside the United States.
Additionally, longer payment terms are sometimes negotiated on large system
orders. Management does not believe these timing issues will present a material
adverse impact on the Company's short-term liquidity requirements.
Inventory of $49.2 million at April 30, 2000 represents an increase of
$1.4 million (3%) compared to April 30, 1999. Excluding the September 1999
Spearhead acquisition, inventories were flat as compared to April 30, 1999.
Certain products manufactured by Pressure Systems and the Company's robotics and
automation divisions require an extended manufacturing period, and therefore
involve higher levels of work in process.
Year 2000 Issues:
To date, the Company has not experienced any material issues with respect to
Year 2000 that have effected the ongoing operations. Throughout the remainder of
Year 2000, there may be dates which do cause interruptions or failures that
could materially impact normal business operations. While the Company has taken
steps to resolve Year 2000 issues, there can be no assurance that these issues
are entirely resolved as of this date.
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 2001, 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.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. Management is
evaluating the impact of SAB 101 and will adopt this statement no later than
February 1, 2001.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
- --------------------------------------------------------------------------------
Market risk exists in the Company's financial instruments related to an
increase in interest rates, adverse changes in foreign exchange rates relative
to the U.S. dollar, as well as
21
financial risk management and derivatives. These exposures are related to the
daily operations of the Company.
Interest Rate Exposure - At April 30, 2000 the Company had $79.6
million in interest bearing debt. Of this amount, $16.6 million was fixed rate
debt with interest rates ranging from 4.75% to 7.25% per annum. The remaining
debt of $63 million was variable with $43.2 million of this total bearing a rate
of LIBOR + 2.5% or 8.69% at April 30, 2000. The majority of the remaining
floating rate debt was at prime, 9%. See Note 9 to the Consolidated Financial
Statements for additional contractual information on the Company's debt
obligations. Market risk is estimated as the potential for interest rates to
increase 10% on the variable rate debt. A 10% increase in interest rates would
result in an approximate additional annual charge to the Company's pretax
profits and cash flow of $550,000. At April 30, 2000 the Company had no
derivative instruments to offset the risk of interest rate changes. The Company
may choose to use derivative instruments, such as interest rate swaps, to manage
the risk associated with interest rate changes.
Foreign Currency Exchange Rate Risk - The Company transacts business in
various foreign currencies, primarily the Canadian dollar, the German mark, the
Japanese yen, the New Taiwan dollar, and the Swedish crown. The assets and
liabilities of its foreign operations, with functional currencies other than the
U.S. dollar, are translated into U.S. dollars at exchange rates in effect at the
balance sheet date. Income and expense items are translated at the average
exchange rates prevailing during the period. Aggregate transaction gains and
losses included in the determination of net income have not been material. Based
on the Company's overall currency rate exposure at April 30, 2000, a near-term
10% appreciation or depreciation of the U.S. dollar would have an insignificant
effect on the Company's financial position, results of operations and cash flows
over the next fiscal year. At April 30, 2000, the Company had several derivative
instruments to offset the risk of foreign currency exchange rate changes. The
Company may continue to use derivative instruments, such as forward exchange
rate contracts, to manage the risk associated with foreign currency exchange
rate changes.
22
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
Management is responsible for the fair and accurate presentation of
information in this Form 10-K. The consolidated financial statements and related
notes have been prepared in accordance with accounting principles generally
accepted in the United States. 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 PricewaterhouseCoopers 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
Executive Vice President, Treasurer
and Chief Financial Officer
- --------------------------------------------------------------------------------
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
The following consolidated financial statements are filed as a part of
this report:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE IN THIS REPORT
- --------------------------------------------------------------------------------------------------------------------
Report of Independent Accountants 25
Consolidated Balance Sheets at April 30, 2000 and 1999 26
Consolidated Statements of Income for each of the three
years in the period ended April 30, 2000 27
Consolidated Statements of Cash Flows for each of
the three years in the period ended April 30, 2000 28
Consolidated Statements of Shareholders'
Equity for each of the three years in the period ended April 30, 2000 30
Notes to Consolidated Financial Statements 31
FINANCIAL STATEMENT SCHEDULES
Schedule VIII Valuation and Qualifying Accounts 51
All other schedules are omitted because they are not applicable.
24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Flow International Corporation
In our opinion, the consolidated financial statements and related
schedules listed in the accompanying index present fairly, in all material
respects, the financial position of Flow International Corporation and its
subsidiaries at April 30, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended April
30, 2000, in conformity with accounting principles generally accepted in the
United States. In addition, in our opinion, the financial statement schedules
listed in the accompanying index present fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States 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.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Seattle, Washington
June 5, 2000
25
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
April 30,
----------------------
2000 1999
---- ----
ASSETS:
Current Assets:
Cash $6,383 $10,403
Receivables, net 67,793 55,783
Inventories, net 49,168 47,771
Deferred Income Taxes 1,900 1,658
Other Current Assets 5,963 4,849
-------------------------
Total Current Assets 131,207 120,464
Property and Equipment, net 21,024 17,723
Intangible Assets, net of accumulated amortization of
$10,306 and $7,000, respectively 39,124 36,211
Deferred Income Taxes 572 1,314
Other Assets 5,114 3,440
-------------------------
$197,041 $179,152
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Notes Payable $ 5,290 $ 419
Current Portion of Long-Term Obligations 3,926 4,185
Accounts Payable 15,648 18,411
Accrued Payroll and Related Liabilities 5,948 6,801
Other Accrued Taxes 523 851
Deferred Revenue 2,476 2,888
Other Accrued Liabilities 9,844 6,916
--------------------
Total Current Liabilities 43,655 40,471
Long-Term Obligations 70,397 64,614
Customer Prepayments 14,483 8,931
Commitments and Contingencies (Note 14)
Minority Interest 1,837 1,114
Shareholders' 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,
14,736,081 shares outstanding at April 30, 2000
14,665,700 shares outstanding at April 30, 1999 147 147
