Flow International Announces Fiscal 2005 Second Quarter Results

Flow International Announces Fiscal 2005 Second Quarter Results
Company Posts Fifth Quarter of Operating Profit and Outlines Debt Reduction
Initiatives 


KENT, Wash., Jan. 12  /PRNewswire-FirstCall/ -- Flow International Corporation
(NASDAQ:FLOWE), the world's leading developer and manufacturer of
ultrahigh-pressure waterjet technology equipment used for cutting, cleaning
(surface preparation) and food safety applications, today reported results for
its fiscal 2005 second quarter ended October 31, 2004.  On a consolidated
basis, FLOW (the "Company") reported quarterly sales of $55.5 million and a net
loss of $275,000 or $0.02 diluted loss per share.  For comparison, in the
fiscal 2004 second quarter the Company reported revenues of $43.7 million and a
net loss of $1.9 million or $0.13 diluted loss per share, as restated, which
included restructuring charges of $857,000.  As previously announced, the
Company has reviewed and reconciled certain historical inter-company
transactions and made other corrections for the fiscal years ended April 30,
2004, 2003 and 2002, and all historical financial information for periods prior
to April 30, 2004 discussed herein has been restated to reflect the impact of
such corrections.

"Even as we are putting the final touches on our restructuring efforts, we
posted another strong quarter of growth and cash generation," said Stephen R.
Light, FLOW's President and Chief Executive Officer.  "We have largely
succeeded in accordance with the aggressive restructuring plan we laid out two
years ago, which was intended to revive this company and return it to
operational and financial health, based on a solid and well-capitalized core
business.  Now we look forward to the next stage of growth for our company, in
which we intend to extricate ourselves from a weighty burden of debt
obligations, return to profitability and deliver genuine shareholder value."

For the six months ended October 31, 2004, FLOW reported sales of $104.4
million and a net loss of $2.6 million or $0.17 diluted loss per share.  In
comparison, for the six months ended October 31, 2003, revenues were $80.9
million and the net loss amounted to $7.6 million or $0.50 diluted loss per
share, as restated, which included restructuring charges of $1.2 million.

Operations Review

FLOW Waterjet Systems:  For the fiscal 2005 second quarter, Waterjet Systems
reported sales of $44.1 million and operating income of $2.2 million, which
compares to revenues of $33.0 million and operating income of $682,000 in the
fiscal 2004 second quarter.  Within Waterjet Systems during the fiscal 2005
second quarter and first six months:

   --  Total systems sales were $31.3 million, compared to $20.9 million in
       the fiscal 2004 second quarter.  For the six month period, system
       sales increased 37% to $57.2 million.  These increases were driven by
       strengthened demand in FLOW's primary markets and across all
       geographies, with particular strength domestically in both standard
       shapecutting systems and the automotive sector.  The Company also
       experienced an increase in demand for cutting cell applications among
       non-automotive customers.  FLOW continues to see growth as the
       marketplace increasingly recognizes the accuracy, speed, and
       versatility advantages of the waterjet over conventional cutting
       technologies.
   --  System sales for both the quarter and six-month period were strong in
       Europe and in Asia, where the Company experienced strengthened demand
       from the Chinese automotive industry for cutting cells and from
       non-automotive industries for shapecutting systems.  System sales to
       Europe also increased, as the Company is now benefiting from its
       standardized pricing and product offerings.
   --  Consumables and spare parts sales increased from $12.1 million in the
       year-ago quarter to $12.8 million in the fiscal second quarter, as a
       greater number of systems have been sold and become operational.
       Sales for the six months ended October 31, 2004 increased 2% over the
       comparable prior year period.  The Company also continues to benefit
       from the sale of its proprietary productivity enhancing kits and the
       enhanced availability of parts, with increased traffic on its
       Flowparts.com website.



