e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
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|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the quarterly period ended October 31, 2007
OR
|
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|
o |
|
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
(State or other jurisdiction of
incorporation or organization)
|
|
91-1104842
(I.R.S. Employer
Identification No.) |
23500 64th Avenue South
Kent, Washington 98032
(253) 850-3500
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ No ¨.
Indicated by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer In
Rule 12b-2 of the Exchange Act. Large accelerated filer o Accelerated filer þ
Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ.
As of November 30, 2007, there were 38,062,586 shares of common stock outstanding.
FLOW INTERNATIONAL CORPORATION
INDEX
2
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
April 30, |
|
|
|
2007 |
|
|
2007 |
|
ASSETS: |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
26,928 |
|
|
$ |
38,146 |
|
Short-term Investments |
|
|
|
|
|
|
750 |
|
Receivables, net |
|
|
28,699 |
|
|
|
26,618 |
|
Inventories |
|
|
30,988 |
|
|
|
26,635 |
|
Deferred Income Taxes |
|
|
1,243 |
|
|
|
44 |
|
Other Current Assets |
|
|
7,440 |
|
|
|
6,950 |
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
95,298 |
|
|
|
99,143 |
|
Property and Equipment, net |
|
|
17,716 |
|
|
|
15,479 |
|
Intangible Assets, net |
|
|
3,861 |
|
|
|
3,767 |
|
Goodwill |
|
|
2,764 |
|
|
|
2,764 |
|
Deferred Income Taxes |
|
|
256 |
|
|
|
305 |
|
Other Assets |
|
|
385 |
|
|
|
682 |
|
|
|
|
|
|
|
|
|
|
$ |
120,280 |
|
|
$ |
122,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Notes Payable |
|
$ |
1,049 |
|
|
$ |
6,366 |
|
Current Portion of Long-Term Obligations |
|
|
837 |
|
|
|
822 |
|
Accounts Payable |
|
|
18,166 |
|
|
|
17,545 |
|
Accrued Payroll and Related Liabilities |
|
|
7,276 |
|
|
|
6,291 |
|
Taxes Payable and Other Accrued Taxes |
|
|
2,644 |
|
|
|
2,066 |
|
Deferred Income Taxes |
|
|
260 |
|
|
|
1,627 |
|
Deferred Revenue |
|
|
4,943 |
|
|
|
3,559 |
|
Customer Deposits |
|
|
4,926 |
|
|
|
6,499 |
|
Other Accrued Liabilities |
|
|
13,000 |
|
|
|
12,233 |
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
53,101 |
|
|
|
57,008 |
|
Long-Term Obligations, net |
|
|
2,459 |
|
|
|
2,779 |
|
Other Long-Term Liabilities |
|
|
1,175 |
|
|
|
573 |
|
|
|
|
|
|
|
|
|
|
|
56,735 |
|
|
|
60,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 14) |
|
|
|
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
Series A 8% Convertible Preferred Stock$.01 par value, 1,000,000 shares
authorized, none issued |
|
|
|
|
|
|
|
|
Common Stock$.01 par value, 49,000,000 shares authorized, 37,328,946 and
37,268,037 shares issued and outstanding at October 31, 2007 and April 30,
2007, respectively |
|
|
368 |
|
|
|
367 |
|
Capital in Excess of Par |
|
|
137,274 |
|
|
|
139,115 |
|
Accumulated Deficit |
|
|
(66,617 |
) |
|
|
(68,747 |
) |
Accumulated Other Comprehensive Loss: |
|
|
|
|
|
|
|
|
Defined Benefit Plan Obligation, net of income tax of $67 and $67 |
|
|
(201 |
) |
|
|
(201 |
) |
Cumulative Translation Adjustment, net of income tax of $221 and $0 |
|
|
(7,279 |
) |
|
|
(8,754 |
) |
|
|
|
|
|
|
|
Total Shareholders Equity |
|
|
63,545 |
|
|
|
61,780 |
|
|
|
|
|
|
|
|
|
|
$ |
120,280 |
|
|
$ |
122,140 |
|
|
|
|
|
|
|
|
See Accompanying Notes to
Condensed Consolidated Financial Statements
3
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
October 31, |
|
|
October 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Sales |
|
$ |
59,174 |
|
|
$ |
54,404 |
|
|
$ |
117,840 |
|
|
$ |
107,814 |
|
Cost of Sales |
|
|
34,739 |
|
|
|
30,792 |
|
|
|
69,805 |
|
|
|
61,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
|
|
24,435 |
|
|
|
23,612 |
|
|
|
48,035 |
|
|
|
46,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing |
|
|
10,983 |
|
|
|
10,563 |
|
|
|
21,440 |
|
|
|
20,160 |
|
Research and Engineering |
|
|
2,145 |
|
|
|
2,339 |
|
|
|
4,425 |
|
|
|
4,633 |
|
General and Administrative |
|
|
7,275 |
|
|
|
8,982 |
|
|
|
19,691 |
|
|
|
16,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,403 |
|
|
|
21,884 |
|
|
|
45,556 |
|
|
|
40,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
4,032 |
|
|
|
1,728 |
|
|
|
2,479 |
|
|
|
5,848 |
|
Interest Income |
|
|
251 |
|
|
|
153 |
|
|
|
442 |
|
|
|
382 |
|
Interest Expense |
|
|
(95 |
) |
|
|
(46 |
) |
|
|
(177 |
) |
|
|
(181 |
) |
Other Income (Expense), Net |
|
|
(579 |
) |
|
|
399 |
|
|
|
(267 |
) |
|
|
1,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Provision for Income Taxes |
|
|
3,609 |
|
|
|
2,234 |
|
|
|
2,477 |
|
|
|
7,074 |
|
Provision/Benefit for Income Taxes |
|
|
(1,314 |
) |
|
|
(492 |
) |
|
|
196 |
|
|
|
(1,564 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income From Continuing Operations |
|
|
2,295 |
|
|
|
1,742 |
|
|
|
2,673 |
|
|
|
5,510 |
|
Loss on Sale of Discontinued Operations, Net of Income Tax of $0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(726 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
2,295 |
|
|
$ |
1,742 |
|
|
$ |
2,673 |
|
|
$ |
4,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Income Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income From Continuing Operations |
|
$ |
0.06 |
|
|
$ |
0.05 |
|
|
$ |
0.07 |
|
|
$ |
0.15 |
|
Loss From Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
0.06 |
|
|
$ |
0.05 |
|
|
$ |
0.07 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Income Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income From Continuing Operations |
|
$ |
0.06 |
|
|
$ |
0.05 |
|
|
$ |
0.07 |
|
|
$ |
0.15 |
|
Loss From Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
0.06 |
|
|
$ |
0.05 |
|
|
$ |
0.07 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Used in Computing Basic and
Diluted Income (Loss) Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
37,326 |
|
|
|
37,194 |
|
|
|
37,314 |
|
|
|
37,134 |
|
Diluted |
|
|
37,511 |
|
|
|
37,879 |
|
|
|
37,540 |
|
|
|
37,887 |
|
See Accompanying Notes to
Condensed Consolidated Financial Statements
4
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
October 31, |
|
|
|
2007 |
|
|
2006 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
2,673 |
|
|
$ |
4,784 |
|
Adjustments to Reconcile Net Income to Cash Used in Operating Activities: |
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
|
1,780 |
|
|
|
1,413 |
|
Unrealized Foreign Currency (Gains), net |
|
|
(905 |
) |
|
|
(1,690 |
) |
Incentive Stock Compensation Expense |
|
|
1,101 |
|
|
|
1,405 |
|
Repurchase of Warrants |
|
|
629 |
|
|
|
|
|
Loss on Sale of Discontinued Operations |
|
|
|
|
|
|
726 |
|
Deferred Income Taxes |
|
|
(1,618 |
) |
|
|
330 |
|
Other |
|
|
892 |
|
|
|
403 |
|
Changes in Operating Assets and Liabilities: |
|
|
|
|
|
|
|
|
Receivables |
|
|
(1,172 |
) |
|
|
6,180 |
|
Inventories |
|
|
(3,804 |
) |
|
|
(5,737 |
) |
Prepaid Expenses |
|
|
500 |
|
|
|
1,321 |
|
Other Operating Assets |
|
|
(255 |
) |
|
|
236 |
|
Accounts Payable |
|
|
(848 |
) |
|
|
(5,573 |
) |
Deferred Revenue |
|
|
1,216 |
|
|
|
(3,661 |
) |
Customer Deposits |
|
|
(1,788 |
) |
|
|
(2,175 |
) |
Other Operating Liabilities |
|
|
(104 |
) |
|
|
(1,427 |
) |
|
|
|
|
|
|
|
Cash Used in Operating Activities |
|
|
(1,703 |
) |
|
|
(3,465 |
) |
|
|
|
|
|
|
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
Expenditures for Property and Equipment and Intangible Assets |
|
|
(2,541 |
) |
|
|
(2,561 |
) |
Proceeds from Sale of Short-term Investments |
|
|
650 |
|
|
|
|
|
Proceeds from Sale of Property and Equipment |
|
|
219 |
|
|
|
|
|
Proceeds from Sale of Avure Business |
|
|
|
|
|
|
990 |
|
Settlement on Sale of Avure Business |
|
|
|
|
|
|
(985 |
) |
Restricted Cash |
|
|
|
|
|
|
(125 |
) |
|
|
|
|
|
|
|
Cash Used in Investing Activities |
|
|
(1,672 |
) |
|
|
(2,681 |
) |
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Repayments Under Notes Payable |
|
|
(5,857 |
) |
|
|
(1 |
) |
Borrowings Under Notes Payable |
|
|
457 |
|
|
|
|
|
Payments of Long-Term Obligations |
|
|
(391 |
) |
|
|
(499 |
) |
Proceeds from Exercise of Stock Options |
|
|
424 |
|
|
|
2,498 |
|
Payment for Warrant Repurchase |
|
|
(3,006 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used in) Financing Activities |
|
|
(8,373 |
) |
|
|
1,998 |
|
|
|
|
|
|
|
|
Effect of Changes in Exchange Rates |
|
|
530 |
|
|
|
610 |
|
Decrease in Cash And Cash Equivalents |
|
|
(11,218 |
) |
|
|
(3,538 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
38,146 |
|
|
|
36,186 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
26,928 |
|
|
$ |
32,648 |
|
|
|
|
|
|
|
|
Supplemental Disclosures of Noncash Investing and Financing Activities |
|
|
|
|
|
|
|
|
Operating Assets transferred to Property and Equipment |
|
$ |
417 |
|
|
$ |
|
|
Accounts Payable incurred to acquire Property and Equipment, and Intangible Assets |
|
|
1,208 |
|
|
|
871 |
|
Non-monetary exchange of assets |
|
|
|
|
|
|
250 |
|
Issuance of compensatory common stock on executive incentive compensation plan |
|
|
|
|
|
|
884 |
|
See Accompanying Notes to
Condensed Consolidated Financial Statements
5
FLOW INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
AND COMPREHENSIVE INCOME
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Common Stock |
|
|
Capital |
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
Par |
|
|
In Excess |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Shareholders |
|
|
|
Shares |
|
|
Value |
|
|
of Par |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
Balances, April 30, 2007 |
|
|
37,268 |
|
|
$ |
367 |
|
|
$ |
139,115 |
|
|
$ |
(68,747 |
) |
|
$ |
(8,955 |
) |
|
$ |
61,780 |
|
Components of Comprehensive
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,673 |
|
|
|
|
|
|
|
2,673 |
|
Cumulative Translation
Adjustment, Net of
Income Tax of $288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,475 |
|
|
|
1,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect upon adoption
of FIN 48 (Note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(543 |
) |
|
|
|
|
|
|
(543 |
) |
Exercise of Options |
|
|
41 |
|
|
|
1 |
|
|
|
423 |
|
|
|
|
|
|
|
|
|
|
|
424 |
|
Repurchase of Warrants (Note 15) |
|
|
|
|
|
|
|
|
|
|
(2,377 |
) |
|
|
|
|
|
|
|
|
|
|
(2,377 |
) |
Stock Compensation |
|
|
20 |
|
|
|
0 |
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, October 31, 2007 |
|
|
37,329 |
|
|
$ |
368 |
|
|
$ |
137,274 |
|
|
$ |
(66,617 |
) |
|
$ |
(7,480 |
) |
|
$ |
63,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, April 30, 2006 |
|
|
36,943 |
|
|
$ |
364 |
|
|
$ |
137,192 |
|
|
$ |
(72,417 |
) |
|
$ |
(7,999 |
) |
|
$ |
57,140 |
|
Cumulative effect of the
adoption of FAS 123R |
|
|
|
|
|
|
|
|
|
|
(313 |
) |
|
|
|
|
|
|
|
|
|
|
(313 |
) |
Components of
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,784 |
|
|
|
|
|
|
|
4,784 |
|
Reclassification
Adjustment for
Settlement of
Cash Flow Hedges,
net of income tax
of $0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
273 |
|
|
|
273 |
|
Cumulative
Translation
Adjustment, Net
of Income Tax of
$0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,184 |
) |
|
|
(1,184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of Options |
|
|
151 |
|
|
|
2 |
|
|
|
1,410 |
|
|
|
|
|
|
|
|
|
|
|
1,412 |
|
Stock Compensation |
|
|
131 |
|
|
|
1 |
|
|
|
1,822 |
|
|
|
|
|
|
|
|
|
|
|
1,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
October 31, 2006 |
|
|
37,225 |
|
|
$ |
367 |
|
|
$ |
140,111 |
|
|
$ |
(67,633 |
) |
|
$ |
(8,910 |
) |
|
$ |
63,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to
Condensed Consolidated Financial Statements
6
FLOW INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All tabular dollar amounts in thousands, except per share amounts)
(Unaudited)
Note 1Basis of Presentation
In the opinion of the management of Flow International Corporation (the Company), the
accompanying unaudited condensed consolidated financial statements contain all adjustments,
consisting of normal recurring items and accruals necessary to fairly present the financial
position, results of operations and cash flows of the Company. The financial information as of
April 30, 2007 is derived from the Companys audited consolidated financial statements and notes
for the fiscal year ended April 30, 2007 included in Item 8 in the fiscal 2007 Annual Report on
Form 10-K (10-K). These interim financial statements do not include all information and footnote
disclosures normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States, and should be read in conjunction with the
Companys fiscal 2007 Form 10-K. The preparation of these financial statements requires management
to make estimates and judgments that affect the reported amount of assets and liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities at the date of the
Companys financial statements. Actual results may differ from these estimates. Operating results
for the three and six months ended October 31, 2007 may not be indicative of future results.
