Flow (NASDAQ:FLOWE)
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Flow International Announces Fiscal 2005 Second Quarter Results
Company Posts Fifth Quarter of Operating Profit and Outlines Debt Reduction
Initiatives
KENT, Wash., Jan. 12 /PRNewswire-FirstCall/ -- Flow International Corporation
(NASDAQ:FLOWE), the world's leading developer and manufacturer of
ultrahigh-pressure waterjet technology equipment used for cutting, cleaning
(surface preparation) and food safety applications, today reported results for
its fiscal 2005 second quarter ended October 31, 2004. On a consolidated
basis, FLOW (the "Company") reported quarterly sales of $55.5 million and a net
loss of $275,000 or $0.02 diluted loss per share. For comparison, in the
fiscal 2004 second quarter the Company reported revenues of $43.7 million and a
net loss of $1.9 million or $0.13 diluted loss per share, as restated, which
included restructuring charges of $857,000. As previously announced, the
Company has reviewed and reconciled certain historical inter-company
transactions and made other corrections for the fiscal years ended April 30,
2004, 2003 and 2002, and all historical financial information for periods prior
to April 30, 2004 discussed herein has been restated to reflect the impact of
such corrections.
"Even as we are putting the final touches on our restructuring efforts, we
posted another strong quarter of growth and cash generation," said Stephen R.
Light, FLOW's President and Chief Executive Officer. "We have largely
succeeded in accordance with the aggressive restructuring plan we laid out two
years ago, which was intended to revive this company and return it to
operational and financial health, based on a solid and well-capitalized core
business. Now we look forward to the next stage of growth for our company, in
which we intend to extricate ourselves from a weighty burden of debt
obligations, return to profitability and deliver genuine shareholder value."
For the six months ended October 31, 2004, FLOW reported sales of $104.4
million and a net loss of $2.6 million or $0.17 diluted loss per share. In
comparison, for the six months ended October 31, 2003, revenues were $80.9
million and the net loss amounted to $7.6 million or $0.50 diluted loss per
share, as restated, which included restructuring charges of $1.2 million.
Operations Review
FLOW Waterjet Systems: For the fiscal 2005 second quarter, Waterjet Systems
reported sales of $44.1 million and operating income of $2.2 million, which
compares to revenues of $33.0 million and operating income of $682,000 in the
fiscal 2004 second quarter. Within Waterjet Systems during the fiscal 2005
second quarter and first six months:
-- Total systems sales were $31.3 million, compared to $20.9 million in
the fiscal 2004 second quarter. For the six month period, system
sales increased 37% to $57.2 million. These increases were driven by
strengthened demand in FLOW's primary markets and across all
geographies, with particular strength domestically in both standard
shapecutting systems and the automotive sector. The Company also
experienced an increase in demand for cutting cell applications among
non-automotive customers. FLOW continues to see growth as the
marketplace increasingly recognizes the accuracy, speed, and
versatility advantages of the waterjet over conventional cutting
technologies.
-- System sales for both the quarter and six-month period were strong in
Europe and in Asia, where the Company experienced strengthened demand
from the Chinese automotive industry for cutting cells and from
non-automotive industries for shapecutting systems. System sales to
Europe also increased, as the Company is now benefiting from its
standardized pricing and product offerings.
-- Consumables and spare parts sales increased from $12.1 million in the
year-ago quarter to $12.8 million in the fiscal second quarter, as a
greater number of systems have been sold and become operational.
Sales for the six months ended October 31, 2004 increased 2% over the
comparable prior year period. The Company also continues to benefit
from the sale of its proprietary productivity enhancing kits and the
enhanced availability of parts, with increased traffic on its
Flowparts.com website.
Avure Technologies: For the fiscal 2005 second quarter, Avure recorded sales
of $11.4 million and operating income of $341,000, compared to sales of $10.6
million and an operating loss of $400,000 in the year-ago quarter, as restated.
Year-to-date, sales have increased to $22.1 million with operating income of
$939,000 compared to sales of $14.3 million and a related operating loss of
$3.8 million in the prior year period, as restated. Within Avure during the
fiscal 2005 second quarter and first six months:
-- General Press sales during the fiscal 2005 second quarter and year to
date were $8.8 million and $15.6 million, respectively, compared to
$6.9 million and $9.9 million in the fiscal 2004 second quarter and
first six months, respectively. General Press revenues will vary
from quarter to quarter and from year to year due to the nature of
its one to four year sales and production cycle. Currently the
Company is experiencing increased production, as compared to the
prior year.
-- Avure's Fresher Under Pressure(R) food technology sales decreased to
$2.6 million, from $3.7 million in the fiscal 2004 second quarter,
however sales for the first six months were $6.5 million, an increase
of $2.1 million over the $4.4 million recognized in the prior
six-months. While the current fiscal year utilized percentage of
completion for revenue recognition, fiscal 2004 included revenue
recognition under both percentage of completion and on as as-
delivered basis. Revenues from several completed systems were
recognized in the second quarter of fiscal 2004 upon customer
acceptance. Had these fiscal 2004 sales been recognized on
percentage of completion, a portion of the second quarter fiscal 2004
revenue would have been recognized in the first quarter of fiscal
2004.
