##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended January 31, 2010
 OR
 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 001-34443
 
 FLOW INTERNATIONAL CORPORATION
 
 WASHINGTON
    
    91-1104842(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 23500 64th Avenue South
Kent, Washington 98032
(253) 850-3500
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a Smaller reporting company)
 o þ




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##### 



FLOW INTERNATIONAL CORPORATION
  PagePart I  FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets  January 31, 2010 and April 30, 2009
    
    
    3Condensed Consolidated Statements of Operations  Three and Nine Months Ended January 31, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Cash Flows  Nine Months Ended January 31, 2010 and 2009
    
    
    5Condensed Consolidated Statement of Shareholders Equity and Comprehensive Loss  Nine Months Ended
January 31, 2010 and 2009
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    30Part II  OTHER INFORMATION
    
    
    30Item 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31EX-31.1EX-31.2EX-32.1EX-99.1
  2




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##### Table of Contents



FLOW INTERNATIONAL CORPORATION
 
 
 January 31,
    
    
    April 30,2010
    
    
    2009ASSETS:Current Assets:Cash and Cash Equivalents
    
    $
    6,622
    
    
    $
    10,117Restricted Cash
    
    
    654
    
    
    
    220Receivables, net
    
    
    36,859
    
    
    
    32,103Inventories
    
    
    22,031
    
    
    
    21,480Deferred Income Taxes, net
    
    
    2,394
    
    
    
    8,686Deferred Acquisition Costs
    
    
    
    
    
    
    17,093Other Current Assets
    
    
    7,956
    
    
    
    5,544Total Current Assets
    
    
    76,516
    
    
    
    95,243Property and Equipment, net
    
    
    21,674
    
    
    
    22,983Intangible Assets, net
    
    
    4,608
    
    
    
    4,456Deferred Income Taxes, net
    
    
    25,588
    
    
    
    17,480Other Assets
    
    
    4,801
    
    
    
    4,798$
    133,187
    
    
    $
    144,960LIABILITIES AND SHAREHOLDERS EQUITY:Current Liabilities:Notes Payable
    
    $
    2,150
    
    
    $
    15,226Current Portion of Long-Term Obligations
    
    
    54
    
    
    
    1,367Accounts Payable
    
    
    15,233
    
    
    
    10,215Accrued Payroll and Related Liabilities
    
    
    5,235
    
    
    
    5,406Taxes Payable and Other Accrued Taxes
    
    
    1,207
    
    
    
    2,276Deferred Income Taxes
    
    
    667
    
    
    
    651Deferred Revenue
    
    
    5,698
    
    
    
    4,649Customer Deposits
    
    
    5,031
    
    
    
    3,322Reserve for Patent Litigation (Note 6)
    
    
    
    
    
    
    15,000Other Accrued Liabilities
    
    
    8,048
    
    
    
    9,208Total Current Liabilities
    
    
    43,323
    
    
    
    67,320Long-Term Obligations, net
    
    
    21
    
    
    
    1,937Deferred Income Taxes
    
    
    5,714
    
    
    
    5,498Subordinated Notes (Note 6)
    
    
    7,775
    
    
    
    6,000Other Long-Term Liabilities
    
    
    1,569
    
    
    
    1,49458,402
    
    
    
    82,249Commitments and Contingencies (Note 8)Shareholders Equity:Series A 8% Convertible Preferred Stock$.01 par value, 1,000,000 shares authorized, none issued
    
    
    
    
    
    
    Common Stock$.01 par value, 84,000,000 shares authorized, 46,880,180 and 37,704,684 shares
issued and outstanding at January 31, 2010 and April 30, 2009, respectively
    
    
    465
    
    
    
    372Capital in Excess of Par
    
    
    159,237
    
    
    
    140,634Accumulated Deficit
    
    
    (79,999
    )
    
    
    (71,403
    )Accumulated Other Comprehensive Loss:Defined Benefit Plan Obligation, net of income tax of $42 and $37
    
    
    (85
    )
    
    
    (80
    )Cumulative Translation Adjustment, net of income tax of $723 and $508
    
    
    (4,833
    )
    
    
    (6,812
    )Total Shareholders Equity
    
    
    74,785
    
    
    
    62,711$
    133,187
    
    
    $
    144,960
 
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##### Table of Contents



FLOW INTERNATIONAL CORPORATION
 
 
 Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Sales
    
    $
    45,356
    
    
    $
    48,711
    
    
    $
    125,145
    
    
    $
    166,353Cost of Sales
    
    
    27,133
    
    
    
    29,565
    
    
    
    76,314
    
    
    
    95,436Gross Margin
    
    
    18,223
    
    
    
    19,146
    
    
    
    48,831
    
    
    
    70,917Operating Expenses:Sales and Marketing
    
    
    10,065
    
    
    
    9,996
    
    
    
    26,956
    
    
    
    31,996Research and Engineering
    
    
    2,235
    
    
    
    2,281
    
    
    
    5,782
    
    
    
    6,809General and Administrative
    
    
    6,198
    
    
    
    6,418
    
    
    
    19,391
    
    
    
    22,586Provision for Patent Litigation (Note 6)
    
    
    
    
    
    
    29,000
    
    
    
    
    
    
    
    29,000Goodwill Impairment
    
    
    
    
    
    
    2,764
    
    
    
    
    
    
    
    2,764Restructuring and Other Operating Charges, net
    
    
    
    
    
    
    514
    
    
    
    4,222
    
    
    
    2,394Total Operating Expenses
    
    
    18,498
    
    
    
    50,973
    
    
    
    56,351
    
    
    
    95,549Operating Loss
    
    
    (275
    )
    
    
    (31,827
    )
    
    
    (7,520
    )
    
    
    (24,632
    )Interest Income
    
    
    39
    
    
    
    94
    
    
    
    132
    
    
    
    396Interest Expense
    
    
    (468
    )
    
    
    (442
    )
    
    
    (1,906
    )
    
    
    (733
    )Other Income (Expense), net
    
    
    (1,218
    )
    
    
    392
    
    
    
    (866
    )
    
