<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
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 0-10734
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FERROFLUIDICS CORPORATION
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(Exact name of registrant as specified in its charter)
Massachusetts 02-0275185
------------------------------- ------------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization Identification No.)
40 Simon Street,
Nashua, New Hampshire 03061
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (603) 883-9800
-----------------
--------------------------------------------------------
(Former name, former address and former Fiscal year, if
changed since last report.)
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.
(1) Yes X No
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(2) Yes X No
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Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of October 31, 1996.
Common Stock, $.004 par value per share 6,104,747
- --------------------------------------- ---------------
(Class) (No. of Shares)
1
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TABLE OF CONTENTS
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Page Nos.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1996 and June 30, 1996 3
Consolidated Statements of Operations -
Three Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows -
Three Months Ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Position 6 - 9
Part II. Other Information 9
Signatures 9
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1.
FERROFLUIDICS CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and June 30, 1996
<CAPTION>
ASSETS September 30, 1996 June 30, 1996
- ------ ------------------ -------------
(unaudited) (note)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 47,000 $ 1,701,000
Accounts receivable - trade, less allowance
for doubtful accounts of $332,000 at
September 30, 1996 and $331,000 at June 30, 1996 14,730,000 12,757,000
Inventories 14,287,000 13,829,000
Advances to suppliers 1,888,000 1,916,000
Prepaid and other current assets 3,029,000 672,000
------------ ------------
Total Current Assets 31,842,000 30,875,000
------------ ------------
Property, plant and equipment, at cost, net
of accumulated depreciation of $9,961,000 at
September 30, 1996 and $9,117,000 at June 30, 1996 8,592,000 8,784,000
Cash value of life insurance 1,731,000 1,731,000
Other assets, principally goodwill 2,225,000 2,249,000
------------ ------------
TOTAL ASSETS $ 44,390,000 $ 43,639,000
============ ============
LIABILITIES
- -----------
Current Liabilities:
Bank notes payable 4,975,000 4,262,000
Accounts payable 6,407,000 6,366,000
Customer deposits 4,434,000 4,368,000
Accrued expenses 2,950,000 3,739,000
------------ ------------
Total Current Liabilities 18,766,000 18,735,000
------------ ------------
Long-term debt obligations 5,000,000 5,000,000
Other liabilities 194,000 202,000
STOCKHOLDERS' EQUITY
- --------------------
Preferred stock, $.001 par value, authorized
100,000 shares, issued and outstanding, none -- --
Common stock, $.004 par value, authorized
12,500,000 shares, issued and outstanding
6,060,902 shares at September 30, 1996 and
at June 30, 1996 24,000 24,000
Additional paid-in capital 36,002,000 35,871,000
Retained deficit (15,037,000) (15,643,000)
Currency translation adjustments (559,000) (550,000)
------------ ------------
Total Stockholders' Equity 20,430,000 19,702,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 44,390,000 $ 43,639,000
============ ============
</TABLE>
Note: The balance sheet at June 30, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes are an integral part of the consolidated financial
statements
3
<PAGE> 4
FERROFLUIDICS CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 1996 and 1995
(unaudited)
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net sales and revenues $17,469,000 $15,011,000
Cost of goods sold 11,849,000 10,153,000
----------- -----------
5,620,000 4,858,000
Engineering and product development expenses 1,563,000 993,000
Selling, general and administrative expense 3,242,000 2,919,000
----------- -----------
Income from operations 815,000 946,000
Interest income 18,000 24,000
Interest (expense) (163,000) (118,000)
Other income (expense) 13,000 (38,000)
----------- -----------
Income before income taxes 683,000 814,000
Provision for income taxes 77,000 100,000
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Net income $ 606,000 $ 714,000
=========== ===========
Per Share Data:
- --------------
Net income $ 0.10 $ .12
=========== ===========
Weighted average common and common equivalent
shares outstanding 6,292,600 6,173,148
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
FERROFLUIDICS CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended September 30, 1996 and 1995
(unaudited)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 606,000 $ 714,000
