10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended April 30, 2004

OR

¨ 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 0-12448

FLOW INTERNATIONAL CORPORATION

WASHINGTON	91-1104842
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

23500 - 64th Avenue South

Kent, Washington 98032

(253) 850-3500

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.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x.

The aggregate market value of the registrant’s common equity held by nonaffiliates of the registrant based on the last sale price of such stock on October 31, 2003 (which was the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $46,307,461.

The number of shares of common stock outstanding as of August 9, 2004 was 15,849,216 shares.

Documents Incorporated By Reference

Part I:	None
Part II:	The information required by this Item of Part II is incorporated by reference from the Registrant’s definitive proxy statement which involves equity compensation plans and which will be filed with the Commission within 120 days after the close of the fiscal year.
Item 5	Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities—Equity Compensation Plan Information
Part III:	The information required by these Items of Part III are incorporated by reference from the Registrant’s definitive proxy statement which involves the election of directors and which will be filed with the Commission within 120 days after the close of the fiscal year.
Item 10	Directors and Executive Officers of the Registrant
Item 11	Executive Compensation
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13	Certain Relationships and Related Transactions
Item 14	Principal Accountant Fees and Services
Part IV:	None

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Safe Harbor Statement

Statements made in this Form 10-K that are not historical facts are forward-looking statements that involve risks and uncertainties. Forward-looking statements typically are identified by the use of such terms as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “plan” and similar words, although some forward-looking statements are expressed differently. You should be aware that our actual results could differ materially from those contained in any forward-looking statement due to a number of factors, which include, but are not limited to the following: the special risk factors and uncertainties set forth in this document; our exposure to additional costs or less-than-expected benefits relating to our restructuring plan; risks related to a potential failure to realize anticipated benefits in connection with the liquidation of inventories and other assets of operations or product lines to be discontinued; our ability to control costs and expenses; relations with and performance of suppliers; our ability to successfully develop and sell products and grow our market share in the competitive markets that we serve; access to adequate amounts of capital or capital on acceptable terms; maintaining satisfactory relationships with our lending partners; political and trade relations; the overall level of consumer spending on capital equipment; global economic conditions and additional threatened terrorist attacks and responses thereto, including war. Additional information on these and other factors that could affect our financial results is set forth below. Finally, 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.

All references to fiscal years are references to our fiscal year end of April 30.

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PART I

Item 1.    Business

Flow International Corporation (“Flow” or the “Company”) designs, develops, manufactures, markets, installs and services ultrahigh-pressure (“UHP”) water pumps and UHP water management systems. Our core competency is UHP water pumps. Our UHP water pumps pressurize water from 40,000 to over 100,000 pounds per square inch (psi) and are integrated with water delivery systems so that water can be used to cut or clean material or pressurize food. Our products include both standard and specialized waterjet cutting and cleaning systems together with the Fresher Under Pressure^® food processing technology. In addition to UHP water systems, we provide automation and articulation systems and isostatic and flexform press systems. We provide technologically-advanced, environmentally-sound solutions to the manufacturing, industrial, marine cleaning and food markets.

Our mission is to provide the highest value product in the UHP water pump market. This requires our products to be of the highest reliability and provide our customers with a system which maximizes productivity and profitability. We are a developer of productivity technologies and we continually focus on customer support. Our brand promise is to provide reliability, superior value, service and technology through products based on UHP water pump technology. We will continue to improve our customers’ profitability through investment in the development of innovative products and services that expand our customers’ markets and increase their productivity.

Our UHP technology has three broad applications: cutting, cleaning and food pressurization. The primary application of our UHP water pumps is cutting. Waterjet cutting is recognized as a more flexible alternative to traditional cutting methods such as lasers, saws or plasma. It is often faster, has greater versatility in the types of products it can cut and eliminates the need for secondary processing operations. Utilizing pressures from 50,000 to 87,000 psi, the thin stream of water traveling at three or more times the speed of sound can cut both metallic and nonmetallic materials for many industries, including aerospace, automotive, disposable products, food, glass, job shop, sign, metal cutting, marble, tile and other stone cutting, and paper slitting and trimming. We also manufacture a product line, utilizing pressures in the range of 40,000 to 55,000 psi, for use in industrial cleaning, surface preparation, construction, and petro-chemical and oil field applications. Utilizing increased pressures of between 87,000 to 100,000 psi, our Fresher Under Pressure food processing technology provides food safety, quality and productivity enhancements for food producers.

We analyze our business based on the utilization of UHP, either as released pressure or contained pressure, as follows: Flow Waterjet Systems (“Waterjet”) for released pressure applications and Avure Technologies Incorporated (“Avure”) for contained pressure applications. The Waterjet operation comprises our cutting, cleaning and automation applications while Avure includes the Fresher Under Pressure technology, as well as the isostatic and flexform press (“General Press”) operations. The General Press business manufactures systems which produce and strengthen advanced materials for the aerospace, automotive and medical industries.

We are a Washington corporation founded in 1974, incorporated in 1980, and completed our initial public offering in March 1983. In January 2003, Stephen R. Light was appointed President and Chief Executive Officer. Kathryn L. Munro, a director since 1996, assumed the position of Chairman.

Products and Services

We provide UHP systems and related products and services to our target markets: aerospace, automotive, food, job shops, pulp and paper and surface preparation. As previously described, we divide our business into its two UHP operations: Waterjet and Avure.

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Waterjet:

The Waterjet operation is comprised of the following segments: North America Waterjet, Asia Waterjet, Other International Waterjet and Other.

Systems -

We offer a variety of UHP products, including both waterjet cutting and cleaning systems, as well as accessories and related robotic articulation equipment. UHP water pumps, as well as the related water management systems, are the core components of our technology. We utilize two different technologies to create the water pressure: intensifier or direct drive. An intensifier pump pressurizes water up to 100,000 psi and forces it through a small orifice, generating a high-velocity stream of water traveling in excess of 3,000 feet per second 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. In addition to our intensifier pumps, we offer our unique and patented direct drive pressure-compensated pumps which pressurize water up to 55,000 psi utilizing triplex piston technology.

A UHP system consists of a UHP intensifier or direct drive pump and one or more waterjet cutting or cleaning heads with the necessary robotics, motion control and automation systems. We have placed UHP waterjet cutting systems in our target markets worldwide. These cutting systems may also combine waterjet with other applications such as conventional machining, pick and place handling, inspection, assembly, and other automated processes. Our waterjet systems are also used in industrial cleaning applications such as paint removal, surface preparation, factory and industrial cleaning, ship hull preparation, and heat exchanger cleaning.

Our products enhance productivity and, we believe, are cost justified over traditional methods. Our sales are affected by worldwide economic changes. However, we believe that the flexibility of our UHP technology and the diversity of our markets enable us to absorb cyclical downturns with less impact than conventional machine tool manufacturers and we are confident that we can continue to gain market share in the machine cutting tool market.

Consumable Parts and Services -

Consumables represent parts used by the pump and cutting head during operation, such as seals, orifices and garnet. Many of these consumable or spare parts are proprietary in nature and are patent protected. We also sell various tools and accessories which incorporate UHP technology, as well as aftermarket consumable parts and service for our products.

Avure:

Avure has two primary product lines, food processing and General Press, and is comprised of the Food, North America Press and International Press segments.

Fresher Under Pressure -

Our proprietary UHP water pump and pressure vessel technology is utilized by our customers for food processing and is marketed as Fresher Under Pressure. Our UHP technology exposes foods to pressures from 50,000 to over 100,000 psi for a short time, reducing food-borne pathogens such as Camplyobacter, E. coli, Listeria monocytogenes, salmonella and Vibro vulnificus. While conventional thermal and chemical preservation methods can ensure safety and longevity, they have a negative impact on fresh foods’ sensory qualities such as nutrition, flavor, color and texture. Avure’s technology which uses UHP to destroy bacteria and other microorganisms found in food without using high temperatures or chemical additives has minimal effects on the

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nutrition, taste, texture, or color of food, and extends the shelf life of the food. UHP technology addresses: the increasing demand in the U.S. for a post packaging, terminal pasteurization-like step (e.g. packaged ready-to-eat meats); the demand for high quality, minimally processed foods (e.g. fresh guacamole and salsas); and the demand to utilize the productivity enhancing capabilities of UHP in food processing (e.g. shellfish). Our UHP technology can provide benefits to an array of food products including fruits, vegetables, seafood, processed meats and ready-to-eat meals. Governmental regulations, which took effect in October 2003, regarding food processor disclosure of safety methods utilized in the manufacturing process, as well as consumer demand for higher quality, wholesome, more natural, convenience foods, offer a growth opportunity for the Fresher Under Pressure product line.

General Press -

Our isostatic press systems use similar large pressure vessels, ranging from 25 to 35 feet in height and weighing between 50 and 200 tons to apply a combination of heat and pressure to produce and strengthen advanced materials for the aerospace, automotive and medical industries. Examples of customary applications include jet engine components, automotive parts, high performance ceramics and hip joints. Our flexform presses are used to form sheet metal for flexible and cost-effective prototyping and low volume production of structural items, panels and engine components. Our General Presses offer several advantages over other methods for forming metal and composite parts. Isostatic presses produce lighter weight, higher strength parts that have a better metal consistency, density and uniformity as compared to forged or cast parts. Flexform presses allow for cost-effective production, lower tooling costs, flexibility and shorter lead times.

Marketing and Sales

We market and sell our products worldwide through our headquarters in Kent, Washington (a suburb of Seattle) and through subsidiaries, divisions and joint ventures located in Columbus, Ohio; Wixom, Michigan; Jeffersonville, Indiana; Birmingham, England; Bretten, Germany; Burlington and Windsor, Canada; Hsinchu, Taiwan; Shanghai and Beijing, China; Incheon, Korea; Sao Paulo, Brazil; Buenos Aires, Argentina; Lyon, France; Milan, Italy; Madrid, Spain; Yokohama, Nagoya and Tokyo, Japan and Västerås, Sweden. We sell directly to customers in North and South America, Europe, and Asia, and have distributors or agents covering most other countries. No single customer accounted for 10% or more of our revenues during any of the three years ended April 30, 2004.

During the past year, we conducted an internal study of our installed waterjet cutting systems and the potential sale opportunities of the market. Based on the significant market potential relative to the installed base, we have concluded that waterjet technology is in the early adoption phase of its product life cycle and growth will be driven by an increasing awareness of the technology.

To increase awareness, we expect to focus our marketing efforts on specific target industries, applications and markets. Marketing efforts include increased presence at regional tradeshows, increased advertising in print media and other product placement and demonstration/educational events as well as an anticipated increase in domestic sales representation, including distributors, of 74%. To enhance the effectiveness of sales efforts, our marketing staff and sales force gather detailed information on the applications and requirements in targeted market segments. We also utilize telemarketing and the internet to generate sales leads in addition to lead generation through tradeshows and print media,. This information is used to develop standardized and customized solutions using UHP and robotics technologies. We provide turnkey systems, including system design, specification, hardware and software integration, equipment testing and simulation, installation, start-up services, technical training and service.

Patents

We hold a large number of UHP technology and related systems patents. While we believe the patents we hold protect our intellectual property, we do not consider our business dependent on patent protection. In addition, we have over the years developed non-patented proprietary trade secrets and know-how in UHP

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applications, and in the manufacture of these systems, which we believe allows us to retain a technical lead over our competitors.

We believe the patents we hold and have in process, along with the proprietary application and manufacturing know-how, act as a barrier to entry for other competitors who may seek to provide UHP technology.

Backlog

At April 30, 2004, our backlog was $47.1 million compared to the prior year-end backlog of $36.3 million. Generally our products, exclusive of the aerospace and Avure product lines, which account for $23.5 million of the backlog, can be shipped within a four to 16 week period. The aerospace and Avure systems typically have lead times of six to 18 months. The changes in our backlog are not necessarily indicative of comparable variations in sales or earnings. The April 30, 2004, backlog represented 27% of fiscal 2004 sales. The unit sales price for most of our 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, some have higher profit margins than others, and some may be cancelled by customers.

Competition—Waterjet

Waterjet technology has been developed to provide manufacturing firms with a viable alternative to traditional cutting or cleaning methods that utilize lasers, saws, knives, shears, plasma, routers, drills and abrasive blasting techniques. Many of the companies that provide these competing methods are larger and better funded than Flow. Within the manufacturing setting, several firms, including Flow, have developed tools for cleaning and cutting based on waterjet technology.

Waterjet cutting systems harness pressurized water from 40,000 to 87,000 psi, and focus it into a high velocity stream. Cutting with high-velocity water offers manufacturers many advantages over traditional cutting machines including an ability to cut in any direction, faster throughput times, minimal impact on the material being cut and a continuously expanding range of applications. These factors, in addition to the elimination of secondary processing in most circumstances, enhance the manufacturing productivity of our systems.

Market acceptance of waterjet cutting systems by the aerospace, automotive, and machining (job shop) industries is expected to encourage other manufacturers, including those in other industries, to adopt waterjet solutions. As of 2003, we estimate the worldwide waterjet cutting systems market size at $350 million and the waterjet cleaning systems market at $335 million. The recent slowdown in many of the major world economies has created a difficult operating environment for waterjet systems manufacturers, as new investments in infrastructure projects have been curtailed and customers have reduced capital expenditures. Low demand, coupled with price-based competition among waterjet manufacturers, has caused many firms in the industry to restructure operations, lay off employees, and close plants. We expect the strengthening global economies to reverse this movement.

We believe we are the leader in the global waterjet cutting systems market with a market share estimated at more than 40%. In North America, together with another supplier, we have a combined market share of approximately 75%. The remaining 25% of the market is divided among 10 firms. The European market is also highly concentrated, with the top three companies controlling 50% of the market. We compete in the high-end and mid-tier segments of the waterjet cutting market and may not be as financially robust as some of our competitors.

Waterjet cleaning offers many advantages over other cleaning methods, such as the ability to remove difficult coatings or deposits from a surface without damaging such surface or adding potentially hazardous

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chemicals to the cleaning process. 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.

We believe we are a primary competitor in the ultra-high-pressure (greater than 40,000 psi) segment of the waterjet cleaning systems market with an estimated global market share of 27%. We have a significant share of the market in North and South America and Asia. We also have an opportunity to build share and grow our business in Europe where waterjet cleaning had not previously been a market priority for us. We intend to capitalize on this opportunity in the next 24 months.

The automobile and aerospace industry and other industries that rely heavily on assembly-based manufacturing processes are primary consumers of robotics systems equipment and services. Using waterjet and other suitable technologies such as laser, robotics systems manufacturers provide custom engineered robotic systems designed for material separation and removal. The robotic systems market is concentrated among a few select companies in the U.S. and Europe.

Competition—Avure

Pasteurization is the primary method used to help ensure that fresh food is safe to eat. Avure’s Fresher Under Pressure represents a break-through technology which destroys harmful pathogens increasing shelf life while ensuring a safe, healthy product. There are other companies trying to develop a similar UHP processing technology. To date, these companies have had little commercial success, and we believe our patents and know-how make us the world leader in this technology. Currently our equipment is the only equipment being used in any significant commercial applications. 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 Avure is targeting the ready-to-eat meat market, i.e., sliced deli meats, etc., as well as the premium food market, such as fresh fruits and vegetables.

Our General Presses represent a niche segment of the industrial press market that use our technology for specialized applications, primarily to produce high strength and precision or low volume parts. We compete in this market against forging and casting methods of production which currently represent a significantly larger market than our technology. However, our press technology is necessary to produce high quality parts with high material density, no internal voids or cracks and beneficial isotropic properties.

Overall, we believe that Flow’s consolidated 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;

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

• The ability to provide complete turnkey systems;

• A physical presence 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

We have devoted between 6% and 9% of revenues in research and engineering during each of the three years ended April 30, 2004. Research and engineering expenses were $10.7 million, $13.5 million, and $14.9 million, in fiscal 2004, 2003 and 2002, respectively. We will continue a robust research and engineering program to maintain our technological leadership position through development of new products and applications, as well as enhancement of our current product lines.

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Employees

As of April 30, 2004, we employed 745 full time and 22 part time personnel. We are not a party to any material collective bargaining agreements.

Foreign and Domestic Operations

See Note 17 to Consolidated Financial Statements for information regarding foreign and domestic operations.

Available Information

Our Internet website address is www.flowcorp.com. We make available at this address, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Information available on our website is not incorporated by reference in and is not deemed a part of this Form 10-K.

Item 2.    Properties

Our headquarters and primary manufacturing facilities are located in a leased facility in Kent, Washington. We also manufacture product in Wixom, Michigan; Jeffersonville, Indiana; Columbus, Ohio; Burlington, Canada; Hsinchu, Taiwan and Västerås, Sweden. We sell products through all of these locations, in addition to sales offices located in Bretten, Germany; Birmingham, England; Milan, Italy; Madrid, Spain; Lyon, France; Yokohama, Nagoya and Tokyo, Japan; Shanghai and Beijing, China; Incheon, Korea; Sao Paulo, Brazil; Buenos Aires, Argentina and Windsor, Canada.

All of our facilities are leased with the exception of our manufacturing facility in Jeffersonville, Indiana and Hsinchu, Taiwan.

We believe that our facilities are suitable for our current operations and any increase in production in the near term will not require additional space.

Item 3.    Legal Proceedings

We are party to various legal actions incident to the normal operation of our business, none of which is believed to be material to our financial position, results of operations and cash flows. See Notes 1 and 13 of Notes to Consolidated Financial Statements for a description of our 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 and Issuer Purchases of Equity Securities.

See page 11

Item 6.    Selected Financial Data.

See page 12

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

See pages 12 through 27

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

See page 27

Item 8.    Financial Statements and Supplementary Data.

See pages 29 through 57

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

None noted.

Item 9A.    Controls and Procedures.

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as currently defined in Rule 13a-15 under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Except as noted below, they have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were adequate and effective to ensure that material information required to be disclosed in our filings with the Securities and Exchange Commission would be timely communicated to our management, including the Chief Executive Officer and Chief Financial Officer. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

In connection with a periodic audit by the German taxing authorities we discovered an under accrual in the Value-Added Tax (“VAT”) liability account. We made an adjustment to our financial statements in the fourth quarter of fiscal 2004 to record the under accrual. Although we believe the under accrual relates primarily to the fiscal year ended April 30, 2002, we have evaluated this adjustment under the guidance of Staff Accounting Bulletin No. 99, “Materiality”, and determined that the adjustment was not material either to the period in which the adjustment was made or to the periods in which the entry should have been recorded. We have established new reconciliation procedures requiring regular reconciliations of all VAT accounts. Furthermore, we intend to continually review and evaluate the design and effectiveness of our disclosure controls and procedures and to improve our controls and procedures over time and to correct any deficiencies that we may discover in the future. The goal is to ensure that our management has timely access to all material financial and non-financial information concerning our business. While we believe the present design of our disclosure controls and procedures is effective to achieve our goal, future events affecting our business may cause us to modify our disclosure controls and procedures.

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Item 5.    Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

The principal market for our common stock is the over-the-counter market. Our stock is traded on the NASDAQ National Market under the symbol “FLOW”. The range of high and low sales prices for our common stock for the last two fiscal years is set forth in the following table.

	Fiscal Year 2004				Fiscal Year 2003
	High		Low		High		Low
First Quarter	$	1.94	$	1.13	$	10.90	$	5.05
Second Quarter		3.11		1.36		5.60		2.12
Third Quarter		4.11		2.40		3.80		2.13
Fourth Quarter		3.74		2.20		3.28		1.08

Holders of the Company’s Common Stock

There were 983 shareholders of record as of August 9, 2004.

Dividends

We have not paid dividends to common shareholders in the past. Our Board of Directors intends to retain future earnings, if any, to finance development and expansion of our business and reduce debt and does not expect to declare dividends to common shareholders in the near future. Furthermore, we are a party to financing agreements that contain restrictions on our ability to pay dividends to our shareholders. See Note 8 to Consolidated Financial Statements for a description of such restrictions.

Recent Sales of Unregistered Securities.

We have entered into a Consulting Agreement effective March 1, 2003 pursuant to which we have engaged Mr. Chrismon Nofsinger to provide executive coaching and organization services. In partial consideration for such services, we issued 19,097 unregistered shares of our common stock to Mr. Nofsinger in June 2004.

Equity Compensation Plan Information

Information regarding equity compensation plan information is incorporated into Item 12 of this report by reference from our Proxy Statement.

Issuer Purchases of Equity Securities

None

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Item 6.    Selected Financial Data

(In thousands, except per share amounts)	Year Ended April 30,
	2004			2003			2002			2001		2000
Income Statement Data:
Sales	$	177,609		$	144,115		$	176,890		$	204,854	$	193,638
(Loss) Income Before Cumulative Effect of Change in Accounting Principle and Discontinued Operations		(15,152	)		(69,489	)		(6,387	)		4,917		4,653
Net (Loss) Income		(14,626	)		(70,012	)		(5,996	)		2,509		4,656
Basic (Loss) Earnings Per Share Before Cumulative Effect of Change in Accounting Principle and Discontinued Operations		(0.98	)		(4.53	)		(0.42	)		0.33		0.32
Basic (Loss) Earnings Per Share		(0.95	)		(4.56	)		(0.39	)		0.17		0.32
Diluted (Loss) Earnings Per Share Before Cumulative Effect of Change in Accounting Principle and Discontinued Operations		(0.98	)		(4.53	)		(0.42	)		0.32		0.32
Diluted (Loss) Earnings Per Share		(0.95	)		(4.56	)		(0.39	)		0.17		0.31
(In thousands)	As of April 30,
	2004			2003			2002			2001		2000
Balance Sheet Data:
Working Capital	$	30,385		$	49,226		$	84,532		$	91,750	$	87,552
Total Assets		134,085			146,264			206,476			206,944		194,639
Short-Term Debt		9,947			4,633			5,237			8,464		9,216
Long-Term Obligations		75,400			83,775			81,625			85,652		70,397
Shareholders’ (Deficit) Equity		(9,077	)		5,459			70,684			66,390		64,975

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

Special Risk Factors and Uncertainties

Impact of Financial Condition on Business.    Our overall financial position has impacted our terms of sale with customers. Where our standard terms of sale require deposits upon contract execution and significant payment prior to shipment, some customers who order systems with long-lead times have been reluctant to remit the necessary funds or have required that we provide security in the form of standby letters of credit. We currently cannot provide standby letters of credit with maturities extending beyond the August 1, 2005 maturity of our senior credit facility. As a result, we may have to continue to accept less than favorable terms on customer orders.

History of Losses and Potential for Future Losses.    Our net loss for the fiscal year ended April 30, 2003 and 2004 was $70.0 million and $14.6 million, respectively. As described in this section and the notes to the financial statements, in May 2003, we began an 18-month plan to significantly restructure our operations. We believe these restructuring and the related cost-cutting initiatives will reduce overall spending. If our restructuring efforts fail to adequately reduce costs, or if our sales are less than we project, we will continue to incur losses in future periods. Economic weakness in our served markets may adversely affect our ability to meet our sales projections.

Compliance with Current Financing Arrangements.    We are operating under an amended credit agreement with our senior lenders and an amended note agreement with our subordinated lender. The agreement with our senior lenders expires August 1, 2005 and sets forth specific financial covenants to be attained on a quarterly basis. Our subordinated lender has amended the subordinated note agreement. The revised covenants are similar to the covenants in the amended senior credit facility. In the event of default, the senior and subordinated lenders (together, the “Lenders”) may limit our access to borrow funds as needed. Our ability to continue operating is dependent on the Lenders’ willingness to grant access to funds. If we are unable to obtain

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the necessary funds, our ability to continue operations would be seriously impaired unless we are able to obtain alternative financing from another source. In the event of a default, obtaining alternative financing is unlikely, especially in the short term, given our current financial position. We may be unable to achieve our projected operating results and maintain compliance with the loan covenants which would trigger an event of default with our Lenders. In an event of default, the Lenders would be in the position to exercise default remedies which include applying a default interest rate and acceleration of payment schedules for our outstanding debt. If the debt were called in such a manner, it is unlikely we would be able to pay off our Lenders and we would be subject to the authority of our Lenders as provided in the credit agreement and also in the amended subordinated note agreement. Our Lenders may pursue any number of plans to reduce the outstanding debt, including, in certain circumstances, a liquidation of some or all of our assets.

Satisfaction of Subordinated Debt.    The $35 million initial principal amount of notes issued under the Note Agreement mature in two installments of $17.5 million each on April 30, 2007 and 2008. Our subordinated lender has agreed to defer and capitalize the semi-annual interest remittances due from April 30, 2003 through April 30, 2005, which total $13.2 million, less the $1.0 million paydown that we made concurrent with the signing of the amendment to the Note Agreement in July 2003, as a component of the principal balance outstanding. This unpaid interest accrues interest at the rate of 15%. In order to satisfy these obligations and to obtain favorable senior financing, we may be required to enter into transactions which could be dilutive to current shareholders such as converting the subordinated debt into equity or selling additional equity. It is likely that we will not generate sufficient cash from operations to pay installments due on either April 30, 2007 and 2008. Any agreement that we reach with the subordinated lender could have a material impact on the Company, including dilution to existing shareholders.

Additional Capital.    Our credit facilities may not provide us with sufficient capital to pursue all the business opportunities that may be available to us. In addition, the amended credit agreement expires on August 1, 2005 and we will need to seek either replacement debt, equity financing or a combination of both. There is no assurance that such financing will be available, or if it is available, that it will be on acceptable terms or that it will be sufficient in amount. Both senior and subordinated credit facilities require payment of significant additional fees if certain reductions in outstanding debt levels do not occur.

Retention and Replacement of Key Management.    Given our current financial position and substantial losses, we may lose key management personnel and encounter difficulties replacing these positions. We may have to incur greater costs to attract replacement personnel.

Intellectual Property Rights.    We defend our intellectual property rights because unauthorized copying and sale of our proprietary equipment and consumables represents a loss of revenue to us. From time to time we also receive notices from others claiming we infringe their intellectual property rights. The number of these claims may grow in the future, and responding to these claims may require us to stop selling or to redesign affected products, or to pay damages. See Note 13 to Consolidated Financial Statements for further discussion of contingencies.

Current Events

Lender Update.    Effective July 28, 2004, we amended our current credit agreement with our senior lenders. This amendment extends the credit facility’s expiration to August 1, 2005 and bears interest at the bank’s prime rate in effect from time to time plus 4% (currently 8.00%) through October 31, 2004 with stepped quarterly increases of 100 basis points beginning November 1, 2004. The agreement sets forth specific financial covenants to be attained on a quarterly basis, which we believe, based on our financial forecasts, are achievable.

On July 28, 2004, our subordinated lender amended the covenants of the subordinated note agreement in a similar fashion to those covenants agreed to by the senior lenders and will continue to allow the capitalization of the required semi-annual interest payments at October 31, 2004 and April 30, 2005, which total $5.3 million. Any unpaid interest accrues further charges at the rate of 15%.

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Restructuring.    Since May 2003, we have been executing on a plan intended to return us to profitability through reductions in headcount, consolidation of facilities and operations, and closure or divestiture of selected operations. We further evaluated the workforce and skill levels necessary to satisfy the expected future requirements of the business. As a result, we have implemented plans to eliminate redundant positions and realign and modify certain roles based on skill assessments. We have recorded restructuring charges of $4.8 million for the year ended April 30, 2004, which are shown in the table below (in thousands):

	Year Ended April 30, 2004
Severance benefits	$	652
Facility exit costs		1,058
Professional fees		1,520
Inventory write-downs		1,025
Other		521
	$	4,776

These charges included employee severance related costs for approximately 48 individuals. The fiscal 2004 reductions to-date in the global workforce were made across manufacturing, engineering as well as general and administrative functions. We have also recorded facility exit costs for the year ended April 30, 2004 primarily as a result of consolidating our two Kent facilities into one facility, vacating the manufacturing warehouse portion of our Flow Europe facility and reducing the space utilized in our Swedish manufacturing facility. We incurred professional fees associated with the restructuring of our debt in July 2003 and 2004. In addition, we scrapped some obsolete parts, returned surplus parts to vendors or sold parts to third parties, in conjunction with the shutdown of our manufacturing operation in Europe and standardization of our product line. See restructuring accrual information in Note 15 to Consolidated Financial Statements.

In February 2003 we entered into a relationship with The Food Partners, LLC, an investment banking firm specializing in the food industry, to develop and implement value-maximizing strategic alternatives for Avure. When we did not receive an acceptable offer for the business, we terminated the relationship with The Food Partners, LLC and made an interim decision to downsize the business and continue the operation of Avure. Recent orders of our food processing and General Press product lines will utilize available capacity at current manufacturing levels through December 2004. We continue to review the best options for Avure.

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Operational Data as a Percentage of Sales

	Year Ended April 30,
	2004		2003		2002
Sales	100	%	100	%	100	%
Cost of Sales	63	%	75	%	61	%
Gross Margin	37	%	25	%	39	%
Expenses:
Marketing	16	%	25	%	18	%
Research & Engineering	6	%	9	%	8	%
General & Administrative	13	%	16	%	10	%
Restructuring Charges	3	%	—	%	—	%
Impairment Charges	—	%	8	%	2	%
	38	%	58	%	38	%
Operating (Loss) Income	(1	)%	(33	)%	1	%
Interest Expense, net	(7	)%	(8	)%	(5	)%
Other Income (Expense), net	2	%	(3	)%	(1	)%
Loss Before (Provision) Benefit for Income Taxes	(6	)%	(44	)%	(5	)%
(Provision) Benefit for Income Taxes	(3	)%	(5	)%	2	%
Loss Before Discontinued Operations	(9	)%	(49	)%	(3	)%
Discontinued Operations, Net of Tax	1	%	—	%	—	%
Net Loss	(8	)%	(49	)%	(3	)%

Operational Overview:

Dollars in thousands	Year ended April 30, 2004								Year ended April 30, 2003									Year ended April 30, 2002
	Waterjet			Avure		Consolidated			Waterjet			Avure			Consolidated			Waterjet			Avure		Consolidated
Sales	$	132,861		$	44,748	$	177,609		$	121,833		$	22,282		$	144,115		$	127,763		$	49,127	$	176,890
Cost of Sales		83,604			28,366		111,970			88,259			19,815			108,074			79,029			28,790		107,819
Gross Margin		49,257			16,382		65,639			33,574			2,467			36,041			48,734			20,337		69,071
Operating Expenses		50,934			16,176		67,110			60,407			22,291			82,698			49,331			18,318		67,649
Operating (Loss) Income	$	(1,677	)	$	206	$	(1,471	)	$	(26,833	)	$	(19,824	)	$	(46,657	)	$	(597	)	$	2,019	$	1,422

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Sales Summary:

Dollars in thousands	Year ended April 30,						Year ended April 30,
	2004		2003		% Change		2003		2002		% Change
Operational breakdown:
Waterjet:
Systems	$	85,015	$	76,346	11	%	$	76,346	$	88,995	(14	)%
Consumable parts and services		47,846		45,487	5	%		45,487		38,768	17	%
Total		132,861		121,833	9	%		121,833		127,763	(5	)%
Avure:
Fresher Under Pressure		15,297		4,851	215	%		4,851		11,917	(59	)%
General Press		29,451		17,431	69	%		17,431		37,210	(53	)%
Total		44,748		22,282	101	%		22,282		49,127	(55	)%
	$	177,609	$	144,115	23	%	$	144,115	$	176,890	(19	)%
Geographic breakdown:
United States	$	97,546	$	79,450	23	%	$	79,450	$	95,853	(17	)%
Rest of Americas		13,004		15,673	(17	)%		15,673		13,364	17	%
Europe		46,557		31,326	49	%		31,326		52,757	(41	)%
Asia		20,502		17,666	16	%		17,666		14,916	18	%
	$	177,609	$	144,115	23	%	$	144,115	$	176,890	(19	)%

Results of Operations

We analyze our business based on the utilization of ultrahigh-pressure, either as released pressure or contained pressure. The released pressure portion of our UHP business, Waterjet, is comprised of the following segments: North America Waterjet, Asia Waterjet, Other International Waterjet and Other. The contained pressure operation, Avure, is made up of the Food, North America Press and International Press segments.

