##### 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 July 31, 2009
 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
    
    (I.R.S. Employerincorporation or organization)
    
    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)Condensed Consolidated Balance Sheets  July 31, 2009 and April 30, 2009
    
    
    3Condensed Consolidated Statements of Operations  Three Months Ended July 31, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows  Three Months Ended July 31, 2009 and 2008
    
    
    5Condensed Consolidated Statement of Shareholders Equity and Comprehensive Income (Loss)
Three Months Ended July 31, 2009 and 2008
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27Part II  OTHER INFORMATION
    
    
    28Item 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3. Defaults Upon Senior Securities
    
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28Item 5. Other Information
    
    
    28Item 6. Exhibits
    
    
    28EX-31.1EX-31.2EX-32.1EX-99.1
  2




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##### Table of Contents



FLOW INTERNATIONAL CORPORATION
 
 
 July 31,
    
    
    April 30,2009
    
    
    2009ASSETS:Current Assets:Cash and Cash Equivalents
    
    $
    6,761
    
    
    $
    10,117Restricted Cash
    
    
    528
    
    
    
    220Receivables, net
    
    
    31,116
    
    
    
    32,103Inventories
    
    
    20,271
    
    
    
    21,480Deferred Income Taxes, net
    
    
    2,103
    
    
    
    8,686Deferred Acquisition Costs
    
    
    
    
    
    
    17,093Assets Held for Sale
    
    
    4,043
    
    
    
    Other Current Assets
    
    
    6,969
    
    
    
    5,544Total Current Assets
    
    
    71,791
    
    
    
    95,243Property and Equipment, net
    
    
    22,266
    
    
    
    22,983Intangible Assets, net
    
    
    4,521
    
    
    
    4,456Deferred Income Taxes, net
    
    
    24,972
    
    
    
    17,480Other Assets
    
    
    4,757
    
    
    
    4,798$
    128,307
    
    
    $
    144,960LIABILITIES AND SHAREHOLDERS EQUITY:Current Liabilities:Notes Payable
    
    $
    16,589
    
    
    $
    15,226Current Portion of Long-Term Obligations
    
    
    648
    
    
    
    1,367Accounts Payable
    
    
    13,989
    
    
    
    10,215Accrued Payroll and Related Liabilities
    
    
    4,799
    
    
    
    5,406Taxes Payable and Other Accrued Taxes
    
    
    1,406
    
    
    
    2,276Deferred Income Taxes
    
    
    675
    
    
    
    651Deferred Revenue
    
    
    4,129
    
    
    
    4,649Customer Deposits
    
    
    3,561
    
    
    
    3,322Reserve for Patent Litigation (Note 5)
    
    
    
    
    
    
    15,000Other Accrued Liabilities
    
    
    12,397
    
    
    
    9,208Total Current Liabilities
    
    
    58,193
    
    
    
    67,320Long-Term Obligations, net
    
    
    627
    
    
    
    1,937Deferred Income Taxes
    
    
    5,554
    
    
    
    5,498Reserve for Patent Litigation (Note 5)
    
    
    7,433
    
    
    
    6,000Other Long-Term Liabilities
    
    
    1,529
    
    
    
    1,49473,336
    
    
    
    82,249Commitments and Contingencies (Note 7)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, 37,752,804 and 37,704,684 shares
issued and outstanding at July 31, 2009 and April 30, 2009, respectively
    
    
    373
    
    
    
    372Capital in Excess of Par
    
    
    140,998
    
    
    
    140,634Accumulated Deficit
    
    
    (79,949
    )
    
    
    (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 $772 and $508
    
    
    (6,366
    )
    
    
    (6,812
    )Total Shareholders Equity
    
    
    54,971
    
    
    
    62,711$
    128,307
    
    
    $
    144,960
 
 3




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##### Table of Contents



FLOW INTERNATIONAL CORPORATION
 
 
 Three Months EndedJuly 31,2009
    
    
    2008Sales
    
    $
    37,752
    
    
    $
    57,065Cost of Sales
    
    
    23,776
    
    
    
    30,934Gross Margin
    
    
    13,976
    
    
    
    26,131Operating Expenses:Sales and Marketing
    
    
    7,916
    
    
    
    10,098Research and Engineering
    
    
    1,697
    
    
    
    2,250General and Administrative
    
    
    7,122
    
    
    
