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 July 1, 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
----- -----
3,788,586
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
JULY 1, 1995
Part I - Financial Information
Introduction
Condensed Consolidated Financial Statements
Balance Sheets - July 1, 1995 and December 31, 1994
Income Statements for the three months ended July 1, 1995 and July 2,
1994 and for the six months ended July 1, 1995 and July 2, 1994.
Statements of Cash Flows for the six months ended July 1, 1995 and July
2, 1994.
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis
Part II - Other Information
Submission of matters to a vote of security holders exhibits.
Exhibits.
<PAGE>
FARR COMPANY AND SUBSIDIARIES
INTRODUCTION TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 1, 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 July 1, 1995 and the results of operations for the
three and six month periods ended July 1, 1995 and July 2, 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)
July 1,1995 Dec. 31,1994
----------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............... $ 190,000 $ 127,000
Accounts receivable, less allowances of
$289,000 in 1995 and $266,000 in 1994 .. 20,510,000 21,011,000
Inventories ............................. 15,142,000 14,655,000
Prepaid expenses ........................ 824,000 597,000
Asset held for investment ............... 2,083,000 2,083,000
Deferred tax benefit .................... 1,200,000 1,602,000
---------- ----------
Total current assets .................. 39,949,000 40,075,000
---------- ----------
Property, Plant and Equipment at cost
Land .................................... 2,098,000 2,092,000
Buildings and improvements .............. 15,118,000 14,879,000
Machinery and equipment ................. 34,063,000 33,766,000
---------- ----------
51,279,000 50,737,000
Less-accumulated depreciation
and amortization ...................... 34,089,000 32,807,000
---------- ----------
17,190,000 17,930,000
Investments & Other ........................ 843,000 1,264,000
---------- ----------
$57,982,000 $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)
July 1,1995 Dec. 31,1994
----------- ------------
<S> <C> <C>
Current Liabilities:
Notes/overdraft payable to banks ......... $ 604,000 $ 0
Current portion of long-term debt ......... 2,012,000 2,012,000
Accounts payable .......................... 8,306,000 8,326,000
Accrued liabilities ....................... 7,214,000 7,692,000
Income taxes payable and deferred taxes ... 517,000 263,000
---------- ----------
Total current liabilities .............. 18,653,000 18,293,000
Long-Term Debt ............................... 15,521,000 18,957,000
Deferred Income Taxes ........................ 847,000 847,000
Commitments and Contingencies
Stockholders' Investment:
Common stock, $.10 par value--
Authorized--10,000,000 shares
Outstanding--3,788,586 shares at
July 1, 1995, and 3,782,806
shares at December 31, 1994 ............... 368,000 368,000
Additional paid-in capital ................. 12,152,000 (1,847,000)
Retained earnings:
Balance beginning of year ................ 11,281,000 11,636,000
Net income(loss) for the period .......... 1,308,000 (355,000)
Balance at end of period ................. 12,589,000 11,281,000
Loan to ESOPs .............................. (574,000) (635,000)
---------- ----------
Total stockholders' investment ......... 22,961,000 21,172,000
---------- ----------
$57,982,000 $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)
<CAPTION>
Three Months Ended Six Months Ended
July 1,1995 July 2,1994 July 1,1995 July 2,1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales ........................... $ 28,682,000 $ 26,525,000 $ 55,935,000 $ 51,696,000
Costs and Expenses:
Cost of sales ..................... 21,726,000 21,344,000 42,583,000 41,639,000
Selling, general and administrative 5,311,000 4,729,000 10,144,000 9,651,000
Interest expense .................. 493,000 491,000 1,058,000 1,048,000
Restructuring costs ............... 1,000,000 1,000,000
----------- ----------- ----------- ----------
Total Costs and Expenses ............ 27,530,000 27,564,000 53,785,000 53,338,000
----------- ----------- ----------- ----------
Income (Loss) Before Income Taxes ... 1,152,000 (1,039,000) 2,150,000 (1,642,000)
Income Taxes ...................... 477,000 (414,000) 842,000 (602,000)
----------- ----------- ----------- ----------
Net Income (Loss) ................... $ 675,000 ($ 625,000) $ 1,308,000 ($ 1,040,000)
