-----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, RpTHOen1/J3aNzVBcNnxdrdTlQuCFrcsejblqOsLIynj2ELj9ZlerE14Wwsjwh6K hwrVBIlq9s4zioV9jM1gXw== 0001133884-02-000890.txt : 20020814 0001133884-02-000890.hdr.sgml : 20020814 20020814102845 ACCESSION NUMBER: 0001133884-02-000890 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 02732142 BUSINESS ADDRESS: STREET 1: 25 MAIN STREET CITY: ANSONIA STATE: CT ZIP: 06401-1601 BUSINESS PHONE: 2037365500 10-Q 1 g10q-29482.txt 10-Q 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 30, 2002 ------------------------------------------------- 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 V 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 9, 2002 - ------------------------------------------------------------------------ Common Stock (Voting), $.01 par value 5,228,461 FARREL CORPORATION INDEX
PAGE Part I. Item 1 - Financial Information Consolidated Balance Sheets - June 30, 2002 and December 31, 2001 3 Consolidated Statements of Operations - Three and six months ended June 30, 2002 and July 1, 2001 4 Consolidated Statements of Cash Flows - Six months ended June 30, 2002 and July 1, 2001 5 Notes to Consolidated Financial Statements 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 14 Part II. Other Information 15 Signatures 16 Exhibits - Exhibit 4 - Modification of Revolving Promissory Note and Loan Agreement Dated August 2, 2002 18 Exhibit 11 - Computation of Earnings Per Share 21 Exhibit 99.1 - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 22 Exhibit 99.2 - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 23
Page 2 of 23 Part I - Item 1 - Financial Information FARREL CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
June 30, December 31, -------- ------------ 2002 2001 ---- ---- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 7,741 $ 5,579 Accounts receivable, net of allowance for doubtful accounts of $92 and $179, respectively 6,158 9,416 Inventory 12,752 10,554 Deferred income taxes 423 423 Other current assets 872 873 --------------- --------------- Total current assets 27,946 26,845 Property, plant and equipment - net of accumulated depreciation of $16,087 and $14,995, respectively 7,608 8,101 Deferred income taxes 814 764 Other assets 219 256 --------------- --------------- Total Assets $36,587 $35,966 =============== =============== LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 3,915 $ 4,393 Accrued expenses & taxes payable 790 1,482 Advances from customers 6,479 3,452 Accrued warranty costs 943 1,004 Current portion of long - term debt 716 680 --------------- --------------- Total current liabilities 12,843 11,011 Long - term debt 775 1,019 Postretirement benefit obligation 1,064 1,076 Minimum pension liability 3,425 3,155 Commitments and contingencies --- --- --------------- --------------- Total Liabilities 18,107 16,261 --------------- --------------- 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, 913,645 shares at June 30, 2002 and December 31, 2001 (2,530) (2,530) Retained earnings 7,684 9,120 Accumulated other comprehensive loss (6,030) (6,241) --------------- --------------- Total Stockholders' Equity 18,480 19,705 --------------- --------------- Total Liabilities and Stockholders' Equity $36,587 $35,966 =============== ===============
See Accompanying Notes to Consolidated Financial Statements Page 3 of 23 FARREL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
Three Months Ended Six Months Ended ------------------ ---------------- June 30, July 1, June 30, July 1, 2002 2001 2002 2001 ---- ---- ---- ---- (Unaudited) (Unaudited) Net sales $9,175 $12,355 $17,020 $23,435 Cost of sales 6,957 9,937 12,950 18,545 ------------- -------------- --------------- ---------------- Gross margin 2,218 2,418 4,070 4,890 Operating expenses: Selling 1,000 1,260 1,968 2,562 General & administrative 1,669 1,611 3,561 3,322 Research & development 281 376 530 820 ------------- -------------- --------------- ---------------- Total operating expenses 2,950 3,247 6,059 6,704 ------------- -------------- --------------- ---------------- Operating loss (732) (829) (1,989) (1,814) Interest income 30 36 56 88 Interest expense (26) (36) (53) (78) Other income (expense), net 13 (68) 185 (49) ------------- -------------- --------------- ---------------- Loss before income taxes (715) (897) (1,801) (1,853) Benefit for income taxes (248) (324) (574) (673) ------------- -------------- --------------- ---------------- Net loss $(467) $(573) $(1,227) $(1,180) ============= ============== =============== ================ Per share data: Basic and Diluted loss per common share $(0.09) $(0.11) $(0.23) $(0.23) ============= ============== =============== ================ Average shares outstanding: Basic 5,228,461 5,228,563 5,228,461 5,229,251 ============= ============== =============== ================ Diluted 5,228,461 5,228,563 5,228,461 5,229,251 ============= ============== =============== ================ Dividends per share $0.04 $0.00 $0.04 $0.00 ============= ============== =============== ================
See Accompanying Notes to Consolidated Financial Statements Page 4 of 23 FARREL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Six Months Ended ---------------- June 30, July 1, -------- ------- 2002 2001 ---- ---- (Unaudited) (Unaudited) Cash flows from operating activities: Net loss $(1,227) $(1,180) Adjustments to reconcile net loss to net cash provided by operating activities: Gain on disposal of fixed assets - (152) Depreciation and amortization 795 859 Decrease in accounts receivable 3,420 7,099 (Increase) in inventory (2,499) (2,088) Decrease (increase) in prepaid pension costs 104 (227) (Decrease) in accounts payable (592) (625) Increase (decrease) in customer advances 3,511 (2) (Decrease) in accrued expenses & taxes (694) (913) (Decrease) in accrued warranty costs (78) (221) Increase in deferred income taxes - 71 Increase(decrease) in other 8 (264) ----------------- --------------- Total adjustments 3,975 3,537 ----------------- --------------- Net cash provided by