Capital in Excess of Par 41,041 40,260
Retained Earnings 34,514 28,037
Accumulated Other Comprehensive Loss (9,033) (4,422)
--------------------------
Total Shareholders' Equity 66,669 64,022
-------------------------
$197,041 $179,152
=========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
26
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Year Ended April 30,
---------------------------------------
2000 1999 1998 *
----- ---- ------
Revenue $194,087 $148,202 $159,482
Cost of Sales 115,259 82,971 95,277
---------------------------------------
Gross Profit 78,828 65,231 64,205
---------------------------------------
Expenses:
Marketing 28,998 24,847 23,972
Research and Engineering 14,684 12,396 10,253
General and Administrative 19,106 14,888 14,885
Restructuring - - 4,910
--------------------------------------
62,788 52,131 54,020
--------------------------------------
Operating Income 16,040 13,100 10,185
Interest Expense, net (4,998) (3,177) (3,246)
Other Expense, net (2,047) (587) (434)
--------------------------------------
Income Before Provision for Income Taxes 8,995 9,336 6,505
Provision for Income Taxes 2,518 2,614 1,702
--------------------------------------
Net Income $6,477 $6,722 $4,803
======================================
Basic Earnings Per Share $ .44 $ .46 $ .33
======================================
Diluted Earnings Per Share $ .43 $ .45 $ .32
======================================
* SEE NOTE 4 WHICH DESCRIBES THE DISPOSITION OF CERTAIN BUSINESS UNITS DURING
FISCAL 1998
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
27
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended April 30,
--------------------------------------
2000 1999 1998 *
---- ---- ------
Cash Flows from Operating Activities:
Net Income $6,477 $6,722 $4,803
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization 7,295 4,882 4,369
Restructuring provision 4,910
Deferred Income Taxes 290 1,327 1,218
Minority Interest 723 56 38
Provision for losses on trade accounts receivable 133 373 508
Provision for slow moving and obsolete inventory (411) (213) 630
Tax effect of exercised stock options 145 218 373
Stock Compensation 319
(Increase) Decrease in Operating Assets and Liabilities, net of effects of
business combinations and restructuring:
Receivables (10,096) (4,201) (13,667)
Inventories (334) (4,494) (3,007)
Other Current Assets (1,041) 3,798 (3,454)
Accounts Payable (3,795) 4,423 2,009
Accrued Payroll and Related Liabilities (853) 1,168 1,562
Deferred Revenue (412) 2,786 102
Customer Prepayments 5,552 1,009
Other Accrued Liabilities (740) (14,668) 114
Other Long-Term Assets (1,412) (304) 2,201
------- -------- ------
Cash provided by operating activities 1,840 2,882 2,709
------- -------- ------
Cash Flows from Investing Activities:
Expenditures for property and equipment (6,569) (8,200) (6,600)
Payment for business combinations, net of cash acquired (4,499) (13,564) (7,735)
Proceeds from sale of certain business units 31,189
Other (151) (44) (186)
------- -------- ------
Cash (used) provided by investing activities (11,219) (21,808) 16,668
------- -------- ------
Cash Flows from Financing Activities:
Borrowings under line of credit agreements, net 13,337 33,594 (24,512)
Proceeds from long-term obligations 8,544
Payments of long-term obligations (3,953) (3,357) (1,389)
Common stock repurchased (3,266)
Proceeds from issuance of common stock 317 948 1,789
------- -------- ------
Cash provided (used) by financing activities 9,701 27,919 (15,568)
------- -------- ------
Effect of exchange rate changes (4,342) (1,596) (3,282)
------- -------- ------
Increase (decrease) in cash and cash equivalents (4,020) 7,397 527
Cash and cash equivalents at beginning of period 10,403 3,006 2,479
------- -------- ------
Cash and cash equivalents at end of period $6,383 $10,403 $3,006
------- -------- ------
------- -------- ------
* SEE NOTE 4 WHICH DESCRIBES THE DISPOSITION OF CERTAIN BUSINESS UNITS DURING
FISCAL 1998
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
28
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
Year Ended April 30,
--------------------------------------
2000 1999 1998 *
---- ---- ------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $4,844 $3,175 $3,504
Income Taxes 1,882 569 1,656
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value of assets acquired (Note 2) $6,039 $43,703 $10,144
Net Cash paid, stock issued and notes assumed for assets acquired (4,499) (13,564) (7,466)
-------- -------- --------
Liabilities assumed $1,540 $30,139 $2,678
29
FLOW INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Common Stock Accumulated
------------ Capital Other TOTAL
Par In Excess Retained Comprehensive SHAREHOLDERS'
Shares Value Of Par Earnings Loss EQUITY
-------------------------------------------------------------------------------------
Balances, May 1, 1997 14,545 $145 $37,766 $18,946 $(104) $56,753
Components of Comprehensive Income:
Net Income 4,803 4,803
Unrealized Loss on Equity Securities
Available for Sale, Net of Tax (136) (136)
Cumulative Translation Adjustment (2,387) (2,387)
--------------
Total Comprehensive Income 2,280
--------------
Exercise of Stock Options 302 3 1,786 1,789
Other 373 373
-------------------------------------------------------------------------------------
Balances, April 30, 1998 14,847 $148 $39,925 $23,749 $(2,627) $61,195
-------------------------------------------------------------------------------------
Components of Comprehensive Income:
Net Income 6,722 6,722
Unrealized Loss on Equity Securities
Available for Sale, Net of Tax (199) (199)
Cumulative Translation Adjustment (1,596) (1,596)
--------------
Total Comprehensive Income 4,927
--------------
Exercise of Stock Options 155 2 946 948
Repurchase of Common Stock (336) (3) (829) (2,434) (3,266)
Other 218 218
-------------------------------------------------------------------------------------
Balances, April 30, 1999 14,666 $147 $40,260 $28,037 $(4,422) $64,022
-------------------------------------------------------------------------------------
Components of Comprehensive Income:
Net Income 6,477 6,477
Unrealized Loss on Equity Securities
Available for Sale, Net of Tax (269) (269)
Cumulative Translation Adjustment (4,342) (4,342)
--------------
Total Comprehensive Income 1,866
--------------
Exercise of Stock Options 71 317 317
Other 464 464
-------------------------------------------------------------------------------------
Balances, April 30, 2000 14,737 $147 $41,041 $34,514 $(9,033) $66,669
=====================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three years ended April 30, 2000
(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"), Foracon Maschinen und Anlagenbau GmbH & CO.KG
("Foracon"), Flow Asia Corporation ("Flow Asia"), Flow Automation Inc. ("Flow
Automation"), Flow Japan Corporation ("Flow Japan"), Flow Software Technologies
Ltd. ("Flow Software"), Flow Pressure Systems Vasteras AB ("Pressure Systems"),
Flow Holdings GmbH (SAGL) Limited Liability Company ("Flow Switzerland"),
HydroDynamic Cutting Services, Spearhead Automated Systems ("Spearhead"), and a
50% owned joint venture, Flow Autoclave Inc. ("Flow Autoclave"). In addition,
periods through the first quarter of fiscal 1998 included the wholly-owned
subsidiaries Rampart Waterblast, Inc., Spider Staging Corporation ("Spider"),
Power Climber and affiliated companies ("Power Climber") as well as a joint
venture, Consortium Europeen du Materiel ("CEM") and the HydroMilling division,
collectively ("Access and Services") (see Note 4). All significant intercompany
transactions have been eliminated.