============ ============ ============ ============
Earnings(Loss) per Common Share* .... $ 0.18 ($ 0.17) $ 0.35 ($ 0.28)
============ ============ ============ ============
<FN>
* Based upon 3,684,446 and 3,678,152 average shares outstanding at July 1, 1995
and July 2, 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
July 1,1995 July 2, 1994
------------ ------------
<S> <C> <C>
Operating Activities:
Net (Loss) Income ........................................... $ 1,308,000 ($ 1,040,000)
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization ............................ 1,482,000 1,581,000
Provision for loss on accounts receivable ................ 76,000 112,000
Change in deferred income taxes .......................... 434,000 (924,000)
Net (gain) loss on sale/retirement of P,P & E ............ (19,000) 25,000
Net gain from investments ................................ (115,000) 0
Decrease (increase) in inventories ....................... (404,000) 838,000
Decrease (increase) in receivables and prepaid expenses .. 414,000 (425,000)
(Decrease) increase in accounts payable & accrued expense (563,000) 2,041,000
Net change in current income taxes receivable and payable 145,000 (102,000)
Exchange gain ............................................ (3,000) (175,000)
----------- -----------
Net cash provided by operating activities ............... 2,755,000 1,931,000
----------- -----------
Investing Activities:
Purchases of property, plant and equipment .................. (468,000) (534,000)
Proceeds from sale of property, plant and equipment ......... 19,000 0
Proceeds from sale of investments ........................... 497,000 0
----------- ----------- -
Net cash provided by ( used in ) investing activities ... 48,000 (534,000)
----------- -----------
Financing Activities:
Proceeds from revolving line of credit,
and long-term borrowings ................................... 604,000 19,316,000
Principal payments on revolving line of credit
and long-term debt borrowings & overdrafts ................. (3,406,000) (20,593,000)
Principal payments received on ESOP loans ................... 61,000 60,000
Proceeds from sale of stock, stock option plans ............. 145,000 0
Deferred financing costs .................................... 0 (521,000)
Long-term note receivable ................................... (172,000) 0
----------- -----------
Net cash used in financing activities .................... (2,768,000) (1,738,000)
----------- -----------
Effect of Exchange Rate Changes on Cash ....................... 28,000 (5,000)
Increase (Decrease) in Cash and Cash Equivalents .............. 63,000 (346,000)
Cash and Cash Equivalents at Beginning of Period .............. 127,000 671,000
----------- -----------
Cash and Cash Equivalents at End of Period .................. $ 190,000 $ 325,000
=========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
FARR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 1, 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 July 1, 1995, working capital was $21,296,000 compared to $21,782,000 at
the end of 1994, representing a $486,000 decrease in total working capital for
the first six months of 1995. The primary components of the change in working
capital during the first half were a decrease in accounts receivable ($501,000),
a decrease in income taxes payable and deferred taxes ($178,000) and a increase
in notes payable ($604,000) partially offset by increases in inventory
($487,000) and prepaid expenses ($227,000).
The decrease in accounts receivable reflects improvement in collections compared
to the fourth quarter of 1994 as a result of emphasis on asset management. The
increase in short term notes payable reflects an increase in foreign borrowings
to meet short term working capital requirements.
Long-term debt decreased $3,436,000 during the first quarter primarily due to
the Company's decrease in working capital requirements, improved net income and
low level of capital spending. Surplus borrowing availability under the
Company's domestic revolving credit facility at the end of the first half was
approximately $7,000,000.
As a result of operating performance and financial condition improvements made
over the past year, the Company completed credit agreement amendments during the
second quarter that lowered the effective borrowing rates under its revolving
and term credit facilities. As a result of the reduced borrowing rates, the
Company anticipates annualized interest savings of approximately $250,000 as
compared to the previous borrowing rates.
