<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 DECEMBER 26, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
-----------------------------------------------
Commission file number 0-10734
-------
FERROFLUIDICS CORPORATION
------------------------------------------------------
(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
- ------------------------ ----------
(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
--- ---
(2) Yes X No
--- ---
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of January 29, 1999.
Common Stock, $.004 par value per share 6,226,675
- --------------------------------------- ---------------
(Class) (No. of Shares)
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Nos.
---------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
December 26, 1998 and June 27, 1998 3
Consolidated Statements of Operations -
Three Months Ended December 26, 1998 and December 27, 1997 4
Consolidated Statements of Operations -
Six Months Ended December 26, 1998 and December 27, 1997 5
Consolidated Statements of Cash Flows -
Six Months Ended December 26, 1998 and December 27, 1997 6
Notes to Consolidated Financial Statements 7 - 10
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Position 11 - 16
Part II. Other Information 16 - 18
Signatures 19
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1.
FERROFLUIDICS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 26, 1998 and June 27, 1998
<TABLE>
<CAPTION>
December 26, 1998 June 27, 1998
----------------- -------------
(unaudited) (note)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,861,000 $ 1,516,000
Accounts receivable - trade, less allowance
for doubtful accounts of $374,000 at
December 26, 1998 and $329,000 at June 27, 1998 9,512,000 12,083,000
Inventories 10,246,000 13,855,000
Advances to suppliers 348,000 578,000
Prepaid and other current assets 607,000 783,000
------------ ------------
Total Current Assets 24,574,000 28,815,000
------------ ------------
Property, plant and equipment, at cost, net
of accumulated depreciation of $11,361,000 at
December 26, 1998 and $12,462,000 at June 27, 1998 6,498,000 8,826,000
Cash value of life insurance 1,998,000 1,921,000
Deferred income taxes, net 1,754,000 3,154,000
Other assets, principally goodwill 966,000 1,303,000
------------ ------------
TOTAL ASSETS $ 35,790,000 $ 44,019,000
============ ============
LIABILITIES
Current Liabilities:
Bank notes payable $ 381,000 $ 9,710,000
Accounts payable 2,491,000 3,860,000
Customer deposits 897,000 2,777,000
Accrued expenses 3,600,000 4,286,000
------------ ------------
Total Current Liabilities 7,369,000 20,633,000
------------ ------------
Long-term debt obligations 5,000,000 5,000,000
Other liabilities 196,000 185,000
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 6,226,675 shares
(6,218,581 at June 27, 1998) 25,000 25,000
Additional paid-in capital 36,762,000 36,738,000
Retained deficit (12,710,000) (17,443,000)
Currency translation adjustments (852,000) (1,119,000)
------------ ------------
Total Stockholders' Equity 23,225,000 18,201,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 35,790,000 $ 44,019,000
============ ============
</TABLE>
Note: The balance sheet at June 27, 1998 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
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 26, 1998 and December 27, 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net sales $6,561,000 $7,283,000
Cost of goods sold 3,968,000 3,818,000
---------- ----------
2,593,000 3,465,000
Engineering and product development expenses 765,000 472,000
Selling, general and administrative expense 1,747,000 1,934,000
---------- ----------
Income from operations 81,000 1,059,000
Interest income 46,000 4,000
Interest expense (41,000) (170,000)
Other income (expense), net (173,000) 65,000
---------- ----------
Income (loss) from continuing operations
before income taxes (87,000) 958,000
Income taxes 2,000 70,000
---------- ----------
Income (loss) from continuing operations (89,000) 888,000
Discontinued operations--Note D:
Loss from discontinued operations, including
applicable income taxes of $10,000 -- (276,000)
---------- ----------
Net income (loss) $ (89,000) $ 612,000
========== ==========
Per Share:
Income (loss) from continuing operations:
Basic $ (0.01) $ 0.14
Diluted $ (0.01) $ 0.14
Loss from discontinued operations:
Basic -- $ (0.04)
Diluted -- $ (0.04)
Net income (loss):
Basic $ (0.01) $ 0.10
Diluted $ (0.01) $ 0.10
Weighted average common shares outstanding:
Basic 6,224,278 6,186,370
Diluted 6,224,278 6,196,486
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
FERROFLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended December 26, 1998 and December 27, 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Net sales $12,286,000 $13,468,000
Cost of goods sold 7,477,000 6,973,000
----------- ----------
4,809,000 6,495,000
Engineering and product development expenses 1,334,000 965,000
Selling, general and administrative expense 3,577,000 3,554,000
----------- ----------
Income (loss) from operations (102,000) 1,976,000
Interest income 48,000 5,000
Interest expense (194,000) (314,000)
Other income (expense), net (203,000) 26,000
----------- ----------
Income (loss) from continuing operations before income taxes (451,000) 1,693,000
Income taxes 3,000 130,000
----------- ----------
Income (loss) from continuing operations (454,000) 1,563,000
Discontinued operations--Note D:
Loss from discontinued operations, including
applicable income taxes of $41,000 -- (295,000)
Estimated gain on disposal of Systems Division,
less applicable income taxes of $1,400,000 5,187,000 --
----------- ----------
Net income $ 4,733,000 $1,268,000
=========== ==========
Per Share:
Income (loss) from continuing operations:
Basic $ (0.07) $ 0.25
Diluted $ (0.07) $ 0.25
Income (loss) from discontinued operations:
Basic $ 0.83 $ (0.04)
Diluted $ 0.83 $ (0.05)
Net income:
Basic $ 0.76 $ 0.21
Diluted $ 0.76 $ 0.20
Weighted average common shares outstanding:
Basic 6,219,057 6,182,895
Diluted 6,219,057 6,194,362
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
FERROFLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended December 26, 1998 and December 27, 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,733,000 $ 1,268,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 792,000 671,000
