-----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, Rilp4NTvxWosgOSZmZB8TxLQve0ZE5kJsz02bbHlhbn8FoD+Ln9WyN5uHzyCcYX9 WlCouPFJaT8bfYlPsPfFNg== 0000913355-97-000078.txt : 20030406 0000913355-97-000078.hdr.sgml : 20030406 19971110161654 ACCESSION NUMBER: 0000913355-97-000078 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970928 FILED AS OF DATE: 19971110 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: 97711818 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 SEPTEMBER 28, 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 September 28,1997 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 November 5, 1997 - - ------------------------------------------------------------------------------ Common Stock (Voting), $.01 par value 5,942,482 FARREL CORPORATION INDEX PAGE Part I. FINANCIAL INFORMATION --------------------- Consolidated Balance Sheets - September 28, 1997 and December 31, 1996 3 Consolidated Statements of Operations - Three and Six Months Ended September 28, 1997 and September 29, 1996 4 Consolidated Statements of Cash Flows - Six Months ended September 28, 1997 and September 28, 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)
September 28, December 31, 1997 1996 ------------- ------------ (Unaudited) ASSETS Current Assets: Cash and cash equivalents $3,576 $3,832 Accounts receivable, net of allowance for doubtful accounts of $335 and $464, respectively 15,439 19,189 Inventory 16,048 14,187 Other current assets 1,192 2,979 --------- --------- Total current assets 36,255 40,187 Property, plant and equipment - net of accumulated depreciation of $9,524 and $8,357, respectively 9,370 9,555 Other Assets 778 989 --------- --------- Total Assets $46,403 $50,731 ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $9,320 $11,058 Accrued expenses & taxes payable 1,543 2,344 Advances from customers 4,785 4,865 Accrued installation & warranty costs 1,102 1,360 Dividend Payable 953 - Short-term debt 201 214 --------- --------- Total current liabilities 17,904 19,841 Long-term debt 101 214 Postretirement benefit obligation 1,226 1,277 Long-term pension obligation 522 522 Deferred income taxes 136 324 Commitments and contingencies - - --------- --------- Total Liabilities 19,889 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 (427) 232 Treasury stock, 200,171 and 200,261 shares at September 28, 1997 and December 31, 1996, respectively (987) (987) Retained earnings 8,848 10,228 Minimum pension liability (276) (276) --------- --------- Total Stockholders' Equity 26,514 28,553 --------- --------- Total Liabilities and Stockholders' Equity $46,403 $50,731 ========= =========
See Accompanying Notes to Consolidated Financial Statements Page 3 of 13 FARREL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (In thousands, except per share and share data)
Three Months Ended Nine Months Ended ------------------ ----------------- September 28, September 29, September 28, September 29, 1997 1996 1997 1996 ---- ---- ---- ---- (Unaudited) (Unaudited) Net Sales $21,955 $18,081 $64,261 $49,142 Cost of sales 16,526 13,940 50,150 37,824 ----------- ----------- ----------- ----------- Gross margin 5,429 4,141 14,111 11,318 Operating expenses: Selling 1,739 1,638 5,294 4,975 General & administrative 2,111 2,028 5,747 6,388 Research & development 381 483 1,153 1,525 ----------- ----------- ----------- ----------- Total operating expenses 4,231 4,149 12,194 12,888 ----------- ----------- ----------- ----------- Operating income/(loss) 1,198 (8) 1,917 (1,570) Interest income/(expense), net 45 (12) 122 26 Other income/(expense), net (25) (81) 364 (104) ----------- ----------- ----------- ----------- Income/(loss) before income taxes 1,218 (101) 2,403 (1,648) Provision/(benefit) for income taxes 506 (76) 927 (634) ----------- ----------- ----------- ----------- Net income/(loss) $712 ($25) $1,476 ($1,014) =========== =========== =========== =========== Per share data: Net income/(loss) per common share $0.12 $0.00 $0.25 ($0.17) =========== =========== =========== =========== Average shares outstanding 5,954,869 5,962,876 5,958,385 5,971,312 =========== =========== =========== =========== Dividends per share $0.16 $0.00 $0.32 $0.06 =========== =========== =========== ===========
See Accompanying Notes to Consolidated Financial Statements Page 4 of 13 FARREL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (In thousands)
