-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HiDwY3tlFBqThm6KIS6r/K8ebLFw9tRongZoUVjDInRd0Rbt8c998ZwItl6OpcN4 Lnr8qtDYvBE+8DPyewem7Q== /in/edgar/work/0000913355-00-000183/0000913355-00-000183.txt : 20001114 0000913355-00-000183.hdr.sgml : 20001114 ACCESSION NUMBER: 0000913355-00-000183 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001001 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARREL CORP CENTRAL INDEX KEY: 0000034645 STANDARD INDUSTRIAL CLASSIFICATION: [3559 ] IRS NUMBER: 222689245 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19703 FILM NUMBER: 760567 BUSINESS ADDRESS: STREET 1: 25 MAIN STREET CITY: ANSONIA STATE: CT ZIP: 06401-1601 BUSINESS PHONE: 2037365500 10-Q 1 0001.txt FORM 10-Q FOR THE QUARTERLY PERIOD ENDED 10/1/00 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 1, 2000 -------------------------------------------- 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 0-19703 ------------------- Farrel Corporation ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 22-2689245 - ---------------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 25 Main Street, Ansonia, Connecticut, 06401 ------------------------------------------- (Address of principal executive offices) (Zip Code) (203) 736-5500 -------------------- (Registrant's telephone number, including area code) 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 --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: ------------------------------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT NOVEMBER 10, 2000 - -------------------------------------------------------------------------------- Common Stock (Voting), $.01 par value 5,250,061 --------- Farrel Corporation ------------------ Index ----- Page ---- Part I. Financial Information --------------------- Consolidated Balance Sheets - October 1, 2000 and December 31, 1999....................... 3 Consolidated Statements of Operations - Three and Nine months ended October 1, 2000 and October 3, 1999......................................... 4 Consolidated Statements of Cash Flows - Nine months ended October 1, 2000 and October 3, 1999......................................... 5 Notes to Consolidated Financial Statement................... 6 Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 8 Part II. Other Information........................................... 14 Exhibit 11 - Computation of Earnings Per Share.............. 15 Page 2 of 16 Part I - Financial Information FARREL CORPORATION ------------------ CONSOLIDATED BALANCE SHEETS --------------------------- (In thousands, except share data)
October 1, December 31, ---------- ------------ 2000 1999 ---- ---- ASSETS (Unaudited) Current Assets: Cash and cash equivalents ................................... $ 958 $ 6,069 Accounts receivable, net of allowance for doubtful accounts of $163 and $185, respectively ............................................. 11,119 15,027 Inventory ................................................... 14,852 11,975 Other current assets ........................................ 1,000 1,374 -------- -------- Total current assets .......................... 27,929 34,445 Property, plant and equipment - net of accumulated depreciation of $13,809 and $13,186, respectively .................................... 9,575 10,995 Prepaid pension costs ....................................... 3,342 2,881 Other assets ................................................ 389 541 -------- -------- Total assets ............................................. $ 41,235 $ 48,862 ======== ======== LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable ......................................... $ 5,118 $ 7,837 Accrued expenses & taxes ................................. 974 2,157 Advances from customers .................................. 5,267 4,015 Accrued installation & warranty costs .................... 1,289 1,629 Short - term debt ........................................ 1,180 1,292 -------- -------- Total current liabilities ................................ 13,828 16,930 Long - term debt ............................................ 1,475 2,584 Postretirement benefit obligation ........................... 1,123 1,138 Long-term pension obligation ................................ 1,003 1,030 Deferred income taxes ....................................... 1,290 1,316 Commitments and contingencies ............................... -- -- -------- -------- Total liabilities ........................................ 18,719 22,998 -------- -------- Stockholders' equity: Preferred stock, par value $100, 1,000,000 shares authorized, no shares issued ................. -- -- Common stock, par value $.01, 10,000,000 shares authorized, 6,142,106 shares issued ............................ 61 61 Paid in capital .......................................... 19,295 19,295 Treasury stock, 892,045 shares at October 1, 2000 and December 31, 1999 ............... (2,513) (2,513) Retained earnings ........................................ 7,583 9,943 Accumulated other comprehensive expense .................. (1,910) (922) -------- -------- Total stockholders' equity .......................... 22,516 25,864 -------- -------- Total liabilities and stockholders' equity ............... $ 41,235 $ 48,862 ======== ========