Note 2Recently Issued Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN
48). FIN 48 prescribes a recognition threshold and measurement attribute for financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return, and
also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. The Company adopted FIN 48 on May 1, 2007. FASB Staff
Position No. 48-1, Definition of Settlement in FASB Interpretation No. 48 (FSP FIN 48-1)
provides a set of conditions that must be evaluated when determining whether a tax position has
been effectively settled. We contemplated the provisions of FSP FIN 48-1 upon the initial adoption
of FIN 48. Additional discussion and the impact of adopting FIN 48 are included in Note 7 to the
Condensed Consolidated Financial Statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157
Defining Fair Value Measurement (FAS 157) which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands disclosures about fair
value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning
after December 15, 2007, which is the beginning of the Companys fiscal year 2009. The Company is
currently evaluating the impact of adopting FAS 157 on its financial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards (FAS 159) The
Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB
Statement No. 115. FAS 159 provides entities with an option to choose to measure eligible items at
fair value at specified election dates. If elected, an entity must report unrealized gains and
losses on the item in earnings at each subsequent reporting date. The fair value option may be
applied instrument by instrument, with a few exceptions, such as investments otherwise accounted
for by the equity method, is irrevocable (unless a new election date occurs); and is applied only
to entire instruments and not to portions of instruments. The Company is currently evaluating the
potential impact of adopting FAS 159 on its financial statements, which is effective for fiscal
years beginning after November 15, 2007, which is the beginning of the Companys fiscal year 2009.
Note 3Segment Information
The Company has identified four reportable segments based on the manner in which internal
financial information is produced and evaluated by the chief operating decision maker (the
Companys Chief Executive Officer). These segments, North America Waterjet, Asia Waterjet, Other
International Waterjet (together known as Waterjet), and Applications, utilize the Companys high
pressure technology. The Waterjet operation includes cutting and cleaning operations, which are
focused on providing total solutions for many industries including aerospace, automotive,
semiconductor, disposable products, food, glass, job shop, metal cutting, stone, tile, surface
preparation, and paper. The Applications operation provides specialty engineered robotic systems
designed for material removal and separation of various materials and for factory automation. These
systems are primarily used in automotive applications. Segment operating results are measured based
on sales, gross margin and operating income (loss).
7
Effective
September 2007, the Companys Application segment ceased
the pursuit of sales of non-waterjet
automation systems and will focus on increasing revenue from systems that integrate waterjet
cutting technology.
A summary of operations by reportable segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Inter- |
|
|
|
|
|
|
America |
|
|
Asia |
|
|
International |
|
|
|
|
|
|
segment |
|
|
|
|
|
|
Waterjet |
|
|
Waterjet |
|
|
Waterjet |
|
|
Applications |
|
|
Eliminations |
|
|
Total |
|
Three Months Ended October 31,
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External sales |
|
$ |
32,276 |
|
|
$ |
5,721 |
|
|
$ |
16,083 |
|
|
$ |
5,094 |
|
|
$ |
|
|
|
$ |
59,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment sales |
|
|
14,705 |
|
|
|
259 |
|
|
|
849 |
|
|
|
233 |
|
|
|
(16,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin ** |
|
|
14,567 |
|
|
|
2,654 |
|
|
|
7,182 |
|
|
|
463 |
|
|
|
(431 |
) |
|
|
24,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) * |
|
|
1,752 |
|
|
|
111 |
|
|
|
2,848 |
|
|
|
(1,110 |
) |
|
|
431 |
|
|
|
4,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended October 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External sales |
|
$ |
63,334 |
|
|
$ |
12,748 |
|
|
$ |
31,393 |
|
|
$ |
10,365 |
|
|
$ |
|
|
|
$ |
117,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment sales |
|
|
31,416 |
|
|
|
854 |
|
|
|
1,735 |
|
|
|
590 |
|
|
|
(34,595 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin ** |
|
|
27,978 |
|
|
|
5,826 |
|
|
|
13,555 |
|
|
|
1,274 |
|
|
|
(598 |
) |
|
|
48,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) * |
|
|
(1,937 |
) |
|
|
597 |
|
|
|
4,764 |
|
|
|
(1,543 |
) |
|
|
598 |
|
|
|
2,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External sales |
|
$ |
30,079 |
|
|
$ |
8,133 |
|
|
$ |
11,943 |
|
|
$ |
4,249 |
|
|
$ |
|
|
|
$ |
54,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment sales |
|
|
6,028 |
|
|
|
337 |
|
|
|
26 |
|
|
|
168 |
|
|
|
(6,559 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
13,800 |
|
|
|
4,472 |
|
|
|
4,807 |
|
|
|
533 |
|
|
|
|
|
|
|
23,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) * |
|
|
796 |
|
|
|
388 |
|
|
|
998 |
|
|
|
(454 |
) |
|
|
|
|
|
|
1,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended October 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External sales |
|
$ |
61,588 |
|
|
$ |
15,489 |
|
|
$ |
22,584 |
|
|
$ |
8,153 |
|
|
$ |
|
|
|
$ |
107,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment sales |
|
|
11,421 |
|
|
|
644 |
|
|
|
71 |
|
|
|
184 |
|
|
|
(12,320 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
28,132 |
|
|
|
8,938 |
|
|
|
8,796 |
|
|
|
979 |
|
|
|
(202 |
) |
|
|
46,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) * |
|
|
3,573 |
|
|
|
2,395 |
|
|
|
1,298 |
|
|
|
(1,216 |
) |
|
|
(202 |
) |
|
|
5,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The three and six months ended October 31, 2007 include the allocation of corporate
management fees in total of $1.2 million and $2.4 million, respectively from North America
Waterjet to the Companys other operating segments which is part of the reports evaluated by
the chief operating decision maker. Prior periods have been recast to reflect this
methodology. |
|
** |
|
Effective August 1, 2007, the Company updated its intercompany transfer pricing policy. The
intercompany transfer pricing changes have no effect on our consolidated operating results. |
A summary reconciliation of total segment operating income to total consolidated income from
continuing operations before provision for income taxes is as follows:
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
October 31, |
|
|
October 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Operating income for reportable segments |
|
$ |
4,032 |
|
|
$ |
1,728 |
|
|
$ |
2,479 |
|
|
$ |
5,848 |
|
Interest income |
|
|
251 |
|
|
|
153 |
|
|
|
442 |
|
|
|
382 |
|
Interest expense |
|
|
(95 |
) |
|
|
(46 |
) |
|
|
(177 |
) |
|
|
(181 |
) |
Other income (expense), net |
|
|
(579 |
) |
|
|
399 |
|
|
|
(267 |
) |
|
|
1,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
$ |
3,609 |
|
|
$ |
2,234 |
|
|
$ |
2,477 |
|
|
$ |
7,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4Stock-Based Compensation Plans
The Company maintains stock-based compensation plans described as follows:
2005 Equity Incentive Plan (the 2005 Plan). The 2005 Plan was adopted in September 2005 to
attract and retain the most talented employees and promote the growth and success of the business
by aligning long-term interests of employees with those of shareholders. The 2005 Plan provides for
a pool of 2.5 million shares to be awarded, which includes the remaining 751,157 shares from the
1995 LTI Plan. The Company, at its discretion, may choose to grant the 2.5 million shares in the
form of stock, stock units, stock options, stock appreciation rights, or cash awards.
Effective May 1, 2006, the beginning of its fiscal year 2007, the Company adopted the fair
value recognition provisions of Statement of Financial Accounting Standard No. 123R (FAS 123R),
Share-Based Payment (Revised 2004). The Company elected to use the modified prospective
transition method permitted by FAS 123R and therefore has not restated its financial results for
prior periods. Under this transition method, the compensation cost recognized by the Company
beginning in fiscal 2007 includes (a) compensation cost for all stock-based compensation awards
that were granted prior to, but not vested as of May 1, 2006, based on the grant-date fair value
estimated in accordance with the provisions of Statement of Financial Accounting Standard No. 123
(FAS 123), Accounting for Stock Based Compensation, and (b) compensation cost for all
stock-based compensation awards granted subsequent to May 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of FAS 123R. Compensation expense is recognized
only for those options, stocks, or stock units expected to vest with forfeitures estimated at the
grant date based on the Companys historical experience and future expectations. If the actual
number of forfeitures differs from those estimated by the management, additional adjustments may be
required in future periods. Compensation expense is recognized on a straight-line basis over the
total requisite service period of each award, and recorded in operating expenses on the Condensed
Consolidated Statement of Operations.
Stock Options
The Company grants common stock options to employees and directors of the Company with service
and/or performance conditions. The compensation cost of the stock options are based on their fair
value at the grant date and recognized ratably over the service period. All options become
exercisable upon a change in control of the Company unless the surviving company assumes the
outstanding options or substitutes similar awards for the outstanding awards of the 2005 Plan.
Options are generally granted with an exercise price equal to the fair market value of the
Companys common stock on the date of grant. The maximum term of options is 10 years from the date
of grant.
The following tables summarize the stock option activities for the six months ended October
31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
Aggregate |
|
|
Average |
|
|
|
Number of |
|
|
Exercise |
|
|
Intrinsic |
|
|
Remaining |
|
|
|
Options |
|
|
Price |
|
|
Value |
|
|
Contractual Term (Years) |
|
Outstanding at April 30, 2007 |
|
|
1,063,404 |
|
|
$ |
8.99 |
|
|
$ |
2,819,601 |
|
|
|
3.61 |
|
Granted during the period |
|
|
200,000 |
|
|
|
11.40 |
|
|
|
|
|
|
|
|
|
Exercised during the period |
|
|
(41,200 |
) |
|
|
10.27 |
|
|
|
|
|
|
|
|
|
Expired or forfeited during the period |
|
|
(149,850 |
) |
|
|
10.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2007 |
|
|
1,072,354 |
|
|
$ |
9.17 |
|
|
$ |
1,034,711 |
|
|
|
4.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at October 31, 2007 |
|
|
872,354 |
|
|
$ |
8.66 |
|
|
$ |
1,034,711 |
|
|
|
3.25 |
|
Vested or expected to vest at October 31, 2007 |
|
|
872,354 |
|
|
|
8.66 |
|
|
|
1,034,711 |
|
|
|
3.25 |
|
9
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended October 31, |
|
|
2007 |
|
2006 |
Weighted average grant-date fair value of stock options granted |
|
$ |
6.90 |
|
|
$ |
4.76 |
|
Total intrinsic value of options exercised |
|
$ |
105 |
|
|
$ |
674 |
|
Total fair value of options vested |
|
$ |
|
|
|
$ |
55 |
|
Cash received from exercise of share options |
|
$ |
424 |
|
|
$ |
1,412 |
|
Tax benefit realized from stock options exercised |
|
$ |
|
|
|
$ |
|
|
For the six months ended October 31, 2007, the Company recognized compensation expense related
to stock options of $0, net of a reversal of $101,000 related to prior year stock options whose
performance criteria were not met. $106,000 or $0.00 per basic and diluted share was recognized in
the prior year comparative period. As of October 31, 2007, total unrecognized compensation cost
related to nonvested stock options was $1.3 million.
For the six months ended October 31, 2007 and 2006, the weighted-average fair values at the
date of grant for options granted were estimated using the Black-Scholes option-pricing model,
based on the following assumptions: (i) no expected dividend yields; (ii) expected volatility rates
of 62.02% and 61.90% based on historical volatility of our stock price; and (iii) expected lives of
six and two years based on historical experience. The risk-free interest rate applied was 4.98% and
4.97%, respectively, based on U.S Treasury constant maturity interest rate whose term is consistent
with the expected life of the Companys stock options.
