................................................................................
................................................................................
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 June 29, 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: 3,798,411.
................................................................................
................................................................................
<PAGE>
PART I - FINANCIAL INFORMATION
FARR COMPANY AND SUBSIDIARIES
INDEX TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1996
INTRODUCTION
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets - June 29, 1996 and December 30, 1995
Income Statements for the three months ended June 29, 1996 and
July 1, 1995 and for the six months ended June 29, 1996 and July 1, 1995
Statements of Cash Flows for the six months ended June 29, 1996
and July 1, 1995
Notes to Condensed Consolidated Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS
<PAGE>
FARR COMPANY AND SUBSIDIARIES
INTRODUCTION TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 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 June 29, 1996 and the results of operations
for the three and six months ended June 29, 1996 and July 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)
June 29, 1996 Dec. 30,1995
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................... $ 1,310,000 $ 812,000
Accounts receivable, less allowance of $215,000 in 1996
and $214,000 in 1995 .................................. 21,007,000 20,077,000
Inventories
Raw materials ......................................... 5,481,000 6,392,000
Work in process ....................................... 3,966,000 5,119,000
Finished goods ........................................ 3,941,000 3,926,000
------------ ------------
13,388,000 15,437,000
Prepaid expenses ........................................ 709,000 622,000
Deferred tax benefit .................................... 1,381,000 1,980,000
------------ ------------
Total current assets .................................. 37,795,000 38,928,000
------------ ------------
Property, Plant and Equipment at cost
Land .................................................... 2,094,000 2,094,000
Buildings and improvements .............................. 15,191,000 15,231,000
Machinery and equipment ................................. 34,105,000 33,829,000
------------ ------------
51,390,000 51,154,000
Less-accumulated depreciation and amortization .......... 35,401,000 34,748,000
------------ ------------
15,989,000 16,406,000
Investments & Other ..................................... 166,000 236,000
------------ ------------
$ 53,950,000 $ 55,570,000
============ ============
<FN>
The accompanying notes are an integral part of these balance sheets.
</FN>
</TABLE>
<TABLE>
FARR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Liabilities and Stockholders' Investment
<CAPTION>
(Unaudited) (Audited)
June 29, 1996 Dec. 30,1995
------------- -------------
<S> <C> <C>
Current Liabilities:
Notes/overdraft payable to banks ........................ $ 462,000 $ 432,000
Current portion of long-term debt ....................... 21,000 664,000
Accounts payable ........................................ 7,775,000 8,875,000
Accrued liabilities ..................................... 8,827,000 8,248,000
Income taxes payable and deferred taxes ................. 946,000 526,000
------------ ------------
Total current liabilities ............................. 18,031,000 18,745,000
------------ ------------
Long-Term Debt .............................................. 6,103,000 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--3,798,411 shares at June 29, 1996 and
3,793,336 shares at December 30, 1995 ................. 362,000 362,000
Additional paid-in capital ................................ 11,717,000 11,668,000
Cumulative translation adjustments ........................ (1,647,000) (1,624,000)
Retained earnings:
Balance beginning of year ............................... 14,379,000 11,255,000
Net income for the period ............................... 2,677,000 3,124,000
------------ ------------
Balance at end of period ................................ 17,056,000 14,379,000
------------ ------------
Total stockholders' investment ........................ 27,488,000 24,785,000
------------ ------------
$ 53,950,000 $ 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 Six Months Ended
June 29, 1996 July 1, 1995 June 29, 1996 July 1, 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net Sales ................................ $31,356,000 $28,682,000 $62,435,000 $55,935,000
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales .......................... 23,284,000 21,726,000 47,209,000 42,583,000
Selling, general and administrative .... 5,443,000 5,311,000 10,359,000 10,144,000
Interest expense ....................... 171,000 493,000 418,000 1,058,000
----------- ----------- ----------- -----------
Total Cost and Expenses .................. 28,898,000 27,530,000 57,986,000 53,785,000
----------- ----------- ----------- -----------
Income Before Income Taxes ............... 2,458,000 1,152,000 4,449,000 2,150,000
Income Taxes ............................. 959,000 477,000 1,772,000 842,000
----------- ----------- ----------- -----------
Net Income ............................... $ 1,499,000 $ 675,000 $ 2,677,000 $ 1,308,000
=========== =========== =========== ===========
Earnings per Common Share * ............ $ 0.41 $ 0.18 $ 0.73 $ 0.35
=========== =========== =========== ===========
<FN>
* Based upon 3,673,030 and 3,684,446 average shares outstanding at June 29,
1996 and July 1, 1995, 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 Year-to-Date
June 29, 1996 July 1, 1995
------------- ------------
Operating Activities:
<S> <C> <C>
Net Income ................................................. $ 2,677,000 $ 1,308,000