    8,590Restructuring and Other Operating Charges
    
    
    4,823
    
    
    
    1,436Total Operating Expenses
    
    
    21,558
    
    
    
    22,374Operating Income (Loss)
    
    
    (7,582
    )
    
    
    3,757Interest Income
    
    
    40
    
    
    
    179Interest Expense
    
    
    (964
    )
    
    
    (130
    )Other Income, net
    
    
    502
    
    
    
    391Income (Loss) Before Provision for Income Taxes
    
    
    (8,004
    )
    
    
    4,197Benefit (Provision) for Income Taxes
    
    
    606
    
    
    
    (2,664
    )Income (Loss) from Continuing Operations
    
    
    (7,398
    )
    
    
    1,533Loss from Sale of Discontinued Operations, net of Income Tax of $0
    
    
    (1,148
    )
    
    
    Income from Operations of Discontinued Operations, net of Income Tax of $37
    
    
    
    
    
    
    70Net Income (Loss)
    
    $
    (8,546
    )
    
    $
    1,603Basic Income (Loss) Per Share:Income (Loss) from Continuing Operations
    
    $
    (0.20
    )
    
    $
    0.04Discontinued Operations
    
    
    (0.03
    )
    
    
    0.00Net Income (Loss)
    
    $
    (0.23
    )
    
    $
    0.04Diluted Income (Loss) Per Share:Income (Loss) From Continuing Operations
    
    $
    (0.20
    )
    
    $
    0.04Discontinued Operations
    
    
    (0.03
    )
    
    
    0.00Net Income (Loss)
    
    $
    (0.23
    )
    
    $
    0.04Weighted Average Shares Used in Computing Basic and Diluted Income (Loss) Per Share:Basic
    
    
    37,748
    
    
    
    37,591Diluted
    
    
    37,748
    
    
    
    38,101
 
 4




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##### Table of Contents



FLOW INTERNATIONAL CORPORATION
 
 
 Three Months EndedJuly 31,2009
    
    
    2008Cash Flows from Operating Activities:Net Income (Loss)
    
    $
    (8,546
    )
    
    $
    1,603Adjustments to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities:Depreciation and Amortization
    
    
    1,232
    
    
    
    1,050Deferred Income Taxes
    
    
    (1,061
    )
    
    
    1,612Provision for Slow Moving and Obsolete Inventory
    
    
    123
    
    
    
    107Bad Debt Expense
    
    
    170
    
    
    
    66Warranty Expense
    
    
    651
    
    
    
    646Stock Compensation Expense
    
    
    365
    
    
    
    521Unrealized Foreign Exchange Currency (Gains)
    
    
    (457
    )
    
    
    (21
    )Write-off of Deferred Debt Issuance Costs
    
    
    253
    
    
    
    OMAX Termination Charge
    
    
    3,219
    
    
    
    Avure Indemnification Charge
    
    
    1,148
    
    
    
    Interest Accretion on Notes Payable
    
    
    214
    
    
    
    Other
    
    
    51
    
    
    
    (81
    )Changes in Operating Assets and Liabilities:Receivables
    
    
    1,584
    
    
    
    84Inventories
    
    
    1,895
    
    
    
    849Other Operating Assets
    
    
    (669
    )
    
    
    (2,132
    )Accounts Payable
    
    
    3,590
    
    
    
    (5,463
    )Accrued Payroll and Payroll Related Liabilities
    
    
    (903
    )
    
    
    (247
    )Deferred Revenue
    
    
    (566
    )
    
    
    (1,041
    )Customer Deposits
    
    
    120
    
    
    
    186Release of Funds from Escrow
    
    
    17,000
    
    
    
    Payment for Patent Litigation Settlement
    
    
    (15,000
    )
    
    
    Payment for OMAX Termination
    
    
    (2,000
    )
    
    
    Other Operating Liabilities
    
    
    267
    
    
    
    (777
    )Cash Provided by (Used in) Operating Activities
    
    
    2,680
    
    
    
    (3,038
    )Cash Flows From Investing Activities:Expenditures for Property and Equipment
    
    
    (4,294
    )
    
    
    (1,255
    )Expenditures for Intangible Assets
    
    
    (178
    )
    
    
    (45
    )Proceeds from Sale of Property and Equipment
    
    
    5
    
    
    
    321Payments for Pending Acquisition
    
    
    
    
    