Service-Based Stock Awards
The Company grants common stock or stock units to employees and directors of the Company with
service conditions. The compensation cost of the common stock or stock units are based on their
fair value at the grant date and recognized ratably over the service period.
The following table summarizes the service-based stock award activities for the six months
ended October 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended October 31, 2007 |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
Number of |
|
|
Grant-date Fair |
|
|
|
Shares |
|
|
Value |
|
Nonvested at April 30, 2007 |
|
|
72,533 |
|
|
$ |
9.33 |
|
Granted during the period |
|
|
16,000 |
|
|
|
12.72 |
|
Forfeited during the period |
|
|
(5,600 |
) |
|
|
12.99 |
|
Vested during the period |
|
|
(26,434 |
) |
|
|
6.81 |
|
|
|
|
|
|
|
|
Nonvested at October 31, 2007 |
|
|
56,499 |
|
|
$ |
10.94 |
|
|
|
|
|
|
|
|
For the six months ended October 31, 2007 and 2006, the Company recognized compensation
expense related to service-based stock awards of $312,000 and $317,000, respectively. As of October
31, 2007, total unrecognized compensation cost related to such awards of $699,000 is expected to be
recognized over a weighted average period of 2.21 years.
Performance-Based Stock Awards
In fiscal 2006 and 2007, the Company adopted Long-Term Incentive Plans (the LTIPs) under
which the executive officers are to receive stock awards based on the Companys performance
measures over three-year performance periods. These plans were adopted annually with different
performance targets. Awards will vary based on the degree to which the Companys performance meets
or exceeds predetermined thresholds at the end of the performance period. No payout will occur
unless the Company exceeds certain minimum threshold performance objectives. Compensation expense
is based upon current performance projections for the three-year period and the percentage of the
requisite service that has been rendered. Compensation cost for the unvested portion of the LTIP
awards is based on their grant-date fair value. The LTIPs permit employees to elect to net-settle a
portion of the award paid in stock to meet the employees share of minimum withholding
requirements, which the Company accounted for as a liability prior to adopting FAS 123R. FAS 123R
allows such awards with net-settlement features for the employees share of minimum withholding
requirements to be accounted for as equity, as such, a cumulative effect of $377,000 was recognized
upon adoption of FAS 123R to record the amounts previously recorded as liabilities in capital in
excess of par.
10
The following table summarizes the LTIPs activities for the six months ended October 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
Six Months ended October 31, 2007 |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
Number of |
|
|
Grant-date Fair |
|
|
|
Shares |
|
|
Value |
|
Nonvested at April 30, 2007 |
|
|
181,500 |
|
|
$ |
10.71 |
|
Granted during the period |
|
|
|
|
|
|
|
|
Forfeited during the period |
|
|
(38,000 |
) |
|
|
10.51 |
|
Vested during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at October 31, 2007 |
|
|
143,500 |
|
|
$ |
10.76 |
|
|
|
|
|
|
|
|
For the six months ended October 31, 2007 and 2006, the Company recognized compensation
expense related to LTIPs of $0 and $390,000, respectively. The amount recorded in fiscal 2007 was
subsequently reversed in the fourth quarter of fiscal 2007 because the performance objectives were
no longer deemed probable.
Under an annual incentive plan adopted in fiscal 2007, the Company granted executives and
certain employees annual bonuses in the form of cash and/or common stock of the Company. Awards
were based on the Companys performance and individual goals and were usually granted following the
conclusion of the Companys fiscal year end. The shares of the common stock to be issued were not
known at the grant date and the amount of the stock was equivalent to a fixed monetary amount.
These awards were recorded as liability awards under FAS 123R in the prior fiscal year. For the six
months ended October 31, 2006, the Company recognized compensation expense related to the annual
incentive plan of $232,000.
Note 5Restructuring
The restructuring reserve balance included in Other Accrued Liabilities is comprised of
facility exit costs for all segments which consist of long-term lease commitments, net of expected
sublease income for restructuring initiatives completed in fiscal 2006 and prior fiscal years.
The following table summarizes accrued restructuring activity, all incurred as facility exit
costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
Other |
|
|
|
|
|
|
|
|
|
America Waterjet |
|
|
International Waterjet |
|
|
Applications |
|
|
Consolidated |
|
Balance, April 30, 2007 |
|
$ |
31 |
|
|
$ |
136 |
|
|
$ |
320 |
|
|
$ |
487 |
|
Cash payments |
|
|
(18 |
) |
|
|
(8 |
) |
|
|
(242 |
) |
|
|
(268 |
) |
Other |
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2007 |
|
$ |
13 |
|
|
$ |
166 |
|
|
$ |
78 |
|
|
$ |
257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6Other Income (Expense), Net
The Companys subsidiaries have adopted the local currency of the country in which they
operate as the functional currency. All assets and liabilities of these foreign subsidiaries are
translated at period-end rates. Income and expense accounts of the foreign subsidiaries are
translated at the average rates in effect during the period. Assets and liabilities (including
inter-company accounts that are transactional in nature) of the Company which are denominated in
currencies other than the functional currency of the entity are translated based on current
exchange rates and gains or losses are included in the Condensed Consolidated Statement of
Operations.
The following table shows the detail of Other Income (Expense), Net, in the accompanying
Condensed Consolidated Statements of Operations:
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended October 31, |
|
|
Ended October 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Realized Foreign Exchange Losses, Net |
|
$ |
(423 |
) |
|
$ |
(382 |
) |
|
$ |
(481 |
) |
|
$ |
(343 |
) |
Unrealized Foreign Exchange Gains, Net |
|
|
528 |
|
|
|
848 |
|
|
|
905 |
|
|
|
1,690 |
|
Premium on Repurchase of Warrants |
|
|
(629 |
) |
|
|
|
|
|
|
(629 |
) |
|
|
|
|
Hedging Costs |
|
|
|
|
|
|
(46 |
) |
|
|
|
|
|
|
(206 |
) |
Other |
|
|
(55 |
) |
|
|
(21 |
) |
|
|
(62 |
) |
|
|
(116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(579 |
) |
|
$ |
399 |
|
|
$ |
(267 |
) |
|
$ |
1,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company repurchased 403,300 warrants from certain funds managed or advised by Third Point
LLC for an aggregate purchase price of $3 million. The cash paid in excess of the fair market value
of those warrants on the repurchase date of $629,000 was recorded as an Other Expense in the
current fiscal quarter. See Note 15 for a detailed discussion of this transaction.
There was no expense related to hedging costs for the three and six months ended October 31,
2007. For the six months ended October 31, 2006, the Company recorded an expense of $206,000
related to hedging costs recorded during the first and second quarters of fiscal 2007. The Company
uses derivative instruments to manage exposures to foreign currency risks and records the hedge
transactions in accordance with Statement of Financial Accounting Standards No. 133 (FAS 133),
Accounting for Derivative Instruments and Hedging Activities.
Note 7Income Taxes
The Company adopted the provisions of FIN 48 effective May 1, 2007 and has analyzed its filing
positions in all of the federal, state, and international jurisdictions where it or its
wholly-owned subsidiaries are required to file income tax returns for all open tax years in these
jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and
local, or non-U.S. income tax examinations by tax authorities for years before 2002. Furthermore,
no open tax years are currently under audit, and as of October 31, 2007, no significant adjustments
have been proposed relative to the Companys tax positions.
The adoption of FIN 48 resulted in a $543,000 increase in the Companys liability for
unrecognized tax benefits, which was accounted for as a reduction to the May 1, 2007 retained
earnings balance. As of May 1, 2007, the balance of unrecognized tax benefits was $2.3 million,
which, if recognized, would reduce the Companys effective tax rate. On August 14, 2007, Germanys
President signed the Corporate Tax Reform Act 2008, which among other changes, reduced the
statutory corporate income tax and trade tax rates in Germany. Under U. S. GAAP, the Company is
required to remeasure its unrecognized tax benefits, based on the provisions of the enacted tax law
in the period that includes the enactment date. Therefore, as of October 31, 2007, the Companys
unrecognized tax benefits were reduced to $2 million. In accordance with FIN 48, the Company has
recognized immaterial interest related to unrecognized tax benefits as a component of interest
expense. The Company does not expect that unrecognized tax benefits will significantly change
within the next twelve months.
For the three and six months ended October 31, 2007, the foreign tax provision consists of
current and deferred tax expense. The United States tax provision consists primarily of state taxes
and accrued foreign withholding taxes. During the first quarter of fiscal 2008, after concluding
that its German operations had achieved sustainable profitability, the Company reversed its
valuation allowance against deferred tax assets in this jurisdiction, which resulted in a
$1,160,000 tax benefit, or $.03 per basic and dilutive income per share, as a reduction in the
deferred tax asset valuation allowance.
The Company continues to provide a full valuation allowance against its net operating losses
and other net deferred tax assets, arising in certain tax jurisdictions, mainly the United States
and Canada, because the realization of such assets is not more likely than not. For the three and
six months ended October 31, 2007, the valuation
allowance decreased by $0.4 million and $0.9
million, respectively. The change is mainly attributable to an increase in net operating losses in
the United States and Canada, and the reversal of the valuation allowance in Germany. The domestic
net operating losses can be carried forward 20 years to offset domestic profits in future periods
and expire between fiscal 2022 and fiscal 2026 if not used. Most of the foreign net operating
losses can be carried forward indefinitely, with certain amounts expiring between fiscal 2014 and
2017. The Company provided a full valuation allowance against the deferred tax assets associated
with the losses recorded during fiscal 2007.
12
The Company is permanently deferring undistributed earnings in its foreign subsidiaries with
the exception of its subsidiaries in Taiwan, Japan, and Switzerland. During the first two quarters
of fiscal 2008, the Company repatriated $6.1 million, net of tax of $885,000 from two foreign
subsidiaries and the Company plans to continue repatriating additional funds from these foreign
subsidiaries in the future. There was no repatriation of earnings in the comparative prior period.
Note 8Discontinued Operations
On October 31, 2005, the Company completed the sale of certain of its non-core businesses as a
result of the strategy to divest itself of operations that did not rely upon its core
ultra-high-pressure water pump business (the Avure Business). The consideration included cash of
$6 million (less a working capital adjustment of $951,000) which was received on November 1, 2005,
and a promissory note of $8 million payable 90 days after closing at a simple interest rate of 10%
per annum. In addition, the Company received a promissory note of $2 million payable at 3 years
after closing at a simple interest rate of 6% per annum. The $2 million promissory note was reduced
by 50% of the pension balance of the International Press segment as of October 31, 2005 or
$687,500.
The purchaser of the Avure Business (the Purchaser) subsequently claimed that it was
entitled to a further working capital adjustment of $1.4 million, which claim the Company disputed.
The Company and the Purchaser agreed to resolve this claim in accordance with the arbitration
procedure agreed on at the time of sale. The Company and the Purchaser also agreed that the
Purchaser would have a limited right to prepay, at a 12.5% discount, the balance of the promissory
note due 3 years after closing. The prepay right expired on January 31, 2007. The Company received
a partial payment of $990,000 in the second quarter of fiscal 2007.
On August 16, 2006, the Company received notice from the arbitrator to whom the dispute had
been referred regarding the resolution of its outstanding dispute with the Purchaser. Although the
Company did not agree with all the findings of the arbitrator, the decision by the arbitrator
constituted a final resolution of all disputes between the Purchaser and the Company regarding the
calculation of net working capital. The adjustment amounted to $1,026,000 (including interest and
arbitration fees), of which $300,000 was previously accrued as a liability. The net amount of
$726,000 was recorded as Loss on Sale from Discontinued Operations in the first quarter of fiscal
2007. The Company delivered payment to the Purchaser on August 21, 2006.
As of October 31, 2007, the promissory note balance of $311,000, which includes interest of
$95,000, is included in Other Current Assets.
Note 9Basic and Diluted Income per Share
Basic income per share represents income available to common shareholders divided by the
weighted average number of shares outstanding during the period. Diluted income per share
represents income available to common shareholders divided by the weighted average number of shares
outstanding including the potentially dilutive impact of stock options and warrants, where
appropriate. Potential common share equivalents of stock options and warrants are computed by the
treasury stock method and are included in the denominator for computation of earnings per share if
such equivalents are dilutive.
The following table sets forth the computation of basic and diluted income from continuing
operations per share for the three and six months ended October 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
October 31, |
|
|
October 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
2,295 |
|
|
$ |
1,742 |
|
|
$ |
2,673 |
|
|
$ |
5,510 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic income (loss) per shareweighted
average shares outstanding |
|
|
37,326 |
|
|
|
37,194 |
|
|
|
37,314 |
|
|
|
37,134 |
|
Dilutive potential common shares from employee stock options |
|
|
128 |
|
|
|
336 |
|
|
|
169 |
|
|
|
398 |
|
Dilutive potential common shares from warrants |
|
|
|
|
|
|
275 |
|
|
|
|
|
|
|
281 |
|
Dilutive potential common shares from service and
performance based stock awards |
|
|
57 |
|
|
|
74 |
|
|
|
57 |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted incomeweighted average shares
outstanding and assumed conversions |
|
|
37,511 |
|
|
|
37,879 |
|
|
|
37,540 |
|
|
|
37,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) from continuing operations per share |
|
$ |
0.06 |
|
|
$ |
0.05 |
|
|
$ |
0.07 |
|
|
$ |
0.15 |
|
13
Employee stock options representing 796,860 and 520,625 shares have been excluded from the
diluted weighted average share denominator for the three and six months ended October 31, 2007,
respectively as their effect would be anti-dilutive. Employee stock options representing 21,250
shares were excluded from the diluted weighted average share denominator for the three and six
months ended October 31, 2006 as their effect would have been anti-dilutive.