OPERATIONS
The Company develops and manufactures ultrahigh-pressure ("UHP")
waterjet cutting, cleaning and specialized robotic systems for the
manufacturing, industrial and marine cleaning markets. The Company provides
products to a wide variety of industries, including the automotive, aerospace,
disposable products, food processing, job shop, marble, tile and other stone
cutting, and paper industries. In addition, the Company provides isostatic
presses to the automotive and aerospace industries and UHP processing equipment
for food. Equipment is designed, developed, and manufactured at the Company's
principal facilities in Kent, Washington, and at manufacturing facilities in
Bretton and Darmstadt Germany; Burlington, Canada; Hsinchu, Taiwan;
Jeffersonville, Indiana; Detroit, Michigan and Vasteras, Sweden. The Company
markets its products to customers worldwide through its principal offices in
Kent and its subsidiaries in Brazil, Canada, Germany, Japan, Sweden,
Switzerland, Taiwan, and the United Kingdom.
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. Revenues from equipment on
lease are recognized as rental income in the period earned.
31
CASH EQUIVALENTS
For the purposes of the Consolidated Statements of Cash Flows, the
Company considers short-term investments with original or remaining maturities
from the date of purchase of three months or less, if any, to be cash
equivalents. The Company's cash consists of demand deposits in large financial
institutions. At times, balances may exceed federally insured limits.
INVENTORIES
Inventories are stated at the lower of cost, determined by using the
first-in, first-out method, or market. Costs included in inventories consist of
materials, labor and manufacturing overhead, which are related to the purchase
or production of inventories.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Additions, leasehold
improvements and major replacements are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred. When assets are
sold, retired or otherwise disposed of, the cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is reflected in the
statement of income. 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 for machinery and equipment; three to
nine years for furniture and fixtures and 19 years for buildings. Leasehold
improvements are amortized over the related lease term, or the life of the
asset, whichever is shorter.
INTANGIBLE ASSETS
Intangible assets consisting primarily of acquired technology, patents,
non-compete agreements and goodwill are amortized on a straight-line basis over
fifteen years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews most long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used in its
business annually for impairment, or whenever events or changes in circumstances
indicate that the carrying amount of an asset or group of assets may not be
recoverable in accordance with accounting principles generally accepted in the
United States. If determined necessary, an impaired asset is written down to its
estimated fair market value based on the best information available. The Company
generally measures estimated fair market value by reviewing undiscounted
estimated future cash flows. Accordingly, actual results could vary
significantly from such estimates.
32
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of all financial instruments on the balance sheet
as of April 30, 2000 and 1999 approximates fair value with the exception of the
Company's investment in Phenix Composites, Incorporated ("Phenix") (see Note 5).
The carrying value of long-term obligations and notes payable approximates fair
value because interest rates reflect current market conditions or are based on
discounted cash flow analyses. The carrying value of the Company's investment in
common stock of Western Garnet International Ltd. ("Western Garnet") is at fair
value based on the current market price of the common stock.
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.
WARRANTY LIABILITY
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.
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 expenses are insurance, investigation and legal defense costs.
Legal settlements, if any, are included in other expense.
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.
33
MINORITY INTERESTS IN JOINT VENTURES
The Company includes income or expense associated with the minority
interest in joint ventures as part of Other Expense, net in the accompanying
Consolidated Statements of Income.
FOREIGN CURRENCY TRANSLATION
The functional currency of Flow Asia is the New Taiwan dollar; of Flow
Automation, the Canadian dollar; of Flow Europe and Foracon, the German mark; of
Flow Japan, the Japanese yen, and of Pressure Systems, the Swedish crown. All
assets and liabilities of these foreign subsidiaries are translated at year-end
rates. Income and expense accounts of the foreign subsidiaries are translated at
the average rates in effect during the year. Adjustments resulting from the
translation of Flow Asia, Flow Automation, Flow Europe, Foracon, Flow Japan, and
Pressure Systems financial statements are recorded in the accumulated other
comprehensive loss account in the shareholders' equity section of the
accompanying Consolidated Balance Sheets.
The Company uses forward exchange contracts to hedge certain firm
purchase and sale commitments and the related receivables and payables,
including certain intercompany foreign currency transactions. Hedged
transactions are denominated primarily in the Swedish crown. Gains and losses
related to hedges of firmly committed transactions and the related receivables
are deferred and are recognized in income or as adjustments of carrying amounts
when the offsetting gains and losses are recognized on the hedged transactions.
The realized and unrealized gains or losses on forward contracts were
insignificant. The forward exchange contracts expire at various times through
March 2001.
The estimated fair values of derivatives used to hedge the Company's
risks will fluctuate over time. The fair value of the forward exchange contracts
is estimated by obtaining quoted market prices.
For the years ended April 30, 2000, 1999 and 1998 a net foreign
exchange loss of $110,000, $104,000 and $75,000, respectively, is included in
Other Expense, net, in the accompanying Consolidated Statements of Income.