    
    (56
    )Loss Before Benefit for Income Taxes
    
    
    (1,922
    )
    
    
    (31,783
    )
    
    
    (10,160
    )
    
    
    (25,025
    )Benefit for Income Taxes
    
    
    1,124
    
    
    
    11,106
    
    
    
    2,653
    
    
    
    6,277Loss from Continuing Operations
    
    
    (798
    )
    
    
    (20,677
    )
    
    
    (7,507
    )
    
    
    (18,748
    )Income (Loss) from Discontinued Operations, net
of income tax of $0, $(46), $0, and $0
    
    
    51
    
    
    
    (686
    )
    
    
    (1,089
    )
    
    
    (597
    )Net Loss
    
    $
    (747
    )
    
    $
    (21,363
    )
    
    $
    (8,596
    )
    
    $
    (19,345
    )Basic and Diluted Loss Per Share:Loss from Continuing Operations
    
    $
    (0.02
    )
    
    $
    (0.55
    )
    
    $
    (0.18
    )
    
    $
    (0.50
    )Discontinued Operations
    
    
    0.00
    
    
    
    (0.02
    )
    
    
    (0.02
    )
    
    
    (0.01
    )Net Loss
    
    $
    (0.02
    )
    
    $
    (0.57
    )
    
    $
    (0.20
    )
    
    $
    (0.51
    )Weighted Average Shares Used in Computing Basic
and Diluted Loss Per Share:Basic and Diluted
    
    
    46,879
    
    
    
    37,639
    
    
    
    42,490
    
    
    
    37,609
 
 4




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##### Table of Contents



FLOW INTERNATIONAL CORPORATION
 
 
 Nine Months EndedJanuary 31,2010
    
    
    2009Cash Flows from Operating Activities:Net Loss
    
    $
    (8,596
    )
    
    $
    (19,345
    )Adjustments to Reconcile Net Loss to Cash Provided by Operating Activities:Depreciation and Amortization
    
    
    4,078
    
    
    
    3,210Deferred Income Taxes
    
    
    (1,735
    )
    
    
    (7,375
    )Provision for Slow Moving and Obsolete Inventory
    
    
    432
    
    
    
    199Bad Debt Expense
    
    
    517
    
    
    
    1,048Warranty Expense
    
    
    2,106
    
    
    
    2,423Stock Compensation Expense
    
    
    1,452
    
    
    
    1,473Unrealized Foreign Exchange Currency (Gains) Losses
    
    
    (189
    )
    
    
    1,524Write-off of Deferred Debt Issuance Costs
    
    
    253
    
    
    
    Provision for Patent Litigation
    
    
    
    
    
    
    29,000OMAX Termination Charge
    
    
    3,219
    
    
    
    Goodwill Impairment
    
    
    
    
    
    
    2,764Indemnification Charge
    
    
    1,168
    
    
    
    Interest Accretion on Subordinated Notes
    
    
    556
    
    
    
    Realized Loss on Liquidation of Dormant Foreign Entities
    
    
    1,277
    
    
    
    Other
    
    
    (447
    )
    
    
    419Changes in Operating Assets and Liabilities:Receivables
    
    
    (4,303
    )
    
    
    (2,287
    )Inventories
    
    
    (100
    )
    
    
    1,849Other Operating Assets
    
    
    (1,416
    )
    
    
    (4,798
    )Accounts Payable
    
    
    6,735
    
    
    
    (5,854
    )Accrued Payroll and Related Liabilities
    
    
    (513
    )
    
    
    (2,319
    )Deferred Revenue
    
    
    1,003
    
    
    
    (760
    )Customer Deposits
    
    
    1,556
    
    
    
    (678
    )Release of Funds from Escrow
    
    
    17,000
    
    
    
    Payment for Patent Litigation Settlement
    
    
    (15,000
    )
    
    
    Payment for OMAX Termination
    
    
    (2,000
    )
    
    
    Other Operating Liabilities
    
    
    (4,828
    )
    
    
    (3,454
    )Cash Provided by (Used in) Operating Activities
    
    
    2,225
    
    
    
    (2,961
    )Cash Flows From Investing Activities:Expenditures for Property and Equipment
    
    
    (8,297
    )
    
    
    (6,251
    )Expenditures for Intangible Assets
    
    
    (628
    )
    
    
    (611
    )Proceeds from Sale of Property and Equipment
    
    
    4,775
    
    
    
    118Payments for Pending Acquisition
    
    
    
    
    
    
    (4,182
    )Payments for Dardi Investment
    
    
    
    
    
    
    (3,282
    )Restricted Cash
    
    
    (422
    )
    
    
    (304
    )Cash (Used in) Investing Activities
    
    
    (4,572
    )
    
    
    (14,512
    )Cash Flows from Financing Activities:Borrowings under Senior Credit Agreement
    
    
    12,325
    
    
    
    Repayments under Senior Credit Agreement
    
    
    (23,175
    )
    
    
    Borrowings Under Notes Payable
    
    
    
    
    
    
    1,285Borrowings Under Other Financing Arrangements
    
    
    2
    
    
    
    1,269Repayments Under Other Financing Arrangements
    
    
    (1,380
    )
    
    
    (317
    )Repayments of LongTerm Obligations
    
    
    (4,322
    )
    
    
    (795
    )Proceeds from Issuance of Common Stock, net of Issuance Costs
    
    
    17,199
    
    
    
    Debt Issuance Costs
    
    
    (607
    )
    
    
    Cash Provided by Financing Activities
    
    
    42
    
    
    
    1,442Effect of Changes in Exchange Rates
    
    
    (1,190
    )
    
    
    39Decrease in Cash And Cash Equivalents
    
    
    (3,495
    )
    
    
    (15,992
    )Cash and Cash Equivalents at Beginning of Period
    
    
    10,117
    
    
    
    29,099Cash and Cash Equivalents at End of Period
    
    $
    6,622
    
    
    $
    13,107Supplemental Disclosures of Cash Flow Information:Cash Paid during the Year for:Interest
    
    
    920
    
    
    
    490Taxes
    
    
    755
    
    
    
