FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 1995
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the Transition Period From __________________ to ____________________
Commission File No. 0-4723
FARR COMPANY
(Exact name of registrant as specified in its charter)
Delaware 95-1288401
(State of other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
2221 Park Place, El Segundo, California 90245
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrants phone number (310) 536-6300
- ------------------------------------------------------------------------------
Prior name, address & 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.
Yes x No
----- -----
3,792,586
Number of shares of registrants common stock outstanding as of close of the
period covered by this report.
<PAGE>
PART I - FINANCIAL INFORMATION
FARR COMPANY AND SUBSIDIARIES
INDEX TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
Part I - Financial Information
Introduction
Condensed Consolidated Financial Statements
Balance Sheets - September 30, 1995 and December 31, 1994
Income Statements for the three months ended September 30, 1995 and
October 1, 1994 and for the nine months ended September 30, 1995 and
October 1, 1994.
Statements of Cash Flows for the nine months ended September 30,1995
and October 1, 1994.
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis
Part II - Other Information
Exhibits
<PAGE>
FARR COMPANY AND SUBSIDIARIES
INTRODUCTION TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
The Condensed Consolidated Financial Statements included herein have
been prepared by the Company, without audit, and include all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
financial position as of September 30, 1995 and the results of operations for
the three and nine month periods ended September 30, 1995 and October 1, 1994
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10-K.
<PAGE>
<TABLE>
FARR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
<CAPTION>
(Unaudited) (Audited)
Sep. 30, 1995 Dec. 31,1994
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................... $ 253,000 $ 127,000
Accounts receivable, less allowances of
$216,000 in 1995 and $266,000 in 1994 ...... 20,618,000 21,011,000
Inventories .................................. 15,753,000 14,655,000
Prepaid expenses ............................. 909,000 597,000
Asset held for investment .................... 2,083,000 2,083,000
Deferred tax benefit ......................... 946,000 1,602,000
------------ ------------
Total current assets ....................... 40,562,000 40,075,000
------------ ------------
Property, Plant and Equipment at cost
Land ......................................... 2,098,000 2,092,000
Buildings and improvements ................... 15,141,000 14,879,000
Machinery and equipment ...................... 34,285,000 33,766,000
------------ ------------
51,524,000 50,737,000
Less-accumulated depreciation and amortization 34,765,000 32,807,000
------------ ------------
16,759,000 17,930,000
Investments & Other ............................. 729,000 1,264,000
------------ ------------
$ 58,050,000 $ 59,269,000
============ ============
<FN>
The accompanying notes are an integral part of these balance sheets.
</FN>
</TABLE>
<TABLE>
FARR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Liabilities & Stockholders' Investment
<CAPTION>
(Unaudited) (Audited)
Sep. 30, 1995 Dec. 31,1994
------------- ------------
<S> <C> <C>
Current Liabilities:
Notes/overdraft payable to banks ............. $ 240,000 $ 0
Current portion of long-term debt ............ 1,942,000 2,012,000
Accounts payable ............................. 8,250,000 8,326,000
Accrued liabilities .......................... 8,071,000 7,692,000
Income taxes payable and deferred taxes ...... 432,000 263,000
------------- ------------
Total current liabilities ................. 18,935,000 18,293,000
Long-Term Debt .................................. 14,564,000 18,957,000
Deferred Income Taxes ........................... 847,000 847,000
Commitments and Contingencies
Stockholders' Investment:
Common stock, $0.10 par value--
Authorized--10,000,000 shares
Outstanding--3,792,586 shares at
September 30, 1995 and 3,782,806 shares
at December 31, 1994 ........................ 368,000 368,000
Additional paid-in capital .................... 12,174,000 12,005,000
Cumulative translation adjustments ............ (1,579,000) (1,847,000)
Retained earnings:
Balance beginning of year ................... 11,281,000 11,636,000
Net income(loss) for the period ............. 2,034,000 (355,000)
Balance at end of period .................... 13,315,000 11,281,000
Loan to ESOPs ................................. (574,000) (635,000)
------------- ------------
Total stockholders' investment ............ 23,704,000 21,172,000
------------- ------------
$ 58,050,000 $ 59,269,000
============= ============
<FN>
The accompanying notes are an integral part of these balance sheets.