Fiscal 2004 Compared to Fiscal 2003

Sales

Waterjet.    The Waterjet operation includes cutting and cleaning operations, which are focused on providing total solutions for the aerospace, automotive, job shop, surface preparation (cleaning) and paper industries. For the year ended April 30, 2004, Waterjet revenue increased $11.1 million or 9% to $132.9 million from $121.8 million in the prior year, fueled by market demand for our dynamic waterjet and improved global market conditions in the primary industries we serve. Domestically, we recorded a $3.3 million or 6% revenue increase over the prior year period for sales of our standard waterjet cutting systems, as compared to the domestic machine cutting tool market, which recorded a year over year improvement of 12%, according to the Association for Manufacturing Technology (“AMT”). We do not believe that our shapecutting equipment business is as subject to cyclical fluctuations as the traditional methods tracked by the AMT. The broader machine tool market is recovering from historical lows. Our waterjets are experiencing continued acceptance in the marketplace from their flexibility and superior machine performance. This recent increase in domestic revenues was further enhanced by improved demand in the domestic automotive and aerospace sectors which included an expansion of our cutting cell applications to non-automotive customers. For the year ended April 30, 2004, domestic Waterjet revenues were $70.4 million, up $7.2 million or 11% from $63.2 million for the prior year.

Outside the U.S., Waterjet revenue growth was positively influenced by growth in Asian revenues which were up $2.8 million or 16% for the year ended April 30, 2004 to $20.5 million, compared to $17.7 million in the prior year. These increases were driven largely by sales in Japan where we experienced strong demand for our surface preparation and shapecutting systems. Within our Other International Waterjet segment, revenues from

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our European operations have improved by $3.0 million or 14% to $24.6 million during fiscal 2004. Market specific pricing and standardization of system offerings and a recovering European marketplace contributed to this improvement. We are typically able to sell our products at higher prices outside the U.S. due to the costs of servicing these markets. As much of our product is manufactured in the U.S., the weakness of the U.S. dollar also helped strengthen our foreign revenues.

We also analyze our Waterjet revenues by looking at system sales and consumable sales. Systems revenues for the year ended April 30, 2004 were $85.0 million, an increase of $8.7 million or 11%, compared to the prior fiscal year due to strong global sales from recovering economic conditions fueled by a weaker U.S. dollar. Consumables revenues also recorded an improvement of 5% or $2.3 million to $47.8 million for the year ended April 30, 2004, compared to the prior year consumable revenue of $45.5 million. This is due to increased machine utilization by our customers in North and South America and Asia, all of which led to higher parts consumption. Consumables revenue continues to be positively impacted by our proprietary productivity enhancing kits and improved parts availability as well as the introduction of Flowparts.com, our easy-to-use internet order entry system.

Avure.    The Avure operation includes the Fresher Under Pressure technology as well as General Press operations. Fresher Under Pressure meets the increasing demand in the U.S. for a post packaging, terminal pasteurization-like step (e.g. packaged ready-to-eat meats); the demand for high quality, minimally processed foods (e.g. fresh guacamole and salsas); and the demand to utilize the productivity enhancing capabilities of UHP in food processing (e.g. shellfish), while the General Press business manufactures systems which produce and strengthen advanced materials for the aerospace, automotive and medical industries. For the year ended April 30, 2004, revenues for Fresher Under Pressure were $15.3 million, representing a $10.4 million, or 215% improvement, compared to the prior year’s revenue of $4.9 million. A portion of this increase can be attributed to the reversal in the prior year of $4.3 million of percentage of completion revenue previously recognized on three food systems (one customer) based on the customer’s failure to fulfill its obligations under the contract terms. Additionally, in fiscal 2004, we were able to record revenue on fiscal 2003 orders where we delivered already-completed systems. These orders did not qualify for percentage of completion accounting and the corresponding revenue was recognized upon delivery and acceptance in fiscal 2004 of the systems that were sold.

For the year ended April 30, 2004, General Press revenues increased 69% or $12.0 million from $17.4 million for the prior year to $29.4 million, on stronger order volume and production. The majority of this revenue increase occurred in Europe and, accordingly, net consolidated revenues in Europe have increased over the prior year. General Press revenues will vary from year to year due to the nature of its sales and production cycle. The sales and production cycle on a General Press can range from one to four years.

Cost of Sales and Gross Margins.    Gross margin for the year ended April 30, 2004 amounted to $65.6 million or 37% of revenues, as compared to gross margin of $36.0 million or 25% of revenues in the prior year. Fiscal 2003 gross margin was negatively impacted by a number of adjustments posted during the third quarter of that year which totaled $11.1 million. Excluding these adjustments, the fiscal 2003 gross margin percentage would have been 33%. Generally, comparison of gross margin rates will vary year to year depending on the mix of sales, which includes special system, standard system and consumables sales. Gross margin rates on our systems sales are typically less than 45% as opposed to consumables sales which are in excess of 50%. On average, standard systems carry higher margins than the custom engineered systems, which include General Presses. Waterjet margins represented $49.2 million of the overall margin or 37% of Waterjet revenues and Avure margins amounted to $16.4 million or 37% of Avure revenues. Waterjet gross margin improved on better overhead absorption in light of higher sales volumes in the year and on fiscal 2003 inventory valuation adjustments. Avure gross margins increased on improved production volumes and prior year adjustments related to percentage of completion and inventory valuation.

Marketing Expenses.    Marketing expenses decreased $7.8 million or 21% to $28.4 million for the year ended April 30, 2004, as compared to the prior year marketing expenses of $36.2 million. The decrease stems primarily from the fiscal 2003 increase in the allowance for doubtful accounts of $4.1 million recorded based on

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our previous assessment of the financial conditions of our individual customers and general marketplace conditions. We have also implemented cost justification measures during fiscal 2004 aimed at providing return on invested marketing dollars. The remainder of the decrease is attributable to the cost of participation by Waterjet at the 2003 bi-annual IMTS tradeshow. Expressed as a percentage of revenue, marketing expenses were 16% and 25% for the years ended April 30, 2004 and 2003, respectively.

Research and Engineering Expenses.    Research and engineering expenses decreased $2.8 million or 21% to $10.7 million for the year ended April 30, 2004, as compared to the prior year’s research and engineering expenses of $13.5 million. This reduction is related to the timing of research and development work and the increased use of engineers on revenue generating projects. Expressed as a percentage of revenue, research and engineering expenses were 6% and 9% for the years ended April 30, 2004 and 2003, respectively.

General and Administrative Expenses.    General and administrative expenses increased $1.1 million or 5% to $23.3 million for the year ended April 30, 2004, as compared to the prior year’s general and administrative expenses of $22.2 million. The increase is attributable to higher costs of doing business as a public company following the enactment by Congress of the Sarbanes-Oxley Act of 2002 and includes increased directors’ and officers’ liability insurance as well as higher consulting costs for internal control work and other special projects. In addition, we resumed the compensation of our Board members in fiscal 2004 and implemented a performance-based bonus plan. Expressed as a percentage of revenue, general and administrative expenses were 13% and 16% for the years ended April 30, 2004 and 2003, respectively.

Restructuring Charges.    During the year ended April 30, 2004, we incurred $4.8 million of restructuring-related costs, including severance, lease termination and consultant costs, primarily in the U.S., Germany and Sweden.

Impairment Charges.    There were no impairment charges in fiscal 2004. During fiscal 2003, we conducted a selected review of the carrying value of our goodwill. Statement of Financial Accounting Standard No. 142 (“FAS 142”), “Goodwill and Other Intangible Assets”, requires a company to perform impairment testing when certain “triggering” events affecting a business unit have taken place. The triggering events were the expectation of a sale or full or partial disposal of certain of our divisions and the continuing deterioration of the economic climate. Our review resulted in impairment charges of $7.1 million during the quarter ended January 31, 2003. The impairment resulted primarily from continued weakness in the automotive industry, as well as weakness in our European operations. With the assistance of a third party valuation firm, we prepared an analysis of the fair value of the Company’s reporting units for our required FAS 142 annual assessment. This assessment, performed as of April 30, 2003, revealed no further impairment. At April 30, 2003, we also conducted an impairment review of our long-lived assets in accordance with Statement of Financial Accounting Standard No. 144 (“FAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets”. This review led to a $3.7 million impairment charge related primarily to the carrying value of the depreciable assets of Avure.

Operating Loss.    We recorded an operating loss of $1.5 million for the year ended April 30, 2004, as compared to a loss of $46.7 million in the prior year.

Interest and Other Income (Expense), Net.    Fiscal 2004 net interest expense increased $1.7 million or 15% to $13.0 million compared to the prior year of $11.3 million due to increased amounts of amortization of fees from our credit facilities and a higher weighted average cost of capital from interest charged on the deferred and capitalized semi-annual interest payments to our subordinated lender, John Hancock. Included in Other Income, net is a $2.6 million gain from the sale of our investment in WGI Heavy Minerals. In addition, the weaker dollar has positively impacted our foreign transactions and we have thus recorded currency gains of $1.6 million in fiscal 2004. As the U.S. dollar remains weak, this has also caused other changes in our balance sheet, including an increase in our goodwill and intangible assets due to the translation from foreign currencies. Included in Other Expense, net for the year ended April 30, 2003, are $2.1 million of realized foreign exchange transaction losses as well as a $1.2 million accrual related to a discount agreed to as part of the sale of a substantial portion of our long-term notes receivable to a financial institution.

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Income Taxes.    We are providing for income taxes in jurisdictions where we have generated taxable income. During fiscal 2004, as a result of foreign asset collateral requirements and the amended credit agreements discussed in Note 8 to Consolidated Financial Statements, we were no longer able to permanently defer foreign earnings and recorded a $1.9 million liability for withholding taxes payable on future repatriation of foreign earnings. We also recorded a U.S. tax liability of $6.7 million on foreign earnings which we have decided to no longer permanently defer. The total $6.7 million tax liability is offset by a release of the valuation allowance. In addition, we continue to assess our ability to realize our net deferred tax assets. Recognizing the continued losses generated during the quarter and in prior periods, we have determined it appropriate to continue to maintain a valuation allowance on our domestic net operating losses, certain foreign net operating losses and certain other deferred tax assets based on the expected reversal of both deferred tax assets and liabilities. As of April 30, 2004, we had approximately $22.8 million of domestic net operating loss carryforwards to offset certain earnings for federal income tax purposes. All of these net operating loss carryforwards expire in fiscal 2023. Net operating loss carryforwards in foreign jurisdictions amount to $36.7 million and do not expire. See Note 9 to Consolidated Financial Statements for discussion of tax components.

Discontinued Operations, Net of Tax.    As of April 30, 2003, we held one of our service subsidiaries for sale and consequently showed its results of operations as discontinued operations for all periods presented. The sale of this subsidiary was consummated May 16, 2003 and resulted in cash proceeds of $1.8 million and a gain of approximately $650,000.

The weighted average number of shares outstanding used for the calculation of basic and diluted loss per share is 15,415,000 for fiscal 2004 and 15,348,000 for fiscal 2003.

Net Loss.    Our consolidated net loss for fiscal 2004 amounted to $14.6 million, or $.95 basic and diluted loss per share as compared to a net loss of $70.0 million, or $4.56 basic and diluted loss per share in the prior year.

Fiscal 2003 Comprehensive Financial Review.    During fiscal 2003, we revised our approach to receivable collection, inventory reduction and investigated other cash-generating initiatives in response to the continued declined in the economy and our highly leveraged position. We reviewed the carrying values of those assets that we expected to convert to cash in the short-term, as well as long-lived tangible and intangible assets and adjusted the carrying value of such assets to reflect their estimated current net realizable value. In addition, we conducted a review of potential liabilities. The total adjustments for the year ended April 30, 2003 are included in the Consolidated Statement of Operations. These adjustments, which are summarized below, were highly influenced by the economic environment our customers and we are facing.

• We increased our allowance for doubtful accounts by $4.1 million. This increase was based on extensive collection efforts and the results of a worldwide receivable-by-receivable review, including evaluation of the impact of current economic conditions, which had restricted customers’ ability to pay their account balances.

• We evaluated our ability to convert inventories, including evaluation and demonstration units, into cash in the short term by their sale or disposition. This evaluation led to a total adjustment of $5.4 million to arrive at the estimated net realizable value of our inventories.

• We conducted a detailed review of the carrying value of our goodwill in accordance with FAS 142. The triggering events were the expectation of sale or full or partial disposal of certain of our divisions, the continuing deterioration of the economic climate, and our operating losses. Our review resulted in impairment charges of $7.1 million during the third quarter of fiscal 2003. The impairment resulted primarily from continued weakness in the automotive industry, as well poor performance at our European operations. Our required annual FAS 142 review as of April 30, 2003 led to no further impairment charges.

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• Although our former CEO remains obligated to perform consulting services through May 2005, the remaining term of his consulting contract, we determined that no significant future services are likely to be required of him. Therefore we accrued and charged to operations all remaining contractual fees and related benefits aggregating approximately $1.1 million.

• During fiscal 2003, we sold $9.7 million of long-term notes receivable for $8.6 million. This discount of $1.1 million plus an additional accrual of $0.1 million on potential future notes available for sale were recorded in Other Expense, net.

• We accrued an additional $1.5 million for potential losses related to several recourse/repurchase obligations on European sales. We have from time to time entered into recourse obligations with third party leasing companies. In response to continued concerns about the financial health of several customers, we revised our estimate of potential future exposure. Included in the $1.5 million accrual was $760,000 for the estimated loss on the repurchase and subsequent sale of a flex form press system, where we had a recourse obligation for a bankrupt customer. We sold this unit to an unrelated party in fiscal 2004.

• We had deferred $0.8 million in professional fees associated with previous ongoing strategic transactions, consisting of a planned equity offering and spin-off of Avure. We have abandoned these plans and accordingly expensed all of these fees.

• We reversed percentage of completion revenue previously recognized on three food systems (one customer) based on the customer’s failure to fulfill its obligations under the contract terms. The total revenue reversed in the third quarter of fiscal 2003 was $4.3 million with an associated gross margin of $2.3 million. We received new orders for which we plan to deliver already-completed systems from inventory. Accordingly, these specific contracts did not qualify for percentage of completion accounting and the corresponding revenue was recognized upon delivery and acceptance in fiscal 2004.

• We assessed our ability to realize our net deferred tax assets. Recognizing the magnitude of the losses generated during the fiscal year, we determined it appropriate to establish a valuation allowance for our net deferred tax assets, with the exception of our Swedish operations, amounting to $5.3 million as well discontinuing, in the near term, any future recognition of deferred tax assets resulting from losses.

• Based upon our proposed strategy to downsize and streamline our operations and convert non-core or excess assets to cash, we adjusted various other asset values and reserves to appropriately reflect their net realizable value on a prospective basis, in accordance with FAS 144. These adjustments totaled $9.1 million for the year.

Fiscal 2003 Compared to Fiscal 2002

Sales

Waterjet.    As a result of continued weakness in the machine tool market for the year ended April 30, 2003, Waterjet revenue decreased 5% to $121.8 million from $127.8 million in the prior year. Domestically, we recorded a $3.3 million or 6% revenue decrease over the prior year period, as compared to the domestic machine cutting tool market, which recorded a year over year decline of 19%, according to the Association for Manufacturing Technology. Our shapecutting equipment business continues to outperform the broader domestic market which demonstrates the ongoing application expansion that Flow waterjets are experiencing resulting from their flexibility and superior machine performance. This decrease in domestic revenues was further exacerbated by weak demand in the domestic automotive and aerospace sectors which was offset slightly by an expansion of our cutting cell applications to non-automotive customers. For the year ended April 30, 2003, domestic Waterjet revenues were $63.2 million, down 7% from $68.0 million for the prior year.

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Outside the U.S., Waterjet revenue growth was positively influenced by Asia, whose revenues were up 18% for the year ended April 30, 2003 to $17.7 million, compared to $14.9 million in the prior year. These increases were driven largely by sales into China. Additionally, in Korea, changes in lending policies have provided capital to small and mid-sized businesses—Flow’s traditional customers. Our European operations have been negatively impacted over the past several months by the continued slowing of the overall economy and weakening customer financial stability. These marketplace conditions have resulted in a significant decrease in Waterjet’s revenues in Europe as compared to the prior fiscal year posting a decrease of $4.9 million or 20% to $20.1 million compared to $25.0 million in 2002. In an effort to offset any additional future impact, we have put in place a new general manager, changed our pricing structure and accelerated payment terms.

Systems revenues for the year ended April 30, 2003 were $76.3 million, a decrease of $12.6 million or 14%, compared to the prior fiscal year due to the impact of revenue decreases in the US and Europe. Consumables revenues, on the other hand, recorded a 17% or $6.7 million improvement to $45.5 million for the year ended April 30, 2003, compared to the prior year consumable revenue of $38.8 million. This is due to increased machine utilization by our customers which has led to higher parts consumption.

Avure.    As expected, a portion of the decrease in Avure’s revenues resulted from reduced General Press revenues. For the year ended April 30, 2003, General Press revenues were down 53% from $37.2 million for the prior year to $17.4 million. The majority of this revenue decrease occurred in Europe and accordingly net consolidated revenues in Europe are down over the prior year.

For the year ended April 30, 2003, revenues for Fresher Under Pressure were $4.9 million, representing a $7.1 million, or 59% decline, compared to the prior year’s revenue of $11.9 million. A portion of this decrease can be attributed to the $4.3 million reversal of percentage of completion revenue previously recognized on three food systems (one customer) based on the customer’s failure to fulfill its obligations under the contract terms. In addition, we received some orders for which we plan to deliver already-completed systems. Accordingly, these specific orders do not qualify for percentage of completion accounting and the corresponding revenue will be recognized upon delivery and acceptance in a later period.

Cost of Sales and Gross Margins.    Gross margin for the year ended April 30, 2003 amounted to $36.0 million or 25% of revenues, as compared to gross margin of $69.1 million or 39% of revenues in the prior year. Fiscal 2003 gross margin was significantly impacted by a number of adjustments posted during our third quarter, which are described below. Generally, comparison of gross margin rates will vary year to year depending on the mix of sales, which includes special system, standard system and consumables sales. Waterjet margins represented $33.6 million of the overall margin or 28% of Waterjet revenues, while Avure margins amounted to $2.5 million or 11% of Avure revenues. Both of our business operations experienced decreased margins resulting in part from adjustments made to the carrying value of inventories to net realizable value, amounting to $6.4 million in both segments or 4% of revenues. Waterjet gross margin was further depressed by weak sales in the automotive and aerospace business which resulted in underabsorption of overhead costs. In addition, the weakened European economy has led to a change in estimate on several revenue projects in which we had a financial obligation to a third party. Gross margins were negatively impacted by $1.0 million due to increased revenue reserves based on this change in estimate. Additionally, the decrease in Avure gross margins dollars resulted from the revenue reversal of three units due to the customer’s failure to fulfill contractual obligations as well as an accrual for the anticipated loss of a general press unit on which the customer defaulted. These adjustments amounted to $3.7 million or 3% of total revenues.

Marketing Expenses.    Marketing expenses increased $4.8 million or 15% to $36.2 million for the year ended April 30, 2003, as compared to the prior year marketing expenses of $31.4 million. The increase stems primarily from an increase in the allowance for doubtful accounts recorded during the year as a result of our assessment of the financial conditions of our individual customers and general marketplace conditions. The remainder of the increase is attributable to the completion of the investment in the marketing organization and infrastructure of Avure, which now has a complete sales team, and the cost of participation by Waterjet at the bi-annual IMTS tradeshow. Expressed as a percentage of revenue, marketing expenses were 25% and 18% for the years ended April 30, 2003 and 2002, respectively.

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Research and Engineering Expenses.    Research and engineering expenses decreased $1.4 million or 9% to $13.5 million for the year ended April 30, 2003, as compared to the prior year’s research and engineering expenses of $14.9 million. This reduction is due to our focused global realignment of resources and overall cost cutting efforts. Expressed as a percentage of revenue, research and engineering expenses were 9% and 8% for the years ended April 30, 2003 and 2002, respectively.

General and Administrative Expenses.    General and administrative expenses increased $5.1 million or 30% to $22.2 million for the year ended April 30, 2003, as compared to the prior year’s general and administrative expenses of $17.1 million. These increases stemmed in part from the accrual of our former CEO’s severance, the write-off of previously deferred professional fees associated with an anticipated equity offering and recruitment and other expenses associated with the hiring of Stephen Light as the new President and CEO. Additionally, a portion of the increase was due to Avure’s executive management team being in place for the full year, and only part of the prior year, as well as additional costs associated with bank amendments. Expressed as a percentage of revenue, general and administrative expenses were 16% and 10% for the years ended April 30, 2003 and 2002, respectively.

Impairment Charges.    At January 31, 2003, we conducted a selected review of the carrying value of our goodwill. FAS 142 requires a company to perform impairment testing when certain “triggering” events affecting a business unit have taken place. The triggering events were the expectation of a sale or full or partial disposal of certain of our divisions and the continuing deterioration of the economic climate. Our review resulted in impairment charges of $7.1 million during the quarter ended January 31, 2003. The impairment resulted primarily from continued weakness in the automotive industry, as well as weakness in our European operations. With the assistance of a third party valuation firm, we prepared an analysis of the fair value of the Company’s reporting units for our required FAS 142 annual assessment. This assessment, performed as of April 30, 2003, revealed no further impairment. During the year ended April 30, 2002, we also recorded a goodwill impairment charge of $4.3 million due to weakness in the automotive industry. At April 30, 2003, we also conducted an impairment review of our long-lived assets in accordance with FAS 144. This review led to a $3.7 million impairment charge related primarily to the carrying value of the depreciable assets of Avure.

Operating Loss.    We recorded an operating loss of $46.7 million for the year ended April 30, 2003, as compared to operating income of $1.4 million in the prior year.

Interest and Other Expense, Net.    Fiscal 2003 net interest expense increased $2.5 million or 28% to $11.3 million compared to the prior year of $8.8 million due to a higher weighted average cost of capital and a higher average debt level throughout the first 10 months of the fiscal year. Included in Other Expense, net are realized foreign exchange transaction gains and losses as well as a $1.2 million accrual related to a discount agreed to as part of the sale of a substantial portion of our long term notes receivable to a financial institution. We retain no contingent liabilities associated with this sale.

Income Taxes.    During fiscal 2003, we assessed our ability to realize our net deferred tax assets. Recognizing the magnitude of the losses generated during the year, we determined it appropriate to establish a valuation allowance to reduce all previously recognized net deferred tax assets to a level offset by deferred tax liabilities, with the exception of our Swedish operation. The valuation allowance of $5.3 million, recorded during the third fiscal quarter, on net deferred tax assets generated in prior periods, is included in the Provision for Income Taxes in the Consolidated Statement of Operations and shown as a reduction of both Current and Long-Term Deferred Income Taxes on the Consolidated Balance Sheet. Further, we did not recognize deferred tax assets associated with any losses generated in the fourth quarter, with the exception of the Swedish operations.

Discontinued Operations, Net of Tax.    As of April 30, 2003, we held one of our service subsidiaries for sale and have consequently shown its results of operations under discontinued operations for all periods presented. The sale of this subsidiary was consummated May 16, 2003 and resulted in cash proceeds of $1.8 million and a gain of approximately $650,000.

22

The weighted average number of shares outstanding used for the calculation of basic and diluted loss per share is 15,348,000 for fiscal 2003 and 15,234,000 for fiscal 2002.

Net Loss.    Our consolidated net loss for fiscal 2003 amounted to $70.0 million, or $4.56 basic and diluted loss per share as compared to a net loss of $6.0 million, or $0.39 basic and diluted loss per share in the prior year.

Liquidity and Capital Resources

We generated $12.3 million in cash from operations during fiscal 2004 as compared to $8.4 million in fiscal 2003. We generated cash of $20.1 million from changes in operating assets and liabilities, primarily from the reduction of inventories which generated $14.2 million in cash and from the collection of customer deposits totaling $4.6 million.

Net receivables are comprised of trade accounts and unbilled revenues. At April 30, 2004, our net receivables balance increased $10.3 million or 30% from the April 30, 2003 level of $34.6 million. In late fiscal 2003, we implemented credit and collection procedures to reduce the extension of credit beyond their due dates. This has led to a $3.5 million reduction in trade receivables from $31.1 million at April 30, 2003 to $27.6 million at April 30, 2004, an 11% decrease, on significantly higher revenue levels. However, the decrease in trade receivables was offset by an increase in unbilled revenues. Unbilled revenues increased from $8.5 million at April 30, 2003 to $22.0 million at April 30, 2004, a $13.5 million or a 158% increase. This increase is the result of stronger demand for our General Presses and food systems, as well as increased activity in the automotive and aerospace sectors. A significant portion of unbilled receivables relates to equipment and systems accounted for on a percentage of completion basis. Unbilled revenues fluctuate due to the scheduling of production and achievement of certain billing milestones. The increase in unbilled revenues is consistent with our expectations based on the factors above. Receivables can be negatively affected by the traditionally longer payment cycle outside the U.S. and the timing of billings and payments on large special system orders. We do not believe these timing issues will present a material adverse impact on our short-term liquidity requirements. Because of the lead-time to build and deliver such equipment, ultimate collection of such accounts can be subject to the business and economic conditions facing our customers.

Net inventories at April 30, 2004 decreased $14.5 million or 35% to $26.4 million from the April 30, 2003 level of $40.9 million due to our efforts to convert inventories to cash in the short term by their sale or disposition as well as our implementation of initiatives targeted at increasing inventory turns. Gross inventories decreased $16.3 million or 36% offset by a reduction of $1.8 million or 42% in the obsolescence reserve as we scrapped some obsolete parts, returned surplus parts to vendors or sold parts to third parties, in conjunction with the shutdown of our manufacturing operation in Europe and standardization of our product line.

Customer deposits have nearly doubled to $10.2 million at April 30, 2004, a $5.0 million increase over the April 30, 2003 balance of $5.2 million. We have been working with our customers on our terms of sale which require a substantial portion of any system to be paid prior to its shipment and have seen acceptance from some of our customers.

A substantial portion of our cash is held by divisions outside the U.S. The repatriation of offshore cash balances from certain divisions will trigger tax liabilities. During fiscal 2004, we decided to no longer permanently defer foreign earnings and recorded a $1.9 million liability for withholding taxes payable on future repatriation of foreign earnings. When cash balances are repatriated to the U.S., they will be used to pay down the senior credit facility.

While we have substantially completed the execution of our restructuring plan, our total commitments include restructuring cash expenditures of between $10 million and $11 million from May 2003 to February 2005. We have funded these commitments within our existing credit facilities as well as with our cash from operations. As of April 30, 2004, we have spent $7.9 million which includes completing the construction of our

23

new $5.2 million Taiwanese facility, to which we had committed in July 2000. The facility construction was financed via three unsecured lines of credit with Taiwanese banks. We have also obtained collateralized long-term credit facilities and have drawn on these facilities in June 2004. We have used the proceeds to repay and permanently reduce the senior credit facility by $3.5 million. We anticipate funding the remaining restructuring cash commitments of between $2 million and $3 million within our existing credit facilities and with cash from operations. We expect that the benefits from our restructuring activities will be reflected in our operating results beginning with fiscal 2005 and, we believe, these changes should help us to achieve our forecasts.

In June 2004, we were subject to a value-added tax (“VAT”) audit in Germany. The audit concluded that we owed VAT of $1.3 million including interest. We had the liability accrued at April 30, 2004 and have remitted the payment to the German taxing authorities in July 2004.

Our senior credit agreement (“Credit Agreement”) is our primary source of external funding. At April 30, 2004, the balance outstanding on the Credit Agreement is $40.0 million against a maximum borrowing of $46.2 million. Our available credit at April 30, 2004, less $3.4 million in outstanding letters of credit, is $2.8 million.

On July 28, 2004, we signed an amendment to the current credit agreement (the “Amendment”). The Amendment provides for a revolving line of credit of up to $42.7 million and an extension of the credit agreement through August 1, 2005. The commitment reduces to $41.0 million at April 30, 2005. Interest rates under the credit facility are at Bank of America’s prime rate in effect from time to time plus 4% and increase by one percentage point each quarter beginning November 1, 2004. The prime rate at April 30, 2004 was 4.00%. The Amendment also requires a quarterly commitment fee of  ¹/2 of 1% (50 basis points) of the total commitment, and issuance of 150,000 detachable $.01 warrants as a fee. In addition, the Amendment specifies compliance with minimum EBITDA and collateral levels and provides limits for spending on research & engineering as well as capital expenditures. The Amendment also has provisions for mandatory commitment reductions in the event of a sale of assets outside the ordinary course of business or in the event of an equity event. Commitment level reductions are based on a percentage of the cash generated by these activities net of applicable fees.

We also amended our subordinated note agreement effective July 28, 2004. The subordinated lenders have also capitalized the semi-annual interest remittances due from October 31, 2004 through April 30, 2005, which total $5.3 million. This capitalized interest accrues at the rate of 15%. The subordinated lenders also received 150,000 detachable $.01 warrants as a fee. See Notes 8 and 18 to Consolidated Financial Statements.

Both senior and subordinated credit facilities require payment of significant additional fees if certain reductions in outstanding debt levels do not occur.