    2,417Supplemental Disclosures of Noncash Investing and Financing Activities:Accounts Payable incurred to acquire Property and Equipment, and Intangible Assets
    
    
    383
    
    
    
    787Accrued Liabilities Incurred for Pending Acquisition
    
    
    
    
    
    
    551
 
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##### Table of Contents



FLOW INTERNATIONAL CORPORATION
 
 
 AccumulatedCommon Stock
    
    
    Capital
    
    
    
    
    
    
    Other
    
    
    TotalPar
    
    
    In Excess
    
    
    Accumulated
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Value
    
    
    of Par
    
    
    Deficit
    
    
    Loss
    
    
    EquityBalances, May 1, 2008
    
    
    37,590
    
    
    $
    371
    
    
    $
    139,007
    
    
    $
    (47,584
    )
    
    $
    (5,730
    )
    
    $
    86,064Components of Comprehensive Loss:Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,345
    )
    
    
    
    
    
    
    (19,345
    )Cumulative Translation
Adjustment, Net of Income Tax
of $395
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,416
    )
    
    
    (1,416
    )Total Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,761
    )Stock Compensation
    
    
    63
    
    
    
    0
    
    
    
    1,463
    
    
    
    
    
    
    
    
    
    
    
    1,463Balances, January 31, 2009
    
    
    37,653
    
    
    $
    371
    
    
    $
    140,470
    
    
    $
    (66,929
    )
    
    $
    (7,146
    )
    
    $
    66,766Balances, May 1, 2009
    
    
    37,705
    
    
    $
    372
    
    
    $
    140,634
    
    
    $
    (71,403
    )
    
    $
    (6,892
    )
    
    $
    62,711Components of Comprehensive Loss:Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,596
    )
    
    
    
    
    
    
    (8,596
    )Adjustment to Minimum Pension
Liability, Net of Income Tax
of $5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (5
    )Realization of Foreign
Currency Translation Losses
from the Liquidation of
Dormant Foreign Entities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,277
    
    
    
    1,277Cumulative Translation
Adjustment, Net of Income Tax
of $215
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    702
    
    
    
    702Total Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,622
    )Sale of Common stock at $2.10
per share, net of Stock Issuance
Costs of $1.7 million
    
    
    8,999
    
    
    
    90
    
    
    
    17,109
    
    
    
    
    
    
    
    
    
    
    
    17,199Stock Compensation
    
    
    176
    
    
    
    3
    
    
    
    1,494
    
    
    
    
    
    
    
    
    
    
    
    1,497Balances, January 31, 2010
    
    
    46,880
    
    
    $
    465
    
    
    $
    159,237
    
    
    $
    (79,999
    )
    
    $
    (4,918
    )
    
    $
    74,785
 
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##### Table of Contents



FLOW INTERNATIONAL CORPORATION
 
 
 Note 1 Basis of Presentation
  Note 2 Recently Issued Accounting Pronouncements
 TM
 Fair Value
Measures.
   7




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##### Table of Contents



Fair Value Measures
   
    
    provides principles and application guidance on whether a revenue arrangement contains
multiple deliverables, how the arrangement should be separated, and how the arrangement
consideration should be allocated;
    
    requires an entity to allocate revenue in a multiple-deliverable arrangement using
estimated selling prices of the deliverables if a vendor does not have vendor-specific
objective evidence or third-party evidence of selling price;
    
    eliminates the use of the residual method and, instead, requires an entity to allocate
revenue using the relative selling price method; and
    
    expands disclosure requirements with respect to multiple-deliverable revenue
arrangements.
  Note 3 Receivables, Net
  January 31,2010
    
    
    April 30, 2009Trade Accounts Receivable
    
    $
    27,258
    
    
    $
    25,304Unbilled Revenues
    
    
    10,789
    
    
    
    9,03338,047
    
    
    
    34,337Less: Allowance for Doubtful Accounts
    
    
    (1,188
    )
    
    
    (2,234
    )$
    36,859
    
    
    $
    32,103
   Note 4 Inventories
  8




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January 31,2010
    
    
    April 30, 2009Raw Materials and Parts
    
    $
    11,917
    
    
    $
    11,806Work in Process
    
    
    2,323
    
    
    
    1,762Finished Goods
    
    
    7,791
    
    
    
    7,912$
    22,031
    
    
    $
    21,480
 Note 5 Disposal of Fixed Assets
  Note 6 Other Accrued Liabilities
  Warranty Obligations
   Accrued warranty balance as of May 1, 2009
    
    $
    2,423Accruals for warranties for fiscal year 2010 sales
    
    
    2,106Warranty costs incurred in fiscal year 2010
    
    
    (2,327
    )Change due to currency fluctuations
    
    
    43Accrued warranty balance as of January 31, 2010
    
    $
    2,245
 Restructuring Charges and Other, net
  
    
    a net charge of $3.2 million to record the termination of the Companys option to acquire
OMAX Corporation, which is further discussed below;
    
    a charge of $1.4 million to record severance expenses related to reducing global staffing
levels in response to the continued downturn in the near term demand for its products;
    
    a charge of $237,000 related to the completion of the Companys plan to consolidate its
manufacturing activities from Taiwan to the United States;
 9




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Disposal of Fixed Assets
   Three Months
    
    
    Nine MonthsEnded January 31,
    
    
    Ended January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Severance and termination benefits
    
    $
    
    
    
    $
    494
    
    
    $
    1,604
    
    
    $
    2,258Lease termination costs and long-lived assets impairment charge
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    136Inventory write-down
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108Gain on sale of building
    
    
    
    
    
    
    
    
    
    
    (601
    )
    
    
    $
    
    
    
    $
    514
    
    
    $
    1,003
    
    
    $
    2,502
  Standard
    
    
    Advanced
    
    
    All Other
    
    
    TotalBalance, May 1, 2009
    
    $
    59
    
    
    $
    123
    
    
    $
    
    
    
    $
    182Restructuring charges
    
    
    1,300
    
    
    
    69
    
    
    
    235
    
    
    
    1,604Cash payments
    
    
    (1,082
    )
    
    
    (160
    )
    
    
    (199
    )
    
    
    (1,441
    )Balance, January 31, 2010
    
    $
    277
    
    
    $
    32
    
    
    $
    36
    
    
    $
    345
 Provision for Patent Litigation
   
    
    A non-refundable cash payment of $8 million to OMAX in March 2009 as part of the
execution of the Agreement;
    
    A cash payment of $6 million in March 2009 paid directly to an existing escrow account
with OMAX, increasing the escrow amount from $9 million to a total of $15 million as part of
the execution of the Agreement; and
    
    In the event the merger would have been consummated by August 15, 2009, the entire amount
would have been applied towards the $75 million purchase price. However, in the event the
merger would not have been consummated by August 15, 2009, the $15 million held in escrow
was to be released to OMAX on August 16, 2009 and the Company was to issue a promissory note
in the principal amount of $6 million to OMAX for the remaining balance on the $29 million
settlement amount.
  