See Accompanying Notes to Consolidated Financial Statements Page 3 of 16 FARREL CORPORATION ------------------ CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- (In thousands, except per share and share data) -----------------------------------------------
Three Months Ended Nine Months Ended ------------------ ----------------- October 1, October 3, October 1, October 3, 2000 1999 2000 1999 ---- ---- ---- ---- (unaudited) (unaudited) Net Sales ....................................... $ 16,887 $ 20,091 $ 44,000 $ 50,667 Cost of sales ................................... 13,107 13,926 33,839 37,560 ----------- ----------- ----------- ----------- Gross margin .................................... 3,780 6,165 10,161 13,107 Operating expenses: Selling ..................................... 1,670 1,689 5,169 5,072 General & administrative .................... 1,982 2,210 6,013 6,629 Research & development ...................... 389 398 1,238 1,166 ----------- ----------- ----------- ----------- Total operating expenses ........................ 4,041 4,297 12,420 12,867 ----------- ----------- ----------- ----------- Operating income (loss) ......................... (261) 1,868 (2,259) 240 Interest income ................................. 37 34 185 341 Interest expense ................................ (64) (92) (208) (364) Gain from sale of real estate ................... -- -- -- 1,879 Other income (expense), net ..................... (76) (116) (172) (122) ----------- ----------- ----------- ----------- Income (loss) before income taxes ............... (364) 1,694 (2,454) 1,974 Provision (benefit) for income taxes ............ (62) 598 (724) 713 ----------- ----------- ----------- ----------- Net income (loss) ............................... ($ 302) $ 1,096 ($ 1,730) $ 1,261 =========== =========== =========== =========== Per share data: Basic and Diluted income (loss) per common share .................................. ($ 0.06) $ 0.20 ($ 0.33) $ 0.23 =========== =========== =========== =========== Average shares outstanding: Basic ......................................... 5,250,061 5,460,902 5,250,061 5,506,497 =========== =========== =========== =========== Diluted ....................................... 5,250,061 5,460,902 5,250,061 5,506,497 =========== =========== =========== =========== Dividends declared per share .................... $ 0.04 $ 0.04 $ 0.12 $ 0.20 =========== =========== =========== ===========
See Accompanying Notes to Consolidated Financial Statements Page 4 of 16 FARREL CORPORATION ------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (In thousands)
Nine Months Ended ----------------- October 1, October 3, ---------- ---------- 2000 1999 ---- ---- (Unaudited) (Unaudited) Cash flows from operating activities: Net Income (loss) .................................................. ($1,730) $ 1,261 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Loss/(gain) on disposal of fixed assets .......................... 8 (1,942) Depreciation and amortization .................................... 1,515 1,658 Decrease in accounts receivable .................................. 3,517 7,152 (Increase) in inventory .......................................... (3,306) (2,377) (Increase) in prepaid pension costs .............................. (753) -- (Decrease) in accounts payable ................................... (2,436) (6,836) (Decrease) increase in customer advances ......................... 1,410 (3,084) (Decrease) in accrued expenses & taxes ........................... (1,081) (1,674) (Decrease) increase in accrued installation and warranty costs ... (290) 181 Increase (decrease) in deferred income taxes ..................... (7) 181 Other ............................................................ 420 (286) ------- ------- Total adjustments ................................................ (1,003) (7,027) ------- ------- Net cash (used in) provided by operating activities .............. (2,733) (5,766) ------- ------- Cash flows from investing activities: Refund of Shaw asset purchase price .............................. -- 4,405 Proceeds from disposal of fixed assets ........................... 