<PAGE>
................................................................................
................................................................................
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the Quarterly Period ended March 30, 1996
OR
( ) 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 number 0-4723
FARR COMPANY
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-1288401
- - -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S.Employer Identification Number)
incorporation or organization)
2221 Park Place, El Segundo, CA 90245
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 536-6300
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 ( )
Number of shares of registrants common stock outstanding as of close of the
period covered by this report: 3,795,211.
................................................................................
................................................................................
<PAGE>
PART I - FINANCIAL INFORMATION
FARR COMPANY AND SUBSIDIARIES
INDEX TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
INTRODUCTION
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets - March 30, 1996 and December 30, 1995
Income Statements for the three months ended March 30, 1996 and April 1, 1995
Statements of Cash Flows for the three months ended March 30, 1996 and
April 1, 1995
Notes to Condensed Consolidated Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS
<PAGE>
FARR COMPANY AND SUBSIDIARIES
INTRODUCTION TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
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 March 30, 1996 and the results of operations for the three months
ended March 30, 1996 and April 1, 1995 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)
March 30, 1996 December 30, 1995
-------------- -----------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents .................... $ 893,000 $ 812,000
Accounts receivable, less allowance of
$195,000 in 1996 and $214,000 in 1995 ...... 20,708,000 20,077,000
Inventories .................................. 14,253,000 15,437,000
Prepaid expenses ............................. 679,000 622,000
Deferred tax benefit ......................... 1,381,000 1,980,000
----------- -----------
Total current assets ........................... 37,914,000 38,928,000
----------- -----------
Property, Plant and Equipment at cost
Land ......................................... 2,092,000 2,094,000
Buildings and improvements ................... 15,147,000 15,231,000
Machinery and equipment ...................... 33,543,000 33,829,000
----------- -----------
50,782,000 51,154,000
Less-accumulated depreciation and amortization 34,846,000 34,748,000
----------- -----------
15,936,000 16,406,000
Investments & Other ............................ 185,000 236,000
----------- -----------
$54,035,000 $55,570,000
=========== ===========
Liabilities and Stockholders' Investment
(Unaudited) (Audited)
March 30, 1996 December 30, 1995
-------------- -----------------
Current Liabilities:
Notes/overdraft payable to banks ............. $ 271,000 $ 432,000
Current portion of long-term debt ............ 168,000 664,000
Accounts payable ............................. 8,024,000 8,875,000
Accrued liabilities .......................... 8,188,000 8,248,000
Income taxes payable and deferred taxes ...... 798,000 526,000
----------- -----------
Total current liabilities ...................... 17,449,000 18,745,000
----------- -----------
Long-Term Debt ................................. 8,360,000 9,412,000
Deferred Income Taxes .......................... 2,328,000 2,628,000
Commitments and Contingencies
Stockholders' Investment:
Common stock, $.10 par value--Authorized
10,000,000 shares--Outstanding--3,794,211
shares at March 30, 1996 and 3,794,336
shares at December 30, 1995 ................ 362,000 362,000
Additional paid-in capital ................... 11,681,000 11,668,000
Cumulative translation adjustments ........... (1,702,000) (1,624,000)
Retained earnings:
Balance beginning of year .................... 14,379,000 11,255,000
Net income for the period .................... 1,178,000 3,124,000
----------- -----------
Balance at end of period ..................... 15,557,000 14,379,000
----------- -----------
Total stockholders' investment ................. 25,898,000 24,785,000
----------- -----------
$54,035,000 $55,570,000
=========== ===========
<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
March 30, 1996 April 1, 1995
-------------- -------------
<S> <C> <C>
Net Sales ....................................... $31,079,000 $27,253,000
----------- -----------
Costs and Expenses:
Cost of sales ................................. 23,925,000 20,857,000
Selling, general and administrative ........... 4,916,000 4,833,000
Interest expense .............................. 247,000 565,000
----------- -----------
Total Cost and Expenses ......................... 29,088,000 26,255,000
----------- -----------
Income Before Income Taxes ...................... 1,991,000 998,000
Income Taxes .................................... 813,000 365,000
----------- -----------
Net Income ...................................... $ 1,178,000 $ 633,000
=========== ===========
Earnings per Common Share * $0.32 $0.17
=========== ===========
</TABLE>
* Based upon 3,625,155 and 3,682,943 average shares outstanding at March 30,
1996 and April 1, 1995, respectively.
