-----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, PC+VfoT+Yz6bJ9h6f4a0V6zg/q49uzoqYZIYaTuSEulErZhr/u1tHPct07R3lAF0 PjOqcRpq/aclKZ7YqGEf0w== 0000913355-97-000065.txt : 19970813 0000913355-97-000065.hdr.sgml : 19970813 ACCESSION NUMBER: 0000913355-97-000065 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970629 FILED AS OF DATE: 19970812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARREL CORP CENTRAL INDEX KEY: 0000034645 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 222689245 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19703 FILM NUMBER: 97656545 BUSINESS ADDRESS: STREET 1: 25 MAIN STREET CITY: ANSONIA STATE: CT ZIP: 06401 BUSINESS PHONE: 2037365500 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED JUNE 29, 1997 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 JUNE 29,1997 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 AUGUST 6, 1997 - ------------------------------------- ----------------------------- Common Stock (Voting), $.01 par value 5,941,935 Page 1 of 13 FARREL CORPORATION INDEX PAGE Part I. FINANCIAL INFORMATION Consolidated Balance Sheets - June 29, 1997 and December 31, 1996 3 Consolidated Statements of Operations - Three and Six Months Ended June 29, 1997 and June 30, 1996 4 Consolidated Statements of Cash Flows - Six Months Ended June 29, 1997 and June 30, 1996 5 Notes to Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7-10 Exhibit 11 - Computation of Earnings Per Share 11 Part II. OTHER INFORMATION 12 Page 2 of 13 PART I - FINANCIAL INFORMATION FARREL CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share data) JUNE 29, DECEMBER 31, 1997 1996 ASSETS (Unaudited) Current Assets: Cash and cash equivalents $8,711 $3,832 Accounts receivable, net of allowance for doubtful accounts of $339 and $464, respectively 11,188 19,189 Inventory 16,337 14,187 Other current assets 2,864 2,979 -------- -------- Total current assets 39,100 40,187 Property, plant and equipment - net of accumulated depreciation of $8,873 and $8,357, respectively 8,716 9,555 Other Assets 874 989 -------- -------- Total Assets $48,690 $50,731 LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $8,899 $11,058 Accrued expenses & taxes payable 2,892 2,344 Advances from customers 5,635 4,865 Accrued installation & warranty costs 796 1,360 Dividend Payable 951 - Short - term debt 208 214 -------- -------- Total current liabilities 19,381 19,841 Long - term debt 105 214 Postretirement benefit obligation 1,241 1,277 Long-term pension obligation 522 522 Deferred income taxes 296 324 Commitments and contingencies - - -------- -------- Total Liabilities 21,545 22,178 -------- -------- 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 Cumulative translation adjustment (36) 232 Treasury stock, 200,171 and 200,261 shares at June 29, 1997 and December 31, 1996, respectively (987) (987) Retained earnings 9,088 10,228 Minimum pension liability (276) (276) -------- -------- Total Stockholders' Equity 27,145 28,553 -------- -------- Total Liabilities and Stockholders' Equity $48,690 $50,731 ======== ======== See Accompanying Notes to Consolidated Financial Statements Page 3 of 13 CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA) THREE MONTHS ENDED SIX MONTHS ENDED June 29, June 30, June 29, June 30, 1997 1996 1997 1996 (unaudited) (unaudited) Net Sales $26,183 $13,196 $42,306 $31,061 Cost of sales 20,839 10,378 33,624 23,884 -------- -------- -------- -------- Gross margin 5,344 2,818 8,682 7,177 Operating expenses: Selling 1,898 1,800 3,555 3,337 General & administrative 1,873 2,449 3,636 4,360 Research & development 383 519 773 1,042 -------- -------- -------- -------- Total operating expenses 4,154 4,768 7,964 8,739 -------- -------- -------- -------- Operating income/(loss) 1,190 (1,950) 718 (1,562) Interest income/(expense), net 32 (4) 76 39 Other income/(expense), net 135 68 391 (23) -------- -------- -------- -------- Income/(loss) before income taxes 1,357 (1,886) 1,185 (1,546) Provision/(benefit) for income taxes 487 (716) 421 (557) -------- -------- -------- -------- Net income/(loss) $870 ($1,170) $ 764 ($989) ======== ======== ======== ======== Per share data: Net income/(loss) per common share $0.15 ($0.20) $0.13 ($0.17) ========= ========= ========= ========= Average shares outstanding 5,943,207 5,972,757 5,943,207 5,977,713 ========= ========= ========= ========= Dividends per share $0.16 $0.00 $0.16 $0.06 ========= ========= ========= ========= See Accompanying Notes to Consolidated Financial Statements Page 4 of 13 FARREL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) SIX MONTHS ENDED JUNE 29, JUNE 30, 1997 1996 (Unaudited) (Unaudited) Cash flows from operating activities: Net Income/(loss) $764 ($989) Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Gain on disposal of fixed assets (299) - Depreciation and amortization 811 836 Decrease in accounts receivable 7,751 13,365 (Increase) in inventory (2,277) (4,288) (Decrease) in accounts payable (2,002) (5,720) Increase in customer advances 822 197 Increase/(decrease) in accrued expenses & taxes 79 (2,749) (Decrease) in