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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

For the fiscal year ended April 30, 2001

OR

For the transition period from                to               

Commission file number 0-12448

FLOW INTERNATIONAL CORPORATION

23500 - 64th Avenue South
Kent, Washington 98032
(253) 850-3500

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 Par Value
Preferred Stock Purchase Rights

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/  No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K.  / /

The aggregate market value of the voting stock held by non affiliates of the registrant based upon the closing price reported by the National Association of Securities Dealers' Automated Quotation System ("NASDAQ") as of June 18, 2001, was $192,000,000. The number of shares of common stock outstanding as of June 18, 2001, was 15,188,992 shares.

Documents Incorporated By Reference

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PART I

Item 1.  Business

    Flow International Corporation ("Flow" or the "Company") designs, develops, manufactures, markets, and services ultrahigh-pressure ("UHP") products including both standard and specialized waterjet cutting and cleaning systems, the Fresher Under Pressure® food safety technology and isostatic and flexform press systems. Flow provides technologically-advanced, environmentally-sound solutions to the manufacturing, industrial, marine cleaning and food markets. The Company's UHP systems pressurize water from 40,000 to over 100,000 pounds per square inch (psi) and this high pressure water is the core of the Company's product line. The Company's primary product line is waterjet cutting. Utilizing pressures from 50,000 to 87,000 psi, the thin stream of water traveling at three times the speed of sound or more, can cut both metallic and nonmetallic materials in many industry segments, including the aerospace, automotive, disposable products, food, glass, job shop, sign, metal cutting, marble, tile and other stone cutting, and paper industries. The Company manufactures a product line, utilizing 40,000 to 50,000 psi, for use in industrial cleaning, surface preparation, construction, nuclear decontamination, and petro-chemical and oil field applications. Flow manufactures the entire UHP system which includes the pump, as well as the robotic articulation equipment and may also include assembly, pick and place and load/unload operations. The March 1999 acquisition of Flow Pressure Systems ("Pressure Systems") from Asea Brown Boveri AB ("ABB") increased the Company's product offering with the addition of patented UHP isostatic and flexform pressure vessel technology used primarily in the aerospace, automotive, medical and food industries.

    The Company has also developed a food safety technology trademarked "Fresher Under Pressure". By exposing foods to pressures from 50,000 psi to over 100,000 psi for a short time, typically 30 seconds to slightly more than 2 minutes, UHP achieves the effects of pasteurization without heat. Not only are spoilage microorganisms destroyed, the process also destroys harmful pathogens such as E. coli, listeria and salmonella, thus increasing shelf life while ensuring a safe, healthy product. Unlike thermal treatment (pasteurization) or irradiation, UHP technology does not destroy or alter the nutritional qualities, taste, texture and color of the food. The Company can UHP process both pumpable and non-pumpable foods. For pumpable foods, Flow utilizes a patented technology which features a "continuous flow" concept whereby pumpable foods such as juices, salsas, guacamole, liquid eggs and salad dressings are pumped into the pressure chambers, pressurized and then pumped into the next stage of the process, such as bottling and packaging. This continuous flow process is fully automated and requires just a single operator. For non-pumpable foods, such as meats, seafood, vegetables and fruits, the Company utilizes its patented large wire-wound pressure vessel batch technology. Flow is the world leader in both the continuous feed and batch UHP food processing technology. Revenues associated with this technology were $14.7 million during fiscal 2001, a more than doubling of the $7.2 million recognized in fiscal 2000.

    The Company was formed in 1974, incorporated in 1980, and completed its initial public offering in March 1983. In 1991, the Company's founder retired, and Ronald W. Tarrant was appointed President and Chief Executive Officer. His focus was to pursue a strategic plan which encompassed three major initiatives; build customer partnerships, constant new product introductions and a strategic market and technology focus. Since 1991, the Company has grown as a result of continued new product development, expanded marketing strategies and certain strategic acquisitions.

    Over the past several years, the Company has completed a number of strategic acquisitions which have provided robotics and software capabilities, as well as new geographic markets and product technology. These acquisitions have positioned Flow as the only provider of turnkey systems utilizing UHP technology. These acquisitions include Flow Automation; Flow Robotics; Flow Japan; Foracon Maschinen und Anlagenbau GmbH & CO.KG ("Foracon"); CIS Robotics Inc. ("CIS") and Robot Simulations Limited ("Flow Software Technologies Ltd.").

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    In March 1999, the Company purchased the stock of Pressure Systems from ABB and acquired a 51% voting interest in a related U.S. joint venture, Flow Autoclave Systems Inc. ("Flow Autoclave"). Pressure Systems is the world's leading supplier of large, bulk UHP systems to the food industry and the world leader in isostatic and flexform press systems for the aerospace and automotive industries. Flow Autoclave exclusively markets and provides design and installation services for the Pressure Systems product in the United States.