    
    A non-refundable cash payment of $2 million to OMAX for the extension of the closing of
the merger from March 31, 2009 to August 15, 2009  with closing at the option of
the Company; and
    
    In the event the merger would have been consummated by August 15, 2009, the $2 million
would be applied towards the $75 million purchase price. However, in the event the merger
would not have been consummated by August 15, 2009 the $2 million was to be forfeited and
the Company was to issue a promissory note in the principal amount of $4 million to OMAX.
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##### Table of Contents



Note 7 Long-Term Obligations and Notes Payable
  January 31,2010
    
    
    April 30, 2009Long-term loan
    
    $
    
    
    
    $
    1,879Other financing arrangements
    
    
    75
    
    
    
    1,42575
    
    
    
    3,304Less current maturities
    
    
    (54
    )
    
    
    (1,367
    )Long-term obligations
    
    $
    21
    
    
    $
    1,937
    January 31,2010
    
    
    April 30, 2009Senior Credit Facility
    
    $
    2,150
    
    
    $
    13,000Revolving credit facilities in Taiwan
    
    
    
    
    
    
    2,226$
    2,150
    
    
    $
    15,226
 Senior Credit Facility
  Shareholders Equity
 Maximum Consolidated
    
    Minimum Fixed ChargeLeverage Ratio (i)
    
    Coverage Ratio (ii)Fiscal Year 2010First Quarter
    
    3.25x
    
    2.0xSecond Quarter
    
    3.35x
    
    1.2xThird Quarter
    
    3.50x
    
    1.2xFourth Quarter
    
    3.35x
    
    1.2xFiscal Year 2011First Quarter
    
    2.75x
    
    2.0xThereafter
    
    2.50x
    
    2.0x
 
 (i)
    
    Defined as the ratio of consolidated indebtedness, excluding the subordinated notes issued to
OMAX, to consolidated adjusted EBITDA for the most recent four fiscal quarters.(ii)
    
    Defined as the ratio of consolidated adjusted EBITDA, less income taxes and maintenance
capital expenditures, during the most recent four quarters to the sum of interest charges
during the most recent four quarters and scheduled debt repayments in the next four quarters. 11




---



##### Table of Contents



Revolving Credit Facility in Taiwan
  Note 8 Commitments and Contingencies
     12




---



##### Table of Contents



Other Legal Proceedings
 Note 9 Shareholders Equity
 Sale of Common Stock
  Change to Authorized Stock
 Articles of Amendment
 The Rights Agreement
 Rights Agent Right Purchase Price
 Distribution Date Final Expiration Date
 13




---



##### Table of Contents



Note 10 Stock-based Compensation
  Stock Options
   Weighted-Weighted-
    
    
    
    
    
    
    AverageAverage
    
    
    Aggregate
    
    
    RemainingNumber of
    
    
    Exercise
    
    
    Intrinsic
    
    
    ContractualOptions
    
    
    Price
    
    
    Value
    
    
    Term (Years)Outstanding at May 1, 2009
    
    
    798,810
    
    
    $
    10.49
    
    
    $
    
    
    
    
    5.16Granted during the period
    
    
    
    
    
    
    Exercised during the period
    
    
    
    
    
    
    Expired or forfeited during the period
    
    
    (168,728
    )
    
    
    10.52Outstanding at January 31, 2010
    
    
    630,082
    
    
    $
    10.49
    
    
    $
    
    
    
    
    5.20Exercisable at January 31, 2010
    
    
    392,622
    
    
    $
    10.51
    
    
    $
    
    
    
    
    3.55
   Nine Months endedJanuary 31, 2009Options granted
    
    
    236,210Weighted average grant-date fair value of stock options granted
    
    $
    5.67Assumptions:Weighted average expected volatility
    
    
    60
    %Risk-free interest rate
    
    
    3.09
    %Weighted average expected term (in years)
    
    
    6Expected dividend yield
    
    
    
   14




---



##### Table of Contents



Service Based Stock Awards
   Weighted-AverageNumber of
    
    
    Grant-dateShares
    
    
    Fair ValueNonvested at May 1, 2009
    
    
    402,555
    
    
    $
    8.78Granted during the period
    
    
    1,068,610
    
    
    
    2.23Forfeited during the period
    
    
    (133,220
    )
    
    
    4.61Vested during the period
    
    
    (50,149
    )
    
    
    10.18Nonvested at January 31, 2010
    
    
    1,287,796
    
    
    $
    3.72
  Note 11 Basic and Diluted Loss per Share
   Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Loss from continuing operations
    
    $
    (798
    )
    
    $
    (20,677
    )
    
    $
    (7,507
    )
    
    $
    (18,748
    )Denominator:Denominator for basic and diluted loss per
shareweighted average shares outstanding
    
    
    46,879
    
    
    
    37,639
    
    
    
    42,490
    
    
    
    37,609Basic and diluted loss from continuing operations per share
    
    $
    (0.02
    )
    
    $
    (0.55
    )
    
    $
    (0.18
    )
    
    $
    (0.50
    )
  Note 12 Other Income (Expense), Net
  15




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded January 31,
    
    
    Ended January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Realized Foreign Exchange Gains (Losses), net
    
    $
    (1,315
    )
    
    $
    206
    
    
    $
    (1,143
    )
    