BASIC AND DILUTED EARNINGS PER SHARE
Basic earnings per share represents net income available to common
shareholders divided by the weighted average number of shares outstanding during
the period. Diluted earnings per share represents net income available to common
shareholders divided by the weighted average number of shares outstanding
including the potentially dilutive impact of stock options. Common stock options
are converted using the treasury stock method.
34
The following table sets forth the computation of Basic and Diluted
earnings per share for the years ended April 30, 2000, 1999 and 1998:
Year Ended April 30,
2000 1999 1998
------------------------------
Numerator:
Net income $6,477 $6,722 $4,803
Denominator:
Denominator for basic earnings
per share - weighted average shares 14,716 14,730 14,707
Dilutive potential common shares from
employee stock options 411 329 330
-------------------------------
Denominator for diluted earnings
per share - weighted average shares
and assumed conversions 15,127 15,059 15,037
Basic earnings per share $.44 $.46 $.33
Diluted earnings per share $.43 $.45 $.32
USE OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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. Significant estimates that are susceptible to
significant change in the near term are the percentage of completion
estimates and the adequacy of the allowance for obsolete inventory, warranty
obligations and doubtful accounts receivable.
RECLASSIFICATIONS
Certain 1999 and 1998 amounts have been reclassified to conform with
the 2000 presentation. These reclassifications had no effect on previously
reported net income or cash flows.
35
SEGMENTS
The Company is required to report information about operating
segments both annually as well as condensed data quarterly. Operating
segments are determined based upon the manner in which internal financial
information is produced and evaluated by the chief operating decision maker.
Additionally certain geographical information is required regardless of how
internal financial information is generated. Based on the reporting structure
of the Company and how information is evaluated, management believes the
Company operates within geographic segments only.
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 2001, 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
consolidated financial statements. The Company has not made a decision
regarding the period of adoption.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition,"
which provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements filed with the SEC. SAB 101 outlines the
basic criteria that must be met to recognize revenue and provides guidance
for disclosures related to revenue recognition policies. Management has not
yet determined the impact SAB 101 would have on the financial position or
results of operations of the Company. This statement will be adopted by the
Company no later than February 1, 2001.
NOTE 2 - BUSINESS COMBINATIONS:
- --------------------------------------------------------------------------------
In September 1999, the Company purchased substantially all of the
assets and selected liabilities of Spearhead for $4.5 million. Spearhead
manufactures advanced cutting, trimming and tooling equipment for the
automotive and related industries. The difference between the net fair market
value of assets acquired and consideration given totaled $2.8 million and has
been recorded as an intangible asset. Operating results have been included in
the Consolidated Financial Statements from the date of acquisition based upon
the purchase method of accounting.
In March 1999, the Company acquired all of the stock of Pressure
Systems from Asea Brown Boveri AB ("ABB"). In addition, the Company purchased
a 50% ownership in Flow Autoclave from an ABB subsidiary. Pressure Systems
manufactures pressure vessels used in batch UHP food processing, a
complementary product to the Company's continuous flow food processing
technology, as well as isostatic and flex forming presses for the aerospace
and
36
automotive industries. Flow Autoclave is the domestic distributor for the
Pressure Systems product. Total cash consideration for the above two
acquisitions was $22.8 million. The difference between the net fair market
value of assets acquired and consideration given totaled $21.1 million and
has been recorded as an intangible asset. Operating results have been
included in the Consolidated Financial Statements from the date of
acquisition based upon the purchase method of accounting.
In May 1997, the Company purchased the stock of Foracon. Foracon
supplies UHP and related systems to the European market. In April 1998, the
Company purchased substantially all the assets and selected liabilities of
CIS Robotics Inc. and the stock of Flow Software. These companies develop
software used to program industrial robots as well as provide, as a service,
industrial robot programming.
Total cash consideration for the above two acquisitions was $6.9
million. The difference between the net fair market value of assets acquired
and consideration given totaled $6.3 million and has been recorded as an
intangible asset. Results have been included in the Consolidated Financial
Statements from the date of acquisition based upon the purchase method of
accounting.
Except as reported in Note 3, unaudited pro forma results are not
presented as they are not materially different from the results reported in
the Consolidated Financial Statements.
During fiscal 1998, the Company invested an additional $800,000 to
increase its ownership in two joint ventures, Flow Japan and HydroDynamic
Cutting Services.
During fiscal 2000, a pre-acquisition contingency related to the
valuation of work in process inventory at Pressure Systems was resolved. This
resulted in an additional $2.7 million of goodwill being recorded.
NOTE 3 - PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
- --------------------------------------------------------------------------------
Pressure Systems was a small subsidiary of ABB. Consistent with ABB
policy, Pressure Systems was subject to various intercompany charges, many of
which will not be recurring in the future. These charges are included in the
pro forma financial information below.
If Pressure Systems had been acquired at the beginning of the years
ended April 30, 1999 and 1998, the results of operations of the Company would
be adjusted as follows on a pro forma basis. Total revenues would have been
$170.3 million and $189.8 million for the years ended April 30, 1999 and
1998, respectively. Net income for the years ended April 30, 1999 and 1998
would have been $4.8 million and $1.5 million, respectively, Basic earnings
per share would have been $.33 and $.10, respectively, and Diluted earnings
per share would have been $.32 and $.10, respectively. The adjustments to net
income for the years ended April 30, 1999 and 1998 include additional
interest expense of $1.1 million and $1.2 million, respectively, and
additional goodwill amortization of $1.3 million and $1.4 million,
respectively. The pro forma consolidated
37
financial information is presented for information purposes only, does not
take into account savings that may have been realized from the combination of
the Company and Pressure Systems, and is not indicative of the actual
consolidated financial position or results of operations in the future.
Pressure Systems utilized the completed contract method of revenue
recognition during the year ended April 30, 1998 and through the second
quarter of the year ended April 30, 1999.