The Company has incurred losses during fiscal 2002, 2003 and 2004. In February 2003, we announced a comprehensive two-year restructuring plan intended to return the Company to profitability through reductions in headcount, consolidation of facilities and operations, and closure or divestiture of selected operations. We have been able to satisfy our needs for working capital and capital expenditures, due in part to our ability to access adequate financing arrangements. We expect that operations will continue, with the realization of assets and discharge of liabilities in the ordinary course of business. Compliance with future debt covenants requires us to meet our operating projections, which include achieving certain revenues, costs, consistent operating margins, and working capital targets.

We believe that our existing cash and credit facilities at April 30, 2004 are adequate to fund our operations through April 30, 2005. If we fail to achieve our planned revenues, costs and working capital objectives, management believes it has the ability to curtail capital expenditures and reduce costs to levels that will be sufficient to enable us to meet our cash requirements and debt covenants through April 30, 2005.

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However, demand for our products and timing of cost reductions are difficult to project. Our restructuring initiatives may have unanticipated effects on our business. If we are unable to comply with the amended debt covenants, and our lenders are unwilling to waive or amend the debt covenants, certain components of our long-term obligations and notes payable would become callable, and we would be required to seek alternative financing. We are continuing to evaluate our current capital structure and may investigate alternative sources of financing. Alternative sources of financing may not be available if required or, if available, may not be on satisfactory terms. If we are unable to obtain alternative financing on satisfactory terms, it could have a material adverse effect on our business, and we may be required to curtail capital spending, further reduce expenses, and otherwise modify our planned operations including potentially discontinuing operations.

Presented below is a summary of contractual obligations and other minimum commercial commitments at April 30, 2004, by due date. See Notes 3, 8 and 13 to Consolidated Financial Statements for additional information regarding foreign currency contracts, long-term debt, and lease obligations, respectively.

(in thousands)	Maturity by Fiscal Year
	2005		2006		2007		2008		2009		Thereafter		Total
Contractual obligations not reflected on the balance sheet:
Foreign currency
Contracts (1)	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Inventory purchases (2)		2,351		—		—		—		—		—		2,351
Operating leases		3,978		3,482		3,095		2,448		1,704		5,269		19,976
Other (3)		582		214		137		56		56		56		1,101
Subtotal		6,911		3,696		3,232		2,504		1,760		5,325		23,428
Contractual obligations reflected in the balance sheet:
Long-term debt and notes payable		9,947		40,035		20,958		20,938		—		—		91,878
Total	$	16,858	$	43,731	$	24,190	$	23,442	$	1,760	$	5,325	$	115,306

(1) As these obligations were entered into as hedges, the majority of these obligations will be offset by losses/gains on the related assets, liabilities and transactions being hedged. As of April 30, 2004, the net settlement of the transactions and related hedges amounts to a gain of $354,000 which is included in Other Comprehensive Loss on the Consolidated Balance Sheet.

(2) We have included inventory purchase commitments, which are legally binding and specify minimum purchase quantities. These purchase commitments do not exceed our projected requirements and are in the normal course of business. These commitments exclude open purchase orders.

(3) These obligations include non-inventory vendor commitments, such as professional retainers and trade show commitments.

Long-term debt obligations, notes payable and lease commitments are expected to be met from working capital provided by operations and, as necessary, by other borrowings.

Our capital spending plans currently provide for outlays of approximately $2 million in fiscal 2005, primarily related to information technology spending. It is expected that funds necessary for these expenditures will be generated internally and through available credit facilities.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments

25

that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting estimates are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe that our critical accounting estimates are limited to those described below. For a detailed discussion on the application of these estimates and our accounting policies, refer to Note 1 to Consolidated Financial Statements.

Revenue Recognition

For standard systems and consumable and services sales, we recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition in Financial Statements”. SAB 104 requires that revenue can only be recognized when it is realized or realizable and earned. Revenue generally is realized or realizable and earned when all four of the following criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the price is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criterion (4) is based on our judgments regarding the collectibility of those amounts. Should changes in conditions cause us to determine this criterion is not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.

During the second quarter of fiscal 2004, we adopted EITF Issue No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables” on a prospective basis. EITF 00-21, which was subsequently included in SAB 104, provides guidance on how to account for arrangements that involve the delivery or performance of single or multiple products, services and/or rights to use assets. For standard systems, our multiple deliverables are: (1) the standard system and (2) the installation thereof. If payment is contingent upon system installation and the system installation does not occur prior to a period end, the system revenue we recognize is the lesser of the cash received or the estimated relative fair value of the system. The adoption of EITF 00-21 did not have a significant effect on the consolidated financial statements.

For non-standard and long lead time systems, including the Avure operation, we recognize revenues using the percentage of completion method in accordance with Statement of Position 81-1 (“SOP 81-1”), “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” We use the cost to cost method, measuring the costs incurred on a project at a specified date, as compared to the estimated total cost of the project. Percentage of completion requires management to estimate costs to complete. Accordingly, modifications to estimates will impact percentage of completion revenues and associated gross margins. If, however, the time from order to install is less than three months, revenue is recognized under SAB 104. Revenues from equipment on lease are recognized as rental income in the period earned. Shipping revenues and expenses are recorded in revenue and costs of goods sold, respectively.

Product Warranty Reserve

Our products are generally covered by a warranty up to 12 months. We accrue a reserve for estimated warranty costs at the time revenue is recognized. Our estimate of costs to service our warranty obligations is based on historical experience and expectation of future conditions. To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims, our warranty accrual will increase resulting in decreased gross profit.

Valuation of Accounts Receivable

We use estimates in determining our allowance for bad debts that are based on our historical collection experience, current trends, credit policy and a percentage of our accounts receivable by aging category. In determining these percentages, we review historical write-offs in our receivables. In determining the appropriate reserve percentages, we also review current trends in the credit quality of our customers, as well as changes in our internal credit policies.

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Valuation of Obsolete/Excess Inventory

We currently record a reserve for obsolete or excess inventory for parts and equipment that are no longer used due to design changes to our products or lack of customer demand. We regularly monitor our inventory levels and, if we identify an excess condition based on our usage and our financial policies, we record a corresponding reserve. If our estimate for obsolete or excess inventory is understated, gross margins would be reduced.

Valuation of Deferred Tax Assets

We review our deferred tax assets regularly to determine their realizability. When evidence exists that it is more likely than not that we will be unable to realize a deferred tax asset, we set up a valuation allowance against the asset based on our estimate of the amount which will likely not be realizable. Future utilization of deferred tax assets could result in future income.

Impairment of Property and Equipment, Patents, Other Intangibles and Goodwill

We evaluate property and equipment, patents and other intangibles for potential impairment indicators when certain triggering events occur. Our judgments regarding the existence of impairment indicators are based on expected operational performance, market conditions, legal factors and future plans. If we conclude that a triggering event has occurred, we will compare the carrying values of the asset with the undiscounted cash flows expected to be derived from usage of the asset. If there is a shortfall and the fair value of the asset is less than its carrying value, we will record an impairment charge for the difference. We estimate fair value by using a discounted cash flow model. Any resulting impairment charge could have a material adverse impact on our financial condition and results of operations. Many factors will ultimately influence the accuracy of these estimates.

We evaluate goodwill for potential impairment indicators as of our fiscal year-end and when certain triggering events occur. Our judgments regarding the existence of impairment indicators are based on expected operational performance, market conditions, legal factors, and future plans. Future events could cause us to conclude that impairment indicators exist and that goodwill should be evaluated for impairment prior to our fiscal year-end. Our impairment evaluation is based on comparing the fair value of the operating division with its associated carrying value and any shortfalls would require us to record an impairment charge for the difference between the carrying value and implied value of goodwill. We determine fair value by using a discounted cash flow model. Any resulting impairment charge could have a material adverse impact on our financial condition and results of operations. Expected future operational performance is based on estimates and management’s judgment. Many factors will ultimately influence the accuracy of these estimates.

Legal Contingencies

At any time, we may be involved in certain legal proceedings. As of April 30, 2004, we have accrued our estimate of the probable costs for the resolution of these claims. This estimate has been developed in consultation with outside legal counsel and is based upon an analysis of potential outcomes, assuming a combination of litigation and settlement strategies. We do not believe these proceedings will have a material adverse effect on our consolidated financial position. However, it is possible that future results of operations or cash flows for any particular quarterly or annual period could be materially affected by changes in our assumptions, or the effectiveness of our strategies, related to these proceedings.

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

Market risk exists in our 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 our daily operations.

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Interest Rate Exposure—At April 30, 2004, we had $91.9 million in interest bearing debt. Of this amount, $41.9 million was fixed rate debt with an interest rate of 15% per annum. The majority of the remaining debt of $50.0 million was variable at a rate of prime + 4% or 8.00% at April 30, 2004. See Note 8 to the Consolidated Financial Statements for additional contractual information on our 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 our pretax profits and cash flow of $353,000. At April 30, 2004, we had no derivative instruments to offset the risk of interest rate changes. We 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—We transact business in various foreign currencies, primarily the Canadian dollar, the Eurodollar, the Japanese yen, the New Taiwan dollar, and the Swedish Krona. The assets and liabilities of our 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 included in the determination of net loss amounted to $1.6 million for the year ended April 30, 2004. Based on our overall currency rate exposure at April 30, 2004, a near-term 10% appreciation or depreciation of the U.S. dollar would not have a significant effect on our financial position, results of operations and cash flows over the next fiscal year. At April 30, 2004, we had 20 forward exchange contracts to offset the risk of foreign currency exchange rate changes. We 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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Item 8.    Financial Statements and Supplementary Data

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

Index to Consolidated Financial Statements	Page in This Report
Report of Independent Registered Public Accounting Firm	30
Consolidated Balance Sheets at April 30, 2004 and 2003	31
Consolidated Statements of Operations for each of the three years in the period ended April 30, 2004	32
Consolidated Statements of Cash Flows for each of the three years in the period ended April 30, 2004	33
Consolidated Statements of Shareholders’ (Deficit) Equity and Comprehensive Loss for each of the three years in the period ended April 30, 2004	34
Notes to Consolidated Financial Statements	35
Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts	57

All other schedules are omitted because they are not applicable or the disclosures are made in the footnotes to the consolidated financial statements.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Flow International Corporation

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Flow International Corporation (“the Company”) and its subsidiaries at April 30, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2004, 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 the financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards 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 our opinion.

As further described in Note 1, the Company adopted the provisions of EITF 00-21, “Revenue Arrangements with Multiple Deliverables”, effective August 1, 2003, and the provisions of FIN 46R, “Consolidation of Variable Interest Entities”, effective February 1, 2004.

/s/    PRICEWATERHOUSECOOPERS LLP

Seattle, Washington

August 10, 2004

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FLOW INTERNATIONAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

	April 30,
	2004			2003
ASSETS:
Current Assets:
Cash and Cash Equivalents	$	11,734		$	15,045
Restricted Cash		2,156			—
Receivables, net		44,860			34,600
Inventories, net		26,384			40,883
Deferred Income Taxes		536			957
Assets of Discontinued Operations		—			1,191
Other Current Assets		5,606			7,464
Total Current Assets		91,276			100,140
Property and Equipment, net		14,200			12,987
Intangible Assets, net		14,251			13,941
Goodwill		10,664			10,141
Other Assets		3,694			9,055
	$	134,085		$	146,264
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY:
Current Liabilities:
Notes Payable	$	9,887		$	4,610
Current Portion of Long-Term Obligations		60			23
Accounts Payable		15,123			12,250
Accrued Payroll and Related Liabilities		7,734			4,512
Taxes Payable and Other Accrued Taxes		4,212			1,590
Deferred Revenue		3,028			4,803
Customer Deposits		10,181			5,159
Other Accrued Liabilities		10,666			17,967
Total Current Liabilities		60,891			50,914
Long-Term Obligations, net		75,400			83,775
Other Long-Term Liabilities		4,511			3,791
		140,802			138,480
Commitments and Contingencies (Note 13)
Minority Interest		2,360			2,325
Shareholders’ (Deficit) Equity:
Series A 8% Convertible Preferred Stock—$.01 par value, 1,000,000 shares authorized, none issued
Common Stock—$.01 par value, 29,000,000 shares authorized, 15,702,759 shares outstanding at April 30, 2004 15,358,759 shares outstanding at April 30, 2003		157			154
Capital in Excess of Par		56,629			55,869
Accumulated Deficit		(55,432	)		(40,806	)
Accumulated Other Comprehensive Loss		(10,431	)		(9,758	)
Total Shareholders’ (Deficit) Equity		(9,077	)		5,459
	$	134,085		$	146,264

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

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FLOW INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Year Ended April 30,
	2004			2003			2002
Sales	$	177,609		$	144,115		$	176,890
Cost of Sales		111,970			108,074			107,819
Gross Margin		65,639			36,041			69,071
Operating Expenses:
Marketing		28,422			36,180			31,404
Research and Engineering		10,651			13,501			14,889
General and Administrative		23,261			22,202			17,060
Restructuring Charges		4,776			—			—
Impairment Charges		—			10,815			4,296
		67,110			82,698			67,649
Operating (Loss) Income		(1,471	)		(46,657	)		1,422
Interest Expense, net		(12,995	)		(11,319	)		(8,823	)
Other Income (Expense), net		4,413			(4,333	)		(2,276	)
Loss Before (Provision) Benefit for Income Taxes		(10,053	)		(62,309	)		(9,677	)
(Provision) Benefit for Income Taxes		(5,099	)		(7,180	)		3,290
Loss Before Discontinued Operations		(15,152	)		(69,489	)		(6,387	)
Discontinued Operations, Net of Tax		526			(523	)		391
Net Loss	$	(14,626	)	$	(70,012	)	$	(5,996	)
Loss Per Share
Basic and Diluted
Loss Before Discontinued Operations	$	(.98	)	$	(4.53	)	$	(.42	)
Discontinued Operations, Net of Tax		.03			(.03	)		.03
Net Loss	$	(.95	)	$	(4.56	)	$	(.39	)

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

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FLOW INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended April 30,
	2004			2003			2002
Cash Flows from Operating Activities:
Net Loss	$	(14,626	)	$	(70,012	)	$	(5,996	)
Adjustments to Reconcile Net Loss to Cash Provided by Operating Activities:
Depreciation and Amortization		6,167			10,112			6,476
Deferred Income Taxes		888			6,138			(2,784	)
Minority Interest		35			79			206
Gain on Sale of Equity Securities		(2,618	)		—			—
Gain on Sale of Discontinued Operations		(650	)		—			—
Provision for Losses on Trade Accounts Receivable		—			4,072			96
Provision for Slow Moving and Obsolete Inventory		—			2,554			188
Tax Effect of Exercised Stock Options		—			49			124
Stock Compensation		763			235			13
Impairment Charges		—			10,815			4,296
Loss on Disposal and Write-Down of Operating Assets		1,613			8,052			1,327
Other		682			958			733
Changes in Operating Assets and Liabilities:
Receivables		(9,291	)		24,012			192
Inventories		14,177			2,245			9,071
Other Current Assets		1,399			2,777			(3,017	)
Other Long-Term Assets		1,796			4,889			(7,104	)
Accounts Payable		2,259			(618	)		(2,394	)
Accrued Payroll and Related Liabilities		2,981			(332	)		(1,588	)
Deferred Revenue		(1,869	)		1,190			(230	)
Customer Deposits		4,570			(2,750	)		2,946
Other Accrued Liabilities and Other Accrued Taxes		3,425			4,951			6,900
Other Long-Term Liabilities		630			(1,016	)		(2,604	)
Cash Provided by Operating Activities		12,331			8,400			6,851
Cash Flows From Investing Activities:
Expenditures For Property and Equipment		(5,863	)		(4,671	)		(8,752	)
Proceeds from Sale of Equity Securities		3,275			—			—
Proceeds from Sale of Discontinued Operations		1,837			—			—
Proceeds from Sale of Property and Equipment		—			2,176			—
Restricted Cash		(2,156	)		—			—
Other		500			—			697
Cash Used in Investing Activities		(2,407	)		(2,495	)		(8,055	)
Cash Flows from Financing Activities:
Borrowings (Repayments) Under Credit Agreement and Notes Payable, net		(11,546	)		5,005			(24,791	)
Payments of Long-Term Obligations		(1,054	)		(4,877	)		(8,654	)
Borrowings on Long-Term Obligations		—			—			25,723
Proceeds from Issuance Of Warrants		—			—			9,277
Proceeds from Issuance Of Common Stock		—			428			1,631
Cash (Used in) Provided by Financing Activities		(12,600	)		556			3,186
Effect of Exchange Rate Changes		(635	)		1,464			(1,670	)
(Decrease) Increase in Cash And Cash Equivalents		(3,311	)		7,925			312
Cash and Cash Equivalents at Beginning of Period		15,045			7,120			6,808
Cash and Cash Equivalents at End of Period	$	11,734		$	15,045		$	7,120
Supplemental Disclosures of Cash Flow Information
Cash Paid during the Year for:
Interest	$	7,472		$	8,161		$	9,309
Income Taxes		2,940			2,179			1,395
Supplemental Disclosures of Noncash Financing Activity
Conversion of Interest Payable to Long-Term Obligations	$	7,875		$	—		$	—

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

33

FLOW INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

AND COMPREHENSIVE LOSS

(In thousands)

	Common Stock			Capital In Excess of Par		Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity (Deficit)
	Shares	Par Value
Balances, April 30, 2001	15,103	$	151	$	44,115	$	35,202		$	(13,078	)	$	66,390
Components of Comprehensive Loss:
Net Loss							(5,996	)					(5,996	)
Realized Gain on Equity Securities Available for Sale, Net of Tax										925			925
Unrealized Loss on Cash Flow Hedges, Net of Tax										(10	)		(10	)
Cumulative Translation Adjustment										(1,670	)		(1,670	)
Total Comprehensive Loss													(6,751	)
Exercise of Stock Options	179		2		1,629								1,631
Issuance of Stock Warrants					9,277								9,277
Other					137								137
Balances, April 30, 2002	15,282		153		55,158		29,206			(13,833	)		70,684
Net Loss							(70,012	)					(70,012	)
Unrealized Gain on Equity Securities Available for Sale, Net of Tax										809			809
Unrealized Gain on Cash Flow Hedges, Net of Tax										20			20
Cumulative Translation Adjustment										3,246			3,246
Total Comprehensive Loss													(65,937	)
Exercise of Stock Options	77		1		427								428
Stock Compensation					284								284
Balances, April 30, 2003	15,359		154		55,869		(40,806	)		(9,758	)		5,459
Components of Comprehensive Loss:
Net Loss							(14,626	)					(14,626	)
Reclassification Adjustment for Sale of Equity Securities, Net of Tax										(809	)		(809	)
Unrealized Gain on Cash Flow Hedges, Net of Tax										771			771
Cumulative Translation Adjustment, Net of Tax										(635	)		(635	)
Total Comprehensive Loss													(15,299	)
Stock compensation	344		3		760								763
Balances, April 30, 2004	15,703	$	157	$	56,629	$	(55,432	)	$	(10,431	)	$	(9,077	)

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

34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

Note 1—The Company and Summary of Significant Accounting Policies:

Operations and Segments

Flow International Corporation (“Flow” or the “Company”) designs, develops manufactures, markets, installs and services ultrahigh-pressure (“UHP”) water pumps and UHP water management systems. Flow’s core competency is UHP water pumps. Flow’s UHP water pumps pressurize water from 40,000 to over 100,000 pounds per square inch (psi) and are integrated with water delivery systems so that water can be used to cut or clean material or pressurize food. Flow’s products include both standard and specialized waterjet cutting and cleaning systems together with the Fresher Under Pressure^® food processing technology. In addition to UHP water systems, the Company provides automation and articulation systems and isostatic and flexform press systems. The Company provides technologically-advanced, environmentally-sound solutions to the manufacturing, industrial, marine cleaning and food markets.

The Company has changed its reportable segments from fiscal 2003 to fiscal 2004 to reflect a refined approach to managing and reporting the different global operations. The Company has identified seven reportable segments. Four segments, North America Waterjet, Asia Waterjet, Other International Waterjet and Other (together known as Waterjet), utilize the Company’s released pressure technology. The remaining three segments, Food, North America Press and International Press (together known as Avure), utilize the Company’s contained pressure technology. The Waterjet operation includes cutting and cleaning operations, which are focused on providing total solutions for the aerospace, automotive, job shop, surface preparation and paper industries. The Avure operation includes the Fresher Under Pressure food processing technology, as well as the isostatic and flexform press (“General Press”) operations. The Fresher Under Pressure technology provides food safety and quality enhancement solutions for food producers, while the General Press business manufactures systems which produce and strengthen advanced materials for the aerospace, automotive and medical industries. Equipment is designed, developed, and manufactured at the Company’s principal facilities in Kent, Washington, and at manufacturing facilities in Burlington, Canada; Columbus, Ohio; Hsinchu, Taiwan; Jeffersonville, Indiana; Wixom, Michigan and Västerås, Sweden. The Company markets its products to customers worldwide through its principal offices in Kent and its support offices in Argentina, Brazil, Canada, China, France, Germany, Italy, Japan, Korea, Spain, Sweden, Switzerland, Taiwan, and the United Kingdom.

Principles of Consolidation

The Consolidated Financial Statements include Flow International Corporation (“Flow” or the “Company”), and its wholly-owned subsidiaries, Flow Europe GmbH (“Flow Europe”), Foracon Maschinen und Anlagenbau GmbH & CO.KG (“Foracon”), Flow Asia Corporation (“Flow Asia”), Flow Automation Inc. (“Flow Automation”), Flow Japan Corporation (“Flow Japan”), Avure Technologies, Inc. (“Avure”), Flow Software Technologies Ltd. (“Flow Software”), Avure Technologies AB (“Avure AB”), formerly Flow Pressure Systems Västerås AB, Flow Holdings GmbH (SAGL) Limited Liability Company (“Flow Switzerland”), Spearhead Automated Systems (“Flow Robotic Systems”), Flow Latino Commercio Limitada (“Flow South America”), and a 50% owned joint venture, Flow Autoclave Systems, Inc. (“Flow Autoclave”). All significant intercompany transactions have been eliminated.

Liquidity

The Company has incurred losses during fiscal 2004, 2003 and 2002. The Company has been able to satisfy its needs for working capital and capital expenditures, due in part to its ability to access adequate financing arrangements. The Company expects that operations will continue, with the realization of assets and discharge of current liabilities in the ordinary course of business. Compliance with future debt covenants requires the Company to meet its operating projections, which include achieving certain revenues, costs, consistent operating margins, and working capital targets.

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

The Company believes that its existing cash and credit facilities at April 30, 2004 are adequate to fund its operations through April 30, 2005. If the Company fails to achieve its planned revenues, costs and working capital objectives, management believes it has the ability to curtail capital expenditures and reduce costs to levels that will be sufficient to enable the Company to meet its cash requirements and debt covenants through April 30, 2005.

However, demand for the Company’s products and timing of cost reductions are difficult to project. If the Company is unable to comply with the amended debt covenants, and the lenders are unwilling to waive or amend the debt covenants, certain components of the long-term obligations and notes payable would become callable, and the Company would be required to seek alternative financing. The Company is continuing to evaluate its current capital structure and may investigate alternative sources of financing. Alternative sources of financing may not be available if required or, if available, may not be on satisfactory terms. If the Company is unable to obtain alternative financing on satisfactory terms, it would have a material adverse effect on the Company’s business, and the Company would be required to curtail capital spending, further reduce expenses, and otherwise modify its planned operations including potentially discontinuing operations.

Revenue Recognition

The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition in Financial Statements”. SAB 104 requires that revenue can only be recognized when it is realized or realizable and earned. Revenue generally is realized or realizable and earned when all four of the following criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the price is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criterion (4) is based on the Company’s judgment regarding the collectibility of those amounts. Should changes in conditions cause us to determine this criterion is not met for future transactions, revenue recognized for any reporting period could be adversely affected.

During the second quarter of fiscal 2004, the Company adopted EITF Issue No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables” on a prospective basis. EITF 00-21, which was subsequently included in SAB 104, provides guidance on how to account for arrangements that involve the delivery or performance of single or multiple products, services and/or rights to use assets. For standard systems, the Company’s multiple deliverables are: (1) the standard system and (2) the installation thereof. If payment is contingent upon system installation and the system installation does not occur prior to a period end, the system revenue recognized is the lesser of the cash received or the estimated relative fair value of the system. The adoption of EITF 00-21 did not have a significant effect on the consolidated financial statements. Revenue for consumables is recognized at the time of shipment. System sales are substantiated by signed customer contracts which quote a fixed price. Revenue related to the installation portion of a system sale is recognized when the service has been rendered. Collectibility of accounts is reasonably assured at the time of sale.

For non-standard and long lead time systems, including the Avure operation, the Company recognizes revenues using the percentage of completion method in accordance with Statement of Position 81-1 (SOP 81-1), “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Typical lead times for non-standard systems can range from six to 18 months. The Company uses the cost to cost method, measuring the costs incurred on a project at a specified date, as compared to the estimated total cost of the project. As manufacturing costs are incurred, a corresponding amount of unbilled revenue is recorded. The balance is reclassified to trade accounts receivable when a milestone is achieved and a customer billing is issued. The balance of trade accounts receivables and unbilled revenues will therefore vary based on the timing of completion on non-standard systems as well as the timing of the related billings to the respective customers.

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

Revenues from equipment on lease are recognized as rental income in the period earned. Shipping revenues and expenses are recorded in revenue and costs of goods sold, respectively.

Cash Equivalents

The Company considers highly liquid short-term investments with original or remaining maturities from the date of purchase of three months or less, if any, to be cash equivalents. The Company’s cash consists of demand deposits in large financial institutions. At times, balances may exceed federally insured limits.

Inventories

Inventories are stated at the lower of cost, determined by using the first-in, first-out method, or market. Costs included in inventories consist of materials, labor and manufacturing overhead, which are related to the purchase or production of inventories.

Property and Equipment

Property and equipment are stated at the lower of cost or net realizable value. Additions, leasehold improvements and major replacements are capitalized. When assets are sold, retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the statement of operations. Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets, which range from three to eleven years for machinery and equipment; three to nine years for furniture and fixtures and 19 years for buildings. Leasehold improvements are amortized over the shorter of the related lease term, or the life of the asset. Expenditures for maintenance and repairs are charged to expense as incurred.

Intangible Assets and Goodwill

Effective May 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 141 (“FAS 141”), “Business Combinations” and Statement of Financial Accounting Standards No. 142 (“FAS 142”), “Goodwill and Other Intangible Assets.” FAS 141 requires that all business combinations be accounted for under the purchase method only and that certain acquired intangibles in a business combination be recognized as assets separate from goodwill. In accordance with FAS 142, the Company amortizes identified definite-lived intangible assets over their expected useful lives and does not amortize goodwill. At least once per year, the Company will compare the fair value of its reporting units, and, if necessary, the implied fair value of goodwill, with the corresponding carrying values. If necessary, the Company will record an impairment charge for any shortfall. The Company determines the fair value of its reporting units using a discounted cash flow model. If certain criteria are satisfied, the Company may also carry forward the fair value valuation from the prior year. In accordance with FAS 142, the Company conducted its annual impairment review of goodwill at April 30, 2004, which did not result in any impairment charges.

Intangible assets consist of acquired and internally developed patents and are amortized on a straight-line basis over the shorter of fifteen years, or the estimated remaining life of the patent. The total carrying amount of intangible assets was $26,100,000 and $24,351,000 at April 30, 2004 and 2003, respectively. Accumulated amortization was $11,849,000 and $10,410,000 at April 30, 2004 and 2003, respectively.

Aggregate amortization expense for the year ended April 30, 2004, 2003 and 2002 amounted to $1,439,000, $1,611,000, and $933,000, respectively. The estimated annual amortization expense is $1,100,000 for each year through April 30, 2008.

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

During fiscal 2003, the Company conducted an interim detailed review of the carrying value of its goodwill. FAS 142 requires a company to perform impairment testing when certain “triggering” events affecting a business unit have occurred. The triggering events were the expectation of sale or full or partial disposal of certain Flow divisions and the continuing deterioration of the economic climate. The Company’s review resulted in impairment charges of $7.1 million during the quarter ended January 31, 2003. The impairment resulted primarily from continued weakness in the automotive industry, as well as poor performance at the Company’s European operations. The fair value of those reporting units and the estimated fair value of goodwill was estimated using the expected present value of future cash flows. During the year ended April 30, 2002, the Company recorded a $4.3 million goodwill impairment charge, resulting from weakness in the automotive industry.

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standard No. 144 (“FAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amounts of assets may not be recoverable. The carrying value of long-lived assets is assessed for impairment by evaluating operating performance and future undiscounted cash flows of the underlying assets. Adjustments are made if the fair value, which the Company determines as the sum of the expected future net cash flows, is less than carrying value. Accordingly, actual results could vary significantly from such estimates. The Company’s review resulted in no impairment charges during the year ended April 30, 2004 and 2002 and charges of $3.7 million during the year ended April 30, 2003.

Fair Value of Financial Instruments

The carrying amount of all financial instruments on the balance sheet as of April 30, 2004 and 2003 approximates fair value. The carrying value of variable-rate long-term obligations and notes payable approximates the fair value because interest rates reflect current market conditions. When considered in discounted cash flow analysis, the carrying value of fixed-rate long-term obligations approximates the fair value.

Concentration of Credit Risk

In countries or industries where the Company is exposed to significant credit risk, sufficient collateral, including cash deposits and/or letters of credit, is required prior to the completion of a transaction. The Company does not believe there is a material credit risk beyond that provided for in the consolidated financial statements in the ordinary course of business. The Company makes use of foreign exchange contracts to cover some transactions denominated in foreign currencies, and does not believe there is an associated material credit or financial statement risk.

Warranty Liability

Products are warranted to be free from material defects for a period of one year from the date of installation. Warranty obligations are limited to the repair or replacement of products. The Company’s warranty accrual is reviewed quarterly by management for adequacy based upon recent shipments and historical warranty experience. Credit is issued for product returns upon receipt of the returned goods, or, if material, at the time of notification and approval.

Product Liability

The Company is obligated under terms of its product liability insurance contracts to pay all costs up to deductible amounts. These costs are reported in general and administrative expenses and include insurance, investigation and legal defense costs. Legal settlements, if any, are included in Other Expense, net.

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. If it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recorded.