    $
    674Unrealized Foreign Exchange Gains (Losses), net
    
    
    136
    
    
    
    (581
    )
    
    
    189
    
    
    
    (1,524
    )Other
    
    
    (39
    )
    
    
    767
    
    
    
    88
    
    
    
    794$
    (1,218
    )
    
    $
    392
    
    
    $
    (866
    )
    
    $
    (56
    )
  Note 13 Income Taxes
     Note 14 Discontinued Operations
 Commitments and Contingencies
 16




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##### Table of Contents



Three Month Ended
    
    
    Nine Months EndedJanuary 31, 2009
    
    
    January 31, 2009Sales
    
    $
    190
    
    
    $
    1,602Loss before provision for income taxes
    
    
    (732
    )
    
    
    (597
    )Benefit for income taxes
    
    
    46
    
    
    
    Loss from operations of discontinued operations
    
    $
    (686
    )
    
    $
    (597
    )
 Note 15 Segment Information
   Inter-segmentStandard (i)
    
    
    Advanced
    
    
    All Other (ii)
    
    
    Eliminations (iii)
    
    
    TotalThree Months Ended January 31, 2010External sales
    
    $
    37,036
    
    
    $
    8,320
    
    
    $
    
    
    
    $
    
    
    
    $
    45,356Inter-segment sales
    
    
    537
    
    
    
    
    
    
    
    
    
    
    
    (537
    )Gross margin
    
    
    15,269
    
    
    
    2,954
    
    
    
    
    
    
    
    
    
    
    
    18,223Operating income (loss)
    
    
    978
    
    
    
    1,229
    
    
    
    (2,482
    )
    
    
    
    
    
    
    (275
    )Three Months Ended January 31, 2009External sales
    
    $
    41,269
    
    
    $
    7,442
    
    
    $
    
    
    
    $
    
    
    
    $
    48,711Inter-segment sales
    
    
    782
    
    
    
    
    
    
    
    
    
    
    
    (782
    )Gross margin
    
    
    16,957
    
    
    
    2,189
    
    
    
    
    
    
    
    
    
    
    
    19,146Operating income (loss)
    
    
    2,441
    
    
    
    628
    
    
    
    (34,896
    )
    
    
    
    
    
    
    (31,827
    )Nine Months Ended January 31, 2010External sales
    
    $
    96,817
    
    
    $
    28,328
    
    
    $
    
    
    
    $
    
    
    
    $
    125,145Inter-segment sales
    
    
    1,313
    
    
    
    
    
    
    
    
    
    
    
    (1,313
    )Gross margin
    
    
    39,216
    
    
    
    9,615
    
    
    
    
    
    
    
    
    
    
    
    48,831Operating income (loss)
    
    
    (211
    )
    
    
    4,999
    
    
    
    (12,308
    )
    
    
    
    
    
    
    (7,520
    )Total Assets
    
    
    127,471
    
    
    
    29,632
    
    
    
    11,185
    
    
    
    (35,101
    )
    
    
    133,187Nine Months Ended January 31, 2009External sales
    
    $
    149,898
    
    
    $
    16,455
    
    
    $
    
    
    
    $
    
    
    
    $
    166,353Inter-segment sales
    
    
    1,997
    
    
    
    
    
    
    
    
    
    
    
    (1,997
    )Gross margin
    
    
    66,934
    
    
    
    3,983
    
    
    
    
    
    
    
    
    
    
    
    70,917Operating income (loss)
    
    
    21,592
    
    
    
    (3,417
    )
    
    
    (42,807
    )
    
    
    
    
    
    
    (24,632
    )Total Assets
    
    
    153,361
    
    
    
    23,129
    
    
    
    8,711
    
    
    
    (35,662
    )
    
    
    149,539
 
 (i)
    
    During the second quarter of fiscal 2010, the Company began reporting its profit or loss
within the Standard segment to include inventory adjustments previously reflected as
Intersegment Eliminations, in order to reflect how the chief operating decision maker now
views and manages its business. This change had no impact on consolidated gross margins or
operating income or loss. The
Company has reclassified prior period comparable results for the respective three and nine
months ended January 31, 2009 to reflect this refinement in reporting. 17




---



##### Table of Contents



(ii)
    
    Includes corporate overhead expenses as well as general and administrative expenses of
inactive subsidiaries that do not constitute segments.(iii)
    
    Inter-segment sales represent products between the Companys geographic areas, including
between operations within the United States and between the Companys U.S. operations and
foreign subsidiaries, based on the Companys transfer pricing policy. These amounts have been
eliminated in consolidation.  Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Operating loss for reportable segments
    
    $
    (275
    )
    
    $
    (31,827
    )
    
    $
    (7,520
    )
    
    $
    (24,632
    )Interest income
    
    
    39
    
    
    
    94
    
    
    
    132
    
    
    
    396Interest expense
    
    
    (468
    )
    
    
    (442
    )
    
    
    (1,906
    )
    
    
    (733
    )Other income (expense), net
    
    
    (1,218
    )
    
    
    392
    
    
    
    (866
    )
    
    
    (56
    )Loss from continuing operations before provision for income taxes
    
    $
    (1,922
    )
    
    $
    (31,783
    )
    
    $
    (10,160
    )
    
    $
    (25,025
    )
 Note 16 Fair Value Measures
     Assets and Liabilities Measured at Fair Value on a Recurring Basis
   Location of Gain orDerivatives not designated as hedging
    
    (Loss) Recognized in
    
    
    Three Months
    
    
    Nine Monthsinstruments under Statement 133
    
    Income on Derivative
    
    
    Ended January 31,
    
    
    Ended January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Other IncomeForward exchange forward contracts
    
    (Expense)
    
    $
    
    
    
    $
    30
    
    
    $
    
    
    