    In September 1999, the Company purchased certain assets of Spearhead Automated Systems, Inc. ("Flow Robotic Systems"). Flow Robotic Systems manufactures advanced cutting, trimming and tooling equipment for the automotive, marine and systems related industries.

Products and Services

    The Company provides UHP systems and related products and services to target markets across a wide variety of industries. The Company divides its revenues into three primary categories of product; "UHP Systems", "Consumable Parts and Services" and "Fresher Under Pressure Food Systems".

UHP Systems

    The Company offers a variety of UHP products, including waterjet cutting systems, waterjet cleaning systems, food safety systems and isostatic and flexform presses, as well as accessories and the related robotic articulation equipment. UHP pumps, intensifier and direct-drive, are the core components of the Company's technology. An intensifier pump pressurizes water to in excess of 100,000 psi and forces it through a small nozzle, generating a high-velocity stream of water to perform the cutting process. In order to cut metallic and other hard materials, an abrasive substance, usually garnet, is added to the waterjet stream creating an abrasivejet. Abrasivejets cut without heat, cause no metallurgical changes, and leave a high-quality edge that usually requires no secondary operation. The Company's unique and patented direct-drive pressure-compensated pumps pressurize water to in excess of 50,000 psi utilizing triplex piston technology.

    A UHP system consists of an ultrahigh-pressure intensifier or direct drive pump, one or more waterjet cutting or cleaning heads with the necessary robotics, motion control and automation systems. The Company has placed UHP waterjet cutting systems worldwide, in its target markets of aerospace, automotive, disposable products, food, glass, job shop, sign, metal cutting, marble, tile and other stone cutting and paper industries. These cutting systems may also combine waterjet applications with other processes such as pick and place operations, inspection, assembly, and other automated processes. The Company's waterjet systems are also used in industrial cleaning applications such as paint removal, surface preparation, factory and industrial cleaning, ship hull preparation, oil field services and heat exchanger cleaning.

    The Company's cutting and cleaning products are considered productivity enhancing tools and can be cost justified over traditional methods. The Company's sales will be affected by worldwide economic changes, however the Company should continue to gain market share in the machine cutting tool market even in "down" economies due to the cost savings and productivity enhancements generated by waterjet technology.

    UHP systems also include isostatic and flexform presses which are used to form and shape metal composite parts. Flow holds the dominant position in the world market for press systems. This technology is used primarily by the automotive and aerospace markets for the purposes of cost effectively producing prototype parts, as well as very high strength parts such as those used in high performance engines. Systems sales accounted for 67% of fiscal 2001 revenues.

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Consumable Parts and Services

    Flow sells various tools and accessories which incorporate waterjet technology, as well as aftermarket consumable parts and service for its products. Consumables primarily represent parts used by the pump and cutting head during operation. Many of these parts are proprietary in nature. Sales of consumable parts and service accounted for 26% of fiscal 2001 revenues.

Fresher Under Pressure Food Systems

    In fiscal 1999 the Company began selling its food safety technology, Fresher Under Pressure. Revenues associated with this technology more than doubled in fiscal 2001 from fiscal 2000. Management anticipates Fresher Under Pressure revenue will continue to double each year for the next several years. Fresher Under Pressure sales accounted for 7% of fiscal 2001 revenues.

Marketing and Sales

    The Company markets and sells its products worldwide through its headquarters in Kent, Washington (a suburb of Seattle) and through subsidiaries, divisions and joint ventures in Columbus, Ohio; Wixom, Michigan; Jeffersonville, Indiana; Lafayette, Louisiana; Birmingham, England; Bretten and Darmstadt, Germany; Buenos Aires, Argentina; Burlington and Windsor, Canada; Hsinchu, Taiwan; Sao Paulo, Brazil; Milan, Italy; Madrid, Spain; Nagoya and Tokyo, Japan and Västerås, Sweden. The Company sells directly to customers in North and South America, Europe, and Asia, and has distributors or agents in most other countries.

    No customer accounted for 10% or more of the Company's revenues during any of the three years ended April 30, 2001.

    Marketing efforts are focused on various target industries, applications and markets. To enhance the effectiveness of sales efforts, the marketing staff and sales force gather detailed information on the applications and requirements in targeted market segments. This information is used to develop standardized and customized solutions using UHP and robotics technologies. The Company provides turnkey systems, including system design, specification, hardware and software integration, equipment testing and simulation, installation, start-up services, technical training and service.

    The Company's marketing techniques utilize both a telemarketing program, as well as the internet, to identify and qualify sales leads, thus increasing the efficiency of the direct sales staff. Market responses to these activities are carefully screened to identify new areas of interest and new potential applications in our target markets. The Company also attends trade shows for targeted market segments and advertises in selected industry publications.

Patents

    The Company holds a large number of UHP technology and related systems patents. While the Company believes the patents it uses are valid, it does not consider its business dependent on patent protection. In addition, the Company has over the years developed non-patented proprietary expertise and know-how in waterjet applications, and in the manufacture of these systems, which sets it technologically ahead.