Note 10Receivables, Net
Receivables, Net consist of the following:
|
|
|
|
|
|
|
|
|
|
|
October 31, 2007 |
|
|
April 30, 2007 |
|
Trade Accounts Receivable |
|
$ |
28,910 |
|
|
$ |
27,573 |
|
Unbilled Revenues |
|
|
3,198 |
|
|
|
1,929 |
|
|
|
|
|
|
|
|
|
|
|
32,108 |
|
|
|
29,502 |
|
Less: Allowance for Doubtful Accounts |
|
|
3,409 |
|
|
|
2,884 |
|
|
|
|
|
|
|
|
|
|
$ |
28,699 |
|
|
$ |
26,618 |
|
|
|
|
|
|
|
|
Note 11Inventories
Inventories are stated at the lower of cost (determined by using the first-in first-out or
average cost method) or market. Costs included in inventories consist of materials, labor and
manufacturing overhead, which are related to the purchase or production of inventories.
Write-downs, when required, are made to reduce excess inventories to their estimated net realizable
values. Such estimates are based on assumptions regarding future demand and market conditions. If
actual conditions become less favorable than the assumptions used, an additional inventory
write-down may be required. Inventories at October 31, 2007 and April 30, 2007 consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
October 31, 2007 |
|
|
April 30, 2007 |
|
Raw Materials and Parts |
|
$ |
20,023 |
|
|
$ |
15,610 |
|
Work in Process |
|
|
3,057 |
|
|
|
2,765 |
|
Finished Goods |
|
|
7,908 |
|
|
|
8,260 |
|
|
|
|
|
|
|
|
|
|
$ |
30,988 |
|
|
$ |
26,635 |
|
|
|
|
|
|
|
|
Note 12Warranty Obligations
The Companys estimated obligations for warranty are accrued concurrently with the revenue
recognized. The Company makes provisions for its warranty obligations based upon historical costs
incurred for such obligations adjusted, as necessary, for current conditions and factors. Due to
the significant uncertainties and judgments involved in estimating the Companys warranty
obligations, including changing product designs and specifications, the ultimate amount incurred
for warranty costs could change in the near term from the current estimate.
Included in Other Accrued Liabilities as of October 31, 2007 is $2.8 million related to
warranty obligations. The following table shows the fiscal 2008 year-to-date activity for the
Companys warranty obligations:
|
|
|
|
|
Accrued warranty balance as of April 30, 2007 |
|
$ |
2,405 |
|
Accruals for warranties |
|
|
1,762 |
|
Warranty costs incurred |
|
|
(1,409 |
) |
|
|
|
|
Accrued warranty balance as of October 31, 2007 |
|
$ |
2,758 |
|
|
|
|
|
Note 13Long-Term Obligations and Notes Payable
Long-term obligations and notes payable are as follows:
|
|
|
|
|
|
|
|
|
|
|
October 31, 2007 |
|
|
April 30, 2007 |
|
Term Loans Payable |
|
$ |
3,296 |
|
|
$ |
3,601 |
|
Less Current Portion |
|
|
(837 |
) |
|
|
(822 |
) |
|
|
|
|
|
|
|
|
|
$ |
2,459 |
|
|
$ |
2,779 |
|
|
|
|
|
|
|
|
Notes Payable |
|
$ |
1,049 |
|
|
$ |
6,366 |
|
|
|
|
|
|
|
|
14
On July 19, 2007, the Company entered into a Second Amendment (the Amendment) to its Credit
Agreement, increasing its revolving line of credit from $30 million to $45 million and permitting
the use of the line of credit for the repurchase of stock. This line of credit has a maturity date
of July 8, 2008 and is collateralized by a general lien on all of the Companys assets. Certain
subsidiaries guaranteed the Companys line of credit under the Agreement. Interest rates under the
Agreement are at LIBOR plus a percentage depending on the Companys leverage ratio (financial
covenants) or at the Bank of Americas prime rate in effect from time to time, at the Companys
option. LIBOR and prime rate at October 31, 2007 were 5.41% and 7.50%, respectively. The Company
also pays an annual letter of credit fee equal to 1.25% of the amount available to be drawn under
each outstanding letter of credit. The annual letter of credit fee is payable quarterly in arrears
and varies depending on the Companys leverage ratio. In addition, the Agreement includes a
subjective acceleration clause which permits the lenders to demand payment in the event of a
material adverse change. As of October 31, 2007, the Company had $43.1 million of domestic unused
line of credit available, net of $1.9 million in outstanding letters of credit. The Company was in
compliance with all financial covenants as of October 31, 2007.
The Company also has capital leases for office equipment on which it owes outstanding
principal of $171,000. This total amount is shown under Term Loans Payable as of October 31, 2007,
of which $56,000 is current.
The Company has outstanding a seven-year collateralized long-term loan, expiring in 2011,
whose original principal amount was 145 million New Taiwanese Dollars, bearing interest at the
current annual rate of 3.49%. The loan is collateralized by the Companys manufacturing facility in
Taiwan. The outstanding balance of US $3.1 million at October 31, 2007 is included in Term Loans
Payable, of which $781,000 is current.
The Company also has four unsecured credit facilities in Taiwan with a commitment totaling
$228 million New Taiwanese Dollars (US $7 million at October 31, 2007), bearing interest at rates
ranging from 2.48% to 2.51% per annum. At October 31, 2007, all the credit facilities will mature
within one year and the balance outstanding under these credit facilities amounts to US $1 million,
which is shown under Notes Payable.
Note 14Commitments and Contingencies
At any time, the Company may be involved in legal proceedings in addition to the matters
described below. The Companys policy is to routinely assess the likelihood of any adverse
judgments or outcomes related to legal matters, as well as ranges of probable losses. A
determination of the amount of the reserves required, if any, for these contingencies is made after
thoughtful analysis of each known issue and an analysis of historical experience in accordance with
Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, and related
pronouncements. The Company records reserves related to certain legal matters for which it is
probable that a loss has been incurred and the range of such loss can be estimated. With respect to
other matters, management has concluded that a loss is only reasonably possible or remote and,
therefore, no liability is recorded. Management discloses the facts regarding material matters
assessed as reasonably possible and potential exposure, if determinable. Costs incurred with
defending claims are expensed as incurred.
Omax Corporation (Omax) filed suit against the Company on November 18, 2004. The case, Omax
Corporation v. Flow International Corporation, United States District Court, Western Division at
Seattle, Case No. CV04-2334, was filed in federal court in Seattle, Washington. The suit alleges
that the Companys products infringe Omaxs Patent Nos. 5,508,596 entitled Motion Control with
Precomputation and 5,892,345 entitled Motion Control for Quality in Jet Cutting. The suit also
seeks to have the Companys Patent No. 6,766,216 entitled Method and System for Automated Software
Control of Waterjet Orientation Parameters declared invalid, unenforceable and not infringed. The
Company has brought claims against Omax alleging certain of their products infringe its Patent No.
6,766,216. Omax manufactures waterjet equipment that competes with the Companys equipment. Both
Omaxs and the Companys patents are directed at the software that controls operation of the
waterjet equipment. Although the Omax suit seeks damages of over $100 million, the Company believes
Omaxs claims are without merit, and the Company intends not only to contest Omaxs allegations of
infringement but also to vigorously pursue its claims against Omax with regard to its own patent.
The outcome of this case is uncertain, and an unfavorable outcome is reasonably possible. The
Company has not provided any loss accrual related to the Omax lawsuit as of October 31, 2007. The
Company has spent, and expects to continue to spend, considerable amounts on this case except as
discussed in Note 16.
In litigation arising out of a June 2002 incident at a Crucible Metals (Crucible) facility,
the Companys excess insurance carrier had notified the Company in December 2006 that it was
contesting its obligation to provide coverage for the property damage. The Company believed the
carriers position was without merit and commenced a declaratory judgment action seeking a
determination that the carrier is obligated to provide a full defense of the Company which was
previously disclosed in the Companys Annual Report on Form 10-K for the year ended April 30, 2007.
The carrier agreed to provide the Company a defense in the second quarter of fiscal 2008.
15
In June 2007, the Company received a claim seeking the return of amounts paid by Collins and
Aikman Corporation, a customer, as preference payments. The Company intends to vigorously contest
this claim; however, the ultimate outcome or likelihood of this specific claim cannot be determined
at this time and an unfavorable outcome is reasonably possible.
Other Legal ProceedingsFor matters other than Omax and Collins and Aikman described above,
the Company does not believe these proceedings will have a material adverse effect on its
consolidated financial position, results of operations or cash flows.
Other CommitmentsEffective February 2, 2007 (the Effective Date), the Company and Stephen
R. Light, the Companys former President and Chief Executive Officer (the former Executive)
entered into an Employment Agreement (the Agreement). The Agreement, entered into in connection
with the former Executives retirement, amended and restated the employment agreement entered into
by and between the Company and Mr. Light dated November 25, 2002, as amended on September 21, 2005.
The Agreement provided for a Period of Employment (the Period of Employment) that began on
the Effective Date and ended on July 16, 2007. Subject to the terms and conditions of the
Agreement, the former Executive is entitled to the following payments and benefits. For the period
beginning on the Effective Date and ending on April 30, 2008, the Company will pay the former
Executive a base salary at the rate of $550,000 per year. The former Executive is also eligible to
receive a bonus under the Companys annual incentive plan for fiscal year 2007, fiscal year 2008
and fiscal 2009 to the extent that he was employed by the Company during fiscal year 2008. The
former Executive ceased to participate in the Companys Long Term Incentive Plans commencing on the
Effective Date. The former Executive is entitled to a cash severance payment payable in January
2008 of $4,475,250 (less applicable tax withholdings). The Agreement also provides for other
benefits, such as a monthly financial planning allowance, a monthly cash allowance in lieu of
provision of other perquisites, vacation accrual, and eligibility to participate in life insurance,
health insurance, 401(k) and similar benefit plans of the Company.
The Company incurred $2.9 million in the first fiscal quarter of 2008 related to this
Agreement. The total cost of $5.7 million associated with this Agreement, of which $2.8 million was
recognized in the fourth quarter of fiscal 2007, has been fully recognized as of October 31, 2007.
$5.7 million related to this Agreement is included in Other Current Liabilities as of October 31,
2007 and is expected to be paid out within the current fiscal year.
Note 15Warrant Repurchase
On October 25, 2007, in a privately negotiated transaction, the Company purchased from certain
funds managed or advised by Third Point LLC (collectively, Third Point) outstanding warrants that
gave Third Point the right until March of 2010 to purchase 403,300 of the Companys common stock at
an exercise price of $4.07 per share (the Warrants). Third Point purchased the Warrants,
together with shares of commons stock, in the Companys March 2005 Private Investment Public Equity
transaction (the PIPE Transaction). The Warrants were repurchased from Third Point in connection
with the Companys previously announced program to repurchase up to $45 million of the Companys
securities. The Warrants were repurchased at a price of $7.43 per Warrant for an aggregate
purchase price of $3 million. In accordance with FASB Technical Bulletin (FTB) No. 85-6, the
total fair value of the repurchased warrants of $2.4 million was accounted for as the cost of the
warrants and was included as a reduction to capital in excess of par within the Companys total
stockholders equity at October 31, 2007. The cash paid in excess of the fair market value of those
warrants of $629,000 was charged against income as Other Expense during the current fiscal quarter.
The total fair value of the warrants was estimated using the Black-Scholes pricing model, based on
the following assumptions: (i) no expected dividend yields; (ii) expected volatility rate of 60%;
and (iii) an expected life of 28 months based on the remaining contractual life of the Warrants.
The risk-free interest rate applied was 4.12% based on U.S Treasury constant maturity interest rate
whose term is consistent with the expected life of the Companys stock options.
Third Point was the last holder of warrants issued in the PIPE Transaction; all other warrants
had been converted. Under the terms of the PIPE Transaction, the Company was obligated to file and
keep effective a registration statement on Form S-1 for the resale of the shares issued in the PIPE
Transaction as well as the shares issuable upon exercise of the
Warrants until February 22, 2011. Failure to keep the registration statement continuously
effective would have resulted in penalties of approximately $250,000 per month. With the
repurchase of the Warrants, the Company will now no longer be obligated to keep the registration
statement effective.
16
Note 16 Subsequent Events
On December 4, 2007, the Company entered into an Option Agreement (the Option Agreement)
with Omax Corporation (Omax). Omax is a leading provider of precision-engineered,
computer-controlled, two-axis abrasivejet systems for use in the general machine shop environment.