Avure Technologies:  For the fiscal 2005 second quarter, Avure recorded sales
of $11.4 million and operating income of $341,000, compared to sales of $10.6
million and an operating loss of $400,000 in the year-ago quarter, as restated.
 Year-to-date, sales have increased to $22.1 million with operating income of
$939,000 compared to sales of $14.3 million and a related operating loss of
$3.8 million in the prior year period, as restated.  Within Avure during the
fiscal 2005 second quarter and first six months:

   --  General Press sales during the fiscal 2005 second quarter and year to
       date were $8.8 million and $15.6 million, respectively, compared to
       $6.9 million and $9.9 million in the fiscal 2004 second quarter and
       first six months, respectively.  General Press revenues will vary
       from quarter to quarter and from year to year due to the nature of
       its one to four year sales and production cycle.  Currently the
       Company is experiencing increased production, as compared to the
       prior year.
   --  Avure's Fresher Under Pressure(R) food technology sales decreased to
       $2.6 million, from $3.7 million in the fiscal 2004 second quarter,
       however sales for the first six months were $6.5 million, an increase
       of $2.1 million over the $4.4 million recognized in the prior
       six-months.  While the current fiscal year utilized percentage of
       completion for revenue recognition, fiscal 2004 included revenue
       recognition under both percentage of completion and on as as-
       delivered basis.  Revenues from several completed systems were
       recognized in the second quarter of fiscal 2004 upon customer
       acceptance.  Had these fiscal 2004 sales been recognized on
       percentage of completion, a portion of the second quarter fiscal 2004
       revenue would have been recognized in the first quarter of fiscal
       2004.

  Delayed Filing of the Second Quarter Form 10-Q Due to Restatement


The second quarter Form 10-Q, which the Company filed on January 10, 2005 was
late, from its due date of December 15, 2004.  The delayed filing was the
result of the restatement of historical financial statements.  On December 20,
2004, the Company filed an amended Form 10-K/A for the year ended April 30,
2004, followed by the filing of its Form 10-Q for the fiscal 2005 first quarter
on December 29, 2004.  Subsequent quarterly reports will reflect restated
historical financial statements for comparable fiscal 2004 interim periods. 
The restatements include corrections to the Company's Consolidated Statements
of Operations resulting from the completion of reconciliations of historical
inter-company account balances and review of treatment of foreign currency
gains and losses on inter-company balances.  The amended Form 10-K/A reflects
foreign currency adjustments in Other Income (Expense), net, as well as
correction of entries originally recorded as foreign currency revaluation that
should have been recorded to Cost of Sales and Provision for Income Taxes in
the Consolidated Statement of Operations.  Finally, a correction in the value
ascribed to the warrants issued to our subordinated lender in May 2001 has
resulted in a reduction in interest expense, net.  Appropriate tax provision
entries were also made.  Accordingly, financial statements filed prior to the
amended Form 10-K/A and other communications related to the periods covered by
the restatements should no longer be relied upon.

In connection with the restatements, our independent registered public
accounting firm reported two matters that constituted material weaknesses in
the Company's internal control over financial reporting.  The Company and its
Audit Committee have dedicated significant resources to assessing the
underlying issues giving rise to the restatements and material weaknesses and
to ensuring that proper steps have been and are being taken to improve its
control environment.  The Company has assigned the highest priority to the
correction of these deficiencies.  In conjunction with its analysis, management
has begun to increase the level of staffing and supervision in critical
functional areas.

Debt Reduction

In its efforts to continue paying down debt, during the quarter ended October
31, 2004, the Board of Directors authorized the Company to engage investment
bankers on a best efforts basis to act as placement agents in a "PIPE" (Private
Investment in Public Equity) transaction to raise funds to continue paying down
debt.  To date, no effort has been made to attract investors, no terms of a
PIPE transaction have been negotiated, nor is there any assurance that the
Company will be able to execute a PIPE transaction. The Company may also
consider alternatives to a PIPE transaction in order to reduce outstanding
debt.

During the quarter ended October 31, 2004, the Board of Directors also
authorized the Company to engage Danske Markets Inc. to assist in the sale of
the Company's General Press operations, consisting of the North America Press
and International Press segments.  Although the divestiture is not guaranteed,
the Company does not consider these operations core to its business and intends
to use the proceeds of a divestiture to further pay down debt.

Financial Guidance

In conjunction with a potential PIPE or other equity transaction, the Company
is providing selected financial guidance for the remainder of fiscal 2005.  The
Company currently expects revenues for the full fiscal 2005 to be between $201
million and $212 million.