    The Company believes the patents it holds and has in process, along with the proprietary application and manufacturing know-how, act as a barrier to entry into the markets it serves.

Backlog

    At April 30, 2001, the Company's backlog was $83 million compared to the prior year end backlog of $43 million. Approximately one half of the backlog related to Fresher Under Pressure. The nature of

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the Company's business is that most products, exclusive of the isostatic presses produced at Pressure Systems and Fresher Under Pressure, can be shipped within a four to ten week period and thus backlog and the changes in the Company's backlog are not necessarily indicative of comparable variations in sales or earnings. The April 30, 2001, backlog represented 40% of fiscal 2001 sales. The unit sales price for most of the Company's products and services is relatively high (typically ranging from tens of thousands to millions of dollars) and individual orders can involve the delivery of several hundred thousand dollars of products or services at one time. Furthermore, some items in backlog can be shipped more quickly than others, and some have higher profit margins than others.

Competition—Cutting and Cleaning

    The major competitors for UHP waterjet cutting and cleaning systems are conventional cutting and cleaning methods. These methods include lasers, saws, knives, shears, plasma, routers, drills and abrasive cleaning techniques. A UHP waterjet cutting system has many advantages over conventional cutting systems, including no generation of heat or airborne dust, easy adaptability to complex cutting programs, versatility in the different types of product that can be cut, cutting speed and the ability to leave clean-cut edges. These factors, in addition to elimination of secondary processing in most circumstances, enhance manufacturing productivity.

    Waterjet cleaning offers many advantages over other cleaning methods, such as the ability to remove difficult coatings or deposits from a surface without damaging underlying material. A UHP waterjet system is an environmentally-friendly answer to many difficult cleaning applications and can often be justified solely on the basis of hazardous material containment or reduction of secondary operations in the cleaning process. The many advantages of a waterjet over traditional cutting and cleaning methods have positioned it in the market as a productivity-enhancing tool.

    The Company also competes with other waterjet cutting and cleaning equipment manufacturers in the United States, Europe and Asia. The Company's robotics technology provides a competitive advantage as the only total solution supplier of complete waterjet cutting and cleaning systems. Although independent market information is not generally available, based upon data assembled from internal and external sources, Company management believes it is the largest manufacturer of UHP waterjet cutting systems in the world.

Competition—Food

    Pasteurization is the primary method used to help ensure that food is safe to eat. Fresher Under Pressure represents a break-through technology which destroys harmful pathogens such as E. coli bacteria, as well as the spoilage microorganisms, thus increasing shelf life while ensuring a safe, healthy product. There are several other companies throughout the world which are trying to develop a similar UHP processing technology. These companies have had little commercial success, and management believes the Company's patents and know-how make it the world leader in this technology. Currently Flow's equipment is the only equipment being used in any significant commercial applications. In addition, Flow has a very strong backlog of food safety equipment. There are also other technologies being developed for food safety, including irradiation and ultra-violet light. Of the alternative technologies, irradiation is the most developed. The primary target market for irradiation is the raw meat industry, while Fresher Under Pressure is targeting the prepared meat market, i.e., sliced deli meats, hot dogs, etc., as well as the premium food market, such as fresh juices.

    Overall, the Company believes that its competitive position is enhanced by:

•

Technically advanced, proprietary products that provide excellent reliability, low operating costs, and user-friendly features;



•

A strong application-oriented, problem-solving marketing and sales approach;

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•

An active research and development program that allows it to maintain technological leadership;



•

The ability to provide complete turnkey systems;



•

A strong position in key markets, such as in the U.S., Canada, Japan, southeast Asia and Europe;



•

Strong OEM customer ties, and



•

Efficient production facilities.

Research and Engineering

    The Company has spent between 8% and 9% of revenues in research and engineering during each of the three years ended April 30, 2001. Research and engineering expenses were $18.2 million in 2001, $14.7 million in 2000, and $12.4 million in 1999. The Company will continue a high level of research and engineering spending to maintain its technological leadership position through development of new products and applications as well as enhancing its current product line.

Employees

    As of April 30, 2001, the Company employed 1,014 full time and 12 part time personnel. There are no material collective bargaining agreements to which the Company is a party.

Foreign and Domestic Operations

    See Note 16 of Notes to Consolidated Financial Statements for information regarding foreign and domestic operations.

Safe Harbor Statement

    Statements in this report that are not strictly historical are "forward looking" statements which should be considered as subject to the many uncertainties that exist in the Company's operations and business environment. Significant factors which may affect future Company performance include the following:

    The Company's growth depends, in part, on the successful development of improvements to its equipment and on the introduction of new products and technologies. Improvements in competing technologies could affect the Company's ability to market its products.