    
    (424
    )Restricted Cash
    
    
    (303
    )
    
    
    32Cash (Used in) Investing Activities
    
    
    (4,770
    )
    
    
    (1,371
    )Cash Flows from Financing Activities:Borrowings under Senior Credit Agreement
    
    
    2,250
    
    
    
    Repayments Under Notes Payable
    
    
    
    
    
    
    Borrowings Under Notes Payable
    
    
    
    
    
    
    Borrowings Under Other Financing Arrangements
    
    
    
    
    
    
    723Repayments Under Other Financing Arrangements
    
    
    (58
    )
    
    
    Repayments of Capital Lease Obligations
    
    
    (72
    )
    
    
    (35
    )Repayments of LongTerm Obligations
    
    
    (2,862
    )
    
    
    (434
    )Debt Issuance Costs
    
    
    (362
    )
    
    
    Cash Provided by (Used in) Financing Activities
    
    
    (1,104
    )
    
    
    254Effect of Changes in Exchange Rates
    
    
    (162
    )
    
    
    (238
    )Decrease in Cash And Cash Equivalents
    
    
    (3,356
    )
    
    
    (4,393
    )Cash and Cash Equivalents at Beginning of Period
    
    
    10,117
    
    
    
    29,099Cash and Cash Equivalents at End of Period
    
    $
    6,761
    
    
    $
    24,706Supplemental Disclosures of Cash Flow Information:Cash Paid during the Year for:Interest
    
    
    674
    
    
    
    68Taxes
    
    
    487
    
    
    
    827Supplemental Disclosures of Noncash Investing and Financing Activities:Accounts Payable incurred to acquire Property and Equipment, and Intangible Assets
    
    
    2,379
    
    
    
    966Accrued Liabilities Incurred for Pending Acquisition
    
    
    
    
    
    
    1,010
  5




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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 Income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,603
    
    
    
    
    
    
    
    1,603Cumulative Translation Adjustment, Net
of Income Tax of $0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116
    )
    
    
    (116
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,487Stock Compensation
    
    
    4
    
    
    
    0
    
    
    
    431
    
    
    
    
    
    
    
    
    
    
    
    431Balances, July 31, 2008
    
    
    37,594
    
    
    $
    371
    
    
    $
    139,438
    
    
    $
    (45,981
    )
    
    $
    (5,846
    )
    
    $
    87,982Balances, May 1, 2009
    
    
    37,705
    
    
    $
    372
    
    
    $
    140,634
    
    
    $
    (71,403
    )
    
    $
    (6,892
    )
    
    $
    62,711Components of Comprehensive Income (Loss):Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,546
    )
    
    
    
    
    
    
    (8,546
    )Adjustment to Minimum Pension
Liability, Net of Income Tax of $5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (5
    )Cumulative Translation Adjustment, Net
of Income Tax of $264
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    446
    
    
    
    446Total Comprehensive Income (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,105
    )Stock Compensation
    
    
    48
    
    
    
    1
    
    
    
    364
    
    
    
    
    
    
    
    
    
    
    
    365Balances, July 31, 2009
    
    
    37,753
    
    
    $
    373
    
    
    $
    140,998
    
    
    $
    (79,949
    )
    
    $
    (6,451
    )
    
    $
    54,971
 
 6




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##### Table of Contents



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




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##### Table of Contents



TM
 Note 3Receivables, Net
  July 31, 2009
    
    
    April 30, 2009Trade Accounts Receivable
    
    $
    22,125
    
    
    $
    25,304Unbilled Revenues
    
    
    11,048
    
    
    
    9,03333,173
    
    
    
    34,337Less: Allowance for Doubtful Accounts
    
    
    (2,057
    )
    
    
    (2,234
    )$
    31,116
    
    
    $
    32,103
   Note 4Inventories
  July 31, 2009
    
    
    April 30, 2009Raw Materials and Parts
    
    $
    11,601
    
    
    $
    11,806Work in Process
    
    
    2,245
    
    
    
    1,762Finished Goods
    
    
    6,425
    
    
    
    7,912$
    20,271
    
    
    $
    21,480
 Note 5 Other Accrued Liabilities
  Warranty Obligations
   Accrued warranty balance as of May 1, 2009
    