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization ............................ 1,209,000 1,482,000
Provision for loss on accounts receivable ................ 75,000 76,000
Change in deferred income taxes .......................... 377,000 434,000
Net (gain) loss on sale/retirement of P,P & E ............ 0 (19,000)
Net (gain) loss from investments ......................... 15,000 (115,000)
Decrease (increase) in inventories ....................... 2,048,000 (404,000)
Decrease (increase) in receivables and prepaid expenses .. (1,090,000) 414,000
Decrease in accounts payable & accrued expenses ......... (573,000) (563,000)
Net change in current income taxes payable ............... 392,000 145,000
Exchange gain ............................................ (4,000) (3,000)
------------ -----------
Net cash provided by operating activities ................ 5,126,000 2,755,000
------------ -----------
Investing Activities:
Purchases of property, plant and equipment ................. (743,000) (468,000)
Proceeds from sale of property, plant and equipment ........ 0 19,000
Proceeds from sale of investments .......................... 0 497,000
------------ -----------
Net cash provided by (used in) investing activities ........ (743,000) 48,000
------------ -----------
Financing Activities:
Proceeds from revolving line of credit,
and long-term borrowings ................................. 8,200,000 604,000
Principal payments on revolving line of credit
and long-term debt borrowings & overdrafts ............... (12,121,000) (3,406,000)
Principal payments received on notes ....................... 2,000 61,000
Proceeds from sale of stock, stock option plans ............ 49,000 145,000
Long-term note receivable .................................. 0 (172,000)
------------ -----------
Net cash used in financing activities ...................... (3,870,000) (2,768,000)
------------ -----------
Effect of Exchange Rate Changes on Cash ...................... 0 28,000
Increase (Decrease) in Cash and Cash Equivalents ............. 498,000 63,000
Cash and Cash Equivalents at Beginning of Period ............. 812,000 127,000
------------ -----------
Cash and Cash Equivalents at End of Period ................. $ 1,310,000 $ 190,000
============ ===========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
FARR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1996
(Unaudited)
NOTE A.
Other than Notes Payable and Long-term Debt, and Commitments and
Contingencies, there have been no significant changes in the Company's policies,
practices or position from that described in the following notes to the
Consolidated Financial Statements included in the 1995 Annual Report to
Stockholders which was incorporated by reference in the Annual Report on Form
10-K for the year ended December 30, 1995.
NOTE B. - NOTES PAYABLE AND LONG-TERM DEBT
The Company's $2,155,000 term credit facility lending commitment
previously scheduled to be funded in August 1996 to replace the Company's
existing Holly Springs, Mississippi Industrial Bonds will not be utilized. The
redemption of the bonds will instead be funded from availability under the
Company's $15 million revolving credit facility.
As of June 29, 1996, the Company's weighted average interest rate on
short term borrowings was 8.0 percent.
NOTE C. - COMMITMENTS AND CONTINGENCIES
During July 1996, the Company's Board of Directors and Compensation
Committee approved a $875,000 lump sum payment to the Company's Chairman and
Chief Executive Officer covering his salary and certain incentives from April
1994 through June 1996. The lump sum payment was paid in July 1996 and was
covered by reserves previously established during the periods from April 1994 to
June 1996. Beginning in July 1996, the approved Chairman and Chief Executive
Officer's annual base salary of $246,000 will be paid concurrent with the month
it is earned on a prorata basis.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Second quarter sales increased to $31,356,000 from $28,682,000 during the same
period last year, representing a 9 percent increase. The increase in sales was
primarily attributable to the Company's Engineered Systems, Heating, Ventilating
and Air Conditioning, Custom OEM, Railroad and International markets.
Sales for the first half of 1996 advanced to $62,435,000, an improvement of 12
percent, or $6,500,000 over 1995's first half sales of $55,935,000.
Operating profit (income before income taxes and interest expense) for the
second quarter was $2,629,000 an increase of 60 percent, or $984,000 from
$1,645,000 for the same period a year ago. Operating profit for the first half
of 1996 increased 52 percent to $4,867,000 from $3,208,000 during the same
period a year ago. The increased operating profit principally reflected strong
sales gains and improved operating efficiencies.
The second quarter operating profit as a percent of sales increased to 8.4
percent compared to 5.7 percent during the same period a year ago. The first
half operating profit as a percent of sales increased to 7.8 percent compared to
5.7 percent during the same period a year ago. These percentage improvements
primarily reflect a trend of 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 second quarter on higher sales volume.
Interest expense during the second quarter decreased to $171,000 compared to
$493,000 for the second quarter last year. Interest expense during the first
half decreased to $418,000 from $1,058,000 for the same period a year ago. Both
second quarter and first half interest expense declined as a result of lower
borrowing interest rates combined with reduced debt levels.
Income taxes for the first half of 1996 and the same period last year remained
at approximately 39 percent. During the remainder of 1996, the tax rate is
expected to drop to approximately 38 percent due to lower effective income tax
rates associated with the establishment of a Foreign Sales Corporation.