    The Company's financial performance could be affected if a change in overall economic conditions results in a decrease in the purchase of capital goods by its customers. Changes in the mix of products sold by the Company can also affect the gross margin achieved.

    The success of Fresher Under Pressure will be dependent on consumer and industry acceptance of the technology, as well as the Company's ability to conform the technology to any food and beverage regulations.

Item 2.  Properties

    The Company's headquarters and primary manufacturing facilities are located in two leased facilities in Kent, Washington. The Company also manufactures product in Wixom, Michigan; Jeffersonville, Indiana; Bretten and Darmstadt, Germany; Burlington, Canada; Hsinchu, Taiwan and Västerås, Sweden. The Company sells products through all of these locations, in addition to offices located in Columbus, Ohio; Lafayette, Louisiana; Birmingham, England; Buenos Aires, Argentina; Milan, Italy; Madrid, Spain; Nagoya and Tokyo, Japan; Sao Paulo, Brazil and Windsor, Canada.

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    All facilities of the Company are leased with the exception of a manufacturing facility in Jeffersonville, Indiana.

    The Company believes that its facilities are suitable for its current operations and that expansion in the near term will not require additional space. The Company is currently in the process of consolidating the Darmstadt facility into the Bretten facility. This consolidation is expected to be completed by December 2001. During fiscal 2001 the Company consolidated two Michigan facilities into a single new facility in Wixom, Michigan. The Company considers that its primary manufacturing facility in Kent will be adequate to meet production requirements for the next three to five years.

Item 3.  Legal Proceedings

    The Company is party to various legal actions incident to the normal operation of its business, none of which is believed to be material to the financial position and results of operations of the Company. See Notes 1 and 14 of Notes to Consolidated Financial Statements for a description of the Company's product liability claims.

Item 4.  Submission of Matters to a Vote of Security Holders

    None

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PART II

Item 5.  Market for the Registrant's Common Stock and Related Stockholder Matters.

    See page 10

Item 6.  Selected Financial Data.

    See page 10

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

    See pages 11 through 16

Item 7a.  Quantitative and Qualitative Disclosures About Market Risk.

    See page 16

Item 8.  Financial Statements and Supplementary Data.

    See pages 18 through 45

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

    None.

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Item 5.  Market for the Registrant's Common Stock and Related Stockholder Matters

    The principal market for Flow International Corporation's ("Flow" or the "Company") common stock is the over-the-counter market. The Company's stock is traded on the NASDAQ National Market under the symbol "FLOW". The range of high and low sales prices for the Company's common stock for the last two fiscal years is set forth in the following table.

    There were 1,060 shareholders of record as of June 18, 2001.

    The Company has not paid dividends to common shareholders in the past. The Board of Directors intends to retain future earnings to finance development and expansion of the Company's business and does not expect to declare dividends to common shareholders in the near future.

Item 6.  Selected Financial Data

*

These years included the results of operations and related restructuring provisions associated with certain business units disposed of during fiscal 1998.

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Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

    The Company provides ultrahigh-pressure ("UHP") systems and related products and services to a wide variety of industries. Waterjet cutting is recognized as a better alternative to traditional cutting methods such as lasers, saws or plasma. It is faster, has greater versatility in the types of products it can cut and eliminates the need for secondary processing operations. The Company divides its UHP revenues into three primary categories of product, "UHP Systems", "Consumable Parts and Services" and "Fresher Under Pressure Food Systems":

CONSOLIDATED REVENUES BY MAJOR PRODUCT CATEGORIES

Fiscal 2001 Compared to Fiscal 2000

    Revenues for the year ended April 30, 2001 were $207.2 million, an increase of $11.6 million (6%) over the prior year period. Fresher Under Pressure food safety revenues totaled $14.7 million, a doubling of the fiscal 2000 Fresher Under Pressure revenues of $7.2 million. Excluding Fresher Under Pressure, revenues increased $4.2 million (2%), which was comprised of a 17% growth in domestic revenues, offset in part by a 14% decline in international sales. Both domestic and international sales include the patented wire wound isostatic and flexform presses manufactured by Flow Pressure Systems Västerås AB ("Pressure Systems"). Excluding these revenues, as well as Fresher Under Pressure, domestic sales increased 28% as compared to the overall United States machine cutting tool market which declined 2% for the 12 months ended March 31, 2001, according to The Association for Manufacturing Technology ("AMT"). Consistent with historical performance, waterjet technology continues to gain market share due to its advantages over traditional cutting technologies, even in a down market. These advantages, as well as continued product development, should allow the Company to continue to gain market share, however growth will be affected by the performance of the broader machine tool market.

    Our worldwide isostatic press business decreased $12.7 million (29%) to $30.5 million. However, the current fiscal year total is more reflective of a normal business level as the prior year included a $14 million Ford press, the single largest press ever sold. Press backlog at April 30, 2001 totaled $26 million.

