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Article by DailyStocks_admin    (09-19-08 03:09 AM)

Filed with the SEC from Sep 04 to Sep 10:

Flow International (FLOW)
Third Point cut its holdings to 3.85 million shares (9.98%) from 4.71 million (12.5%), selling 775,800 from Aug. 29 through Sept. 9, at prices ranging from $5.33 to $6.79.

BUSINESS OVERVIEW

Our strategic sourcing initiatives seek to find ways of mitigating the inflationary pressures of the marketplace. In recent years, these inflationary pressures have affected the market for raw materials. The weakening dollar is also causing our supply chain to feel abnormal cost pressures. These factors may force us to renegotiate with our suppliers and customers to avoid a significant impact to our margins and results of operations. These macro-economic pressures may increase our operating costs with consequential risk to our cash flow and profitability. We currently do not employ forward contracts or other financial instruments to hedge commodity price risk, although we continuously explore supply chain risk mitigation strategies.

Intellectual Property

We have a number of patents related to our processes and products both domestically and internationally. While in the aggregate our patents are of material importance to our business, we believe that no single patent or group of patents is of material importance to our business as a whole. We also rely on non-patented proprietary trade secrets and knowledge, confidentiality agreements, creative product development and continuing technological advancement to maintain a technological lead on our competitors.

Product Development

Our research and development is focused on continued improvement of our existing products and the development of new products. During the year ended April 30, 2008, we expensed $8.3 million related to product research and development as compared to $8.7 million for 2007 and $6.7 million for 2006. Our future success depends on our ability to continue to maintain a robust research and development program that allows us to develop competitive new products and applications that satisfy customer requirements, as well as enhance our current product lines. Research and development costs were between 3% and 4% of total revenue during each of the years ended April 30, 2008, 2007, and 2006.

Backlog

Our backlog increased 14% from $31.0 million at April 30, 2007 to $35.3 million at April 30, 2008. The backlog at April 20, 2008 and 2007 represented 14% of our trailing twelve months sales in each of the respective periods.

Backlog includes firm orders for which written authorizations have been accepted and revenue has not yet been recognized. Generally our products, exclusive of the aerospace product line, can be shipped within a four to 16 week period. Aerospace systems typically have lead times of six to 18 months. 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. The changes in our backlog are not necessarily indicative of comparable variations in sales or earnings. Due to possible customer changes in delivery schedules and cancellation of orders, our backlog at any particular date is not indicative of actual sales for any succeeding period. Delays in delivery schedules and/or a reduction of backlog during any particular period could have a material adverse effect on our business and results of operations.

Working Capital Practices

There are no special or unusual practices relating to our working capital items. We generally require advance payments as deposits on customized equipment and standard systems and require progress payments during the manufacturing of these products or prior to product shipment.

Employees

We had approximately 759 full time employees as of April 30, 2008 compared to 756 in the prior year. This number includes 59% located in the United States and 41% located in other foreign locations. Our success depends in part on our ability to attract and retain employees. None of our employees are covered by collective bargaining agreements. We continue to have satisfactory employee relations.

CEO BACKGROUND

Karen A. Carter joined the Company in April 2007 as the Director of Operational Excellence and in August 2007 was appointed Vice President of Global Operations. Prior to joining the Company, she held several management and technical roles most recently as Director of Operational Excellence for the Health and Science Technologies business group within IDEX Corporation (1993 to 2007). Most of her professional experience has been spent in manufacturing industries including Micropump Inc., Ford Motor Company and Boeing. Karen Carter is certified as a Six Sigma Black Belt and Value Stream and Mixed Model Value Stream instructor. She holds a B.S. degree in mechanical engineering from Oakland University.

Douglas P. Fletcher joined the Company in August 2005 as interim Chief Financial Officer and in October 2005 was appointed Vice President and Chief Financial Officer. Prior to joining the Company, he served as Chief Financial Officer at GiftCertificates.com (2001 to 2005) and eCharge Corporation (2000 to 2001), both based in Seattle. From 1986 until 2000, he held various senior positions in corporate and structured finance, equipment finance, restructuring, and other finance positions with Citigroup in New York. From 1980 to 1986 he served in various positions at International Paper Company and from 1976 to 1980 he was employed by Price Waterhouse. Mr. Fletcher earned his B.S. degree in Accounting from Ohio University in 1976.

Jeffrey L. Hohman joined the Company in November 2006 as Executive Vice President and General Manager of the newly formed Flow Waterjet Americas Division. In July of 2007 he accepted the additional role of Executive Vice President and General Manager for Flow International. Prior to joining the Company, Mr. Hohman was employed by Idex Corporation, a pump manufacturing company, for 16 years serving as President of several divisions. Prior to 1990, Mr. Hohman worked for ITT Corporation, Borg Warner Corporation, General Signal Corporation and Dresser Industries, Inc. He is a Six Sigma Green Belt and has Bachelor’s Degree in Business from Pepperdine University.