NOTE 4 - BUSINESS DIVESTITURE:
- --------------------------------------------------------------------------------
During the second quarter of fiscal 1998 the Company sold its Access
and Services operations. The Company recorded a $4.9 million restructuring
provision during fiscal 1998 associated with this sale. The primary
components of this expense were: write down of assets to net realizable
value, $4 million; probable future obligations associated with the sale,
$900,000. In addition, during fiscal 1997 the Company recorded a $9 million
restructuring provision associated with the then proposed divestiture. The
primary components of this expense were: write down of assets to net
realizable value, $7.4 million; restructuring costs to be incurred in fiscal
1998, $1.3 million; restructuring costs incurred during fiscal 1997,
$300,000. These charges are included as a separate component of operating
expenses in the accompanying Consolidated Statements of Income.
At April 30, 1998, the Company had $860,000 in asset valuation
guarantee reserves related to the sale. During the year ended April 30, 1999,
the Company utilized the reserve for $860,000 with no other adjustment to the
reserve during the year.
For the year ended April 30, 1998, the operating results of the
Access and Services operations, excluding the restructuring provisions, were
revenues of $16.9 million, Gross Profit of $5.4 million, Operating Profit of
$1.7 million, and Pretax Income of $1.4 million.
NOTE 5 - RELATED PARTY TRANSACTIONS:
- --------------------------------------------------------------------------------
In August 1992, the Company entered into a stock purchase agreement
with Phenix and contributed cash and certain equipment valued at cost. The book
value of the investment is $484,000 at April 30, 2000 and 1999 and is being
accounted for under the cost method. Currently, the Company's CEO and President
is a member of the board of directors of Phenix.
During fiscal 1997 the Company purchased 369,791 shares or 3.1% of
Western Garnet for $1.5 million. Western Garnet is publicly traded on the
Toronto stock exchange. This investment was made to secure a long-term
relationship with the Company's supplier of its high quality garnet. Garnet is
sold by the Company as a consumable used in abrasivejet cutting. The Company
classifies this investment as available-for-sale under Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity
38
Securities". Based on the April 30, 2000 closing stock price of Western
Garnet, the Company recorded a tax-affected unrealized loss of $809,000 which
is reflected in Accumulated Other Comprehensive Loss of the accompanying
Consolidated Balance Sheets. Currently, the Company's CEO and president is a
member of the board of directors of Western Garnet.
NOTE 6 - RECEIVABLES:
- --------------------------------------------------------------------------------
Receivables consist of the following:
April 30,
-------------------------
2000 1999
Trade Accounts Receivable $44,200 $42,588
Unbilled Revenues 24,492 13,961
-------------------------
68,692 56,549
Less: Allowance for Doubtful Accounts 899 766
-------------------------
$67,793 $55,783
=========================
NOTE 7 - INVENTORIES:
- --------------------------------------------------------------------------------
Inventories consist of the following:
April 30,
2000 1999
-------------------------
Raw Materials and Parts $28,828 $29,090
Work in Process 11,760 11,223
Finished Goods 10,483 9,772
--------------------------
51,071 50,085
Less: Provision for Slow-Moving
and Obsolete Inventory 1,903 2,314
---------------------------
$49,168 $47,771
=========================
NOTE 8 - PROPERTY AND EQUIPMENT:
- --------------------------------------------------------------------------------
Property and equipment are as follows:
April 30,
2000 1999
-----------------------
Land and Buildings $ 300 $ 461
Machinery and Equipment 33,706 25,845
Furniture and Fixtures 2,644 2,646
Leasehold Improvements 8,269 8,588
Construction in Progress 2,988 3,620
-----------------------
47,907 41,160
Less:
Accumulated Depreciation and
Amortization 26,883 23,437
-------------------------
$21,024 $17,723
=========================
39
Included in Property and Equipment is equipment on lease of
$2.6 million and $1 million at April 30, 2000 and 1999, respectively. During
fiscal 2000, the Company capitalized interest of $371,000. No interest was
capitalized in fiscal 1999 or 1998.
NOTE 9 - LONG-TERM OBLIGATIONS AND NOTES PAYABLE:
- --------------------------------------------------------------------------------
Long-term obligations are as follows:
April 30,
2000 1999
-------------------------
Flow Line of Credit $53,758 $44,070
Private Debt Placement 12,857 15,000
Term Loans Payable 7,708 9,729
-------------------------
74,323 68,799
Less: Current Portion 3,926 4,185
-------------------------
$70,397 $64,614
=========================
Current notes payable are as follows:
April 30,
2000 1999
-----------------------
Flow Automation Notes Payable $ 463 $ -
Pressure Systems Notes Payable 4,827 -
Flow Japan Notes Payable - $ 419
-------------------------
$ 5,290 $ 419
=========================
In August 1998, the Company renegotiated its Credit Agreement. The
Company's Credit Agreement provides for a revolving line of credit of up to
$75 million, with two financial institutions, which expires on September 30,
2003. The amount that can be borrowed is limited based on 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. The Company has borrowed
$53.8 million under the Credit Agreement as of April 30, 2000, of which $10.3
million carries an interest rate of prime and the remainder carries an
interest rate of LIBOR + 2.5%. Prime at April 30, 2000 was 9% and LIBOR was
6.19%. The Company pays 0.1% as an unused commitment fee. As of April 30,
2000, the Company had $7 million of available domestic unused line of credit.
The Private Debt Placement is a 10-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 Debt
Placement are collateralized by a general lien on all of the Company's
assets. The Company is required to comply with certain covenants relating to
the Credit Agreement and Private Debt Placement, including restrictions on
dividends and transactions with affiliates, limitations on additional
indebtedness, and maintenance of tangible
40
net worth, working capital, fixed charge coverage, funded debt and debt
service ratios. The covenants were amended as of April 30, 2000 related to
the acquisition of Pressure Systems and Spearhead. As of April 30, 2000, the
Company was in compliance with all such covenants, as amended.
Included in Term Loans Payable are the following:
A German mark denominated loan of $3.7 million. The Company's
principal bank has issued a $6.5 million standby letter of credit to the
Company's German bank, to secure a credit facility for use by Flow Europe.
Principal and interest are payable monthly at a rate of 4.75% through fiscal
2003. At April 30, 2000, Flow Europe had an unused $2.8 million credit
facility.
A collateralized Japanese yen denominated loan of $3.4 million.
Principal and interest are payable monthly at a range of 2% to 2.3% through
fiscal 2003.