    During fiscal 2001 the Company adopted Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. Under SAB 101, revenue recognition is delayed until after installation of the Company's standard UHP systems. Prior to SAB 101 adoption, the Company recognized revenue for standard systems upon shipment. Standard systems sales represent approximately one third of the Company's consolidated revenues. The remaining consolidated revenue represents either consumable parts sales for which revenue is recognized upon shipment, or special systems for which revenue is recognized under the percentage of completion method. The impact of the SAB 101 adoption as

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described in Note 2 to the consolidated financial statements was not significant to consolidated current year revenues.

    The Company's revenues can be segregated into three primary categories, systems sales, consumables sales and Fresher Under Pressure. Systems are generally comprised of a pump along with the robotics or articulation used to move the cutting or cleaning head. Systems are further broken down between standard systems such as the Bengal®, Integrated Flying Bridge, A-Series, Waterjet Machining Center®, standard automotive systems, and special or custom designed systems used primarily in the aerospace and automotive markets, as well as isostatic press systems. Systems sales in fiscal 2001 were $138.4 million, an increase of $5.7 million (4%) over the prior year. Excluding isostatic presses, systems revenues increased $19.2 million (21%). Consumables are primarily parts used by the pump and cutting head during operation. Consumable parts and services revenues decreased $1.6 million (3%) to $54.1 million in fiscal 2001. The slowdown in the consumable sales growth reflects a decrease in the worldwide machine tool market, as well as success of the Company's goal of providing lower operating costs through longer life parts.

    Fiscal 2001 revenues included $14.7 million related to food safety or "Fresher Under Pressure", a doubling of the $7.2 million recognized in fiscal 2000. By exposing foods to pressures from 50,000 psi to over 100,000 psi for a short time, typically 30 seconds to slightly more than 2 minutes, UHP achieves the effects of pasteurization without heat. Not only are spoilage microorganisms destroyed, the process also destroys harmful pathogens such as E. coli, listeria, and salmonella, thus increasing shelf life while ensuring a safe, healthy product. Unlike thermal treatment (pasteurization), UHP technology does not destroy or alter the nutritional qualities, taste, texture and color of the food. The Company can UHP process both pumpable and non-pumpable foods. For pumpable foods, Flow utilizes a technology which features a "continuous flow" concept whereby pumpable foods such as juice, salsas, guacamole, liquid eggs and salad dressings are pumped into the pressure chambers, pressurized and then pumped into the next stage of the process, such as bottling. This continuous flow process is fully automated and requires just a single operator. For non-pumpable foods, such as meats, seafood, vegetables and fruits, the Company utilizes its patented large wire-wound pressure vessel batch technology. This makes Flow the only supplier of complete UHP systems to the food industry. The Company anticipates leasing the continuous flow systems and selling the batch systems. The leases have a fixed monthly charge plus a per gallon or per pound usage fee. Lease revenue is recognized monthly based on throughput. Revenue for the batch systems is recognized on the percentage of completion method. Management anticipates Fresher Under Pressure revenues will double each year for the next several years.

    European revenues of $43.3 million decreased $10.9 million (20%) compared to the prior year and represented 21% of fiscal 2001 revenues. The majority of this decrease, $8.4 million, represents a decline in sales of isostatic and flexform presses. The remainder of the decrease was exchange rate related as the Euro continued to weaken against the U.S. dollar during the year. Asian revenues increased 13% to $18.6 million and accounted for 9% of consolidated revenues. Sales in the remainder of the world, primarily Canada, Mexico and South America, decreased 19% to $14.6 million. The Company typically sells its products at higher prices outside the United States due to the costs of servicing these markets.

    Gross profit for the year ended April 30, 2001 increased $7.2 million (9%). Gross profit expressed as a percentage of revenue was 41% in fiscal 2001 as compared to 40% in fiscal 2000. In general, gross margin rates on systems sales are less than 45% and on consumables sales are in excess of 50%. On average, standard systems carry higher margins than the custom engineered systems, which include the isostatic pressure vessels manufactured by Pressure Systems. As such, the gross margin percentage varies depending on the revenue mix between systems, both standard and special, and consumables sales. Systems sales, including Fresher Under Pressure, represented 74% of fiscal 2001 revenues, up from 72% in the prior year, and consumables sales represented 26% of fiscal 2001 revenues, down from 28% in the prior year. The increase in current year gross margin was a function of the shift in

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revenue towards a greater percentage of standard system sales, as isostatic press systems revenues decreased.