    $
    2,423Accruals for warranties for fiscal year 2010 sales
    
    
    651Warranty costs incurred in fiscal year 2010
    
    
    (739
    )Change due to currency fluctuations
    
    
    44Accrued warranty balance as of July 31, 2009
    
    $
    2,379
 8




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##### Table of Contents



Restructuring Charges and Other
  
    
    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; and
    
    a charge of $237,000 related to the completion of the Companys plan to relocate all
of its manufacturing activities from Taiwan to the United States.
   July 31, 2009
    
    
    July 31, 2008Severance and termination benefits
    
    $
    1,604
    
    
    $
    1,436Inventory write-down
    
    
    
    
    
    
    108$
    1,604
    
    
    $
    1,544
  Standard
    
    
    Advanced
    
    
    All Other
    
    
    TotalBalance, May 1, 2009
    
    $
    59
    
    
    $
    123
    
    
    $
    
    
    
    $
    182Restructuring charges
    
    
    1,300
    
    
    
    69
    
    
    
    235
    
    
    
    1,604Cash payments
    
    
    (59
    )
    
    
    (123
    )
    
    
    (5
    )
    
    
    (187
    )Balance, July 31, 2009
    
    $
    1,300
    
    
    $
    69
    
    
    $
    230
    
    
    $
    1,599
 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 principle amount of $6 million to OMAX for the remaining balance
on the $29 million settlement amount.
 9




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##### Table of Contents




    
    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 principle amount of $4
million to OMAX.
   Note 6Long-Term Obligations and Notes Payable
  July 31, 2009
    
    
    April 30, 2009Long-term loan
    
    $
    
    
    
    $
    1,879Other financing arrangements
    
    
    1,275
    
    
    
    1,4251,275
    
    
    
    3,304Less current maturities
    
    
    (648
    )
    
    
    (1,367
    )Long-term obligations
    
    $
    627
    
    
    $
    1,937
    July 31, 2009
    
    
    April 30, 2009Senior Credit Facility
    
    $
    15,250
    
    
    $
    13,000Revolving credit facilities in Taiwan
    
    
    1,339
    
    
    
    2,226$
    16,589
    
    
    $
    15,226
 Senior Credit Facility
  Subsequent Events
 10




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##### Table of Contents



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 promissory notes to be
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.     Revolving Credit Facility in Taiwan
  Note 7 Commitments and Contingencies
   11




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##### Table of Contents



Other Legal Proceedings 
 Note 8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
    
    
    (32,614
    )
    
    
    9.69Outstanding at July 31, 2009
    
    
    766,196
    
    
    $
    10.53
    
    
    $
    
    
    
    
    4.85Exercisable at July 31, 2009
    
    
    528,736
    
    
    $
    10.56
    
    
    $
    
    
    
    
    5.53
 Three Months ended July 31,2009
    
    2008Total intrinsic value of options exercised
    
    $
    
    
    
    $
    Cash received from exercise of share options
    
    $
    
    
    
    $
    Tax benefit realized from stock options exercised
    
    $
    
    
    
    $
    
  12




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##### Table of Contents



Three Months endedJuly 31, 2008Options 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
    
    
    
   Service-Based Stock Awards
   Weighted-AverageNumber of
    
    
    Grant-dateShares
    
    
    Fair ValueNonvested at May 1, 2009
    
    
    402,555
    
    
    $
    8.78Granted during the period
    
    
    991,601
    
    
    
    2.22Forfeited during the period
    
    
    (47,649
    )
    
    
    4.79Vested during the period
    
    
    (121,341
    )
    
    
    10.20Nonvested at July 31, 2009
    
    
    1,225,166
    
    
    $
    3.81
  Note 9Basic and Diluted Income (Loss) per Share
  13




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##### Table of Contents



Three Months EndedJuly 31,2009
    
    
    2008Numerator:Income (Loss) from continuing operations
    
    $
    (7,398
    )
    
    $
    1,533Denominator:Denominator for basic income (loss) per shareweighted average
shares outstanding
    
    
    37,748
    
    
    
    37,591Dilutive potential common shares from employee stock options
    
    
    
    
    
    
    5Dilutive potential common shares from service and performance
based stock awards
    
    
    
    
    
    
    505Denominator for diluted income (loss) per shareweighted average
shares outstanding and assumed conversions
    
    
    37,748
    
    
    
    38,101Basic and diluted income (loss) from continuing operations per share
    
    $
    (0.20
    )
    