John S. Leness joined the Company in June 1990 as its Corporate Counsel, became General Counsel in December 1990, and was appointed Assistant Secretary in January 1991 and Secretary in February 1991. From 1986 until joining the Company, Mr. Leness had been associated with the Perkins Coie law firm. Mr. Leness has an A.B. in Economics from Harvard College and a J.D. from the University of Virginia.

Scott G. Rollins joined the Company in February 2007 as Chief Information Officer. Prior to joining the Company, Mr. Rollins was a Senior Manager at Maverick Consulting in their manufacturing technology practice. Mr. Rollins spent a decade at Microsoft Corporation and iLogistix, focused on worldwide supply-chain and logistics, manufacturing systems, technology development and deployment.

Theresa F. Treat joined the Company in December 2006 as Vice President, Human Resources. Prior to joining the Company, Ms. Treat was Vice President of Human Resources at Cutter & Buck, Inc., and has more than 20 years of experience in human resources, serving at Onvia, Inc., Pointshare, Inc., Nextlink Communications, and Horizon Airlines. She also served as a labor negotiator for employees in the State of Alaska from 1983 to 1990. Ms. Treat has a Master’s Degree in Labor and Industrial Relations and a Bachelor’s Degree in Industrial and Organizational Psychology, both from the University of Illinois.

MANAGEMENT DISCUSSION FROM LATEST 10K

Executive Summary

Our objective is to deliver profitable dynamic growth by providing technologically advanced waterjet cutting and cleaning systems to our customers. To achieve this objective, we offer versatile waterjet cutting and industrial cleaning systems and we strive to:


• expand market share in our current markets;

• continue to identify and penetrate new markets;

• capitalize on the our customer relationships and business competencies;

• develop and market innovative products and applications; and

• continue to improve operating margins by focusing on operational improvements.

Our ability to fully implement our strategies and achieve our objective may be influenced by a variety of factors, many of which are beyond our control. Refer to discussion under Item 1A: Risk Factors .

Certain factors may cause our results to vary year over year. For the three years ended April 30, 2008, we have identified such factors as follows:

Introduction of New Products

In fiscal year 2007, we introduced the 87,000 psi intensifier pump at the bi-annual International Manufacturing Technology Show (IMTS) in September 2006.

In fiscal year 2006, we introduced the Nanojet tm system. This system was used in the semiconductor industry to cut flash memory chips and contributed to 3%, 14% and 28% of sales in the Asia Waterjet segment sales in fiscal years 2008, 2007 and 2006, respectively. Our 55,000 psi Husky pump used in cleaning applications and our Stonecrafter tm machine were also introduced in fiscal year 2006.

Intercompany Transfer Pricing Policy

We updated our intercompany transfer pricing policy effective August 1, 2007 to ensure that transactions among our various subsidiaries involved in various aspects of our business were made on arm’s length terms. While the application of our new intercompany transfer pricing policy did not change our revenue or operating performance on a consolidated basis, it impacted the allocation of operating profit amongst our segments. The impact of the new transfer pricing methodology on segment revenues and operating performance will be discussed in the comparative discussion of fiscal year 2008 to fiscal year 2007 results of operations.

Allocation of Corporate Management Fees

During fiscal year 2008, we have allocated corporate management fees in total of $5.2 million from North America Waterjet to the Company’s other operating segments which is part of the reports evaluated by the chief operating decision maker during the current fiscal year. Fiscal year 2007 has been recast to reflect this methodology. We have not recast the results of operations of fiscal year 2006 as doing so would not be practical.

Exit or Disposal Activities

In April 2008, we decided to sell our CIS Technical Solutions division (“CIS” division), which was previously reported as part of our Applications segment. Accordingly, we have recast all periods presented to reflect the results of operating this division in discontinued operations. Operating income for this division totaled $673,000, $654,000, and $342,000 for the years ended April 30, 2008, 2007 and 2006, respectively.

On June 2, 2008, we committed to a plan to establish a single facility for designing and building our advanced waterjet systems at our Jeffersonville, Indiana facility and to close our manufacturing facility in Burlington, Ontario, Canada. We estimate that the costs associated with the closure of the Burlington facility and the costs associated with moving production to our Jeffersonville facility will range from $2.6 million to $2.8 million in fiscal 2009, including from $1.5 million to $1.7 million for severance and termination benefits and $1 million to $1.2 million for facility closure and relocation costs. Based on our plans to close our Burlington, Ontario manufacturing facility we recorded an impairment charge of $97,000 related to the 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.”