Nine Months Ended ----------------- September 28, September 29, 1997 1996 ---- ---- (Unaudited) (Unaudited) Cash flows from operating activities: Net Income/(loss) $1,476 ($1,014) Adjustments to reconcile net (loss)/income to net Cash provided/(used in) by operating activities: Gain on disposal of fixed assets (637) - Depreciation and amortization 1,241 1,214 Decrease in accounts receivable 3,338 12,245 (Increase) in inventory (2,185) (2,926) (Decrease) in accounts payable (1,449) (6,870) Increase in customer advances 28 1,199 Increase/(decrease) in accrued expenses & taxes 4 (1,833) (Decrease) in accrued installation and warranty costs (213) (74) Increase/(decrease) in deferred income taxes 123 (338) Other 692 (460) --------- --------- Total adjustments 942 2,157 --------- --------- Net cash provided by operating activities 2,418 1,143 --------- --------- Cash flows from investing activities: Proceeds from disposal of fixed assets 866 - Purchases of property, plant and equipment (1,394) (1,141) --------- --------- Net cash (used in) investing activities (528) (1,141) Cash flows from financing activities: Repayment of long-term borrowings (102) (96) Used for repurchase of common stock 0 (115) Used for dividends paid (1,903) (360) --------- --------- Net cash (used in) financing activities (2,005) (571) Effect of foreign currency exchange rate changes on cash (141) (24) --------- --------- Net (decrease) in cash and cash equivalents (256) (593) Cash and cash equivalents - Beginning of period 3,832 4,066 --------- --------- Cash and cash equivalents - End of period $3,576 $3,473 ========= ========= Income taxes paid $741 $684 ========= ========= Interest paid $4 $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 September 28, 1997, the consolidated results of its operations for the three and nine-month periods ended September 28, 1997 and September 29, 1996, and its consolidated cash flows for the nine-month periods ended September 28, 1997 and September 29, 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: SEPTEMBER 28, DECEMBER 31, 1997 1996 ------------- ------------ (In thousands) Stock and raw materials.............. $9,021 $5,905 Work-in process...................... 7,027 8,282 ------- ------- Total................................ $16,048 $14,187 ======= ======= Page 6 of 13 PART I - ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 28, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 29, 1996 Year-to-date net sales in 1997 and 1996 were $64.3 million and $49.1 million, respectively. A substantial portion of the 1997 shipments reflects orders received in 1996 when the Company's order intake was higher than that experienced in prior years. Management still 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 volatile at this time. Certain South East Asian countries are experiencing currency instability which contributes 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 $53.9 million in orders during the first nine months of 1997 compared to $80.5 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 September 28, 1997 was $39.8 million compared to $50.2 million at December 31, 1996 and $52.5 million at the end of the third quarter of 1996. Backlog at November 5, 1997 was $43.2 million. Year-to-date gross margin in 1997 and 1996 was $14.1 million and $11.3 million, respectively. Gross margin increased as a result of the higher sales volume while the margin percentage declined to 22.0% from 23.0%. This decline is largely due to the mix of products sold in the two periods and to continued stiff competition. The 1997 year-to-date 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 $.7 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 $12.2 million in 1997 compared to 1996. The decline in administrative costs is largely due to reduced investment banking fees. The increase in selling expenses 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 $.6 million from the disposal of machinery and equipment the Company will no longer use which results from consolidating its two Connecticut facilities into one single facility. The consolidation has been substantially completed. The consolidation is intended to reduce costs, the size of which 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 unlikely that proceeds from their disposal will be less than the remaining book value, but if they are, a loss will be recorded at that time. The impact of foreign currency on the consolidated results of operations for 1997 compared to 1996 was not material. The effective income tax rates in 1997 and 1996 were 38.6% and 38.5%, respectively. 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 SEPTEMBER 28, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER 29, 1996. Net sales for the third quarter of 1997 were $22.0 million, compared to the $18.1 million for the third quarter of 1996. Order intake in the third quarter of 1997 was $18.9 million compared to $26.6 million in the third 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 third quarter of the current year was $5.4 million compared to $4.1 million in the third quarter of 1996 and the margin percentage increased to 24.7% from 22.9%, respectively. The increase in margin dollars is attributed to the increased volume of shipments. The margin percentage changed due to the same reasons previously indicated and because shipments in the U.S. grew at a faster rate than fixed manufacturing costs. Total operating expense incurred in the third quarter of each year was $4.2 million. Administrative costs are higher due to increased outside professional services. 