operating activities 2,748 2,357 ----------------- --------------- Cash flows from investing activities: Proceeds from disposal of fixed assets - 374 Purchases of property, plant and equipment (61) (290) ----------------- --------------- Net cash (used in) provided by investing activities (61) 84 Cash flows from financing activities: Repayment of long-term borrowings (280) (2,264) Bank borrowings - 1,981 Purchase of treasury stock - (5) Dividends paid (209) - ----------------- --------------- Net cash (used in) financing activities (489) (288) Effect of foreign currency exchange rate changes on cash (36) (80) ----------------- --------------- Net increase in cash and cash equivalents 2,162 2,073 Cash and cash equivalents - Beginning of period 5,579 2,486 ----------------- --------------- Cash and cash equivalents - End of period $7,741 $4,559 ================= =============== Income taxes paid $40 $32 ================= =============== Interest paid $53 $77 ================= ===============
See Accompanying Notes to Consolidated Financial Statements Page 5 of 23 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 U.S. 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 June 30, 2002, and the consolidated results of its operations and its cash flows for the three and/or six month periods ended June 30, 2002 and July 1, 2001. These results are not necessarily indicative of results to be expected for the full fiscal year. For further information, the statements should be read in conjunction with the financial statements and notes thereto, included in the Company's Form 10-K for the year ended December 31, 2001. NOTE 2 - INVENTORY Inventory is comprised of the following:
June 30, December 31, -------- ------------ 2002 2001 ---- ---- (In thousands) Stock and raw materials..................... $6,820 $6,444 Work-in process............................. 5,932 4,110 ------- ------- Total....................................... $12,752 $10,554 ======= =======
NOTE 3 - COMPREHENSIVE INCOME (LOSS) The components of other comprehensive income (loss) are as follows:
Three Months Ended Six Months Ended June 30, July 1, June 30, July 1, 2002 2001 2002 2001 ---- ---- ---- ---- (In thousands) Net loss $(467) $(573) $(1,227) $(1,180) Foreign currency translation adjustments 633 (1) 430 (488) ----- ----- ------- ------- Other comprehensive income (loss) $ 166 $(574) $ (797) $(1,668) ===== ===== ======= =======
Accumulated other comprehensive loss consists of the following:
June 30, December 31, 2002 2001 ---- ---- (In thousands) Foreign currency translation adjustments $ (990) $(1,420) Minimum pension liability (5,040) (4,821) -------- -------- Accumulated other comprehensive Loss $(6,030) $(6,241) ======== =======
Page 6 of 23 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 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board (the "FASB") issued statements No. 142 (Goodwill and Other Intangible Assets) and No. 143 (Accounting for Asset Retirement Obligations). Statement No. 142 was adopted by the Company on January 1, 2002. The Company must adopt Statement No. 143 no later than January 2003. Statement No. 142 changed the accounting for Goodwill and other intangible assets, such that those assets whose life is determined to be indefinite are not subject to amortization. These assets shall be tested for impairment at least annually, and the value will need to be written down if the fair value is less than the carrying value. The adoption of Statement No. 142 did not have a significant effect on the Company's financial position or results of operations. Statement No. 143 requires that a liability must be recognized for an asset retirement obligation related to long lived tangible assets. The liability shall be recorded at fair value. The Company anticipates the adoption of Statement No. 143 will not have a significant effect on its financial position or results of operations. In August 2001, the FASB issued Statement No. 144 (Accounting for the Impairment or Disposals of Long-lived Assets). The Company adopted Statement No. 144 on January 1, 2002. This statement requires an impairment loss to be recognized if the carrying value of a long-lived asset (asset group) is not recoverable and exceeds its fair value. Long-lived assets (asset group) shall be tested for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The adoption of this statement did not have an effect on the Company's financial position or results of operations. NOTE 6 - FOREIGN CURRENCY CONTRACTS In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which the Company adopted on January 1, 2001. The Statement provides a new method of accounting for derivatives and hedges. The adoption of this Statement did not have a significant effect on the Company's results of operations or financial position. The Company has entered into foreign exchange forward contracts which are designated as fair value hedges of accounts receivable and future receivables related to customer orders in backlog. The Company, from time to time, enters into foreign exchange forward contracts to hedge certain firm commitments that are denominated in currencies other than the Company's operating currencies. At June 30, 2002, all of the Company's foreign exchange forward contracts were designated as fair value hedges. As such, there were no charges to the statement of operations related to these contracts. At June 30, 2002, the difference between the spot rate and the contract rate for the foreign exchange forwards was a net unrealized loss of $97,000. NOTE 7 - BANK CREDIT ARRANGEMENTS In June 2001, the Company entered into a new worldwide multi-currency credit facility with a major U.S. bank. This facility includes a $10 million revolving credit facility for direct borrowings and letters of credit. The facility contains a sub-limit that caps the amount of direct borrowings the Company can make at $5 million. The revolving credit facility, as amended in August 2002, expires on June 15, 2004. The facility contains limits on direct borrowings and issuance