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization 415,000 347,000
Restricted stock expense 130,000 98,000
Other 158,000 (74,000)
Changes in assets and liabilities:
Accounts receivable (1,995,000) 1,057,000
Inventories (463,000) (1,622,000)
Prepaid expenses and other current assets (192,000) 187,000
Accounts payable and accrued expenses (753,000) (1,496,000)
Customer deposits (64,000) 1,128,000
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Net cash provided by (used in) operating activities (2,030,000) 339,000
----------- -----------
Cash flow from investing activities:
Acquisition of property, plant and equipment (327,000) (488,000)
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Net cash used in investing activities (327,000) (488,000)
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Cash flow from financing activities:
Short term borrowing, net 713,000 --
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Net cash provided by financing activities 713,000 --
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Effect of currency rate changes on cash (10,000) (93,000)
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Net decrease in cash (1,654,000) (242,000)
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Cash and cash equivalents at beginning of period 1,701,000 1,563,000
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Cash and cash equivalents at end of period $ 47,000 $ 1,321,000
=========== ===========
Cash paid for interest and income taxes for the
three months ended September 30, 1996 and 1995
is as follows:
1996 1995
---- ----
Interest $ 143,000 $ 50,000
Income taxes $ 320,000 $ 3,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
FERROFLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying consolidated financial statements of Ferrofluidics
Corporation and its subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
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, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations of any interim
period are subject to year-end audit and adjustments, and are not necessarily
indicative of the results of operations for the Fiscal year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year
ended June 30, 1996.
B. INVENTORIES
<TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories are comprised of the following elements at September 30, 1996 and
June 30, 1996:
<CAPTION>
September 30, 1996 June 30, 1996
------------------ -------------
<S> <C> <C>
Raw materials and purchased parts $ 7,712,000 $ 6,845,000
Work-in-process 3,497,000 3,188,000
Finished goods 3,078,000 3,796,000
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Total inventories $14,287,000 $13,829,000
=========== ===========
</TABLE>
C. BANK NOTES PAYABLE
The Company has available to it a total credit facility with its bank of
approximately $8,600,000, which includes approximately $5,400,000 in the form
of a stand-by letter of credit for the Company's $5,000,000 1984 Series
Industrial Revenue Bonds, a $2,500,000 revolving line of credit for working
capital purposes, and $704,000 in the remaining balance of an installment
note to finance the expansion of its in-house machine shop. The credit
facility is collateralized by substantially all of the assets of the Company.
At September 30, 1996, there was $2,500,000 outstanding against the domestic
revolving line of credit. Additionally, its bank has made available, and the
Company has borrowed, amounts aggregating $1,690,000 for additional short
term working capital needs. The interest rate on the revolving line and
additional borrowings at September 30, 1996 was 9.25%. On October 11, 1996,
the Company accepted a commitment letter from its bank, which has agreed to
increase the revolving line of credit for working capital purposes from
$2,500,000 to $8,500,000. The Company expects to close on this commitment in
November 1996, and a part of the expanded line of credit will be used to
repay the additional short term borrowings made available to it by the bank.
D. EARNINGS PER SHARE
Net income per share for the three months ended September 30, 1996 and 1995
is based on the weighted average number of common shares outstanding as well
as the effect of all dilutive common stock equivalents.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL POSITION
The following discussion provides information to assist in the
understanding of the Company's results of operations and financial condition.
It should be read in conjunction with the consolidated financial statements
and notes thereto that appear elsewhere herein.
6
<PAGE> 7
RESULTS OF OPERATIONS
---------------------
In the first quarter ended September 30, 1996, the Company generated net
income of $606,000 or $0.10 per share, as compared to net income in the same
period of Fiscal 1995 of $714,000, or $.12 per share.
<TABLE>
Net sales and revenues for the quarter ended September 30, 1996 totaled
$17,469,000 as compared to $15,011,000 in the same period of the prior year.