Results of Operations

Summary Consolidated Results for Fiscal Years 2008, 2007, and 2006

Fiscal year 2008 compared to fiscal year 2007

Sales growth of $30.8 million or 14% was primarily driven by increased adoption of waterjet cutting and cleaning technology in the global markets and increased sales of 87,000 psi systems. The strengthening of the Brazilian Real versus the U.S. dollar improved our competitive position in Latin America markets. Excluding the impact of foreign currency changes, sales increased $20.2 million or 10% in 2008.

Total system sales were up $21.3 million or 14%. Excluding sales to the aerospace industry and Applications segment, system sales increased 22%. Consumable parts sales increased $9.5 million or 16% due to the increased installed base of systems and improved parts availability as well as the use of Flowparts.com and Floweuropeparts.com, our easy-to-use internet order entry systems. Flowparts.com has been deployed in the United States for three years and Floweuropeparts.com has been deployed in Europe for approximately two years.

Operating income growth was primarily driven by the higher sales discussed above along with lower operating expenses related to the timing of new product launches. In the prior year, we incurred expenses related to new core product development such as Stonecrafter tm , the 87,000 psi pump and the 55,000 psi Husky. Additionally, there were lower professional fees for legal, audit, and consulting fees for assistance with Sarbanes-Oxley compliance during the current fiscal year.

Fiscal year 2007 compared to fiscal year 2006

Sales growth was due to management’s focus on the core of our business — ultrahigh-pressure water pumps and the applications that integrate these pumps to cut and clean material. Improved global awareness of the benefits of waterjet cutting and cleaning technology over other traditional methods has resulted in increased global adoption of waterjet cutting and cleaning technology across multiple industries.

Operating income in fiscal year 2007 was negatively impacted by increased material and warranty costs, and the compensation expense incurred to amend the former CEO’s employment contract. Additionally, fiscal year 2007 operating expenses included legal, consulting fees, and losses totaling $3 million related to the Asia investigations which were discussed in previous filings. These investigations related to irregularities discovered in our Taiwan and Korean operations. In response to the investigations’ findings, we developed a remediation plan which has been implemented by senior management with the advice and counsel of the Audit Committee and its advisors. The remediation plan involved rebuilding the Flow Asia organization; including actions to assure clear and comprehensive policies, establish and communicate behavior standards and assure appropriate tone at the top.

Segment Results of Operations

We operate in four reportable segments, which are North America Waterjet, Asia Waterjet, Other International Waterjet and Applications. This section provides a comparison of net sales and operating expenses for each of our segments for the last three fiscal years. For further discussion on our business segments, refer to Note 16: Business Segments and Geographic Information of the Consolidated Financial Statements.

North America Waterjet Segment

Our North America Waterjet segment includes sales and expenses related to our cutting and cleaning systems using ultrahigh-pressure water pumps as well as parts and services to sustain these installed systems in our North America business units.

Fiscal year 2008 compared to fiscal year 2007

In fiscal year 2008:

Sales increased $11.4 million or 10% over the prior year and constituted 53% of total sales primarily due to the following:


• Increased market awareness and adoption of waterjet technology and the positive market reception to our 87,000 psi high pressure pump.

• Strong demand for our spare parts due to increased number of systems in service.

The positive factors above were offset by a $7.3 million or 36% decrease in aerospace sales over the prior year due to delayed aerospace contract awards.

Gross margin for the year ended April 30, 2008 amounted to $61.3 million or 47% of sales compared to $52.7 million or 44% of sales in the prior year. Generally, comparison of gross margin rates will vary period over period based on changes in our product sales mix and prices, which includes advanced systems, standard systems and consumables and levels of production volume. Margins in our North America Waterjet segment increased on improved product pricing and higher intercompany prices charged to foreign subsidiaries.

Operating expense changes consisted of the following:


• A reduction in sales and marketing expenses of $969,000 or 4% primarily as a result of a lower customer support costs driven by lower aerospace sales when compared to the prior year;

• A reduction in research and engineering costs of $288,000 or 4% related to the timing of new product launches. The prior year comparative period included engineering expenses to support new core product development such as Stonecrafter tm , the 87,000 psi pump, and the 55,000 psi pump; and

• A reduction in general and administrative expenses of $3.1 million or 12% primarily attributable to lower professional fees for legal, audit and Sarbanes Oxley compliance costs which were $5.4 million in fiscal year 2008 compared to $8.6 million in the prior year.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Executive Summary
Our objective is to deliver profitable dynamic growth by providing technologically advanced waterjet cutting and cleaning systems to our customers. To achieve this objective, we offer versatile waterjet cutting and industrial cleaning systems and we strive to:
• expand market share in our current markets;