</FN>
</TABLE>
<PAGE>
<TABLE>
FARR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three Months Ended Nine Months Ended
Sep. 30, 1995 Oct. 1, 1994 Sep. 30, 1995 Oct. 1, 1994
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net Sales ............................. $ 28,444,000 $ 27,462,000 $ 84,379,000 $ 79,158,000
Costs and Expenses:
Cost of sales ....................... 21,692,000 21,687,000 64,275,000 63,326,000
Selling, general and administration . 5,142,000 4,803,000 15,286,000 14,454,000
Interest expense .................... 426,000 552,000 1,484,000 1,600,000
Restructuring costs ................. 1,000,000
------------ ------------ ----------- ------------
Total Costs and Expenses .............. 27,260,000 27,042,000 81,045,000 80,380,000
------------ ------------ ----------- ------------
Income (Loss) Before Income Taxes ..... 1,184,000 420,000 3,334,000 (1,222,000)
Income taxes ........................ 458,000 145,000 1,300,000 (457,000)
------------ ------------ ------------ ------------
Net Income (Loss) ..................... $ 726,000 $ 275,000 $ 2,034,000 ($ 765,000)
============ ============ ============ ============
Earnings (Loss) per Common Share * .... $ 0.20 $ 0.07 $ 0.55 ($ 0.21)
============ ============ ============ ============
<FN>
* Based upon 3,685,914 and 3,678,152 average shares outstanding at September 30,
1995 and October 1, 1994, respectively.
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
FARR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Cash Provided by ( Used in ) : Year-to-Date
Sep. 30, 1995 Oct. 1, 1994
------------- ------------
<S> <C> <C>
Operating Activities:
Net (Loss) Income ............................................. $ 2,034,000 ($ 765,000)
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization .............................. 2,248,000 2,475,000
Provision for loss on accounts receivable .................. 114,000 162,000
Change in deferred income taxes ............................ 711,000 (850,000)
Net (gain) loss on sale/retirement of P,P & E .............. (23,000) 0
Net gain from investments .................................. (115,000) 0
Decrease (increase) in inventories ......................... (981,000) 798,000
Decrease (increase) in receivables and prepaid expenses .... 335,000 (546,000)
(Decrease) increase in accounts payable & accrued expense .. (84,000) 1,932,000
Net change in current income taxes receivable and payable .. (9,000) (160,000)
Exchange gain .............................................. (5,000) (14,000)
------------ -----------
Net cash provided by (used in) operating activities ........ 4,225,000 3,032,000
------------ -----------
Investing Activities:
Purchases of property, plant and equipment .................... (674,000) (868,000)
Proceeds from sale of property, plant and equipment ........... 23,000 0
Proceeds from sale of investments ............................. 501,000 0
------------ -----------
Net cash provided by (used in) investing activities ........ (150,000) (868,000)
------------ -----------
Financing Activities:
Proceeds from revolving line of credit,
and long-term borrowings ..................................... 240,000 19,086,000
Principal payments on revolving line of credit
and long-term debt borrowings & overdrafts ................... (4,280,000) (20,890,000)
Principal payments received on ESOP loans ..................... 61,000 90,000
Proceeds from sale of stock, stock option plans ............... 167,000 0
Deferred financing costs ...................................... 0 (533,000)
Long-term note receivable ..................................... (174,000) 0
------------ ------------
Net cash (used in) provided by financing activities ........ (3,986,000) (2,247,000)
------------ ------------
Effect of Exchange Rate Changes on Cash ......................... 37,000 (6,000)
Increase (Decrease) in Cash and Cash Equivalents ................ 126,000 (77,000)
Cash and Cash Equivalents at Beginning of Period ................ 127,000 671,000
------------ ------------
Cash and Cash Equivalents at End of Period .................... $ 253,000 $ 594,000
============ ============
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
FARR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(UNAUDITED)
1. Significant Accounting Policies
2. Restricted Cash
3. Inventories
4. Restructuring Costs
5. Extraordinary Item
6. Common Stock
7. Notes Payable and Long-Term Debt
8. Income Taxes
9. Employee Benefit Plans
10. Stock Options
11. Per Share Amounts
12. Commitments and Contingencies
13. Segment Information
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Condition
As of September 30, 1995, working capital was $21,627,000 compared to
$21,782,000 at the end of 1994, representing a $155,000 decrease in total
working capital for the first nine months of 1995. The decrease in working
capital is primarily accounted for by decreases in accounts receivable
($393,000), and deferred income taxes ($825,000) partially offset by a increase
in inventory ($1,098,000) .
The decrease in accounts receivable during the first nine months of 1995 is
related to the implementation of new collection programs, the decrease in
deferred taxes is attributable to the utilization of the Company's NOL tax
carryforward from prior years and the increase in inventories is primarily
related to a increase in work in process inventories associated with several
large filter house projects scheduled to be shipped during the fourth quarter.
Long-term debt decreased $4,463,000 and short term borrowings increased
$240,000 during the first nine months primarily due to the Company's strong cash
flow provided by operating activities ($4,225,000). Surplus borrowing
availability under the Company's domestic revolving credit facility at the end
of the third quarter increased to over $7 million.