Under the Option Agreement, Omax agreed to an Exclusivity Period (defined below) during which
the Company and Omax intend to complete negotiations and to agree on the acquisition of 100% of the
outstanding capital stock of Omax by the Company, under the terms and conditions set forth in the
Option Agreement, including the negotiation of mutually acceptable definitive agreements and the
approval of the shareholders of Omax (the Proposed Acquisition). The Company paid into escrow $6
million on signing the Option Agreement (Option Escrow).
The Option Agreement provides that the Company shall pay an additional $3 million into
the Option Escrow on the termination of the Hart-Scott-Rodino (HSR) waiting period and execution
of the definitive agreements relating to the Proposed Acquisition.
The Option Agreement establishes that the Definitive Agreements will provide for the following
payments by the Company, subject to indemnification escrows as described below:
|
|
|
At Closing, $66,000,000 plus the funds in the Option Escrow to be paid in cash, minus
amounts to be paid by the Company at Closing in satisfaction of certain litigation fees of
Omax, if any, and less amounts to be placed into an employee retention pool, described
below; |
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|
At Closing, 3.75 million shares of Company common stock, or if the Closing Share Price
(defined as the average daily closing price of the Company common stock during the ten
trading day period prior to Closing) is less than $9.00, such greater number as is
necessary so that the total value of the shares delivered is $33.75 million (the Company
may pay cash for any additional shares otherwise payable pursuant this paragraph, based on
the number of additional shares (in excess of 3,750,000) which would otherwise be payable
times the Closing Share Price); and |
|
|
|
|
Two years after Closing, up to 1,733,334 additional shares of common stock based on the
Average Share Price (defined as the average closing price for the six months ending twenty
four months after Closing). Shares will be paid on a straight line interpolation, with no
shares being delivered if the Average Share Price is $13 or less, and 1,733,334 shares
being delivered if the Average Share Price is $15 or more; provided that if the Closing
Share Price is less than $9.00, the $13 and $15 prices will be reduced by the difference
between $9.00 and the Closing Share Price. The Company may elect to pay the consideration
required in this paragraph in cash based upon the Average Share Price times the number of
shares which would otherwise be issued. |
|
|
|
|
The cash consideration at Closing is subject to adjustment based on Omax Net Working
Capital at Closing. The consideration will be adjusted upward or downward on a
dollar-for-dollar basis if the Net Working Capital is below $7 million or above $9 million. |
The Option Agreement provides that in the event that the Proposed Acquisition does not close
or is otherwise terminated, the funds in the Option Escrow will be released and Omax may retain
such amounts. However, that in the event Omax thereafter obtains a judgment against the Company in
the litigation matter Omax Corporation v Flow International
Corporation (the Litigation)
or the Company agrees to pay Omax an amount to settle the Litigation, the Company will receive a
credit against any such judgment and/or settlement in an amount equal to 50% of the $6 million
payment and 100% of the $3 million payment.
The Option Agreement further sets forth that the Definitive Agreements will:
|
|
|
provide for two separate indemnification escrows in an aggregate amount of $13.2 million
to be funded at Closing from the cash consideration. $7 million will be subject to a
General Escrow that will end July 31, 2009, to indemnify the Company for losses from
breaches of representations and warranties to the extent that such breach or breaches,
individually or in the aggregate, result in claims in excess of $1,000,000. $6.2 million
will be subject to a |
17
|
|
|
Special Escrow that will end two years after Closing, to indemnify the Company for losses
with respect to certain potential liabilities identified during the course of due diligence.
The amount to be placed in the Special Escrow is subject to reduction under conditions to
be specified in the Definitive Agreements. The General and Special Escrows will be funded
proportionally from the cash payments (including the funds in the Option Escrow) and the
shares of common stock delivered at Closing; |
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|
provide that at Closing the Company will place into escrow a portion of the cash
consideration as a retention pool for key Omax employees that will provide such employees
the equivalent of three months salary, to be allocated upon the six month anniversary of
Closing; |
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|
include mutually acceptable executive officer agreements for Drs. John B. Cheung, John
H. Olsen and Mr. James M. OConnor to become executives of the Company and provide that as
soon as is commercially reasonable following Closing, the Company will expand its Board of
Directors and elect Dr. Cheung to the vacancy thereby created; and |
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|
provide that Omax stock options that are currently outstanding and unvested shall vest
immediately prior to Closing and shall be exercised or terminated at Closing, or otherwise
treated in a manner mutually acceptable to the parties. |
The negotiation and execution of the Definitive Agreements are subject to the completion of
due diligence activities (certain of which will be provided after execution of the Definitive
Agreements), and the closing of the acquisition will be subject to standard closing conditions,
including HSR approval of the merger.
Under the Option Agreement, Omax has agreed that to a period of exclusivity that ends on the
earlier of (i) the mutual consent of the parties that all discussions related to the Proposed
Acquisition have terminated, (ii) 180 days following the receipt of a definitive final response
from federal regulatory authorities concerning the HSR filing, (iii) 60 days following the receipt
of a definitive final response from federal regulatory authorities concerning the HSR filing
(should the parties not have entered into the Definitive Agreements by such date), or (iv) December
5, 2008 (the Exclusivity Period). During the Exclusivity Period, Omax will not, without the
advance written consent of the Company, (1) solicit, initiate discussions, engage in or encourage
discussions or negotiations with, or enter into any agreement, including any non-disclosure
agreement, with, any party relating to or in connection with (a) the possible acquisition of Omax,
(b) the possible acquisition of any material portion of the Companys capital stock or assets,
including the claims in the Litigation, or (c) any other transaction outside of the ordinary course
of business that could materially impair the value of Omaxs assets post-Closing (collectively, a
Restricted Transaction), or (2) disclose any non-public information relating to Omax or its
subsidiaries or afford access to the properties, books or records of Omax or its subsidiaries to,
any person concerning a Restricted Transaction.
If the acquisition is consummated, the litigation with Omax referred to in Note 14 will be
terminated without any additional payments in settlement by either party.
18
FLOW INTERNATIONAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
SAFE HARBOR STATEMENT:
Statements made in this quarterly report on Form 10-Q that are not historical facts are
forward-looking statements that involve risks and uncertainties. Forward-looking statements
typically are identified by the use of such terms as may, will, expect, believe,
anticipate, estimate, plan and similar words, although some forward-looking statements are
expressed differently. You should be aware that our actual results could differ materially from
those contained in any forward-looking statement due to a number of factors, which include, but are
not limited to the following: the special risk factors and uncertainties set forth in Part I, Item
1A of our Annual Report on Form 10-K for the year ended April 30, 2007; our expectation of improved
Aerospace revenue levels because of increased orders for large systems; our expectation of improved
operating leverage in future quarters as a result of initiatives streamline the organizational
structure of our Company; our expectation that the extended credit line will provide us with
liquidity that could be used to make acquisitions, fund the repurchase of shares, or pay dividends;
our belief that the financial covenants in our credit facilities are achievable based on current
financial forecasts and our belief that our existing cash, cash from operations, and credit
facilities at October 31, 2007 are adequate to fund our operations for the next twelve months; our
plan to continue capital spending on information technology and facilities and our expectation that
the necessary funds will be generated internally; our intent to contest Omaxs allegations and our
belief that we will continue to spend considerable amounts on this contest; our belief that
waterjets are experiencing growing acceptance in the marketplace because of their flexibility and
superior machine performance; our continuing to invest in marketing and new direct sales and
technical services staff adding new personnel to service potential and existing customers along
with the increasing adoption of waterjet technology to drive revenue growth over the next few
years; our belief that the improvements made in the Asia Waterjet management team will return the
segment to growth; our plan to continue to repatriate earnings in the future; our belief that for
matters other than Omax and Collins and Aikman, these proceedings will not have a material adverse
effect on our consolidated financial position, results of operations or cash flows; our expectation
that unrecognized tax benefits will not change significantly within the next twelve months.
Additional information on these and other factors that could affect our financial results is
set forth below. Finally, there may be other factors not mentioned above or included in our SEC
filings that may cause our actual results to differ materially from those in any forward-looking
statement. You should not place undue reliance on these forward-looking statements. We assume no
obligation to update any forward-looking statements as a result of new information, future events
or developments, except as required by federal securities laws.
Results of Operations
(Tabular amounts in thousands)
Sales. Our sales by segment for the periods noted below is summarized as follows:
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|
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|
|
|
|
|
|
|
|
|
|
|
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|
Three Months Ended October 31, |
|
|
Six Months Ended October 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Difference |
|
|
% |
|
2007 |
|
|
2006 |
|
|
Difference |
|
|
% |
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
Waterjet |
|
$ |
32,276 |
|
|
$ |
30,079 |
|
|
$ |
2,197 |
|
|
|
7 |
% |
|
$ |
63,334 |
|
|
$ |
61,588 |
|
|
$ |
1,746 |
|
|
|
3 |
% |
Asia Waterjet |
|
|
5,721 |
|
|
|
8,133 |
|
|
|
(2,412 |
) |
|
|
(30 |
)% |
|
|
12,748 |
|
|
|
15,489 |
|
|
|
(2,741 |
) |
|
|
(18 |
)% |
Other
International
Waterjet |
|
|
16,083 |
|
|
|
11,943 |
|
|
|
4,140 |
|
|
|
35 |
% |
|
|
31,393 |
|
|
|
22,584 |
|
|
|
8,809 |
|
|
|
39 |
% |
Applications |
|
|
5,094 |
|
|
|
4,249 |
|
|
|
845 |
|
|
|
20 |
% |
|
|
10,365 |
|
|
|
8,153 |
|
|
|
2,212 |
|
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
59,174 |
|
|
$ |
54,404 |
|
|
$ |
4,770 |
|
|
|
9 |
% |
|
$ |
117,840 |
|
|
$ |
107,814 |
|
|
$ |
10,026 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
The North America, Asia and Other International Waterjet segments primarily represent sales of
our standard cutting and cleaning systems throughout the world, as well as sales of our custom
designed systems to the Aerospace industry. For the three and six months ended October 31, 2007,
revenue from
our three Waterjet segments increased $3.9 million or 8%, and $7.8 million or 8% when compared
to the prior year same periods. Our waterjets are experiencing growing acceptance in
19
the marketplace because of their flexibility and superior machine performance. We continue to
invest in marketing to build market awareness for our products and we continue to add new direct
sales and technical services staff to service new and existing customers. We expect that these
investments along with the increasing adoption of waterjet technology to drive revenue growth over
the next few years.
Excluding sales to the Aerospace industry, sales were up $6.1 million or 14%, and 15.4 million
or 18% for the three and six months ended October 31, 2007 over the prior year same periods on
strength in standard systems sales driven by the increased adoption of waterjet technology and the
positive market reception to the 87k high pressure pump. Sales to the Aerospace industry were down
$2.2 million or 38%, and $7.6 million or 54% when compared to the prior year same periods. Sales to
the Aerospace industry fluctuate quarter over quarter for various reasons such as the timing of the
contract awards, timing of the project design and manufacturing schedule and finally shipment to
the customers. We expect improved revenue levels in the second half of the fiscal year on increased
orders for large systems.
For the three and six months ended October 31, 2007, our revenue in the Asia Waterjet segment
decreased $2.4 million or 30%, and $2.7 million or 18% from the prior year respective periods. The
lower level of sales was due to a slowdown in sales to the semiconductor industry and the continued
impact of the Asia investigations completed in the third and fourth fiscal quarters of 2007. We
expect the improvements made in the Asia Waterjet management team to return the segment to growth.
Revenue in the Other International Waterjet segment increased by $4.1 million or 35%, and $8.8
million or 39% for the three and six months ended October 31, 2007 compared to the prior year same
periods on strong demand for our standard shapecutting systems and spare parts as well as improved
aftermarket revenues which have also benefited from a stronger Euro versus the US Dollar.
Our Applications segment represents sales of our automation and robotic waterjet cutting
systems as well as non-waterjet automation systems, which are sold primarily to the North American
automotive industry. For the three and six months ended October 31, 2007, revenue increased
$845,000 or 20%, and $2.2 million or 27% versus the prior year same periods on increased contract
awards as well as the benefit from a stronger Canadian Dollar versus US Dollar. Effective September
2007, our Application segment ceased the pursuit of non-waterjet automation systems and will focus
on increasing revenue from systems that integrate waterjet cutting technology.