Deferred income taxes (credits) 1,400,000 --
Increase in cash surrender value (77,000) --
Estimated gain on disposal of Systems Division (6,592,000) --
Gain on sale of assets (11,000) --
Stock-related compensation 31,000 145,000
Foreign currency transaction (gains) losses (209,000) 118,000
Other (246,000) (261,000)
Changes in operating assets and liabilities:
Accounts receivable, net 2,784,000 (3,403,000)
Inventories 869,000 1,265,000
Prepaid expenses and other current assets 417,000 (175,000)
Accounts payable and accrued expenses (2,285,000) 54,000
Customer deposits (1,883,000) (1,036,000)
----------- -----------
Net cash used in operating activities (277,000) (1,354,000)
----------- -----------
Cash flow from investing activities:
Acquisition of property, plant, equipment (371,000) (2,141,000)
Proceeds from sale of assets 1,404,000 --
Proceeds from the disposal of Systems Division 10,800,000 --
----------- -----------
Net cash provided by (used in) investing activities 11,833,000 (2,141,000)
----------- -----------
Cash flow from financing activities:
Proceeds from (repayments of) short term borrowings, net (9,329,000) 3,757,000
----------- -----------
Net cash provided by (used in) financing activities (9,329,000) 3,757,000
----------- -----------
Effect of currency rate changes on cash 118,000 (15,000)
----------- -----------
Net increase in cash and cash equivalents 2,345,000 247,000
----------- -----------
Cash and cash equivalents at beginning of period 1,516,000 883,000
----------- -----------
Cash and cash equivalents at end of period $ 3,861,000 $ 1,130,000
=========== ===========
</TABLE>
Cash paid for interest and income taxes for the three months ended December 26,
1998 and December 27, 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Interest $ 381,000 $ 537,000
Income taxes, net $ 3,000 $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 7
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 in accordance with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. They do not therefore 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 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 the footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 27, 1998 ("fiscal
1998").
B. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are comprised of the following elements at December 26, 1998
and June 27, 1998:
<TABLE>
<CAPTION>
DECEMBER 26, 1998 JUNE 27, 1998
----------------- -------------
<S> <C> <C>
Raw materials and purchased parts $ 4,750,000 $ 6,348,000
Work-in-process 2,774,000 2,650,000
Finished goods 2,722,000 4,857,000
----------- -----------
$10,246,000 $13,855,000
=========== ===========
</TABLE>
C. SHORT-TERM BORROWINGS AND OTHER DEBT OBLIGATIONS
On September 23, 1998, in connection with the sale of the Systems Division,
the Company used a portion of the cash proceeds to pay off the then outstanding
balance under the Company's line of credit with its bank and $1,500,000 that was
then outstanding under a 90 day promissory note with its bank. As a result of
this sale, the Company and its bank agreed to reduce the maximum available
borrowings under the line of credit agreement from $8,500,000 to $2,000,000. The
line of credit agreement expired at the end of November 1998. The Company is in
the process of renewing the line of credit agreement with its bank.
There were no borrowings under the line of credit at December 26, 1998.
D. DISCONTINUED OPERATIONS
On September 23, 1998, the Company sold certain assets of the Systems
Division to General Signal Technology Corporation, an SPX Corporation company
("General Signal"), for $10,800,000 in cash (the "Sale"). Assets sold included
approximately $2,818,000 in inventory, and approximately $625,000 in fixed
assets and intangible assets in the first quarter of fiscal 1999. After
providing for transaction fees and income taxes, the Company recorded an
estimated gain on the sale of $5,187,000.
The Systems Division represented a separate line of business and,
accordingly, its net operating results have been reported, net of applicable
income taxes, as discontinued operations for all periods through June 29, 1998,
the date management decided to dispose of the Systems Division. The Sale, as
structured, did not include any Systems Division liabilities, which remain with
the Company. The sale did not include the obligation by the Company to
7
<PAGE> 8
complete approximately $18,433,000 ($3,600,000 at December 26, 1998) in Systems
Division backlog, which obligation remains with the Company, nor did it include
approximately $5,873,000 ($2,747,000 at December 26, 1998) in inventory on hand
on the date of the sale, all of which was needed to fulfill existing backlog.
The terms of the sale of the Systems Division provide that, generally, any
backlog existing on December 31, 1998, will be transferred to General Signal.
The remaining backlog at December 26, 1998, however, will be completed and
shipped by the Company as agreed to by General Signal. The backlog at September
23, 1998 included a purchase order from a customer for nine machines (valued at
approximately $7,658,000) for which the customer did not provide firm delivery
dates. Delivery of the nine machines was cancelled by the customer in the
current quarter. The Company believes that, under the terms of the purchase
order, the customer is obligated to pay the Company the costs incurred up to
cancellation of the delivery. In connection with these machines, on September
23, 1998, the Company had inventory of approximately $1,712,000 on hand and
approximately $2,471,000 in parts on order at vendors. During the quarter ended
December 26, 1998, the Company has reduced its commitment to its vendors from
$2,471,000 to $1,750,000. The Company and the customer are actively negotiating
a settlement of the Company's claims under this purchase order. If the Company
is unable to recover these cancellation charges from the customer, the Company
may be required to take a material write-down of the inventory relating to the
purchase order, which would require the Company to adjust the estimated gain on
disposal of the Systems Division recorded in the first quarter of fiscal 1999.
