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 April 4, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0 -19703
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Farrel Corporation
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(Exact name of registrant as specified in its charter)
DELAWARE 22-2689245
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 Main Street, Ansonia, Connecticut, 06401
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(Address of principal executive offices) (Zip Code)
(203) 736-5500
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(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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
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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 MAY 7, 1999
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Common Stock (Voting), $.01 par value 5,386,586
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<PAGE>
FARREL CORPORATION
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Index
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PAGE
Part I. FINANCIAL INFORMATION
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Consolidated Balance Sheets -
April 4, 1999 and December 31, 1998 3
Consolidated Statements of Operations -
Three Months Ended April 4, 1999
and March 29, 1998 4
Consolidated Statements of Cash Flows -
Three Months ended April 4, 1999
and March 29, 1998 5
Notes to Consolidated Financial Statements 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
Exhibit 11 - Computation of Earnings Per Share 13
Part II. OTHER INFORMATION 14
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Page 2 of 15
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Part I - Financial Information
FARREL CORPORATION
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CONSOLIDATED BALANCE SHEETS
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(In thousands, except share data)
<TABLE>
<CAPTION>
April 4, December 31,
-------- ------------
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................ $ 5,412 $ 5,786
Accounts receivable, net of allowance for
doubtful accounts of $295 and $297,
respectively ....................................... 12,431 20,708
Inventory ............................................ 17,028 14,542
Asset purchase agreement receivable .................. 4,386 5,284
Other current assets ................................. 2,003 1,953
-------- --------
Total current assets .................... 41,260 48,273
Property, plant and equipment - net
of accumulated depreciation of $11,926 and
$11,648, respectively .............................. 11,434 11,614
Goodwill ............................................. 2,377 1,555
Other Assets ......................................... 796 1,281
-------- --------
Total Assets ................................................ $ 55,867 $ 62,723
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities:
Accounts payable ................................... $ 8,743 $ 14,039
Accrued expenses & taxes ........................... 3,549 4,284
Advances from customers ............................ 8,301 7,017
Accrued installation & warranty costs .............. 1,571 1,683
Short - term debt .................................. 2,146 1,328
-------- --------
Total current liabilities .............. 24,310 28,351
Long - term debt ..................................... 3,849 3,983
Postretirement benefit obligation .................... 1,168 1,171
Long term pension obligation ......................... 2,429 2,429
Deferred income taxes ................................ 469 488
Commitments and contingencies
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Total Liabilities ...................... 32,225 36,422
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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, 755,520 and 202,620 shares
at
April 4, 1999 and December 31, 1998 ................ (2,262) (990)
Retained earnings .................................. 8,508 9,576
Accumulated other comprehensive expense ............ (1,960) (1,641)
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Total Stockholders' Equity ............. 23,642 26,301
-------- --------
Total Liabilities and Stockholders' Equity .................. $ 55,867 $ 62,723
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
Page 3 of 15
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FARREL CORPORATION
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CONSOLIDATED STATEMENTS OF OPERATIONS
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(In thousands, except per share and share data)
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Three Months Ended
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April 4, March 29,
1999 1998
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(unaudited) (unaudited)
Net Sales .................................. $ 13,294 $ 15,976
Cost of sales .............................. 10,890 11,740
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Gross margin ............................... 2,404 4,236
Operating expenses:
Selling ................................ 1,710 1,732
General & administrative ............... 2,222 1,769
Research & development ................. 383 318
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Total operating expenses ................... 4,315 3,819
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Operating income/(loss) .................... (1,911) 417
Interest income ............................ 235 157
Interest expense ........................... (176) (315)
Gain from sale of real estate .............. 1,879 0
Other expense, net ......................... (103) (76)
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Income(loss) before income taxes ........... (76) 183
(Provision) for income taxes ............... (41) (73)