of letters of credit based upon stipulated percentages of accounts receivable and inventory. The facility, as amended, also contains covenants specifying minimum and/or maximum thresholds for operating results, selected financial ratios and backlog. The backlog covenant requires that end of month backlog will not be less than $20 million for Page 7 of 23 more than two consecutive months. The Company did not achieve the backlog covenant as of the end of January and February 2002; however, the bank waived the non-compliance. The agreement contains certain restrictions on investments, borrowings and the sale of assets. Dividend declarations or payments are allowed under this credit facility as long as there exists under the credit facility no Event of Default (as defined in the credit facility) or no condition which upon giving notice or lapse of time or both, would become an Event of Default. The Company has approximately $2.8 million of letters of credit issued under its credit facility on June 30, 2002. In June 2001, the Company also entered into a term loan for (British pound)1.4 million (approximately $2 million) as part of this credit facility. The proceeds of this loan were used to repay an existing term loan of the same amount. The new term loan is repayable in monthly installments of (British pound)38,888 (approximately $60,000) through June 2004. The term loan has an interest rate of LIBOR plus 2.7%. NOTE 8 - PENSION At December 31, 2001, the Company was required to record a minimum pension liability related to the pension plan of its U.K. subsidiary since under Financial Accounting Standards Board Statement No. 87 ("FAS 87"), which prescribes the U.S. accounting for pension plans, the plan was underfunded. At December 31, 2001, under FAS 87 this plan was underfunded by approximately $2.6 million, as a result of which the Company was required to take a charge against stockholders' equity of $4.2 million. At December 31, 2002, the Company will be required to reflect the results of a FAS 87 computation as of that date in its financial statements. Based upon the decline in the plan's assets in 2002 described below, a charge to reduce stockholders' equity may be required at December 31, 2002. For the year ended December 31, 2000, the assets in the plan declined in value by $649,000 and in the first five months of 2001 the assets in the plan declined in value by approximately $1,089,000. As a result of the poor investment performance, the trustees of the plan changed to a new investment manager in May 2001. Under this new investment manager the assets in the plan declined in value by approximately $1,309,000 in the remainder of 2001 and for the period January 1, 2002 to June 30, 2002, the assets in the plan declined in value by approximately $1,900,000. For the period December 31, 1999 to June 30, 2002, the total decline in value of the assets was approximately $4,947,000. The majority of 2002 loss was incurred in June 2002 as a result of the decline in the stock market. The trustees of the plan moved the plan assets out of equities in July and are reviewing the long-term investment strategy of the plan. Benefits paid by the pension plan were $808,000, $1,017,000 and $966,000 in 1999, 2000 and 2001, respectively. At June 30, 2002, total assets in the plan were approximately $20.7 million. The value of the plan assets currently significantly exceeds the historical benefits paid for the past few years. In response to the funding situation, in January 2002, the U.K. subsidiary officially informed the plan trustees that effective the end of the first quarter of 2002, the U.K. employees would no longer accrue additional benefits under this pension plan for future service. Beginning in 2002, the U.K. subsidiary, as required under U.K. law, offered a defined contribution plan to its employees. Under laws governing the funding of U.K. defined benefit pension plans, the pension plan of the Company's U.K. subsidiary must be 90% funded on a non-wind up basis as computed under such funding rules by 2005 and 100% funded on a non-wind up basis as computed under such funding rules by 2012. The plan's actuary estimated that the plan was 87% funded as of January 31, 2002, on a non-wind up basis under the U.K. funding rules. The Company currently is contributing (British pound)36,000 (approximately $56,000) a month to the pension plan. This contribution amount was based upon the estimated funded status as of January 2002. A new formal funding computation is required by November 2002 and at such time a new rate of contributions from the Company will be determined. This new rate of contributions could be materially greater than the current contribution requirement. In July 2002, the Company, the plan trustees and the plan's actuary began discussing the appropriate means of ensuring the long term funding of the plan under currently existing U.K. funding rules, including among other things an assessment of the U.K. subsidiary's business prospects and cash position, the securitization of the U.K. Page 8 of 23 subsidiary's assets, a parent company guarantee, or other assurances, in order to avoid a determination by the actuary that the trustees should wind up the plan. The Company's U.K. legal counsel has provided a written opinion that, so long as the U.K. subsidiary is complying with its non-wind up statutory funding obligations, the trustees and the actuary have no legal basis to implement a wind up. The Company's U.K. subsidiary has confirmed its intention to meet these funding obligations. Under the U.K. funding rules, on a wind up basis the amount of underfunding of the plan is computed differently than, and would be substantially greater than, the amount computed on a non-wind up basis. Additionally, on a wind up basis, the underfunding must be paid down within a substantially shorter time period. If a wind up were to occur, it could have a material adverse effect on the financial position and results of operations of the Company. Page 9 of 23 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, 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; the Company's access to adequate financing at competitive rates 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 SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SIX MONTHS ENDED JULY 1, 2001 Net sales for the six month period ended June 30, 2002, were $17.0 million compared to $23.4 million for the six month period ended July 1, 2001, a decrease of $6.4 million. The decrease is primarily a result of lower sales of new machines of approximately $5.0 million and after-market parts and field service of approximately $1.4 million. 