Minority Interest in Joint Venture

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” as revised in December 2003 by FIN 46(R). The new rule requires that companies consolidate a variable interest entity (“VIE”) if the company is subject to a majority of the risk of loss from the VIE’s activities, or is entitled to receive a majority of the entity’s residual returns or both. Based upon the Company’s analysis, the Company is associated with one VIE, Flow Autoclave, and has determined that it is the primary beneficiary and should, therefore, continue to include the VIE in its consolidated financial statements. Flow Autoclave is a joint venture with an unrelated third party and is involved with the domestic sales of the Company’s general press technology. Flow Autoclave’s sales to third party customers were less than 8% of the Company’s consolidated sales for the years ended April 30, 2004, 2003 and 2002. None of Flow Autoclave’s assets are collateralized on behalf of its obligations and the general creditors of Flow Autoclave do not have any recourse to the Company. The Company includes income or expense associated with the minority interest in its joint venture as part of Other Income (Expense), net in the accompanying Consolidated Statements of Operations. The implementation of FIN 46(R) in the fourth fiscal quarter of 2004 had no effect on the consolidated financial statements.

Foreign Currency Translation

The Company’s subsidiaries have adopted the local currency of the country in which they operate as the functional currency. All assets and liabilities of these foreign subsidiaries are translated at year-end rates. Income and expense accounts of the foreign subsidiaries are translated at the average rates in effect during the year. Adjustments resulting from the translation of Flow Asia, Flow Automation, Flow Europe, Foracon, Flow Japan, Flow South America, and Avure AB financial statements are recorded in the Accumulated Other Comprehensive Loss account in the Shareholders’ (Deficit) Equity section of the accompanying Consolidated Balance Sheets.

For the years ended April 30, 2004, 2003 and 2002, a net foreign exchange gain (loss) of $1.6 million, $(2.1) million, and $222,000, respectively, is included in Other Income (Expense), net, in the accompanying Consolidated Statements of Operations.

Basic and Diluted Loss Per Share

Basic loss per share represents net loss available to common shareholders divided by the weighted average number of shares outstanding during the period. Diluted loss per share represents net loss available to common shareholders divided by the weighted average number of shares outstanding including the potentially dilutive impact of stock options, where appropriate. Common stock options are converted using the treasury stock method.

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

The following table sets forth the computation of basic and diluted loss per share for the years ended April 30, 2004, 2003 and 2002:

	Year Ended April 30,
	2004			2003			2002
Numerator:
Net loss	$	(14,626	)	$	(70,012	)	$	(5,996	)
Denominator:
Denominator for basic loss per share—weighted average shares		15,415			15,348			15,234
Dilutive potential common shares from employee stock options		—			—			—
Dilutive potential common shares from warrants		—			—			—
Denominator for diluted loss per share—weighted average shares and assumed conversions		15,415			15,348			15,234
Basic and diluted loss earnings per share	$	(0.95	)	$	(4.56	)	$	(0.39	)

There were 2,089,412, 2,500,682 and 3,262,185 of potentially dilutive common shares from employee stock options and 860,000, 860,000 and 789,000 of potentially dilutive shares from warrants which have been excluded from the diluted weighted average share denominator for fiscal 2004, 2003 and 2002, respectively, as their effect would be anti-dilutive.

Stock-Based Compensation

At April 30, 2004, the Company has three stock-based employee compensation plans, which are described more fully in Note 10. The Company accounts for those plans under the recognition and measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. No stock-based employee compensation cost is reflected in the Company’s net loss to the extent options granted under those plans have an exercise price equal to the market value of the underlying common stock on the date of grant. Awards under the Company’s plans typically vest over two years. Therefore, the cost related to stock-based employee compensation included in the determination of net loss for the three years ended April 30, 2004 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective of Financial Accounting Standards No. 123 (“FAS 123”), “Accounting for Stock Based Compensation”. The following table illustrates the effect on net loss and loss per share if the fair value based method had been applied to all outstanding and unvested awards in each period:

	Year Ended April 30:
	2004			2003			2002
Net loss, as reported	$	(14,626	)	$	(70,012	)	$	(5,996	)
Add: Stock compensation included in net loss, net of related tax effects		504			155			9
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax related effects		(878	)		(414	)		(1,969	)
Pro forma net loss	$	(15,000	)	$	(70,271	)	$	(7,956	)
Loss per share—basic and diluted:
As reported	$	(0.95	)	$	(4.56	)	$	(0.39	)
Pro forma	$	(0.97	)	$	(4.58	)	$	(0.52	)

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates that are susceptible to significant change in the near term are the percentage of completion estimates and the adequacy of the allowance for obsolete inventory, warranty obligations, doubtful accounts receivable, and deferred tax assets.

Reclassifications

Certain fiscal 2003 and 2002 amounts have been reclassified to conform to the 2004 presentation. These reclassifications had no effect on previously reported net income or cash flows.

Note 2—Warranty Obligations:

The Company’s obligations for warranty are accrued concurrently with the revenue recognized. The Company makes provisions for its warranty obligations based upon historical costs incurred for such obligations adjusted, as necessary, for current conditions and factors. Due to the significant uncertainties and judgments involved in estimating the Company’s warranty obligations, including changing product designs and specifications, the ultimate amount incurred for warranty costs could change in the near term from the current estimate.

The following table shows the fiscal 2004 and 2003 activity for the Company’s warranty accrual:

Accrued warranty balance as of April 30, 2002	$	552
Accruals for warranties on fiscal 2003 sales		1,262
Accruals related to pre-existing warranties (including changes in estimates)		495
Warranty labor and materials provided in fiscal 2003		(1,236	)
Accrued warranty balance as of April 30, 2003		1,073
Accruals for warranties on fiscal 2004 sales		1,258
Warranty labor and materials provided in fiscal 2004		(1,127	)
Accrued warranty balance as of April 30, 2004	$	1,204

Note 3—Derivative Financial Instruments:

Effective May 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 (“FAS 133”), “Accounting for Derivative Instruments and Hedging Activities”, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (OCI) and are recognized in the statement of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings.

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

The Company uses derivative instruments to manage exposures to foreign currency risks. The Company’s objective for holding derivatives is to minimize foreign currency fluctuation risks using the most effective methods to eliminate or reduce the impacts of these exposures. The Company does not enter into speculative hedges. Counterparties to the Company’s derivative financial instruments are credit worthy major financial institutions. The Company has not experienced any losses due to counterparty default.

Certain forecasted transactions and assets are exposed to foreign currency risk. The Company monitors its foreign currency exposures regularly to maximize the overall effectiveness of its foreign currency hedge positions. The currency hedged is the Swedish Krona. As of April 30, 2004, the Company had $354,000 of net pre-tax unrealized gains on foreign currency cash flow hedges of which $382,000 is expected to be realized into earnings over the next 12 months when the associated transactions are recorded as revenue. The actual amounts realized will vary based on future changes in foreign currency rates. The fair value of the forward exchange contracts is estimated by obtaining market rates from selected financial institutions.

The total notional amount of the forward exchange contracts at April 30, 2004 is $18.3 million and these expire at various times through June 2005.

The total notional amount of the forward exchange contracts at April 30, 2003 was $1.3 million and these expired at various times through April 2004.

Hedge ineffectiveness, determined in accordance with FAS 133, had no impact on earnings for the years ended April 30, 2004 and 2003. No fair value hedges or cash flow hedges were derecognized or discontinued for the years ended April 30, 2004 and 2003.

Derivative gains and losses included in Other Comprehensive Loss (OCL) are reclassified into earnings each period as the related transactions are recognized into earnings. During the three years ended April 30, 2004, the amount transferred from OCL to Other Income (Expense), net, was not significant.

Note 4—Investments:

In August 1992, the Company entered into a stock purchase agreement with Phenix and contributed cash and certain equipment valued at cost. This investment was accounted for under the cost method. At April 30, 2002, the Company wrote off its entire $484,000 investment as Phenix was in bankruptcy and the Company believed its investment was not recoverable and the assessment has not changed since. This write-down was included in Other Income (Expense), net.

In January 2004, the Company sold its investment in marketable securities of WGI Heavy Minerals for $3.3 million and realized a gain of $2.6 million on the transaction which is reflected in Other Income (Expense), net on the Consolidated Statement of Operations for the year ended April 30, 2004. All proceeds were used to pay down outstanding borrowings and permanently reduce the available borrowing capacity of the senior credit facility. In addition, the Company relinquished its seat on the Board of Directors of WGI Heavy Minerals. This investment was originally made to secure a long-term relationship with the Company’s supplier of its high quality garnet. Garnet is sold by the Company as a consumable used in abrasivejet cutting. All transactions with WGI Heavy Minerals were conducted on an arms-length basis at the then current market prices for garnet.

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

As of April 30, 2003, the value of the WGI investment was as follows:

	April 30, 2003
Aggregate Fair Value	$	1,858
Unrealized Gain, Net of Tax		809
Tax Component		392

In fiscal 2002, the Company recorded a pre-tax charge of $843,000 related to the other than temporary impairment of the investment in WGI Heavy Minerals as the stock price had decreased and remained below cost for a period exceeding six months.

Note 5—Receivables:

Receivables consist of the following:

	April 30,
	2004		2003
Trade Accounts Receivable	$	27,649	$	31,107
Unbilled Revenues		21,988		8,512
		49,637		39,619
Less Allowance for Doubtful Accounts		4,777		5,019
	$	44,860	$	34,600

Unbilled revenues do not contain any amounts which are expected to be collected after one year.

Note 6—Inventories:

Inventories consist of the following:

	April 30,
	2004		2003
Raw Materials and Parts	$	14,849	$	22,658
Work in Process		6,223		10,859
Finished Goods		7,811		11,702
		28,883		45,219
Less Provision for Slow-Moving and Obsolete Inventories		2,499		4,336
	$	26,384	$	40,883

Note 7—Property and Equipment:

Property and Equipment are as follows:

	April 30,
	2004		2003
Land and Buildings	$	5,881	$	300
Machinery and Equipment		34,368		32,150
Furniture and Fixtures		4,839		3,799
Leasehold Improvements		7,531		7,883
Construction in Progress		362		2,987
		52,981		47,119
Less Accumulated Depreciation and Amortization		38,781		34,132
	$	14,200	$	12,987

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

For the years ended April 30, 2004, 2003 and 2002, the Company capitalized interest of $8,000, $115,000, and $184,000 respectively.

In accordance with FAS 144, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amounts of assets may not be recoverable. The carrying value of long-lived assets are assessed for impairment by evaluating future operating performance and expected undiscounted cash flows of the underlying assets. Adjustments are made if the estimated fair value is less than carrying value. Accordingly, actual results could vary significantly from such estimates. The Company’s review resulted in no impairment charges during the years ended April 30, 2004 and 2002 and charges of $3.7 million during the quarter ended April 30, 2003 related to the Avure operation.

Note 8—Long-Term Obligations, Notes Payable and Liquidity:

Long-term obligations are as follows:

	April 30,
	2004		2003
Credit Agreement	$	39,980	$	56,423
Subordinated Debt		41,875		35,000
Term Loans Payable		136		23
		81,991		91,446
Less Original Issue Discount on Subordinated Debt		6,531		7,648
Less Current Portion		60		23
	$	75,400	$	83,775
Notes payable for Avure AB and Flow Asia	$	9,887	$	4,610

On July 28, 2004, the Company signed an amendment to its current credit agreement (the “Amendment”). The Amendment provides for a revolving line of credit of up to $42.7 million and an extension of the credit agreement through August 1, 2005. The commitment reduces to $41.0 million at April 30, 2005. Interest rates under the credit facility are at the Bank of America’s prime rate in effect from time to time plus 4% and increase by one percentage point each quarter beginning November 1, 2004. The prime rate at April 30, 2004 was 4.00%. The Amendment also requires a quarterly commitment fee of  ¹/2 of 1% (50 basis points) of the total commitment, and issuance of 150,000 detachable $.01 warrants as a fee. In addition, the Amendment requires compliance with minimum EBITDA and collateral levels and provides limits for spending on research & engineering as well as limits on capital expenditures. The Amendment also has provisions for mandatory commitment reductions in the event of a sale of assets outside the ordinary course of business or in the event of an equity financing. Commitment level reductions are based on a percentage of the cash generated by these activities net of applicable fees. The Company also pays an annual letter of credit fee equal to 5% of the amount available to be drawn under each outstanding letter of credit. The annual letter of credit fee is payable quarterly in arrears. The Company makes use of its credit facility to fund its operations during the course of the year. In fiscal 2004, the Company borrowed an aggregate of $30.0 million on the credit facility while repaying $46.5 million. In fiscal 2003 and 2002, the Company borrowed an aggregate of $53.2 million and $70.5 million, respectively, on the credit facility while repaying $52.0 million and $94.0 million, respectively. As of April 30, 2004, the Company had $2.8 million of domestic unused line of credit, subject to covenant restrictions. For recent developments on the Credit Agreement, see Note 18.

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

In May 2001, the Company signed a $35 million subordinated debt agreement with The John Hancock Life Insurance Company and affiliated entities (“Hancock”). The agreement as previously amended requires semi-annual interest only payments at 15% and two equal principal payments due on April 30, 2007, and April 30, 2008. In addition, the Company issued 859,523 warrants to purchase Flow common stock at $.01 per share to Hancock. The warrants have been valued at $9.3 million and have been recorded as an original issue discount to the carrying value of the Long-Term Obligations in the accompanying Consolidated Balance Sheets. The fully vested warrants are amortized over the term of the debt and expire on April 30, 2008. The unamortized discount balance is $6.5 million and $7.6 million at April 30, 2004 and 2003, respectively. As of April 30, 2003, Hancock had agreed to capitalize required semi-annual interest payments, beginning with April 30, 2003, until April 30, 2004, which total $6.9 million. On July 28, 2004, Hancock amended the agreement to continue to capitalize interest through April 30, 2005, which totals an additional $5.3 million. All deferred and capitalized payments accrue interest at the rate of 15%. In addition Hancock received 150,000 detachable $.01 warrants as a fee. For recent developments on the Hancock Agreement, see Note 18.

Both senior and subordinated credit facilities require payment of significant additional fees if certain reductions in outstanding debt levels do not occur. The credit agreement and subordinated debt agreement are collateralized by a general lien on all of the Company’s assets. The Company is required to comply with certain covenants relating to the credit agreement, and subordinated debt agreement, including restrictions on dividends and transactions with affiliates, limitations on additional indebtedness, capital expenditures, research and engineering expenses, and maintenance of EBITDA ratios and collateral values. The Company was in compliance with all covenants during fiscal 2004.

The Company has been able to satisfy its needs for working capital and capital expenditures, due in part to its ability to access adequate financing arrangements. The Company expects that operations will continue, with the realization of assets and discharge of liabilities in the ordinary course of business. Compliance with amended future debt covenants for the credit agreement and the subordinated debt agreement requires the Company to meet its operating projections, which include achieving certain revenues and consistent operating margins. If the Company is unable to comply with the amended debt covenants, and the Company’s lenders are unwilling to waive or amend the debt covenants, amounts owed under the Company’s credit agreement and subordinated debt agreement would become current, and the Company would be required to seek alternative financing. Alternative sources of financing may not be available if required or, if available, may not be on terms satisfactory to the Company. If the Company is unable to obtain alternative financing on satisfactory terms, it could have a material adverse effect on the Company’s business, and the Company may be required to curtail capital spending, further reduce expenses and otherwise modify its planned operations.

The Company has accessed its three unsecured credit facilities in Taiwan to fund the construction of its new manufacturing facility. The total availability under these facilities is 160 million New Taiwanese Dollars ($4.8 million) and the facilities bear interest ranging from 1.6% to 2%. The credit facilities have maturities of between 12 and 36 months and can be extended for like periods, as needed, at the bank’s option. At April 30, 2004, $3.6 million is outstanding and is included in Notes Payable.

Notes Payable also include a $6.6 million (50 million Swedish Krona) Avure AB line of credit which is collateralized by trade accounts receivable and inventory, at an interest rate of Swedish prime (3.4% at April 30, 2004) plus 0.75%. The line of credit expires annually in December and is renewable in yearly increments at the bank’s option. As of April 30, 2004, Avure AB has approximately $0.3 million available under this credit facility.

Principal payments under all debt obligations for the next four years are as follows: $9,947,000 in 2005, $40,035,000 in 2006, $20,958,000 in 2007 and $20,938,000 in 2008. There are no principal payments due subsequent to 2008.

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

Note 9—Income Taxes:

The components of consolidated (loss) income before income taxes and the provision (benefit) for income taxes are as follows:

	Year Ended April 30,
	2004			2003			2002
Loss Before Provision (Benefit) for Income Taxes:
Domestic	$	(16,708	)	$	(35,323	)	$	(10,185	)
Foreign		6,655			(26,986	)		508
Total	$	(10,053	)	$	(62,309	)	$	(9,677	)

The provision (benefit) for income taxes comprises:

	Year Ended April 30,
	2004		2003		2002
Current:
Domestic	$	121	$	—	$	(2,155	)
State and Local		87		68		139
Foreign		4,003		974		1,510
Total		4,211		1,042		(506	)
Deferred		888		6,138		(2,784	)
Total	$	5,099	$	7,180	$	(3,290	)

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

Net deferred tax assets (liabilities) comprise the following:

	April 30, 2004			April 30, 2003
Current:
Accounts receivable allowances	$	331		$	297
Inventory capitalization		103			288
Obsolete inventory		613			718
Vacation accrual		262			226
Net operating loss carryover		537			957
Business tax credits		271			271
Other		(1	)		—
Subtotal		2,116			2,757
Valuation allowance		(1,580	)		(1,800	)
Total Current Deferred Taxes		536			957
Long-term:
Fixed assets		520			1,727
Net operating loss carryover		19,872			22,118
Goodwill		554			733
State and foreign taxes		(491	)		(491	)
AMT credits		564			564
Unrealized loss		—			287
All other		1,909			1,321
Subtotal		22,928			26,259
Valuation allowance		(22,928	)		(26,259	)
Total Long-Term Deferred Taxes		—			—
Total Net Deferred Tax Assets	$	536		$	957

A reconciliation of income taxes at the federal statutory rate to the provision (benefit) for income taxes is as follows:

	Year Ended April 30,
	2004		2003		2002
Income taxes at federal statutory rate	(34.0	)%	(34.0	)%	(34.0	)%
Extra territorial income exclusion	0.0		(0.3	)	(1.8	)
Foreign tax rate differences	3.1		1.2		(1.5	)
Change in valuation allowances	(14.4	)	44.0		(0.9	)
State and local tax rate differences	0.6		0.1		1.0
Original issue discount amortization	3.4		0.5		2.2
Non deductible meals	0.4		0.1		0.9
Foreign earnings not previously subject to U.S. tax	66.4		0.0		0.0
Foreign withholding taxes	18.3		0.0		0.0
Minimum tax	1.2		0.0		0.0
Other	5.7		(0.1	)	0.1
Income tax (benefit) provision	50.7	%	11.5	%	(34.0	)%

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

As of April 30, 2004, the Company had approximately $22.8 million of domestic net operating loss carryforwards to offset certain earnings for federal income tax purposes. All of these net operating loss carryforwards expire in fiscal 2023. Net operating loss carryforwards in foreign jurisdictions amount to $36.7 million and do not expire.

Since 2003, the Company has provided a full valuation allowance against its domestic net operating losses and certain foreign net operating losses. The Company also placed a valuation allowance against certain other deferred tax assets based on the expected reversal of both deferred tax assets and liabilities. During 2004, the valuation allowance was reduced by $3.6 million for net operating losses and other deferred tax assets realized this year.

In prior years a provision was not made for U.S. income taxes or foreign withholding taxes on undistributed earnings of foreign subsidiaries. In the fourth quarter of fiscal 2004, the Company was no longer able to permanently defer foreign earnings. As a result, the Company recorded a $1.9 million liability for withholding taxes payable on future repatriation of historical foreign earnings as of April 30, 2004. Subsequent to year end the Company repatriated $3.5 million from certain foreign subsidiaries and plans to continue to repatriate additional earnings in the future as a result of foreign asset collateral requirements and the amended credit agreements discussed in Note 8.

Note 10—Stock Options:

The Company has stock options outstanding under various option plans described as follows:

1987 Stock Option Plan for Nonemployee Directors (the “1987 Nonemployee Directors Plan”).    Approved by the Company’s shareholders in September 1987, the 1987 Nonemployee Directors Plan, as subsequently amended, provided for the automatic grant of nonqualified options for 10,000 shares of Company common stock to a nonemployee director when initially elected or appointed, and the issuance of 10,000 options annually thereafter during the term of directorship. There are no further options being granted under this plan.

1991 Stock Option Plan (the “1991 SO Plan”).    The 1991 SO Plan was adopted in October 1991 and amended in August 1993. Incentive and nonqualified stock options up to 700,000 shares may be issued under this plan.

1995 Long-Term Incentive Plan (the “1995 LTI Plan”).    The 1995 LTI Plan was adopted in August 1995. In fiscal 2000, the 1995 LTI Plan was amended to increase the number of shares available for grant to 3,350,000 shares.

All options become exercisable upon a change in control of the Company. Options have a two-year vesting schedule, and are generally granted with an exercise price equal to the fair market value of the Company’s common stock on the date of grant. The maximum term of options is 10 years from the date of grant. During late fiscal 1999 and early fiscal 2000, the Board of Directors of the Company approved options for 272,171 shares which were priced at fair market value on the dates of Board approval, subject however to shareholder approval of a planned increase in the shares available under the 1995 LTI Plan. The grant date for these options occurred at the August 1999 shareholder meeting. Based upon the difference in fair market value between the option strike price approved by the Board of Directors approval date and the fair value of the shares at the grant date, compensation expense of $0, $93,000 and $13,000 and was recorded during fiscal 2004, 2003 and 2002, respectively.

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

The following chart summarizes the status of the options at April 30, 2004, which expire at various times through 2014:

	1987 Nonemployee Directors Plan		1991 SO Plan and 1995 LTI Plan		Total
Number of options outstanding		464,125		1,625,287		2,089,412
Number of options vested		464,125		1,411,174		1,875,299
Average exercise price per share of options outstanding	$	10.19	$	8.73	$	9.05

The weighted-average fair values at the date of grant for options granted in fiscal 2004, 2003 and 2002 were estimated using the Black-Scholes option-pricing model, based on the following assumptions: (i) no expected dividend yields for fiscal years 2004, 2003 and 2002; (ii) expected volatility rates of 61.8%, 58.9% and 48.6% for fiscal 2004, 2003 and 2002, respectively; and (iii) expected lives of six years for fiscal 2004, 2003 and 2002. The risk-free interest rate applied to fiscal 2004, 2003 and 2002 was 3.9%, 3.7% and 4.8%, respectively.

The following table summarizes information about stock options outstanding at April 30, 2004:

Range of Exercise Prices	Number Outstanding at April 30, 2004	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Exercisable at April 30, 2004	Weighted- Average Exercise Price
$2.69   - $7.99	345,715	7.84 years	$	3.91	140,602	$	4.55
$8.00   - $10.00	712,832	3.98 years		8.99	712,832		8.99
$10.01 - $12.25	1,030,865	5.73 years		10.82	1,021,865		10.82
Total:	2,089,412	5.48 years	$	9.05	1,875,299	$	9.65

The following table rolls forward the stock option activity for the years ended April 30:

	2004				2003				2002
	Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
Outstanding—beginning of year	2,500,682		$	9.26	3,262,185		$	9.62	2,926,326		$	9.40
Granted during the year:	42,500			2.10	263,140			3.68	530,645			10.08
Exercised during the year:	—			—	(77,000	)		5.38	(178,682	)		7.51
Forfeited during the year:	(453,770	)		9.53	(947,643	)		9.27	(16,104	)		9.26
Outstanding, end of year	2,089,412		$	9.05	2,500,682		$	9.26	3,262,185		$	9.62
Exercisable, end of year	1,875,299		$	9.65	2,049,636		$	9.87	2,306,845		$	9.38
Weighted Average fair value of options granted during each period:			$	1.26			$	2.14			$	5.29

During fiscal 2004 and 2003 the Company recorded non-cash compensation expense of $763,000 and $284,000, respectively, related to various compensatory arrangements which provide common stock or restricted stock units, rather than options, to the Board of Directors and executive management. In fiscal 2004, the nine non-employee Board of Directors became eligible to receive and were granted a combined annual $270,000

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

($30,000 each) worth of common stock. In addition, the Company entered into retention agreements with certain key executives which entitles them to stock grants that vest on December 31, 2006. The Company also implemented an incentive compensation program which pays 50% in common stock. There were no common stock grants during fiscal 2003. The January 2003 employment agreement with the CEO provides for annual restricted stock grants. These restricted stock grants vest on the earlier of the achievement of yearly performance targets or 10 years. There was no expense in fiscal 2002 related to these plans.

Note 11—Voluntary Pension and Salary Deferral Plan:

The Company has a 401(k) savings plan in which employees may contribute a percentage of their compensation. At its discretion, the Company may make contributions based on employee contributions and length of employee service. In October 2002, the Company discontinued its discretionary match to employees. Company contributions and expenses under the plan for the years ended April 30, 2004, 2003, and 2002 were $0, $452,000 and $869,000 respectively.

Note 12—Preferred Share Rights Purchase Plan:

On June 7, 1990 the Board of Directors of the Company adopted a Preferred Share Rights Purchase Plan, which Plan was amended and restated as of September 1, 1999. Pursuant to the Plan a Preferred Share Purchase Right (a “Right”) is attached to each share of Company common stock. The Rights will be exercisable only if a person or group acquires 10% or more of the Company’s common stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 10% or more of the common stock. Each Right entitles shareholders to buy one one-hundredth of a share of Series B Junior Participating Preferred Stock (the “Series B Preferred Shares”) of the Company at a price of $45. If the Company is acquired in a merger or other business combination transaction, each Right will entitle its holder to purchase a number of the acquiring company’s common shares having a value equal to twice the exercise price of the Right. If a person or group acquires 10% or more of the Company’s outstanding common stock, each Right will entitle its holder (other than such person or members of such group) to receive, upon exercise, a number of the Company’s common shares having a value equal to two times the exercise price of the Right. Following the acquisition by a person or group of 10% or more of the Company’s common stock and prior to an acquisition of 50% or more of such common stock, the Board of Directors may exchange each Right (other than Rights owned by such person or group) for one share of common stock or for one one-hundredth of a Series B Preferred Share. Prior to the acquisition by a person or group of 10% of the Company’s common stock, the Rights are redeemable, at the option of the Board, for $.0001 per Right. The Rights expire on September 1, 2009. The Rights do not have voting or dividend rights, and until they become exercisable, have no dilutive effect on the earnings of the Company.

Effective October 29, 2003, Flow International Corporation amended its Preferred Share Purchase Rights Plan and the Rights issued pursuant to the Plan. The amendment modifies the definition of “Acquiring Person” to exclude certain persons who inadvertently acquire in excess of 10% of the outstanding common shares if such person enters into a standstill agreement in form and substance satisfactory to the Company and agrees to divest a sufficient number of shares of Common Stock so that such Person would no longer be an Acquiring Person within no more than one year from the date of such agreement.

The amended terms of the Rights are set forth in the Amendment No. 1 dated as of October 29, 2003 between Flow International Corporation and Mellon Investor Services LLC (formerly ChaseMellon Shareholder Services, L.L.C.) to the Amended and Restated Rights Agreement dated as of September 1, 1999 between Flow International Corporation and Mellon Investor Services LLC (formerly ChaseMellon Shareholder Services, L.L.C.). The Amended and Restated Rights Agreement is otherwise unchanged.

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

In addition, Flow International Corporation entered into a Standstill Agreement with one of its equity holders dated as of October 29, 2003, whereby, among other things, this equity holder. has agreed to divest a sufficient number of shares of common stock so that it would no longer be an Acquiring Person under the Plan within one year from the date of such agreement.

Note 13—Commitments and Contingencies:

The Company rents certain facilities and equipment under agreements treated for financial reporting purposes as operating leases. The majority of leases currently in effect are renewable for periods of two to five years. Rent expense under these leases was approximately $4.9 million, $6.1 million, and $4.8 million for the years ended April 30, 2004, 2003 and 2002, respectively.

Future minimum rents payable under operating leases for years ending April 30 are as follows:

Year Ending April 30,
2005	$	3,978
2006		3,482
2007		3,095
2008		2,448
2009		1,704
Thereafter		5,269
	$	19,976

The Company has been subject to product liability claims primarily through a former subsidiary that was sold in September 1997. To minimize the financial impact of product liability risks and adverse judgments, product liability insurance has been purchased in amounts and under terms considered acceptable to management.

At any point in time covered by these financial statements, there are outstanding product liability claims against the Company, and incidents are known to management that may result in future claims. Management, in conjunction with internal legal counsel, as well as external counsel, periodically evaluates the merit of all claims, including product liability claims, as well as considering unasserted claims. The Company aggressively defends itself when warranted and applies the accounting and disclosure criteria of FAS 5, “Accounting for Contingencies” when evaluating its exposure to all claims. The Company does not believe the effects of any claims will materially affect the financial position, results of operations or cash flows of the Company.

Recoveries, if any, may be realized from indemnitors, codefendants, insurers or insurance guaranty funds. Management, based on estimates provided by the Company’s legal counsel on such claims, believes its insurance coverage is adequate.

During fiscal 2003, the Company was required to repurchase a previously sold industrial press from a bankrupt customer and the Company recorded a charge of $760,000. During the year ended April 30, 2004, the Company sold this industrial press to an unrelated party.

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

Note 14—Discontinued Operations:

As of April 30, 2003, the Company reported one of its subsidiaries as a discontinued operation. This wholly owned subsidiary of the Company was involved in the decommissioning of oil wells. On May 16, 2003, the Company consummated the sale of the subsidiary’s assets, recording proceeds of $1.8 million and a gain on the sale of approximately $650,000. The Company retains no future interest in the subsidiary. The Company segregated this subsidiary’s assets as assets of discontinued operations on the April 30, 2003 Consolidated Balance Sheet and presented the subsidiary’s results of operations as discontinued operations, net of applicable taxes, on the Consolidated Statement of Operations for the three years ended April 30, 2004.