accrued installation and warranty costs (533) (223) Increase/(decrease) in deferred income taxes 168 (130) Other 349 20 ------ ------ Total adjustments 4,869 1,308 ------ ------ Net cash provided by operating activities 5,633 319 ------ ------ Cash flows from investing activities: Proceeds from disposal of fixed assets 547 - Purchases of property, plant and equipment (262) (911) ------ ------ Net cash provided by/(used in) investing activities 285 (911) Cash flows from financing activities: Repayment of long-term borrowings (102) (95) Used for repurchase of common stock - (59) Used for dividends paid (953) (360) ------ ------ Net cash (used in) financing activities (1,055) (514) Effect of foreign currency exchange rate changes on cash 16 (14) ------ ------ Net increase/(decrease) in cash and cash equivalents 4,879 (1,120) Cash and cash equivalents - Beginning of period 3,832 4,066 ------ ------ Cash and cash equivalents - End of period $8,711 $2,946 ====== ====== Income taxes paid $58 $684 ====== ====== Interest paid $1 $29 ====== ====== See Accompanying Notes to Consolidated Financial Statements Page 5 of 13 Farrel Corporation Notes to Consolidated Financial Statements (Unaudited) NOTE 1 - BASIS OF PRESENTATION 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 June 29, 1997, the consolidated results of its operations for the three and six-month periods ended June 29, 1997 and June 30, 1996, and its consolidated cash flows for the six-month periods ended June 29, 1997 and June 30, 1996. 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, 1996. NOTE 2 - INVENTORY Inventory is comprised of the following: JUNE 29, DECEMBER 31, 1997 1996 (In thousands) Stock and raw materials.............. $7,696 $5,905 Work-in process...................... 8,641 8,282 ------- ------- Total................................$16,337 $14,187 ======= ======= Page 6 of 13 PART I - ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS Results of Operations Six Months Ended June 29, 1997 Compared To Six Months Ended June 30, 1996 Year to date net sales in 1997 and 1996 were $42.3 million and $31.1 million, respectively. This increase is largely due to the timing of when customer orders shipped in each period were received. A substantial portion of the 1997 shipments reflect orders received in 1996 when the Company's order intake was higher than received in prior years. Management considers the markets served by the Company's products to be extremely competitive and to some extent, affected by continuing uncertainty in Eastern Europe and the Middle East. Far Eastern markets are particularly competitive and difficult to penetrate. Certain Asian countries are experiencing currency instability which is contributing to uncertainty in the region. Many rubber manufacturers also continue to operate at less than full capacity. Management anticipates that the markets served by the Company's products will remain extremely competitive and that those markets characterized by economic and political uncertainty will likely continue to be affected by such conditions. The Company received $35.0 million in orders during the first six months of 1997 compared to $53.9 million during the same period of 1996 when the Company received several individually large orders. 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 fiscal quarters. In addition, the cyclical nature of industry demand and, therefore, 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. There can be no assurance that any such improvement will lead to increased orders for the Company's products. Backlog considered firm by management at June 29, 1997 was $42.9 million compared to $50.2 million at December 31, 1996 and $52.5 million at the end of the second quarter of 1996. Backlog at August 6, 1997 was $46.7 million. Year to date gross margin in 1997 and 1996 was $8.7 million and $7.2 million, respectively. The margin percentage declined to 20.5% from 23.1% largely due to the mix of products sold in the two periods and to continued stiff competition. The 1997 shipments also include a higher relative proportion of new machine sales than in 1996 which generate lower margins than the Company's more profitable spare parts, rebuild and repair business. Lastly, the 1997 margin results reflect the impact of a $.8 million increase in commissions on shipments to markets in the world where the Company must use outside representatives in addition to its sales force to conduct business. Market conditions continue to exert significant pressure on margins, a trend which is expected to continue in the foreseeable future. Year to date operating expenses were reduced $.7 million to $8.0 million in 1997 compared to 1996. The decline in administrative costs is largely due to reduced legal and other outside professional costs. The increase in selling expenses in the second quarter of 1997 is largely attributed to increased marketing programs including costs to attend the premier plastic industry convention in the United States, which occurs every three years. Research and development expenses declined primarily as a result