Capital expenditures of $468,000 during the first quarter increased over the
same period last year by $66,000. Overall, capital expenditures continue to be
maintained at low levels commensurate with lender financial covenants and to
conserve cash resources.
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.
Results of Operations
The Company's net income for the second quarter of 1995 was $675,000 compared to
a net loss of $625,000 for the same period a year ago. Second quarter sales of
$28,682,000 increased 8 percent or $2,157,000 over the $26,525,000 for the same
period last year.
The year to year net income improvement of $1,300,000 included the elimination
of $660,000 in non-recurring restructuring costs recorded last year associated
with the closing of the Company's manufacturing plant in Rialto, California.
This resulted in an operating improvement of $640,000 during the second quarter
versus the same period in 1994. This operating increase was the result of many
improvements including higher sales volume, cost savings from greater operating
efficiencies, better expense control, better quality products and the closing of
the Rialto, California plant.
Net income for the first half of 1995 advanced to $1,308,000, an improvement of
$2,348,000 over 1994's first half net loss of $1,040,000. First half sales of
$55,935,000 also increased 8 percent, or $4,239,000 over the $51,696,000 for the
same period in 1994.
<PAGE>
The sales increases in 1995 were mainly of products related to original
equipment manufacturers, industrial and engine products.
Although the Company has been successful in making operating improvements,
second quarter cost increases for materials such as paper, metal and textiles
were offset by the benefits of the Company's cost savings programs. During the
balance of 1995 the Company will continue its cost improvement programs along
with new product marketing strategies.
During the first half of 1995, the Company's backlog increased to $18,600,000,
representing a $5,100,000 or 38 percent increase over backlog at January 1,
1995.
At July 1, 1995, the balance of the restructuring charge related to the closure
of the Rialto plant was $88,000 and was included as a component of accrued
liabilities in the Company's balance sheet. All of such amount is expected to be
paid in cash during the remainder of 1995. During the first half of 1995, the
Company paid $596,000 in cash for this restructuring charge.
<PAGE>
Item 4.a. The following are items submitted for stockholder approval at the
Annual Stockholder Meeting, May 3, 1995:
o Election of two Directors for three year terms:
Votes For Vote Against
Robert Batinovich 3,277,445 35,825
David J. Farr 3,271,332 41,938
o Amendment to the 1993 Stock Option Plan:
Votes For Votes Against Abstain
2,848,651 366,626 97,993
o Shareholder Proposal to Engage an Independent Management
Consulting Firm:
Votes For Votes Against Abstain Non-Vote
316,443 2,207,316 100,740 688,771
Item 6.a. Exhibits
The following are being filed electronically with this Quarterly Report on
Form 10-Q.
- Exhibit 4.64 Bank Agreement amendment dated July 11, 1995.
- Exhibit-11 Earnings per share calculation. (unaudited)
<PAGE>
Ehibit-4.64
THIRD AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS THIRD AMENDMENT TO CREDIT AGREEMENT ("Third Amendment") is entered
into July 11, 1995, between FARR COMPANY, a Delaware Corporation ("Borrower"),
and GENERAL ELECTRIC CAPITAL CORPORATION, a corporation organized under the
banking laws of the State of New York ("Lender"), with reference to the
following facts:
RECITALS
--------
A. Borrower and Lender have entered into the Credit Agreement dated
February 3, 1994, as amended by the First Amendment to Credit Agreement dated
March 23, 1995, and the Second Amendment to Credit Agreement dated March 27,
1995 (collectively, the "Credit Agreement"), pursuant to which Lender agreed to
provide financial accommodations to or for the benefit of Borrower upon the
terms and conditions contained therein. Unless otherwise defined in this Third
Amendment, (i) capitalized terms used herein shall have the meanings attributed
to them in the Credit Agreement, and (ii) references to sections and subsections
shall refer to sections or subsections of the Credit Agreement.