• continue to identify and penetrate new markets;

• capitalize on the our customer relationships and business competencies;

• develop and market innovative products and applications; and

• continue to improve operating margins by focusing on operational improvements.
Our ability to fully implement our strategies and achieve our objective may be influenced by a variety of factors, many of which are beyond our control. These risks and uncertainties pertaining to our business are set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended April 30, 2008.
Effective May 1, 2008, we modified our internal reporting process and the manner in which the business is managed and in turn, reassessed our segment reporting. As a result of this process, we are now reporting our operating results to the chief operating decision maker based on market segments which has resulted in a change to the operating and reportable segments. Previously, we managed our business based on geography. Our change in operating and reportable segments from a geographic basis to market segments is consistent with management’s long-term growth strategy. Our new reportable segments are Standard and Advanced. The Standard segment includes sales and expenses related to our cutting and cleaning systems using ultrahigh-pressure water pumps as well as parts and services to sustain these installed systems. Systems included in this segment do not require significant custom configuration. The Advanced segment includes sales and expenses related to our complex aerospace and automation systems which require specific custom configuration and advanced features to match unique customer applications as well as parts and services to sustain these installed systems.
Accordingly, prior year segment data has been recast to reflect the new segment structure. The chief operating decision maker evaluates the performance of the Company’s segments based on sales, gross margin and operating income (loss).
Certain factors may cause our results to vary year over year. For the three months ended July 31, 2008 and 2007, we have identified such factors as follows:
Introduction of New Products
In fiscal year 2007, we introduced the 87,000 psi intensifier pump at the bi-annual International Manufacturing Technology Show (IMTS) in September 2006.
Exit or Disposal Activities
In April 2008, we decided to sell our CIS Technical Solutions division (“CIS” division), which would have been reported as part of our Advanced segment. Accordingly, we have recast all periods presented to reflect the results of operating of this division in discontinued operations. Income from the operations of this division totaled $70,000 and $87,000 for the three months ended July 31, 2008 and 2007, respectively.
On June 2, 2008, we committed to a plan to establish a single facility for designing and building its advanced waterjet systems at its Jeffersonville, Indiana facility and to close its manufacturing facility in Burlington, Ontario, Canada. We recorded charges of $1.5 million associated with this facility closure. These charges included employee severance and termination benefits of $1.4 million and an inventory write-down of $108,000 for inventory parts.
Results of Operations
Summary Consolidated Results for the Three Months ended July 31, 2008 and 2007

Despite the prevailing weak economic conditions in North America, which comprised approximately 45% of our sales in the prior fiscal year, sales for the three months ended July 31, 2008 remained consistent with prior year same period primarily as a result of strong growth in our other foreign locations.
Total system sales were down $2.4 million or 6%. Consumable parts sales increased $1.6 million or 10% due to the increased installed base of systems and improved parts availability as well as the use of Flowparts.com and Floweuropeparts.com, our easy-to-use internet order entry systems. Flowparts.com has been deployed in the United States for three years and Floweuropeparts.com has been deployed in Europe for approximately two years.
Operating income growth of $5.4 million was primarily driven by improved gross profit margins based on a shift in product mix, lower corporate general and administrative expenses including patent and legal fees related to the Omax litigation discussed further in Note 7, Commitments and Contingencies , of the Condensed Consolidated Financial Statements, as litigation related expenditure has been stayed while we pursue the merger with Omax. This pending merger with Omax is discussed further in Note 14, Pending Omax Transaction , of the Condensed Consolidated Financial Statements. Additionally, the prior year comparative period included $2.9 million related to compensation expenses to amend our former CEO’s contract. These positive impacts to operating income were partially offset by restructuring charges of $1.4 million related to the closure of our manufacturing facility in Burlington.
Segment Results of Operations
As discussed above, effective May 1, 2008, we operate in two reportable segments, which are Standard and Advanced. This section provides a comparison of net sales and operating expenses for each of our reportable segments for the three months ended July 31, 2008 compared to the prior year same period. A discussion of corporate overhead and general expenses related to inactive subsidiaries which do not constitute segments has also been provided under “All Other”. For further discussion on our reportable segments, refer to Note 13: Segment Information of the Consolidated Financial Statements.

For the three months ended July 31, 2008:
Sales in our standard segment increased $2 million or 4% over the prior year comparative period and constituted 92% of total sales primarily due to the following:
• In total, system sales declined from $35.9 million in the prior year to $35.7 million for the quarter ended July 31, 2008, due to weak economic conditions in North America where system sales declined 28%. This decline was offset by a 29% increase in system sales in our foreign locations driven by increased market awareness and adoption of waterjet technology, as well as the benefit of a weaker U.S. dollar.