The sale of the Systems Business also did not include approximately
$6,472,000 in accounts receivable which were outstanding as of the closing of
the sale ($4,216,000 remains outstanding at December 26, 1998). The Company
believes that it will be able to collect these receivables within established
reserves but there can be no assurance that the sale of the Systems Business
will not adversely affect their collectibility.
The operating results of the discontinued business for the three month and
six month periods ended December 27, 1997 is summarized as follows (000's
omitted):
<TABLE>
<CAPTION>
Three months ended Six months ended
12/27/97 12/27/97
------------------ ----------------
<S> <C> <C>
Net sales $ 8,153 $ 17,297
======= ========
Loss from operations before income taxes $ (266) $ (254)
Income taxes 10 41
------- --------
Loss from operations $ (276) $ (295)
======= ========
</TABLE>
The net assets at December 26, 1998 of the discontinued businesses are
summarized as follows (000's omitted)
<TABLE>
<S> <C>
Current assets $8,872
Current liabilities 1,446
------
Net assets of the discontinued Systems Division $7,426
======
</TABLE>
E. INCOME TAXES
FASB Statement No. 109, Accounting for Income Taxes, requires a valuation
allowance against deferred tax assets if it is more likely than not that some or
all of the deferred tax assets will not be realized. Due to the uncertainty
surrounding the Company's ability to realize the benefit of the entire deferred
tax asset, a valuation allowance in the amount of $12,217,000 had been
established at June 27, 1998. As a result of the $5,187,000 gain on sale of the
System Division, the valuation allowance was reduced by an additional $1,100,000
during the first quarter of fiscal 1999 ($1,400,000 of the valuation allowance
had previously been reduced during fiscal 1998 based on a preliminary estimate
of the gain on disposal of the Systems Division). However, based upon a current
assessment of the future earnings prospects for the Company through the second
quarter of fiscal 2000, management concluded that no further adjustment to the
valuation allowance was necessary as of December 26, 1998.
8
<PAGE> 9
As of December 26, 1998, the Company had remaining net operating loss
carryforwards for Federal income tax purposes of approximately $28,000,000, and
for foreign income tax purposes of approximately $3,000,000, which can be used
to offset future taxable income. The net operating loss carryforwards for
Federal income tax purposes will expire at various dates through 2013. Included
in the loss carryforward, for income tax purposes, is approximately $16,800,000
of tax deductions resulting from the excess of the market price over the
exercise price on the date of exercise of the Company's stock purchase options
and warrants which were exercised during 1993 and prior years. The tax benefit
to be realized upon utilization of the $16,800,000 of loss carryforwards will
result in a decrease in current income taxes payable and an increase to
additional paid-in capital.
F. COMMITMENTS AND CONTINGENCIES
In connection with the sale, in June 1990, of the Company's former UK
subsidiary, AF Technologies, Ltd. (AF), the Company agreed to provide a
guarantee of the lease of AF's facility. On June 26, 1992, the Company entered
into a new agreement with the landlord of the property, whereby the Company
would provide a British Pound Sterling ((pound)) 300,000 guarantee, over the
next ten years, for a new tenant under the lease, allowing AF to vacate the
premises and relocate to a less expensive location. On July 2, 1992, the Company
deposited (pound)300,000 into an escrow account, which currently earns interest
at a rate of 2.55%, pursuant to the terms of the guarantee. The Company would be
relieved of this obligation before the ten-year expiration date if the new
tenant were to attain certain minimum pretax operating results over any period
of three consecutive years. The Company originally provided a reserve in the
amount of $265,000 against this deposit in recognition of the uncertainty
surrounding the ultimate collectibility of the amount.
In June 1997, the Company was notified by the landlord of the property that
the tenant had accumulated approximately $112,000 of arrearages under the lease,
and that the landlord intended to draw that amount from the deposit. After
consulting with counsel in Great Britain, the Company believed that the ultimate
resolution of this issue would be within the reserve established and the Company
had therefore made no additional provision. In December 1998, the Company
received notification from the landlord that the arrearage was now approximately
$300,000 and that the landlord was going to draw that amount from the account.
Upon further review, management determined that the full value of the deposit
should be reserved and, accordingly, the Company recorded, as other expense in
the current quarter, a charge of $227,000.
G. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three months ended Six months ended
---------------------- -------------------------
12/26/98 12/27/97 12/26/98 12/27/97
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Income (loss) from continuing operations $(89,000) $ 888,000 $ (454,000) $1,563,000
Income (loss) from discontinued operations -- (276,000) 5,187,000 (295,000)
-------- --------- ---------- ----------
Net income (loss) $(89,000) $ 612,000 $4,733,000 $1,268,000
======== ========= ========== ==========
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Denominator:
Denominator for basic earnings per
share - weighted average shares 6,224,278 6,186,370 6,219,057 6,182,895
Effect of dilutive securities:
Employee stock options -- -- -- --
Non-vested restricted stock -- 10,116 -- 11,467
---------- ---------- ---------- ----------
Dilutive potential common shares -- 10,116 -- 11,467
---------- ---------- ---------- ----------
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 6,224,278 6,196,486 6,219,057 6,194,362
========== ========== ========== ==========
Per Share:
Income (loss) from continuing operations:
Basic $ (0.01) $ 0.14 $ (0.07) $ 0.25
Diluted $ (0.01) $ 0.14 $ (0.07) $ 0.25
Income (loss) from discontinued operations:
Basic -- $ (0.04) $ 0.83 $ (0.04)
Diluted -- $ (0.04) $ 0.83 $ (0.05)
Net income (loss):
Basic $ (0.01) $ 0.10 $ .076 $ 0.21
Diluted $ (0.01) $ 0.10 $ 0.76 $ 0.20
</TABLE>
At December 26, 1998 and December 27, 1997, options and warrants to
purchase 640,755 shares at prices ranging from $3.50 to $13.00 per share and
734,197 shares at prices ranging from $7.63 to $15.25 per share, respectively,
of common stock were anti-dilutive and therefore were excluded from the
computation of diluted earnings per share.
10
<PAGE> 11
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 from continuing operations, unless
otherwise noted, and financial condition. As more fully described in Note D to
the Consolidated Financial Statements, on September 23, 1998, certain of the
assets of the Company's systems Division were sold to General Signal for
$10,800,000 in cash. This discussion reflects the fact that, in accordance with
generally accepted accounting principles, the Company is reporting the results
of operations from the Systems Division as discontinued operations and that the
Company's Consolidated Financial Statements for fiscal 1999 and prior periods
have been revised to reflect this accounting treatment of the Systems Division
in those periods. The discussion should be read in conjunction with the
consolidated financial statements and notes thereto that appear elsewhere
herein.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 26, 1998 AND DECEMBER 27, 1997:
In the quarter ended December 26, 1998, the Company's continuing operations
had a loss of $89,000, or $0.01 per share (both basic and diluted), as compared
to income in the same period of fiscal 1998 of $888,000, or $0.14 per share
(both basic and diluted). The sale of the Systems Division in the first quarter
of fiscal 1999 had no impact on operations in the current quarter as the
operating results were within the reserves established in the first quarter.
Management believes that the operations through the disposal date will be within
the remaining established reserves. Discontinued operations relating to the
Systems Division for the second quarter of the prior fiscal year had a loss of
$276,000, or $0.04 per share (both basic and diluted). Net loss for the current
quarter was $89,000, or $0.01 per share (both basic and diluted) as compared to
net income of $612,000, or $0.10 per share (both basic and diluted) in the
quarter ended December 27, 1997. The decrease in net income in the second
quarter of fiscal 1999 was due primarily to the reduced sales of component
parts, which shifted the product mix toward a lower gross margin, and reduced
manufacturing efficiencies.
Net sales from continuing operations for the quarter ended December 26,
1998 totaled $6,561,000 as compared to $7,283,000 in the same period of the
prior year. A comparison of the net sales and revenues by major product line is
as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Components $3,012,000 $4,166,000
Fluids 666,000 579,000
Distributed products 2,883,000 2,538,000
---------- ----------
Total net sales and revenues $6,561,000 $7,283,000
========== ==========
</TABLE>
Consolidated gross margins for the second quarter of fiscal 1998 amounted
to 39.5% of product sales as compared to 47.6% of product sales in the prior
year's second quarter. The decline in gross margin in the second quarter of the
current year compared to the same period in the prior year is due principally to
the reduced sales of component parts, which shifted the product mix toward a
lower gross margin, and resulted in reduced manufacturing efficiencies. Gross
margin for fluids increased by nearly 7% over the same period in the prior year
while gross margin for distributed products was approximately equal to the same
period of the prior year.
Consolidated order bookings for the three months ended December 26, 1998
totaled $6,067,000 as compared to $7,296,000 in the same period of the prior
year. The decrease is due primarily to a decrease in components' bookings which
is consistent with the decrease in sales for the current quarter. Bookings for
the second quarter for distributed products by Ferrofluidics GmbH (in October
1998, AP&T GmbH changed its name to Ferrofluidics GmbH) remained relatively
level at $2,953,000 as compared to $2,872,000 in the second quarter of fiscal
1998.
11
<PAGE> 12
Consolidated backlog at December 26, 1998 was $6,935,000 as compared to
$8,226,000 at June 27, 1998. The backlog of orders for components products,
including fluids, decreased from $4,335,000 at June 27, 1998 to $3,819,000 at
December 26, 1998. Backlog for distributed products decreased from $3,891,000 at
June 27, 1998 to $3,116,000 at December 26, 1998. The majority of the order
backlog at December 26, 1998 is expected to ship in fiscal 1999.
Engineering and product development expenditures in the three months ended
December 26, 1998 totaled $765,000, an increase of $293,000, or 62.1%, compared
to $472,000 in the same period last year. As a percentage of revenues,
engineering and product development expenses increased from 6.5% in the December
1997 quarter to 11.7% in the December 1998 quarter. The increase in the current
quarter is due to new product development of seals and fluids.