of reduced headcount. Lastly, the reduction in operating costs is also due to continuing efforts to strictly control expenses. Page 7 of 13 Other income, net of other expense, includes approximately $.5 million from the disposal of machinery and equipment the Company will no longer use, as a result of consolidating its domestic assembly, repair and spare parts operations, from two Connecticut facilities, to available space in one (expected to be completed in October, 1997). This consolidation is intended to reduce costs. Whether savings actually materialize, and the size of such savings, cannot be predicted with certainty. This action will make the Company's Derby, Connecticut facility available for sale. Whether this facility can be sold or leased and the proceeds that might be realized also cannot be predicted with certainty. The remaining book value of this facility and related machinery and equipment is included in Other Assets. No loss on the disposal of the assets is anticipated at this time, and, as a result, no provision for loss has been made. It is possible that proceeds from their disposal may be less than the remaining book value in the near term, at which point in time a loss will be recorded. The impact of foreign currency on the consolidated results of operations for 1997 compared to 1996 was not material. The effective income tax rate in 1997 and 1996 was 35.5% and 36.1%, respectively. The relatively low 1997 tax rate results from combining foreign income with a domestic loss. 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 differences in providing for income taxes for financial reporting and income tax purposes. Three Months Ended June 29, 1997 Compared To Three Months Ended June 30, 1996. Net sales for the second quarter of 1997 were $26.2 million, compared to the $13.2 million for the second quarter of 1996. Order intake in the second quarter of 1997 was $19.4 million compared to $36.3 million in the second quarter of 1996. Sales, orders and backlog levels varied when comparing the two quarters due to the same reasons previously discussed. Gross margin in the second quarter of the current year was $5.3 million compared to $2.8 million in the second quarter of 1996 and the margin percentage decreased to 20.4% from 21.4%, respectively. These variations in margin dollars and percentages are also attributed to the same reasons previously discussed. Total operating expenses declined from $4.8 million in the second quarter of 1996 to $4.2 million in the second quarter of 1997. Administrative costs are lower due to reduced compensation and outside professional costs. The changes in selling and research and development costs are due to the reasons previously discussed. Lastly, the reduction in operating costs is also due to continuing efforts to strictly control expenses. Other income, net of other expense, includes approximately $.2 million from the disposal of machinery and equipment resulting from the consolidation of the Company's domestic operations, also previously discussed. The impact of foreign currency on the consolidated results of operations for the second quarter of 1997 compared to 1996 was not material. The tax rate in the second quarter of 1997 and 1996 was 35.9% and 38.0%, respectively. The 1997 rate is relatively low due to the effect of consolidating a domestic loss with foreign income. Page 8 of 13 Material Contingencies 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, 1986 environmental contamination at the Company's Ansonia and Derby 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, a preliminary environmental assessment of the Company's properties in Ansonia and Derby, Connecticut has been conducted by Black & Decker. 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 the results of any further investigation which the DEP might require, by DEP's conclusions and requirements based upon its review of complete information when such is available, unanticipated discoveries, the possibility that new or different environmental laws might be adopted and the possibility that further regulatory review or litigation might become necessary or appropriate. In June 1997 the agreement with the Company's unionized employees expired without a new agreement being reached. At that time the unionized employees unit went on strike for approximately one week. They have returned to work and continue to work without a new agreement. The Company and the unionized employees continue negotiations with the expectation that an agreement will be reached in due course. Liquidity and Capital Resources; Capital Expenditures Working capital and the working capital ratio at June 29, 1997 was $19.7 million and 2.0 to 1, respectively, compared to $20.3 million and 2.0 to 1, respectively, at December 31, 1996. During the first six months of 1997 the Company paid a dividend of $.16 per share. The Company has also declared dividends of $.16 per share to be paid in the third and fourth quarters of 1997. 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 received a waiver from its bank with respect to these dividends. 