VIA FACSIMILE AND U.S. MAIL
February 10,
2005
Stephen D. Reichenbach
Principal Financial Officer
Flow International Corporation
23500- 64th Avenue South
Kent, Washington 98032
RE: Form 10-K/A for the fiscal year ended April 30, 2004
Form 10-Q for the period October 31, 2004
File No. 0-12448
Dear Mr. Reichenbach:
We have reviewed these filings and have the following
comments. If you disagree with a comment, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
FORM 10-K/A FOR THE YEAR ENDED APRIL 30, 2004
Comment applicable to your overall filing
1. Where a comment below requests additional disclosures or other
revisions to be made, please show us in your supplemental response
what the revisions will look like. With the exception of the
comments below that specifically request an amendment, all other
revisions may be included in your future filings.
Item 6. Selected Financial Data, page 14
2. Please provide a reconciliation of the balance sheet and income
statement data presented for the years ended April 30, 2000 and
April
30, 2001 from previously reported amounts to restated amounts.
Item 7. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations
Results of Operations, page 19
3. Please also discuss the business reasons for the changes
between
periods in the gross margin and operating income (loss) of each of
your segments discussed in Note 18 of your financial statements.
In
doing so, please disclose the amount of each significant change in
line items between periods and the business reasons for it. In
addition, where there is more than one business reason for a
change,
attempt to quantify the incremental impact of each individual
business reason discussed in the overall change in the line item.
Please show us what your revised MD&A for 2004 as compared to 2003
will look like. See Item 303(a)(3) of Regulation S-K and
Financial
Reporting Codification 501.04.
4. You state that for the year ended April 30, 2004 domestic
Waterjet
revenues were $70.4 million, up $7.2 million or 11% from $63.2
million from the prior year. Please clarify why the amount of
domestic Waterjet revenues for both the year ended April 30, 2004
and
the year ended April 30, 2003 would exceed the amounts reported in
Note 18 as North America Waterjet external sales.
Cost of Sales and Gross Margins, page 20
5. You are presenting non-GAAP financial measures in your results
of
operations, when you discuss your fiscal 2003 gross margin,
excluding
adjustments. Whenever a non-GAAP financial measure is included in
a
filing you should include the following:
* a presentation, with equal or greater prominence, of the most
directly comparable GAAP measure,
* reconciliation (by schedule or other clearly understandable
method)
of the differences between the non-GAAP measure and the most
directly
comparable GAAP measure,
* statement disclosing the reasons why the presentation of the
non-
GAAP financial measure provides useful information to investors
and,
* a statement disclosing how management uses non-GAAP financial
measure.
Please provide the appropriate supporting disclosures or delete
the
non-GAAP measure from your filing. See Item 10 (e)(1)(i)(A) to
(D)
of Regulation S-K.
Interest and Other Income (Expense), Net, page 21
6. You state that the year ended April 30, 2003 also includes a
$1.2
million accrual related to a discount agreed to as part of the
sale
of a substantial portion of your long-term notes receivable to a
financial institution. Tell us about the terms of this sale as
well
as how you accounted for this transaction. Please cite the
accounting literature used to determine the appropriate
accounting.
Fiscal 2003 Comprehensive Financial Review, page 22
7. You state that although your former CEO remains obligated to
perform consulting services through May 2005, you determined that
no
significant future services are likely to be required of him.
Therefore you accrued and charged to operations all remaining
contractual fees and related benefits aggregating approximately
$1.1
million. Tell us what specific accounting literature you used to
determine this was the appropriate accounting.
Contractual Obligations, page 28
8. Please consider revising your table of contractual cash
obligations to include the following:
(a) Estimated interest payments on your debt; and
(b) Estimated payments under your foreign exchange contracts and
other derivative agreements.
Because the table is aimed at increasing transparency of cash
flow,
we believe these payments should be included in the table. Please
also disclose any assumptions you made to derive these amounts.
Financial Statements
Statements of Operations, page 35
9. Please present interest expense and interest income separately,
rather than netting them, in your statement of operations. See
Rules
5-03(7) and (8) of Regulation
S-X.
10. Please separately present on your statement of operations or
disclose in a note to the financial statements the components and
related amounts included in the other income (expense), net line
item
for each period your statement of operations is presented. See
Rules
5-03(7) and (9) of Regulation S-X.
Statement of Cash Flows, page 36
11. Please explain to us how your netting of cash flows related to
the repayments and borrowings under credit agreement and notes
payable meet the requirements in paragraph 13 of SFAS 95 for
netting.
Otherwise, please present the gross amounts of repayments and
borrowings.
Statements of Shareholders` (Deficit) Equity and Comprehensive
Loss,
page 37
12. Please disclose the accumulated balances for each
classification
of accumulated other comprehensive loss on the face of the balance
sheet or in a footnote to the financial statements as required by
paragraph 26 of SFAS 130.
13. Please disclose for all periods presented the amounts of the
reclassification adjustments and the income tax provisions for
each
classification of other comprehensive loss, including amounts
related
to cash flow hedges. See paragraphs 20 and 25 of SFAS 130 as well
as
paragraph 47 of SFAS 133.