    Operating expenses increased $8.3 million (13%) as compared to the prior year. Expressed as a percentage of revenues, total operating expenses increased to 34% in fiscal 2001 from 32% in fiscal 2000. Marketing expenses of $33 million increased $4 million (14%) as compared to the prior year, and expressed as a percentage of revenues, increased to 16% from 15% in the prior year. The current year increase includes expenses associated with additional Fresher Under Pressure marketing activity, as well as the IMTS trade show which is held every two years. Research and engineering expenses in fiscal 2001 increased $3.5 million (24%) to $18.2 million as compared to the prior year. As a percentage of revenues, research and engineering expenses were 9% in fiscal 2001 as compared to 8% in fiscal 2000. Approximately one half of this increase is continued development of the Fresher Under Pressure technology and the other half is advancement of the waterjet cutting technology. Management will continue to aggressively pursue technological advances through increased research and engineering spending to maintain the Company's technological superiority. General and administrative expenses of $19.9 million increased $823,000 (4%) for the year as compared to the prior year. Expressed as a percentage of revenues however, general and administrative expenses were comparable to the prior year at 10%.

    Operating income can vary significantly for domestic and foreign operations, but is primarily the result of product mix variations and volume from year to year. The domestic machine tool market experienced weakness in fiscal 2001 and the U.S. dollar continued to gain strength over the European currencies.

    Net interest expense of $7 million increased $2 million (41%) in fiscal 2001 compared to fiscal 2000. The increase in interest expense is due to higher average debt levels associated with the additional financing related to the development of the Fresher Under Pressure program. Average debt outstanding increased $12.4 million (17%) during fiscal 2001 compared to the prior year. This increase in debt was solely related to the Fresher Under Pressure technology, from both asset additions as well as its operating loss. During fiscal 2001, other expense, net, totaled $613,000 compared to other expense, net, of $2 million in fiscal 2000. This reduction is due in part to the decrease in the minority interest for majority owned joint ventures.

    Fiscal 2001 income tax expense was 30% of income before tax as compared to 28% in the previous year. The income tax rates were lower than the statutory rates in both the current and prior year due primarily to lower foreign tax rates and benefits from the foreign sales corporation. Additionally, the Company regularly evaluates the likelihood of utilizing its deferred tax assets and adjusts the valuation allowance thereon based on an evaluation of both positive and negative evidence related to these deferred tax assets.

    The weighted average number of shares outstanding used for the calculation of Basic and Diluted earnings per share is 14,828,000 and 15,109,000, respectively, for fiscal 2001 and 14,716,000 and 15,127,000, respectively, for fiscal 2000.

    The effect of the adoption of SAB 101 during fiscal 2001 is shown as a cumulative effect of change in accounting principle, net of tax. Included in the consolidated results of operations is the performance of the Fresher Under Pressure technology, and the performance of the non-food business, cutting, cleaning and isostatic presses. Management has used estimates to determine the allocable costs of the consolidated operations to the Fresher Under Pressure results of operations. Based on these estimates, Fresher Under Pressure lost $9.4 million or $.62 per share in fiscal 2001 and the non-food operations generated net income of $11.8 million or $.78 per share. Management anticipates Fresher Under Pressure will breakeven in the fourth quarter of fiscal 2002. On a consolidated basis, the Company recorded fiscal 2001 net income of $2.4 million, or $.16 Basic and $.16 Diluted earnings per share as compared to $6.5 million, or $.44 Basic and $.43 Diluted earnings per share in fiscal 2000

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Fiscal 2000 Compared to Fiscal 1999

    Revenues for the year ended April 30, 2000 were $195.6 million, an increase of $46.3 million (31%) over the prior year period. This growth was the result of recent acquisitions, as well as revenues generated from Fresher Under Pressure. The Company acquired Pressure Systems in March 1999 and Spearhead Automated Systems ("Flow Robotic Systems") in September 1999. Excluding acquisitions and $7.2 million from Fresher Under Pressure, revenues decreased 3% both domestically and internationally; however, this performance was better than the overall machine cutting tool market. The United States machine cutting tool market declined 14% for the 12 months ended April 30, 2000 according to the AMT. Flow's UHP technology continued to gain market share in spite of a decreasing market. Systems sales in fiscal 2000 were $139.8 million, an increase of $44.7 million (47%) over the prior year. Excluding acquisitions and Fresher Under Pressure, systems revenues were down slightly. Consumable parts and services revenues increased $1.5 million (3%) to $55.7 million in fiscal 2000. The slowdown in the consumable sales growth reflects a decrease in the worldwide machine tool market.

    Total domestic revenues increased 42% to $110.3 million and represented 57% of fiscal 2000 sales. European revenues posted a 28% gain to $53.9 million and represented 28% of total revenues. Asian revenues increased 11% to $16.5 million and accounted for 8% of consolidated revenues. Sales in the remainder of the world, primarily Canada, Mexico and South America, decreased 4% to $13.3 million. Growth in both the domestic and European markets resulted from recent acquisitions. The Company did not significantly raise prices during fiscal 2000.