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 $.1 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 third quarter of 1997 compared to 1996 was not material. The tax rate in the current years' third quarter was 41.5%. Due to the relatively small level of pre-tax loss in the third quarter of 1996 and the effect of consolidating domestic and foreign results, the Company recorded a larger than normal tax benefit. Page 8 of 13 MATERIAL CONTINGENCIES In 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, 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 went on strike for one week. They returned to work and continued to work without a new agreement. The Company and the unionized employees have now reached agreement on the terms of a new contract. LIQUIDITY AND CAPITAL RESOURCES; CAPITAL EXPENDITURES Working capital and the working capital ratio at September 28, 1997 was $18.4 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 nine months of 1997 the Company has paid $.32 per share in dividends. The Company has also declared a dividend of $.16 per share to be paid in the fourth quarter 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 $1.4 and $1.1 million during the first nine 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 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 $11.9 million and $8.1 million of letters of credit outstanding at September 28, 1997 and December 31, 1996, respectively. The facility expires on December 31, 1999. Page 9 of 13 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 ------------------ ---------------- September 28, September 29, September 28, September 29, 1997 1996 1997 1996 ---- ---- ---- ---- Primary - - ------- Net income/(loss) applicable to common stock $712 ($25) $1,476 ($1,014) ============ ============ ============ ============= Weighted average number of common shares outstanding during the period 5,949,457 5,962,876 5,952,973 5,971,312 Stock option and purchase plans 5,412 0 5,412 0 ------------ ------------ ------------ ------------- Total common and common equivalent shares outstanding 5,954,869 5,962,876 5,958,385 5,971,312 Net income/(loss) per common and common equivalent share - primary $0.12 ($0.00) (0.25) ($0.17) ============ ============ ============ ============= Fully Diluted - - ------------- Net income/(loss) applicable to common stock $712 ($25) $1,476 ($1,014) ============ ============ ============ ============= Weighted average number of common shares outstanding during the period 5,949,457 5,962,876 5,952,973 5,971,312 Stock option and purchase plans 5,412 0 5,412 0 ------------ ------------ ------------ ------------- Total common and common equivalent shares outstanding 5,954,869 5,962,876 5,958,385 5,971,312 ============ ============ ============ ============= Net income/(loss) per common and common equivalent share - fully diluted $0.12 ($0.00) $0.25 ($0.17) ============ ============ ============ =============
Page 11 of 13 PART II - OTHER INFORMATION ITEM 2 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K Exhibit 11 - (Regulation S-K) Computation of Earnings Per Share. See Page 10. Exhibit 27 - Financial Data Schedule Reports on Form 8-K No such reports were filed by the Company during the third quarter of 1997. Page 12 of 13 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. FARREL CORPORATION ------------------ REGISTRANT DATE: NOVEMBER 5, 1997 /S/ ROLF. K LIEBERGESELL ---------------- ---------------------------------------- ROLF K. LIEBERGESELL CHIEF EXECUTIVE OFFICER, PRESIDENT AND CHAIRMAN OF THE BOARD DATE: NOVEMBER 5, 1997 /S/ CATHERINE M. BOISVERT ---------------- ---------------------------------------- CATHERINE M. BOISVERT VICE PRESIDENT AND CONTROLLER (CHIEF ACCOUNTING OFFICER) Page 13 of 13 EX-27 2 FINANCIAL DATA SCHEDULE 3RD QUARTER 1997
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATON EXTRACTED FROM THE FINANCIAL STATEMENTS OF FARREL CORPORATION AS OF SEPTEMBER 28, 1997 AND FOR THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 US$ 9-MOS DEC-31-1997 JAN-1-1997 SEP-28-1997 1 3,576 0 15,774 335 16,048 37,554 18,839 9,524 47,702 19,099 0 0 0 61 26,452 47,702 64,261 64,261 50,150 50,150 12,780 108 122 2,403 927 1,476 0 0 0 1,476 $0.25 $0.25
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