The operating results of discontinued operations, for the each of three years ended April 30, 2004, are summarized below:

	Year Ended April 30:
	2004			2003			2002
Net sales	$	—		$	1,215		$	2,352
(Loss) income before tax		(188	)		(792	)		592
Net (loss) income		(124	)		(523	)		391

Assets of discontinued operations as of April 30, 2003 are shown below:

	April 30, 2003
Receivables, net	$	90
Inventories, net		154
Other Current Assets		3
Property and Equipment, net		649
Goodwill		276
Other Assets		19
	$	1,191

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

Note 15—Restructuring:

The following table summarizes accrued restructuring activity:

	Severance Benefits			Facility Exit Costs			Professional Fees			Other			Total
Q1 restructuring charge	$	248		$	—		$	1,100		$	—		$	1,348
Q1 cash payments		(128	)		—			(1,100	)		—			(1,228	)
Balance, July 31, 2003		120			—			—			—			120
Q2 restructuring charge		81			296			97			480			954
Q2 cash payments		—			—			(97	)		(225	)		(322	)
Q2 charge-offs		—			—			—			(255	)		(255	)
Balance, October 31, 2003		201			296			—			—			497
Q3 restructuring charge		89			492			77			654			1,312
Q3 cash payments		(121	)		(284	)		(77	)		(160	)		(642	)
Q3 charge-offs		—			(85	)		—			(494	)		(579	)
Balance, January 31, 2004		169			419			—			—			588
Q4 restructuring charge		234			270			246			412			1,162
Q4 cash payments		(159	)		(26	)		(246	)		(126	)		(557	)
Q4 charge-offs		—			—			—			(286	)		(286	)
Balance, April 30, 2004	$	244		$	663		$	—		$	—		$	907

Since May 2003, the Company has been executing a plan intended to return it to profitability through reductions in headcount, consolidation of facilities and operations, and closure or divestiture of selected operations. The Company recorded net restructuring charges of $4.8 million during the year ended April 30, 2004. The Company incurred over $1.5 million in professional fees associated with the restructuring of its debt in July 2003 and 2004. The Company further evaluated the workforce and skill levels necessary to satisfy the expected future requirements of the business. As a result, the Company has implemented plans to eliminate redundant positions and realign and modify certain roles based on skill assessments. The Company also recorded net restructuring charges of $652,000 in employee severance related costs for approximately 48 individuals. The fiscal 2004 reductions to-date in the global workforce were made across manufacturing, engineering as well as general and administrative functions within the Company. The Company has also recorded $1,058,000 of facility exit costs for the year ended April 30, 2004 primarily as a result of consolidating its two Kent facilities into one facility, vacating the manufacturing warehouse portion of its Flow Europe facility and reducing space utilized in its Swedish manufacturing facility. In addition, the Company scrapped obsolete parts, returned surplus parts to vendors or sold parts to third parties, which totaled $1,025,000 and is included as charge-offs above, in conjunction with the shutdown of its manufacturing operation in Europe and standardization of its product line.

The remaining accrued severance costs of $244,000 as of April 30, 2004 will be paid over the next year; and the remaining accrued facility exit costs of $663,000, which consist of long-term lease commitments, net of expected sublease income, will be paid primarily over the next several years.

In February 2003, the Company entered into a relationship with The Food Partners, LLC, an investment banking firm specializing in the food industry, to develop and implement value-maximizing strategic alternatives for Avure. When the Company did not receive an acceptable offer for the business, the Company terminated the

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

relationship with The Food Partners, LLC and made an interim decision to downsize the business and continue the operation of Avure. Recent orders of our food processing and General Press product lines will consume available capacity at current manufacturing levels through December 2004. The Company continues to review the best options for Avure.

Note 16—Selected Quarterly Financial Data (unaudited):

Fiscal 2004 Quarters	First			Second			Third			Fourth			Total
Sales	$	37,182		$	43,689		$	42,382		$	54,356		$	177,609
Gross Margin		13,456			15,547			16,569			20,067			65,639
Loss Before Discontinued Operations		(7,697	)		(3,270	)		(1,139	)		(3,046	)		(15,152	)
Net Loss		(7,171	)		(3,270	)		(1,139	)		(3,046	)		(14,626	)
Loss Per Share:
Basic and Diluted
Loss Before Discontinued Operations		(.50	)		(.21	)		(.07	)		(.20	)		(.98	)
Net Loss		(.47	)		(.21	)		(.07	)		(.20	)		(.95	)
Fiscal 2003 Quarters	First			Second			Third			Fourth			Total
Sales	$	40,034		$	41,801		$	30,546		$	31,734		$	144,115
Gross Margin		12,753			14,724			(467	)		9,031			36,041
Loss Before Discontinued Operations		(4,069	)		(8,865	)		(41,282	)		(15,273	)		(69,489	)
Net Loss		(3,980	)		(8,858	)		(41,619	)		(15,555	)		(70,012	)
Loss Per Share:
Basic and Diluted
Loss Before Discontinued Operations		(.27	)		(.58	)		(2.69	)		(.99	)		(4.53	)
Net Loss		(.26	)		(.58	)		(2.71	)		(1.01	)		(4.56	)

Note 17—Operating Segment and Geographical Information:

The Company has determined that its operating segments are those based upon the manner in which internal financial information is produced and evaluated by the chief operating decision makers. Additionally, certain geographical information is required regardless of how internal financial information is generated.

The Company has changed its reportable segments from fiscal 2003 to fiscal 2004 to reflect a refined approach to managing and reporting the different global operations. The Company has identified seven reportable segments. Four segments, North America Waterjet, Asia Waterjet, Other International Waterjet and Other (together known as Waterjet), utilize the Company’s released pressure technology. The remaining three segments, Food, North America Press and International Press (together known as Avure), utilize the Company’s contained pressure technology. The Waterjet operation includes cutting and cleaning operations, which are focused on providing total solutions for the aerospace, automotive, job shop, surface preparation and paper industries. The Avure operation includes the Fresher Under Pressure food processing technology, as well as the isostatic and flexform press (“General Press”) operations. The Fresher Under Pressure technology provides food safety and quality enhancement solutions for food producers, while the General Press business manufactures systems which produce and strengthen advanced materials for the aerospace, automotive and medical industries. Segment operating results are measured based on operating income (loss).

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

The table below presents information about the reported operating (loss) income and assets of the Company for the years ended April 30, 2004, 2003 and 2002. Asset information for the Food segment is not reported as the Company did not produce such information internally as of April 30, 2002.

	Waterjet											Avure
	North America Waterjet			Asia Waterjet		Other International Waterjet			Other			Food			North America Press		International Press			Eliminations			Total
2004
External sales	$	59,044		$	20,502	$	28,160		$	25,155		$	15,296		$	7,445	$	22,007					$	177,609
Operating (loss) income	$	(4,871	)	$	5,299	$	(2,921	)	$	335		$	(2,462	)	$	9	$	2,672		$	468		$	(1,471	)
Total assets	$	88,050		$	27,587	$	17,935		$	12,265		$	16,227		$	4,802	$	44,921		$	(77,702	)	$	134,085
2003
External sales	$	53,995		$	17,667	$	22,941		$	26,892		$	4,851		$	7,668	$	10,101					$	144,115
Operating (loss) income	$	(6,374	)	$	3,433	$	(15,557	)	$	(8,503	)	$	(15,601	)	$	100	$	(5,242	)	$	1,087		$	(46,657	)
Total assets	$	107,448		$	20,476	$	30,190		$	13,154		$	15,062		$	4,523	$	44,390		$	(88,979	)	$	146,264
2002
External sales	$	59,254		$	14,916	$	30,568		$	22,480		$	11,087		$	12,648	$	25,937					$	176,890
Operating income (loss)	$	8,448		$	2,105	$	(5,934	)	$	(4,813	)	$	(6,053	)	$	753	$	6,751		$	165		$	1,422
Total assets	$	128,611		$	16,794	$	41,201		$	23,783		$	—		$	6,179	$	53,530		$	(63,622	)	$	206,476

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2004

(All tabular dollar amounts in thousands, except per share and option amounts)

The table below presents the Company’s operations and other financial information by geographical region:

	United States		Europe		Asia		Other Foreign		Adjustments & Eliminations			Consolidated
Fiscal 2004
Sales:
Customers (1)	$	97,546	$	46,557	$	20,502	$	13,004	$	—		$	177,609
Inter-area (2)		13,917		15,051		1,214		365		(30,547	)		—
Total sales	$	111,463	$	61,608	$	21,716	$	13,369	$	(30,547	)	$	177,609
Long-Lived Assets	$	12,355	$	22,625	$	7,068	$	761				$	42,809
Fiscal 2003
Sales:
Customers (1)	$	79,450	$	31,326	$	17,666	$	15,673	$	—		$	144,115
Inter-area (2)		12,499		600		1,166		72		(14,337	)		—
Total sales	$	91,949	$	31,926	$	18,832	$	15,745	$	(14,337	)	$	144,115
Long-Lived Assets	$	17,455	$	24,498	$	3,172	$	999				$	46,124
Fiscal 2002
Sales:
Customers (1)	$	95,853	$	52,757	$	14,916	$	13,364	$	—		$	176,890
Inter-area (2)		17,926		14,298		1,350		856		(34,430	)		—
Total sales	$	113,779	$	67,055	$	16,266	$	14,220	$	(34,430	)	$	176,890
Long-Lived Assets	$	35,091	$	26,839	$	2,006	$	5,779				$	69,715

(1) U.S. sales to unaffiliated customers in foreign countries were $15.1 million, $12.5 million, and $6.5 million in fiscal 2004, 2003, and 2002, respectively.

(2) Inter-area sales to affiliates represent products that were transferred between geographic areas at negotiated prices, which are consistent with the terms sales to third parties, that is, at current market prices. These amounts have been eliminated in the consolidation.

Note 18—Subsequent Events:

As described in Note 8, on July 28, 2004, the Company signed an amendment to the current credit agreement (the “Amendment”). The Amendment provides for an extension of the credit agreement through August 1, 2005.

On July 28, 2004, the Company signed an amendment to its subordinated debt agreement (the “Note Amendment”) with Hancock. The Note Amendment provides that Hancock will continue to capitalize the semi-annual interest remittances due through April 30, 2005, which total $12.2 million. Interest on all these capitalized payments will accrue at 15%.

In June 2004, the Company borrowed $4.1 million on its secured building credit facilities in Taiwan and repatriated $3.5 million to the U.S. which was used to permanently reduce the senior credit facility.

In July 2004, the Company remitted the value-added tax (“VAT”) payment, including interest, to the taxing authorities in Germany in response to an audit which concluded that the Company owed $1.3 million of VAT related to prior years. The Company had the liability accrued at April 30, 2004.

56

FLOW INTERNATIONAL CORPORATION

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

(In Thousands)

Classification	Balance at Beginning of Period		Additions						Deductions *			Balance at End of Period
			Charged to Costs and Expenses			Charged to Other Accounts
Year Ended April 30:
Allowance for Doubtful Accounts
2004	$	5,019	$	1,366		$	(19	)	$	(1,589	)	$	4,777
2003		962		4,978			131			(1,052	)		5,019
2002		866		651			(12	)		(543	)		962
Provision for Slow-Moving and Obsolete Inventories
2004	$	4,336	$	975		$	—		$	(2,812	)	$	2,499
2003		1,792		4,271			69			(1,796	)		4,336
2002		1,904		348			—			(460	)		1,792
*       Write-offs of uncollectible accounts and disposal of obsolete inventory.
Classification	Balance at Beginning of Period		Net Change			Balance at End of Period
Year Ended April 30:
Valuation Allowance on Deferred Tax Assets
2004	$	28,059	$	(3,551	)	$	24,508
2003		615		27,444			28,059
2002		693		(78	)		615

57

PART III

Item 10.    Directors and Executive Officers of the Registrant.

Information regarding directors and executive officers of the registrant is incorporated herein by reference from the Company’s Proxy Statement.

Item 11.    Executive Compensation.

Information regarding executive compensation is incorporated herein by reference from the Company’s Proxy Statement.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information regarding security ownership of certain beneficial owners and management and related stockholder matters is incorporated herein by reference from the Company’s Proxy Statement.

Item 13.    Certain Relationships and Related Transactions.

Information regarding certain relationships and related transactions is incorporated herein by reference from the Company’s Proxy Statement.

Item 14.    Principal Accountant Fees and Services.

Information regarding fees paid to our principal accountant and our Audit Committee’s pre-approval policies and procedures is incorporated herein by reference from the Company’s Proxy Statement.

58

PART IV

Item 15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) The following documents are filed as a part of this report:

1. Consolidated Financial Statements.

See Item 8 of Part II for a list of the Financial Statements filed as part of this report.

2. Financial Statement Schedules.

See Item 8 of Part II for a list of the Financial Statement Schedules filed as part of this report.

3. Exhibits. See subparagraph (c) below.

(b) Reports on Form 8-K -

The Company filed a Form 8-K dated March 16, 2004 announcing that it had issued a press release posting third quarter fiscal 2004 results.

(c) Exhibits.

Exhibit Number
3.1	Articles of Incorporation, filed with the state of Washington October 1, 1998. (Incorporated by reference to Exhibit 3.1 to the registrant’s Annual Report on Form 10-K for the year ended April 30, 1999.)
3.2	By-Laws of Flow International Corporation. (Incorporated by reference to Exhibit 3.1 to the registrant’s Annual Report on Form 10-K for the year ended April 30, 1999.)
4.1	Certificate of Designation of Series B Junior Participating Preferred Stock. (Incorporated by reference to Exhibit 4.5 to the registrant’s Annual Report on Form 10-K for the year ended April 30, 1990.)
4.2	Amended and Restated Rights Agreement dated as of September 1, 1999, between Flow International Corporation and ChaseMellon Shareholder Services, L.L.C. (Incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K dated September 1, 1999.)
4.3	Warrant to Purchase Shares of Common Stock of Flow International Corporation. (Incorporated by reference to the registrant’s Current Report on Form 8-K dated June 12, 2001.)
10.1	Flow International Corporation 1987 Stock Option Plan for Nonemployee Directors, as amended. (Incorporated by reference to Exhibit 10.5 to the registrant’s Annual Report on Form 10-K for the year ended April 30, 1994.)
10.2	Flow International Corporation 1995 Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10.2 to the registrant’s Annual Report on Form 10-K for the year ended April 30, 2000.)
10.3	Flow International Corporation Voluntary Pension and Salary Deferral Plan and Trust Agreement, as amended and restated effective January 1, 2002. (Incorporated by reference to Exhibit 10.3 to the registrant’s Annual Report on Form 10-K for the year ended April 30, 2003.)
10.4	Note Purchase Agreement dated as of April 30, 2001. (Incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K dated June 12, 2001.)
10.5	Form of Change in Control Agreement. (Incorporated by reference to Exhibit 10.17 to the registrant’s Annual Report on Form 10-K for the year ended April 30, 1996.)

59

Exhibit Number
10.6	First Amendment to Note Purchase Agreement dated October 31, 2001 among John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company, Signature 4 Limited and Signature 5 L.P. and Flow International Corporation dated as of April 30, 2001. (Incorporated by reference to Exhibit 10.18 to the registrant’s Annual Report on Form 10-K for the year ended April 30, 2002.)
10.7	Second Amendment to Note Purchase Agreement dated September 13, 2002 among John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company, Signature 4 Limited and Signature 5 L.P. and Flow International Corporation dated as of April 30, 2001. (Incorporated by reference to Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2002.)
10.8	Employment Agreement dated November 25, 2002 between Stephen R. Light and Flow International Corporation. (Incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2003.)
10.9	Second Amended and Restated Credit Agreement dated July 28, 2003 (Incorporated by reference to Exhibit 10.9 to the registrant’s Annual Report on Form 10-K for the year ended April 30, 2003.)
10.10	Third Amendment to Note Purchase Agreement dated July 28, 2003 among John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company, Signature 4 Limited and Signature 5 L.P. and Flow International Corporation. (Incorporated by reference to Exhibit 10.10 to the registrant’s Annual Report on Form 10-K for the year ended April 30, 2003.)
10.11	Lease dated January 30, 2003 between Flow International and Property Reserve, Inc. (Incorporated by reference to Exhibit 10.11 to the registrant’s Annual Report on Form 10-K for the year ended April 30, 2003.)
10.12	Amendments Number One, Two, and Three to the Second Amended and Restated Credit Agreement dated July 28, 2004 among Banc of America Strategic Solutions, Inc., U.S. Bank National Association, Keybank National Association, Bank of America, N.A., as agent for the lenders, and Flow International Corporation. */**
10.13	Fourth Amendment to Note Purchase Agreement dated July 28, 2004 among John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company, Signature 4 Limited and Signature 5 L.P. and Flow International Corporation. */**
21.1	Subsidiaries of the Registrant.*
23.1	Consent of Independent Registered Public Accounting Firm.*
31.1	Certification Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification Pursuant to the 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Certification Pursuant to the 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

* Filed herewith.

** Confidential Treatment requested for portions of this Exhibit.

60

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FLOW INTERNATIONAL CORPORATION
August 13, 2004
	/S/    STEPHEN R. LIGHT
	Stephen R. Light
	President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on this 13th day of August, 2004.

Signature	Title
/S/    STEPHEN R. LIGHT         Stephen R. Light	President and Chief Executive Officer (Principal Executive Officer)
/S/    STEPHEN D. REICHENBACH         Stephen D. Reichenbach	Chief Financial Officer (Principal Financial Officer & Principal Accounting Officer)
/S/    KATHRYN L. MUNRO         Kathryn L. Munro	Chairman
/S/    RICHARD P. FOX         Richard P. Fox	Director
/S/    RONALD D. BARBARO         Ronald D. Barbaro	Director
/S/    DANIEL J. EVANS         Daniel J. Evans	Director
/S/    ARLEN I. PRENTICE         Arlen I. Prentice	Director
/S/    J. MICHAEL RIBAUDO         J. Michael Ribaudo	Director
/S/    KENNETH M. ROBERTS         Kenneth M. Roberts	Director
/S/    SANDRA F. ROREM         Sandra F. Rorem	Director
/S/    JAN K. VER HAGEN         Jan K. Ver Hagen	Director

61

EX-10.12

Exhibit 10.12**

**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**

AMENDMENT NUMBER ONE

TO

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

THIS AMENDMENT NUMBER ONE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is made as of February 13, 2004, by and among BANC OF AMERICA STRATEGIC SOLUTIONS, INC., a Delaware corporation, a subsidiary of and as successor to Bank of America, N.A. by assignment, U.S. BANK NATIONAL ASSOCIATION, a national banking association, KEYBANK NATIONAL ASSOCIATION, a national banking association (each individually a “Lender” and collectively the “Lenders”), BANK OF AMERICA, N.A., as agent for Lenders (“Agent”), and FLOW INTERNATIONAL CORPORATION, a Washington corporation (“Borrower”).

RECITALS

A. Lenders, Agent and Borrower are parties to that certain Second Amended and Restated Credit Agreement dated as of July 28, 2003 (as amended, restated, extended, supplemented or otherwise modified from time to time, the “Credit Agreement”).

B. The parties wish to amend certain definitions in the Credit Agreement and Schedule 2 attached thereto. The parties also wish to amend certain default provisions in the Credit Agreement deleting the requirement that Flow Asia Corporation (“FAC”) provide the Agent with a perfected security in its accounts and inventory given that (i) Agent has been advised by its counsel in Taiwan that (A) under Taiwan law there is no mechanism by which a creditor may take a security interest in accounts and inventory of a debtor located in Taiwan, and (B) there is no custom or law allowing a creditor to take a security interest in the deposit accounts of a debtor located in Taiwan held at another bank, and (ii) Borrower has represented and warranted to Agent that the structure proposed by Agent’s counsel in Taiwan to allow Agent to have control and set-off rights over the proceeds of FAC’s accounts and inventory by way of (A) notation of Agent’s interest on the invoices sent to account debtors, (B) execution of an account assignment agreement and (C) execution of a sweep account agreement, would be too intrusive into the day-to-day business operations of FAC and hinder and confuse its relationships with account debtors and materially impair its existing depository and credit relationships with its local Taiwanese lenders.

C. The parties further wish to amend the default provisions in the Credit Agreement to delete the requirement that Borrower provide Agent with a leasehold deed of trust covering Borrower’s leasehold interest in Kent, Washington and a corresponding landlord consent to such deed of trust given that the landlord has refused to provide its consent and such consent is required in the applicable lease.

NOW, THEREFORE, the parties hereto agree as follows:

AGREEMENT

1. Definitions. Capitalized terms not otherwise defined in this Amendment shall have the meaning set forth in the Credit Agreement.

2. Amendments to Credit Agreement.

(a) Amendment to Article 1 - Definitions. Article 1 of the Credit Agreement is hereby amended as follows:

(i) Amendment to Definition of “Loan Documents.” The definition of “Loan Documents” is hereby deleted and replaced with the following:

“Loan Documents” means the Existing Loan Documents and the New Loan Documents, and all other agreements, documents, instruments, powers of attorney, resolutions, certificates, financing statements, stock powers or notices executed by or on behalf of Borrower or its Affiliates or any Guarantor in connection with this Agreement, the Original Agreement and the Amended and Restated Agreement or the transactions contemplated hereby or thereby, in any case, either prior to or after the date hereof or thereof, in each case, as the same may be amended, restated, extended, supplemented or otherwise modified from time to time. With respect to any New Loan Document that has not yet been finalized and executed, such document shall become a “Loan Document” upon execution and delivery to Agent.

(ii) Amendment to Definition of “New Loan Documents.” The definition of “New Loan Documents” is hereby deleted and replaced with the following:

“New Loan Documents” means the documents listed on Schedule 2 attached hereto and by this reference incorporated herein.

(iii) Addition of Definition of “Majority Lenders.” The definition of “Majority Lenders” is hereby added to the Credit Agreement to read as follows:

“Majority Lenders” means all Lenders.

(b) Amendment to Schedule 2. Schedule 2 of the Credit Agreement is hereby deleted in its entirety and replaced with the Schedule 2 attached hereto.

(c) Amendment to Section 8.1(w)(2). Section 8.1(w)(2) is deleted and replaced with the following:

(2) Agent shall have received evidence of Agent’s perfected first priority lien in each Foreign Guarantor’s assets listed on Schedule 5.19, or in such portion of such property as Agent may request; excluding however, the accounts and inventory of FAC.

(d) Deletion of Section 8.1(w)(5). Section 8.1(w)(5) is hereby deleted in its entirety.

3. Conditions to Effectiveness. This Amendment shall become effective when Borrower, Agent and each Lender shall have executed and delivered counterparts hereof to Agent and each Domestic Guarantor shall have executed and delivered counterparts of the Guarantors’ Consent subjoined to this Amendment to Agent.

4. Additional Covenants. On or before April 30, 2004, Borrower shall deliver to the Agent each Foreign Guarantor’s executed signature page of the subjoined Guarantor’s Consent.

5. Representations and Warranties. Borrower hereby represents and warrants to the Lenders and Agent that each of the representations and warranties set forth in Article 5 of the Credit Agreement is true and correct in each case as if made on and as of the date of this Amendment and Borrower expressly agrees that it shall be an additional Event of Default under the Credit Agreement if any representation or warranty made hereunder shall prove to have been incorrect in any material respect when made.

6. No Further Amendment. Except as expressly modified by the terms of this Amendment, all of the terms and conditions of the Credit Agreement and the other Loan Documents (including, without limitation, those set forth in Schedule 2 attached hereto) shall remain in full force and effect and the parties hereto expressly reaffirm and ratify their respective obligations thereunder.

7. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Washington.

8. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement.

9. Oral Agreements Not Enforceable.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number One to Second Amended and Restated Credit Agreement as of the date first above written.

BORROWER:	FLOW INTERNATIONAL CORPORATION
	By
	Name:	Stephen D. Reichenbach
	Title:	Chief Financial Officer
	By
	Name:	John S. Leness
	Title:	General Counsel and Secretary
LENDERS:	BANC OF AMERICA STRATEGIC SOLUTIONS, INC.
	By
	Name:	Thomas E. Brown
	Title:	Senior Vice President
	U.S. BANK NATIONAL ASSOCIATION
	By
	Name:	Elizabeth C. Hengeveld
	Title:	Vice President
	KEYBANK NATIONAL ASSOCIATION
	By
	Name:	Stephen Barkley
	Title:	Senior Vice President
	BANK OF AMERICA, N.A.
	By
	Name:	Ken Puro
	Title:	Vice President

SCHEDULE 2

NEW LOAN DOCUMENTS

1. Second Amended and Restated Credit Agreement.

2. Security Agreement executed by certain Foreign Guarantors in favor of Agent and Lenders.

3. Guaranty executed by certain Foreign Guarantors in favor of Agent and Lenders.

4. Third Amended and Restated Notes executed by Borrower in favor of each Lender.

5. Amended and Restated Pledge Agreement executed by Borrower in favor of Agent.

6. Restructure Agreement.

7. Reduction Letter.

8. Equipment Chattel Mortgage (Chinese and English versions) made by FAC in favor of Agent.

9. Supplement and Amendment Number One to Amended and Restated Pledge Agreement executed by Borrower in favor of Agent.

10. Letter Agreement supplementing the Second Amended and Restated Credit Agreement regarding the FAC documents.

11. Pledge Agreement (Taiwan Patents) executed by Borrower in favor of Agent.

12. Pledge Agreement (Taiwan Trademarks) executed by Borrower in favor of Agent.

13. Mortgage (second position lien) on real property owned by FAC made in favor of Agent.

14. Agreement on the Global Assignment of Accounts Receivable executed by Flow Europe Manufacturing GmbH & CO.-KG (“FEMG”) in favor of Agent.

15. Agreement on the Creation of a Security Interest in Moveable Assets and Inventory executed by FEMG in favor of Agent.

16. Agreement on the Creation of a Pledge Over Shares executed by Borrower in favor of Agent.

17. Agreement on the Creation of a Pledge Over Shares executed by Flow Europe GmbH (“FEG”) in favor of Lenders and Agent.

18. Agreement on the Global Assignment of Accounts Receivable executed by FEG in favor of Agent.

19. Agreement on the Creation of a Security Interest in Moveable Assets and Inventory executed by FEG in favor of Agent.

20. Agreement on the Creation of a Security Interest in Intellectual Property Rights executed by FEMG and FEG in favor of Agent.

21. Agreement on the Creation of a Security Interest in Intellectual Property Rights executed by Borrower in favor of Agent.

22. Notice of Grant of Security Interest in Patents executed by FEG in favor of Agent.

23. Share Pledge Agreement executed by Flow International FPS AB (“Flow Sweden”) in favor of Agent.

24. Notice to Avure Technologies AB (“Avure AB”) regarding Share Pledge Agreement executed by Flow AB in favor of Agent.

25. Supplement and Amendment Number One to Foreign Guaranty Agreement executed by Flow Holdings Sagl (“Flow Switzerland”), Flow Sweden, Avure AB, FAC, FEG and FEMG in favor of Agent.

26. Supplement and Amendment Number One to Security Agreement (Foreign Subsidiaries) executed by Flow Switzerland, Flow Sweden, Avure AB, FAC, FEG and FEMG.

27. Floating Charge/ Business Mortgage Agreement executed by Avure AB in favor of Agent.

28. Notices to prior lienholders in Sweden of Agent’s lien on Flow Sweden and Avure AB’s assets.

29. Notice to the Swedish PRV regarding Agent’s floating charge.

30. Deed of Pledge regarding Borrower’s interest in the stock of Flow Switzerland.

31. Intellectual Property Rights Pledge Agreement made by Borrower in favor of Agent.

32. Intellectual Property Rights Pledge Agreement made by Flow Switzerland in favor of Agent.

33. Receivables Assignment Agreement made by Flow Switzerland in favor of Agent.

34. Notice of Grant of Security Interest in Patents made by Flow Switzerland.

GUARANTOR’S CONSENT

Each undersigned guarantor (each a “Guarantor”) is a guarantor of the indebtedness, liabilities and obligations of Flow International Corporation, a Washington corporation (the “Borrower”) under that certain Second Amended and Restated Credit Agreement dated as of July 28, 2003 (as amended from time to time, the “Credit Agreement”) referred to in the within and foregoing Amendment Number One to Second and Restated Credit Agreement dated as of February 13, 2004 (the “First Amendment”) and the other Loan Documents described in the Credit Agreement. Each Guarantor hereby acknowledges that it has received a copy of the First Amendment and hereby consents to its contents, including all prior and current amendments to the Credit Agreement and the other Loan Documents described therein (notwithstanding that such consent is not required). Each Guarantor hereby confirms that its guarantee of the obligations of Borrower remains in full force and effect, and that the obligations of Borrower under the Credit Agreement and the other Loan Documents shall include the obligations of the Borrower under the Credit Agreement as amended by the First Amendment. All capitalized terms not defined herein have the meanings given in the Credit Agreement.

DOMESTIC GUARANTORS:
	AVURE TECHNOLOGIES, INC
	By:
	Name:
	Title:
	CIS ACQUISITION CORPORATION
	By:
	Name:
	Title:
	FLOW WATERJET FLORIDA CORPORATION
	By:
	Name:
	Title:

FOREIGN GUARANTORS:
	FLOW ASIA CORPORATION
	By:
	Name:
	Title:
	FLOW EUROPE GMBH
	By:
	Name:
	Title:
	FLOW EUROPE MANUFACTURING GMBH & CO. KG.
	By:
	Name:
	Title:
	FLOW HOLDINGS SAGL
	By:
	Name:
	Title:
	FLOW INTERNATIONAL FPS AB
	By:
	Name:
	Title:
	AVURE TECHNOLOGIES AB
	By:
	Name:
	Title:

AMENDMENT NUMBER TWO

TO

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

THIS AMENDMENT NUMBER TWO TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is made as of May 6, 2004, by and among BANC OF AMERICA STRATEGIC SOLUTIONS, INC., a Delaware corporation, a subsidiary of and as successor to Bank of America, N.A. by assignment, U.S. BANK NATIONAL ASSOCIATION, a national banking association, KEYBANK NATIONAL ASSOCIATION, a national banking association (each individually a “Lender” and collectively the “Lenders”), BANK OF AMERICA, N.A., as agent for Lenders (“Agent”), and FLOW INTERNATIONAL CORPORATION, a Washington corporation (“Borrower”).

RECITALS

A. Lenders, Agent and Borrower are parties to that certain Second Amended and Restated Credit Agreement dated as of July 28, 2003, as amended by that certain Amendment Number One to Second Amended and Restated Credit Agreement dated as of February 13, 2004 (as amended, restated, extended, supplemented or otherwise modified from time to time, the “Credit Agreement”).

B. In order to simplify its corporate structure and expedite on-going financial reporting processes, Borrower intends to merge its German second-tier subsidiary, Flow Europe Manufacturing & Co. KG (“Flow KG”), with and into Flow KG’s parent corporation Flow Europe GmbH (“Flow Europe”). Flow Europe is a wholly-owned German subsidiary of Borrower and will be the surviving entity. Each of Flow KG and Flow Europe are Guarantors under the Credit Agreement. Without the written consent of Agent, such merger is prohibited under Section 7.2 of the Credit Agreement. Such merger is referred to in this Amendment as the “German Subsidiary Merger.”

C. Borrower also intends to liquidate and dissolve its wholly-owned UK subsidiary Robotic Simulations, Ltd. (“RSL”) to further simplify its corporate structure and avoid the administration of an inactive subsidiary. RSL provided computer programming services to Borrower-related entities. RSL has no employees and is in the process of settling its accounts. Without the written consent of Agent, such liquidation is prohibited under Section 7.2 of the Credit Agreement. Such liquidation and dissolution is referred to in this Amendment as the “RSL Liquidation.”