    $
    1,249
  Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
 18




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19




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##### Table of Contents



FLOW INTERNATIONAL CORPORATION
 
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-looking Statements
 Forward-looking statements in this report, including without limitation, statements relating
to the Companys plans, strategies, objectives, expectations, intentions, and adequacy of
resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The words may, expect, believe, anticipate, estimate, plan and
similar expressions are intended to identify forward-looking statements. These statements are no
guarantee of future performance and involve certain risks, assumptions, and uncertainties that are
difficult to predict. Therefore, actual outcome and results may differ materially from what is
expressed or forecasted in such forward-looking statements.
 We make forward-looking statements of our expectations which include but are not limited to:
 
    
    statements regarding the successful execution of our strategic initiatives, including
introduction of new products and realignment of our existing product line;
    
    statements regarding our ability to respond to a decline in the near-term demand for our
products by cutting costs and our intention to reinstate suspended employee benefits,
including wage reductions, as our business improves;
    
    statements regarding our belief that the diversity of our markets, along with the
relatively early adoption phase of our technology, and the displacement of more traditional
methods for machining and fabricating, will enable us to absorb the economic downturn with
less impact than conventional machine tool manufacturers;
    
    statements regarding the realization of backlog in the Advanced segment;
    
    statements regarding the use of cash, cash needs and ability to raise capital and/or use
our Senior Credit Facility;
    
    statements regarding our belief that our existing cash and cash equivalents, along with
the expected proceeds from our operations and available amounts under our Senior Credit
Facility, will provide adequate liquidity to fund our operations through at least the next
twelve months;
    
    statements regarding our ability to meet our debt covenants in future periods;
    
    statements regarding our technological leadership position;
    
    statements regarding anticipated results of potential or actual litigation;
    
    statements regarding our expectation that our unrecognized tax benefits will not change
significantly within the next twelve months.
 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.
  20




---



##### Table of Contents




    
    Executive Summary
    
    Results of Operations
    
    Liquidity and Capital Resources
    
    Contractual Obligations
    
    Off Balance Sheet Arrangements
    
    Critical Accounting Policies and Estimates
    
    RecentlyIssued Accounting Pronouncements
 Executive Summary
   Liquidity
and Capital Resources
   
    
    temporary reduction of wages for the majority of our salaried employees;
    
    temporary suspension of certain employee benefits;
    
    culmination of our plan to exit all manufacturing activities in our Taiwan facility; and
    
    elimination of 30 full-time positions globally.
 21




---



##### Table of Contents



®
  Our ability to fully implement our strategies and achieve our objective may be influenced by a
variety of factors, many of which are beyond our control. These risks and uncertainties pertaining
to our business are set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year
ended April 30, 2009.
 Results of Operations
 (Tabular amounts in thousands)
 Summary Consolidated Results for the Three Months ended January 31, 2010 and 2009
 Three Months Ended January 31,
    
    Nine Months Ended January 31,2010
    
    2009
    
    %
    
    2010
    
    2009
    
    %Sales
    
    $
    45,356
    
    
    $
    48,711
    
    
    
    (7
    )%
    
    $
    125,145
    
    
    $
    166,353
    
    
    
    (25
    )%Operating Loss
    
    
    (275
    )
    
    
    (31,827
    )
    
    
    99
    %
    
    
    (7,520
    )
    
    
    (24,632
    )
    
    
    70
    %
 Three Months Ended January 31,
    
    
    Nine Months Ended January 31,2010
    
    
    2009
    
    
    %
    
    
    2010
    
    
    2009
    
    
    %SalesSystems
    
    $
    31,905
    
    
    $
    33,739
    
    
    
    (5
    )%
    
    $
    83,673
    
    
    $
    115,997
    
    
    
    (28
    )%Consumable parts
    
    
    13,451
    
    
    
    14,972
    
    
    
    (10
    )%
    
    
    41,472
    
    
    
    50,356
    
    
    
    (18
    )%45,356
    
    
    
    48,711
    
    
    
    
    
    
    
    125,145
    
    
    
    166,353
   Other Accrued Liabilities
 22




---



##### Table of Contents




    
    lower sales volume discussed above and gross margin mix;
    
    a decline of 361 basis points in gross margin as a result of a greater mix of low margin
systems versus the prior year as well as higher manufacturing overhead costs;
    
    a net charge of $3.2 million to record the termination of our option to acquire OMAX
Corporation, which is further discussed in Note 6  Other Accrued Liabilitiesof
the Notes to the Condensed Consolidated Financial Statements; and
    
    Restructuring and other related expenses of $1.6 million related to the reduction of
global staffing levels and the completion of our Taiwan manufacturing operations shutdown in
the first quarter of fiscal year 2010, offset by a $600,000 gain from the sale of our
building in Hsinchu, Taiwan which was completed in September 2009.
    Segment Results of Operations
  Segment Information
 Standard Segment
 Three Months Ended January 31,
    
    Nine Months Ended January 31,2010
    
    2009
    
    %
    
    2010
    
    2009
    
    %Sales
    
    $
    37,036
    
    
    $
    41,269
    
    
    
    (10
    )%
    
    $
    96,817
    
    
    $
    149,898
    
    
    
    (35
    )%% of total company sales
    
    
    82
    %
    
    
    85
    %
    
    NM
    
    
    77
    %
    
    
    90
    %
    
    NMGross Margin (i)
    
    
    15,269
    
    
    
    16,957
    
    
    
    (10
    )%
    
    
    39,216
    
    
    
    66,934
    
    
    
    (41
    )%Gross Margin as % of sales
    
    
    41
    %
    
    
    41
    %
    
    NM
    
    
    41
    %
    
    
    45
    %
    
    NMOperating Expenses:Sales and Marketing
    
    
    9,402
    
    
    
    9,313
    
    
    
    1
    %
    
    
    24,982
    
    
    
    29,871
    
    
    
    (16
    )%Research and Engineering
    
    
    1,789
    
    
    
    2,043
    
    
    
    (12
    )%
    
    
    4,899
    
    
    
    5,814
    
    
    
    (16
    )%General and Administrative
    
    
    3,101
    
    
    
    2,700
    
    
    
    15
    %
    
    
    8,847
    
    
    
    9,048
    
    
    
    (2
    )%Restructuring Charges and
Other
    
    
    
    
    
    
    460
    
    
    NM
    
    
    699
    
    
    
    609
    
    
    
    15
    %Total Operating Expenses
    
    
    14,292
    
    
    
    14,516
    
    
    
    (2
    )%
    
    
    39,427
    
    
    
    45,342
    
    
    
    (13
    )%Operating Income (Loss) (i)
    
    
    978
    
    
    
    2,441
    
    
    
    (60
    )%
    
    
    (211
    )
    
    
    21,592
    
    
    NM
 
 NM = Not Meaningful 23




---



##### Table of Contents



(i)
    
    During the second quarter of fiscal 2010, we began reporting our profit or loss within the
Standard segment to include inventory adjustments previously reflected as Intersegment
Eliminations, in order to reflect how the chief operating decision maker now views and manages
its business. This change had no impact on consolidated gross margins or operating income or
loss. We have reclassified prior period comparable results for the respective three and nine
months ended January 31, 2009 to reflect this refinement in reporting.   
    