Conference Call

Flow International will host a conference call at today at 1:00 p.m. EST (10:00
a.m. PST) to discuss the results.  A live Webcast of the call may be found in
the investor section at http://www.flowcorp.com/.

  A Webcast replay of the call will also be available for two weeks.

  About Flow International


FLOW provides total system solutions for various industries, including
automotive, aerospace, paper, job shop, surface preparation, and food
production. For more information, visit http://www.flowcorp.com/.

This press release contains forward-looking statements relating to future
events or future financial performance that involve risks and uncertainties.
The words "believe," "expect," "intend," "anticipate," variations of such words
and similar expressions identify forward-looking statements but their absence
does not mean that the statement is not forward-looking. These statements are
only predictions and actual results could differ materially from those
anticipated in these statements based on a number of risk factors, including
those set forth in the December 20, 2004 Flow International Corporation Form
10-K/A Report filed with the Securities and Exchange Commission. 
Forward-looking statements in this press release include, without limitation,
statements that in our next stage of growth, we intend to extricate ourselves
from a weighty burden of debt obligations and return to profitability and
genuine shareholder value; we continue to see growth as the marketplace
continues to recognize the increased accuracy, speed, and versatility of the
waterjet over conventional cutting technologies; that in conjunction with its
analysis, management intends to increase the level of staffing and supervision
in critical functional areas; that the Company will enter into a PIPE or other
equity transaction in order to reduce outstanding debt; that the Company
intends to use proceeds from the divestiture of two segments to further pay
down debt and the Company currently expects revenues for the full fiscal 2005
to be between $201 million and $212 million.  Readers are cautioned not to
place undue reliance on these forward-looking statements that speak only as of
the date of this announcement.

The Company is under no obligation, and does not intend, to update any of the
forward-looking statements in this press release.

   Contact:  Steve Reichenbach
             Chief Financial Officer
             253-850-3500


                      Flow International Corporation
                   Consolidated Statement of Operations
                               (Unaudited)

  Dollars in thousands, except per share data

                            Three months ended         Six months ended
                                October 31,               October 31,
                            2004    2003   % Change  2004     2003  % Change
                                 (restated)                (restated)
  Sales                   $55,467  $43,689    27%  $104,449  $80,871    29%

  Cost of sales            37,212   28,038    33%    68,299   51,835    32%

  Gross margin             18,255   15,651    17%    36,150   29,036    25%

  Operating expenses:
       Marketing            8,066    6,078    33%    15,375   13,511    14%
       Research and
        engineering         1,902    2,881   -34%     4,506    5,613   -20%
       General and
        administrative      5,704    5,456     5%    11,432   10,953     4%
       Financial
        consulting             --      857  -100%       623    1,105   -44%
       Restructuring           --       97  -100%        --    1,197  -100%
  Operating expenses       15,672   15,369     2%    31,936   32,379    -1%

  Operating income (loss)   2,583      282     NM     4,214   (3,343)    NM

  Interest expense, net    (3,789)  (3,371)   12%    (6,884)  (6,670)    3%
  Other income, net         1,389    1,894   -27%     1,219    2,621   -53%

  Loss before taxes           183   (1,195)  115%    (1,451)  (7,392)   80%
  Income tax provision       (458)    (734)  -38%    (1,164)    (730)   59%

  Loss before
   discontinued
   operations                (275)  (1,929)  -86%    (2,615)  (8,122)  -68%

  Discontinued
   operations, net of tax      --       --     NM        --      526  -100%

  Net loss                  $(275) $(1,929)  -86%   $(2,615) $(7,596)  -66%


  Loss per share:
  Basic and diluted
   before discontinued
   operations              $(0.02)  $(0.13)  -85%    $(0.17)  $(0.53)  -68%
  Basic and diluted        $(0.02)   (0.13)  -85%    $(0.17)   (0.50)  -66%


  Weighted average shares
   outstanding (000):
  Basic                    15,916   15,359           15,801   15,359
  Diluted                  15,916   15,359           15,801   15,359