An unsecured $101,000 note to a previous owner of Power Climber in
conjunction with the acquisition of assets. The note requires monthly payment
of principal and interest, at 7.25%, through fiscal 2003.
Current Notes Payable include:
A 100 million Japanese yen standby letter of credit has been issued
by the Company's principal bank to the Company's Japanese bank, to
collateralize a credit facility for use by Flow Japan. As of April 30, 2000
Flow Japan had no outstanding borrowings against this facility and an unused
$943,000 credit facility.
The Flow Automation credit facility is collateralized by trade
accounts receivable and inventory, and is denominated in Canadian dollars at
an interest rate of Canadian prime (7% at April 30, 2000) plus 1.25%. Flow
Automation has approximately $483,000 dollars in unused credit facilities at
April 30, 2000.
A 50 million Swedish crown Pressure Systems line of credit is
collateralized by trade accounts receivable and inventory, at an interest
rate of Swedish prime (4.25% at April 30, 2000) plus 0.75%. As of April 30,
2000, Pressure Systems has approximately $785,000 dollars in unused credit
facilities.
Principal payments under long-term obligations for the next five years
and thereafter are as follows: $3,926,000 in 2001, $4,018,000 in 2002,
$2,746,000 in 2003, $59,348,000 in 2004, $2,143,000 in 2005, and $2,142,000
thereafter.
- --------------------------------------------------------------------------------
41
NOTE 10 - INCOME TAXES:
- --------------------------------------------------------------------------------
The components of consolidated income before income taxes and the provision for
income taxes are as follows:
Year Ended April 30,
------------------------------------------
2000 1999 1998
---- ---- ----
Income Before Income Taxes:
Domestic $540 $5,753 $3,237
Foreign 8,455 3,583 3,268
------ ------ ------
Total $8,995 $9,336 $6,505
====== ====== ======
The provision (benefit) for income taxes comprises:
April 30,
------------------------------------------
2000 1999 1998
Current:
Domestic $137 $443 $(135)
State and Local 96 255 219
Foreign 1,995 589 400
------ ------ ------
Total 2,228 1,287 484
Deferred 290 1,327 1,218
------ ------ ------
Total $2,518 $2,614 $1,702
====== ====== ======
42
Net deferred tax assets (liabilities) comprise the following:
April 30, 2000 April 30, 1999
-------------- --------------
Current:
Accounts receivable allowances $148 $94
Inventory capitalization 169 94
Obsolete inventory 295 325
Restructuring charge - 96
Vacation accrual 350 245
Net operating loss carryover 117 1,287
Business tax credits 219 -
Foreign taxes 148 248
AMT credits 168 168
All other 434 191
----- -----
Subtotal 2,048 2,748
Valuation allowance (148) (1,090)
----- -----
Total Current Deferred Taxes 1,900 1,658
Long-term:
Fixed Assets 354 469
Net operating loss carryover 1,061 1,061
Subpart F income 511 369
Foreign taxes (995) (995)
AMT credits 496 729
All other (557) (21)
----- -----
Subtotal 870 1,612
Valuation allowance (298) (298)
----- -----
Total Long-Term Deferred Taxes 572 1,314
Total Net Deferred Taxes 2,472 2,972
===== =====
A reconciliation of income taxes at the federal statutory rate to the
provision for income taxes is as follows:
Year Ended April 30,
---------------------------
2000 1999 1998
----- ------ -----
Income taxes at federal statutory rate 34.0% 34.0% 34.0%
Foreign sales corporation benefit (2.5) (2.6) (5.0)
Foreign operations expense (5.6) (0.4) 3.1
Change in valuation allowances (1.8) (4.9) (10.0)
State and local taxes 0.7 1.8 2.2
Non Deductible Meals 1.1 1.1 1.1
Other 2.1 (1.0) 0.8
----- ------ -----
Income tax provision 28.0% $28.0% 26.2%
===== ====== =====
43
As of April 30, 2000, the Company had approximately $1 million of
domestic net operating loss carryforwards to offset certain earnings for federal
income tax purposes, of which the entire amount was currently available. This
net operating loss carryforward expires in fiscal 2003.
Due to current and expected future earnings, the Company expects to
utilize all of its foreign net operating loss carryforwards. Therefore, the
foreign valuation allowance associated with the net operating loss carryforward
was reduced by a net tax affected amount of $843,000 in fiscal 2000.
Provision has not been made for U.S. income taxes or foreign
withholding taxes on $15.3 million 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 loaned 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 11 - STOCK OPTIONS:
- --------------------------------------------------------------------------------
The Company has stock options outstanding under various option plans
described as follows:
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.
1987 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS (THE "1987 NONEMPLOYEE
DIRECTORS PLAN"). Approved by the Company's shareholders 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 10,000 options annually thereafter during the term of
directorship.
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. In fiscal 2000, the 1995 LTI Plan was amended to
increase the number of shares available for grant to 3,350,000 shares.
44
All options become exercisable upon a change in control of the Company.
Options have a two-year vesting schedule, and are generally granted with an
exercise price equal to the fair market value of the Company's common stock on
the date of grant. The maximum term of options is 10 years from the date of
grant. During late fiscal 1999 and early fiscal 2000, the Board of Directors of
the Company approved options for 272,171 shares which were priced at fair market
value on the dates of Board approval, subject however to shareholder approval of
a planned increase in the shares available under the 1995 LTI Plan. Grant date
for these options occurred at the August 1999 shareholder meeting. Based upon
the difference in fair market value between the Board of Directors approval date
and grant date, compensation expense of $319,000 was recorded during fiscal
2000. No compensation expense was recorded in fiscal 1999 or 1998. The following
chart summarizes the status of the options at April 30, 2000:
1984 1987 1991 SO Plan
Restated Nonemployee and 1995
Plan Directors Plan LTI Plan Total
--------- -------------- --------- --------
Number of options outstanding 159,000 440,000 2,257,083 2,856,083
Number of options vested 159,000 436,000 1,358,549 1,953,549
Average exercise price per share $2.91 $9.28 $9.06 $8.75
of options outstanding
The Company has adopted the disclosure only provisions of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock Based
Compensation". Pro forma information regarding the net income or loss as
calculated under FAS 123 has been determined as if the Company had accounted for
its employee stock options under the fair value method. If the Company had
elected to recognize compensation costs based on the fair value at the date of
grant for awards in fiscal 2000, 1999, and 1998, consistent with the provisions
of FAS 123, the Company's net income and earnings per Basic and Diluted share
would have been reduced to the following pro forma amounts:
Year Ended April 30:
---------------------------------------------------
2000 1999 1998
------- ------- ---------
Net Income:
As reported $6,477 $6,722 $4,803
Pro forma $3,943 $5,034 $3,808
Earnings Per Share - Basic:
As reported $0.44 $0.46 $0.33
Pro forma $0.27 $0.34 $0.26
Earnings Per Share - Diluted:
As reported $0.43 $0.45 $0.32
Pro forma $0.26 $0.33 $0.25
45
Such pro forma disclosures may not be representative of future
compensation cost because options vest over two years and additional grants are
made each year.