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
FARR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 30, 1996 April 1, 1995
-------------- -------------
Cash Provided by (Used in):
Operating Activities:
<S> <C> <C>
Net Income ........................................ $1,178,000 $ 633,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................. 638,000 764,000
Provision for loss on accounts receivable ..... 37,000 37,000
Change in deferred income taxes ............... 331,000 206,000
Net (gain) loss on sale/retirement of P,P & E . (20,000)
Net (gain) loss from investments .............. (115,000)
Decrease (increase) in inventories ............ 1,159,000 (332,000)
Decrease (increase) in receivables
and prepaid expenses ........................ (772,000) 2,277,000
Increase (decrease) in accounts payable &
accrued expenses ............................ (953,000) 142,000
Net change in current income taxes payable .... 292,000 36,000
Exchange gain ................................. 1,000 13,000
---------- ----------
Net cash provided by operating activities .. 1,911,000 3,641,000
---------- ----------
Investing Activities:
Purchases of property, plant and equipment ........ (143,000) (252,000)
Proceeds from sale of property, plant and equipment 20,000
Proceeds from sale of investments ................. 497,000
--------- ----------
Net cash provided by (used in) investing
activities ................................. (143,000) 265,000
--------- ----------
Financing Activities:
Proceeds from revolving line of credit,
and long-term borrowings ........................ 8,200,000
Principal payments on revolving line of credit
and long-term debt borrowings & overdrafts ...... (9,900,000) (3,194,000)
Principal payments received on notes .............. 1,000
Proceeds from sale of stock, stock option plans ... 13,000 145,000
Long-term note receivable ......................... (174,000)
---------- ---------
Net cash used in financing activities ........ (1,686,000) (3,225,000)
---------- ----------
Effect of Exchange Rate Changes on Cash ............. (1,000)
Increase in Cash and Cash Equivalents ............... 81,000 683,000
Cash and Cash Equivalents at Beginning of Period .... 812,000 127,000
---------- -----------
Cash and Cash Equivalents at End of Period ......... $ 893,000 $ 810,000
========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
FARR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
(Unaudited)
1. Significant Accounting Policies
2. Inventories
3. Restructuring Costs
4. Gain on Sale of U.S. Plant
5. Common Stock
6. Notes Payable and Long-Term Debt
7. Income Taxes
8. Employee Benefit Plans
9. Stock Options
10. Per Share Amounts
11. Commitments and Contingencies
12. Segment Information
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
First quarter sales increased to $31,079,000 from $27,253,000 during the
same period last year, representing a 14 percent increase. The increase in sales
was primarily attributable to the Company's Engineered Systems, Heating,
Ventilating and Air Conditioning, Custom OEM and International markets. Some of
the increase in Engineered Systems sales were related to deliveries scheduled
for 1995 that were delayed into the first quarter of 1996.
Operating profit increased 43 percent to $2,238,000 from $1,563,000 during
the same period a year ago. The increased operating profit principally reflected
strong sales gains and improving operating efficiencies except in the area of
Engineered Systems products.
The first quarter operating profit as a percent of sales increased to 7.2
percent compared to 5.7 percent during the same period a year ago. This
percentage improvement primarily reflects a lower percentage of selling, general
and administrative expenses relative to the increase in sales volume, as the
amount of selling general and administrative expenses remained approximately the
same as last year's first quarter.
Interest expense during the first quarter decreased to $247,000 from
$565,000 for the same period a year ago as a result of lower borrowing rates
combined with reduced debt levels decreased interest expense $318,000.
First quarter net income increased to $1,178,000 from $633,000,
representing an increase of $545,000 or an 86 percent improvement over the same
period last year. Earnings per share increased to 32 cents per share from 17
cents per share a year ago.
During the first quarter new orders were strong for all product lines
except Pollution Control and Engineered Systems. Both lines are commencing the
second quarter at lower than anticipated levels but are not viewed as having a
significant negative effect on the second quarter.
The Company's other product lines are somewhat seasonal with weather being
an important factor. It is possible that part of the second quarter expected
sales were shifted forward into the first quarter by these varying conditions.
In addition, some Engineered Systems' deliveries scheduled for 1995 were delayed
and shipped in the first quarter. Accordingly, it is uncertain whether the
Company's record performance in the first quarter will continue into subsequent
quarters.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities during the quarter totaled $1,911,000
compared to $3,641,000 for the first quarter a year ago. Cash flows from
operating activities decreased from last year's first quarter due to increased
working capital requirements. The primary increase in working capital was
related to accounts receivable and the Company's increase in sales volume and
decreases in accounts payable and accrued liabilities.