    $
    0.04
  Note 10Other Income (Expense), Net
   Three MonthsEnded July 31,2009
    
    
    2008Net Realized Foreign Exchange Gains (Losses)
    
    $
    (55
    )
    
    $
    335Net Unrealized Foreign Exchange Gains (Losses)
    
    
    457
    
    
    
    21Other
    
    
    100
    
    
    
    35$
    502
    
    
    $
    391
 Note 11Income Taxes
     14




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##### Table of Contents



Note 12Discontinued Operations
 Commitments and
Contingencies
   Three MonthsEndedJuly 31, 2008Sales
    
    $
    765Income before provision for income taxes
    
    
    107(Provision) for income taxes
    
    
    (37
    )Income from operations of discontinued operations
    
    $
    70
 Note 13Segment Information
   Inter-segmentStandard
    
    
    Advanced
    
    
    All Other(i)
    
    
    Eliminations(ii)
    
    
    TotalThree Months Ended July 31, 2009External sales
    
    $
    28,367
    
    
    $
    9,385
    
    
    $
    
    
    
    $
    
    
    
    $
    37,752Inter-segment sales
    
    
    372
    
    
    
    
    
    
    
    
    
    
    
    (372
    )Gross margin
    
    
    10,846
    
    
    
    3,404
    
    
    
    
    
    
    
    (274
    )
    
    
    13,976Operating income (loss)
    
    
    (2,552
    )
    
    
    1,791
    
    
    
    (6,547
    )
    
    
    (274
    )
    
    
    (7,582
    )Total assets
    
    
    124,439
    
    
    
    23,727
    
    
    
    11,184
    
    
    
    (31,043
    )
    
    
    128,307Three Months Ended July 31, 2008External sales
    
    $
    52,754
    
    
    $
    4,311
    
    
    $
    
    
    
    $
    
    
    
    $
    57,065Inter-segment sales
    
    
    479
    
    
    
    
    
    
    
    
    
    
    
    (479
    )
    
    
    Gross margin
    
    
    25,148
    
    
    
    966
    
    
    
    
    
    
    
    17
    
    
    
    26,131Operating income (loss)
    
    
    10,433
    
    
    
    (2,468
    )
    
    
    (4,225
    )
    
    
    17
    
    
    
    3,757Total assets
    
    
    153,939
    
    
    
    24,116
    
    
    
    8,576
    
    
    
    (37,829
    )
    
    
    148,802
 
 (i)
    
    Includes corporate overhead expenses as well as general and administrative expenses of
inactive subsidiaries that do not constitute segments.(ii)
    
    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. 15




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##### Table of Contents



Three Months EndedJuly 31,2009
    
    
    2008Operating income (loss) for reportable segments
    
    $
    (7,582
    )
    
    $
    3,757Interest income
    
    
    40
    
    
    
    179Interest expense
    
    
    (964
    )
    
    
    (130
    )Other income (expense), net
    
    
    502
    
    
    
    391Income (loss) before provision for income taxes
    
    $
    (8,004
    )
    
    $
    4,197
 Note 14Fair Value Measures
     Assets and Liabilities Measured at Fair Value on a Recurring Basis
   Location of Gain or
    
    Three MonthsDerivatives not designated as hedging
    
    (Loss) Recognized in
    
    Ended July 31,instruments under Statement 133
    
    Income on Derivative
    
    2009
    
    2008Forward exchange forward contracts
    
    Other Income (Expense)
    
    $
    
    
    
    $
    51
  Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
   16




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##### Table of Contents



Note 15Subsequent Events
 Sale of Common Stock
  Credit Facility Amendment
 Long-Term Obligations and Notes
Payable
 Sale of Building
  17




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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;
    
    statements regarding our ability to respond to a decline in the near-term demand for our
products by cutting costs;
    
    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 credit facility;
    
    statements regarding our belief that our existing cash and cash equivalents, along with
the expected proceeds from our operations 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.
   