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 certain markets remain particularly competitive and are subject to local economic events. Orders received for the six month period ended June 30, 2002, were $29.4 million compared to $23.0 million for the six month period ended July 1, 2001. 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. Until recently, the value of the Euro versus the U.S. dollar and British pound sterling had decreased significantly since it was introduced which resulted in increased pricing pressures. Although it would be expected that a stronger Euro would benefit the Company from a competitive standpoint, the Company cannot be certain that it will alleviate any of the current pricing pressures in the market place. Demand for capital expenditures remains weak. Further, the cyclical nature of industry demand and, therefore, the timing of order intake may effect 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. The level of backlog considered firm by management at June 30, 2002, was $31.3 million compared to $18.1 million at December 31, 2001, and $27.4 million at July 1, 2001. Substantially all of the backlog as of June 30, 2002, is scheduled for shipment in the next 12 months. Page 10 of 23 Gross margin for the six month period ended June 30, 2002, was $4.1 million compared to $4.9 million for the six month period ended July 1, 2001, a decrease of $0.8 million. The decrease in gross margin is a result of lower sales. The gross margin as a percent of sales for the six month period ended June 30, 2002, was 23.9% compared to 20.9% for the six month period ended July 1, 2001. The increase in gross margin as a percent of sales is primarily due to (i) sales of after-market related items representing a larger percent of total sales in 2002 versus 2001 and (ii) higher gross profit margins on new machine sales. After-market items such a spare parts typically have higher gross profit percents than new machine sales. The increase in gross margin as a percent of sales for new machines in 2002 versus 2001 is due to changes in sales mix of new machines. Operating expenses for the six month period ended June 30, 2002, were $6.1 million compared to $6.7 million for the six month period ended July 1, 2001, a decrease of $0.6 million. The selling and research and development components of operating expenses decreased primarily due to lower employee compensation and related expenses. The general and administrative component of operating expenses increased primarily due to higher pension related costs. Interest income for the six month period ended June 30, 2002, was $56,000 compared to $88,000 for the six month period ended July 1, 2001, a decrease of $32,000. The decrease is primarily due to lower interest rates. Interest expense for the six month period ended June 30, 2002, was $53,000 compared to $78,000 for the six month period ended July 1, 2001, a decrease of $25,000. The decrease is due to lower borrowings and lower interest rates. Other income, net for the six month period ended June 30, 2002, was $185,000 compared to other expense, net of $49,000 for the six month period ended July 1, 2001. Other income for the period ended June 30, 2002 includes approximately $167,000 received by the Company as a result of the demutualization of an insurance provider used by the Company. The Company provides for income taxes at the statutory rates in effect in each tax jurisdictions in which income is earned or losses generated, adjusted for permanent differences in determining income for financial reporting and income tax purposes. The effective income tax rate was 31.9% for the six month period ended June 30, 2002, compared to 36.3% for the six month period ended July 1, 2001. The effective tax rate varies among periods due to the change in the proportion and amount of income and losses generated in different taxing jurisdictions. THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THE THREE MONTHS ENDED JULY 1, 2001 Net sales for the three months ended June 30, 2002, were $9.2 million compared to $12.4 million for the three month period ended July 1, 2001, a decrease of $3.2 million. The decrease is primarily a result of lower sales of new machines of $2.7 million and after-market parts and field service of $0.8 million, offset to some extent by increased sales of in-house repair services. Orders received for the three month period ended June 30, 2002, were $15.2 million compared to $13.4 million for the three month period ended July 1, 2001. 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 six month period on page 10. Gross margin for the three month period ended June 30, 2002, was $2.2 million compared to $2.4 million for the three month period ended July 1, 2001, a decrease of $0.2 million. The decrease in gross margin is a result of lower sales. The gross margin as a percent of sales for the three month period ended June 30, 2002, was 24.2% compared to 19.6% for the three month period ended July 1, 2001. The increase in the gross margin as a percent of sales is primarily due to (i) sales of after-market related items representing a larger percent of total sales in 2002 versus 2001 and (ii) higher gross profit margins on new machine sales. After-market items such a spare parts typically have higher gross profit percents than Page 11 of 23 new machine sales. The increase in gross margin as a percent of sales for new machines in 2002 versus 2001 is