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Flow International Corporation

Flow International Corporation

23500 64th Avenue South
Kent, Washington 98032
U.S.A.
Telephone: (253) 850-3500
Toll Free: (800) 446-3569
Fax: (253) 813-3285
Web site: http://www.flowcorp.com

Public Company
Incorporated:
1980
Employees: 895
Sales: $179.2 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: FLOW
NAIC: 333999 All Other General Purpose Machinery Manufacturing; 333298 All Other Industrial Machinery Manufacturing; 333319 Other Commercial and Service Industry Machinery Manufacturing; 333512 Other Commercial and Service Industry Machinery Manufacturing

Flow International Corporation, an industry pioneer, designs and manufactures cutting and cleaning systems that use ultra-high-pressure water to perform their tasks. Flows waterjet machines are used in a variety of applications by the aerospace, automotive, and food industries, where their ability to precisely cut everything from metal to baby diapers has won many converts to waterjet cutting technology. Flow is also a leading provider of robotics and assembly equipment. The company sells its products in more than 45 countries. In addition to its global headquarters in Kent, Washington, the company maintains a physical presence in Indiana, Michigan, Ohio, Louisiana, Canada, France, Italy, Germany, Spain, Sweden, Switzerland, the United Kingdom, Argentina, Brazil, Taiwan, China, Korea, and Japan.

Origins

The pioneering work predicating Flows success began in the basement of Y.H. Michael Pao, a former research scientist at aerospace giant Boeing Co. During the early 1970s, Pao began working on developing new businesses based on an advanced technology, specifically the use of ultra-high-pressure (UHP) as a cutting tool for industrial applications. Once Pao had developed a workable product, he formed Flow in 1974, organizing it at first as a division of Flow Industries. The division was spun off in March 1983, when it completed its initial public offering of stock. At the end of the 1980s, Flow acquired and retired Flow Industries interest in the Kent, Washington-based company.

Flows debut as an enterprise coincided with the commercialization of UHP technology. The innovative technology found in the companys first product, as it was in later generations of Flow products, was found in the pump. The industrial cutting and cleaning pumps developed by Pao pressurized water as greatly as 100,000 pounds per square inch. The water then was directed through special plumbing to a cutting head, a small nozzle that directed the water at its targeted surface. Powered by the pump, the water emerged from the cutting head at three times the speed of sound. The force was sufficient enough to cut through material without getting it wet, a stunning display of the power of water. Pao later invented and patented the worlds first abrasive waterjet system, further expanding upon the capabilities of pressurized water in industrial settings. By mixing abrasive particles, such as garnet, into the waterjet stream, Paos systems could perform astounding feats, cutting through stone or metal measuring ten inches thick.

The potential for Paos invention clearly was promising. As the technology evolved and its market acceptance widened, Flows systems found many uses. The companys products were used to fillet fish, make airplane wings, cut baby diapers, and shape automobile doors, among a of host of other tasks that involved cutting food, paper, rubber, foam, metal, stone, and glass. Paos innovation joined the ranks of other cutting technologies old and new, competing against laser, plasma, and conventional saw methods. When compared against such technologies, UHP revealed several advantages. The technology created no heat in the cutting process, removing the fear of distorting materials due to high temperatures. The technology was more hygienic in food settings than conventional saws. Further, Flows systems sold for roughly half the price of advanced cutting technologies such as laser-based systems. Flows water-based processes were also more environmentally sound than toxic chemical and mechanical methods of cutting and cleaning. As Pao set out, it was not hard to imagine a future in which waterjet systems were ubiquitous industrial tools.

By the time Flows fifth anniversary as a publicly traded concern occurred, the company could be described as an impressive but not overwhelming success. In 1988, when Flows assets amounted to nearly $40 million, annual sales eclipsed $30 million, but for the previous two years the company had averaged an annual loss of $13.2 million. Flow turned the losing streak around in 1989 and 1990, averaging more than $5.5 million in annual profit during the two-year period, but in 1991 the company reported a loss of $500,000. Although the loss recorded in 1991 was not devastating, the pattern of financial instability was cause for concern. Moreover, there were worrisome events at the companys headquarters in Kent that pointed to a crisis.

Undoubtedly, Flows strength was its technology. Effectively expressing the promise of UHP technology in the marketplace was a problem, however. Perhaps because the technology promised so much, its developersFlows engineerswere seduced by the possibilities of invention and failed to demonstrate the precise focus of the pressurized water streams that underpinned the company. With Pao as their steward, Flows engineers delved into developing products that sometimes ignored what the market needed, one of the chief contributors to the companys lackluster financial performance. In reference to the freewheeling development conducted by the companys engineers, a senior executive remarked in a March 13, 1992 interview with the Puget Sound Business Journal, They fragmented their efforts through these things, but nobody went out to see if anyone in the United States wanted to cut that substance.