Note 1 - The Company and Summary of Significant Accounting
Policies,
page 38
14. Please disclose the types of expenses that you include in the
cost of sales line item and the types of expenses that you include
in
the selling, general and administrative expenses line item.
Please
tell us whether you include inbound freight charges, purchasing
and
receiving costs, inspection costs, warehousing costs, internal
transfer costs, and the other costs of your distribution network
in
the cost of sales line item. With the exception of warehousing
costs, if you currently exclude a portion of these costs from cost
of
sales, please disclose:
* in a footnote the line items that these excluded costs are
included
in and the amounts included in each line item for each period
presented, and
* in MD&A that your gross margins may not be comparable to those
of
other entities, since some entities include all of the costs
related
to their distribution network in cost of sales and others like you
exclude a portion of them from gross profit, including them
instead
in a line item, such as selling, general and administrative
expenses.
Revenue Recognition, page 39
15. Please demonstrate to us how your revenue recognition policies
related to the sale of standard systems complies with EITF 00-21.
Please specifically address the following:
* How you determined you have more than one unit of accounting;
* How you allocate the total consideration to each unit of
accounting;
* How you account for the direct costs of the arrangements;
* How you determined it was appropriate to record system revenue
at
the lesser of the cash received or the estimated fair value of the
system if payment is contingent upon system installation and
system
installation has not occurred.
Note 14 - Commitments and Contingencies, page 57
16. You indicate that you have been subject to product liability
claims. However you do not believe the effects of any claims will
materially affect your financial statements. We caution you that
a
statement that a contingency is not expected to be material does
not
satisfy the requirements of SFAS 5 if there is at least a
reasonable
possibility that a loss exceeding amounts already recognized may
have
been incurred and the amount of that additional loss would be
material to a decision to buy or sell your securities. In that
case,
you must disclose the estimated additional loss, or range of loss,
or
state that such an estimate cannot be made. Paragraph 9 of SFAS 5
also states that in some circumstances the amount accrued, may be
necessary for the financial statements not to be misleading;
disclose
the amount accrued, or tell us how you determined it was not
necessary to disclose this amount. In addition, provide the
disclosures called for by SAB Topic 5:Y.
Note 16 - Restructuring, page 59
17. Please revise your restructuring table to show activity by
reportable segment. See paragraph 20(d) of SFAS 146.
Note 18 - Operating Segment and Geographical Information, page 60
18. Please disclose the types of amounts included in the
Eliminations
column of the operating income (loss) line item for each period
presented, and disclose why these amounts were not allocated to
the
other reportable segments. If any amounts are reversals of
transactions between reportable segments, please present them in a
separate column from Corporate type of expenses. Please also
disclose what identifiable assets are included in the Eliminations
column as of each balance sheet and disclose why these amounts
result
in a negative balance. See paragraphs 31 and 32 of SFAS 131.
19. Please disclose the nature of the amounts included in the
"Other"
category including the sources of revenue. Refer to paragraph 21
of
SFAS 131.
Exhibits 31.1 and 31.2
20. Disclosure controls and procedures are now defined in Exchange
Act Rules 13a-15(e) and 15d-15(e). See SEC Release 33-8238, which
became effective August 14, 2003. Please file amendments to your
Forms 10-K and 10-Qs to include certifications that conform to the
format provided in Item 601(b)(31) of Regulation S-K and refer to
the
appropriate locations for the definitions. In doing so, please
refile each of these Forms 10-K and 10-Qs in their entirety.
FORM 10-Q FOR THE PERIOD ENDED OCTOBER 31, 2004
21. Please address the comments above in your interim Forms 10-Q
as
well.
Note 12 - Notes Payable and Long-Term Obligations, page 14
22. You state that you evaluated the Amendment signed on July 28,
2004 under EITF 98-14 and concluded that the borrowing capacity
increased. Please help us understand how you arrived at this
conclusion and correspondingly how you accounted for the deferred
financing costs associated with the original and amended credit
agreement. In Note 16 of your Form 10-K/A for the year ended
April
30, 2004 you state that you incurred over $1.5 million in
professional fees associated with the restructuring of debt in
July
2003 and 2004. Tell us whether these amounts relate to the Senior
Credit Agreement as well as how you determined it was appropriate
to
expense these amounts during the year ended April 30, 2004.
Note 14 - Commitments and Contingencies, page 16
23. Please provide the disclosures required by paragraphs 9 and 10
of
SFAS 5 regarding the Omax matter.
* * * *
Please respond to these comments within 10 business
days,
or tell us when you will provide us with a response. Please
provide
us with a supplemental response letter that keys your responses to
our comments and provides any requested supplemental information.
Detailed letters greatly facilitate our review. Please file your
supplemental response on EDGAR as a correspondence file. Please
understand that we may have additional comments after reviewing
your
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in their filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Ernest Greene, Staff Accountant, at (202)
942-
8091, or in his absence, Nudrat Salik, at (202) 942-7769, if you
have
questions regarding comments on the financial statements and
related
matters.
Sincerely,
Rufus Decker
Accounting Branch Chief
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Mr. Stephen Reichenbach
February 10, 2005
Page 1 of 7
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0510
DIVISION OF
CORPORATION FINANCE