A product line comparison of the net sales and revenues is as follows:
<CAPTION>
Q1 97 Q1 96
----- -----
<S> <C> <C>
Components $ 3,049,000 $ 3,332,000
Fluids 587,000 557,000
Crystal growing systems 11,636,000 9,250,000
Distributed products 2,197,000 1,872,000
----------- -----------
Total net sales and revenues $17,469,000 $15,011,000
=========== ===========
</TABLE>
Of the revenues in the first quarter, approximately $6.8 million, or 39%,
represented sales to one affiliated group of companies. Management expects
the concentration of revenues with this customer group to remain relatively
high throughout the current Fiscal year.
Consolidated gross margins for the first quarter of Fiscal 1997 amounted
to 32.2% of product sales as compared to 32.4% of product sales in the prior
year's first quarter. The small decline in gross margin in the first quarter
of the current year compared to the same period in the prior year is due
principally to product mix, with approximately 67% of the product revenues in
the current year's first quarter attributable to the Company's crystal
growing systems, which generate lower gross margins, as compared to 62% in
the prior year.
Consolidated order bookings for the three months ended September 30, 1996
totaled $14,149,000 as compared to $20,472,000 in the same period of the
prior year. Of the bookings for the first quarter of Fiscal 1997, $8,131,000
represent orders for silicon crystal growing systems as compared to
$13,228,000 in the same period of Fiscal 1996. Bookings for the Company's
other proprietary products decreased 21% from $4,737,000 in the first quarter
of Fiscal 1996 to $3,727,000 in the first quarter of Fiscal 1997. Bookings
for the first quarter for distributed products by AP&T decreased from
$2,496,000 in Fiscal 1995 to $2,291,000 in the same period of Fiscal 1997.
Consolidated backlog at September 30, 1996 was $55,699,000 compared to
$59,020,000 at June 30, 1996. Backlog for the Company's crystal growing
systems at September 30, 1996 totaled $49,567,000 as compared to $53,072,000
at June 30, 1996. Approximately 50% of the systems backlog is expected to
ship in the current Fiscal year. The backlog of orders for components
products, including fluids, increased slightly to approximately $4,035,000
million at September 30, 1996 and backlog of distributed products increased
from $2,004,000 at June 30, 1996 to $2,097,000 at September 30, 1996. Of the
order backlog for components and distributed products at September 30, 1996,
approximately 95% is expected to be shipped during the current Fiscal year.
Engineering and product development expenditures in the three months ended
September 30, 1996 totaled $1,563,000, an increase of $570,000, or 57%,
compared to $993,000 in the same period last year. As a percentage of
revenues, engineering and product development expenses increased from 6.7% in
the September 1995 quarter to 9.0% in the September 1996 quarter. The total
engineering expenditures in the first three months of Fiscal 1997 are
comprised of $524,000 of research and development expenditures and $1,039,000
of engineering expenses relating to applications, design and general sales
support. In the same period of Fiscal 1996, product development expenditures
totaled $399,000 and all other engineering totaled $594,000.
Selling, general and administrative expenses (SG&A) for the three months
ended September 30, 1996 totaled $3,242,000, up 11% from the SG&A of
$2,919,000 in the same period of the prior year. The increase is due
primarily to increased staffing, incremental restricted stock vesting, and
sales and marketing expenditures related to the growth in revenues.
7
<PAGE> 8
Interest income decreased in the three months ended September 30, 1996 to
$18,000 compared to $24,000 in the same period in the prior year, due to
lower invested cash balances. Interest expense of $163,000 for the three
months ended September 30, 1996 represented an increase from $118,000 in the
same period in Fiscal 1995 due principally to higher borrowings under the
Company's revolving credit facility.
The Company has available to it approximately $25,400,000 in net operating
loss carryforwards for Federal income tax purposes which can be used to
offset future taxable income, if any, and will expire at various dates
through 2010. The tax provision for the three months ended September 30, 1996
includes a provision for certain state and alternative minimum taxes, as well
as a provision for foreign income taxes.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net working capital at September 30, 1996 was $13,076,000 as compared to
$12,140,000 at June 30, 1996. This increase was primarily due to increases in
accounts receivable, inventories, and prepaid expenses totaling $2,650,000
offset by a reduction in cash balances of $1,654,000. Total current assets
therefore increased by $967,000. The increase in accounts receivable of
$1,995,000 was in the crystal growing systems business (primarily a result of
certain customer payments due but not received until shortly after the end of
the first quarter of Fiscal 1997 and receivables related to the delivery of
two systems in Japan.) Receivables in the components business declined during
the first quarter of Fiscal 1997. Total current liabilities also increased
but only by $31,000, as the increase in bank borrowings ($713,000) and small
increases in accounts payable and customer deposits were offset by a decrease
in accrued expenses. Customer deposits during the first quarter of fiscal
1997 changed only slightly (an increase of $66,000) as reductions due to
deliveries of crystal growing systems during the quarter were compensated for
by deposits received on new orders.