Cash flows used in investing activities during the current quarter were
$143,000. Last year cash flows provided $265,000 during the first quarter as the
Company received $497,000 from the disposition of certain investments. First
quarter 1995 capital expenditures of $143,000 decreased over the same period
last year by $109,000. Overall, capital expenditures continue to be maintained
at low levels to conserve capital resources but are anticipated to increase
modestly over the remainder of the year.
Cash used in financing activities totaled $1,686,000 in the current quarter
compared to $3,223,000 for the same period a year ago. The total of $1,686,000
was principally used to reduce long-term debt.
As of March 30, 1996, working capital totaled $20,465,000 compared to
$20,183,000 at the end of 1995, representing a $282,000 increase in total
working capital for the first three months of 1996. The increase in working
capital was primarily accounted for by increases in accounts receivable
($631,000), decreases in accounts payable and accrued liabilities ($911,000),
and a decrease in the current portion of long term debt ($496,000) partially
offset by decreases in inventories ($1,184,000) and deferred tax benefits
($585,000).
Due to increased business during the first quarter, net accounts receivable
increased to $20,708,000 from $20,077,000 as of December 30, 1995. Inventories
decreased primarily as a result of a decrease in work in progress related to the
completion and shipment of several large gas turbine filter house jobs.
The Company's current portion of long term debt decreased due to the early
retirement of its Jonesboro, Arkansas Industrial Redevelopment Bonds and the
restructure and payoff of its prior revolving and term loan credit facilities
under a new revolving credit facility obtained in February, 1996. Surplus
borrowing availability under the Company's new domestic revolving credit
facility at the end of the first quarter was $9,600,000.
The Company's operations continue to generate the cash levels required to
maintain planned operating levels, to provide for capital replacement, and to
service and liquidate long-term debt. Additionally, the Company has access to
lines of credit sufficient for its current operations.
<PAGE>
PART II. -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Item Description
---- --------------------------------------------
11 Computation of earnings per common share and
common share equivalents.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None
-------------------
Copies of Exhibits are available, on prepayment of 15 cents per page,
by writing to the Secretary of the Company at the address set forth on the
cover page of this Form 10-Q.
<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)
May 14, 1996 /s/ Kenneth W. Gerstner
--------------------------
Kenneth W. Gerstner
Senior Vice President
Chief Financial Officer
<PAGE>
Exhibit 11
FARR COMPANY AND SUBSIDIARIES
EARNINGS PER SHARE CALCULATIONS
(Unaudited)
Three Months Ended
March 30, 1996 April 1, 1995
-------------- -------------
Earnings:
Net income $1,178,000 $633,000
========== ==========
Shares
Weighted average of number common
shares outstanding 3,625,155 3,682,943
========== ==========
Net income per common share $0.32 $0.17
========== ==========
Earnings assuming full dilution:
Net income $1,178,000 $633,000
========== ==========
Shares
Weighted average of number common
shares outstanding 3,625,155 3,682,943
Assuming exercise of options reduced
by the number of shares which could
have been purchased with the proceeds
from exercise of such options 25,888 4,057
---------- ----------
3,651,043 3,687,000
========== ==========
Net income per common share
assuming full dilution $0.32 $0.17
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<CASH> 893,000
<SECURITIES> 0
<RECEIVABLES> 20,708,000
<ALLOWANCES> 195,000
<INVENTORY> 14,253,000
<CURRENT-ASSETS> 37,914,000
<PP&E> 50,782,000
<DEPRECIATION> 34,846,000
<TOTAL-ASSETS> 54,035,000
<CURRENT-LIABILITIES> 17,449,000
<BONDS> 0
0
0
<COMMON> 362,000
<OTHER-SE> 25,536,000
<TOTAL-LIABILITY-AND-EQUITY> 54,035,000
<SALES> 31,079,000
<TOTAL-REVENUES> 31,079,000
<CGS> 23,925,000
<TOTAL-COSTS> 23,925,000
<OTHER-EXPENSES> 4,916,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 247,000
<INCOME-PRETAX> 1,991,000
<INCOME-TAX> 813,000
<INCOME-CONTINUING> 1,178,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,178,000
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