• Consumable parts sales increased 14% to $17 million due to increased number of systems in service.

• Excluding the impact of foreign currency changes, sales decreased $1.7 million or 3% compared to the prior year comparative period.
Gross margin for the three months ended July 31, 2008 amounted to $25.1 million or 48% of sales compared to $22.5 million or 44% of sales in the prior year comparative period. Generally, comparison of gross margin rates will vary period over period based on changes in our product sales mix and prices, and levels of production volume. Margins in our standard segment increased due mainly to a higher mix of consumable parts sales versus systems sales. Consumable parts sales constituted 32% of total sales in our Standard segment in the current period versus 29% in the prior year same period. Excluding the impact of foreign currency changes, gross margin increased $1.2 million or 5% compared to the prior year comparative period.
Operating expense changes consisted of the following:
• A reduction in sales and marketing expenses of $5,000 or 0%;

• An increase in research and engineering costs of $76,000 or 4% driven by severance costs related to the streamlining of the product development function; and

• An increase in general and administrative expenses of $143,000 or 5% primarily attributable to slightly higher expenses to support growth in this segment in our foreign location.

• Excluding the impact of foreign currency changes, operating expenses decreased $820,000 compared to the prior year comparative period.

Sales in the advanced segment will fluctuate quarter over quarter for various reasons such as the timing of contract awards, timing of project design and manufacturing schedule and finally, shipment to the customers.
For the three months ended July 31, 2008:
Sales in our advanced segment decreased $2.8 million or 39% over the prior year comparative period and constituted 8% of total sales primarily due to the following:
• Our exit from non-waterjet automation which contributed $1.8 million of sales in the prior year comparative period.

• A slowdown in our advanced cutting cell business due to the weakness in the automotive industry.
Gross margin for the three months ended July 31, 2008 amounted to $966,000 or 22% of sales compared to $1 million or 15% of sales in the prior year comparative period. The improvement in gross margin as a percentage of sales when compared to the prior year same period is attributable to improved contract pricing and labor efficiencies.
Operating expense changes consisted of the following:
• A reduction in sales and marketing expenses of $291,000 or 36% primarily as a result of a lower customer support costs driven by lower aerospace sales when compared to the prior year same period;

• A reduction in research and engineering costs of $106,000 or 20% related to lower personnel expenses related to the shutdown of the Burlington facility; and

• A reduction in general and administrative expenses of $167,000 or 13% primarily attributable to a reduction of staff in conjunction with the closure of our manufacturing facility in Burlington, Ontario, Canada based on our plan to establish a single facility for designing and building advanced Waterjet systems at our Jeffersonville, Indiana facility.

• Restructuring charges of $1.4 million which were related to severance and termination benefits associated with our plan to shut down our Burlington, Ontario manufacturing facility.

Other (Income) Expense
Interest Income and Interest Expense
Our interest income was $179,000 and $191,000 for the three months ended July 31, 2008 and 2007, respectively. Our interest expense also remained relatively unchanged at $130,000 for the three months ended July 31, 2008 compared to $83,000 for the three months ended July 31, 2007.

During the three months ended July 31, 2008, we recorded Other Income, Net of $391,000 compared to Other Income, Net of $246,000 for the three months ended July 31, 2007. These changes primarily resulted from the fluctuation in realized and unrealized foreign exchange gains and losses as shown in the table above.
Income Taxes
For the three months ended July 31 2008, we recorded an income tax expense of $2.7 million which consists of current tax expense of $1.1 million and deferred tax expense of $1.6 million. Our deferred tax expense is mainly attributable to the United States and German tax provisions. Our effective tax rate in the first quarter of fiscal year 2009 was impacted by our decision in the fourth quarter of fiscal year 2008 to reverse a substantial portion of the valuation allowance recorded against net deferred tax assets in the U.S.
We continue to provide a full valuation allowance against our net operating losses and other net deferred tax assets, arising in certain tax jurisdictions, mainly in Canada, because the realization of such assets is not more likely than not. For the three months ended July 31, 2008, our valuation allowance increased by $0.9 million. The change is mainly attributable to an increase in net operating losses in Canada where we continue to provide a full valuation allowance against the loss carryforward. The majority of our foreign net operating losses can be carried forward indefinitely, with certain amounts expiring between fiscal years 2014 and 2017.
For the three months ended July 31, 2007, we recorded an income tax benefit of $1.6 million which was primarily due to the reversal of approximately $1.3 million of its valuation allowance against net deferred tax assets in its German jurisdiction, the first quarter of fiscal year 2008, after concluding that certain of its deferred tax assets in this jurisdiction were more likely than not to be realized. For the three months ended July 31, 2007, our valuation allowance decreased by $0.5 million.
In the first quarter of fiscal year 2008, we repatriated $1.0 million from one foreign subsidiary. We did not repatriate any earnings in the fiscal quarter of fiscal year 2009; however, it is our intention to continue to repatriate funds from certain of our foreign subsidiaries in the future.