Capital expenditures of $674,000 during the first nine months decreased
over the same period last year by $194,000. Overall, capital expenditures
continue to be maintained at low levels commensurate with lender financial
covenants and to conserve cash resources.
During the third quarter, the Company entered into an agreement to sell its
Rialto, California manufacturing facility. The closing of this sale agreement is
expected to occur during the fourth quarter of 1995.
Current debt maturities and operating capital requirements of the Company
are anticipated to be provided through cash flows generated from operating
activities and borrowing availability under the Company's domestic revolving
credit facility and foreign overdraft credit facilities.
Results of Operations
During the third quarter, the Company's net income improved to $726,000
from $275,000 during the same period last year. Third quarter sales increased
from $27,462,000 reported last year to $28,444,000.
Year to date third quarter net income improved to $2,034,000, up from a
loss of $765,000 during 1994. The nine month period loss for 1994 included
$660,000 in nonrecurring expenses in connection with the closing of the Rialto
plant, so that comparable net income results from operations before
restructuring cost last year showed a $105,000 net loss. Sales for the nine
months were $84,379,000, up from $79,158,000. Sales increases were realized in
products related to pollution control, engine, OEM and international markets,
while heating, ventilating and air conditioning products showed slight
decreases.
A modest price increase was initiated in July, 1995. This partially offset
material and labor cost increases for the year. The balance of those cost
increases have been met through improved material usage and efficiency.
Incoming orders were slightly off against plan in the third quarter and
while backlog decreased 11 percent during the quarter, it remained ahead of the
prior year end level. Early fourth quarter orders remain somewhat sluggish, but
are not viewed as having a significant negative effect on the fourth quarter
performance.
The Company is cautiously optimistic that its favorable recent operating
trends will continue into the first quarter of 1996.
<PAGE>
6.a. Exhibits
The following is being filed with this Quarterly Report on Form 10-Q.
- - Exhibit-11 Earnings per share calculation. (unaudited)
<PAGE>
<TABLE>
Exhibit-11 Farr Company and Subsidiaries - Earnings per Share Calculation (unaudited)
Earnings
<CAPTION>
Three Months Ended Nine Months Ended
Sep. 30, 1995 Oct. 1, 1994 Sep. 30, 1995 Oct. 1, 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) ................................. $ 726,000 $ 275,000 $ 2,034,000 ($ 765,000)
============ ============ ============ ============
Shares
Weighted average number of
common shares outstanding ...................... 3,685,914 3,678,152 3,685,914 3,678,152
============ ============ ============ ============
Earnings per share
Net income (loss) per common share ................ $ 0.20 $ 0.07 $ 0.55 ($ 0.21)
============ ============ ============ ============
Earnings assuming full dilution:
Net income (loss) ................................. $ 726,000 $ 275,000 $ 2,034,000 ($ 765,000)
============ ============ ============ ============
Shares
Weighted average number of
common shares outstanding ....................... 3,685,914 3,678,152 3,685,914 3,678,152
Assuming exercise of options reduced by the number
of shares which could have been purchased
with the proceeds from the exercise of
such options .................................... 8,448 16,461 8,448 --
------------ ------------ ------------ ------------
3,694,362 3,694,613 3,694,362 3,678,152
============ ============ ============ ============
Earnings per share
Net (loss) income per common share
assuming full dilution .......................... $ 0.20 $ 0.07 $ 0.55 ($ 0.21)
============ ============ ============ ============
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FARR COMPANY
(registrant)
November 13, 1995
/s/ Kenneth W. Gerstner
--------------------------
Kenneth W. Gerstner
Senior Vice President
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 253,000
<SECURITIES> 0
<RECEIVABLES> 20,618,000
<ALLOWANCES> 216,000
<INVENTORY> 15,753,000
<CURRENT-ASSETS> 40,562,000
<PP&E> 51,524,000
<DEPRECIATION> 34,765,000
<TOTAL-ASSETS> 58,050,000
<CURRENT-LIABILITIES> 18,935,000
<BONDS> 0
<COMMON> 368,000
0
0
<OTHER-SE> 23,336,000
<TOTAL-LIABILITY-AND-EQUITY> 58,050,000
<SALES> 84,379,000
<TOTAL-REVENUES> 84,379,000
<CGS> 64,275,000
<TOTAL-COSTS> 64,275,000
<OTHER-EXPENSES> 15,268,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,484,000
<INCOME-PRETAX> 3,334,000
<INCOME-TAX> 1,300,000
<INCOME-CONTINUING> 2,034,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,034,000
<EPS-PRIMARY> 0.550
<EPS-DILUTED> 0.550
</TABLE>