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Net income (loss) .......................... $ (117) $ 110
=========== ===========
Per share data:
Basic and Diluted net income (loss)
per common share ....................... $ (0.02) $ 0.02
=========== ===========
Average shares outstanding:
Basic ................................... 5,812,676 5,942,582
=========== ===========
Diluted ................................. 5,812,676 5,982,985
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Dividends declared ......................... $ 0.16 $ 0.00
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See Accompanying Notes to Consolidated Financial Statements
Page 4 of 15
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FARREL CORPORATION
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
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April 4, March 29,
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1999 1998
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(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Income/(loss) .............................................. $ (117) $ 110
Adjustments to reconcile net (loss)/income to net
cash provided/(used in) by operating activities:
Gain on disposal of fixed assets ............................. (1,884) --
Depreciation and amortization ................................ 519 484
Decrease in accounts receivable .............................. 8,016 956
(Increase) in inventory ...................................... (2,743) (4,539)
(Decrease) increase in accounts payable ...................... (5,072) 1,884
Increase in customer advances ................................ 1,367 3,143
(Decrease) in accrued expenses & taxes ....................... (415) (712)
(Decrease) in accrued installation and warranty costs ........ (77) (195)
(Decrease) in deferred income taxes .......................... (5) (38)
Other ........................................................ (520) (318)
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Total adjustments ............................................ (814) 665
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Net cash provided by operating activities .................... (931) 775
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Cash flows from investing activities:
Proceeds from disposal of fixed assets ....................... 2,449 --
Purchases of property, plant and equipment ................... (513) (460)
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Net cash provided by/(used in) investing activities .......... 1,936 (460)
Cash flows from financing activities:
Proceeds from short-term borrowing, net ...................... 874 891
Used for dividends paid ...................................... (951) (951)
Purchase of treasury stock ................................... (1,272) --
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Net cash used by financing activities ........................ (1,349) (60)
Effect of foreign currency exchange rate changes on cash ......... (30) 17
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Net (decrease) increase in cash and cash equivalents ............. (374) 272
Cash and cash equivalents - Beginning of period .............. 5,786 1,447
------- -------
Cash and cash equivalents - End of period .................... $ 5,412 $ 1,719
======= =======
Income taxes paid ................................................ $ 1,057 $ 106
======= =======
Interest paid .................................................... $ 6 $ 179
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
Page 5 of 15
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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 April 4, 1999, and the
consolidated results of its operations and cash flows for the three months ended
April 4, 1999 and March 29, 1998. These results are not necessarily indicative
of results to be expected for the full fiscal year. These 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, 1998.
NOTE 2 - INVENTORY
Inventory is comprised of the following: April 4, December 31,
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1999 1998
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(In thousands)
Stock and raw materials................. $5,872 $7,279
Work-in process......................... 11,156 7,263
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Total................................... $17,028 $14,542
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NOTE 3 - ASSET PURCHASE AGREEMENT RECEIVABLE
On December 19, 1997, Farrel Shaw Limited, a wholly owned subsidiary
of the Company, acquired certain assets and the operations of the Francis Shaw
Rubber Machinery ("Shaw") operations from EIS Group PLC of the United Kingdom
("Seller"). The purchase and sale agreement ("Agreement") between the Company
and the Seller required subsequent adjustment to the purchase price if the Shaw
operations did not produce a minimum profit, as defined in the Agreement, of
approximately $1.7 million for the year ended December 31, 1998 (the "Profit
Guaranty"). The operations of Shaw produced a loss (as computed under the terms
of the Agreement) of approximately $3.6 million for the year ended December 31,
1998.
Accordingly, the Company recorded a receivable from the Seller at
December 31, 1998 of approximately $5.3 million under the terms of the Profit
Guaranty provisions of the Agreement and reduced the purchase price. On May 7,
1999, the Company received a cash payment of $4.4 million in settlement of our
claim under the Profit Guaranty. The difference between the amount recorded at
December 31, 1998 and amount received from the Seller was recorded as an
increase in goodwill as of March 30, 1999.
The Agreement also required the transfer of the pension liability for
the Shaw employees together with the pension assets related to those employees.