    
    Executive Summary
    
    Results of Operations
    
    Liquidity and Capital Resources
    
    Contractual Obligations
 18




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##### Table of Contents




    
    Off Balance Sheet Arrangements
    
    Critical Accounting Policies and Estimates
    
    Recently Issued 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.
  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.
 19




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##### Table of Contents



Results of Operations
 (Tabular amounts in thousands)
 Summary Consolidated Results for the Three Months ended July 31, 2009 and 2008
 Three Months Ended July 31,2009
    
    
    2008
    
    
    %Sales
    
    $
    37,752
    
    
    $
    57,065
    
    
    
    (34
    )%Operating Income (Loss)
    
    
    (7,582
    )
    
    
    3,757
    
    
    NMThree Months Ended July 31,2009
    
    
    2008
    
    
    %SalesSystems
    
    $
    24,403
    
    
    $
    39,088
    
    
    
    (38
    )%Consumable parts
    
    
    13,349
    
    
    
    17,977
    
    
    
    (26
    )%Total Sales
    
    
    37,752
    
    
    
    57,065
    
    
    
    (34
    )%
    
    
    lower sales volume discussed above;
    
    a decline of 878 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 resulting from lower
manufacturing volume and production mix experienced in the latter part of fiscal year
2009 that were recognized in the first fiscal quarter of 2010;
    
    a net charge of $3.2 million to record the termination of our option to acquire OMAX
Corporation, which is further discussed in Note 5  Other Accrued Liabilitiesof the
Notes to the Condensed Consolidated Financial Statements; and
    
    Restructuring and other related expenses of $1.6 million for charges recorded to
reduce global staffing levels and complete the shutdown of our Taiwan manufacturing
operations.
  Segment Results of Operations
  Segment Information
 20




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##### Table of Contents



Standard Segment
 Three Months Ended July 31,2009
    
    2008
    
    %Sales
    
    $
    28,367
    
    
    $
    52,754
    
    
    
    (46
    )%% of total company sales
    
    
    75
    %
    
    
    92
    %
    
    NMGross Margin
    
    
    10,846
    
    
    
    25,148
    
    
    
    (57
    )%Gross Margin as % of sales
    
    
    38
    %
    
    
    48
    %
    
    NMOperating Expenses:Sales and Marketing
    
    
    7,287
    
    
    
    9,584
    
    
    
    (24
    )%Research and Engineering
    
    
    1,487
    
    
    
    1,837
    
    
    
    (19
    )%General and Administrative
    
    
    3,324
    
    
    
    3,294
    
    
    
    1
    %Restructuring Charges and
Other
    
    
    1,300
    
    
    
    
    
    
    NMTotal Operating Expenses
    
    
    13,398
    
    
    
    14,715
    
    
    
    (9
    )%Operating (Loss) Income
    
    
    (2,552
    )
    
    
    10,433
    
    
    NM
 
 NM =
    
    Not Meaningful   
    
    Significant standard system sales volume declines in North America and Europe which are
the markets affected the most by the current recession. These two regions had a combined
decline in system sales of $15.4 million or 58% for three months ended July 31, 2009 over
the prior year. Consumable parts revenue for this segment also declined by $4.1 million or
24% over the prior year primarily in North America and Europe which had a combined decline
of $3.4 million or 25%.
    
    Excluding the impact of foreign currency changes, sales in the Standard segment declined
$22.4 million or 43% in fiscal year 2009 compared to the prior year comparative period.
   
    
    A decrease in sales and marketing expenses of $2.3 million or 24% primarily as a result
of lower commission expense based on lower sales volume as well as reduced headcount related
expenses;
    
    An decrease in research and engineering expenses of $350,000 or 19% which was mainly
attributable to the timing of investments on research and development activities for new
product development in the current period in response to the continued decline in sales;
    
    General and administrative expenses were fairly consistent with the prior year; and
    
    Restructuring and Other Charges of $1.3 million in the Standard segment were related to
charges recorded to reduce global staffing levels and to complete the cessation of
manufacturing activity in our Taiwan facility.
 21




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##### Table of Contents



Advanced Segment
 Three Months Ended July 31,2009
    
    2008
    
    %Sales
    
    $
    9,385
    
    
    $
    4,311
    
    
    
    118
    %% of total company sales
    
    
    25
    %
    
    
    8
    %
    
    NMGross Margin
    
    
    3,404
    
    
    
    966
    
    
    
    252
    %Gross Margin as % of sales
    
    
    36
    %
    
    
    22
    %
    
    NMOperating Expenses:Sales and Marketing
    
    
    629
    
    
    
    514
    
    
    
    22
    %Research and Engineering
    
    
    210
    
    
    
    413
    
    
    
    (49
    )%General and Administrative
    
    
    705
    
    
    