  NM = not meaningful


                        Flow International Corporation
                           Statement of Operations
                             Operations Breakdown
                                 (Unaudited)


  Dollars in thousands, except per share data

                                        Three Months ended October 31, 2004
                                           Flow
                                         Waterjet     Avure
                                         Systems   Technologies Consolidated

  Sales                                    $44,087     $11,380      $55,467

  Cost of sales                             28,897       8,315       37,212

  Gross margin                              15,190       3,065       18,255

  Operating expenses                        12,948       2,724       15,672

  Operating income (loss)                    2,242         341        2,583


                                         Six Months ended October 31, 2004
                                           Flow
                                         Waterjet     Avure
                                         Systems   Technologies Consolidated

  Sales                                    $82,386     $22,063     $104,449

  Cost of sales                             53,223      15,076       68,299

  Gross margin                              29,163       6,987       36,150

  Operating expenses                        25,888       6,048       31,936

  Operating income (loss)                    3,275         939        4,214


                                       Three Months ended October 31, 2003
                                           Flow
                                         Waterjet     Avure
                                         Systems   Technologies Consolidated
                                                    (restated)    (restated)
  Sales                                    $33,041     $10,648     $43,689

  Cost of sales                             21,149       6,889      28,038

  Gross margin                              11,892       3,759      15,651

  Operating expenses                        11,210       4,159      15,369

  Operating income (loss)                      682        (400)        282


                                        Six Months ended October 31, 2003
                                           Flow
                                         Waterjet     Avure
                                         Systems   Technologies Consolidated
                                                    (restated)    (restated)
  Sales                                    $66,530     $14,341     $80,871

  Cost of sales                             42,119       9,716      51,835

  Gross margin                              24,411       4,625      29,036

  Operating expenses                        23,926       8,453      32,379

  Operating income (loss)                      485      (3,828)     (3,343)


                      Flow International Corporation
                            Supplemental Data
                               (Unaudited)

  Dollars in thousands
                              Three months ended       Six months ended
                                 October 31,               October 31,
                             2004     2003  % Change  2004    2003  % Change

  Divisional revenue
   breakdown:
     Flow Waterjet Systems:
          Systems           $31,274  $20,904   50%   $57,174  $41,847   37%
          Consumable parts
           and services      12,813   12,137    6%    25,212   24,683    2%
     Total                   44,087   33,041   33%    82,386   66,530   24%
     Avure Technologies
         Fresher Under
          Pressure            2,584    3,716  -30%     6,452    4,410   46%
         General Press        8,796    6,932   27%    15,611    9,931   57%
     Total                   11,380   10,648    7%    22,063   14,341   54%
                            $55,467  $43,689   27%  $104,449  $80,871   29%

  Geographic revenue
   breakdown:
     United States          $35,301  $23,417   51%   $63,306  $43,756   45%
     Rest of Americas         3,679    3,901   -6%     7,548    7,500    1%
     Europe                  10,034   10,934   -8%    20,791   19,405    7%
     Asia                     6,453    5,437   19%    12,804   10,210   25%
                            $55,467  $43,689   27%  $104,449  $80,871   29%


  Depreciation and
   amortization expense      $1,224   $1,560  -22%    $2,546   $3,233  -21%

  Capital spending             $117   $2,159  -95%      $446   $3,884  -89%


                      Flow International Corporation
                 Preliminary Condensed Balance Sheet Data

  Dollars in thousands

                                          October 31,   April 30,
                                             2004         2004      % Change
                                                       (restated)
  Cash, including short-term restricted
   cash                                     $14,896      $12,835       16%
  Receivables, net                           44,573       44,860       -1%
  Inventories                                28,228       26,384        7%
  Total current assets                       95,547       90,611        5%
  Total assets                              139,905      135,071        4%

  Total debt                                $85,174      $86,808       -2%
  Total liabilities                         146,453      142,263        3%
  Total shareholders' deficit                (9,061)      (9,552)      -5%


DATASOURCE: Flow International Corporation



CONTACT:  Steve Reichenbach, Chief Financial Officer of Flow

International Corporation, [phone]



Web site:  http://www.flowcorp.com/ 

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