Selling, general and administrative expenses (SG&A) for the three months
ended December 26, 1998 totaled $1,747,000, a decrease of 9.7% from the SG&A of
$1,934,000 in the same period of the prior year. The decrease is due to cost
reductions (head count reduction, reduced spending, etc.) made at the beginning
of the current quarter.
Interest expense of $41,000 for the three months ended December 26, 1998
decreased 75.9% from the $170,000 incurred during the same period in fiscal
1998. The decrease is due principally to the payoff of the Company's revolving
line-of-credit balance and the short-term promissory note in the first quarter
of fiscal 1999 from the proceeds of the sale of the Systems Division (see Note D
to the Consolidated Financial Statements and the discussion below regarding the
sale of the System Division).
As of December 26, 1998, the Company had remaining net operating loss
carryforwards for Federal income tax purposes of approximately $28,000,000, and
for foreign income tax purposes of approximately $3,000,000, which can be used
to offset future taxable income. The net operating loss carryforwards for
Federal income tax purposes will expire at various dates through 2013. Included
in the loss carryforward, for income tax purposes, is approximately $16,800,000
of tax deductions resulting from the excess of the market price over the
exercise price on the date of exercise of the Company's stock purchase options
and warrants which were exercised during 1993 and prior years. The tax benefit
to be realized upon utilization of the $16,800,000 of loss carryforwards will
result in a decrease in current income taxes payable and an increase to
additional paid-in capital.
SIX MONTHS ENDED DECEMBER 26, 1998 AND DECEMBER 27, 1997:
In the six months ended December 26, 1998, the Company's continuing
operations had a loss of $459,000, or $0.07 per share (both basic and diluted),
as compared to income in the same period of fiscal 1998 of $1,563,000, or $0.25
per share (both basic and diluted). The sale of the Systems Division in the
first quarter of fiscal 1999 resulted in an estimated gain of $5,187,000, or
$0.83 per share (both basic and diluted). Discontinued operations relating to
the Systems Division for the same period of the prior fiscal year had a net loss
of $295,000, or $0.04 per share ($0.05 on a diluted basis). Net income for the
current period was $4,733,000, or $0.76 per share (both basic and diluted) as
compared to $1,268,000, or $0.21 per share ($0.20 on a diluted basis), for the
same period in the prior year. The increase in net income in the current period
was due to the sale of the Systems Division.
Net sales for the six months ended December 26, 1998 declined to
$12,286,000 as compared to $13,468,000 in the same period of the prior year. A
product line comparison of the net sales and revenues, for the six months ended
December 26, 1998 and December 27, 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Seals $ 5,342,000 $ 7,962,000
Fluids 1,213,000 1,149,000
Distributed products 5,731,000 4,357,000
----------- -----------
Total net sales and revenues $12,286,000 $13,468,000
=========== ===========
</TABLE>
Consolidated gross margins for the six months ended December 26, 1998
amounted to 39.1% of product sales as compared to 48.2% of product sales in the
same period of the prior year. The decline in gross margin in the current year
12
<PAGE> 13
as compared to the same period in the prior year is due principally to the
reduced sales of component parts, which shifted the product mix toward a lower
gross margin, and resulted in reduced manufacturing efficiencies.
Consolidated order bookings for the six months ended December 26, 1998
totaled $11,713,000 as compared to $14,424,000 in the same period of the prior
year. The decrease is due primarily to a decrease in components' bookings which
is consistent with the decrease in sales for the current six month period.
Bookings for distributed products by Ferrofluidics GbhH decreased from
$5,113,000 in the first half of fiscal 1998 to $4,890,000 in the first half of
fiscal 1999.
Engineering and product development expenditures in the six months ended
December 26, 1998 totaled $1,334,000, an increase of $369,000, or 38.2%,
compared to $965,000 in the same period last year. As a percentage of revenues,
engineering and product development expenses increased from 7.2% in the six
month period ended December 1997 to 10.9% for the current period. The increase
in the current period is due to new product development of seals and fluids.
Selling, general and administrative expenses (SG&A) for the six months
ended December 26, 1998 totaled $3,577,000, which is comparable to the SG&A of
$3,554,000 in the same period of the prior year. In the second quarter of fiscal
1999, the Company implemented cost reductions (head count reduction, reduced
spending, etc.) which had a favorable impact in that quarter as compared to the
same period in the prior year.
Interest expense of $194,000 for the six months ended December 26, 1998
decreased 38.2% from the $314,000 incurred during the same period in fiscal
1998. The decrease is due principally to the payoff of the Company's revolving
line-of-credit balance and the short-term promissory note in the first quarter
of fiscal 1999 from the proceeds of the sale of the Systems Division (see Note D
to the Consolidated Financial Statements and the discussion below regarding the
sale of the System Division).
LIQUIDITY AND CAPITAL RESOURCES
Net working capital at December 26, 1998 was $17,205,000 as compared to
$8,182,000 at June 27, 1998. Current assets of the Company declined, due
primarily to the collection of accounts receivable and a reduction in inventory
levels, but total current liabilities declined further, resulting in the
increase in working capital. The decrease in current liabilities was $13,264,000
and was due principally to a $9,329,000 decrease in short term borrowings. See
discussion below regarding the repayment of debt. Accounts payable also
decreased by $1,369,000 due principally to the decrease in sales.
During the six months ended December 26, 1998, the operations of the
business used $277,000 of cash, due principally to the reduction in customer
deposits. At December 26, 1998, the Company had outstanding purchase commitments
for material of approximately $1,000,000, the majority of which was related to
the component parts business.