The assets for the Shaw employees were transferred to the Company's pension plan
on May 5, 1999. The consolidated financial statements do not include any amounts
related to the transferred Shaw employees as the actuarial amounts have not been
determined. The net amount of the actuarially determined excess of the pension
assets compared with the projected benefit obligation for the Shaw employees
will be recorded as an additional purchase price adjustment when determined.
Page 6 of 15
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NOTE 4 - COMPREHENSIVE INCOME
The components of comprehensive income (loss), for the three-month
periods ended are as follows:
April 4, March 29,
1999 1998
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(In thousands)
Net (loss) income $(117) $110
Foreign currency translation adjustment (319) 222
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Comprehensive (loss) income $(436) $332
====== =====
The components of accumulated other comprehensive expense, net of
related tax, are as follows:
April 4, March 29,
1999 1998
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(In thousands)
Minimum pension liability $(1,577) $(1,577)
Foreign currency translation adjustment (383) (64)
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Accumulated comprehensive expense $(1,960) $(1,641)
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NOTE 5 - SEGMENT INFORMATION
The Company's operations are considered one operating segment. The
Company's products consist of new machines, spares 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 6 - GAIN FROM SALE OF REAL ESTATE
During January 1999, the Company completed the sale of excess real
estate held for sale for $2.4 million. The Company recorded a gain of $1.9
million from the sale.
Page 7 of 15
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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 in this report and in particular, in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" may be forward
looking and may be subject to a variety of risks and uncertainties. Various
factors could cause actual results to differ materially from these statements.
These factors include, but are not limited to pricing pressures from competitors
and/or customers; continued economic and political uncertainty in certain of the
Company's markets; the Company's ability to maintain and increase gross margin
levels; the Company's ability to generate positive cash; changes in business
conditions, in general, and, in particular, in the businesses of the Company's
customers and competitors; assessment of the impact of the Year 2000 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
THREE MONTHS ENDED APRIL 4, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 29,
1998
Net sales for the first quarter of 1999 were $13.3 million compared to
$16.0 million during the first quarter of 1998, a decrease of $2.7 million. The
decrease in net sales is due to lower new machine sales, which was $4.7 million
lower for the first quarter of 1999 as compared to the same period in 1998. This
decrease was partially offset by higher aftermarket sales. The timing of the
Company's sales, particularly new machines sales, are highly dependent on when
an order is received, lead time and customer requirements. Management believes
the Company operates in markets which are extremely competitive. Many of our
customers and markets operate at less than full capacity and certain markets, in
particular, the Far East, remain particularly competitive and are subject to
local economic events.
During the first quarter of 1999 the Company received $17.2 million in
orders compared to $30.2 million during the first quarter of 1998. Order intake
into the second quarter of 1999 continues to be slow. The decrease is primarily
at our European operations. 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 be recognized in a later accounting period
than the one in which the order was received. In addition, the cyclical nature
of industry demand and, therefore, 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. Firm backlog at the end of the first quarter of 1999 was
$37.0 million compared to $33.0 million at December 31, 1998 and $60.8 million
at the end of the first quarter of 1998. Firm backlog as of May 8, 1999 and 1998
was $36.7 million and $59.0 million, respectively.
Gross margin in the first quarter of 1999 was $2.4 million compared to
$4.2 million for the first quarter of 1998. The margin percentage decreased to
18.1% from 26.5%. The decrease in comparative gross margin is attributed to
lower sales volume to absorb fixed manufacturing and assembly costs.
Operating expenses in the first quarter of 1999 were $4.3 million
compared to $3.8 million during 1998. The increase is due to higher employee
compensation, benefit costs and professional services.
Interest expense, net of interest income, for the first quarter of
1999, was $176, a decrease of $139 from the first quarter of 1998. The decrease
is due to lower borrowings.
Page 8 of 15
<PAGE>
The Company provides for income taxes in the jurisdictions in which it
pays for income taxes at the statutory rates in effect in each jurisdiction
adjusted for differences in providing for income taxes between financial
reporting and income tax purposes. During the first quarter of 1999, the Company
recorded a consolidated tax provision due to earning taxable income in the
United States, at a higher tax rate, and incurring losses in the United Kingdom
at a lower tax rate. The income tax rate in the first quarter of 1998, as a
percentage of pre-tax results of operations, was 40.1%.