    Significant decline in standard system sales volume, primarily in North America and
Europe, which are the markets most affected by the current economic environment. These
regions had a combined decline in system sales of $932,000 or 5% and $35.6 million or 46%
for the respective three and nine months ended January 31, 2010 over the prior year
comparative periods. Consumable parts revenue for this segment also declined by $1.0
million or 7% and $7.2 million or 15% for the respective three and nine months ended January
31, 2010 over the prior year comparative periods which was primarily driven by declines in
North America and Europe, which had a combined decline of $2.0 million or 18% and $6.7
million or 18% for the respective three and nine months ended January 31, 2010 over the
prior year comparative periods due to lower system utilization by our customers. These
declines were offset by modest growth in consumable parts revenue in other regions.
   
    
    A decrease in sales and marketing expenses of $4.9 million or 16% for the nine months
ended January 31, 2010, as compared to the prior year comparative periods, primarily as a
result of lower commission expense based on lower sales volume as, well as reduced headcount
related expenses. Sale and marketing expenses for the three months ended January 31, 2010
were consistent with the prior year comparative period;
    
    A decrease in research and engineering expenses of $254,000 or 13%, and $915,000 or 16%
for the respective three and nine months ended January 31, 2010, as compared to the prior
year comparative periods, which was mainly attributable to the timing of investments for new
product development as well as reduced headcount related expenses;
    
    A decrease in general and administrative expenses of $201,000 or 2% for the nine months
ended January 31, 2010, as compared to the prior year comparative period, primarily as a
result of reduced headcount related expenses that occurred from the reduction of headcount
in the first fiscal quarter of 2010. General and administrative expenses for the three
months ended January 31, 2010 increased $401,000 or 15% compared with the prior year
comparative period, primarily reflecting increased costs associated with the implementation
of our Enterprise Resource Planning system and related depreciation and amortization; and
    
    Restructuring and Other Charges of $699,000 in the Standard segment for the nine months
ended January 31, 2010 were related to charges recorded to reduce global staffing levels and
to complete the cessation of manufacturing activity in our Taiwan facility. The expenses
recorded to reduce global staffing levels were net of a $601,000 gain recorded in the second
quarter of fiscal 2010 for the sale of our building in Taiwan.
 24




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##### Table of Contents



Advanced Segment
 Three Months Ended January 31,
    
    Nine Months Ended January 31,2010
    
    2009
    
    %
    
    2010
    
    2009
    
    %Sales
    
    $
    8,320
    
    
    $
    7,442
    
    
    
    12
    %
    
    $
    28,328
    
    
    $
    16,455
    
    
    
    72
    %% of total company sales
    
    
    18
    %
    
    
    15
    %
    
    NM
    
    
    23
    %
    
    
    10
    %
    
    NMGross Margin
    
    
    2,954
    
    
    
    2,189
    
    
    
    35
    %
    
    
    9,615
    
    
    
    3,983
    
    
    NMGross Margin as % of sales
    
    
    36
    %
    
    
    29
    %
    
    NM
    
    
    34
    %
    
    
    24
    %
    
    NMOperating Expenses:Sales and Marketing
    
    
    663
    
    
    
    683
    
    
    
    (3
    )%
    
    
    1,974
    
    
    
    2,124
    
    
    
    (7
    )%Research and Engineering
    
    
    446
    
    
    
    238
    
    
    
    87
    %
    
    
    883
    
    
    
    995
    
    
    
    (11
    )%General and Administrative
    
    
    616
    
    
    
    586
    
    
    
    5
    %
    
    
    1,690
    
    
    
    2,495
    
    
    
    (32
    )%Restructuring Charges and
Other
    
    
    0
    
    
    
    54
    
    
    
    (100
    )%
    
    
    69
    
    
    
    1,785
    
    
    
    (96
    )%Total Operating Expenses
    
    
    1,725
    
    
    
    1,561
    
    
    
    11
    %
    
    
    4,616
    
    
    
    7,399
    
    
    
    (38
    )%Operating Income (Loss)
    
    
    1,229
    
    
    
    628
    
    
    
    96
    %
    
    
    4,999
    
    
    
    (3,417
    )
    
    NM
 
 NM = Not Meaningful     
    
    Operating expenses for the three months ended January 31, 2010 were in line with those of
the prior year comparative period and include the impact of cost savings from consolidating
our facilities. For the nine months ended January 31, 2010, sales and marketing expenses
decreased $150,000 or 7%, and general and administrative expenses decreased $805,000 or 32%
from the prior year comparative period as a result of the impact of savings from the
consolidation of our facilities for our Advanced segment to Jeffersonville, Indiana, which
eliminated a significant amount of overhead associated with maintaining two facilities; and
    
    Restructuring and Other Charges of $69,000 for the nine months ended January 31, 2010
were related to charges recorded to reduce global staffing levels in the first quarter of
fiscal year 2010. The comparative prior period quarter-to-date and year-to-date amounts of
$54,000 and $1.8 million were related to severance and termination benefits as well as lease
termination charges incurred to close our Burlington, Ontario Canada manufacturing facility.
 All Other
  Three Months Ended January 31,
    
    Nine Months Ended January 31,2010
    
    2009
    
    %
    
    2010
    
    2009
    
    %General and Administrative
    
    $
    2,481
    
    
    $
    3,132
    
    
    