B. Borrower has requested that Lender amend the Credit Agreement to provide
for (i) a reduction in the interest rate paid by Borrower to Lender effective
June 1, 1995 and (ii) a reduction in the number of collection days for payments
received by Lender, and Lender is willing to do so subject to the terms and
conditions set forth in this Third Amendment.
NOW, THEREFORE, in consideration of the continued performance by Borrower
of its promises and obligations under the Credit Agreement and the other Loan
Documents, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Lender hereby agree
as follows:
AGREEMENT
---------
1. Incorporation of Credit Agreement and Other Loan Documents. Except as
expressly modified under this Third Amendment, all of the terms and conditions
set forth in the Credit Agreement and the other Loan Documents are incorporated
herein by this reference, and the obligations of Borrower under the Credit
Agreement and the other Loan Documents are hereby acknowledged, confirmed and
ratified by Borrower.
2. Amendment.
2.1 Section 1.6(a) of the Credit Agreement is deleted in its entirety and
the following is substituted therefor:
(a) Borrower shall be obligated to pay interest to Lender on (I) the
Revolving Credit Advances at a floating rate equal to the Index Rate plus
two and one-half percent (2.50%) per annum (the "Revolver Stated Index
Rate"), and (ii) the outstanding balance of the Term Loan at a floating
rate equal to the Index Rate plus two and three-quarters percent (2.75%)
per annum (the "Term Loan Stated Index Rate").
2.2 Section 1.11 of the Credit Agreement is deleted in its entirety and the
following is substituted therefor:
1.11 Receipt of Payments. Borrower shall make each payment under this
Agreement no later than 11:00 a.m. (California time) on the day when due in
lawful money of the United States of America in immediately available funds
to the Collection Account. For purposes of computing interest and fees and
determining Borrowing Availability, (a) all payments (including cash
sweeps) consisting of cash, wire, or electronic transfers in immediately
available funds shall be deemed received by Lender upon (i) deposit in the
Collection Account, and (ii) notice to Lender of such deposit, and (b) all
payments consisting of checks, drafts, or similar non-cash items shall be
deemed received by Lender upon the deposit, in immediately available funds,
of such payment in the Collection Account.
<PAGE>
3. Conditions of Effectiveness. This Third Agreement shall become effective
upon the receipt by Lender of (a) this Third Amendment executed by Borrower and
Lender, and (b) a Consent and Reaffirmation of Subordination Agreement executed
by Farr Inc., a Canadian corporation.
4. Entire Agreement. This Third Amendment, together with the Credit
Agreement and the other Loan Documents, is the entire agreement between the
parties hereto with respect to the subject matter hereof. This Third Amendment
supersedes all prior and contemporaneous oral and written agreements and
discussions with respect to the subject matter hereof. Except as otherwise
expressly modified herein, the Loan Documents shall remain in full force and
effect.
5. Representations and Warranties. Borrower hereby represents and warrants
that the representations and warranties contained in the Credit Agreement were
true and correct in all material respects when made and, except to the extent
that (a) a particular representation or warranty by its terms expressly applies
only to an earlier date, or (b) Borrower has previously advised Lender in
writing as contemplated under the Credit Agreement, are true and correct in all
material respects as of the date hereof. The Credit Agreement shall continue in
full force and effect in accordance with the provisions thereof on the date
hereof.
6. Miscellaneous.
6.1 Counterparts. This Third Amendment may be executed in identical
counterpart copies, each of which shall be an original, but all of which shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Third Amendment by facsimile transmission shall be
effective as delivery of a manually executed counterpart of this Third
Amendment.
6.2 Headings. Section headings used herein are for convenience of reference
only, are not part of this Third Amendment, and are not to be taken into
consideration in interpreting this Third Amendment.
6.3 Recitals. The recitals set forth at the beginning of this Third
Amendment are true and correct, and sub recitals are incorporated into and are a
part of this Third Amendment.
6.4 Governing Law. This Third Amendment shall be governed by, and construed
and enforced in accordance with, the laws of the State of California applicable
to contracts made and performed in such state, without regard to the principles
thereof regarding conflict of laws.