CONF CALL

John S. Leness

With me this morning are Charley Brown, Flow’s president and CEO, and Doug Fletcher, Chief Financial Officer.

This call will include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. During the call we will provide selected financial and performance results for the fourth quarter of fiscal 2008. Any statements about future events, trends, risks, and plans should be considered as forward looking. These are based on current expectations only. Actual results may differ from these forward-looking statements and are subject to risks and uncertainties as are detailed in our filings with the Securities and Exchange Commission.

Flow takes no obligation to update any forward-looking statements, whether as a result of new information on future events or otherwise.

With that introduction I’ll turn the call over to Charley Brown.

Charles M. Brown

We are pleased to report an excellent quarter and year in both revenue growth and improved profitability for Flow.

First I will comment on the results for the quarter and then the year, after which Doug will go through the financials in more detail. I will then offer some additional comments prior to addressing your questions.

For the fourth quarter ending April 30h our revenues were $63.3 million representing 21% growth versus last year; 15% organically and 6% from foreign exchange rate changes. System sales grew 23% while spare parts grew 17%.

Breaking down the systems sales further, our core standard system revenue for North America was up 18% for the quarter. Our standard system sales in Europe and Latin America each were up over 30% in Q4. In local currencies our standard system sales in Europe increased by 25%. These results were aided by the continuing roll out of the 87K product line. In Asia standard systems continued their return to historical levels with a 68% increase versus year ago.

Our consumables or spare parts business globally grew 17% for the quarter with consistent performance around the world. Our aerospace business grew 8% in the quarter finishing the year down 36% comprising about 5% of our business for the year. This has been a weak year for our aerospace business due to the delays of equipment purchases supporting major commercial airframe programs.

Our applications business segment sales in local currency were down 19% for the quarter and up only 3% for the full year. The impact of the weak domestic auto industry and our decision to exit the unprofitable non-water automation business impacted revenue in the quarter and for the full year. I will discuss the applications segment and our aerospace business in more detail in a few minutes.

Since early in fiscal 2008 we have communicated that revenue for the year would grow at least 10%, that operating profit would be three to four times higher than fiscal 2007, and that it would represent between 6% and 7% of sales. During our last earnings call we updated our revenue outlook to at least 12% growth. We reiterated our three to four times operating income growth projection and we also said that we expected to hold operating expenses to less than the prior year.

So how did we do against those targets? We delivered each of them as anticipated. Revenue growth for the year was 14% of which 10% was organic and 4% was from foreign exchange. Operating profit was right in the middle of the dollar range and at the high end of the margin range. Operating expenses were 1% below the prior year.

Flow benefits from having a diversified revenue profile that is spread across geographies and end users. Roughly one half of our revenue comes from customers outside the US and no single customer makes up more than 5% of total revenue. Additionally, we have a strong recurring revenue stream from spare parts that made up 28% of revenue in fiscal 2008. Our balanced portfolio allowed us to achieve this double-digit revenue growth this year with some businesses performing very well, notably North America, Europe, Latin America, while others were flat or declining, applications, aerospace, and Asia.

On a quarterly basis our revenue can be impacted by the timing of product launches, large contracts, or the relative strength of our businesses. During fiscal 2008 we were up about 9% in the first two quarters and then we jumped to 19% in the third quarter and 21% in the fourth quarter, all totalling 14% for the year.

From a profitability standpoint we have reigned in SG&A expenditures while still investing in critical infrastructure, including our new information systems project. SG&A declined 560 basis points year over year as a percent of sales. Gross margins were down 240 basis points in the first half of the year, but up 55 basis points in the second half. In total, operating income for the year was 6.9% of sales versus 2.2% in 2007.

I will now turn it over to Doug for further financial commentary.

Douglas P. Fletcher

Before I discuss our operating performance let me touch briefly on backlog. Our backlog as of April 30, 2008, stood at $35.3 million, down slightly from the end of the third quarter and up 14% from the prior year. The aerospace systems backlog, which made up 21% of the total backlog, does not include any amounts for the recently signed Airbus contract. We expect our overall backlog to increase significantly over the next two quarters as we receive the individual systems orders under the Airbus contract.

Net income for the fourth quarter was $13.3 million or $0.35 per basic and fully diluted earnings per share. This compares to a net loss in the prior year period of $3.2 million or a loss of $0.09 per basic and fully diluted earnings per share.