At the beginning of the 1990s, Flows troubles ran deeper than wayward product development, although the exact cause of the problems was hidden from those outside the company. The evidence that something was wrong was apparent to all who chose to look, however. In the spring of 1990, six Flow managers resigned en masse, citing differences in policies and strategy with Pao as the motivation for their exodus. Against the backdrop of the clash involving personalities and policies, Pao was looking to sell the company. In an August 27, 1990 interview with the Puget Sound Business Journal, Pao stated that serious discussion with potential buyers would be underway the following month, adding, I dont think I want to continue to run this company. Paos desire was soon fulfilled.

A New Era Begins in 1991

In 1991, Flows board of directors made their move. After Pao resigned, the board appointed Ronald Turrant as president and chief executive officer and Thomas Cross as chief financial officer. The pair arrived in May 1991, recruited as a team from Augat Inc., a Massachusetts-based telecommunications firm. Together, they headed up Augats profitable telecommunications division, spending seven years at Augat before being tapped for their managerial expertise by Flows board.

Paos legacy of success was in invention, not in management. The Turrant-led era became known for its managerial prowess, something Flow sorely needed to eradicate its reputation as a company with brilliant technology but hobbled by a murky marketing focus. Turrants challenge was to create financial stability by reining in Flows research and development efforts without stifling the creativity of its engineers. To achieve his goal, Turrant looked to the market for what it wanted and, subsequently, focused on three sectors: aerospace, automotive, and food and forest industries. Turrant also altered the companys product mix to include less expensive waterjets and complete cutting systems that included waterjets. Additionally, the company announced plans to introduce three new pumps within the coming year, a move designed to move Flow into new market segments.

Turrants restorative touch worked wonders, lending a focused and ambitious air to Flows operations. In 1992, he set of goal of turning Flow into a $100 million-in-sales company in five years, an objective the new chief executive officer easily met. Acquisitions played a part in Flows turnaround, beginning with the January 1992 purchase of Rampart Waterblast Inc., a $4 million-in-sales company that used Flows technology to remove rubber and paint from airport runways. The following month, the company forged a global sales and distribution agreement with Emerald Creek Garnet Co. In September 1992, Flow acquired Spider Staging Corp., the first of two acquisitions that added a new facet to the companys structure. Spider Staging produced power-driven scaffolding and exterior building maintenance systems. In March 1993, Flow acquired Power Climber Inc., a maker of power hoists and other power scaffolding equipment. During the first two years of his reign, Turrant also consolidated Flows operations into a new headquarters building. The affect the Turrant-led additions and changes had on Flow were clearly evident, turning the money-losing, $41 million-in-sales company he inherited into a $79 million-in-sales company with a profit of $4.6 million in 1993.

Company Perspectives:

Flows global preeminence can be attributed to its focus on four key areas: technology leadership, providing total system solutions, new product development, and expanding applications within core markets.

Turrants initial success in transforming a technical company into a marketer was followed by an ill-fated attempt at greatly aggrandizing the companys operations. Flow became embroiled in a fight with the U.S. Department of Justice (DOJ) in the spring of 1994 after Turrant proposed to acquire its largest rival, the Waterjet Cutting Systems Division of Ingersoll-Rand Co. Flow incurred $400,000 in expenses pleading its cause, but eventually abandoned the proposed acquisition. The DOJ alleged Flow and Waterjet constituted the only two significant competitors in the industry, declaring their union would create a near total monopoly, as reported in the January 27, 1995 issue of the Puget Sound Business Journal. Forced to look elsewhere for a way to grow, Turrant set his acquisitive sights on two other companies. In December 1994, the company acquired Dynovation Machine Systems, Inc., an Ontario, Canada-based robotics manufacturer. The following month, Flow purchased ASI Robotics Systems, a designer and manufacturer of robots and related systems used in waterjet applications. Together, the acquisitions added $20 million to Flows revenue volume and enabled the company to sell complete precision cutting systems. Previously, customers were forced to purchase waterjets and robotics separately.

By the mid-1990s, Flow stood as the preeminent leader in its field. The companys product line, encompassing models that sold for between $80,000 and $3 million, controlled between 40 percent and 60 percent of the waterjet market, according to industry observers. By 1995, annual sales reached $110 million, well ahead of the growth projections articulated at the beginning of the Turrant era. Encouraged by the progress, Turrant entered the latter half of the 1990s pursuing another financial goal. By 2008, he intended to reach $208 million in sales.

Flow Falters in the Late 1990s

During the late 1990s, much of Flows attention and hope was placed on a new application for the companys technology. Trademarked as Fresher Under Pressure, Flows new business line focused on the food industry, the single largest manufacturing industry in the world. Using its UHP technology, the company developed a process that pasteurized food without heat, a capability that caused a stir of excitement within both the food and waterjet industries. The uses of Fresher Under Pressure were numerous, applicable to products such as wine, juice, eggs, guacamole, baby food, and dozens more. One model, a $500,000 Flow machine, was eagerly embraced by the shellfish industry for its ability to cleanly shuck oysters and eradicate any pathogens present.