    Gross profit for the year ended April 30, 2000 increased $13.6 million (21%). Gross profit expressed as a percentage of revenue was 40% in fiscal 2000 as compared to 44% in fiscal 1999. The gross margin percentage varies depending on the revenue mix between systems, both standard and special, and consumables sales. Systems sales represented 72% of fiscal 2000 revenues, up from 64% in the prior year, and consumables sales represented 28% of fiscal 2000 revenues, down from 36% in the prior year. The decrease in current year gross margin was a function of the shift in revenue towards a greater percentage of systems sales, as well as the inclusion of the isostatic press systems in fiscal 2000.

    Excluding Pressure Systems and Flow Robotic Systems, operating expenses increased $395,000 (1%) as compared to the prior year. Expressed as a percentage of revenues, total operating expenses decreased to 32% in fiscal 2000 from 35% in fiscal 1999. Marketing expenses of $29 million increased $4.2 million (17%) as compared to the prior year, and expressed as a percentage of revenues, decreased to 15% from 17% in the prior year. Research and engineering expenses in fiscal 2000 increased $2.3 million (18%) to $14.7 million as compared to the prior year. As a percentage of revenues, research and engineering expenses were 8% in both fiscal 2000 and fiscal 1999. General and administrative expenses of $19.1 million increased $4.2 million (28%) for the year as compared to the prior year. Expressed as a percentage of revenues however, general and administrative expenses were comparable to the prior year at 10%.

    Net interest expense of $5 million increased $1.8 million (57%) in fiscal 2000 compared to fiscal 1999. The increase in interest expense is due to higher debt levels associated with the purchase of Pressure Systems and Flow Robotic Systems, as well as additional financing related to the development of the Fresher Under Pressure program, and increased interest rates. During fiscal 2000, other expense, net, totaled $2 million compared to other expense, net, of $587,000 in fiscal 1999. This change is due to the increase in the minority interest for majority owned joint ventures.

    For both fiscal 2000 and fiscal 1999, the provision for income taxes was 28% of income before tax. The income tax rates were lower than the statutory rates in both the current and prior years due primarily to lower foreign tax rates and benefits from the foreign sales corporation.

    The weighted average number of shares outstanding used for the calculation of Basic and Diluted earnings per share is 14,716,000 and 15,127,000, respectively, for fiscal 2000 and 14,730,000 and 15,059,000, respectively, for fiscal 1999.

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    The Company recorded fiscal 2000 net income of $6.5 million, or $.44 Basic and $.43 Diluted earnings per share as compared to $6.7 million, or $.46 Basic and $.45 Diluted earnings per share in fiscal 1999.

Liquidity and Capital Resources

    The Company used $5.3 million in cash from operations during fiscal 2001 as compared to providing $1.8 million in fiscal 2000. The Fresher Under Pressure business accounted for the cash usage from operations. At April 30, 2001, the Company had $22.7 million in inventory and fixed assets associated with Fresher Under Pressure, compared to $14.4 million last year, an increase in assets of $8.3 million. Total debt at April 30, 2001 was $94.1 million, an increase of $14.5 million (18%) from April 30, 2000. Subsequent to April 30, 2001, the Company signed and funded a $35 million subordinated debt agreement with The John Hancock Life Insurance Company ("Hancock"). The agreement requires semi-annual interest only payments of 13% and two equal principal payments due on April 30, 2007 and April 30, 2008. In addition, the Company issued to Hancock warrants for 859,523 shares of Flow common stock exercisable at $.01 per share. Management believes that the available credit facilities and working capital generated by operations will provide sufficient resources to meet its operating and capital requirements for the next 12 months. The Company's Credit Agreement and private placement require the Company to comply with certain financial covenants. The covenants were amended as a result of the Hancock subordinated debt issuance. As of April 30, 2001, the Company was in compliance with all such covenants, as amended.

    See Note 9 of Notes to Consolidated Financial Statements for a schedule of long-term debt maturities. Long-term debt obligations are expected to be met from working capital provided by operations and, as necessary, by other indebtedness.

    Capital spending plans currently provide for outlays of approximately $7 million to $11 million in fiscal 2002. Of this amount, approximately $4 million to $6 million relates to the manufacture of the continuous feed Fresher Under Pressure assets. The timing of these continuous feed asset additions will be determined by market demand. It is expected that funds necessary for these expenditures will be generated internally and through available credit facilities.

    The Company had also indicated that it is exploring the potential public offering of up to 20% of Fresher Under Pressure. Proceeds would be used to retire existing debt, as well as provide working capital for operations.

    Gross receivables of $64 million at April 30, 2001 decreased $9 million (12%) from April 30, 2000. This decrease includes collection of several large receivables, in addition to a reduction in unbilled revenues which have been offset with customer deposits. Days' sales outstanding in gross accounts receivable is negatively impacted by the traditionally longer payment cycle outside the United States. Additionally, longer payment terms are sometimes negotiated on large system orders. Management does not believe these timing issues will present a material adverse impact on the Company's short-term liquidity requirements.