due to changes in sales mix of new machines. Operating expenses for the three month period ended June 30, 2002, were $2.9 million compared to $3.2 million for the three month period ended July 1, 2001, a decrease of $0.3 primarily due to lower employee compensation and related expenses. Interest income for the three month period ended June 30, 2002, was $30,000 compared to $36,000 for the three month period ended July 1, 2001, a decrease of $6,000. The decrease is primarily due to lower interest rates. Interest expense for the three month periods ended June 30, 2002, was $26,000 compared to $36,000 for the three month period ended July 1, 2001, a decrease of $10,000. The decrease is primarily due to lower borrowings and lower interest rates. Other income, net for the three month period ended June 30, 2002, was $13,000 compared to other expense, net of $68,000 for the three month period ended July 1, 2002. The Company provides for income taxes at the statutory rates in effect in each tax jurisdiction in which income is earned or losses are generated, adjusted for permanent differences in determining income for financial reporting and income tax purposes. The effective income tax rate was 34.7% for the three month periods ended June 30, 2002, compared to 36.1% for the three months ended July 1, 2001. The effective tax rate varies among periods due to the change in the proportion and amount of income and losses generated in different tax jurisdictions. MATERIAL CONTINGENCIES Pursuant to a settlement agreement entered into in 1995 between the Company and Black & Decker Corporation ("Black & Decker"), 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 former Derby, Connecticut facilities, as required by the Connecticut Department of Environmental Protection ("DEP"). Black & Decker has conducted a preliminary environmental assessment of the facilities. On the basis of the preliminary data now available there is no reason to believe that any activities which might be required as a result of the findings of the assessment will have a material effect upon the capital expenditures, results of operations or the competitive position of the Company. LIQUIDITY AND CAPITAL RESOURCES; CAPITAL EXPENDITURES Working capital and the working capital ratio at June 30, 2002 were $15.1 million and 2.2 to 1, respectively, compared to $15.8 million and 2.4 to 1 at December 31, 2001, respectively. During the six months ended June 30, 2002, the Company paid a dividend of $0.04 per share. 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 also generally has 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 $61,000 and $290,000 during the six month periods ended June 30, 2002 and July 1, 2001, respectively. In June 2001, the Company entered into a new worldwide multi-currency credit facility with a major U.S. bank. This facility includes a $10 million revolving credit facility for direct borrowings and letters of credit. The facility contains a sub-limit that caps the amount of direct borrowings the Company Page 12 of 23 can make at $5 million. The revolving credit facility, as amended in August 2002, expires on June 15, 2004. The facility contains limits on direct borrowings and issuances of letters of credit based upon stipulated percentages of accounts receivable and inventory. The facility, as amended, also contains covenants specifying minimum and/or maximum thresholds for operating results, selected financial ratios and backlog. The backlog covenant requires that end of month backlog will not be less than $20 million for more than two consecutive months. The Company did not achieve the backlog covenant as of the end of January and February 2002; however, the bank waived the non-compliance. The agreement contains certain restrictions on investments, borrowings and the sale of assets. Dividend declarations or payments are allowed under this credit facility as long as there exists under the credit facility no Event of Default (as defined in the credit facility) or no condition which, upon giving of notice or lapse of time or both, would become an Event of Default. The Company has approximately $2.8 million of letters of credit issued under its credit facility on June 30, 2002. In June 2001, the Company also entered into a term loan for (British pound)1.4 million (approximately $2 million) as part of this credit facility. The proceeds of this loan were used to repay an existing term loan of the same amount. The new term loan is repayable in monthly installments of (British pound)38,888 (approximately $60,000) through October 2004. The term loan has an interest rate of LIBOR plus 2.7%. At June 30, 2002 and December 31, 2001, there were $1.5 million and $1.7 million, respectively, outstanding under the term loan. At December 31, 2001, the Company was required to record a minimum pension liability related to the pension plan of its U.K. subsidiary since under Financial Accounting Standards Board Statement No. 87 ("FAS 87"), which prescribes the U.S. accounting for pension plans, the plan was underfunded. At December 31, 2001, under FAS 87 this plan was underfunded by approximately $2.6 million, as a result of which the Company was required to take a charge against stockholders' equity of $4.2 million. At December 31, 2002, the Company will be required to reflect the results of a FAS 87 computation as of that date in its financial statements. Based upon the decline in the plan's assets in 2002 described below, a charge to reduce stockholders' equity may be required at December 31, 2002. For the year ended December 31, 2000, the assets in the plan declined in value by $649,000 and in the first five months of 2001 the assets in the plan declined in value by approximately $1,089,000. As a result of the poor investment performance, the trustees of the plan changed to a new investment manager in May 2001. Under this new investment manager the assets in the plan declined in value by approximately $1,309,000 in the remainder of 2001 and for the period January 1, 2002 to June 30, 2002, the assets in