During the fourth quarter we reversed the valuation allowance against our deferred tax asset in the United States and recorded a one-time benefit of $11.8 million. Excluding this benefit, an additional tax expense of approximately $1.9 million recorded in the fourth quarter to adjust our full-year tax expense. Our net income would have been $0.09 per basic and fully diluted earnings per share. For the full year that income was $22.4 million or $0.60 per basic and $0.59 per fully diluted earnings per share. Excluding the one-time benefit from the reversal of the US valuation allowance, net income was $0.28 per basic and fully diluted earnings per share. This compares to net income in the prior year of $3.8 million or $0.10 per basic and fully diluted earnings per share.

Our effective tax rate for fiscal 2008, excluding tax benefit from the valuation allowance release in the United States, was 34%. Much higher than anticipated due to the mix of earnings between our foreign subsidiaries and losses taken in Canada where we have a full valuation allowance.

Our gross profit for the quarter was 41.9%, up from the prior year quarter of 40.8% and 80 basis points below third quarter levels. The positive impact of operating improvements initiated during the year was offset by the impact of a change in product mix and the poor performance in our application segment.

As Charley mentioned, gross profit margins were down in the first half and up in the second half of 2008. But at 41.6% for the year they were down 90 basis points. This was mainly due to product mix and weaker application margins.

On an overall basis, SG&A expenses were $20.3 million in the quarter, down 19% from the prior year. Sales and marketing expenses were up 7% due mainly to higher commissions on increased revenues plus some additions to staff. Research and engineering expenses were down 6% due to the timing of new product launches and improved expense management.

Our general administrative expenses were down $5.1 million or 40% due to the cost of $2.9 million to amend the prior CEO contract reported in the prior year quarter and lower professional fees for patent litigation, external audit, and (inaudible).

For the year SG&A was $84.9 million, down 1% from the prior year as a result of improved expenses control, elimination of some large one-time expenses, and lower professional fees for audit and patent litigation. In fiscal 2009 we will continue to use caution with operating expenditures while making some significant, much-needed investments in our information systems.

Operating profit for the quarter was $6.2 million and operating margin was 9.8%. While we have improved significantly from the prior year, which was an operating loss of $3.5 million, core performance and one-time charges at our applications segment reduced operating performance. For the year, operating income was $16.8 million. Including the CIS business that has been re-casted discontinued operations, operating income was $17.5 million, the middle of the range that we previously communicated.

In other income expense we had a loss of $1.1 million in the fourth quarter driven mainly by unrealized foreign exchange losses. We experienced a lot of volatility during the quarter in a number of the major currencies we do business in, including the Euro, Swiss Franc, Japanese Yen, and Canadian Dollar. While we have some hedging programs in place, we will be expanding these in fiscal 2009 to reduce earnings volatility.

Free cash flow for the fourth quarter, defined as operating cash flow less cash CapEx, was $12.5 million; a significant turnaround from the negative $3.2 million in prior year quarter. For the year, free cash flow was $7.7 million, up from a negative $2.8 million in fiscal 2007. Cash from improved operating profit was offset by increases in net working capital and cash payments under the prior CEO contract amendment.

Cash CapEx was $6.2 million, down slightly from the $6.7 million in the prior year. During fiscal 2009, we expect to spend approximately $8 million on CapEx.

Our balance sheet remains strong with our net cash position of $25.8 million as of April 30, 2008. We had a $29.1 million in cash insured term and investments of which $15 million was held by our divisions outside of the United States.

Last month we announced that we had signed a new $100 million five-year secured credit facility which includes a $65 million revolving credit facility and a $35 million term loan that we may draw upon for the Omax acquisition. We are happy to be able to close this facility with good structure and pricing given the volatile credit markets.

Lastly I want to touch on our 10K filing this week. In the process of closing the books for fiscal 2008 we discovered some minor adjustments from early tax items that should have been reported in fiscal 2006 and had a carry-over impact on fiscal 2007. Because the earnings during those periods were relatively low, these adjustments when aggregated with other items discovered in previous periods that had been deemed immaterial were now material to fiscal 2006.

While the total impact of $0.02 per share over two years is small, we decided to restate fiscal 2006 and 2007. Specifically, the net change to fiscal 2006 reported net income was a decrease of net income by $733,000 or $0.02 per basic and fully diluted per share, and a net change to fiscal 2007 reported net income was an increase of $85,000 and no impact on earnings per share. Later today we will be issuing an 8K regarding this statement and the 10K to be followed later this week will include the restated numbers.

With that I will turn the call back to Charley.

Charles M. Brown

I will now address our plans for the businesses that make up the applications segment, the status of our Omax transaction, and then our outlook for fiscal 2009.