Cash flow from investing activities during the six months ended December
26, 1998 consisted almost entirely of proceeds from the sale of the Systems
Division. In addition, the Company sold a 300mm crystal growing system that had
been included in property, plant and equipment, at approximately book value.
Upon signing of the sales agreement for this machine, the Company received
$1,385,000 in cash with the balance of $225,000 due upon shipment of the
machine, which is expected to occur before the end of March 1999. Financing
activities of the Company during the six months ended December 26, 1998 included
the complete paydown of all short term debt from the cash proceeds of the sale
of the Systems Division (see also Note D to the financial statements). The
consolidated results of operations for the six months ended December 26, 1998
includes a non-cash charge of $31,000 for compensation to employees as a result
of restricted stock grants made in prior years. In the same period last year, a
charge of $145,000 was made for the same purpose.
The Company has long-term financing in the form of a $5,000,000 Variable
Rate Industrial Revenue Bond ("VRIRB"). The VRIRB is subject to a variable rate
of interest keyed to short-term nontaxable rates (at December 26, 1998, 4.25%).
Under an arrangement with its bank, and throughout most of the first quarter of
fiscal 1998, the Company
13
<PAGE> 14
had available to it a total credit facility of approximately $15,400,000, which
included approximately $5,400,000 in the form of a stand-by letter of credit for
the Company's VRIRB, which expires in August 1999 and carries a fee of 1% per
year, an $8,500,000 revolving line-of-credit for working capital purposes, and
$1,500,000 of which was in the form of a 90 day promissory note, which bears
interest at the same rate as the revolving line of credit. In addition, the
Company has an installment demand note with its bank ($381,000 outstanding at
December 26, 1998) that was used to finance the expansion of its in-house
machine shop. The entire credit facility is collateralized by substantially all
of the assets of the Company.
On September 23, 1998, the date of the sale of the Systems Division, there
was approximately $7,907,000 outstanding against the revolving line-of-credit.
This amount, together with the $1,500,000 outstanding on the short-term
promissory note, was repaid from the proceeds of the sale of the Systems
Division (see Note D to the Consolidated Financial Statements and the discussion
below regarding the sale of the Systems Division). At the same time, the Company
and the bank agreed to reduce the availability under the revolving line of
credit to $2,000,000 to reflect the Company's reduced working capital needs
after the sale of the Systems Division. The revolving line-of-credit agreement,
which expired in November 1998, is in the process of being renewed at a level
which management believes will be in line with the working capital needs of
continuing operations. It is expected that the proceeds received from the sale
of the Systems Division and other cash flow (including collection of systems
receivables and completion of systems backlog) will significantly reduce the
Company's need for short-term borrowing arrangements to finance working capital
needs in the near future. Management therefore believes that anticipated funds
from operations and the borrowing arrangements that are expected to be put into
place will be adequate to meet cash requirements for the year ahead. There were
no outstanding borrowings under the line-of-credit agreement at December 26,
1998.
As more fully described in Note D to the Consolidated Financial Statements,
certain of the assets of the Company's Systems Division were sold on September
23, 1998 to General Signal for $10,800,000 in cash. A portion of the cash
proceeds from this sale has been used to pay off certain outstanding debt as of
the closing of the sale of the Systems Division. The sale, as structured, did
not include any of the Systems Division accounts receivable or liabilities,
which remain with the Company. The sale also did not include the obligation to
complete approximately $18,433,000 ($3,600,000 at December 26, 1998) in Systems
Division backlog, which obligation remains with the Company, nor did it include
approximately $5,873,000 ($2,747,000 at December 26, 1998) in inventory on hand
on the date of the sale, all of which was needed to fulfill existing backlog.
The terms of the sale of the Systems Division provide that, generally, any
backlog existing on December 31, 1998, will be transferred to General Signal.
The remaining backlog at December 26, 1998, however, will be completed and
shipped by the Company as agreed to by General Signal. The backlog at September
23, 1998 included a purchase order from a customer for nine machines (valued at
approximately $7,658,000) for which the customer did not provide firm delivery
dates. Delivery of the nine machines was cancelled by the customer in the
current quarter. The Company believes that, under the terms of the purchase
order, the customer is obligated to pay the Company the costs incurred up to
cancellation of the delivery. In connection with these machines, on September
23, 1998, the Company had inventory of approximately $1,712,000 on hand and
approximately $2,471,000 in parts on order at vendors. During the quarter ended
December 26, 1998, the Company has reduced its commitment to its vendors from
$2,471,000 to $1,750,000. The Company and the customer are actively negotiating
a settlement of the Company's claims under this purchase order. If the Company
is unable to recover these cancellation charges from the customer, the Company
may be required to take a material write-down of the inventory relating to the
purchase order, which would require the Company to adjust the estimated gain on
disposal of the Systems Division recorded in the first quarter of fiscal 1999.
YEAR 2000 READINESS DISCLOSURES
The Company is currently working to resolve the potential impact of the
Year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Year 2000 problem is a result of computer
programs being written using two digits (rather than four) to define the
applicable year.
14
<PAGE> 15
The Company's products in the Components Business are mechanical devices or
fluids and do not contain any electronic components. The Company's products in
its Distributed Products Business include an electron beam gun for use in vacuum
deposition processes which is electronically controlled, but includes no
date-sensitive devices. Consequentially, the Company has no need to make any
changes to its products in anticipation of the Year 2000.