During the first quarter of Fiscal 1997, the operations of the business
used $2,030,000 of cash, due principally to the growth in trade receivables
but also to increases in other current assets as well. At September 30, 1996,
the Company had outstanding purchase commitments for material of
approximately $25,000,000 representing long lead items and other component
parts pertaining to the Company's crystal growing system backlog.
Investing activities during the three months ended September 30, 1996
consisted only of the acquisition of property, plant and equipment of
$327,000. At September 30, 1996, the Company did not have any material
purchase commitments with respect to property and equipment. Financing
activities of the Company during the three months ended September 30, 1996
were limited to borrowings totaling $713,000 from its bank credit facilities.
The increases in additional paid-in capital during the three months ended
September 30, 1996 is the result of vesting of restricted stock grants to key
members of management which vest to the owner ratably over the three years
following the date of grant. The consolidated results of operations for the
three months ended September 30, 1996 includes a charge of $130,000 for
restricted stock expense.
As described further in Note D to the above financial statements, the
company has recently received a letter of intent from its bank which will
substantially increase credit facilities available to it. With this
agreement, and the Company's operating cash flow, the Company believes it has
sufficient working capital resources to fund its operations through Fiscal
1997 and into Fiscal 1998. The Company continues to be heavily reliant upon
the receipt of contractual advance payments from customers in its systems
business with regard to its ability to satisfy that business's obligations in
the normal course.
This report contains forward-looking statements. There are certain factors
that could cause actual results to differ materially from those anticipated
by the statements made above. These include, but are not limited to,
cancellation of letters of intent, further rescheduling of existing crystal
puller orders, additional crystal puller orders from existing or new
customers, including those mentioned above, lack of new crystal puller orders
from existing or new customers, change in revenues in the Company's other
business, and a material change in the market conditions within the
semiconductor industry.
8
<PAGE> 9
For additional information concerning these and other important factors which
may cause the Company's actual results to differ materially from expectations
and underlying assumptions, please refer to the reports filed by the Company
with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FERROFLUIDICS CORPORATION
-------------------------
(Registrant)
Date: November 14, 1996 By: /s/ Salvatore J. Vinciguerra
----------------- ----------------------------------
Salvatore J. Vinciguerra
President and Chief Operating Officer
By: /s/ William B. Ford
----------------------------------
William B. Ford
Vice President Finance
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FERROFLUIDICS CORPORATION'S CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30,
1996 AND ITS CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996.
</LEGEND>
<CIK> 0000353286
<NAME> FERROFLUIDICS CORP.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 47,000
<SECURITIES> 0
<RECEIVABLES> 15,062,000
<ALLOWANCES> 332,000
<INVENTORY> 14,287,000
<CURRENT-ASSETS> 31,842,000
<PP&E> 18,553,000
<DEPRECIATION> 9,961,000
<TOTAL-ASSETS> 44,390,000
<CURRENT-LIABILITIES> 18,766,000
<BONDS> 5,000,000
<COMMON> 36,026,000
0
0
<OTHER-SE> (15,596,000)
<TOTAL-LIABILITY-AND-EQUITY> 44,390,000
<SALES> 17,469,000
<TOTAL-REVENUES> 17,469,000
<CGS> 11,849,000
<TOTAL-COSTS> 11,849,000
<OTHER-EXPENSES> 4,805,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 163,000
<INCOME-PRETAX> 683,000
<INCOME-TAX> 77,000
<INCOME-CONTINUING> 606,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 606,000
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