MATERIAL CONTINGENCIES
In February 1995, the Company and Black & Decker entered into a
Settlement Agreement pursuant to which Black & Decker agreed to assume full
responsibility for the investigation and remediation of any pre-May, 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 January
19, 1999, the Company sold all of its Derby, Connecticut, real estate and
facilities. By the terms of that sale, the purchaser committed to cooperate with
Black & Decker in any additional investigation of the Derby property and any
remediation of that property that might be required by the DEP. In addition, the
Company has been named an additional insured on a $5.0 million environmental
policy obtained by the purchaser and the purchaser is obligated to name the
Company an additional insured on any and all other environmental insurance
policies obtained by the purchaser related to the Derby property. On the basis
of the preliminary data now available there is no reason to believe that any
remediation activities which might be required as a result of the findings of
the assessment will have a material effect upon the capital expenditures,
earnings or the competitive position of the Company. This forward looking
statement could, however, be influenced by 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.
LIQUIDITY AND CAPITAL RESOURCES; CAPITAL EXPENDITURES
Working capital and the working capital ratio at April 4, 1999 were
$16.9 million and 1.7 to 1, respectively, compared to $19.9 million and 1.7 to 1
at December 31, 1998, respectively. During the first quarter of 1999, the
Company paid a dividend of $0.16 per share. In addition, during the first
quarter, the Company repurchased 552,900 common shares in the amount of
$1,272,000. These shares are held in treasury. 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 dividends paid in 1999.
Due to the nature of the Company's business, many sales are of a large
dollar amount. Consequently, the timing of recording such sales may cause the
balances in accounts receivable and/or inventory to fluctuate dramatically
between quarters and may result in significant fluctuations in cash provided by
operations. Historically, the Company has not experienced significant problems
regarding the collection of accounts receivable. The Company has also generally
financed its operations with cash generated by operations, with progress
payments from customers and with borrowings under its bank credit facilities.
Management anticipates that its cash balances, operating cash flows and
available credit line will be adequate to fund anticipated capital commitments
and working capital requirements for at least the next twelve months. The
Company made capital expenditures of $0.5 million during the first quarters of
fiscal 1999 and 1998, respectively.
Page 9 of 15
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On May 7, 1999, the Company received a cash payment of $4.4 million
representing settlement of our claim under the Profit Guaranty provision of the
Asset Purchase Agreement for the purchase of the Francis Shaw Rubber Machinery
Business.
The Company has a worldwide multi-currency credit facility with a
major U.S. bank in the amount of $25.0 million consisting of an $18.5 million
revolving credit facility for direct borrowings and letters of credit and up to
(pound)3.0 million for foreign exchange contracts and a five year term note.
Interest varies based upon prevailing market interest. The facility contains
limits on direct borrowings and letters of credit combined based upon stipulated
percentages of accounts receivable, inventory and backlog. The facility also
contains covenants specifying minimum and maximum operating thresholds for
operating results and selected financial ratios. The agreement contains certain
restrictions on the making of investments, on borrowings and on the sale of
assets. At April 4, 1999 and December 31, 1998, there was $5.1 million and $5.3
million, respectively, outstanding under the term loan. At April 4, 1999, there
was $0.9 million in direct borrowings outstanding. There were $6.0 million and
$5.1 million of letters of credit outstanding at April 4, 1999 and December 31,
1998, respectively.
YEAR 2000
The Company has instituted a Year 2000 readiness project to address
the impact and risks related to the ability of the Company's computer hardware,
computer programs, equipment with embedded computer chips and critical suppliers
to operate and function properly during the year change from December 31, 1999
to January 1, 2000, and to process date information correctly thereafter.
The project is divided into three components - Business Applications,
comprising the Company's internal information systems as well as the readiness
of third party suppliers of goods and services whose Year 2000 readiness could
potentially have significant impact on the Company's operations; Product
Applications, relating to micro-processors within the control equipment sold by
the Company; and Equipment Applications, which relate to micro-processors within
operating equipment utilized in the Company's day to day operations.