Prior to the sale of the Company's Systems Division, the Division sold
products that were controlled by computerized hardware and software. The
software involved was purchased off-the-shelf, and was not customized by the
Company, and accordingly, some systems contain versions of the software that
may not be Year 2000 compliant. The Company is currently undertaking a review
of Year 2000 compliance matters as they relate to products previously sold by
the Systems Division.
The Company has sent requests to all of its principal providers of services
and component parts to advise the Company of their progress in making their
internal systems Year 2000 compliant. The Company believes it has a sufficient
base of critical component suppliers so that if any supplier is unable to
deliver parts due to Year 2000 problems, alternate sources will be available and
that any supply interruption will not be material to its operations. There can
be no assurances, however, that the Company would be able to obtain all of its
supply requirements from such alternate sources on terms comparable with that of
its current suppliers. The Company has identified one critical service supplier
(its bank), the failure of whose systems for an extended period for any reason,
including Year 2000 problems, could cause financially material adverse
consequences to the Company. The bank has provided assurance in writing to the
Company that its systems will be Year 2000 compliant.
With respect to its internal systems, the Company has undertaken an
assessment of its vulnerability to the Year 2000 issue. The Company does not
rely on electronic interaction with customers or vendors, and has in recent
years relied almost entirely on purchased off-the-shelf software packages for
both business and engineering purposes. These packages have not been materially
customized by the Company for its purposes. These software packages run on a
personal computer based local area network which was installed by the Company in
1993, and which has been upgraded as needed since then. The assessment was based
upon formal and informal communications with the software vendors, literature
supplied with the software, literature received in connection with maintenance
contracts, and test evaluations of the software. Systems critical to the
business which have been identified as vulnerable to the Year 2000 problem
either have been, or are being, replaced with new purchased software or
corrected by upgrades available from vendors. Outside companies such as vendors,
major customers, service suppliers, communications providers and banks are being
asked to verify their Year 2000 readiness and the Company is testing interaction
with such systems where appropriate. The assessment thus far has been
accomplished, and is expected to be completed, utilizing the Company's existing
resources, and is not expected to have an adverse material effect on the
Company's financial results.
It is the Company's belief that the results of the assessment to date
indicate that all of the Company's major business systems software is Year 2000
compliant, or will be Year 2000 compliant by the end of calendar year 1999, and
that the Year 2000 issue is not likely to have a material impact on the
Company's operations. However, there can be no assurances that the systems or
software of third parties on which the Company relies will be timely converted
and the Company may be adversely affected by the failure of such a third party
to become Year 2000 compliant. The Company has not yet developed a plan to deal
with this contingency but expects to have such a plan in place by the end of
fiscal 1999.
15
<PAGE> 16
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. 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, changes in revenues in the Company's
components, fluids and distributed products businesses, expected working capital
needs of continuing operations, a material change in the market conditions
within the semiconductor industry and, changes in management's assessments
regarding the Company's obligations under outstanding purchase orders, ability
to fulfill existing sales order backlog, the recoverability of inventory and the
ability to collect accounts receivable relating to the discontinued Systems
Division, the adequacy of the reserves established to account for possible
losses relating to the closure of the discontinued Systems Division, the
resolution of a dispute with a customer over the validity of a purchase order
relating to the discontinued Systems Division and failure of the Company's
systems or software, or the systems or software of a third party on which the
Company relies to be Year 2000 compliant. 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company maintains foreign operations in England, Germany and Japan and
conducts business in many other countries. As a result of these international
activities, the Company is exposed to changes in foreign currency exchange
rates, which could have some impact on the results of operations. The Company
manages exposure to changes in foreign currency exchange rates through its
normal operating and financing activities, as well as through the use of some
financial instruments. Generally, the only financial instruments the Company
utilizes are forward exchange contracts.
The purpose of the Company's hedging activities is to mitigate the impact
of changes in foreign currency exchange rates. The Company utilizes foreign
currency forward exchange contracts for such hedging purposes. These contracts
generally do not exceed 12 months in duration, and are designed to coincide with
settlement dates of the related transactions, or to hedge balance sheet
translation exposure.
The Company engages neither in speculative nor derivative trading
activities.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders (the "Annual Meeting")
on December 17, 1998. The chart below sets forth each of the matters voted upon
at the Annual Meeting as well as the number of stockholder votes cast for,
against or withheld, as well as the number of abstentions and broker non-votes,
as to each such matter:
1. At the Annual Meeting, the stockholder votes cast on the election of two
Class III directors to hold office for a three-year term and until their
successors are duly elected and qualified, were as follows:
Nominee For Withheld
------- --- --------
Paul F. Avery, Jr. 4,040,496 1,540,980
Dean Kamen 4,040,492 1,540,984
16
<PAGE> 17
The number of stockholder votes cast in favor of each of the nominees
constituted a plurality of all of the votes cast in such election and
accordingly, each nominee was elected to serve as a Class III director of the
Company until the 2001 annual meeting of stockholders and until their successors
are duly elected and qualified.