    Inventory of $56.8 million at April 30, 2001 represents an increase of $11.9 million (26%) compared to April 30, 2000. Included in these totals is an increase in work in process of $9.9 million, with the majority of this increase related to Fresher Under Pressure production.

Recently Issued Accounting Pronouncements

    Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities", is effective beginning in fiscal 2002. FAS 133 standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or

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liabilities in the financial statements and measure them at fair value. The Company plans to adopt FAS 133 without a material impact on the financial condition or results of operations.

    Statement of Financial Accounting Standards No. 142 ("FAS 142"), "Goodwill and Other Intangible Assets", is effective beginning in fiscal 2003, with early adoption permitted. FAS 142 states that goodwill should not be amortized, but rather analyzed using an impairment-only approach. The Company is currently reviewing the requirements of FAS 142 and assessing its impact on the Company's financial statements. The Company has not made a decision regarding the period of adoption.

    The Company has adopted SAB 101. As described in Note 2 to the consolidated financial statements, SAB 101 provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC and outlines the criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. Under SAB 101, revenue recognition is delayed until after installation of the Company's standard systems. Prior to SAB 101 adoption, the Company recognized revenue for standard systems upon shipment. Standard systems sales represent approximately one third of the Company's consolidated revenues. The remaining consolidated revenue represents either consumable parts sales for which revenue is recognized upon shipment, or special systems for which revenue is recognized under the percentage of completion method. Revenues from equipment on lease are recognized as rental income in the period earned.

Item 7a.  Quantitative and Qualitative Disclosures About Market Risk:

    Market risk exists in the Company's financial instruments related to an increase in interest rates, adverse changes in foreign exchange rates relative to the U.S. dollar, as well as financial risk management and derivatives. These exposures are related to the daily operations of the Company.

    Interest Rate Exposure—At April 30, 2001, the Company had $94.1 million in interest bearing debt. Of this amount, $13.2 million was fixed rate debt with interest rates ranging from 4.75% to 7.25% per annum. The remaining debt of $80.9 million was variable with $50 million of this total bearing a rate of LIBOR + 3% or 7.43% at April 30, 2001. The majority of the remaining floating rate debt was at prime, 7.5%. See Note 9 to the Consolidated Financial Statements for additional contractual information on the Company's debt obligations. Market risk is estimated as the potential for interest rates to increase 10% on the variable rate debt. A 10% increase in interest rates would result in an approximate additional annual charge to the Company's pretax profits and cash flow of $600,000. At April 30, 2001 the Company had no derivative instruments to offset the risk of interest rate changes. The Company may choose to use derivative instruments, such as interest rate swaps, to manage the risk associated with interest rate changes.

    Foreign Currency Exchange Rate Risk—The Company transacts business in various foreign currencies, primarily the Canadian dollar, the German mark, the Japanese yen, the New Taiwan dollar, and the Swedish crown. The assets and liabilities of its foreign operations, with functional currencies other than the U.S. dollar, are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the period. Aggregate transaction gains and losses included in the determination of net income have not been material. Based on the Company's overall currency rate exposure at April 30, 2001, a near-term 10% appreciation or depreciation of the U.S. dollar would not have a significant effect on the Company's financial position, results of operations and cash flows over the next fiscal year. At April 30, 2001, the Company had several forward exchange contracts to offset the risk of foreign currency exchange rate changes. The Company may continue to use derivative instruments, such as forward exchange rate contracts, to manage the risk associated with foreign currency exchange rate changes.

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MANAGEMENT'S STATEMENT OF RESPONSIBILITY

    Management is responsible for the fair and accurate presentation of information in this Form 10-K. The consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America. Financial and operating information comes from Company records and other sources. Certain amounts are, of necessity, based on judgment and estimation.

    We believe that adequate accounting systems and financial controls are maintained to ensure that the Company's records are free from material misstatement and to protect the Company's assets from loss or unauthorized use. In addition, the Audit Committee of the Board of Directors periodically meets with PricewaterhouseCoopers LLP, the Company's independent accountants, and management to review the work of each, to discuss financial reporting matters, and to review auditing and internal control procedures.

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Item 8.  Financial Statements and Supplementary Data

    The following consolidated financial statements are filed as a part of this report:

    All other schedules are omitted because they are not applicable.

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REPORT OF INDEPENDENT ACCOUNTANTS

     To the Board of Directors and Shareholders of
Flow International Corporation

    In our opinion, the consolidated financial statements and related schedule listed in the accompanying index present fairly, in all material respects, the financial position of Flow International Corporation and its subsidiaries at April 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2001, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

As described in Note 2 to the consolidated financial statements, effective May 1, 2000, the Company changed its method of recognizing revenue for certain transactions.

/s/ PricewaterhouseCoopers LLP

Seattle, Washington
June 5, 2001

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FLOW INTERNATIONAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

The accompanying notes are an integral part of these consolidated financial statements.

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FLOW INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)