As Flow exited the 1990s and entered the 21st century, all eyes were focused on the market success of Fresher Under Pressure. In March 1999, the company purchased ABB Pressure Systems, a subsidiary of Swedish industrial giant Asea Brown Boveri AB, to help bolster its reach into the developing business of treating food with UHP. ABB Pressure Systems ranked as the worlds leading supplier of large, bulk UHP systems to the food industry, as well as the global leader in isostatic and flexform press systems for the aerospace and automotive industries.

By 2001, Flows Fresher Under Pressure business had yet to fulfill its promise. The company had invested nearly $70 million in its food safety business, but the business, operating as a subsidiary named Avure Technologies, was consistently losing money. Turrant remained optimistic, however. In an August 29, 2001 interview with The Seattle Times, Turrant declared, Fresher Under Pressure will be at least as big as our core business in five years. As it happened, Turrant would never see if his prediction came true, at least not as Flows chief executive officer.

For the companys fiscal 2002, it reported a $6 million loss on a 13 percent drop in sales to $179.2 million. In August 2002, several months after the financial figures were announced, Turrant announced his departure from Flow. In December 2002, he stepped down as chairman and chief executive officer, retaining his position as president until a new president and chief executive officer joined the company. In January 2003, Turrants replacement arrived, a corporate turnaround specialist named Stephen Light. Previously, Light had served as the president and chief executive officer of Wisconsin-based OmniQuip, a Textron subsidiary that manufactured light construction equipment.

As Light plotted Flows future course, his challenge was to return the company to financial growth and resolve the difficulties experienced by Avure Technologies. Early in 2003, Light reduced the companys workforce and launched a two-year restructuring program. Light also hinted that Flow might sell Avure Technologies. Looking ahead, Flows technology held it in good steadas it had throughout the companys history. The general problem was in effectively applying the technology to the marketplace, the chief concern at the beginning of the Turrant era and the chief concern at the beginning of the Light era. Whatever the outcome of Lights attempts to restore financial growth, Flows place in industry history was secure. The company was a pioneer, responsible for bringing a promising new technology to manufacturing firms throughout the world.

Principal Subsidiaries

Flow International Sales Corporation (Guam); Flow Europe, GmbH (Germany); Flow Asia Corporation (Taiwan); Flow Asia International Corporation (Mauritius); Flow Japan Corporation; Foracon Maschinen und Anlagenbau GmbH & Co. (Germany); CIS Acquisition Corporation; Robotic Simulations Limited (United Kingdom); Hydrodynamic Cutting Services; Flow Automation Systems Corporation; Flow Autoclave Systems, Inc.; Flow Holdings GmbH (SAGL) Limited Liability Company (Switzerland); Flow Pressure Systems Vasteras AB (Sweden).

Principal Competitors

Giddings & Lewis, Inc.

Key Dates:

1974:
Flow International is formed as a division of Flow Industries.
1983:
Flow International completes its initial public offering of stock.
1991:
Ronald Turrant is appointed president and chief executive officer.
1992:
Flow begins its acquisition campaign.
2002:
Turrant resigns as Flows leader.
2003:
Stephen Light takes the helm.

Further Reading

Baker, M. Sharon, Redirecting Flow Pays Off with Stream of Profits, Puget Sound Business Journal, August 27, 1993, p. 7

CEO Announces Retirement, Stone World, December 2002, p. 32.

Flow International Posts Losses in 4th Quarter and Fiscal Year, Seattle Post-Intelligencer, June 6, 2002, p. D2.

Fryer, Alex P., Analysts Going with Flow Despite CFOs Departure, Puget Sound Business Journal, June 7, 1996, p. 6.

Karuza, Jennifer, A Pasteurizing Shucker Extends Oyster Shelf Life, National Fisherman, July 2002, p. 10.

Peterson, Kim, Slump Causes Retooling at Flow; Layoffs Expected Soon, Seattle Times, February 20, 2003, p. E1.

Virgin, Bill, Flow Sizes Up Losses, Maps Out Strategy, Seattle Post-Intelligencer, March 18, 2003, p. D7.

Wilhelm, Steve, If Flow Has Its Way, Itll Be Getting New Owners, Puget Sound Business Journal, August 27, 1990, p. 3.

, Flow Puts Fresh Bounce in Its Achilles Heel, Puget Sound Business Journal, March 13, 1992, p. 5.

, Flow Turns Up Pressure in Promising Markets, Puget Sound Business Journal, June 19, 1998, p. 4.

Jeffrey L. Covell

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