the plan declined in value by approximately $1,900,000. For the period December 31, 1999 to June 30, 2002, the total decline in value of the assets was approximately $4,947,000. The majority of 2002 loss was incurred in June 2002 as a result of the decline in the stock market. The trustees of the plan moved the plan assets out of equities in July and are reviewing the long-term investment strategy of the plan. Benefits paid by the pension plan were $808,000, $1,017,000 and $966,000 in 1999, 2000 and 2001, respectively. At June 30, 2002, total assets in the plan were approximately $20.7 million. The value of the plan assets currently significantly exceeds the historical benefits paid for the past few years. In response to the funding situation, in January 2002, the U.K. subsidiary officially informed the plan trustees that effective the end of the first quarter of 2002, the U.K. employees would no longer accrue additional benefits under this pension plan for future service. Beginning in 2002, the U.K. subsidiary, as required under U.K. law, offered a defined contribution plan to its employees. Under laws governing the funding of U.K. defined benefit pension plans, the pension plan of the Company's U.K. subsidiary must be 90% funded on a non-wind up basis as computed under such funding rules by 2005 and 100% funded on a non-wind up basis as computed under such funding rules by 2012. The plan's actuary estimated that the plan was 87% funded as of January 31, 2002, on a non-wind up basis under the U.K. funding rules. The Company currently is contributing (British pound)36,000 (approximately $56,000) a month to the pension plan. This contribution amount was based upon the estimated funded status as of January 2002. A new formal funding computation is required by November 2002 and at such Page 13 of 23 time a new rate of contributions from the Company will be determined. This new rate of contributions could be materially greater than the current contribution requirement. In July 2002, the Company, the plan trustees and the plan's actuary began discussing the appropriate means of ensuring the long term funding of the plan under currently existing U.K. funding rules, including among other things an assessment of the U.K. subsidiary's business prospects and cash position, the securitization of the U.K. subsidiary's assets, a parent company guarantee, or other assurances, in order to avoid a determination by the actuary that the trustees should wind up the plan. The Company's U.K. legal counsel has provided a written opinion that, so long as the U.K. subsidiary is complying with its non-wind up statutory funding obligations, the trustees and the actuary have no legal basis to implement a wind up. The Company's U.K. subsidiary has confirmed its intention to meet these funding obligations. Under the U.K. funding rules, on a wind up basis the amount of underfunding of the plan is computed differently than, and would be substantially greater than, the amount computed on a non-wind up basis. Additionally, on a wind up basis, the underfunding must be paid down within a substantially shorter time period. If a wind up were to occur, it could have a material adverse effect on the financial position and results of operations of the Company. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board (the "FASB") issued statements No. 142 (Goodwill and Other Intangible Assets) and No. 143 (Accounting for Asset Retirement Obligations). Statement No. 142 was adopted by the Company on January 1, 2002. The Company must adopt statement No. 143 no later than January 2003. Statement No. 142 changed the accounting for Goodwill and other intangible assets, such that those assets whose life is determined to be indefinite are not subject to amortization. These assets shall be tested for impairment at least annually, and the value will need to be written down if the fair value is less than the carrying value. The adoption of Statement No. 142 did not have a significant effect on the Company's financial position or results of operations. Statement No. 143 requires that a liability must be recognized for an asset retirement obligation related to long lived tangible assets. The liability shall be recorded at fair value. The Company anticipates the adoption of Statement No. 143 will not have a significant effect on its financial position or results of operations. In August 2001, the FASB issued statement No. 144 (Accounting for the Impairment or Disposals of Long-lived Assets). The Company adopted statement No. 144 on January 1, 2002. This statement requires an impairment loss to be recognized if the carrying value of a long-lived asset (asset group) is not recoverable and exceeds its fair value. Long-lived assets (asset group) shall be tested for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The adoption of this statement did not have an effect on the Company's financial position or results of operations. Page 14 of 23 PART 1 - ITEM 3 - 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 of 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 15 of 23
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 a) Election of Directors: Howard J. Aibel: votes for 4,969,710, votes withheld 188,421 Rolf K. Liebergesell: votes for 4,953,314, votes withheld 204,817 James A. Purdy: votes for 4,967,210, votes withheld 190,921 b) Ratification of the selection of Ernst & Young LLP as independent accountants for the Company for the fiscal year ending December 31, 2002: votes for 5,123,984, votes against 8,800, votes abstained 25,347 ITEM 5 - OTHER INFORMATION N/A ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 4 Modification to Revolving Promissory Note and Loan Agreement Dated August 2, 2002 Attached Exhibit 11 (Regulation S-K) Computation of Earnings Per Share. Attached Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 Attached Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 Attached b) Reports on Form 8-K: No Reports on Form 8-K were filed by the registrant during the periods covered by this report.