D. Flow Asia Corporation, a Taiwan corporation (“FAC”), a wholly-owned subsidiary of Borrower and a Guarantor under the Credit Agreement, has entered into a seven (7) year note for the principal amount of 145,000,000NTD (approximately US$4,100,000) with Chiao Tung Bank. Without the written consent of Agent, FAC’s incurrence of such indebtedness is prohibited under Section 7.3 of the Credit Agreement. Such loan is referred to in this Amendment as the “Chiao Tung Bank Loan.”

E. In connection with the Chiao Tung Bank Loan, FAC has granted to Chiao Tung Bank a first position lien on that portion of the building owned by FAC in Hsin Chu, Taiwan. Pursuant to Section 7.5 of the Credit Agreement, FAC was prohibited from creating such lien without Agent’s written consent. Such lien is referred to in this Amendment as the “Chiao Tung Bank Lien.”

F. Borrower has also agreed to make a permanent reduction of the Total Revolving Commitment in the principal amount of Three Million Three Hundred Thousand Dollars ($3,300,000) and also to pay down any outstanding Revolving Loans by such principal amount.

G. Borrower requests that Agent provide its written consent to the actions described in the foregoing recitals and make certain other amendments to the Credit Agreement as set forth herein.

NOW, THEREFORE, the parties hereto agree as follows:

AGREEMENT

1. Definitions. Capitalized terms not otherwise defined in this Amendment shall have the meaning set forth in the Credit Agreement.

2. Consent of Agent. Agent hereby provides its consent to the German Subsidiary Merger, the RSL Liquidation, the Chiao Tung Bank Loan and the Chiao Tung Bank Lien, each as further described in the recitals above and as described in that certain letter from Dan Hillman, Director of Tax and Treasury of Borrower, to Agent dated April 27, 2004.

3. Pay Down of Revolving Loans. No later than June 30, 2004, Borrower agrees to make a principal payment on the outstanding Revolving Loans in an amount equal to Three Million Three Hundred Thousand Dollars ($3,300,000) (the “Pay Down Amount”). Such principal payment shall permanently reduce the Total Revolving Commitment by the same amount. For the avoidance of doubt, the parties agree that Pay Down Amount includes the Two Million Dollar ($2,000,000) principal payment referred to in that certain letter dated April 13, 2004 from Ken Puro on behalf of Bank of America, N.A., Commercial Agency Management, to Stephen Light, Chief Executive Officer, Flow International Corporation.

4. Conditions to Effectiveness. This Amendment shall become effective when Borrower, Agent and each Lender shall have executed and delivered counterparts hereof to Agent and each Domestic Guarantor shall have executed and delivered counterparts of the Guarantors’ Consent subjoined to this Amendment to Agent.

5. Release and Waiver. Borrower ratifies and reconfirms the Loan Documents and all of its obligations and liabilities thereunder and hereby waives and releases any and all defenses that either of them may now have or hereafter acquire with respect to the Loan Documents based on or otherwise relating to any events or circumstances which occurred or existed on or prior to the date hereof. Borrower hereby releases and forever discharges Agent and Lenders, their respective affiliates, and their respective officers, directors, agents and

employees from every claim, demand and cause of action whatsoever, of every kind and nature, whether presently known or unknown, suspected or unsuspected, arising or alleged or to have risen or which shall arise hereafter from any act, omission or condition which occurred or existed on or prior to the date of this Amendment.

6. Additional Covenant. On or before May 15, 2004, Borrower shall deliver to Agent each Foreign Guarantor’s executed signature page of the subjoined Guarantor’s Consent. Borrower expressly agrees that it shall be an additional Event of Default under the Credit Agreement, subject to any cure periods described therein, if each Foreign Guarantor’s executed signature page is not delivered to the Agent by the date set forth above.

7. Representations and Warranties. Borrower hereby represents and warrants to the Lenders and Agent that each of the representations and warranties set forth in Article 5 of the Credit Agreement is true and correct in each case as if made on and as of the date of this Amendment (except in the case of the first sentence of Section 5.19 of the Credit Agreement, which representation and warranty was intended to be made only as of the date of the Credit Agreement) and Borrower expressly agrees that it shall be an additional Event of Default under the Credit Agreement if any representation or warranty made hereunder shall prove to have been incorrect in any material respect when made.

8. No Further Amendment. Except as expressly modified by the terms of this Amendment, all of the terms and conditions of the Credit Agreement and the other Loan Documents shall remain in full force and effect and the parties hereto expressly reaffirm and ratify their respective obligations thereunder.

9. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Washington.

10. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement.

11. Oral Agreements Not Enforceable.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number Two to Second Amended and Restated Credit Agreement as of the date first above written.

BORROWER:	FLOW INTERNATIONAL CORPORATION
	By
	Name:	Stephen D. Reichenbach
	Title:	Chief Financial Officer
	By
	Name:	John S. Leness
	Title:	General Counsel and Secretary
LENDERS:	BANC OF AMERICA STRATEGIC SOLUTIONS, INC.
	By
	Name:	Thomas E. Brown
	Title:	Senior Vice President
	U.S. BANK NATIONAL ASSOCIATION
	By
	Name:	Elizabeth C. Hengeveld
	Title:	Vice President
	KEYBANK NATIONAL ASSOCIATION
	By
	Name:	Stephen Barkley
	Title:	Senior Vice President
AGENT:	BANK OF AMERICA, N.A.
	By
	Name:	Ken Puro
	Title:	Vice President

GUARANTOR’S CONSENT

Each undersigned guarantor (each a “Guarantor”) is a guarantor of the indebtedness, liabilities and obligations of Flow International Corporation, a Washington corporation (the “Borrower”) under that certain Second Amended and Restated Credit Agreement dated as of July 28, 2003 (as amended from time to time, the “Credit Agreement”) referred to in the within and foregoing Amendment Number Two to Second Amended and Restated Credit Agreement dated as of May 6, 2004 (the “Second Amendment”) and the other Loan Documents described in the Credit Agreement. Each Guarantor hereby acknowledges that it has received a copy of the Second Amendment and hereby consents to its contents, including all prior and current amendments to the Credit Agreement and the other Loan Documents described therein (notwithstanding that such consent is not required). Each Guarantor hereby confirms that its guarantee of the obligations of Borrower remains in full force and effect, and that the obligations of Borrower under the Credit Agreement and the other Loan Documents shall include the obligations of the Borrower under the Credit Agreement as amended by the Second Amendment. All capitalized terms not defined herein have the meanings given in the Credit Agreement.

DOMESTIC GUARANTORS:
	AVURE TECHNOLOGIES, INC
	By:
	Name:
	Title:
	CIS ACQUISITION CORPORATION
	By:
	Name:
	Title:
	FLOW WATERJET FLORIDA CORPORATION
	By:
	Name:
	Title:

FOREIGN GUARANTORS:	FLOW ASIA CORPORATION
	By:
	Name:
	Title:
	FLOW EUROPE GMBH
	By:
	Name:
	Title:
	FLOW EUROPE MANUFACTURING GMBH & CO. KG.
	By:
	Name:
	Title:
	FLOW HOLDINGS SAGL
	By:
	Name:
	Title:
	FLOW INTERNATIONAL FPS AB
	By:
	Name:
	Title:
	AVURE TECHNOLOGIES AB
	By:
	Name:
	Title:

**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**

AMENDMENT NUMBER THREE

TO

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

THIS AMENDMENT NUMBER THREE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this “Third Amendment”) is made as of July 28, 2004, by and among BANC OF AMERICA STRATEGIC SOLUTIONS, INC., a Delaware corporation, a subsidiary of and as successor to Bank of America, N.A. by assignment, U.S. BANK NATIONAL ASSOCIATION, a national banking association, KEYBANK NATIONAL ASSOCIATION, a national banking association (each individually a “Lender” and collectively the “Lenders”), BANK OF AMERICA, N.A., as agent for Lenders (“Agent”), and FLOW INTERNATIONAL CORPORATION, a Washington corporation (“Borrower”).

RECITALS

A. Lenders, Agent and Borrower are parties to that certain Second Amended and Restated Credit Agreement dated as of July 28, 2003, as amended by that certain Amendment Number One to Second Amended and Restated Credit Agreement dated as of February 13, 2004, and as amended by that certain Amendment Number Two to Second Amended and Restated Credit Agreement dated as of May 6, 2004 (as amended, restated, extended, supplemented or otherwise modified from time to time, the “Credit Agreement”).

B. Borrower has requested that Agent and Lenders agree to an extension of the maturity date of the Loans and that certain other amendments be made to the terms of the Credit Agreement.

C. Lenders and Agent are willing to agree to Borrower’s requested extension of the maturity date of the Loans and certain other amendments to the Credit Agreement subject to the terms and conditions specified in this Third Amendment.

NOW, THEREFORE, the parties hereto agree as follows:

AGREEMENT

1. Definitions. Capitalized terms not otherwise defined in this Third Amendment shall have the meaning set forth in the Credit Agreement. The recitals are incorporated in and made part of this Third Amendment.

2. Amendments to Credit Agreement.

(a) Additions and Amendments to Section 1.1 - Definitions. The following definitions are amended, added to, or deleted from Section 1.1 of the Credit Agreement, as the case may be, as follows:

“Agreement” means this Agreement as amended by the Prior Amendments, the Third Amendment and any and all subsequent amendments to the Agreement.

“Alternate Restructure Event” is deleted.

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“Alvarez” means Alvarez & Marsal, LLC, a New York limited liability company.

“Asset Sale Net Proceeds” shall mean the gross proceeds attributable to the sale of any assets (other than the sale of assets in the ordinary course of business) owned by Borrower or any Guarantor minus (i) the expenses associated with such sale including, without limitation, investment banking, legal, accounting and any other broker fees associated with the sale of such asset, (ii) the satisfaction of any encumbrances secured by a lien senior to that of the Agent and Lenders, (iii) the satisfaction of any other contractual or legal liability required to be satisfied as a result of such Sale, and (iv) a reserve for estimated taxes due associated with the sale of such asset.

“ATAB” means Avure Technologies AB, a limited liability company organized under the laws of Sweden, and an indirect subsidiary of Borrower.

“Base Rate” means (i) the sum of the Prime Rate and four percent (4%) from the Third Amendment Effective Date until October 31, 2004, (ii) the sum of the Prime Rate and five percent (5%) from November 1, 2004 until January 31, 2005, (iii) the sum of the Prime Rate and six percent (6%) from February 1, 2005 until April 30, 2005, and (iv) the sum of the Prime Rate and seven percent (7%) from May 1, 2005 until the Revolving Maturity Date.

“Chiao Tung Loans” has the meaning given that term in Section 7.3.

“Collateral Differential” means, as of any Collateral Measurement Date, the amount (if any) by which the Minimum Collateral Amount as of such date exceeds the net book value of the Collateral.

“Collateral Measurement Date” means the applicable date designated as a Collateral Measurement Date in Section 6.13.

“Consent to Amendment” shall mean the Consent to Amendment in substantially the form of Exhibit D hereto.

“Default Rate” shall mean a per annum rate equal to the then-current Base Rate plus three percent (3%). Any reference to “Default Rate” in Section 2.5(a) and elsewhere in the Agreement and any other Loan Document shall refer to the Default Rate as amended by this Third Amendment.

“EBITDA” means operating income, plus the sum of (i) depreciation expense, (ii) depletion expense, (iii) amortization expense, (iv) restructuring expenses not to exceed $1,500,000 in fiscal year 2005, (v) fees paid to legal and financial advisors associated with Borrower’s refinancing efforts and negotiations with its existing creditors, (vi) one-time, non-cash charges related to write-downs of intangibles or goodwill, (vii) non-cash compensation, (viii) one-time VAT tax liability “true-up” of $290,000 (U.S.) in Flow Europe recorded in the fourth quarter of fiscal year 2004,

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associated with the fiscal periods prior to and including the year ended April 30, 2004, and (ix) any costs or write-downs associated with a Restructure Event.

“EBITDA Measurement Period” has the meaning given in Section 6.12.

“FAC” means Flow Asia Corporation, a corporation formed under the laws of Taiwan, and a wholly-owned subsidiary of Borrower.

“FEG” or “Flow Europe” means Flow Europe GmbH, a corporation organized under the laws of Germany and a wholly-owned subsidiary of Borrower.

“Handelsbanken Loans” has the meaning given that term in Section 7.3.

“Loan Documents” means the Existing Loan Documents, the New Loan Documents, the Prior Amendments, the Third Amendment, the Warrants, the Second Restructure Agreement, and all other agreements, documents, instruments, powers of attorney, resolutions, certificates, financing statements, stock powers or notices executed by of on behalf of Borrower or its Affiliates or any Guarantor in connection with this Agreement, the Original Agreement and the Amended and Restated Agreement or the transactions contemplated hereby or thereby, in any case, either prior to or after the date hereof or thereof, in each case, as the same may be amended, restated, extended, supplemented or otherwise modified from time to time. With respect to any New Loan Document that has not yet been finalized and executed, such document shall become a “Loan Document” upon execution and delivery to Agent.

“LTM” means last twelve months.

“Mandatory Reductions” has the meaning given in Section 2.1(b)(ii).

“Minimum Collateral Amount” means the applicable amount designated as a Minimum Collateral Amount in Section 6.13.

“Minimum EBITDA Amount” has the meaning given in Section 6.12.

“Optional Reductions” has the meaning given in Section 2.1 (b)(iii).

“Performance Premium” has the meaning given in Section 6.12A.

“Prior Amendments” means that certain Amendment Number One to Second Amended and Restated Credit Agreement dated as of February 13, 2004 and that certain Amendment Number Two to Second Amended and Restated Credit Agreement dated as of May 6, 2004.

“Revolving Maturity Date” means August 1, 2005.

“Scheduled Reduction” has the meaning given in Section 2.1(b)(i).

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“Second Restructure Agreement” means that certain Second Restructure Agreement by and between Agent, Lenders and Borrower dated as of July 28, 2004 in the form attached to the Third Amendment as Exhibit A hereto.

“Stock Sale Net Proceeds” shall mean the gross cash proceeds attributable to any public or private offering by the Borrower or other sale by Borrower after the Third Amendment Effective Date of its common or preferred stock or warrants, options, rights or other equity interests minus all fees and expenses associated with such sale including, without limitation, investment banking, legal, accounting, printing, transfer agent and broker fees associated with such sale.

“Third Amendment” means that certain Third Amendment to Second Amended and Restated Credit Agreement by and among the Agent, Lenders and Borrower and consented to by each Guarantor dated as of July 28, 2004.

“Third Amendment Effective Date” means July 28, 2004 or such later date as the Agent, each Lender and Borrower may agree.

“Warrants” has the meaning given in Section 2A. 1.

“Warrant Vesting Event” has the meaning given that term in Section 2A.2.

(b) Amendment to Section 2.1(a). Section 2.1 (a) of the Credit Agreement is hereby deleted and replaced with the following:

(a) The Revolving Credit. Subject to the terms and conditions of this Agreement, each Lender hereby severally agrees to make loans (“Revolving Loans”) to Borrower from time to time on Business Days until the Revolving Maturity Date (the “Revolving Commitment Period”) in amounts equal to such Lender’s Pro Rata Share (as set forth below) of each requested Loan; provided that, after giving effect to any requested Loan (i) the aggregate of all Revolving Loans from such Lender will not exceed at any one time outstanding the Total Revolving Commitment then in effect multiplied by such Lender’s Pro Rata Share (such Lender’s “Revolving Commitment”), and (ii) the Total Utilization will not exceed the Total Revolving Commitment then in effect. Each Lender’s Revolving Commitment as of the Third Amendment Effective Date is set forth opposite its name below. The Revolving Loans described in this Section 2.1 (a) constitute a revolving credit and within the amount and time specified, Borrower may pay, prepay and reborrow.

Lender	Revolving Commitment as of Third Amendment Effective Date		Pro Rata Share
Bane of America Strategic Solutions, Inc.	$	19,020,447.12	44.506849315	%
U.S. Bank National	$	12,785,674.52	29.917808220	%
Association
KeyBank National Association	$	10,929,878.36	25.575342465	%
Total Revolving Commitment as of Third Amendment Effective Date	$	42,736,000.00	100.00	%

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(b) Reductions in Total Revolving Commitment.

(i) Scheduled Reduction. On April 30, 2005, the Total Revolving Commitment shall be permanently reduced by One Million Seven Hundred Thirty-Six Thousand Dollars ($1,736,000). Such reduction (the “Scheduled Reduction”) shall be in addition to any Mandatory Reductions. The Scheduled Reduction shall also be in addition to any Optional Reduction except to the extent Borrower notifies Agent that some or all of such Optional Reduction shall be applied toward the Scheduled Reduction.

(ii) Mandatory Reductions. The Total Revolving Commitment shall be permanently reduced on the following dates and in the following amounts:

(A) on any date when Borrower receives (or becomes entitled immediately to receive) any Asset Sale Net Proceeds, the Total Revolving Commitment shall be permanently reduced by an amount equal to one hundred percent (100%) of such Asset Sale Net Proceeds;

(B) on any date when Borrower receives (or becomes entitled immediately to receive) any Stock Sale Net Proceeds, the Total Revolving Commitment shall be permanently reduced by an amount equal to thirty percent (30%) of such Stock Sale Net Proceeds; and

(C) if there is a Collateral Differential on any Collateral Measurement Date, the Total Revolving Commitment shall be permanently reduced by the amount of such Collateral Differential in accordance with Section 6.13.

Any reduction in the Total Revolving Commitment under this Section 2.1(b)(ii) shall be referred to as a “Mandatory Reduction” and shall be in addition to any Scheduled Reduction or any Optional Reduction.

(iii) Optional Reductions. Borrower may, at its option, reduce the Total Revolving Commitment from time to time upon at least two (2) Business Days’ prior written notice to Agent; provided that each such reduction

5

(an “Optional Reduction”) must be in an amount not less than $250,000. Each notice of an Optional Reduction shall be irrevocable and shall specify the effective date of such reduction, which date may not be earlier than the next Business Day after receipt by Agent of such notice.

(c) Amendment to Section 2.4(c). Section 2.4(c) of the Credit Agreement is hereby deleted and replaced with the following:

(c) On any date when Borrower receives (or becomes entitled immediately to receive) any Asset Sale Net Proceeds, Borrower shall pay to Lenders an amount equal to one hundred percent (100%) of such Asset Sale Net Proceeds.

(d) Amendment to Section 2.4(d). Section 2.4(d) of the Credit Agreement is hereby deleted and replaced with the following:

(d) On any date when Borrower receives (or becomes entitled immediately to receive) any Stock Sale Net Proceeds, Borrower shall pay to Lenders an amount equal to thirty percent (30%) of such Stock Sale Net Proceeds.

(e) Amendment to Section 2.9. Sections 2.9 is hereby deleted in its entirety and replaced with the following:

Section 2.9 Fees. In addition to certain fees described in Section 3.2(b), Borrower shall pay the following fees:

(a) Quarterly Commitment Fee. The Borrower shall pay Agent for the account of Lenders in accordance with each Lender’s Pro Rata Share, the following commitment fees on the following dates:

Date	Commitment Fee
October 31,2004	50 basis points (0.50%)
January 31, 2005	50 basis points (0.50%)
April 30, 2005	50 basis points (0.50%)
July 31,2005	125 basis points (1.25%)

The quarterly commitment fees are determined based on the amount of Total Revolving Commitment that is in effect on each of the dates specified above.

(b) Agent’s Fee. Immediately upon the execution and delivery of this Agreement, Borrower shall pay to Agent, for its own account, an Agent’s fee of One Hundred Thousand Dollars ($100,000). Such fee shall be deemed fully earned when due and non-refundable, in whole or in part, when paid.

6

(c) Commitment Reduction Fee. If the Total Revolving Commitment is greater than Thirty Eight Million Dollars ($38,000,000) on April 30, 2005, then Borrower shall, on that date, pay to Agent for the account of Lenders in accordance with their Pro Rata Shares, a commitment reduction fee of One Million Dollars ($1,000,000).

(f) Addition of Article 2A to Credit Agreement. The following Article 2A is added to and shall become a part of the Credit Agreement:

ARTICLE 2A

WARRANTS

2A.1 Warrant to Purchase Common Stock. As an additional inducement to the Lenders to enter into the Third Amendment, the Borrower agrees to issue and deliver to the Lenders as of the Third Amendment Effective Date, warrants of the Borrower to purchase, in the aggregate, 150,000 shares of common stock of the Borrower (constituting approximately 95/100 of one percent (0.95%) of the fully diluted shares of the common stock of the Borrower as of the Third Amendment Effective Date, exclusive of any unexercised stock options or warrants to purchase stock) for an exercise price of $0.01 per share (as amended, restated, supplemented or replaced from time to time, the “Warrants”). The Warrants shall be in substantially the form of Exhibit B hereto. The number of shares of common stock to be purchased by each Lender pursuant to the Warrants shall be determined in accordance with that Lender’s Pro Rata Share as of the Third Amendment Effective Date as follows: (i) Banc of America Strategic Solutions, Inc., 66,760 shares, (ii) U.S. Bank National Association, 44,877 shares, and (iii) Key Bank National Association, 38,363 shares. The number of shares that may be acquired upon the exercise of the Warrants and the price per share are also subject to adjustment in the manner and on the terms and conditions set forth in the Warrants. The Warrants may only be exercised as described below and are subject to the terms and conditions set forth in the Warrants.

2A.2 Warrant Vesting Event. The Warrants will not be exercisable until the earlier to occur of the following (the “Warrant Vesting Event”): (i) July 31, 2005 or (ii) reduction of the Total Revolving Commitment to no more than $6,000,000. The Warrants must be exercised, if at all, no later than July 31, 2009.

(g) Amendment to Section 6.1. Section 6.1 of the Credit Agreement is hereby deleted and replaced with the following:

Section 6.1 Use of Proceeds. Borrower will use solely for working capital purposes and other general corporate purposes of Borrower: (i) the proceeds of the Loans and the Letters of Credit (the “Proceeds”) and (ii) any Stock Sale Net Proceeds in excess of the amount payable under Section 2.4(d) and not otherwise paid to the Subordinated Noteholders in accordance with Section 7.15.

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(h) Amendment to Section 6.12. Section 6.12 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

Section 6.12 EBITDA. For each fiscal quarter ending as of the date indicated below (each, an “EBITDA Measurement Period”), Borrower shall maintain an EBITDA of not less than the corresponding amount set forth below (each a “Minimum EBITDA Amount”), subject to the adjustments in accordance with the Second Restructure Agreement.

Consolidated LTM EBITDA
July 31, 2004	$	10,900,000
October 31, 2004	$	9,400,000
January 31, 2005	$	9,400,000
April 30, 2005	$	10,000,000
July 31, 2005	$	11,700,000
Consolidated Quarterly EBITDA
July 31, 2004	$	2,300,000
October 31, 2004	$	1,400,000
January 31, 2005	$	1,600,000
April 30, 2005	$	3,800,000
July 31, 2005	$	3,400,000
Domestic LTM EBITDA
July 31, 2004		($1,300,000	)
October 31, 2004		($1,800,000	)
January 31, 2005		($1,150,000	)
April 30, 2005		($500,000	)
July 31, 2005	$	500,000
Domestic Quarterly EBITDA
July 31, 2004		($450,000	)
October 31, 2004		($1,700,000	)
January 31, 2005		($500,000	)
April 30, 2005	$	600,000
July 31, 2005	$	100,000

(i) Addition of Section 6.12A to Credit Agreement. The following Section 6.12A is added to and shall become a part of the Credit Agreement:

6.12A EBITDA Performance Premium. Borrower shall pay to Agent for the account of Lenders in accordance with each Lender’s Pro Rata Share, a premium (the “Performance Premium”) for each fiscal quarter in which any of Consolidated LTM EBITDA, Consolidated Quarterly EBITDA, Domestic LTM EBITDA or Domestic

8

Quarterly EBITDA is less than the corresponding amount set forth below for such period, subject to adjustment in accordance with the Second Restructure Agreement. The Performance Premium owing with respect to any such fiscal quarter shall equal twenty five (25) basis points (0.25%) times the average Total Utilization during such fiscal quarter. Any such payment, if required, shall be due five (5) Business Days after the earlier of: (i) the date when the financial statement covering such fiscal quarter is due under Section 6.9 or (ii) the date of the filing of any 10Q or 10K statement with the SEC covering such fiscal quarter. For avoidance of doubt, so long as Borrower pays the Performance Premium when required hereunder, failure to comply with the EBITDA requirements set forth below shall not, in itself, constitute an Event of Default.

EBITDA Measurement Period	Minimum EBITDA Amount
Consolidated LTM EBITDA:
July 31, 2004	$	11,378,000
October 31, 2004	$	10,385,000
January 31, 2005	$	10,620,000
April 30, 2005	$	11,275,000
July 31, 2005	$	12,391,000
Consolidated Quarterly EBITDA:
July 31, 2004	$	2,734,000
October 31, 2004	$	1,983,000
January 31, 2005	$	2,193,000
April 30, 2005	$	4,366,000
July 31, 2005	$	3,851,000
Domestic LTM EBITDA:
July 31, 2004		($798,000	)
October 31, 2004		($1,224,000	)
January 31, 2005		($409,000	)
April 30, 2005	$	297,000
July 31, 2005	$	919,000
Domestic Quarterly EBITDA:
July 31, 2004	$	66,000
October 31, 2004		($1,185,000	)
January 31, 2005	$	114,000
April 30, 2005	$	1,302,000
July 31, 2005	$	688,000

(j) Amendment to Section 6.13. Section 6.13 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

Section 6.13 Minimum Collateral Requirements. As of each Collateral Measurement Date indicated below, Borrower shall maintain domestic (U.S.)

9

accounts receivable and inventory (excluding any accounts receivables and inventory of Flow Autoclave Systems, Inc.) whose net book value equals the amount set opposite such date, subject to adjustment in accordance with the Second Restructure Agreement. The Total Revolving Commitment shall automatically be reduced by an amount equal to the Collateral Differential within five (5) Business Days after the earlier of (i) the date when the financial statement covering the fiscal quarter ending on the applicable Collateral Measurement Date is due under Section 6.9 or (ii) the date of the filing of any 10Q or 10K statement with the SEC covering such fiscal quarter. However, any such shortfall shall not, in itself, be an Event of Default so long as Borrower timely makes any mandatory prepayments required as a result of such Mandatory Reduction.

Collateral Measurement Date	Minimum Collateral Amount
July 31,2004	$	26,300,000
October 31, 2004	$	27,400,000
January 31, 2005	$	27,400,000
April 30,2005	$	27,225,000
July 31, 2005	$	27,775,000

(k) Amendment to Section 7.3. The following subsection (g) is added to the end of Section 7.3 of the Credit Agreement:

(i) ATAB has obtained extensions of credit from Handelsbanken (the “Handelsbanken Loans”) which may be secured by liens on and security interests in certain property in Sweden (the “Swedish Collateral”). Agent and Lenders acknowledge that the liens and security interest granted Handelsbanken in the Swedish Collateral may be senior to the liens and security interests in the Swedish Collateral granted in favor of Agent and Lenders. Agent and Lenders further acknowledge that the liens and security interests granted Handelsbanken in the Swedish Collateral as security for the Handelsbanken Loans (together with any amendments, extensions or renewals thereof and any refinancings there of with Handelsbanken or other lenders) may be prior to the liens and security interests in the Swedish Collateral granted in favor of Agent and Lenders.

Agent and Lenders further acknowledge that the Swedish Collateral may also secure certain pension obligations of ATAB and such security may be prior to the liens and security interest in the Swedish Collateral granted in favor of Agent and Lenders.

(ii) Lenders and Agent also acknowledge that FAC has obtained secured and unsecured extensions of credit from Chiao Tung Bank (the “Chiao Tung Loans”) and the secured Chiao Tung Loans may be secured by real property interests and other property of FAC located in Taiwan (the “Taiwan Collateral”). Agent and Lenders further acknowledge that any liens and security interests granted in the Taiwan Collateral as security for the Chiao Tung Loans (together with any amendments, extensions or renewals thereof, and any refinancings thereof with Chiao Tung Bank or other lenders) may be senior to the liens and security interests in the Taiwan Collateral granted in favor of Agent and Lenders.

10

(iii) Lenders and Agent also acknowledge and agree that FAC has obtained unsecured extensions of credit from First Commercial Bank (the “First Commercial Loans”) (together with any amendments, extensions or renewals thereof, and any refinancings thereof with First Commercial Bank or other lenders).

(iv) The refinancings described in the previous paragraphs (i) - (iii) refer only to those refinancings that do not exceed the maximum committed amount (plus any accrued but unpaid interest) of the Handelsbanken Loans, the Chiao Tung Loans or the First Commercial Loans, respectively.

(l) Amendment to Section 7.4. The following is added to the end of Section 7.4 of the Credit Agreement:

Notwithstanding the immediately preceding sentence, Agent and Lenders further acknowledge that Borrower and/or any Guarantors may guarantee the Handelsbanken Loans, the First Commercial Loans and/or the Chiao Tung Loans and any amendments, extensions or renewals thereof and any refinancings thereof with other lenders that do not exceed the maximum committed amount of such extensions of credit (plus any accrued but unpaid interest).

(m) Amendment to Section 7.5. Section 7.5 or the Credit Agreement is amended to add the following new clause (e) at the end thereof:

(e) any liens or security interests authorized under Section 7.3.

(n) Amendment to Section 7.10. Section 7.10 of the Credit Agreement is hereby deleted and replaced with the following:

Section 7.10 Capital Expenditures. Borrower shall not, nor shall it allow any Subsidiary to, make or become legally obligated to make any capital expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations), except for capital expenditures in the ordinary course of business not exceeding, in the aggregate for the Borrower during each time period set forth below, the amount set forth opposite such time period:

6 months ending October 31, 2004	$	1,500,000
9 months ending January 31, 2005	$	1,900,000
12 months ending April 30, 2005	$	2,200,000
15 months ending July 31, 2005	$	3,000,000

(o) Amendment to Section 7.11. Section 7.11 of the Credit Agreement is hereby deleted and replaced with the following:

Section 7.11 New Product Development Expenditures. Borrower shall not, nor shall it allow any Subsidiary to, fund or become legally obligated to fund any new product development costs, including without limitation, research, development and engineering costs, as indicated in the financial statements provided pursuant to Section 6.9,

11

not exceeding in the aggregate for the Borrower during each time period set forth below, the amount set forth opposite such time period:

6 months ending October 31,2004	$	6,475,000
9 months ending January 31, 2005	$	9,650,000
12 months ending April 30, 2005	$	12,700,000
15 months ending July 31, 2005	$	16,335,000

(p) Amendment to Section 7.15. Section 7.15 of the Credit Agreement is hereby deleted and replaced with the following:

Section 7.15 Payments to Subordinated Noteholders. Borrower shall make no payments to Subordinated Noteholders before the full repayment of the Obligations under any Loan Document except that Borrower may pay Subordinated Noteholders an amount not to exceed fourteen percent (14%) of any Stock Sale Net Proceeds.