The weighted-average fair values at the date of grant for options
granted in fiscal 2000, 1999 and 1998 were estimated using the Black-Scholes
option-pricing model, based on the following assumptions: (i) no expected
dividend yields for fiscal years 2000, 1999 and 1998; (ii) expected volatility
rates of 47.4%, 47.9% and 48.9% for fiscal 2000, 1999 and 1998, respectively;
and (iii) expected lives of 6 years for fiscal 2000, 1999 and 1998. The
risk-free interest rate applied to fiscal 2000, 1999 and 1998 was 6.7%, 6.0% and
5.8%, respectively.
The following table summarizes information about stock options
outstanding at April 30, 2000:
Number Weighted-Average Number
Range of Exercise Outstanding at Remaining Weighted-Average Exercisable at Weighted-Average
Prices April 30, 2000 Contractual Life Exercise Price April 30, 2000 Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
$1.25 - $4.99 188,000 1.08 years $2.90 188,000 $2.90
$5.00 - $7.99 412,250 3.29 years 5.94 412,250 5.94
$8.00 - $12.25 2,255,833 7.41 years 9.75 1,353,299 9.67
- -----------------------------------------------------------------------------------------------------------------------
Total: 2,856,083 6.40 years $8.75 1,953,549 $8.23
- -----------------------------------------------------------------------------------------------------------------------
The following table rolls forward the stock option activity for the
years ended April 30:
2000 1999 1998
Shares Weighted- Shares Weighted- Shares Weighted-
Average Average Average
Exercise Price Exercise Price Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding - beginning of year 2,069,794 $8.10 1,903,593 $7.64 1,887,199 $6.92
Granted during the year: 892,202 9.89 380,100 9.59 423,700 10.21
Exercised during the year: (70,530) 4.48 (155,242) 6.12 (301,648) 5.93
Forfeited during the year: (35,383) 9.94 (58,657) 8.07 (105,658) 9.19
--------- ----- --------- ----- --------- ------
Outstanding, end of year 2,856,083 $8.75 2,069,794 $8.10 1,903,593 $7.64
Exercisable, end of year 1,953,549 $8.23 1,463,794 $7.39 1,231,552 $6.51
Weighted Average fair value of $6.16 $4.26 $4.37
options granted during each period:
- -----------------------------------------------------------------------------------------------------------------------------------
46
NOTE 12 - VOLUNTARY PENSION AND SALARY DEFERRAL PLAN:
- --------------------------------------------------------------------------------
The Company has a 401(k) savings plan in which employees may contribute
a percentage of their compensation. The Company makes contributions based on
employee contributions and length of employee service. Company contributions and
expenses under the plan for the years ended April 30, 2000, 1999, and 1998 were
$758,000, $753,000, and $763,000, respectively. During fiscal 2000, the Company
discontinued an ESOP plan. Plan balances were either distributed to the
participants or rolled over to a qualified plan.
NOTE 13 - PREFERRED SHARE RIGHTS PURCHASE PLAN:
- --------------------------------------------------------------------------------
The Board of Directors of the Company has 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 10% 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 10% or more of the common stock. Each Right entitles
shareholders 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 $45. 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 10% 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 10% 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 10% of the Company's common stock, the Rights are redeemable,
at the option of the Board, for $.0001 per Right. The Rights expire on September
1, 2009. 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 14- 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 $4.8 million, $3.4 million, and
$3.4 million for the years ended April 30, 2000, 1999 and 1998, respectively.
47
Future minimum rents payable under operating leases for years ending
April 30 are as follows:
Year Ending April 30,
----------------------
2001 $ 4,545
2002 3,624
2003 2,854
2004 1,783
2005 1,005
Thereafter 1,581
-------
$15,392
The Company has been subject to product liability claims primarily
through Spider, its former subsidiary that was sold in September 1997. 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 that 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.
48
NOTE 15- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
- --------------------------------------------------------------------------------
Fiscal 2000 Quarters First Second Third Fourth Total
- -------------------- -------- -------- ------- --------
Revenue $41,261 $46,471 $50,810 $55,545 $194,087
Gross Profit 17,134 18,575 20,328 22,791 78,828
Net Income 1,300 1,462 1,463 2,252 6,477
Earnings Per share:
Basic .09 .10 .10 .15 .44
Diluted * .09 .10 .10 .15 .43
Fiscal 1999 Quarters First Second Third Fourth Total
- -------------------- -------- -------- ------- --------
Revenue $36,422 $38,383 $33,554 $39,843 $148,202
Gross Profit 15,835 16,928 15,585 16,883 65,231
Net Income 1,796 2,189 1,443 1,294 6,722
Earnings Per share:
Basic .12 .15 .10 .09 .46
Diluted * .12 .15 .10 .09 .45
* The total of the four quarters does not equal the year due to rounding.