Page 16 of 23 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: 8/13/02 /s/ Rolf K. Liebergesell ------------------------------ -------------------------------------- ROLF K. LIEBERGESELL CHIEF EXECUTIVE OFFICER, PRESIDENT AND CHAIRMAN OF THE BOARD DATE 8/13/02 /s/ Walter C. Lazarcheck ------------------------------ -------------------------------------- WALTER C. LAZARCHECK VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (CHIEF ACCOUNTING OFFICER) Page 17 of 23 EX-4 3 gex4-29482.txt EX-4 Exhibit 4 MODIFICATION TO REVOLVING PROMISSORY NOTE AND LOAN AGREEMENT Farrel Corporation 25 Main Street Ansonia, Connecticut 06401 and Farrel Limited 25 Main Street Ansonia, Connecticut 06401 (Individually and collectively, "Borrower") Wachovia Bank, National Association 300 Main Street Stamford, Connecticut 06901 (Hereinafter referred to as "Bank") THIS AGREEMENT is entered into as of August 2, 2002 by and among Bank and Borrower. RECITALS Bank is the holder of a Revolving Promissory Note executed and delivered by Borrower, dated June 18, 2001, in the original principal amount of $10,000,000.00 (the "Note"), and certain other loan documents, including without limitation, a Revolving and Term Loan Credit Agreement, dated June 18, 2001 (as heretofore amended, modified and restated, the "Loan Agreement"); Borrower and Bank have agreed to modify the terms of the Loan Documents, as defined in the Loan Agreement; Wachovia Bank, National Association, formerly known as First Union National Bank, is the owner and holder of the Note, the Loan Agreement and each of the other Loan Documents; In consideration of Bank's continued extension of credit and the agreements contained herein, the parties agree as follows: AGREEMENT ACKNOWLEDGMENT OF BALANCE. Borrower and Bank each acknowledges that the most recent Commercial Loan Invoice sent to Borrower with respect to the Obligations under the Note is correct. MODIFICATIONS. 1. The Note is hereby modified by deleting in its entirety the paragraph entitled "Repayment Terms" and substituting the following therefor: 18 of 23 REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly payments of accrued interest only, commencing on July 18, 2001, and continuing on the same day of each month thereafter until fully paid. In any event, all principal and accrued interest shall be due and payable on June 15, 2004. 2. All other Loan Documents are hereby modified so that any reference to the maturity date of the Note shall be deemed to refer to June 15, 2004. 3. Any paragraph in any Loan Document entitled "Arbitration" is hereby deleted in its entirety, and any requirement in any Loan Document that any dispute or controversy arising out of or relating to any Loan Document be resolved by binding arbitration is hereby deleted. In each Loan Document, the following paragraph shall instead be included as if originally set forth therein: THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH THIS AGREEMENT OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART AND/OR THE DEFENSE OR ENFORCEMENT OF ANY OF BANK'S RIGHTS OR REMEDIES. THE BORROWER HEREBY REPRESENTS AND WARRANTS TO BANK THAT THE WITHIN WAIVERS ARE ITS FREE ACT AND DEED MADE FOLLOWING CONSULTATION WITH INDEPENDENT COUNSEL OF ITS CHOICE. ACKNOWLEDGMENTS AND REPRESENTATIONS. Borrower acknowledges and represents that the Note and other Loan Documents, as amended hereby, are in full force and effect without any defense, counterclaim, right or claim of set-off; that, after giving effect to this Agreement, no default or event that with the passage of time or giving of notice would constitute a default under the Loan Documents has occurred, all representations and warranties contained in the Loan Documents are true and correct as of this date (except where such representations and warranties relate specifically to a prior date), all necessary action to authorize the execution and delivery of this Agreement has been taken; and this Agreement is a modification of an existing obligation and is not a novation. MISCELLANEOUS. This Agreement shall be construed in accordance with and governed by the laws of the applicable state as originally provided in the Loan Documents, without reference to that state's conflicts of law principles. This Agreement and the other Loan Documents constitute the sole agreement of the parties with respect to the subject matter thereof and supersede all oral negotiations and prior writings with respect to the subject matter thereof. No amendment of this Agreement, and no waiver of any one or more of the provisions hereof shall be effective unless set forth in writing and signed by the parties hereto. The illegality, unenforceability or inconsistency of any provision of this Agreement shall not in any way affect or impair the legality, enforceability or consistency of the remaining provisions of this Agreement or the other Loan Documents. This Agreement and the other Loan Documents are intended to be consistent. However, in the event of any inconsistencies among this Agreement and any of the Loan Documents, the terms of