We have not been happy with the results of our applications segment, which lost $3.8 million in fiscal 2008. Last fall we announced our plan to exit the non-waterjet automation business that was closely tied to the domestic auto industry and had been losing money for the past few years.

Last month we announced that we would be closing the home of the applications business, our Burlington facility in Canada, moving manufacturing and engineering functions from there to the new advanced systems centre in Jeffersonville, Indiana. This rationalizes the manufacturing capacity for our cutting cell and slitting products, which Jeffersonville has also produced in the past, so we are confident the transition will be smooth. Our sales team will be retained and our after-market parts business will be served well from our corporate headquarters in Camp Washington.

Also included in the applications business segment is an additional, strategically unrelated, engineering consulting business called CIS. CIS primarily offers outsourced engineering design services to domestic automotive manufacturers, currently a very difficult environment. We have decided to financially classify CIS as a discontinued operation because we will now explore alternatives for this small piece of our business.

The result of these moves is that we have methodically unwound our applications business placing the strategically important and financially viable pieces of business elsewhere in flow where they can flourish. This allows us to reduce our manufacturing footprint and overall cost structure while actually increasing our focus and capability to address the needs of the advanced systems customer segment.

The cost to close the facility and move cutting cell and splitter production to Jeffersonville will be about $2.7 million. We originally expected to complete the move in the fall, but now expect to complete most of the move by the end of July. Approximately $2 million of the estimated expenses are expected to be recorded in the first fiscal quarter of 2009.

Ninety-seven-thousand dollars of charges related to fixed-asset impairment were recorded in the fourth fiscal quarter of 2008. The one-time costs in 2009 will be in the range of what the business lost in fiscal 2008 and we expect to begin realizing the savings in fiscal 2010.

This project is an example of how we planned carefully to deliver on our commitment of 20% compounded EBID growth on a revenue stream growing at one half of that rate.

I want to now touch briefly on our pending Omax merger. As we have previously said, in February we received a request for additional information and documentary material from the Federal Trade Commission in connection with their review of the proposed transaction. We have continued to work closely with the FTC and we hope to have a favourable resolution very shortly. Beyond that, we cannot comment further at this time.

Turning to our outlook for fiscal 2009, I want to first comment on our aerospace business. Two weeks ago we announced the largest program commitment in Flow’s history with Airbus appointing Flow as the provider of the entire order for the new composite machining centres for its A350 program. This wide-bodied aircraft will use state of the art carbon fibre materials to reduce weight and increase fuel efficiency. By choosing Flow waterjets over many competitive cutting and trimming alternatives Airbus is reaffirming that not only are waterjets the best solution, but Flow offers the best technology and support in the world for these applications.

The Airbus commitment is the result of years of work by our aerospace team and is a key strategic building block to delivering our company-wide annual growth rate of 10%. The contract covers an initial order for nine systems, including two systems that we had previously worked on before the original A350 program was cancelled. This is a remarkable achievement because it represents a clean sweep of all systems ordered on this contract. No competitor received a single order for any waterjet systems for the A350 program.

Our nine systems will cut a wide variety of parts at seven different factories across Europe. Revenue from these initial purchases will exceed $30 million and will be recognized over the next 18 to 24 months beginning later this year. Engineering and manufacturing for these products will take place in our recently announced advanced systems technology and manufacturing centre which is an expansion of our Jeffersonville, Indiana, facility.

Finally, I’d like to comment on the US economic slowdown and its impact on our business overall. We are seeing a decline in North American system orders so far this fiscal year and anticipate this will continue, at least for the first half of the year. Interestingly, we are achieving solid growth in our North America aftermarket business, but not enough to make up for the softness in system sales.

Our North American customers are using their waterjets, but in general those considering a new system are very cautious. Fortunately we are not seeing this behaviour in markets outside of North America, which represent roughly one half of our revenue base. As shown in our fiscal 2008 Q4 and full-year results, our growth is derived from a variety of countries and multiple end markets. Our foreign markets remain robust and our aerospace business will clearly provide a strong lift later this year.

Overall, we expect to see flat to low single-digit growth in the first half of the year with a rebound in the second half lead by aerospace, all balancing to eclipse our 10% growth target for the year. However, if the US economic slowdown becomes wide spread globally our aerospace gains may be unable to keep our growth north of 10%. Absent that scenario, we anticipate achieving 10% revenue growth for the year.

While global economic trends could conceivably impact our growth rate we have more control over our profitability and we remain very confident that we will deliver EBID growth this year at least 20% higher than 2008. However we slice it, we consistently come back to our belief that this business can sustain compounded annual growth in revenue of 10% and in operating income of 20%.

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