6 2,608 Purchases of property, plant and equipment ....................... (605) (835) ------- ------- Net cash (used in) provided by investing activities .............. (599) 6,178 Cash flows from financing activities: Repayment of long-term borrowings ................................ (930) (647) Proceeds from short-term borrowings, net ......................... -- 1,137 Issuance of treasury stock ....................................... -- 9 Purchase of treasury stock ....................................... -- (1,511) Dividends paid ................................................... (630) (1,165) ------- ------- Net cash (used in) provided by investing activities .............. (1,560) (2,177) ------- ------- Effect of foreign currency exchange rate changes on cash ............. (219) 19 ------- ------- Net (decrease) in cash and cash equivalents .......................... (5,111) (1,746) Cash and cash equivalents - Beginning of period .................. 6,069 5,786 ------- ------- Cash and cash equivalents - End of period ........................ $ 958 $ 4,040 ======= ======= Income taxes paid .................................................... $ 210 $ 1,152 ======= ======= Interest paid ........................................................ $ 203 $ 200 ======= =======
See Accompanying Notes to Consolidated Financial Statements Page 5 of 16 Farrel Corporation Notes to Consolidated Financial Statements (Unaudited) NOTE 1 - BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly in accordance with generally accepted accounting principles, the consolidated financial position of Farrel Corporation ("Farrel" or "the Company") as of October 1, 2000, and the consolidated results of its operations and its cash flows for the three and nine-month periods ended October 1, 2000 and October 3, 1999. These results are not necessarily indicative of results to be expected for the full fiscal year. The statements should be read in conjunction with the financial statements and notes thereto, included in the Company's Annual Report and Form 10-K for the year ended December 31, 1999. NOTE 2 - INVENTORY Inventory is comprised of the following: October 1, December 31, 2000 1999 ---- ---- (In thousands) Stock and raw materials............ $ 8,005 $ 7,934 Work-in process.................... 6,847 4,041 ------- ------- Total.............................. $14,852 $11,975 ======= ======= NOTE 3 - COMPREHENSIVE INCOME (LOSS) The components of other comprehensive income (loss) are as follows:
Three Months Ended Nine Months Ended October 1, October 3, October 1, October 3, 2000 1999 2000 1999 ---- ---- ---- ---- (In thousands) (In thousands) Net income (loss)........................... $(302) $1,096 $(1,730) $1,261 Foreign currency translation adjustments.... (279) 619 (988) 6 ------ ------ -------- ------ Other comprehensive income (loss)........... $(581) $1,715 $(2,718) $1,267 ====== ====== ========= ======
Page 6 of 16 The components of accumulated other comprehensive expense, net of related tax, are as follows: October 1, December 31, 2000 1999 ---- ---- (In thousands) Minimum pension liability $ (613) $ (613) Foreign currency translation adjustments (1,297) (309) -------- ------- Accumulated other comprehensive expense $(1,910) $ (922) ======== ======= The foreign currency translation adjustment is a result of translating into US dollars the financial statements of the Company's UK subsidiary. Changes in the exchange rate between the US dollar and the British pound sterling generate the change in this balance. On December 31, 1999, one British pound sterling was equivalent to $1.61. On October 1, 2000, one British pound sterling was equivalent to $1.47. NOTE 4 - SEGMENT INFORMATION The Company's operations are considered one operating segment. The Company's products consist of new machines, aftermarket and spare parts and repair related services. The Company's products and services are sold to commercial manufacturers in the plastic and rubber industries. The manufacturing, assembly and distribution of the Company's products are essentially the same. NOTE 5 - GAIN FROM SALE OF REAL ESTATE During January 1999, the Company completed the sale of excess real estate held for sale for $2.4 million. The Company recorded a gain of $1.9 million from the sale. NOTE 6 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which must be adopted effective January 1, 2001. The Statement provides a new method of accounting for derivatives and hedges. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 contains the SEC staff's views in applying generally accepted accounting principles related to revenue recognition in financial statements. SAB 101 includes requirements for when shipments may be recorded as revenue when the terms of the sale include customer acceptance provisions or an obligation of the seller to install the product. The provisions of this bulletin are effective in the fourth quarter of 2000. The Company is reviewing the requirements of SAB 101 which could create a timing difference in when the Company recognizes revenue and has not yet determined the full impact of SAB 101 on its consolidated financial statements. The impact, however, could be material, on both a quarterly and annual basis, on the Company's statement of operations should the Company determine it needs to change its accounting for revenue recognition. Such a change could result in significant portions of its revenue being recognized in accounting periods significantly later than it historically would have been recognized. Page 7 of 16 PART I - ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS SAFE HARBOR STATEMENTS UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements contained in the Company's public documents, including this report and in particular, in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" may be forward looking and may be subject to a variety of risks and uncertainties. Various factors could cause actual results to differ materially from these statements. These factors include, but are not limited to, pricing pressures from competitors and/or customers; continued economic and political uncertainty in certain of the Company's markets; the Company's ability to maintain and increase gross margin levels; the Company's ability to generate positive cash flow; changes in business conditions, in general, and, in particular, in the businesses of the Company's customers and competitors; and other factors which might be described from time to time in the Company's filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS NINE MONTHS ENDED OCTOBER 1, 2000 COMPARED TO THE NINE MONTHS ENDED OCTOBER 3, 1999 Net sales for the nine month period ended October 1, 2000 were $44.0 million compared to $50.7 million for the nine month period ended October 3, 1999, a decrease of $6.7 million. The decrease in net sales is primarily due to lower sales made by the Company's U.K. operations due to weak market conditions. The timing of the Company's sales, particularly new machines sales, is highly dependent on when an order is received, the amount of lead time from receipt of order to delivery and specific customer requirements. The Company operates in markets which are extremely competitive with cyclical demand. Many of the Company's customers and markets operate at less than full capacity and the European and Far East markets remain particularly competitive and are subject to local economic events. Orders received for the nine month period ended October 1, 2000 were $44.8 million compared to $51.8 million for the nine month period ended October 3, 1999. The Company's products are primarily supplied to manufacturers and represent capital commitments for new plants, expansion or modernization. In the case of major equipment orders, up to 12 months are required to complete the manufacturing process. Accordingly, revenues reported in the statement of operations may represent orders received in the current or previous periods during which time economic conditions in various geographic markets of the world impact the Company's level of order intake. Many of the Company's traditional customers and markets are operating with excess capacity thereby reducing the number of projects for plant expansion and modernization. The Company is experiencing increased pricing pressures from competitors in an overall smaller market. In addition, the decline in the value of the Euro versus the U.S. dollar and British pound sterling is increasing pricing pressures. These conditions are resulting in customer orders with lower margins. Further, the cyclical nature of industry demand and, therefore, the timing of order intake may affect the Company's quarterly results of operations. The Company's ability to maintain and increase net sales depends upon a strengthening and stability in the Company's traditional markets and its ability to control costs to effectively compete in its current markets. There can be no assurance that the current level of orders will continue, that market conditions will not worsen, or that improvements in the Company's traditional markets will lead to increased orders for the Company's products. Page 8 of 16 The level of backlog considered firm by management at October 1, 2000 was $29.9 million compared to $28.9 million at December 31, 1999, and $34.2 million at October 3, 1999. Gross margin for the nine month period ended October 1, 2000 was $10.2 million compared to $13.1 million for the nine month period ended October 3, 1999 a decrease of $2.9 million. The decrease in gross margin is primarily due to lower sales. The margin percentage for the nine month period ended October 1, 2000, was 23.1% compared to 25.9% for the