The project team is made up of internal resources from various
disciplines, including operations, facility management, product engineering,
management information systems and finance. The major objectives for each
component are to: (1) identify and document Year 2000 issues which affect the
Company; (2) inventory systems, machines and processes affected by the Year
2000; (3) assess Year 2000 readiness for identified items; and (4) design and
implement a plan to achieve Year 2000 readiness for significant Year 2000
issues. The identification and inventory of systems, machines and processes has
been completed. The assessment and plan to achieve Year 2000 readiness are at
various stages of completion for each of the three major components.
The Business Applications component of the Company's Year 2000 plan
relates primarily to the Company's principal internal information system which
consists of a mainframe operated with third party purchased computer software.
The conversion to a Year 2000 compliant version of the software was completed
during the fourth quarter of 1998, however, system testing will continue into
the first-half of 1999. This included the replacement of hardware and software
for one of our UK operations to provide consistency with the US operation.
Similar systems for our newly acquired subsidiary in the UK have not been
upgraded due to the consolidation at our other UK operation which has been
upgraded. The balance of the Company's computer based information systems
consist primarily of individual work stations and personal computers. Work
stations in Engineering were upgraded in 1997. All personal computer hardware
and software has been tested. Modifications to the equipment are being made and
upgrades purchased for non-Year 2000 ready equipment. The total amount expended
in the current and prior year, related to the Company's internal information
system, was approximately $0.9 million. Additional expenditures to complete this
phase is estimated to be less than $0.1 million. A significant portion of these
expenditures would have occurred without the Year 2000 issue and, in general,
these expenditures have not been accelerated.
Page 10 of 15
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The identification and assessment of critical suppliers of goods and
services is in process. Critical suppliers include suppliers of components used
in the Company's products as well as suppliers of goods and services used in the
Company's operations. Critical suppliers have been identified as suppliers of
goods or services that, if interrupted for an extended period, might impact the
Company's ability to provide goods and services to its customers, satisfy
obligations to its employees and vendors and which might pose a risk of injury
or damage to individuals, property or the environment. Critical suppliers of
goods and services are being contacted to assess their readiness for the Year
2000. Due to the varying degree of impact the Year 2000 might cause and general
uncertainty inherent in the Year 2000 problem, the Company is unable to
determine if third party supplier readiness would materially impact the
Company's results of operations, liquidity or financial condition.
The Product Applications component of the Company's Year 2000 plan
relates primarily to microprocessors within the control equipment sold by the
Company. The Company has identified auxiliary equipment and components which
were supplied with its products and which might pose a risk that the Company's
product will not function properly in the Year 2000. The process is
substantially complete. Some supplied components may require modification or
upgrade. The extent of modifications required are dependent on the use and
extent of integration of our equipment at a customer's location. The Company's
efforts are expected to continue to assist our customers to maximize
serviceability of Company supplied equipment. The cost of an upgrade or
modification may result in a warranty obligation and charge to results of
operations of the Company. The Company is unable to determine a reasonable
estimate at this time. However, the Company does not expect that these matters
will have a material adverse effect on the Company's financial position or
results of operations and some of the cost might be recovered from the Company's
vendors.
Equipment Applications component of the Company's Year 2000 plan
relates to microprocessors within the operating equipment utilized in the
Company's day to day operations. The identification of equipment used in the
Company's operation has been completed. The equipment used in our manufacturing
and other operations are not integrated systems, but consist principally of
individual stand alone machine tools and equipment. Failure of one piece of
equipment would not materially impact operations. Correspondence with the
equipment suppliers to determine Year 2000 readiness is in process and expected
to be complete before the end of June 1999. Individual pieces of equipment have
been identified for replacement. The cost of such equipment identified to date
for replacement is not significant. Replacement of all effected equipment is
expected to be completed by the middle of 1999.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures might have a material impact on the Company's results of
operations, liquidity or financial condition. The Year 2000 Project is expected
to significantly reduce the Company's level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of its
critical suppliers of goods and services. The Company believes that with the
completion of the Project as scheduled, the possibility of significant
interruptions of normal operations should be reduced.