2. At the Annual Meeting, the stockholder votes cast on the stockholder
proposal to urge the Board of Directors to take the necessary steps to
provide that at future elections of directors, new directors be elected
annually and not by classes ("Proposal 2") were as follows:
For Against Abstaining Broker Non-Votes
--- ------- ---------- ----------------
2,239,000 1,099,103 60,062 --
The number of stockholder votes cast in favor of Proposal 2 constituted at
least a majority of the total number of stockholders votes entitled to be cast
at the Annual Meeting by all the shares of Common Stock issued, outstanding and
entitled to vote at the Annual Meeting and accordingly, Proposal 2 was approved.
3. At the Annual Meeting, the stockholder votes cast on the stockholder
proposal to amend the Bylaws of the Company to provide that (i.) a special
meeting of the stockholders shall be called upon written application of one
or more stockholders who holds at least five percent (5%) in interest of
the capital stock of the Company entitled to vote at the meeting, and (ii.)
the Board of Directors must determine the hour, date and place of any
special meeting within forty-five (45) days after receiving an application
from one or more stockholders holding the requisite interest of the capital
stock of the Company ("Proposal 3"), were as follows:
For Against Abstaining Broker Non-Votes
--- ------- ---------- ----------------
2,068,491 1,234,641 95,035 --
The stockholder votes cast in favor of Proposal 3 did not constitute the
required sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of
Common Stock entitled to vote at the Annual Meeting and, accordingly Proposal 3
was rejected.
4. At the Annual Meeting, the stockholder votes cast on the stockholder
proposal to request that the Company and/or its businesses be sold and that
the Board of Directors engage an investment banking firm to assist the
Board in seeking to obtain a purchaser or purchasers ("Proposal 4"), were
as follows:
For Against Abstaining Broker Non-Votes
--- ------- ---------- ----------------
1,979,497 1,306,742 111,928 --
The stockholder votes cast in favor of Proposal 4 constituted at least a
majority of the total number of votes entitled to be cast at the Annual Meeting
by all shares of Common Stock issued, outstanding and entitled to vote at the
Annual Meeting and, accordingly Proposal 4 was approved.
17
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K:
Current report on Form 8-K dated September 23, 1998 (filed with the SEC
on September 24, 1998) reporting the sale of the Systems Division.
18
<PAGE> 19
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: February 5, 1999 By: /s/ Paul F. Avery, Jr.
---------------- --------------------------------------
Paul F. Avery, Jr.
President, Chief Executive Officer and
Chairman of the Board
By: /s/ William B. Ford
--------------------------------------
William B. Ford
Vice President and Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FERROFLUIDICS CORPORATION'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 26, 1998
AND FOR ITS CONSOLIDATED RESULTS OF OPERATIONS FOR THE SIX MONTHS THEN ENDED AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY STATEMENT ON FORM
10-Q FOR THE SIX MONTHS ENDED DECEMBER 26, 1998.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> JUN-28-1998
<PERIOD-END> DEC-26-1998
<EXCHANGE-RATE> 1
<CASH> 3,861,000
<SECURITIES> 0
<RECEIVABLES> 9,886,000
<ALLOWANCES> 374,000
<INVENTORY> 10,246,000
<CURRENT-ASSETS> 24,574,000
<PP&E> 17,859,000
<DEPRECIATION> 11,361,000
<TOTAL-ASSETS> 35,790,000
<CURRENT-LIABILITIES> 7,369,000
<BONDS> 5,000,000
0
0
<COMMON> 36,787,000
<OTHER-SE> (13,562,000)
<TOTAL-LIABILITY-AND-EQUITY> 35,790,000
<SALES> 12,286,000
<TOTAL-REVENUES> 12,286,000
<CGS> 7,477,000
<TOTAL-COSTS> 7,477,000
<OTHER-EXPENSES> 4,911,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 194,000
<INCOME-PRETAX> (451,000)
<INCOME-TAX> 3,000
<INCOME-CONTINUING> (454,000)
<DISCONTINUED> 5,187,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,733,000
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FERROFLUIDICS CORPORATION'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 27, 1997
AND ITS CONSOLIDATED RESULTS OF OPERATIONS, AS RESTATED TO REFLECT THE SYSTEMS
DIVISION AS DISCONTINUED OPERATIONS, FOR THE SIX MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TOSUCH QUARTERLY STATEMENT ON FORM 10-Q
FOR THE SIX MONTHS ENDED DECEMBER 27, 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> JUN-29-1997
<PERIOD-END> DEC-27-1997
<EXCHANGE-RATE> 1
<CASH> 1,130,000
<SECURITIES> 0
<RECEIVABLES> 17,168,000
<ALLOWANCES> 222,060
<INVENTORY> 13,941,000
<CURRENT-ASSETS> 34,005,000
<PP&E> 21,449,000
<DEPRECIATION> 11,541,000
<TOTAL-ASSETS> 49,016,000
<CURRENT-LIABILITIES> 20,969,000
<BONDS> 5,000,000
0
0
<COMMON> 36,631,000
<OTHER-SE> (13,753,000)
<TOTAL-LIABILITY-AND-EQUITY> 49,016,000
<SALES> 13,468,000
<TOTAL-REVENUES> 13,468,000
<CGS> 6,973,000
<TOTAL-COSTS> 6,973,000
<OTHER-EXPENSES> 4,519,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 314,000
<INCOME-PRETAX> 1,693,000
<INCOME-TAX> 130,000
<INCOME-CONTINUING> 1,563,000
<DISCONTINUED> (295,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,268,000
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
</TABLE>