    (21
    )%
    
    $
    8,854
    
    
    $
    11,043
    
    
    
    (20
    )%Provision for Patent Litigation
    
    
    
    
    
    
    29,000
    
    
    NM
    
    
    
    
    
    
    29,000
    
    
    NMGoodwill Impairment
    
    
    
    
    
    
    2,764
    
    
    NM
    
    
    
    
    
    
    2,764
    
    
    NMRestructuring and Other
Operating Charges, net
    
    
    
    
    
    
    
    
    
    NM
    
    
    3,454
    
    
    
    
    
    
    NM
 
 NM = Not Meaningful  25




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##### Table of Contents



Other Accrued Liabilities
 Other Accrued Liabilities
 Interest Income (Expense)
 Interest Income (Expense), net
 Three Months Ended January 31,
    
    Nine Months Ended January 31,2010
    
    2009
    
    %
    
    2010
    
    2009
    
    %Interest Income
    
    $
    39
    
    
    $
    94
    
    
    
    (59
    )%
    
    $
    132
    
    
    $
    396
    
    
    
    (67
    )%Interest Expense
    
    
    (468
    )
    
    
    (442
    )
    
    
    6
    %
    
    
    (1,906
    )
    
    
    (733
    )
    
    NMNet Interest Expense
    
    
    (429
    )
    
    
    (348
    )
    
    
    23
    %
    
    
    (1,774
    )
    
    
    (337
    )
    
    NM
 
 NM = Not Meaningful   
    
    interest charges of $138,000 and $532,000 for the three and nine months ended January 31,
2010, respectively, on the used and unused portion of our Senior Credit Facility as well as
outstanding standby letters of credit;
    
    imputed interest of $173,000 and $556,000 for the three and nine months ended January 31,
2010, respectively, related to the two subordinated notes issued to OMAX in satisfaction of
our remaining obligation to OMAX pursuant to the Settlement and Cross Licensing Agreement
executed in March 2009 as well as in connection with the termination of the Merger
Agreement;
    
    write-off of $253,000 of deferred financing fees in the first quarter of fiscal year 2010
upon the execution of an amendment to our Senior Credit Facility in June 2009 which reduced
our available borrowing capacity by 50%; and
    
    amortization of $117,000 and $305,000 for the three and nine months ended January 31,
2010, respectively for deferred financing fees over the life of the Line of Credit
availability which amortization began in June 2008 upon the execution of the original Senior
Credit Facility.
  Other Income (Expense), Net
  26




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded January 31,
    
    
    Ended January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Realized Foreign Exchange Gains (Losses), net
    
    $
    (1,315
    )
    
    $
    206
    
    
    $
    (1,143
    )
    
    $
    674Unrealized Foreign Exchange Gains (Losses), net
    
    
    136
    
    
    
    (581
    )
    
    
    189
    
    
    
    (1,524
    )Other
    
    
    (39
    )
    
    
    767
    
    
    
    88
    
    
    
    794$
    (1,218
    )
    
    $
    392
    
    
    $
    (866
    )
    
    $
    (56
    )
  Income Taxes
  Three Months
    
    
    Nine MonthsEnded January 31,
    
    
    Ended January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Current Tax Expense
    
    $
    392
    
    
    $
    51
    
    
    $
    818
    
    
    $
    1,997Deferred Tax (Benefit) Expense
    
    
    (1,516
    )
    
    
    (11,055
    )
    
    
    (3,471
    )
    
    
    (8,274
    )$
    (1,124
    )
    
    $
    (11,106
    )
    
    $
    (2,653
    )
    
    $
    (6,277
    )
    Liquidity and Capital Resources
 Sources of Cash
  27




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##### Table of Contents



Cash Generated by Operating Activities
  Available Cash and Cash Equivalents
   Risk Factors
 Credit Facilities and Debt
  Shareholders Equity
 Maximum Consolidated
    
    Minimum Fixed ChargeLeverage Ratio (i)
    
    Coverage Ratio (ii)Fiscal Year 2010First Quarter
    
    
    3.25x
    
    
    
    2.0xSecond Quarter
    
    
    3.35x
    
    
    
    1.2xThird Quarter
    
    
    3.50x
    
    
    
    1.2xFourth Quarter
    
    
    3.35x
    
    
    
    1.2xFiscal Year 2011First Quarter
    
    
    2.75x
    
    
    
    2.0xThereafter
    
    
    2.50x
    
    
    
    2.0x
 
 (i)
    
    Defined as the ratio of consolidated indebtedness to consolidated adjusted EBITDA, excluding
the subordinated notes issued to OMAX, for the most recent four fiscal quarters.(ii)
    
    Defined as the ratio of consolidated adjusted EBITDA, less income taxes and maintenance
capital expenditures, during the most recent four quarters to the sum of interest charges
during the most recent four quarters and scheduled debt repayments in the next four quarters.  28




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##### Table of Contents



Other Sources of Cash
  Uses of Cash
 Capital Expenditures
  Repayment of Debt, Capital Leases and Notes Payable
  29




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##### Table of Contents



Off-Balance Sheet Arrangements
  Contractual Obligations
  Critical Accounting Estimates and Judgments
 Recently Issued Accounting Pronouncements
 Recently Issued Accounting Pronouncements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4.
    
    Controls and Procedures
     
 PART II OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
 Commitments and Contingencies
 30




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##### Table of Contents



Item 1A.
    
    Risk Factors
  
 
 
 
 Items 2, 3, 4 and 5 are None and have been omitted.
 
 Item 6.
    
    Exhibits
 31.1
    
    Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 200231.2
    
    Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 200232.1
    
    Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 200299.1
    
    Debt Covenant Compliance as of January 31, 2010
 31




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##### Table of Contents



FLOW INTERNATIONAL CORPORATIONDate: March 9, 2010
    
    /s/ Charles M. BrownCharles M. BrownPresident and Chief Executive Officer
(Principal Executive Officer)Date: March 9, 2010
    
    /s/ Allen M. HsiehAllen M. HsiehVice President and Chief Financial Officer
(Principal Financial Officer) 32