nine month period ended October 3, 1999. The decline in gross margin as a percent of sales is primarily due to changes in product mix. Operating expenses for the nine month period ended October 1, 2000 were $12.4 million compared to $12.9 million for the nine month period ended October 3, 1999, a decrease of $0.5 million. General and administrative expense decreased $0.6 million, primarily due to lower payroll and related expenses and lower professional fees. Interest expense for the nine month period ended October 1, 2000 was $0.2 million compared to $0.4 million for the nine month period ended October 3, 1999, a decrease of $0.2 million. The decrease is due to lower borrowings. The Company provides for income taxes in the jurisdictions in which it pays income taxes at the statutory rates in effect in each jurisdiction, adjusted for permanent differences in determining income for financial reporting and income tax purposes. The effective income tax rate was 29.5% for the nine month period ended October 1, 2000, compared to 36.1% for the nine month period ended October 3, 1999. The decline in the effective tax rate is a result of the change in the proportion of income (loss) generated in different taxing jurisdictions. RESULTS OF OPERATIONS THREE MONTHS ENDED OCTOBER 1, 2000 COMPARED TO THE THREE MONTHS ENDED OCTOBER 3, 1999 Net sales for the three month period ended October 1, 2000 were $16.9 million compared to $20.1 million for the three month period ended October 3, 1999, a decrease of $3.2 million. Orders received for the three month period ended October 1, 2000 were $11.7 million compared to $19.6 million for the three month period ended October 3,1999. The Company's sales, orders and backlog levels varied when comparing the two quarters due to market conditions and the nature of the industry in which the company operates, as more fully discussed in the results of operations for the nine month period on page 8. Gross margin in the three month period ended October 1, 2000 was $3.8 million compared to $6.2 million for the three month period ended October 3, 1999, a decrease of $2.4 million. The decrease in gross margin is primarily due to lower sales. The margin percentage for the three month period ended October 1, 2000, was 22.4% compared to 30.7% for the three month period ended October 3, 1999. The decline in gross margin as a percent of sales is primarily due to changes in product mix. Operating expenses for the three month period ended October 1, 2000 were $4.0 million compared to $4.3 million for the three month period ended October 3, 1999, a decrease of $0.3 million. Page 9 of 16 The decline is primarily a result of lower general and administrative payroll and related expenses and lower professional fees. Interest expense for the three month periods ended October 1, 2000 and October 3, 1999, was $0.1 million. The Company provides for income taxes in the jurisdictions in which it pays income taxes at the statutory rates in effect in each jurisdiction adjusted for permanent differences in determining income for financial reporting and income tax purposes. The effective income tax rate for the three month period ended October 1, 2000, was 17% compared to 35.3% for the three month period ended October 3, 1999. The decline in the effective tax rate is a result of the change in the proportion of income (loss) generated in different taxing jurisdictions. MATERIAL CONTINGENCIES In February 1995, the Company and Black & Decker entered into a Settlement Agreement pursuant to which Black & Decker agreed to assume full responsibility for the investigation and remediation of any pre-May 12, 1986 environmental contamination at the Company's Ansonia and Derby, Connecticut facilities, as required by the Connecticut Department of Environmental Protection ("DEP"). As part of the settlement, the Company transferred by quit claim deed a vacant surfaced parking lot to the City of Ansonia. As required by the Settlement Agreement, environmental assessments of the Ansonia and Derby properties are being conducted by Black & Decker. On January 19, 1999, the Company sold all of its Derby, Connecticut, real estate and facilities. By the terms of that sale, the purchaser committed to cooperate with Black & Decker in any additional investigation of the Derby property and any remediation of that property that might be required by the DEP. In addition, the Company has been named an additional insured on a $5.0 million environmental policy obtained by the purchaser and the purchaser is obligated to name the Company an additional insured on any and all other environmental insurance policies obtained by the purchaser related to the Derby property. On the basis of the preliminary data now available there is no reason to believe that any remediation