(q) Amendment to Section 8.1(e). The following sentence is added at the end of and shall become a part of Section 8.1(e):

Notwithstanding the foregoing, a default under the Handelsbanken Loans, the First Commercial Loans or the Chiao Tung Loans shall not be a default under this Agreement unless Borrower has failed to cure any such default within 30 days after receipt of written notice from Handelsbanken, First Commercial or Chiao Tung Bank (as applicable) of such default.

(r) Amendment to Section 8.1(n). Clause (ii) of Section 8.1(n) of the Credit Agreement is amended to read:

(ii) or any other of Borrower’s audited financial statements within 90 days after the end of Borrower’s fiscal year or any other of Borrower’s quarterly financial statements within 45 days after the end of any fiscal quarter of Borrower; provided, however, that any delay permitted by the Securities and Exchange Commission (“SEC”) in the filing of any required reports with the SEC shall not be a default under this section.

(s) Amendment to Section 11.6. The second sentence of Section 11.6 of the Credit Agreement is hereby deleted and replaced with the following:

Lenders may at any time assign or otherwise transfer all or any part of their respective interests under the Loan Documents (including assignments for security and sales of participations), but only with the prior written consent of Agent (which consent will not be unreasonably withheld), and to the extent of such assignment, the assignee shall have the same rights and benefits against Borrower and otherwise under the Loan Documents (including the right of setoff) as if such assignee were a Lender.

12

4. Conditions to Effectiveness. Notwithstanding anything contained herein to the contrary, this Third Amendment shall not become effective unless and until each of the following conditions is fully and simultaneously satisfied:

(a) Delivery of Third Amendment. Borrower, Agent and each Lender shall have executed and delivered counterparts of this Third Amendment to Agent.

(b) Delivery of Notes. Borrower shall have executed and delivered to Bank of America, N.A., U.S. Bank National Association and KeyBank National Association promissory notes substantially in the form of Exhibits C-l, C-2 and C-3 hereto (the “Promissory Notes’”).

(c) Delivery of Second Restructure Agreement. Borrower, Agent and each Lender shall have executed and delivered counterparts of the Second Restructure Agreement to Agent.

(d) Delivery of Warrants. The Warrants shall have been delivered to the Agent for the benefit of each Lender.

(e) Payment of Fees. Borrower shall have paid to Agent the Agent’s fee described in Section 2(e) of this Third Amendment. Such fee shall be fully earned when paid and shall not be refundable for any reason whatsoever.

(f) Reimbursement for Expenses. Borrower shall have reimbursed Agent and each Lender for all reasonable expenses actually incurred by Agent and each Lender in connection with this Third Amendment and the general restructuring of the terms of the Credit Agreement, including out-of-pocket expenses and reasonable travel expenses, attorneys fees, and financial advisor fees. Borrower shall also have paid all other amounts due and owing under the Loan Documents.

(g) Borrower Authority. Agent shall have received the following, each in form and substance satisfactory to the Agent: (i) such resolutions or other action, incumbency certificates and/or other certificates of officers of the Borrower as the Agent may reasonably require to establish the identities of and verify the authority and capacity of each officer thereof authorized to act as an officer in connection with this Third Amendment, the Promissory Notes and the Second Restructure Agreement and any other documents required to be executed in connection with this Third Amendment (collectively, the “Amendment Documents”‘); (ii) copies of any amendments to Borrower’s articles of incorporation or bylaws necessary to issue the Warrants and (iii) certificates of existence or good standing as the Agent may reasonably require to verify that the Borrower is duly incorporated or formed, validly existing, in good standing and qualified to engage in business in each jurisdiction in which it is required to be qualified to engage in business and where the failure to do so would have a Material Adverse Effect.

(h) Guarantor Authority. Agent shall have received the following, each in form and substance satisfactory to the Agent: such resolutions or other action, incumbency certificates and/or other certificates of officers of each Domestic Guarantor as the Agent may reasonably require to establish the identities of and verify the authority and capacity of each officer thereof authorized to act as an officer in connection with the Consent to Amendment to which such Domestic Guarantor is a party.

(i) Consent of Guarantor. Each Domestic Guarantor shall have executed a duly executed Consent to Amendment.

13

(j) Representations True; No Default. Except as otherwise provided on Schedule 1 attached hereto, the representations of Borrower as set forth in Article 5 of the Credit Agreement shall be true on and as of the date of this Third Amendment (except in the case of Section 5.19 of the Credit Agreement, which representation and warranty was intended to be made only as of the date of the Credit Agreement) with the same force and effect as if made on and as of this date or, if any such representation or warranty is stated to have been made as of or with respect to a specific date, as of or with respect to such specific date. No Event of Default and no event which, with notice or lapse of time or both, would constitute an Event of Default, shall have occurred and be continuing or will occur as a result of the execution, delivery or performance of the Amendment Documents.

(k) Other Documents. Agent and Lenders shall have received such other documents, instruments, and undertakings as Agent and such Lender may reasonably request.

(l) Subordinated Noteholders. Agent shall have received satisfactory evidence (which shall be determined in the Agent’s sole discretion) that (i) the Subordinated Noteholders have waived any and all defaults (if any) under the Subordinated Note Purchase Agreement and the Subordinated Notes, (ii) the Subordinated Noteholders and Borrower have amended the Subordinated Note Purchase Agreement and the Subordinated Notes so (A) that any payments due to the Subordinated Noteholders thereunder, including interest and any fees, that are due prior to August 2, 2005 shall be paid in kind (except as otherwise permitted by Section 7.15), and (B) the financial covenants contained therein are consistent with the financial covenants in the Credit Agreement, as amended by this Third Amendment, and (iii) the Subordinated Noteholders have reviewed and consented in writing to this Third Amendment.

(m) Delivery of Alternative Financing Proposals. Borrower shall have delivered to Agent copies of any commitment letters or letters of intent (whether or not binding) for alternate financing received by Borrower prior to the Third Amendment Effective Date which provide for a total net commitment in excess of Thirty-Six Million Seven Hundred Thirty-Six Thousand Dollars ($36,736,000).

5. Post-Effective Date Conditions. Borrower shall comply with the following conditions within sixty (60) days after the Third Amendment Effective Date. Failure to satisfy the conditions set forth below within sixty (60) days after the Third Amendment Effective Date shall be an Event of Default:

(a) Foreign Guarantor Consent. Agent shall have received a duly executed Consent to Amendment from each Foreign Guarantor.

(b) Foreign Guarantor Authority. Agent shall have received the following, each in form and substance satisfactory to Agent: such resolutions or other action, incumbency certificates and/or other certificates of officers of each Foreign Guarantor as Agent may reasonably require to establish the identities of and verify the authority and capacity of each officer thereof authorized to act as an officer in connection with the Consent to Amendment to which such Foreign Guarantor is a party.

14

6. Release and Waiver. Borrower ratifies and reconfirms the Loan Documents and all of its obligations and liabilities thereunder and hereby waives and releases any and all defenses that it may now have or hereafter acquire with respect to the Loan Documents based on or otherwise relating to any events or circumstances which occurred or existed on or prior to the date hereof. Borrower hereby releases and forever discharges Agent, each Lender and their respective predecessors, successors, assigns, officers, managers, directors, shareholders, employees, agents, attorneys, representatives, parent cooperations, subsidiaries and affiliates (hereinafter all of the above collectively referred to as the “Lender Group”), jointly and severally from any and all claims, counterclaims, demands, damages, debts, agreements, covenants, suits, contracts, obligations, liabilities, accounts, offsets, rights, actions and causes of action of any nature whatsoever, including without limitation, all claims, demands, and causes of actions for contribution and indemnity, whether arising at law or in equity, whether presently possessed or possessed in the future, whether known or unknown, whether liability be direct or indirect, liquidated or unliquidated, whether presently accrued or to accrue hereafter, whether absolute or contingent, forseen or unforseen, and whether or not heretofore asserted, which Borrower may have or claim to have against any of Lender Group. Borrower agrees not to sue any of the Lender Group or in any way assist any other person or entity in suing Lender Group with respect to any claim released herein. This release provision may be pleaded as a full and complete defense to, and may be used as the basis for an injunction against, any action, suit or other proceeding which may be instituted, prosecuted, or attempted in breach of the release contained herein. Borrower represents and warrants that is the sole owner of the claims released by this release provision and Borrower has not conveyed or assigned any interest in such claims to any other person or entity. Borrower understands that this release provision was a material consideration in the agreement of Agent and Lenders to enter into this Third Amendment. It is the express intent of Borrower that the foregoing release and discharge be construed as broadly as possible in favor of the Lender Group so as to foreclose forever the assertion by Borrower of any claims released hereby against the Lender Group. If any term, provision, covenant or condition of this release provision is held by a court of competent jurisdiction to be invalid, illegal, or unenforceable, the remainder of the provisions of this Third Amendment shall remain in full force and effect.

7. Representations and Warranties. Except as otherwise provided on Schedule 1 attached hereto, Borrower hereby represents and warrants to the Lenders and Agent that each of the representations and warranties set forth in Article 5 of the Credit Agreement is true and correct in each case as if made on and as of the date of this Third Amendment (except in the case of the first sentence of Section 5.19 of the Credit Agreement, which representation and warranty was intended to be made only as of the date of the Credit Agreement) and Borrower expressly agrees that it shall be an additional Event of Default under the Credit Agreement if any representation or warranty made hereunder shall prove to have been incorrect in any material respect when made.

8. No Further Amendment. Except as expressly modified by the terms of this Third Amendment, all of the terms and conditions of the Credit Agreement and the other Loan Documents shall remain in full force and effect and the parties hereto expressly reaffirm and ratify their respective obligations thereunder.

15

9. Governing Law. This Third Amendment shall be governed by and construed in accordance with the laws of the State of Washington.

10. Counterparts. This Third Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement.

11. Oral Agreements Not Enforceable.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

[Signature pages to follow]

16

IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number Three to Second Amended and Restated Credit Agreement as of the date first above written.

BORROWER:	FLOW INTERNATIONAL CORPORATION
	By
	Name:
	Title:
LENDERS:	BANC OF AMERICA STRATEGIC SOLUTIONS, INC.
	By
	Name:	Thomas E. Brown
	Title:	Senior Vice President
	U.S. BANK NATIONAL ASSOCIATION
	By
	Name:	Elizabeth C. Hengeveld
	Title:	Vice President
	KEYBANK NATIONAL ASSOCIATION
	By
	Name:	Stephen Barkley
	Title:	Senior Vice President
AGENT:	BANK OF AMERICA, N.A.
	By
	Name:	Ken Puro
	Title:	Vice President

17

SCHEDULE 1

The representations and warranties referred to in Section 4(j) and Section 7 of the Third Amendment and contained in the following sections of Article 5 of the Credit Agreement are qualified as specified below:

1. Section 5.2(b). The Consent to Amendment has not been approved or executed by the Foreign Guarantors and will not be approved or executed by the Foreign Guarantors prior to the Third Amendment Effective Date. Delivery of the Consent to Amendment by the Foreign Guarantors is a post-closing obligation described further in Section 5 of the Third Amendment.

2. Section 5.6. In accordance with the terms of the applicable Loan Documents, Agent and Lenders do not have a first perfected lien on or security interest in Collateral located in Sweden and do not have a first perfected lien on or security interest in certain real property and fixtures located in Taiwan.

18

EXHIBIT A

FORM OF SECOND RESTRUCTURE AGREEMENT

19

EXHIBIT B

FORM OF WARRANT

20

EXHIBIT C-l

FORM OF BANC OF AMERICA STRATEGIC SOLUTIONS, INC.

PROMISSORY NOTE

21

EXHIBIT C-2

FORM OF U.S. BANK NATIONAL ASSOCIATION PROMISSORY NOTE

22

EXHIBIT C-3

FORM OF KEYBANK NATIONAL ASSOCIATION PROMISSORY NOTE

23

EXHIBIT D

CONSENT TO AMENDMENT

Each undersigned guarantor (each a “Guarantor”) is a guarantor of the indebtedness, liabilities and obligations of Flow International Corporation, a Washington corporation (the “Borrower”) under that certain Second Amended and Restated Credit Agreement dated as of July 28, 2003 (as amended by amendments numbered one, two and three (collectively, the “Amendments”), and as the same may be amended in the future from time to time, the “Credit Agreement”). All capitalized terms used but not defined in this consent shall have the meanings given them in the Credit Agreement.

Each Guarantor acknowledges that the Borrower, the Agent and the Lenders also entered into that certain Second Restructure Agreement dated as of July 28, 2004 (the “Second Restructure Agreement”) and the other Loan Documents described in the Credit Agreement.

Each Guarantor acknowledges that it has received a copy of the Credit Agreement (including without limitation, the Amendments) and the Second Restructure Agreement and each consent to their contents and the other Loan Documents (notwithstanding that such consent is not required). Each Guarantor ratifies and confirms that its guarantee of the obligations of Borrower remains in full force and effect, and that the obligations of Borrower under the Credit Agreement and the other Loan Documents shall include, without limitation, the obligations of the Borrower under the Second Restructure Agreement.

Each Guarantor waives and releases any and all defenses that it may now have or hereafter acquire with respect to the Loan Documents based on or otherwise relating to any events or circumstances that occurred or existed on or prior to the Third Amendment Effective Date. Each Guarantor also releases and discharges the Agent, the Lenders, Alvarez, their respective affiliates and their respective officers, directors, agents, and employees from every claim, demand, and cause of action, whether presently known or unknown, suspected or unsuspected, that shall arise hereafter from any act, omission or condition that occurred or existed on or prior to the Third Amendment Effective Date.

This Guarantors’ Consent may be executed in counterparts, each of which shall be deemed an original and part of the same consent.

Washington Statutory Notice: ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

1

The Guarantors have caused this Guarantors’ Consent to be executed by their duly authorized officers or representatives as of July 28, 2004.

GUARANTORS:

AVURE TECHNOLOGIES, INC.	CIS ACQUISITION CORP.
By:	By:
Name:	Name:
Title:	Title:
FLOW WATER JET FLORIDA CORPORATION	FLOW ASIA CORPORATION
By:	By:
Name:	Name:
Title:	Title:
FLOW EUROPE GmbH	AVURE TECHNOLOGIES AB
By:	By:
Name:	Name:
Title:	Title:
FLOW EUROPE MANUFACTURING GmbH & CO. KG.	FLOW INTERNATIONAL FPS AB
By:	By:
Name:	Name:
Title:	Title:
FLOW HOLDINGS SAGL
By:
Name:
Title:

2

SECOND RESTRUCTURE AGREEMENT

THIS SECOND RESTRUCTURE AGREEMENT (the “Agreement”) is made as of July 28, 2004, by and among BANC OF AMERICA STRATEGIC SOLUTIONS, INC., a Delaware corporation, a subsidiary of and as successor to Bank of America, N.A., U.S. BANK NATIONAL ASSOCIATION, KEYBANK NATIONAL ASSOCIATION (each individually a “Lender” and collectively the “Lenders”). BANK OF AMERICA, N.A. as agent for Lenders (the “Agent”) and FLOW INTERNATIONAL CORPORATION, a Washington corporation (the “Borrower”).

**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**

1

**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**

2

**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**

3

**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**

4

**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**

5

**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**

6

EX-10.13

Exhibit 10.13**

** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**

FOURTH AMENDMENT TO NOTE PURCHASE AGREEMENTS

This FOURTH AMENDMENT, dated as of July 28, 2004, to the separate Note Purchase Agreements, each dated as of April 30, 2001, is by and among Flow International Corporation, a Washington corporation (the “Company”), John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company, Signature 4 Limited and Signature 5 L.P. (collectively, the “Noteholders”). Capitalized terms used herein without definition shall have the meanings set forth in the Note Purchase Agreements referred to below (including as amended hereby).

R E C I T A L S:

A. The Company and the Noteholders have heretofore entered into the separate Note Purchase Agreements, each dated as of April 30, 2001, as amended by the First Amendment to Note Purchase Agreements dated as of December 14, 2001, the Second Amendment to Note Purchase Agreements (the “Second Amendment”) dated as of September 16, 2002 and the Third Amendment to Note Purchase Agreements (the “Third Amendment”) dated as of July 28, 2003 (as amended, the “Note Purchase Agreements”), under and pursuant to which there are outstanding (a) the Company’s 13% Senior Subordinated Notes, due April 30, 2008, in the original aggregate principal amount of $35,000,000 (the “Notes”) and (b) certain Warrants to purchase common stock of the Company (the “Warrants”).

B. Pursuant to the terms of the Second Amendment, the Notes currently bear interest at the rate of 15% per annum, and the Default Rate applicable to overdue payments in respect of the Notes is 17% per annum.

C. In connection with the capitalization of interest due on the Notes pursuant to the terms of the Third Amendment, the Notes are currently outstanding in the aggregate principal amount of 42,324,765.63.

D. The Company has advised the Noteholders that the lenders under the Senior Credit Agreement have agreed to extend the term of the credit facilities available thereunder to August 1, 2005 and, in connection therewith, the Company seeks to amend the Note Purchase Agreements and the Notes on the terms hereinafter set forth.

E. The Noteholders are willing to amend the Note Purchase Agreements and the Notes in the respects, but only in the respects, hereinafter set forth.

FLOW INTERNATIONAL CORPORATION FOURTH AMENDMENT

NOW, THEREFORE, the Company and the Noteholders, for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, do hereby agree as follows:

SECTION 1. AMENDMENTS.

Section 1.1. Reporting. Section 7.1 of the Note Purchase Agreements shall be amended by deleting the period at the end of clause (k) thereof and inserting a semicolon and the word “and” and adding a new clause (l) to read as follows:

“(l) Application of Asset Sale Proceeds – prior to the consummation of any sale of assets, a reasonably detailed description of the amount of proceeds to be received in connection with such asset sale and the application thereof to be made by the Company, certified by a Senior Officer of the Company.”

Section 1.2. Prepayment Provisions. Section 8 of the Note Purchase Agreements shall be amended as follows:

(a) The first paragraph of Section 8.1 of the Note Purchase Agreements shall be deleted in its entirety and replaced with the following:

“Section 8.1. Required Prepayments. In addition to paying the entire outstanding principal amount and the interest due on the Notes on the maturity date thereof, the Company agrees that:

(a) on April 30, 2007, it will prepay and apply and there shall become due and payable on the principal Indebtedness evidenced by the Notes an amount equal to the lesser of (i) $17,500,000 or (ii) the principal amount of the Notes then outstanding; and

(b) on any date when the Company receives (or becomes entitled immediately to receive) any Asset Sale Net Proceeds, the Company will prepay and apply and there shall become due and payable on the principal Indebtedness evidenced by the Notes an amount equal to the balance of such Asset Sale Net Proceeds not used to permanently reduce the total commitment of the lenders under the Senior Credit Agreement; and

(c) on any date when the Company receives (or becomes entitled immediately to receive) any Stock Sale Net Proceeds, the Company will prepay and apply and there shall become due and payable on the principal Indebtedness evidenced by the Notes an amount which is not less than 20% of that portion of such Stock Sale Net Proceeds permitted pursuant to the terms of the Senior Credit Agreement to be retained by the Company.

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FLOW INTERNATIONAL CORPORATION FOURTH AMENDMENT

The entire remaining principal amount of the Notes shall become due and payable on April 30, 2008. No prepayment charge shall be payable in connection with any required prepayment made pursuant to this Section 8.1.”

(b) Section 8.2 of the Note Purchase Agreements shall be amended by deleting therefrom all references to the requirement that a prepayment charge be paid in connection with an optional prepayment of the Notes made pursuant to Section 8.2.

(c) Section 8.3 of the Note Purchase Agreements shall be amended by deleting therefrom all references to the requirement that a prepayment charge be paid in connection with a prepayment of the Notes made upon the occurrence of a Change of Control pursuant to Section 8.3.

Section 1.3. Financial Covenants. Sections 9.6 and 9.7 of the Note Purchase Agreements shall be deleted in their entirety and replaced with the following:

“Section 9.6. EBITDA. For each fiscal quarter ending as of the date indicated below (each, an “EBITDA Measurement Period”), the Company shall maintain an EBITDA of not less than the corresponding amount set forth below (each a “Minimum EBITDA Amount”):

(a) Consolidated LTM EBITDA.

For fiscal quarter ending:	Consolidated LTM EBITDA
July 31, 2004	$	10,310,000
October 31, 2004	$	8,840,000
January 31, 2005	$	8,810,000
April 30, 2005	$	9,340,000
July 31, 2005	$	10,970,000
Each fiscal quarter thereafter	$	10,970,000

-3-

FLOW INTERNATIONAL CORPORATION FOURTH AMENDMENT

(b) Consolidated Quarterly EBITDA.

For fiscal quarter ending:	Consolidated Quarterly EBITDA
July 31, 2004	$	2,140,000
October 31, 2004	$	1,280,000
January 31, 2005	$	1,470,000
April 30, 2005	$	3,540,000
July 31, 2005	$	3,170,000
Each fiscal quarter thereafter	$	3,170,000

(c) Domestic LTM EBITDA.

For fiscal quarter ending:	Domestic LTM EBITDA
July 31, 2004	$	(1,400,000	)
October 31, 2004	$	(1,900,000	)
January 31, 2005	$	(1,300,000	)
April 30, 2005	$	(700,000	)
July 31, 2005	$	390,000
Each fiscal quarter thereafter	$	390,000

(d) Domestic Quarterly EBITDA.

For fiscal quarter ending:	Domestic Quarterly EBITDA
July 31, 2004	$	(550,000	)
October 31, 2004	$	(1,800,000	)
January 31, 2005	$	(600,000	)
April 30, 2005	$	510,000
July 31, 2005	$	50,000
Each fiscal quarter thereafter	$	50,000

-4-

FLOW INTERNATIONAL CORPORATION FOURTH AMENDMENT

Section 9.7. Minimum Collateral Requirements. As of each Collateral Measurement Date indicated below, the Company shall maintain domestic (U.S.) accounts receivable and inventory (excluding any accounts receivables and inventory of Flow Autoclave Systems, Inc.) whose net book value equals the amount set opposite such date:

Collateral Measurement Date	Minimum Collateral Amount
July 31, 2004	$	24,800,000
October 31, 2004	$	25,800,000
January 31, 2005	$	25,800,000
April 30, 2005	$	25,600,000
July 31, 2005	$	26,150,000
Each Collateral Measurement Date thereafter	$	26,150,000”

Section 1.4. Affirmative Covenants. Section 9.13 to the Note Purchase Agreements is hereby deleted in its entirety and replaced with the following:

“Section 9.13. Additional Guaranties and Collateral. (a) On or before the Fourth Amendment Effective Date, the Company shall deliver to the Noteholders a detailed written description of all guaranties, liens and security interests which have been granted to the lenders under the Senior Credit Agreement which have not been granted on a subordinated basis to the Noteholders, including copies of each security agreement, pledge agreement and other collateral agreement, together with each financing statement, public filing and other recorded instrument executed in connection therewith (all in fully executed form), and certified as true, correct and complete by a Senior Officer of the Company.

(b) Within 60 days after receipt by the Company of the proposed security agreements, pledge agreements, other collateral agreements, financing statements, public filings and other recorded instruments which are required by the Noteholders (the “Required Documentation”) in order to give effect to the agreement of the Company set forth in Section 9.11(c) hereof that the Noteholders shall be secured on a subordinated basis by the same collateral as that securing the lenders under the Senior Credit Agreement, the Company shall, and shall cause each of its Subsidiaries to, execute and deliver and submit for recordation to counsel or an agent for the Noteholders all such security agreements, pledge agreements, other collateral agreements, financing statements, public filings and other instruments for recording in all public offices necessary to give effect to said Section 9.11(c). The Noteholders or their counsel shall notify the Company in writing when all Required Documentation has been delivered to the Company and the 60-day period has begun. If the Company has not executed and delivered the Required Documentation and submitted the Required Documentation for

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FLOW INTERNATIONAL CORPORATION FOURTH AMENDMENT

recordation to counsel or an agent for the Noteholders on or before the 60th day after receipt of the same (the “Required Delivery Date”), then on the Required Delivery Date, the Company shall pay to the Noteholders a fee of $150,000. On the last day of each calendar month ending after the month in which the Required Delivery Date occurs, and continuing until the Company has delivered all Required Documentation, the Company shall pay to the Noteholders an additional fee of $25,000. Such fees (w) shall be allocated among the Noteholders pro rata based on the respective outstanding unpaid principal amount of Notes held by each Noteholder, (x) shall be capitalized on the date such fees become payable, (y) shall earn interest at the same rate of interest applicable to the Notes from time to time and (z) shall be payable in full on the maturity date of the Notes. At the request of the Noteholders, the Company shall execute and deliver additional allonges to each outstanding Note reflecting the capitalization of the foregoing fees.

(c) The Company shall deliver to the Noteholders such other evidence as they may deem necessary or appropriate evidencing that all documents executed and/or delivered and all actions taken pursuant to clauses (a) and (b) above have been duly authorized and are legally effective, binding and enforceable including, without limitation, legal opinions.”

Section 1.5. Certain Payments. Section 9.14(b) to the Note Purchase Agreements is hereby amended by deleting the reference to the date “August 2, 2004” and replacing the same with the date “August 2, 2005.”

Section 1.6. Additional Financial Covenants. Section 9.15 to the Note Purchase Agreements is hereby amended by deleting each reference to the date “August 2, 2004” and replacing the same with the date “August 1, 2005.”

Section 1.7. Certain Indebtedness. Section 10.4 to the Note Purchase Agreements is hereby amended by deleting the period at the end of clause (a)(vii) thereof and inserting a semicolon and the word “and” and adding a new clause (a)(viii) to read as follows:

“(viii) Indebtedness in respect of the following:

(1) ATAB has obtained extensions of credit from Handelsbanken (the “Handelsbanken Loans”) which may be secured by liens on and security interest in certain property in Sweden (the “Swedish Collateral”). The Noteholders acknowledge that the liens and security interests granted Handelsbanken in the Swedish Collateral as security for the Handelsbanken Loans (together with any permitted amendments, extensions or renewals thereof and any refinancings there of with Handelsbanken or other

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lenders) may be prior to any liens and security interests in the Swedish Collateral granted in favor of the Senior Lenders and the Noteholders.

The Noteholders further acknowledge that the Swedish Collateral may also secures certain pension obligations of ATAB and such security may be prior to any liens and security interest in the Swedish Collateral granted in favor of the Senior Lenders and the Noteholders.

(2) The Noteholders also acknowledge that FAC has obtained secured and unsecured extensions of credit from Chiao Tung Bank (the “Chiao Tung Loans”) and the secured Chiao Tung Loans may be secured by real property interests and other property of FAC located in Taiwan (the “Taiwan Collateral”). The Noteholders further acknowledge that any liens and security interests granted in the Taiwan Collateral as security for the Chiao Tung Loans, (together with any permitted amendments, extensions or renewals thereof, and any refinancings thereof with Chiao Tung Bank or other lenders) may be senior to any liens and security interests in the Taiwan Collateral granted in favor of the Senior Lenders and the Noteholders.

(3) The Noteholders also acknowledge and agree that FAC has obtained unsecured extensions of credit from First Commercial Bank (the “First Commercial Loans”) (together with any permitted amendments, extensions or renewals thereof, and any refinancings thereof with First Commercial Bank or other lenders).

(4) The loans, extensions of credit and refinancings described in and permitted by the previous paragraphs (1) - (3) refer only to those loans, extensions of credit and refinancings that do not exceed the maximum committed amount as in effect on the Fourth Amendment Effective Date (plus any accrued but unpaid interest), as reduced from time to time in connection with permanent reductions thereof, of the Handelsbanken Loans, the Chiao Tung Loans or the First Commercial Loans, respectively. On the Fourth Amendment Effective Date, the maximum committed amount of the Handelsbanken Loans is 50,000,000 Swedish Crowns the aggregate outstanding and committed amounts of the Chiao Tung Loans is 80,00,000 New Taiwan Dollars and the maximum committed amount of the First Commercial Loans is 80,00,000 New Taiwan Dollars.”

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FLOW INTERNATIONAL CORPORATION FOURTH AMENDMENT

Section 1.8. Certain Guaranties. Section 10.5 to the Note Purchase Agreements is hereby amended and restated in its entirety to read as follows:

“Section 10.5. Guaranties. Except for (a) the guaranties set forth on Schedule 10.5 hereto and (b) guaranties given in favor of the Noteholders pursuant to this Agreement and the Other Agreements, (c) guaranties given in favor of the Senior Lenders pursuant to the Senior Credit Agreement, and (d) unsecured guaranties by the Company or any Guarantor of the Handelsbanken Loans, the Chiao Tung Loans and the First Commercial Loans referred to in Section 10.4(a)(viii)(1)–(3), not to exceed the maximum committed amount on the Fourth Amendment Effective Date, neither the Company nor any Subsidiary shall assume, guaranty, endorse or otherwise become directly or contingently liable for, or obligated to purchase, pay or provide funds for payment of, any obligation or Indebtedness of any other person, other than by endorsement of negotiable instruments for deposit or collection or by similar transactions in the ordinary course of business.”

Section 1.9. Certain Liens. Section 10.6 to the Note Purchase Agreements is hereby amended by deleting the period at the end thereof and adding the word “and,” and by adding a new clause (c) at the end thereof to read as follows:

“(c) any liens or security interest authorized under Section 10.4(a)(viii).”

Section 1.10. Certain Amendments. (a) For the period from the Fourth Amendment Effective Date through August 1, 2005, Section 10.10 to the Note Purchase Agreements is hereby amended as follows:

(i) Clause (a)(1) is hereby amended and restated in its entirety to read as follows:

“(1) to advance the date of any required prepayment or repayment of any Senior Indebtedness to a date earlier than those contemplated in the Senior Credit Agreement as in effect on the Fourth Amendment Effective Date,”

(ii) Clause (a)(2) is hereby amended and restated in its entirety to read as follows:

“(2) (i) to increase by more than 2% per annum the interest rate applicable under the Senior Credit Agreement to any pricing tier, or the default interest rate, as such pricing tiers and interest

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rates are set forth on the Fourth Amendment Effective Date, after giving effect to the Third Amendment to the Senior Credit Agreement or (ii) to increase the interest rate payable in connection with any other Senior Indebtedness by an amount greater than 2.0% per annum over the rate payable on the Fourth Amendment Effective Date, or

(iii) Clause (b) is hereby amended and restated in its entirety to read as follows:

“(b) The Company will not, directly or indirectly, enter into any restriction or limitation on its ability to prepay or repay the Notes, other than (i) as provided in Section 11 hereof and (ii) restrictions contained in the Senior Credit Agreement as in effect on the Fourth Amendment Effective Date.”