Delayed Filing of the Second Quarter Form 10-Q Due to Restatement
The second quarter Form 10-Q, which the Company filed on January 10, 2005 was
late, from its due date of December 15, 2004. The delayed filing was the
result of the restatement of historical financial statements. On December 20,
2004, the Company filed an amended Form 10-K/A for the year ended April 30,
2004, followed by the filing of its Form 10-Q for the fiscal 2005 first quarter
on December 29, 2004. Subsequent quarterly reports will reflect restated
historical financial statements for comparable fiscal 2004 interim periods.
The restatements include corrections to the Company's Consolidated Statements
of Operations resulting from the completion of reconciliations of historical
inter-company account balances and review of treatment of foreign currency
gains and losses on inter-company balances. The amended Form 10-K/A reflects
foreign currency adjustments in Other Income (Expense), net, as well as
correction of entries originally recorded as foreign currency revaluation that
should have been recorded to Cost of Sales and Provision for Income Taxes in
the Consolidated Statement of Operations. Finally, a correction in the value
ascribed to the warrants issued to our subordinated lender in May 2001 has
resulted in a reduction in interest expense, net. Appropriate tax provision
entries were also made. Accordingly, financial statements filed prior to the
amended Form 10-K/A and other communications related to the periods covered by
the restatements should no longer be relied upon.
In connection with the restatements, our independent registered public
accounting firm reported two matters that constituted material weaknesses in
the Company's internal control over financial reporting. The Company and its
Audit Committee have dedicated significant resources to assessing the
underlying issues giving rise to the restatements and material weaknesses and
to ensuring that proper steps have been and are being taken to improve its
control environment. The Company has assigned the highest priority to the
correction of these deficiencies. In conjunction with its analysis, management
has begun to increase the level of staffing and supervision in critical
functional areas.
Debt Reduction
In its efforts to continue paying down debt, during the quarter ended October
31, 2004, the Board of Directors authorized the Company to engage investment
bankers on a best efforts basis to act as placement agents in a "PIPE" (Private
Investment in Public Equity) transaction to raise funds to continue paying down
debt. To date, no effort has been made to attract investors, no terms of a
PIPE transaction have been negotiated, nor is there any assurance that the
Company will be able to execute a PIPE transaction. The Company may also
consider alternatives to a PIPE transaction in order to reduce outstanding
debt.
During the quarter ended October 31, 2004, the Board of Directors also
authorized the Company to engage Danske Markets Inc. to assist in the sale of
the Company's General Press operations, consisting of the North America Press
and International Press segments. Although the divestiture is not guaranteed,
the Company does not consider these operations core to its business and intends
to use the proceeds of a divestiture to further pay down debt.
Financial Guidance
In conjunction with a potential PIPE or other equity transaction, the Company
is providing selected financial guidance for the remainder of fiscal 2005. The
Company currently expects revenues for the full fiscal 2005 to be between $201
million and $212 million.
Conference Call
Flow International will host a conference call at today at 1:00 p.m. EST (10:00
a.m. PST) to discuss the results. A live Webcast of the call may be found in
the investor section at http://www.flowcorp.com/.
A Webcast replay of the call will also be available for two weeks.
About Flow International
FLOW provides total system solutions for various industries, including
automotive, aerospace, paper, job shop, surface preparation, and food
production. For more information, visit http://www.flowcorp.com/.
This press release contains forward-looking statements relating to future
events or future financial performance that involve risks and uncertainties.
The words "believe," "expect," "intend," "anticipate," variations of such words
and similar expressions identify forward-looking statements but their absence
does not mean that the statement is not forward-looking. These statements are
only predictions and actual results could differ materially from those
anticipated in these statements based on a number of risk factors, including
those set forth in the December 20, 2004 Flow International Corporation Form
10-K/A Report filed with the Securities and Exchange Commission.
Forward-looking statements in this press release include, without limitation,
statements that in our next stage of growth, we intend to extricate ourselves
from a weighty burden of debt obligations and return to profitability and
genuine shareholder value; we continue to see growth as the marketplace
continues to recognize the increased accuracy, speed, and versatility of the
waterjet over conventional cutting technologies; that in conjunction with its
analysis, management intends to increase the level of staffing and supervision
in critical functional areas; that the Company will enter into a PIPE or other
equity transaction in order to reduce outstanding debt; that the Company
intends to use proceeds from the divestiture of two segments to further pay
down debt and the Company currently expects revenues for the full fiscal 2005
to be between $201 million and $212 million. Readers are cautioned not to
place undue reliance on these forward-looking statements that speak only as of
the date of this announcement.
The Company is under no obligation, and does not intend, to update any of the
forward-looking statements in this press release.