this Agreement, and then the Note, shall control. This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts. Each such counterpart shall be deemed an original, but all such counterparts shall together constitute one and the same agreement. Terms used in this Agreement which are capitalized and not otherwise defined herein shall have the meanings ascribed to such terms in the Note and the Loan Agreement. CONNECTICUT PREJUDGMENT REMEDY WAIVER. THE BORROWER ACKNOWLEDGES THAT THE TRANSACTIONS REPRESENTED BY THIS AGREEMENT ARE COMMERCIAL TRANSACTIONS AND HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ANY RIGHTS TO NOTICE OF AND HEARING ON PREJUDGMENT REMEDIES UNDER CHAPTER 903A OF THE CONNECTICUT GENERAL STATUTES OR OTHER STATUTES AFFECTING PREJUDGMENT REMEDIES, AND AUTHORIZES THE BANK'S ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER. 19 of 23 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE BANK HEREBY WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH THIS AGREEMENT OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART AND/OR THE DEFENSE OR ENFORCEMENT OF ANY OF BANK'S RIGHTS OR REMEDIES. THE BORROWER HEREBY REPRESENTS AND WARRANTS TO BANK THAT THE WITHIN WAIVERS ARE ITS FREE ACT AND DEED MADE FOLLOWING CONSULTATION WITH INDEPENDENT COUNSEL OF ITS CHOICE. IN WITNESS WHEREOF, the undersigned have signed and sealed this Agreement the day and year first above written. PLACE OF EXECUTION AND DELIVERY. Borrower hereby certifies that this Agreement and the Loan Documents were executed in the State of Connecticut and delivered to Bank in the State of Connecticut. WITNESSES: /s/ James L Burns Farrel Corporation - ----------------- /s/ Marisela Esposito By: /s/ Rolf K Liebergesell - --------------------- ----------------------- Rolf K. Liebergesell, Director /s/ James L Burns Farrel Limited - ----------------- /s/ Marisela Esposito By: /s/ Rolf K Liebergesell - --------------------- ----------------------- Rolf K. Liebergesell, Director /s/ Richard Petrone Wachovia Bank, National Association - ------------------- /s/ Annette Herber By: /s/ Philip Galioto - ------------------- ------------------ Philip Galioto Vice President 20 of 23 EX-11 4 gex11-29482.txt EX-11 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 30, July 1, June 30, July 1, 2002 2001 2002 2001 ---- ---- ---- ---- Net loss applicable to common stock $(467) $(573) $(1,227) $(1,180) ============= ============= ============ ============ Weighted average number of common shares outstanding - Basic earnings per share 5,228,461 5,228,563 5,228,461 5,229,251 Effect of dilutive stock and purchase options - - - - ------------- ------------- ------------ ------------ Weighted average number of common shares outstanding - Diluted earnings per share 5,228,461 5,228,563 5,228,461 5,229,251 ============= ============= ============ ============ Net loss per common share - Basic $(0.09) $(0.11) $(0.23) $(0.23) ============= ============= ============ ============ share - Fully diluted $(0.09) $(0.11) $(0.23) $(0.23) ============= ============= ============ ============
Options outstanding at June 30, 2002, to purchase 283,000 shares of common stock at prices ranging from $2 to $6.75 were not included in the computation of dilutive EPS for the periods ending June 30, 2002, because the options' exercise prices were greater than the average market price of the common shares. Options outstanding at June 30, 2002, to purchase 90,000 shares of common stock at prices ranging from $0.60 to $0.81 were not included in the computation of dilutive EPS for the periods ending June 30, 2002, because the effect of the options was anti-dilutive. Options outstanding at July 1, 2001, to purchase 392,000 shares of common stock at prices ranging from $2 to $10 were not included in the computation of dilutive EPS for the periods ending July 1, 2001, because the options' exercise prices were greater than the average market price of the common shares. 21 of 23 EX-99.1 5 gex99_1-29482.txt EX-99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Farrel Corporation (the "Company") on Form 10-Q for the period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I Rolf K Liebergesell, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934: and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for the periods presented in the Report. /s/ Rolf K Liebergesell - ---------------------------------- Rolf K Liebergesell Chairman of the Board of Directors and Chief Executive Officer August 13, 2002 Page 22 of 23 EX-99.2 6 gex99_2-29482.txt EX-99.2 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Farrel Corporation (the "Company") on Form 10-Q for the period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I Walter C Lazarcheck, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934: and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for the periods presented in the Report. /s/ Walter C Lazarcheck - -------------------------------- Walter C Lazarcheck Vice President and Chief Financial Officer August 13, 2002 Page 23 of 23 -----END PRIVACY-ENHANCED MESSAGE-----