(b) Section 10.10 of the Note Purchase Agreements is further amended by adding a new clause (d) to read as follows:

“(d) The Company will not enter into any oral or written amendment or modification to, or waiver of, the Senior Credit Agreement as in effect on the Fourth Amendment Effective Date in any way relating to the proceeds attributable to the sale of assets or any public or private offering or other sale by the Company of its common or preferred stock or warrants, options, rights or other equity interests, including, without limitation, the application of Asset Sale Net Proceeds or Stock Sale Net Proceeds.”

Section 1.11. Capital Expenditures. Section 10.12 to the Note Purchase Agreements is hereby amended and restated in its entirety to read as follows:

“Section 10.12. Capital Expenditures. The Company shall not, nor shall it allow any Subsidiary to, make or become legally obligated to make any expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations), except for capital expenditures in the ordinary course of business not exceeding, in the aggregate for the Company during each time period set forth below, the amount set forth opposite such time period:

Six months ending October 31, 2004	$	1,650,000
Nine months ending January 31, 2005	$	2,050,000
12 months ending April 30, 2005	$	2,350,000
15 months ending July 31, 2005	$	3,150,000”

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FLOW INTERNATIONAL CORPORATION FOURTH AMENDMENT

Section 1.12. New Product Development Expenditures. Section 10.14 to the Note Purchase Agreements is hereby amended and restated in its entirety to read as follows:

“Section 10.14. New Product Development Expenditures. The Company shall not, nor shall it allow any Subsidiary to, fund or become legally obligated to fund any new product development costs, including without limitation, research, development and engineering costs, as indicated in financial statements provided pursuant to Section 7.1, not exceeding, in the aggregate for the Company during each time period set forth below, the amount set forth opposite such time period:

Six months ending October 31, 2004	$	6,625,000
Nine months ending January 31, 2005	$	9,800,000
12 months ending April 30, 2005	$	12,850,000
15 months ending July 31, 2005	$	16,485,000”

Section 1.13. Events of Default. Section 12 of the Note Purchase Agreements is hereby amended as follows:

(a) paragraph (f) of Section 12 shall be amended in its entirety to read as follows:

“(f) any Subsidiary Guaranty, any Security Document or any other Note Document shall cease to be in full force and effect for any reason whatsoever, including, without limitation, a determination by a Governmental Authority of competent jurisdiction that any such agreement is invalid, void or unenforceable or the perfected security interests created pursuant to any Security Document is not legal, valid and binding, or the Company or an Subsidiary shall contest or deny in writing the validity or enforceability of any of its obligations under any Security Document or any Subsidiary Guaranty, as applicable;”

(b) paragraph (g) of Section 12 shall be amended by adding a new clause to the end thereof, following the semicolon, to read as follows:

“notwithstanding the foregoing, a default under the Handelsbanken Loans, First Commercial Loans or the Chiao Tung Loans shall not be a default under this Agreement unless the Company has failed to cure any such

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default within 30 days after receipt of written notice from Handelsbanken, First Commercial Bank or Chiao Tung Bank (as applicable) of such default;”

Section 1.14. Definitions. (a) Schedule B to the Note Purchase Agreements is hereby amended by adding thereto the following new definitions in the appropriate alphabetical order:

“ ‘Asset Sale Net Proceeds’ shall mean the gross proceeds attributable to the sale of any assets (other than the sale of assets in the ordinary course of business) owned by the Company or any Guarantor minus (i) the expenses associated with such sale including, without limitation, investment banking, legal, accounting and any other broker fees associated with the sale of such asset, (ii) the satisfaction of any encumbrances secured by a lien senior to that of the Noteholders, (iii) the satisfaction of any other contractual or legal liability required to be satisfied as a result of such sale, and (iv) a reserve for estimated taxes due associated with the sale of such asset.

‘ATAB’ means Avure Technologies AB, a limited liability company organized under the laws of Sweden, and an indirect subsidiary of the Company.

‘Chiao Tung Loans’ has the meaning given that term in Section 10.4(a)(viii).

‘Collateral Measurement Date’ means the applicable date designated as a Collateral Measurement Date in Section 9.7.

‘EBITDA Measurement Period’ has the meaning given in Section 9.6.

‘Fourth Amendment Effective Date’ means the date on which the Fourth Amendment to Note Purchase Agreements became effective.

‘Fourth Amendment to Note Purchase Agreements’ means the Fourth Amendment to Note Purchase Agreements dated as of July 28, 2004 between the Company and each of the Noteholders.

‘Handelsbanken Loans’ has the meaning given that term in Section 10.4(a)(viii).

‘LTM’ means last twelve months.

‘Minimum Collateral Amount’ means the applicable amount designated as a Minimum Collateral Amount in Section 9.7.

‘Minimum EBITDA Amount’ has the meaning given in Section 9.6.

‘Restructure Event’ **

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** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**

FLOW INTERNATIONAL CORPORATION FOURTH AMENDMENT

‘Senior Lenders’ means and includes the agent and the lenders from time to time under the Senior Credit Agreement.

‘Stock Sale Net Proceeds’ shall mean the gross cash proceeds attributable to any public or private offering by the Company or other sale by the Company after the Fourth Amendment Effective Date of its common or preferred stock or warrants, options, rights or other equity interests, minus all fees and expenses associated with such sale including, without limitation, investment banking, legal, accounting, printing, transfer agent and broker fees associated with such sale.”

(b) The following definitions set forth in Schedule B to the Note Purchase Agreements are hereby amended and restated in their entirety as follows:

“ ‘EBITDA’ means operating income, plus the sum of (i) depreciation expense, (ii) depletion expense, (iii) amortization expense, (iv) restructuring expenses not to exceed $1,500,000 in fiscal year 2005, (v) fees paid to legal and financial advisors associated with the Company’s refinancing efforts and negotiations with its existing creditors, (vi) one-time, non-cash charges related to write-downs of intangibles or goodwill, (vii) non-cash compensation, (viii) one-time VAT tax liability “true-up” of $290,000 (U.S.) in Flow Europe recorded in the fourth quarter of fiscal year 2004, associated with the fiscal periods prior to and including the year ended April 30, 2004, and (ix) any costs or write-downs associated with a Restructure Event, provided however, any add-backs made pursuant to this definition of ‘EBITDA’ may only be made to the extent that such add-back was deducted in the determination of operating income for the relevant period.

‘FAC’ means Flow Asia Corporation, a corporation formed under the laws of Taiwan, and a Wholly-owned Subsidiary of the Company.

‘FEG’ or ‘Flow Europe’ means Flow Europe GmbH, a corporation organized under the laws of Germany and a Wholly-owned Subsidiary of the Company.

‘Senior Credit Agreement’ means that certain Second Amended and Restated Credit Agreement dated as of July 28, 2003 among the Company and Bank of America, N.A., as Agent and Lender, U.S. Bank National Association and Keybank National Association, as amended by Amendment Number One to Second Amended and Restated Credit Agreement dated as of February 13, 2004, Amendment Number Two to Second Amended and Restated Credit Agreement dated as of May 6, 2004 and Amendment Number Three to Second Amended and Restated Credit Agreement dated as of July 29, 2004, and as the same may be further amended, modified or supplemented in accordance with the terms hereof.

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FLOW INTERNATIONAL CORPORATION FOURTH AMENDMENT

(c) The definitions of “Alternate Restructure Event” and “Restructure Agreement” as set forth in Schedule B to the Note Purchase Agreement are hereby deleted.

SECTION 2. AGREEMENTS REGARDING INTEREST.

(a) Agreement Regarding Interest Rate Increase. Pursuant to the Second Amendment, the interest rate payable in respect of the Notes was increased to 15% per annum and the Default Rate applicable to overdue payments in respect of the Notes was increased to 17% per annum, in each case, beginning July 29, 2002. Such increased interest rates shall continue until such time as (i) the Company shall have achieved a Fixed Charge Coverage of at least 1.25 to 1, a Funded Debt Ratio equal to or below 5.00 to 1 and a Senior Funded Debt Ratio equal to or below 3.50 to 1 and (ii) the Company has resumed payment in cash of all interest and principal on the Notes on the respective dates such amounts are scheduled to be paid. The Company and the Noteholders agree that such increased rates shall remain applicable, notwithstanding the amendments to Sections 9.6 and 9.7 of the Note Purchase Agreements contained herein.

(b) Agreement Regarding Interest Capitalization. (i) Pursuant to the Third Amendment, the Company and the Noteholders agreed that unless the Notes were paid in full prior to the relevant payment dates, the semi-annual interest payments due on October 31, 2003 and April 30, 2004 would be capitalized. The Notes were not paid in full prior to such dates and, accordingly, the interest due thereon was capitalized on such payment dates and the principal amount of each Note increased by an amount corresponding to the proportionate principal amount of such Note relative to the aggregate principal amount of all Notes. The Company shall execute and deliver on the effective date of this Fourth Amendment an allonge to each outstanding Note in the form of Exhibit A-1 hereto (each, an “Allonge”) reflecting the foregoing.

(ii) Subject to Section 2(c) below, unless the Notes are paid in full prior to the relevant payment dates, the Noteholders agree to capitalize the semiannual interest payments due on October 31, 2004 and April 30, 2005, provided that no Default or Event of Default shall then exist. Such capitalization of interest shall occur on the date each such interest payment is due, and the principal amount of each Note shall be increased by an amount which corresponds to the proportionate principal amount of such Note relative to the aggregate principal amount of all Notes. At the request of the Noteholders, the Company shall execute and deliver additional allonges to each outstanding Note substantially in the form of Exhibit A-1 hereto reflecting the foregoing.

(c) Deferred Restructuring Fee. In the event the scheduled interest payment due on April 30, 2005 is not paid in cash on the date due and such interest is capitalized as required by Section 2(b) of this Fourth Amendment, then the Company and the Noteholders further agree as follows:

(i) If the Company fails to make the April 30, 2005 interest payment in cash on or before June 15, 2005 (together with interest which has accrued on such capitalized amount), then the Noteholders shall on June 15, 2005 earn an additional restructuring fee in the amount of $3,000,000, to be allocated among the Noteholders pro rata based on

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the respective outstanding unpaid principal amount of Notes held by each such Noteholder. Such additional restructuring fee (1) shall be capitalized on June 15, 2005 and the principal amount of each Note shall be increased on such date by an amount equal to each Noteholder’s pro rata share of such fee, (2) shall earn interest at the same rate of interest applicable to the Notes from time to time and (3) shall be payable in full on the maturity date of the Notes. At the request of the Noteholders, the Company shall execute and deliver additional allonges to each outstanding Note substantially in the form of Exhibit A-2 hereto reflecting the capitalization of the additional restructuring fee.

(ii) If the Company does in fact make the April 30, 2005 payment in full in cash on or before June 15, 2005 (together with interest which has accrued on such capitalized amount), then the capitalization of the April 30, 2005 payment shall be reversed as of the date of such payment and no additional restructuring fee shall be paid or payable.

(d) Resumption of Current Cash Pay Interest. Upon the earlier of (i) the scheduled semi-annual interest payment due on October 31, 2005 or (ii) the occurrence of a Default or Event of Default, the Company shall pay all interest then and thereafter becoming due on the Notes in cash on the respective dates such interest is scheduled to be paid.

SECTION 3. WAIVERS AND CONSENTS.

Section 3.1. Subsidiary Restructuring and Loan Matters.

(a) Flow Manufacturing & Co. KG. In order to simplify its corporate structure and expedite on-going financial reporting processes, the Company intends to merge its German second-tier Subsidiary, Flow Europe Manufacturing & Co. KG (“Flow KG”), with and into Flow KG’s parent corporation Flow Europe GmbH (“Flow Europe”). Flow Europe is a Wholly-owned German Subsidiary of the Company and will be the only surviving entity. Each of Flow KG and Flow Europe are Guarantors under the Note Purchase Agreements. Without the written consent of the Noteholders, such merger is prohibited under Section 10.3 of the Note Purchase Agreements. Such merger is referred to in this Consent as the “German Subsidiary Merger.”

(b) Robotic Simulations, Ltd. The Company also intends to liquidate and dissolve its wholly-owned UK Subsidiary Robotic Simulations, Ltd. (“RSL”) to further simplify its corporate structure and avoid the administration of an inactive Subsidiary. RSL provided computer programming services to Company-related entities. RSL has no employees and is in the process of settling its accounts. Without the written consent of the Noteholders, such liquidation is prohibited under Section 10.3 of the Note Purchase Agreements. Such liquidation and dissolution is referred to in this Consent as the “RSL Liquidation.”

(c) Flow Asia Corporation. Flow Asia Corporation, a Taiwan corporation (“FAC”), a Wholly-owned Subsidiary of the Company and a Guarantor under the Note Purchase Agreements, has entered into a seven (7) year note for the principal amount of 145,000,000NTD (approximately US$4,100,000) with Chiao Tung Bank. Without the written consent of the

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Noteholders, FAC’s incurrence of such indebtedness is prohibited under Section 10.4 of the Note Purchase Agreements. Such loan is referred to in this Consent as the “Chiao Tung Bank Loan.” In connection with the Chiao Tung Bank Loan, FAC has granted to Chiao Tung Bank a first position lien on that portion of the building owned by FAC in Hsin Chu, Taiwan. Pursuant to Section 10.6 of the Note Purchase Agreements, FAC was prohibited from creating such lien without the Noteholders written consent. Such lien is referred to in this Consent as the “Chiao Tung Bank Lien.”

(d) Waivers and Consents Regarding Subsidiary Restructuring and Loan Matters. Each Noteholder hereby provides its consent to the German Subsidiary Merger, the RSL Liquidation, the Chiao Tung Bank Loan and the Chiao Tung Bank Lien, each as further described in clauses (a) and (b) of Section 3.1 above and as described in that certain letter from Dan Hillman, Director of Tax and Treasury of Company, to the Agent under the Senior Credit Agreement dated April 27, 2004, at true, correct and complete copy of which has been provided to the Noteholders.

SECTION 4. REPRESENTATIONS AND WARRANTIES.

(a) To induce the Noteholders to execute and deliver this Fourth Amendment, the Company represents and warrants to the Noteholders (which representations and warranties shall survive the execution and delivery of this Fourth Amendment) that:

(i) this Fourth Amendment, the Additional Warrants referred to in Section 5.1(b) hereof and each Allonge referred to in Section 2(b) hereof have been duly authorized, executed and delivered by the Company and constitute the legal, valid and binding obligations, contracts and agreements of the Company enforceable against it in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors’ rights generally;

(ii) the execution, delivery and performance by the Company of this Fourth Amendment, the Additional Warrants and each Allonge (A) does not require the consent or approval of any governmental or regulatory body or agency, and (B) will not (1) violate (x) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (y) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (z) any provision of any material indenture, agreement or other instrument to which it is a party or by which its properties or assets are or may be bound, or (2) result in a breach or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (B)(1)(z) of this clause (ii);

(iii) as of the date hereof and after giving effect to this Fourth Amendment, no Default or Event of Default has occurred which is continuing;

(iv) attached hereto as Exhibit B is a true, correct and complete list of all Subsidiaries of the Company as of July 28, 2004; and

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(v) attached hereto as Exhibit C are true, correct and complete copies of (A) the First Amendment dated as of February 13, 2004 to the Second Amended and Restated Senior Credit Agreement, (B) the Second Amendment dated as of May 6, 2004 to the Second Amended and Restated Senior Credit Agreement, and (C) the Third Amendment dated as of July 28, 2004, to the Second Amended and Restated Senior Credit Agreement.

(b) Each Noteholder by execution of this Fourth Amendment represents that it is an institutional “accredited investor” (as such term is defined under Regulation D promulgated under the Securities Act, or any successor law, rule or regulation).

SECTION 5. CONDITIONS TO EFFECTIVENESS OF THIS FOURTH AMENDMENT.

Section 5.1. Effective Date Conditions. This Fourth Amendment shall not become effective until, and shall become effective when:

(a) executed counterparts of this Fourth Amendment, duly executed by the Company and the holders of 100% in aggregate principal amount of outstanding Notes, and acknowledged and agreed to by each Domestic Guarantor, shall have been delivered to the Noteholders;

(b) as a restructuring fee, the Company shall execute and deliver to the Noteholders additional Warrants to purchase in the aggregate 150,000 shares of common stock of the Company (the “Additional Warrants”) for an exercise price of $0.01 per share, in the form of Exhibit D attached hereto, which restructuring fee shall be fully earned when such Additional Warrants are issued;

(c) Allonges, in the form of Exhibit A-1 attached hereto, shall have been duly executed by the Company for each of the outstanding Notes and delivered to the appropriate Noteholders;

(d) the Noteholders shall have received the following, each in form and substance satisfactory to them: (i) such resolutions or other action of the Board of Directors of the Company, incumbency certificates and/or other certificates of officers of the Company as the Noteholders may reasonably require to establish the identities of and verify the due authorization and delivery, and the authority and capacity of each officer thereof authorized to act as an officer in connection with, this Fourth Amendment, the Additional Warrants and the Allonges and any other documents required to be executed in connection with this Fourth Amendment (collectively, the “Amendment Documents”); (ii) copies of any amendments to the Company’s articles of incorporation or bylaws necessary to issue the Additional Warrants and (iii) certificates of existence or good standing as the Noteholders may reasonably require to verify that the Company is duly incorporated or formed, validly existing, in good standing and qualified to engage in business in each jurisdiction in which it is required to be qualified to engage in business and where the failure to do so would have a Material Adverse Effect;

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FLOW INTERNATIONAL CORPORATION FOURTH AMENDMENT

(e) the Noteholders shall have received a fully executed copy of the Third Amendment dated as of July 28, 2004 to the Second Amended and Restated Senior Credit Agreement, including the warrants issued pursuant thereto, in form and substance satisfactory to them;

(f) the Noteholders shall have received a calculation of the anti-dilution effect on the number of shares into which the original Warrants issued to the Noteholders are exercisable after giving effect to the issuance of the warrants to the Senior Lenders pursuant to the Third Amendment to the Second Amended and Restated Senior Credit Agreement;

(g) the Company shall deliver to the Noteholders a detailed written description of all guaranties, liens and security interests which have been granted to the lenders under the Senior Credit Agreement which have not been granted on a subordinated basis to the Noteholders, including copies of each security agreement, pledge agreement and other collateral agreement, together with each financing statement, public filing and other recorded instrument executed in connection therewith (all in fully executed form), and certified as true, correct and complete by a Senior Officer of the Company;

(h) the representations and warranties of the Company set forth in Section 4(a) hereof shall be true and correct on and with respect to the effective date hereof and the execution and delivery by the Company of this Fourth Amendment shall constitute the certification by the Company of the same; and

(i) the fees and expenses of counsel and the financial advisors to the Noteholders relating to this Fourth Amendment to Note Purchase Agreements will be paid in full.

Upon satisfaction of all of the foregoing, this Fourth Amendment shall become effective, and the amendments to the Note Purchase Agreements provided for herein shall be deemed effective as of July 28, 2004 and waiver and consents provided for herein shall be deemed given.

Section 5.2. Post-Effective Date Conditions. The Company shall comply with the following conditions subsequent within 60 days after the Fourth Amendment Effective Date. Failure to satisfy the conditions subsequent set forth below within 60 days after the Fourth Amendment Effective Date shall be an Event of Default:

(a) within 60 days after the Fourth Amendment Effective Date, each Foreign Guarantor shall have executed and delivered a counterpart to the Consent of Guarantors attached to this Fourth Amendment;

(b) not later than August 6, 2004, the Company shall deliver to the Noteholders such other evidence as they may deem necessary or appropriate evidencing that all documents executed in connection with this Fourth Amendment have been duly authorized and are legally effective, binding and enforceable including, without limitation, legal opinions substantially in the forms delivered in connection with the Closing.

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SECTION 6. RELEASE; NO DISCHARGE.

As additional consideration for the Noteholders’ entering into this Fourth Amendment, the Company hereby fully and unconditionally releases and forever discharges the Noteholders, their agents, employers, trustees, directors, officers, attorneys, auditors, financial advisors, affiliates, subsidiaries, successors and assigns and all persons, firms, corporations and organizations acting on any of their behalves (the “Released Parties”) of and from any and all claims, liabilities, demands, obligations, damages, losses, actions and causes of action whatsoever which the Company may now have or claim to have against any Noteholder or any other Released Parties, whether presently known or unknown and of any nature and extent whatsoever, including, without limitation, on account of or in any way affecting, concerning or arising out of or founded upon this Fourth Amendment or the Note Documents, including but not limited to all such loss or damage of any kind heretofore sustained or that may arise as a consequence of the dealings between the parties up to and including the date hereof, including but not limited to, the administration or enforcement of the Notes, the Note Purchase Agreements or any of the other Note Documents. The obligations of the Company under the Note Documents and this Fourth Amendment shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by:

(a) any exercise or nonexercise of any right, remedy, power or privilege under or in respect of this Fourth Amendment, any Note Documents Document, any document relating to or evidencing any of the Noteholders’ Liens or applicable Law, including, without limitation, any waiver, consent, extension, indulgence or other action or inaction in respect thereof; or

(b) any other act or thing or omission or delay to do any other act or thing which could operate as or be deemed to be a discharge of the Company as a matter of law, other than payment in full of all obligations evidenced by the Notes, including but not limited to all obligations under the Note Purchase Agreements, the Notes, the other Note Documents and this Fourth Amendment.

SECTION 7. ENTIRE AGREEMENT.

The Company acknowledges that there are no other agreements, representations, either oral or written, expressed or implied, not embodied in this Fourth Amendment and the other Note Documents, which, together, represent a complete integration of all prior and contemporaneous agreements and understandings of the Company and the Noteholders. No party shall be bound by any oral agreement, and no rights or liabilities, either expressed or implied, shall arise on the part of any party, or any third party, until and unless the agreement on any given issue has been reduced to a written agreement executed in accordance with the provisions of Section 18 of the Note Purchase Agreements. No commitment on the part of the Noteholders exists to modify the

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Note Documents in any respect, and the Noteholders hereby specifically confirm that they make no such commitment and specifically advise that no action should be taken by the Company based upon any understanding that any such a commitment exists or on any expectation that any such commitment will be made in the future.

SECTION 8. THE COMPANY REMAINS IN CONTROL.

The Company acknowledges that it remains in control of its business and affairs and determines the business plan for, and employment, management and operating directions and decisions for its business and affairs.

SECTION 9. MISCELLANEOUS.

This Fourth Amendment shall be construed in connection with and as part of the Note Purchase Agreements, and except as modified and expressly amended by this amendment, all terms, conditions and covenants contained in the Note Purchase Agreements, the Notes, the Warrants and the other Note Documents are hereby ratified and confirmed and shall be and remain in full force and effect. The obligations of the Company under the Note Purchase Agreements, the Notes, the Warrants and the other Note Documents shall not be released, discharged or in any way affected by (a) any exercise or nonexercise of any right, remedy, power or privilege under or in respect of the Note Purchase Agreements, the Notes, the Warrants or the other Note Documents or applicable law, including, without limitation, any waiver, consent, extension, indulgence or other action or inaction in respect thereof; or (b) any other act or thing or omission or delay to do any other act or thing which could operate as or be deemed to be a discharge of the Company as a matter of law, other than payment in full of all obligations under the Note Purchase Agreements and the Notes and performance under the Warrants and the other Note Documents.

Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this amendment may refer to the Note Purchase Agreements without making specific reference to this amendment, but nevertheless all such references shall be deemed to include this amendment unless the context otherwise requires.

This Fourth Amendment may be executed in any number of counterparts, each executed counterpart constituting an original, but all together only one agreement.

THIS FOURTH AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF WASHINGTON, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

-19-

FLOW INTERNATIONAL CORPORATION FOURTH AMENDMENT

IN WITNESS WHEREOF, the Company and the Noteholders have caused this Fourth Amendment to be executed, all as of the day and year first above written.

THE COMPANY:

FLOW INTERNATIONAL CORPORATION

By

Its

-20-

FLOW INTERNATIONAL CORPORATION FOURTH AMENDMENT

THE NOTEHOLDERS:

JOHN HANCOCK LIFE INSURANCE COMPANY

By

Its

JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

By

Its

SIGNATURE 4 LIMITED

By John Hancock Life Insurance Company, as Portfolio Adviser

By

Its

SIGNATURE 5 L.P.

By John Hancock Life Insurance Company, as Portfolio Adviser

By

Its

-21-

CONSENT OF GUARANTORS

The terms of the foregoing Fourth Amendment to Note Purchase Agreements of Flow International Corporation are hereby agreed to as of the date first written above by the following Guarantors and the guaranties of the obligations of the Company heretofore executed and delivered by the Guarantors are hereby ratified and confirmed and remain in full force and effect.

Each Guarantor hereby fully and unconditionally releases and forever discharges the Noteholders, their agents, employers, trustees, directors, officers, attorneys, auditors, financial advisors, affiliates, subsidiaries, successors and assigns and all persons, firms, corporations and organizations acting on any of their behalves (the “Released Parties”) of and from any and all claims, liabilities, demands, obligations, damages, losses, actions and causes of action whatsoever which the Company may now have or claim to have against any Noteholder or any other Released Parties, whether presently known or unknown and of any nature and extent whatsoever, including, without limitation, on account of or in any way affecting, concerning or arising out of or founded upon this Fourth Amendment or the Note Documents, including but not limited to all such loss or damage of any kind heretofore sustained or that may arise as a consequence of the dealings between the parties up to and including the Fourth Amendment Effective Date.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

AVURE TECHNOLOGIES, INC.

By:

Name:

Title:

CIS ACQUISITION CORPORATION

By:

Name:

Title:

FLOW WATERJET FLORIDA CORPORATION

By:

Name:

Title:

ATTACHMENTS

EXHIBIT A-1	–	Form of Interest Allonge
EXHIBIT A-2	–	Form of Fee Allonge
EXHIBIT B	–	List of Subsidiaries
EXHIBIT C	–	Amendments To Second Amended And Restated Credit Agreement
EXHIBIT D	–	Form of Additional Warrant

EXHIBIT A-1

(to Fourth Amendment to Note Purchase Agreements)

FORM OF INTEREST ALLONGE

EXHIBIT A-2

(to Fourth Amendment to Note Purchase Agreements)

FORM OF FEE ALLONGE

EXHIBIT B

(to Fourth Amendment to Note Purchase Agreements)

SUBSIDIARIES

Subsidiary	State or other Jurisdiction of Incorporation or Organization
Avure Technologies AB	Sweden
Avure Technologies, Incorporated	Washington
CEM-FLOW	France
Flow Access BVBA	Belgium
CIS Acquisition Corporation	Michigan
Flow Argentina (branch)	Argentina
Flow Asia Corporation	Taiwan
Flow Asia International Corporation	Mauritius
Flow Autoclave Systems, Inc. (joint venture)	Delaware
Flow Automation Systems Corporation	Ontario
Flow China	China
Flow Europe, GmbH	Germany
Foracon Europe Manufacturing GmbH & CO.KG	Germany
Flow Holdings BVBA	Belgium
Flow Holdings SAGL Limited Liability Company	Switzerland
Flow Holdings International FPS AB	Sweden
Flow Iberia, S.R.L.	Spain
Flow Italia, S.R.L.	Italy
Flow Japan Corporation	Japan
Flow Korea	Korea
Flow Latino Americana Com.Ltda.	Brazil, South America
Flow Surface Prep/Europe, SAGL	Switzerland
Flow U.K., Ltd.	England
Flow Waterjet Florida Corporation	Florida
Robotic Simulations Limited	United Kingdom
Flow Washington Corporation	Washington
Flow PCI, Inc.	Washington

EXHIBIT C

(to Fourth Amendment to Note Purchase Agreements)

AMENDMENTS TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

EXHIBIT D

(to Fourth Amendment to Note Purchase Agreements)

FORM OF ADDITIONAL WARRANT

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF

FLOW INTERNATIONAL CORPORATION

Subsidiary	State or other Jurisdiction of Incorporation or Organization
Avure Technologies AB	Sweden
Avure Technologies Incorporated	Washington
CIS Acquisition Corporation	Michigan
Flow Asia Corporation	Taiwan
Flow Asia International Corporation	Mauritius
Flow Autoclave Systems, Inc.	Delaware
Flow Automation Systems Corporation	Ontario
Flow China	China
Flow Europe, GmbH	Germany
Foracon Europe Manufacturing GmbH & CO.KG	Germany
Flow Holdings GmbH (SAGL) Limited Liability Company	Switzerland
Flow Holdings FPS AB	Sweden
Flow Iberica, S.R.L.	Spain
Flow Italia, S.R.L.	Italy
Flow Japan Corporation	Japan
Flow Korea	Korea
Flow Latino Americana Comercio Ltda.	Brazil, South America
Flow Surface Prep/Europe, SAGL	Switzerland
Flow U.K., Ltd.	England
Flow Waterjet Florida Corporation	Florida
Robotic Simulations Limited	United Kingdom
Flow Washington Corporation	Washington

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 33-57100) and Form S-8 (No. 33-40397 and No. 33-44776) of Flow International Corporation of our report dated August 10, 2004 relating to the financial statements and financial statement schedules, which appears in this Form 10-K.

Seattle, Washington

August 11, 2004

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Stephen R. Light, certify that:

1. I have reviewed this annual report on Form 10-K of Flow International Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ STEPHEN R. LIGHT	Dated August 13, 2004
Stephen R. Light
Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Stephen D. Reichenbach, certify that:

1. I have reviewed this annual report on Form 10-K of Flow International Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ STEPHEN D. REICHENBACH	Dated August 13, 2004
Stephen D. Reichenbach
Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Annual Report of Flow International Corporation, a Washington corporation (the “Company”), on Form 10-K for the year ending April 30, 2004 as filed with the Securities and Exchange Commission (the “Report”), I, Stephen R. Light, Principal Executive Officer of the Company, certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that:

(1)    The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)    The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ STEPHEN R. LIGHT

Stephen R. Light

Principal Executive Officer

August 13, 2004

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Annual Report of Flow International Corporation, a Washington corporation (the “Company”), on Form 10-K for the year ending April 30, 2004 as filed with the Securities and Exchange Commission (the “Report”), I, Stephen D. Reichenbach, Principal Financial Officer of the Company, certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that:

(1)    The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)    The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/    STEPHEN D. REICHENBACH

Stephen D. Reichenbach

Principal Financial Officer

August 13, 2004