6.5 No Novation. The execution, delivery and effectiveness of this Third
Amendment shall not (a) waive any breaches or defaults under the Credit
Agreement or the other Loan Documents, whether known or unknown, (b) limit,
impair, constitute a waiver of or otherwise affect any right, power or remedy by
Lender under the Credit Agreement or any other Loan Document, (c) constitute a
waiver of any provision in the Credit Agreement or in any of the other Loan
Documents, or under applicable law, or (d) except as specifically set forth in
section 2 of this Third Amendment, alter, modify, amend of in anyway affect any
of the terms, conditions, obligations, covenants or agreements contained in the
Credit Agreement, all of which are ratified and affirmed in all respects and
shall continue in full force and effect.
6.6 Conflict of Terms. In the event of any inconsistency between the
provisions of this Third Amendment and any provision of the Credit Agreement,
the terms and provisions of this Third Amendment shall govern and control.
IN WITNESS WHEREOF, this Third Amendment to Credit Agreement has been duly
executed as of the date first written above.
LENDER:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Clarence A. Williamson
------------------------------
Duly Authorized Signatory
BORROWER:
FARR COMPANY
By: /s/ Kenneth W. Gerstner
------------------------------
Chief Financial Officer
<PAGE>
<TABLE>
Exhibit-11 Farr Company and Subsidiaries - Earnings per Share Calculation (unaudited)
Earnings:
<CAPTION>
Three Months Ended Six Months Ended
July 1, 1995 July 2, 1994 July 1, 1995 July 2, 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) ............................................... $ 675,000 ($ 625,000) $ 1,308,000 ($1,040,000)
=========== =========== =========== ===========
Shares
Weighted average number of
common shares outstanding .................................... 3,684,446 3,678,152 3,684,446 3,678,152
=========== =========== =========== ===========
Earnings per share
Net income (loss) per common share .............................. $ 0.18 ($ 0.17) $ 0.35 ($ 0.28)
=========== =========== =========== ===========
Earnings assuming full dilution:
Net income (loss) ............................................... $ 675,000 ($ 625,000) $ 1,308,000 ($1,040,000)
=========== =========== =========== ===========
Shares
Weighted average number of
common shares outstanding ..................................... 3,684,446 3,678,152 3,684,446 3,678,152
Assuming exercise of options reduced by the number of
shares which could have been purchased with the proceeds
from exercise of such options ................................. 4,057 -- 4,057 --
----------- ----------- ----------- -----------
3,688,503 3,678,162 3,688,502 3,678,152
=========== =========== =========== ===========
Earnings per share
Net (loss) income per common share
assuming full dilution ........................................ $ 0.18 ($ 0.17) $ 0.35 ($ 0.28)
=========== =========== =========== ===========
</TABLE>
<PAGE>
PART II - OTHER INFORMATION - CONTINUED
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)
July 27, 1995
Kenneth W. Gerstner
Senior Vice President
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUL-01-1995
<CASH> 190,000
<SECURITIES> 0
<RECEIVABLES> 20,510,000
<ALLOWANCES> 289,000
<INVENTORY> 15,142,000
<CURRENT-ASSETS> 39,949,000
<PP&E> 51,279,000
<DEPRECIATION> 34,089,000
<TOTAL-ASSETS> 57,982,000
<CURRENT-LIABILITIES> 18,653,000
<BONDS> 0
<COMMON> 368,000
0
0
<OTHER-SE> 22,593,000
<TOTAL-LIABILITY-AND-EQUITY> 57,982,000
<SALES> 55,935,000
<TOTAL-REVENUES> 55,935,000
<CGS> 42,583,000
<TOTAL-COSTS> 42,583,000
<OTHER-EXPENSES> 10,144,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,058,000
<INCOME-PRETAX> 2,150,000
<INCOME-TAX> 842,000
<INCOME-CONTINUING> 1,308,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,308,000
<EPS-PRIMARY> 0.350
<EPS-DILUTED> 0.350
</TABLE>