The above contains forward-looking statements including, without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, intentions, and adequate resources, that are made pursuant to the
"safe harbor" statements of the Private Securities Litigation Reform Act of
1995. Readers are cautioned that forward-looking statements contained in this
Year 2000 disclosure should be read in conjunction with the safe harbor
statements of the Private Securities Litigation Reform Act of 1995 contained on
page eleven of this report.
Page 11 of 15
<PAGE>
Taking into account the foregoing, the following are identified as
some, but not all of, important risk factors that could cause actual results to
differ materially from those expressed in any forward-looking statement made by,
or on behalf of, the Company: the availability and cost of personnel; the
ability to locate and correct all items; and timely responses to and corrections
by third-parties and suppliers. Due to the general uncertainty inherent in the
Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third-parties and the interconnection of global businesses, the
Company cannot ensure its ability to timely and cost-effectively resolve
problems associated with the Year 2000 issue that may affect its operations and
business, or expose it to third-party liability.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, which must be adopted effective
January 1, 2000. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If a derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged
asset, liability, or firm commitment through earnings, or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company does not anticipate that the adoption of
this Statement will have a significant effect on its results of operations or
financial position.
ITEM 2 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign currency
and interest rates. The Company manufactures many of its products and components
in the United Kingdom and purchases many components in foreign markets.
Approximately 50% of the Company's revenue is generated from foreign markets.
The Company manages its risk to foreign currency rate changes by maintaining
foreign currency bank accounts in currencies in which it regularly transacts
business and the use of foreign exchange forward contracts. The Company
regularly enters into foreign exchange forward and option contracts to hedge
foreign currency transactions. These derivative instruments involve little
complexity and are generally for short periods of less than six months. The
Company does not enter into derivative contracts for trading or speculative
purposes. The amount of foreign exchange forward contracts are not considered
material to the Company's financial position or its operations.
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 are not expected to
have a material impact on the Company's results of operations.
Page 12 of 15
<PAGE>
Exhibit 11
FARREL CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
Three Months Ended
------------------
April 4, March 29,
1999 1998
---- ----
Net (loss) income applicable to
common stock ................................... $ (117) $ 110
========= =========
Weighted average number of common
shares outstanding - Basic earnings per share.... 5,812,676 5,942,582
Effect of dilutive stock and purchase options.... -- 40,403
--------- ---------
Weighted average number of common
shares outstanding - Diluted earnings per share.... 5,812,676 5,982,985
========= =========
Net income/(loss) per common
share - Basic ................................... $ (0.02) $ 0.02
========= =========
share - Fully diluted ........................... $ (0.02) $ 0.02
========= =========
Page 13 of 15
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 11 (Regulation S-K) Computation of Earnings Per Share.
SEE PAGE 13
Exhibit 27 Financial Data Schedule
Reports on Form 8-K
No Reports on Form 8-K were filed by the registrant during
the periods covered by this report.
Page 14 of 15
<PAGE>
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: May 7, 1999 /S/ ROLF K. LIEBERGESELL
------------------ -------------------------------------------
ROLF K. LIEBERGESELL
CHIEF EXECUTIVE OFFICER, PRESIDENT
AND CHAIRMAN OF THE BOARD
DATE: May 7, 1999 /S/ THEODORE E. JENNY
------------------ -------------------------------------------
THEODORE E. JENNY
VICE PRESIDENT/CHIEF FINANCIAL OFFICER
(CHIEF ACCOUNTING OFFICER)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Farrel Corporation as of April 4, 1999 and for the three
months then ended and is qualified in its entirety by reference to such
statements.
</LEGEND>
<CIK> 0000034645
<NAME> Farrel Corporation
<MULTIPLIER> 1,000
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Apr-04-1999
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0
0
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<INCOME-PRETAX> (76)
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