49
NOTE 16- FOREIGN OPERATIONS:
- --------------------------------------------------------------------------------
UNITED OTHER ADJUSTMENTS &
STATES EUROPE ASIA FOREIGN ELIMINATIONS CONSOLIDATED
- --------------------------------------------------------------------------------------------------------------------------------
FISCAL 2000
Revenues:
Customers (1) $101,946 $54,332 $16,490 $21,319 $- $194,087
Inter-area (2) 23,128 21,797 1,187 1,622 (47,734)
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues $125,074 $76,129 $17,677 $22,941 $(47,734) $194,087
Long-Lived Assets $26,719 $28,604 $1,793 $9,187 $66,303
FISCAL 1999
- --------------------------------------------------------------------------------------------------------------------------------
Revenues:
Customers (1) $74,594 $42,414 $14,877 $16,317 $- $148,202
Inter-area (2) 22,917 - 1,793 1,441 (26,151)
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues $97,511 $42,414 $16,670 $17,758 $(26,151) $148,202
Long-Lived Assets $21,095 $26,120 $1,870 $8,855 $57,940
FISCAL 1998
- --------------------------------------------------------------------------------------------------------------------------------
Revenues:
Customers (1) $86,561 $36,041 $18,807 $18,073 $- $159,482
Inter-area (2) 16,772 - 3,053 - (19,825)
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues $103,333 $36,041 $21,860 $18,073 $(19,825) $159,482
Long-Lived Assets $15,924 $5,155 $1,555 $9,471 $32,105
(1) U.S. sales to unaffiliated customers in foreign countries were $5.7
million, $4 million and $5.3 million in fiscal 2000, 1999, and 1998,
respectively.
(2) Inter-area sales to affiliates represent products that were transferred
between geographic areas at negotiated prices. These amounts have been
eliminated in the consolidation.
50
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
2000 $766 $469 $31 $(367) $899
1999 669 373 (22) (254) 766
1998 1,008 508 (377) (470) 669
PROVISION FOR SLOW-MOVING AND OBSOLETE INVENTORY
2000 $2,314 $387 $(45) $(753) $1,903
1999 2,527 365 328 (906) 2,314
1998 1,897 1,060 (224) (206) 2,527
- ----------
* Write-offs of uncollectible accounts and disposal of obsolete inventory.
51
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 -
None.
(c) Exhibits.
52
EXHIBIT
NUMBER
3.1 Articles of Incorporation, filed with the state of Washington October
1, 1998. (Incorporated by reference to Exhibit 3.1 to the registrant's
Annual Report on Form 10-K for the year ended April 30, 1999.)
3.2 By-Laws of Flow International Corporation. (Incorporated by reference
to Exhibit 3.1 to the registrant's Annual Report on Form 10-K for the
year ended April 30, 1999.)
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 Amended and Restated Rights Agreement dated as of September 1, 1999,
between Flow International Corporation and ChaseMellon Shareholder
Services, L.L.C. (Incorporated by reference to Exhibit 4.1 to the
registrant's Current Report on Form 8-K dated September 1, 1999.)
10.1 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.)
10.2 Flow International Corporation 1995 Long-Term Incentive Plan.
10.3 Flow International Corporation Voluntary Pension and Salary Deferral
Plan and Trust Agreement, as amended and restated effective January 1,
1999.
10.4 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.)
10.5 Credit agreement amount Flow International Corporation, as borrower,
Bank of America National Trust and Savings Association d/b/a SeaFirst
Bank and U.S. Bank, National Association, as lenders, and Bank of
America National Trust and Savings Association d/b/a SeaFirst Bank as
agent for lenders dated August 31, 1998. (Incorporated by reference to
Exhibit 10.14 to the registrant's Annual Report on Form 10-K for the
year ended April 30, 1999.)
10.6 Amendment Number One to Credit Agreement dated March 1999, between Flow
International Corporation and Bank of America National Trust and
Savings Association d/b/a SeaFirst Bank. (Incorporated by reference to
Exhibit 10.15 to the registrant's Annual Report on Form 10-K for the
year ended April 30, 1999.)
10.7 Amendment Number Two to Credit Agreement dated June 21, 1999 between
Flow International Corporation and U.S. Bank of Washington, N.A.
(Incorporated by reference to Exhibit 10.16 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1999.)
10.8 Amendment Number Three to Credit Agreement dated November 2, 1999 among
Bank of America, N.A., U.S. Bank National Association, Bank of America,
N.A. and Flow International Corporation.
53
10.9 Amendment Number Four to Credit Agreement dated April 28, 2000 among
Bank of America, N.A., U.S. Bank National Association, Bank of America,
N.A. and Flow International Corporation.
10.10 Amendment Number Five to Credit Agreement dated June 1, 2000 among Bank
of America, N.A., U.S. Bank National Association, Bank of America, N.A.
and Flow International Corporation.
10.11 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.)
10.12 First amendment to Note Purchase Agreement dated July 16, 1997.
(Incorporated by reference to Exhibit 10.17 to the registrant's Annual
Report on Form 10-K for the year ended April 30, 1997.)
10.13 Second Amendment to Note Purchase Agreement dated as of April 30, 2000
between Flow International Corporation and Connecticut General Life
Insurance Company and Life Insurance Company of North America.
10.14 Form of Change in Control Agreement. (Incorporated by reference to
Exhibit 10.17 to the registrant's Annual Report on Form 10-K for the
year ended April 30, 1996.)
10.15 Asset Purchase Agreement dated August 11, 1999 among Spearhead
Automated Systems, Inc., Stephen R. Howard, Liberty Tool and
Engineering Corporation and Flow International Corporation.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
54
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 26, 2000
/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 26th day of July, 2000
Signature Title
--------- -------
/s/ Ronald W. Tarrant Chairman, President, Chief Executive Officer
- --------------------- (Principal Executive Officer)
Ronald W. Tarrant
/s/ Stephen D. Reichenbach Executive Vice President,
- -------------------------- Chief Financial Officer
Stephen D. Reichenbach (Principal Financial Officer & Principal
Accounting Officer)
/s/ Ronald D. Barbaro Director
- --------------------------
Ronald D. Barbaro
/s/ Daniel J. Evans Director
- --------------------------
Daniel J. Evans
/s/ Kathryn L. Munro Director
- --------------------------
Kathryn L. Munro
55
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/ Sandra F. Rorem Director
- -------------------------
Sandra F. Rorem
/s/ Dean D. Thornton Director
- -------------------------
Dean D. Thornton
56