    1,071
    
    
    
    (34
    )%Restructuring Charges and Other
    
    
    69
    
    
    
    1,436
    
    
    
    (95
    )%Total Operating Expenses
    
    
    1,613
    
    
    
    3,434
    
    
    
    (53
    )%Operating Income
    
    
    1,791
    
    
    
    (2,468
    )
    
    NM
 
 NM =
    
    Not Meaningful     
    
    An increase in sales and marketing expenses of $115,000 or 22% primarily as a result of
higher commission expense based on higher sales volume;
    
    An decrease in research and engineering expensed of $203,000 or 49% as well as a decrease
in general and administrative expenses of $366,000 or 34% as a result of having a full
quarter impact of savings resulting 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 Charges and Other of $69,000 in the current fiscal quarter was related to a
charge recorded to reduce global staffing levels in the current quarter. The comparative
period amount of $1.4 million was related to severance and termination benefits incurred to
close our Burlington, Ontario Canada manufacturing facility.
 All Other
  Three Months Ended July 31,2009
    
    2008
    
    %General and Administrative
    
    $
    3,093
    
    
    $
    4,225
    
    
    
    (27
    )%Restructuring Charges and Other
    
    
    3,454
    
    
    
    
    
    
    NM
 
 NM =
    
    Not Meaningful  22




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##### Table of Contents



Other Accrued Liabilities
  Interest (Income) Expense
 Interest Income (Expense), net
 Three Months Ended July 31,2009
    
    
    2008
    
    
    %Interest Income
    
    $
    40
    
    
    $
    179
    
    
    
    (78
    )%Interest Expense
    
    
    (964
    )
    
    
    (130
    )
    


    NMNet Interest Income (Expense)
    
    
    (924
    )
    
    
    49
    
    


    NM
 
 NM =
    
    Not Meaningful   
    
    interest charges of $280,000 on the used and unused portion of our credit facility as
well as outstanding standby letters of credit;
    
    imputed interest of $214,000 related to the two promissory notes issuable 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 upon the execution of an amendment to
our Line of Credit Agreement in June 2009 which reduced our available borrowing capacity by
50%; and
    
    amortization of $82,000 deferred financing fees over the life of the Line of Credit
availability which amortization began in June 2008 upon the execution of the original Line
of Credit Agreement with our Senior Lenders.
 In the prior year, the Company had minimal outstanding interest bearing debt and higher
investible cash balances.
 Other Income, Net
  Three MonthsEnded July 31,2009
    
    
    2008Realized Foreign Exchange Gains (Losses), net
    
    $
    (55
    )
    
    $
    335Unrealized Foreign Exchange Gains (Losses), net
    
    
    457
    
    
    
    21Other
    
    
    100
    
    
    
    35$
    502
    
    
    $
    391
 23




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##### Table of Contents



Income Taxes
  Ended July 31,2009
    
    
    2008Current Tax (Benefit) Expense
    
    $
    (133
    )
    
    $
    1,048Deferred Tax (Benefit) Expense
    
    
    (473
    )
    
    
    1,616$
    (606
    )
    
    $
    2,664
 Accounting for Income Taxes
   Liquidity and Capital Resources
 Sources of Cash
  Cash Generated by Operating Activities
  Available Cash and Cash Equivalents
  24




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##### Table of Contents



Risk Factors
 Credit Facilities and Debt
  Subsequent
Events
 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 promissory notes to be 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.     25




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##### Table of Contents



Other Sources of Cash
  Uses of Cash
 Capital Expenditures
  Repayment of Debt and Notes Payable
  Off-Balance Sheet Arrangements
  Contractual Obligations
  Critical Accounting Estimates and Judgments
 Recently Issued
Accounting Pronouncements
 Recently Issued Accounting Pronouncements
  26




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
     27




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##### Table of Contents



PART IIOTHER INFORMATION
 
 Item 1. Legal Proceedings
 Commitments and Contingencies
 
 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 July 31, 2009
 28




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##### Table of Contents



FLOW INTERNATIONAL CORPORATIONDate: September 8, 2009
    
    /s/ Charles M. BrownCharles M. BrownPresident and Chief Executive Officer(Principal Executive Officer)Date: September 8, 2009
    
    /s/ Allen M. HsiehAllen M. HsiehVice President and Chief Financial Officer(Principal Financial Officer)
 29