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 balances, cash generated by operations, progress payments from customers and with borrowings under its bank credit facilities. The Company made capital expenditures of $.3 and $.9 million during the first six months of 1997 and 1996, respectively. The Company has a worldwide multi-currency credit facility with a major U.S. bank in an amount up to $20.0 million for direct borrowings and letters of credit and up to 3.0 million for foreign exchange contracts. The facility contains limitations on direct borrowings and letters of credit Page 9 of 13 combined based upon stipulated levels of accounts receivable, inventory and backlog. The facility contains covenants specifying minimum and maximum thresholds for operating results and selected financial ratios. There were $6.2 million and $8.1 million of letters of credit outstanding at June 29, 1997 and December 31, 1996, respectively. The facility expires on December 31, 1999. The Company anticipates that its cash balances, operating cash flows and available credit lines will be adequate to fund its anticipated capital commitments and working capital requirements for at least the next twelve months. Recent Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share (FAS 128), which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact of FAS 128 on the calculation of earnings per share is not expected to be material. 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, the following: 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 other factors which might be described from time to time in the Company's filings with the Securities and Exchange Commission changes in business conditions, in general, and, in particular, in the businesses of the Company's customers and competitors. Page 10 of 13 EXHIBIT 11 FARREL CORPORATION STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA) Three Months Ended Six Months Ended June 29, June 30, June 29, June 30, 1997 1996 1997 1996 PRIMARY Net income/(loss) applicable to common stock $870 ($1,170) $764 ($989) ========= ========== ======== ========== Weighted average number of common shares outstanding during the period 5,941,935 5,972,757 5,941,935 5,977,713 Stock option and purchase plans 1,272 0 1,272 0 --------- ---------- --------- --------- Total common and common equivalent shares outstanding 5,943,207 5,972,757 5,943,207 5,977,713 Net income/(loss) per common and common equivalent share - primary $0.15 ($0.20) $0.13 ($0.17) ========= ========== ======== ========== FULLY DILUTED Net income/(loss) applicable to common stock $870 ($1,170) $764 ($989) ========= ========== ======== ========== Weighted average number of common shares outstanding during the period 5,941,935 5,972,757 5,941,935 5,977,713 Stock option and purchase plans 1,272 0 1,272 0 --------- ---------- --------- --------- Total common and common equivalent shares outstanding 5,943,207 5,972,757 5,943,207 5,977,713 ========= ========== ========= ========== Net income/(loss) per common and common equivalent share - fully diluted $0.15 ($0.20) $0.13 ($0.17) ========= ========== ========= ========== Page 11 of 13 PART II - OTHER INFORMATION ITEM 2 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting was held on May 23, 1997, during which Glenn J. Angiolillo, Charles S. Jones, and Alberto Shaio were elected as directors, each by a vote of 5,545,300 with 239,724 withheld. Rolf K. Liebergesell, Howard J. Aibel and James A. Purdy continued as directors. The selection of Ernst & Young LLP, to serve as the Company's independent accountant for the fiscal year ending December 31, 1997 was ratified by a vote of 5,777,108 for ratification, 7,516 against ratification and 400 abstentions. The Company's 1997 Omnibus Stock Option Plan was approved by a vote of 4,802,376 for, 948,371 against and 754,277 withheld. The Company's 1997 Employees' Stock Purchase Plan was approved by a vote of 4,218,508 for, 812,639 against and 753,877 withheld. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K Exhibit 11 - (Regulation S-K) Computation of Earnings Per Share. See Page 11. Exhibit 27 - Financial Data Schedule Reports on Form 8-K The Company filed a Form 8-K, reporting on Item 5, on June 18,1997. Page 12 of 13 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: AUGUST 6, 1997 /S/ ROLF. K LIEBERGESELL --------------- ----------------------------------------- ROLF K. LIEBERGESELL CHIEF EXECUTIVE OFFICER, PRESIDENT AND CHAIRMAN OF THE BOARD DATE: AUGUST 6, 1997 /S/ CATHERINE M. BOISVERT --------------- ----------------------------------------- CATHERINE M. BOISVERT VICE PRESIDENT AND CONTROLLER (CHIEF ACCOUNTING OFFICER) Page 13 of 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF FARREL CORPORATION AS OF JUNE 29, 1997 AND FOR THE THREE AND SIX MONTH PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JUN-29-1997 8,711 0 11,527 339 16,337 39,100 17,589 8,873 48,690 19,381 0 0 0 61 27,084 48,690 42,306 42,306 33,624 33,624 8,089 (125) 76 1,185 421 764 0 0 0 764 0.13 0.13
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