activities which might be required as a result of the findings of the assessment will have a material effect upon the capital expenditures, earnings or the competitive position of the Company. This forward looking statement could, however, be influenced by any findings of environmental contamination attributable to post-May 12, 1986 activities. LIQUIDITY AND CAPITAL RESOURCES; CAPITAL EXPENDITURES Working capital and the working capital ratio at October 1, 2000 were $14.1 million and 2.0 to 1, respectively, compared to $17.5 million and 2.0 to 1 at December 31, 1999, respectively. During the nine months ended October 1, 2000, the Company paid dividends of $0.12 per share of common stock. The Company's ability to pay dividends in the future is generally limited under its credit facility described below to the aggregate of (a) 25% of net income during the most recently completed four fiscal quarters after deducting distributions previously made and (b) purchases by the Company of its common stock during the same period, without the consent of and/or waiver by the Company's bank. The Company has received waivers from its bank with respect to the dividends declared. Page 10 of 16 Due to the nature of the Company's business, many sales are of a large dollar amount. Consequently, the timing of recording such sales may cause the balances in accounts receivable and/or inventory to fluctuate dramatically between quarters and may result in significant fluctuations in cash provided by operations. Historically, the Company has not experienced significant problems regarding the collection of accounts receivable. The Company has also generally financed its operations with cash generated by operations, progress payments from customers and borrowings under its bank credit facilities. Management anticipates that its cash balances, operating cash flows and available credit line will be adequate to fund anticipated capital commitments and working capital requirements for at least the next twelve months. The Company made capital expenditures of $0.6 million and $0.8 million during the nine month periods ended October 1, 2000 and October 3, 1999, respectively. The Company has a worldwide $14.5 million multi-currency revolving credit facility, as amended, with a major U.S. bank. The facility contains combined limits on direct borrowings and letters of credit issuances based upon stipulated percentages of accounts receivable, inventory and backlog. The facility also contains covenants specifying minimum and maximum operating thresholds for operating results and selected financial ratios. There can be no assurance that the Company will achieve the required thresholds in the future. The agreement contains certain restrictions on the making of investments, on borrowings and on the sale of assets. At October 1, 2000, the amount available to the Company and subsidiaries for additional revolver borrowing and/or letter of credit issuances beyond those already outstanding under the revolving credit facility was $8.2 million. There were $4.8 million and $3.8 million of letters of credit outstanding at October 1, 2000 and December 31, 1999, respectively. At October 1, 2000 and December 31, 1999, there were $2.7 million and $3.9 million, respectively, outstanding under a term loan. On May 7, 1999, the Company received a cash payment of $4.4 million representing settlement of its claim under the Profit Guaranty provision of the Asset Purchase Agreement for the purchase of the Francis Shaw Rubber Machinery Business. In fiscal 2000, new legal minimum funding guidelines for U.K. pension plans became effective in the U.K. These guidelines are significantly different than prior guidelines. As a result, the Company expects it will need to make approximately $950,000 of contributions to its U.K. pension plan in fiscal 2000. Approximately $750,000 of contributions were made in the nine-month period ended October 1, 2000, with the remaining amount to be made in monthly payments throughout the remainder of the year. In recent years prior to fiscal 2000, the Company was not required to and did not make contributions to its U.K. pension plans. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which must be adopted effective January 1, 2001. The Statement provides a new method of accounting for derivatives and hedges. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 contains the SEC staff's views in applying generally accepted accounting principles related to revenue recognition in financial statements. SAB 101 includes requirements for when shipments may be recorded as revenue when the terms of the sale include customer acceptance provisions or an obligation of the seller to install the product. The provisions of this bulletin are effective in the fourth quarter of 2000. The Page 11 of 16 Company is reviewing the requirements of SAB 101 which could create a timing difference in when the Company recognizes revenue and has not yet determined the full impact of SAB 101 on its consolidated financial statements. The impact, however, could be material, on both a quarterly and annual basis, on the Company's statement of operations should the Company determine it needs to change its accounting for revenue recognition. Such a change could result in significant portions of its revenue being recognized in accounting periods significantly later than it historically would have been recognized. Page 12 of 16 ITEM 2 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in foreign currency and interest rates. The Company manufactures many of its products and components in the United Kingdom and purchases many components in foreign markets. Approximately 50% of the Company's revenue is generated from foreign markets. The Company manages its risk to foreign currency rate changes by maintaining foreign currency bank accounts in currencies in which it regularly transacts business and the use of foreign exchange forward contracts. The Company does not enter into derivative contracts for trading or speculative purposes. The Company's cash equivalents and short-term investments and its outstanding debt bear variable interest rates. The rates are adjusted to market conditions. Changes in the market rate effects interest earned and paid by the Company. The Company does not use derivative instruments to offset the exposure to changes in interest rates. Changes in the interest rates related to these items are not expected to have a material impact on the Company's results of operations. Page 13 of 16 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS .......................................... None ITEM 2 - CHANGES IN SECURITIES ...................................... N/A ITEM 3 - DEFAULTS UPON SENIOR SECURITIES ............................ N/A ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........ N/A ITEM 5 - OTHER INFORMATION .......................................... N/A ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K Exhibit 11 (Regulation S-K) Computation of Earnings Per Share ....... Attached Exhibit 27 Financial Data Schedule .................................. Attached Reports on Form 8-K No Reports on Form 8-K were filed by the registrant during the periods covered by this report. Page 14 of 16 Exhibit 11 FARREL CORPORATION ------------------ STATEMENT RE COMPUTATION OF PER SHARE EARNINGS ---------------------------------------------- (In thousands, except per share and share data) -----------------------------------------------
Three Months Ended Nine Months Ended -------------------------------------------------------- October 1, October 3, October 1, October 3, 2000 1999 2000 1999 ---- ---- ---- ---- Net income (loss) applicable to common stock ...... ($ 302) $ 1,096 ($ 1,730) $ 1,261 ========= ========= ========= ========= Weighted average number of common shares outstanding - Basic earnings per share .... 5,250,061 5,460,902 5,250,061 5,506,497 Effect of dilutive stock and purchase options .... -- -- -- -- --------- ---------- --------- --------- Weighted average number of common shares outstanding - Diluted earnings per share ... 5,250,061 5,460,902 5,250,061 5,506,497 ========= ========= ========= ========= Net income (loss) per common share Basic ........................................... ($ 0.06) $ 0.20 ($ 0.33) $ 0.23 ========= ========= ========= ========= Fully diluted ................................... ($ 0.06) $ 0.20 ($ 0.33) $ 0.23 ========= ========= ========= =========
Page 15 of 16 SIGNATURES ---------- PURSUANT TO THE REQUIREMENTS 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. FARREL CORPORATION ------------------ REGISTRANT DATE: 11/13/00 /s/ Rolf K. Liebergesell ------------------------------- ----------------------------------- ROLF K. LIEBERGESELL CHIEF EXECUTIVE OFFICER, PRESIDENT AND CHAIRMAN OF THE BOARD DATE: 11/13/00 /s/ Walter C. Lazarcheck ------------------------------- ----------------------------------- WALTER C. LAZARCHECK VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (CHIEF ACCOUNTING OFFICER) Page 16 of 16 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the financial statements of Farrel Corporation as of 10/1/00 and for the nine-month period then ended and is qualified in its entirety by reference to such statements. 0000034645 Farrel Corporation 1,000 US$ 9-MOS DEC-31-2000 JAN-01-2000 OCT-01-2000 1 958 0 11,119 163 14,852 27,929 23,384 13,809 41,235 13,828 1,003 0 0 61 22,455 41,235 44,000 44,000 33,839 33,839 12,420 32 (208) (2,454) (724) (1,730) 0 0 0 (1,730) (0.33) (0.33)
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