Systems vs. Spares. We also analyze our Waterjet revenues by looking at system sales and
consumable sales as follows:
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|
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|
Three Months Ended October 31, |
|
|
Six Months Ended October 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Difference |
|
|
% |
|
|
2007 |
|
|
2006 |
|
|
Difference |
|
|
% |
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems |
|
$ |
42,386 |
|
|
$ |
39,703 |
|
|
$ |
2,683 |
|
|
|
7 |
% |
|
$ |
85,069 |
|
|
$ |
79,048 |
|
|
$ |
6,021 |
|
|
|
8 |
% |
Consumable parts |
|
|
16,788 |
|
|
|
14,701 |
|
|
|
2,087 |
|
|
|
14 |
% |
|
|
32,771 |
|
|
|
28,766 |
|
|
|
4,005 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
59,174 |
|
|
$ |
54,404 |
|
|
$ |
4,770 |
|
|
|
9 |
% |
|
$ |
117,840 |
|
|
$ |
107,814 |
|
|
$ |
10,026 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total systems sales increased $2.7 million or 7%, and $6 million or 8% for the three and six
months ended October 31, 2007. Excluding sales to the Aerospace industry and in the Applications
segment, system sales increased 15% and 20% respectively for the three and six months ended October
31, 2007. The increase in systems sales is due to the growing acceptance of our waterjets in the
market place and the impact of new product development and enhancements recently introduced.
Consumables revenues recorded an increase of $2.1 million or 14%, and $4 million or 14% for the
three and six months ended October 31, 2007. Increases in consumable parts sales resulted from a
growing number of systems in service and improved parts availability as well as the use of
Flowparts.com and Floweuropeparts.com, our easy-to-use internet order entry systems. Flowparts.com
has been deployed in the U.S. for two years and Floweuropeparts.com was launched in Europe in July
2006.
20
Gross Margins. Our gross margin by segment for the periods noted below is summarized as
follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31, |
|
|
Six Months Ended October 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Difference |
|
|
% |
|
|
2007 |
|
|
2006 |
|
|
Difference |
|
|
% |
|
Gross Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Waterjet |
|
$ |
14,136 |
|
|
$ |
13,800 |
|
|
$ |
336 |
|
|
|
2 |
% |
|
$ |
27,380 |
|
|
$ |
27,930 |
|
|
$ |
(550 |
) |
|
|
(2 |
)% |
Asia Waterjet |
|
|
2,654 |
|
|
|
4,472 |
|
|
|
(1,818 |
) |
|
|
(41 |
)% |
|
|
5,826 |
|
|
|
8,938 |
|
|
|
(3,112 |
) |
|
|
(35 |
)% |
Other International
Waterjet |
|
|
7,182 |
|
|
|
4,807 |
|
|
|
2,375 |
|
|
|
49 |
% |
|
|
13,555 |
|
|
|
8,796 |
|
|
|
4,759 |
|
|
|
54 |
% |
Applications |
|
|
463 |
|
|
|
533 |
|
|
|
(70 |
) |
|
|
(13 |
)% |
|
|
1,274 |
|
|
|
979 |
|
|
|
295 |
|
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
24,435 |
|
|
$ |
23,612 |
|
|
$ |
823 |
|
|
|
3 |
% |
|
$ |
48,035 |
|
|
$ |
46,643 |
|
|
$ |
1,392 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our gross margin as a percent of sales by segment for the periods noted below is summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31, |
|
Six Months Ended October 31, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Gross Margin Percentage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Waterjet |
|
|
44 |
% |
|
|
46 |
% |
|
|
43 |
% |
|
|
45 |
% |
Asia Waterjet |
|
|
46 |
% |
|
|
55 |
% |
|
|
46 |
% |
|
|
58 |
% |
Other International Waterjet |
|
|
45 |
% |
|
|
40 |
% |
|
|
43 |
% |
|
|
39 |
% |
Applications |
|
|
9 |
% |
|
|
13 |
% |
|
|
12 |
% |
|
|
12 |
% |
Total |
|
|
41 |
% |
|
|
43 |
% |
|
|
41 |
% |
|
|
43 |
% |
Gross margin for the three and six months ended October 31, 2007 amounted to $24.4 million or
41%, and $48 million or 41% of sales as compared to gross margin of $23.6 million or 43%, and $46.6
million or 43% of sales in the prior year same periods. Margins in North America declined slightly
from the prior year same periods due to a higher mix of systems sales versus consumable sales,
higher material prices and warranty expense, and lower average margins on special systems. Margins
in Asia declined due to product mix, including lower sales to the semiconductor industry.
Generally, comparison of gross margin rates will vary period over period depending on the mix of
sales, which includes special systems, standard systems and consumables. The gross margin
improvement in our Other International Waterjet is attributable to improved product mix, and the
stronger Euro versus the US Dollar. Gross margin rates on our systems sales are typically less than
45% as opposed to consumables sales which are in excess of 50%. On average, standard systems which
are included in the North America, Asia and Other International Waterjet segments carry higher
margins than the custom engineered automation systems, which are included in the Applications
segment. Our Applications segment recorded a $70,000 or 13% decrease in gross margin for the three
months ended October 31, 2007 mainly as a result of inventory write-downs of $399,000 and severance
costs of $234,000 incurred related to the cessation of the pursuit of non-waterjet automation
systems. For the six month period, this segment recorded a $295,000 or 30% increase in gross margin
due to improved pricing and contract management as well as the benefit from a stronger Canadian
Dollar versus US Dollar.
Effective August 1, 2007, we updated our intercompany transfer pricing policy. The changes in
gross margins globally are partially attributable to the new intercompany transfer pricing. The
intercompany transfer pricing changes have no effect on our consolidated operating results.
21
Sales and Marketing Expenses. Our sales and marketing expenses by segment for the periods
noted below are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31, |
|
|
Six Months Ended October 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Difference |
|
|
% |
|
|
2007 |
|
|
2006 |
|
|
Difference |
|
|
% |
|
Sales and Marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Waterjet |
|
$ |
5,819 |
|
|
$ |
6,059 |
|
|
$ |
(240 |
) |
|
|
(4 |
)% |
|
$ |
11,440 |
|
|
$ |
11,191 |
|
|
$ |
249 |
|
|
|
2 |
% |
Asia Waterjet |
|
|
1,090 |
|
|
|
1,291 |
|
|
|
(201 |
) |
|
|
(16 |
)% |
|
|
2,360 |
|
|
|
2,510 |
|
|
|
(150 |
) |
|
|
(6 |
)% |
Other International
Waterjet |
|
|
3,248 |
|
|
|
2,783 |
|
|
|
465 |
|
|
|
17 |
% |
|
|
6,350 |
|
|
|
5,434 |
|
|
|
916 |
|
|
|
17 |
% |
Applications |
|
|
826 |
|
|
|
430 |
|
|
|
396 |
|
|
|
92 |
% |
|
|
1,290 |
|
|
|
1,025 |
|
|
|
265 |
|
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10,983 |
|
|
$ |
10,563 |
|
|
$ |
420 |
|
|
|
4 |
% |
|
$ |
21,440 |
|
|
$ |
20,160 |
|
|
$ |
1,280 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses increased $420,000 or 4%, and $1.3 million or 6% for the three
and six months ended October 31, 2007, as compared to the prior year same periods. The expense
decrease in North America waterjet is mainly attributable to a lower volume of customer support
costs from lower aerospace sales while the expense decrease in Asia International waterjet is
primarily due to lower commissions related to lower sales in the region. Higher costs in Other
International segments were due to investment in staff and the impact of a stronger Euro versus US
Dollar. Applications costs were higher during the three and six months ended October 31, 2007 when
compared to the prior year same periods due to bad debt reserves of $343,000 taken during the
current period. Expressed as a percentage of revenue, sales and marketing expenses were 19% and 18%
for the three and six months ended October 31, 2007, compared to 19% for the three and six months
ended October 31, 2006.
Research and Engineering Expenses. Our research and engineering expenses by segment for the
periods noted below are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31, |
|
|
Six Months Ended October 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Difference |
|
|
% |
|
|
2007 |
|
|
2006 |
|
|
Difference |
|
|
% |
|
Research and Engineering |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Waterjet |
|
$ |
1,795 |
|
|
$ |
2,004 |
|
|
$ |
(209 |
) |
|
|
(10 |
)% |
|
$ |
3,764 |
|
|
$ |
3,883 |
|
|
$ |
(119 |
) |
|
|
(3 |
)% |
Asia Waterjet |
|
|
143 |
|
|
|
195 |
|
|
|
(52 |
) |
|
|
(27 |
)% |
|
|
244 |
|
|
|
414 |
|
|
|
(170 |
) |
|
|
(41 |
)% |
Other International Waterjet |
|
|
122 |
|
|
|
91 |
|
|
|
31 |
|
|
|
34 |
% |
|
|
242 |
|
|
|
210 |
|
|
|
32 |
|
|
|
15 |
% |
Applications |
|
|
85 |
|
|
|
49 |
|
|
|
36 |
|
|
|
73 |
% |
|
|
175 |
|
|
|
126 |
|
|
|
49 |
|
|
|
39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,145 |
|
|
$ |
2,339 |
|
|
$ |
(194 |
) |
|
|
(8 |
)% |
|
$ |
4,425 |
|
|
$ |
4,633 |
|
|
$ |
(208 |
) |
|
|
(4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and engineering expenses decreased $194,000 or 8%, and $208,000 or 4% for the three
and six months ended October 31, 2007 as compared to the prior year same periods. The expense
decrease in North America is related to the timing of new product launches. The prior year same
periods included additional expenses for engineering resources to support new core product
development such as Stonecrafter TM, the 87,000 psi pump and the 55,000 psi Husky. The
expense decrease in Asia is attributable to reduced product development costs for specialty
systems. Expressed as a percentage of revenue, research and engineering expenses remained at 4% for
the three and six months ended October 31, 2007 compared to the prior year same periods.
22
General and Administrative Expenses. Our general and administrative expenses by segment for
the periods noted below are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31, |
|
|
Six Months Ended October 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Difference |
|
|
% |
|
|
2007 |
|
|
2006 |
|
|
Difference |
|
|
% |
|
General and Administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Waterjet |
|
$ |
4,339 |
|
|
$ |
4,940 |
|
|
$ |
(601 |
) |
|
|
(12 |
)% |
|
$ |
13,514 |
|
|
$ |
9,485 |
|
|
$ |
4,029 |
|
|
|
42 |
% |
Asia Waterjet |
|
|
1,310 |
|
|
|
2,598 |
|
|
|
(1,288 |
) |
|
|
(50 |
)% |
|
|
2,626 |
|
|
|
3,619 |
|
|
|
(993 |
) |
|
|
(27 |
)% |
Other International
Waterjet |
|
|
964 |
|
|
|
936 |
|
|
|
28 |
|
|
|
3 |
% |
|
|
2,199 |
|
|
|
1,854 |
|
|
|
345 |
|
|
|
19 |
% |
Applications |
|
|
662 |
|
|
|
508 |
|
|
|
154 |
|
|
|
30 |
% |
|
|
1,352 |
|
|
|
1,044 |
|
|
|
308 |
|
|
|
29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,275 |
|
|
$ |
8,982 |
|
|
$ |
(1,707 |
) |
|
|
(19 |
)% |
|
$ |
19,691 |
|
|
$ |
16,002 |
|
|
$ |
3,689 |
|
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses decreased $1.7 million or 19%, and increased $3.7 million
or 23% for the three and six months ended October 31, 2007, as compared to the prior year same
periods. Expenses in the North America segment include North America Waterjet division general and
administrative expenses and all of our corporate overhead costs. The year-to-date increase in North
America Waterjet division is mainly related to the current year cost of the former CEOs contract
amendment and increased staffing to support growth. We incurred $2.9 million in the first fiscal
quarter of 2008 related to the amendment of the former CEOs contract effective February 2, 2007.
As of October 31, 2007, the total cost of $5.7 million, of which $2.8 million was recognized in the
fourth quarter of fiscal 2007, has been fully recognized. Asia Waterjet divisions general and
administrative expenses in the prior periods included legal and consulting expenses incurred
related to the Asia Investigations, there was no such expense incurred for the three and six months
ended October 31, 2007. For the six months ended October 31, 2007, we incurred $487,000 of
severance benefits related to initiatives to streamline the organizational structure of our Company
for the six months ended October 31, 2007. We expect these initiatives to improve our operating
leverage in future quarters. Professional fees for legal expenses, consulting fees for assistance
with Sarbanes-Oxley compliance testing, and audit fees were $1.6 million and $4.1 million for the
three and six months ended October 31, 2007, compared to $1.6 million and $3.8 million for the
three and six months ended October 31, 2006. General and administrative expenses include the
allocation of corporate management fees in total of $1.2 million and $2.4 million, respectively
from North America waterjet to the Companys other operating segments for the three and six months
ended October 31, 2007. Prior periods have been recast to reflect this allocation in the prior
fiscal year. Expressed as a percentage of revenue, general and administrative expenses were 12% and
17% for the three and six months ended October 31, 2007 compared to 17% and 15% for the prior year
same periods.