Contact: Steve Reichenbach
Chief Financial Officer
253-850-3500
Flow International Corporation
Consolidated Statement of Operations
(Unaudited)
Dollars in thousands, except per share data
Three months ended Six months ended
October 31, October 31,
2004 2003 % Change 2004 2003 % Change
(restated) (restated)
Sales $55,467 $43,689 27% $104,449 $80,871 29%
Cost of sales 37,212 28,038 33% 68,299 51,835 32%
Gross margin 18,255 15,651 17% 36,150 29,036 25%
Operating expenses:
Marketing 8,066 6,078 33% 15,375 13,511 14%
Research and
engineering 1,902 2,881 -34% 4,506 5,613 -20%
General and
administrative 5,704 5,456 5% 11,432 10,953 4%
Financial
consulting -- 857 -100% 623 1,105 -44%
Restructuring -- 97 -100% -- 1,197 -100%
Operating expenses 15,672 15,369 2% 31,936 32,379 -1%
Operating income (loss) 2,583 282 NM 4,214 (3,343) NM
Interest expense, net (3,789) (3,371) 12% (6,884) (6,670) 3%
Other income, net 1,389 1,894 -27% 1,219 2,621 -53%
Loss before taxes 183 (1,195) 115% (1,451) (7,392) 80%
Income tax provision (458) (734) -38% (1,164) (730) 59%
Loss before
discontinued
operations (275) (1,929) -86% (2,615) (8,122) -68%
Discontinued
operations, net of tax -- -- NM -- 526 -100%
Net loss $(275) $(1,929) -86% $(2,615) $(7,596) -66%
Loss per share:
Basic and diluted
before discontinued
operations $(0.02) $(0.13) -85% $(0.17) $(0.53) -68%
Basic and diluted $(0.02) (0.13) -85% $(0.17) (0.50) -66%
Weighted average shares
outstanding (000):
Basic 15,916 15,359 15,801 15,359
Diluted 15,916 15,359 15,801 15,359
NM = not meaningful
Flow International Corporation
Statement of Operations
Operations Breakdown
(Unaudited)
Dollars in thousands, except per share data
Three Months ended October 31, 2004
Flow
Waterjet Avure
Systems Technologies Consolidated
Sales $44,087 $11,380 $55,467
Cost of sales 28,897 8,315 37,212
Gross margin 15,190 3,065 18,255
Operating expenses 12,948 2,724 15,672
Operating income (loss) 2,242 341 2,583
Six Months ended October 31, 2004
Flow
Waterjet Avure
Systems Technologies Consolidated
Sales $82,386 $22,063 $104,449
Cost of sales 53,223 15,076 68,299
Gross margin 29,163 6,987 36,150
Operating expenses 25,888 6,048 31,936
Operating income (loss) 3,275 939 4,214
Three Months ended October 31, 2003
Flow
Waterjet Avure
Systems Technologies Consolidated
(restated) (restated)
Sales $33,041 $10,648 $43,689
Cost of sales 21,149 6,889 28,038
Gross margin 11,892 3,759 15,651
Operating expenses 11,210 4,159 15,369
Operating income (loss) 682 (400) 282
Six Months ended October 31, 2003
Flow
Waterjet Avure
Systems Technologies Consolidated
(restated) (restated)
Sales $66,530 $14,341 $80,871
Cost of sales 42,119 9,716 51,835
Gross margin 24,411 4,625 29,036
Operating expenses 23,926 8,453 32,379
Operating income (loss) 485 (3,828) (3,343)
Flow International Corporation
Supplemental Data
(Unaudited)
Dollars in thousands
Three months ended Six months ended
October 31, October 31,
2004 2003 % Change 2004 2003 % Change
Divisional revenue
breakdown:
Flow Waterjet Systems:
Systems $31,274 $20,904 50% $57,174 $41,847 37%
Consumable parts
and services 12,813 12,137 6% 25,212 24,683 2%
Total 44,087 33,041 33% 82,386 66,530 24%
Avure Technologies
Fresher Under
Pressure 2,584 3,716 -30% 6,452 4,410 46%
General Press 8,796 6,932 27% 15,611 9,931 57%
Total 11,380 10,648 7% 22,063 14,341 54%
$55,467 $43,689 27% $104,449 $80,871 29%
Geographic revenue
breakdown:
United States $35,301 $23,417 51% $63,306 $43,756 45%
Rest of Americas 3,679 3,901 -6% 7,548 7,500 1%
Europe 10,034 10,934 -8% 20,791 19,405 7%
Asia 6,453 5,437 19% 12,804 10,210 25%
$55,467 $43,689 27% $104,449 $80,871 29%
Depreciation and
amortization expense $1,224 $1,560 -22% $2,546 $3,233 -21%
Capital spending $117 $2,159 -95% $446 $3,884 -89%
Flow International Corporation
Preliminary Condensed Balance Sheet Data
Dollars in thousands
October 31, April 30,
2004 2004 % Change
(restated)
Cash, including short-term restricted
cash $14,896 $12,835 16%
Receivables, net 44,573 44,860 -1%
Inventories 28,228 26,384 7%
Total current assets 95,547 90,611 5%
Total assets 139,905 135,071 4%
Total debt $85,174 $86,808 -2%
Total liabilities 146,453 142,263 3%
Total shareholders' deficit (9,061) (9,552) -5%
DATASOURCE: Flow International Corporation
CONTACT: Steve Reichenbach, Chief Financial Officer of Flow
International Corporation, +1-253-850-3500
Web site: http://www.flowcorp.com/