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