Operating Income (Loss). Our operating income (loss) by segment for the periods noted below
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31, |
|
|
Six Months Ended October 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Difference |
|
|
% |
|
|
2007 |
|
|
2006 |
|
|
Difference |
|
|
% |
|
Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
Waterjet |
|
$ |
2,183 |
|
|
$ |
796 |
|
|
$ |
1,387 |
|
|
|
174 |
% |
|
$ |
(1,339 |
) |
|
$ |
3,371 |
|
|
$ |
(4,710 |
) |
|
|
(140 |
)% |
Asia Waterjet |
|
|
111 |
|
|
|
388 |
|
|
|
(277 |
) |
|
|
(71 |
)% |
|
|
597 |
|
|
|
2,395 |
|
|
|
(1,798 |
) |
|
|
(75 |
)% |
Other
International
Waterjet |
|
|
2,848 |
|
|
|
998 |
|
|
|
1,850 |
|
|
|
185 |
% |
|
|
4,764 |
|
|
|
1,298 |
|
|
|
3,466 |
|
|
|
267 |
% |
Applications |
|
|
(1,110 |
) |
|
|
(454 |
) |
|
|
(656 |
) |
|
|
144 |
% |
|
|
(1,543 |
) |
|
|
(1,216 |
) |
|
|
(327 |
) |
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,032 |
|
|
$ |
1,728 |
|
|
$ |
2,304 |
|
|
|
133 |
% |
|
$ |
2,479 |
|
|
$ |
5,848 |
|
|
$ |
(3,369 |
) |
|
|
(58 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our operating income for the three and six months ended October 31, 2007, was $4 million and
$2.5 million versus $1.7 million and $5.8 million in the prior year same periods. The reasons for
the changes in operating profit by segment have been described in the paragraphs above addressing
changes in sales, gross margin and operating expenses.
Interest Income, Interest Expense and Other Income (Expense), Net. Current Interest Income
increased to $251,000 and $442,000 for the three and six months ended October 31, 2007 compared to
$153,000 and $382,000 for the prior year same periods. This increase is related to higher average
global cash balance in investment accounts during the current fiscal year when compared to the
prior fiscal year. Interest Expense was $95,000 and $177,000 for the three and six months ended
October 31, 2007 compared to $46,000 and $181,000 in the prior year same periods. During the three
and six months ended
23
October 31, 2007, we recorded Other Expense, Net of $579,000 and $267,000, respectively,
compared to Other Income, Net of $399,000 and $1 million in the prior year same periods. This
change results from the fluctuation in realized and unrealized foreign exchange gains and losses as
described in the table below. Additionally, we repurchased 403,300 warrants from certain funds
managed or advised by Third Point, LLP for an aggregate purchase price of $3 million. The cash paid
in excess of the fair market value of those warrants on the repurchase date of $629,000 was
recorded as an Other Expense in the current fiscal quarter. See Note 15 in the condensed
consolidated financial statements for a detailed discussion of this transaction. $206,000 related
to hedges and their termination was included in Other Expense during the six months ended October
31, 2006.
The following table shows the detail of Other Income (Expense), Net, in the Condensed
Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended October 31, |
|
|
Ended October 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Realized Foreign Exchange Gains (Losses), Net |
|
$ |
(423 |
) |
|
$ |
(382 |
) |
|
$ |
(481 |
) |
|
$ |
(343 |
) |
Unrealized Foreign Exchange Gains (Losses), Net |
|
|
528 |
|
|
|
848 |
|
|
|
905 |
|
|
|
1,690 |
|
Premium on Repurchase of Warrants |
|
|
(629 |
) |
|
|
|
|
|
|
(629 |
) |
|
|
|
|
Hedging Costs |
|
|
|
|
|
|
(46 |
) |
|
|
|
|
|
|
(206 |
) |
Other |
|
|
(55 |
) |
|
|
(21 |
) |
|
|
(62 |
) |
|
|
(116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(579 |
) |
|
$ |
399 |
|
|
$ |
(267 |
) |
|
$ |
1,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes. For the three and six months ended October 31, 2007, the foreign tax provision
consists of current and deferred tax expense. The United States tax provision consists primarily of
federal alternative minimum tax, state taxes, and accrued foreign withholding taxes. We are no
longer permanently deferring undistributed earnings of certain foreign subsidiaries. In the first
two quarters of fiscal 2008, we repatriated $6.1 million, net of tax of $885,000, from two foreign
subsidiaries and we plan to continue repatriating additional funds from these foreign subsidiaries
in future. We had no repatriation of earnings in the comparative prior period. During the three
months ended July 31, 2007, after concluding that its German operations have achieved sustainable
profitability, the Company reversed its valuation allowance against deferred tax assets in this
jurisdiction, which resulted in a $1,160,000 tax benefit, or $.03 per basic and dilutive income per
share.
We continue to assess our ability to realize all our net deferred tax assets. Recognizing the
cumulative losses generated during the first two quarters of fiscal 2008 and prior, we have
determined it appropriate to continue to maintain a valuation allowance on our domestic net
operating losses, certain foreign net operating losses and certain other deferred tax assets based
on the expected reversal of both deferred tax assets and liabilities. The domestic net operating
losses can be carried forward 20 years to offset domestic profits in future periods and expire
between fiscal 2022 and fiscal 2026 if not used. Most of the foreign net operating losses can be
carried forward indefinitely, with the certain amounts expiring between fiscal 2014 and 2017. We
provided a full valuation allowance against the deferred tax assets associated with the losses
recorded during fiscal 2007.
Discontinued Operations, Net of Tax. In October 2005, we sold our Avure Business. As discussed
in Note 8 to the Condensed Consolidated Financial Statements in the first quarter of fiscal 2007,
the Company recorded $726,000 as a Loss on Sale from Discontinued Operations due to the arbitrated
resolution of the dispute between the Company and the purchaser of the Avure Business.
Net Income. Our consolidated net income in the three months ended October 31, 2007 amounted to
$2.3 million, or $.06 per basic and diluted income per share as compared to a net income of $1.7
million, or $.05 per basic and diluted income per share in the prior year same period. For the
year-to-date period, our consolidated net income was $2.7 million, or $.07 per basic and diluted
income per share compared to $4.8 million or $.13 per basic and diluted income per share in the
prior year same period.
24
Changes in Financial Condition and Cash Flows
Cash Flows
The following table summarizes our cash flows from operating, investing and financing
activities for the periods noted below:
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
Ended October 31, |
|
|
|
2007 |
|
|
2006 |
|
Total cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(1,703 |
) |
|
$ |
(3,465 |
) |
Investing activities |
|
|
(1,672 |
) |
|
|
(2,681 |
) |
Financing activities |
|
|
(8,373 |
) |
|
|
1,998 |
|
Effect of exchange rates on cash |
|
|
530 |
|
|
|
610 |
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
$ |
(11,218 |
) |
|
$ |
(3,538 |
) |
|
|
|
|
|
|
|
Operating Activities
Cash generated by operating activities before the effects of changes in operating accounts,
primarily working capital, was $4.6 million for the six months ended October 31, 2007 compared to
$7.4 million in the prior year same period. the change was primarily due to the decrease in net
earnings for the six months ended October 31, 2007 as well as a lower unrealized foreign currency
gains during the current period.
Changes in operating accounts resulted in a net $6.3 million use of cash for the six months
ended October 31, 2007 compared to $10.8 million use of cash for the six months ended October 31,
2006. The changes in operating assets and liabilities were primarily due to changes in accounts
receivable, accounts payable, deferred revenue and accrued expenses as a result of higher net
working capital to support growth combined with the timing of vendor payments. The decrease in cash
used for changes in deferred revenue is mainly attributable to the timing of contract awards.
Investing Activities
Net cash used in investing activities was $1.7 million during the six months ended October 31,
2007 compared to $2.7 million during the six months ended October 31, 2006. The change was
primarily due to moderately lower capital expenditures. Additionally, in the prior year same
period, we expended cash of $985,000 as payment to the purchaser of the Avure Business following
the resolution of a net working capital dispute by an arbitrator.
Financing Activities
Net cash used in financing activities was $8.4 million during the six months ended October 31,
2007 compared to net cash provided by financing activities of $2 million during the prior year same
period. This change was mainly due to the repayment notes payable of $5.9 million during the first
quarter of fiscal 2008, the repurchase of warrants of $3 million, and a reduction of $2.1 million
of net cash provided from the exercise of stock options during the six months ended October 31,
2007 when compared to the prior year same period.
Working Capital
Net receivables are comprised of trade accounts receivable and unbilled revenues. At October
31, 2007, the net receivables balance increased $2.1 million or 7% from April 30, 2007. The
increase in net receivables stemmed from the increase in trade receivables of $1.3 million due to
increased sales activity. Unbilled revenue increased from $1.9 million at April 30, 2007 to $3.2
million at October 31, 2007 primarily due to larger amounts of aerospace contracts at later
completion stages at April 30, 2007 versus October 31, 2007, as well as the progress made on
various contracts commensurate with costs incurred. Our unbilled receivables relate to equipment
and systems sales accounted for on a percentage of completion basis. Unbilled revenues fluctuate
due to the scheduling of production and achievement of certain billing milestones. In general,
receivables can be negatively affected by the traditionally longer payment cycle outside the United
States and the timing of billings and payments on large special system orders. Because of the
lead-time to build and deliver such equipment, ultimate collection of such accounts can be subject
to changing customer business and economic conditions. Receivables days sales outstanding
(including unbilled revenues) at October 31, 2007 decreased to 44 from 45 in the prior quarter.
Inventories at October 31, 2007 increased $4.4 million or 16% from April 30, 2007. The
increase in inventory is in response to our overall higher business volume as well as longer lead
times quoted by our suppliers.
25
Liquidity and Capital Resources
At October 31, 2007, we had total cash of $26.9 million, of which approximately $17.5 million
was held by divisions outside the United States. The repatriation of offshore cash balances from
certain divisions will trigger tax liabilities. During the six months ended October 31, 2007, we
repatriated $6.1 million, net of tax of $885,000 from two foreign subsidiaries and we plan to
continue repatriating additional funds in future from these foreign subsidiaries. We had no
repatriation of earnings in the comparative prior period.
We have an outstanding seven-year collateralized long-term loan, expiring in 2011, whose
original principal amount was 145 million New Taiwanese Dollars, bearing interest at an annual rate
of 3.49%. The loan is collateralized by our manufacturing facility in Taiwan. The outstanding
balance of US $3.1 million at October 31, 2007 is included in Term Loans Payable.
We also have four unsecured credit facilities in Taiwan with a commitment totaling $228
million New Taiwanese Dollars (US $7 million at October 31, 2007), bearing interest at rates
ranging from 2.48% to 2.51% per annum. In April 2007, we borrowed $5.8 million against this
facility for the repatriation of earnings. This amount was repaid in the first quarter of fiscal
2008. At October 31, 2007, all the credit facilities will mature within one year and the balance
outstanding under these credit facilities amounts to US $1 million, which is shown under Notes
Payable.
Our domestic senior credit agreement (Credit Agreement) is our primary source of external
funding. Effective July 19, 2007, we entered into a Second Amendment (the Amendment) to our
Credit Agreement, increasing our revolving line of credit from $30 million to $45 million and
permitting the use of the line of credit for the repurchase of stock. The amended credit agreement
expires July 8, 2008 and bears interest at the banks prime rate (7.50% at October 31, 2007) or is
linked to LIBOR plus a percentage depending on our leverage ratios, at our option. The agreement
sets forth specific financial covenants to be attained on a quarterly basis, which we believe,
based on our financial forecasts, are achievable. At October 31, 2007, we had $43.1 million of
domestic unused line of credit available, net of $1.9 million in outstanding letters of credit. The
extended credit line is expected to provide us with liquidity that could be used to make
acquisitions, fund the repurchase of shares, or pay dividends.
In October 25, 2007, in a privately negotiated transaction, we purchased from certain funds
managed or advised by Third Point LLC (collectively, Third Point) outstanding warrants that gave
Third Point the right until March of 2010 to purchase 403,300 of the Companys common stock at an
exercise price of $4.07 per share (the Warrants). Third Point purchased the Warrants, together
with shares of commons stock, our March 2005 Private Investment Public Equity transaction (the
PIPE Transaction). The Warrants were repurchased from Third Point in connection with our
previously announced program to repurchase up to $45 million of the Companys securities. The
Warrants were repurchased at a price of $7.43 per Warrant for an aggregate purchase price of $3
million. See Note 15 for a detailed discussion of this transaction.
Our capital spending plans currently provide for outlays of approximately $8.0 million in
fiscal 2008, primarily related to information technology spending and facility improvement. It is
expected that funds necessary for these expenditures will be generated internally. Our capital
spending for the six months ended October 31, 2007 and 2006 amounted to $2.5 million and $2.6
million, respectively.
We believe that our existing cash, cash from operations, and credit facilities at October 31,
2007 are adequate to fund our operations for at least the next twelve months.
Off-Balance Sheet Arrangements
We do not have any special purpose entities or off-balance sheet financing arrangements.
Contractual Obligations
During the six months ended October 31, 2007, there were no material changes outside the
ordinary course of business in our contractual obligations and minimum commercial commitments as
reported in our Annual Report on Form 10-K for the year ended April 30, 2007. As disclosed in Note
7, with the adoption of FIN 48, we had unrecognized tax benefits of $2.3 million associated with
uncertain tax positions as of May 1, 2007. This potential liability may result in cash payments to
tax authorities; however, we are not able to make reasonably reliable estimates of the period or
amounts of cash settlements. For this reason, we have not included this potential liability in a
table of contractual obligations and have not updated the table that was presented in our fiscal
2007 Form 10-K.
26
Critical Accounting Estimates and Judgments
There are no material changes in our critical accounting estimates as disclosed in our Annual
Report on Form 10-K for the year ended April 30, 2007. With the adoption of FIN 48 as of May 1,
2007, the Company has added Uncertain Tax Positions as a critical accounting policy.
Uncertain Tax Positions
We account for uncertain tax positions in accordance with FIN 48. The application of income
tax law is inherently complex. Laws and regulations in this area are voluminous and are often
ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our
income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations
change over time. As such, changes in our subjective assumptions and judgments can materially
affect amounts recognized in the consolidated balance sheets and statements of income. See Note 7
to the unaudited condensed consolidated financial statements, Income Taxes, for additional detail
on our uncertain tax positions.
Recently Issued Accounting Pronouncements
Please refer to Note 2 to the Condensed Consolidated Financial Statements for a discussion of
recently issued accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our market risk during the six months ended October 31,
2007. For additional information, refer to Managements Discussion and Analysis of Financial
Condition and Results of Operations as presented in our Annual Report on Form 10-K for the year
ended April 30, 2007.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Companys management evaluated, with the participation of our principal executive
officer and principal financial officer, or persons performing similar functions, the
effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by
this report. Based on this evaluation, our principal executive officer and principal financial
officer have concluded that, as of the end of the period covered by this report, our disclosure
controls and procedures were effective to ensure that information we are required to disclose
in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms relating to Flow International
Corporation, including our consolidated subsidiaries, and was accumulated and communicated to
the Companys management, including the principal executive officer and principal financial
officer, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
(b) Changes in Internal Controls
In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the
Exchange Act, there was no change identified in our internal control over financial reporting
that occurred during the fiscal quarter ended October 31, 2007 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial reporting.
27
PART IIOTHER INFORMATION
Item 1. Legal Proceedings
At any time, the Company may be named as a defendant in legal proceedings. Please refer to
Note 14 to the Condensed Consolidated Financial Statements for a discussion of the Companys legal
proceedings.
Item 1A. Risk Factors
There are no material changes from the risk factors previously disclosed in Part I of Item 1A
in our Annual Report on Form 10-K for the fiscal year ended April 30, 2007 except as follows:
The risk factors immediately following, have been added based on the Subsequent Event
discussed in Note 16.
Our proposed acquisition of Omax Corporation (Omax) may fail to close or there could be
substantial delays and costs before the acquisition is completed, including the loss of the $6
million consideration paid for the exclusive option to purchase Omax.
On December 4, 2007, we entered into an option agreement that provides us with a period of
exclusivity to negotiate the acquisition of Omax. The acquisition, if it is made, is estimated to
close in fiscal 2008. The proposed acquisition is subject to due diligence, the negotiation of a
mutually acceptable definitive agreement and the closing will subject to customary closing
conditions, including approval of the merger under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976. If we are unable to complete the acquisition, we will have expended $6 million paid into
escrow on the signing of the Option Agreement, and if the definitive agreement is signed, the $3
million paid into escrow on the signing of the definitive agreement (except that such amounts can
serve as offsets of up to $6 million against Company payments in any settlement of or judgment
attributable to patent litigation with Omax) and will have failed to realize the anticipated
benefits of the acquisition and will have devoted substantial resources and management attention
without realizing any accompanying benefit. In such an event, our financial condition and results
of operations could be materially adversely affected.
The completion of the acquisition of Omax is subject to the receipt of certain government
authorizations, consents, orders and approvals, including the expiration or termination of the
applicable waiting period (and any extension of the waiting period) under the Hart-Scott-Rodino Act
of 1976.
There is no assurance that the Department of Justice or the Federal Trade Commission will not
raise antitrust objections to the proposed acquisition or, if there are such objections, the
parties are willing or able to take actions that would result in removing such objections.
If the proposed acquisition of Omax is not closed, the continuation of the litigation could be time
consuming and costly.
If the proposed acquisition is consummated, the patent litigation between the parties, Omax
Corporation v. Flow International Corporation will be terminated without any additional amounts
being paid in settlement. If the acquisition is not closed, the
litigation will continue which will be time consuming and costly.
Our acquisition of Omax may result in dilution to our existing shareholders.
Under the Option Agreement, 3.75 million shares of common stock (or if the Closing Share Price
is less than $9.00, such greater number as is necessary so that the value of the shares delivered
is $33.75 million) would be issued at closing and up to 1,733,334 additional shares of common stock
based on the Average Share Price for the six months ending twenty four months after closing. The
additional shares to be delivered will be determined using a sliding scale as follows: if the
average share price is $13 or less, no additional shares are delivered; if the average share price
is $15 or more, 1,733,334 shares will be delivered; provided that if the Closing Share Price at the
time the acquisition is consummated is less than $9.00, the additional shares will be reduced by
the equivalent shares attributable to the difference between $9.00 and the Closing Share Price.
These additional shares issued in connection with the acquisition of Omax will have a dilutive
impact on the number of our shares outstanding and may also adversely affect the prevailing market
price of our common stock. If more than 3.75
28
million shares are to be delivered, the Company has the right to deliver cash in the amount of
the value of the shares rather than shares.
We may not be able to successfully integrate Omax into our existing business.
If the acquisition is closed, there will be a significant risk relating to integration. The
integration of Omax will be a time consuming and expensive process and may disrupt the combined
companys operations if it is not completed in a timely and efficient manner. If this integration
effort is not successful, the combined companys results of operations could be harmed, employee
morale could decline, key employees could leave, and customers could cancel existing orders or
choose not to place new ones. In addition, the combined company may not achieve anticipated
synergies or other benefits of the merger. The integration of the Company and Omax will face
difficulties as a result of the need for utilizing common information and communication systems,
operating procedures, financial controls and human resources practices, and other corporate and
administrative structures. The combined company may encounter the following: difficulties, costs
and delays involved in integrating their operations; including the coordination of sales and
marketing functions and research and development functions; failure to successfully manage
relationships with customers and other important relationships; failure to integrate or efficiently
use different systems of product distribution; failure of customers to accept new services or to
continue using the products and services of the combined company; difficulties in successfully
integrating the management teams and employees of the Company and Omax, including management style
and culture; challenges encountered in managing a larger company; the loss of key employees; diversion of the
attention of management from other ongoing business concerns; potential incompatibilities of
technologies and systems; potential difficulties integrating and harmonizing financial reporting
systems; and potential incompatibility of business cultures. If the combined companys operations
do not meet the expectations of customers of the Company and Omax, then these customers may cease
doing business with the combined company altogether, which would harm the results of operations and
financial condition of the Company. If the anticipated benefits of the merger are not realized or
do not meet the expectations of financial or industry analysts, the market price of the Company
common stock may decline. The market price of the Company common stock may decline as a result of
the merger if: the integration of the Company and Omax is unsuccessful; the combined company does
not achieve the expected benefits of the merger as quickly as anticipated or the costs of or
operational difficulties arising from the merger are greater than anticipated; the combined
companys financial results after the merger are not consistent with the expectations of financial
or industry analysts; the anticipated operating and product synergies of the merger are not
realized; or the combined company experiences the loss of significant customers or employees as a
result of the merger.
We may assume unknown liabilities in the acquisition of Omax that could harm our financial
condition and operating results.
The due diligence that we have and will be able to perform before the proposed acquisition
will be limited and may not be sufficient to identify before the closing all possible breaches of
representations and warranties. As a result, we may, among other things, assume unknown
liabilities not disclosed by the seller or uncovered during pre-acquisition due diligence. These
obligations and liabilities could harm our financial condition and operating results. Our rights
to indemnification for breaches of representations and warranties will, except in certain limited
circumstances, be limited to a maximum of $13.2 million.
We may incur significant indebtedness following the acquisition, which could affect our liquidity.
Under the Option Agreement, the consideration for the Omax acquisition is composed of $6 million
paid in cash at the signing of the Option Agreement, an additional
$3 million to be paid on the termination of the
Hart-Scott-Rodino waiting period and the
execution of the definitive agreement and the definitive agreement will provide for $66 million to
be paid in cash, and 3.75 million shares of common stock (or if the Closing Share Price is less
than $9.00, such greater number as is necessary so that the value of the shares delivered is $33.75
million or the cash value of number of shares in excess of 3.75 million) at closing and up to
1,733,334 additional shares of common stock based on the Average Share Price for the six months
ending twenty four months after closing, with no shares being paid on a sliding scale so if the
average share price is $13 or less no shares are delivered and if the average share price is $15 or
more, 1,733,334 shares will be delivered; provided that if the Closing Share Price at the time the
acquisition is closed is less than $9.00, the $13 and $15 prices will be reduced by the difference
between $9.00 and the Closing Share Price. The consideration is subject to adjustment based on
Omaxs working capital at Closing. In order to finance a portion of the cash consideration, we may
incur additional indebtedness. As a result of this indebtedness, demands on our cash resources will
increase, which could affect our liquidity and, therefore, could have important effects on an
investment in our common stock. For example, while the impact of this increased indebtedness is
expected to be addressed by the combined cash flows
29
of the Company and Omax, the increased level of indebtedness could nonetheless create competitive
disadvantages for us compared to other companies with lower debt levels.
Additionally, the risk factors immediately following, which were disclosed in our Annual
Report on Form 10-K for the year ended April 30, 2007, are no longer applicable based on the
Warrant Repurchase transaction discussed in Note 15 and the settlement of the insurance coverage
litigation with our excess insurance carriers.
We may be subject to significant financial penalties if the registration statement for the
resale of PIPE securities is not available for resales.
In connection with a March 2005 Private Investment Public Equity transaction (PIPE
Transaction) in which we sold $65 million of stock and warrants to investors, we entered into a
Registration Rights Agreement (RRA). Under the RRA, we are required to keep a registration
statement on Form S-1 for the resale of common stock issued in PIPE and pursuant to warrants issued
in the PIPE (PIPE Securities) effective and available for resale of PIPE Securities. The
obligation exists until the earlier of five years, two years after the exercise or retirement of
the warrants, or the resale of all PIPE Securities. If the registration is unavailable for resales
for the period specified in the RRA, we will be obligated to pay, on a monthly basis, penalties to
purchasers of PIPE Securities who still hold PIPE Securities. As of the date of this filing, the
monthly penalty would be approximately $400,000. The RRA originally provided that we would not have
to pay penalties until the registration statement could not be used for resale for an aggregate
total of 40 trading days. The registration statement became unavailable for use November 22, 2006.
On January 24, 2007 (when the registration had not been available for resale for 40 trading days),
the RRA was amended to increase the number of blackout days to 102. The post effective amendment
filed on April 12, 2007 was declared effective by the SEC on April 18, 2007, leaving 2 trading
days. We will be obligated to file additional post-effective amendments in the future to include
updating information and to reflect fundamental changes, if any, that may occur. Depending on the
timing of the filing of the post-effective amendments and how long it takes the SEC to declare such
post-effective amendments effective, the remaining trading days may not be sufficient, and we may
be liable for penalties.
Our inability to settle our current insurance coverage litigation related to a June, 2002
claim could be time consuming and costly.
In litigation arising out of a June 2002 incident at a Crucible Metals (Crucible) facility,
our excess insurance carrier notified us in December 2006 that it is contesting its obligation to
provide coverage for the property damage. As discussed in Note 16 to the Consolidated Financial
Statements, we purchase product liability insurance to cover claims of this nature. We believe the
carriers position is without merit and we have commenced a declaratory judgment action seeking a
determination that the carrier is obligated to provide a full defense of us. The outcome of this
case is uncertain, and an unfavorable outcome is reasonably possible. We have not provided any loss
accrual related to this matter as of April 30, 2007. The unresolved claims relating to this
incident total approximately $7 million. We have and may continue to spend substantial amounts
contesting the insurance carriers denial of coverage.
Items 2, 3, and 5 are None and have been omitted.
Item 4. Submission of matters to a Vote of Security Holders.
We held our 2007 Annual Meeting of Shareholders on November 13, 2007. At the meeting, four
directors, Charles M. Brown, Jerry C. Calhoun, J. Michael Ribaudo, and Arlen I. Prentice were
elected to hold office for the terms set forth in our Proxy Statement receiving, respectively,
28,699,931; 28,767,467; 28,702,501; and 17,707,036 votes in favor, with 637,362; 569,826; 634,792;
and 11,630,257 votes withheld, respectively. At the meeting, the appointment of Deloitte & Touche,
LLP as our independent registered public accountants was also ratified, with 29,207,590 votes in
favor, 70,083 votes against and 59,620 abstentions.
Item 6. Exhibits
31.1 |
|
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
31.2 |
|
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32.1 |
|
Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 |
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
FLOW INTERNATIONAL CORPORATION
|
|
Date: December 6, 2007 |
/s/
Charles M. Brown
|
|
|
Charles M. Brown |
|
|
President and Chief Executive
Officer
(Principal Executive Officer) |
|
|
|
|
|
Date: December 6, 2007 |
/s/
Douglas P. Fletcher
|
|
|
Douglas P. Fletcher |
|
|
Chief Financial Officer
(Principal Financial Officer) |
|
|
31