Second quarter net income of $1,499,000 increased 122 percent or $824,000 over
the $675,000 for the same period last year. First half net income increased to
$2,677,000 from $1,308,000, representing an increase of $1,369,000 or an 105
percent improvement over the same period last year.
The Company's third quarter and second half periods are seasonally the lowest
sales quarter and half periods of the year, respectively, for the Company and
current booking levels tend to confirm this. Consequently, first half sales
results should not be relied on as a basis for forecasting third quarter or
second half operating results.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities during the first half totaled $5,126,000
compared to $2,755,000 for the first half a year ago. Cash flows from operating
activities increased from last year's first half due to increased income and
decreased working capital requirements. The primary decrease in working capital
was related to inventories and the Company's decrease in work in progress
inventories offset by increased accounts receivables due to increased sales
volume.
Cash flows used in investing activities during the first half was $743,000. Last
year cash flows provided $48,000 during the first half as the Company received
$497,000 from the disposition of certain investments. First half 1996 capital
expenditures of $743,000 increased over the same period last year by $275,000.
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 $3,870,000 in the first six months
compared to $2,768,000 for the same period a year ago.
As of June 29, 1996, working capital totaled $19,764,000 compared to $20,183,000
at the end of 1995, representing a $419,000 decrease in total working capital
for the first six months of 1996. The decrease in working capital was accounted
for by decreases in inventories ($2,049,000) and income taxes payable and
deferred taxes ($1,019,000), partially offset by a net decrease in accounts
payables and accrued expenses ($521,000), a decrease in the current portion of
long term debt ($643,000), and increases in accounts receivable ($930,000) and
cash ($498,000).
Due to increased sales during the first half, net accounts receivable increased
to $21,007,000 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 and
improved inventory turnover rates.
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 half was approximately $11 million.
The Company's $2,155,000 term credit facility lending commitment previously
scheduled to be funded in August 1996 to replace the Company's existing Holly
Springs, Mississippi Industrial Bonds will not be utilized. The redemption of
the bonds will instead be funded from availability under the Company's $15
million revolving credit facility.
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 4.a.
The following are items submitted for stockholder approval at the Annual
Stockholder Meeting, April 30, 1996:
- Election of two Directors for three year terms:
Votes For Votes Against
Richard P. Birmingham 2,820,235 83,216
Richard L. Farr 2,820,835 82,618
- First Amendment to the 1991 Stock Option Plan for Non-Employee Directors
of Farr Company:
Votes For Votes Against Abstain
2,644,780 241,737 16,936
Item 6.a. Exhibits
The following are being filed with this Quarterly Report on Form 10-Q.
- - Exhibit 10.40 Approved salary arrangement for Farr Company's Chairman
and Chief Executive Officer compensation.
- - Exhibit 11 Earnings per share calculation. (unaudited)
- - Exhibit 27 Financial Data Schedule.
-------------------
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>
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)
August 13, 1996 /s/ Kenneth W. Gerstner
Kenneth W. Gerstner
Senior Vice President
Chief Financial Officer
<PAGE>
Exhibit 10.40
FARR COMPANY
H. J. MEANY COMPENSATION CALCULATION
(Base salary = $246,000/yr - effective April 26, 1994)
1994 $246,000 x .68493 yrs. (back pay salary) $168,493
1995 $246,000 (back pay salary) 246,000
1995 $246,000 x 1.372 Incentive award 337,512
1996 $246,000 (1/2 back pay and 1/2 future monthly salary) 246,000
---------
Total $998,005
========
Payment schedule:
Make special one-time back pay catch up, July 17, 1996 $875,005
Effective July 1, 1996 go on payroll at $20,500/month 123,000
---------
Total 1996 payments $998,005
========
Approved to pay per July 16, 1996 Compensation Committee.
/s/ Robert Batinovich /s/ David J. Farr
Robert Batinovich David J. Farr
<PAGE>
<TABLE>
Exhibit 11
FARR COMPANY AND SUBSIDIARIES
EARNINGS PER SHARE CALCULATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 29, 1996 July 1, 1995 June 29, 1996 July 1, 1995
------------- ------------ ------------- ------------
EARNINGS:
<S> <C> <C> <C> <C>
Net Income ................................. $1,499,000 $ 675,000 $2,677,000 $1,308,000
========== ========== ========== ==========
Shares
Weighted average of number
common shares outstanding .............. 3,625,656 3,684,446 3,625,656 3,684,446
========== ========== ========== ==========
Net Income Per Common Share ................ $ 0.42 $ 0.18 $ 0.74 $ 0.35
========== ========== ========== ==========
EARNINGS ASSUMING FULL DILUTION:
Net Income ................................. $1,499,000 $ 675,000 $2,677,000 $1,308,000
========== ========== ========== ==========
Shares
Weighted average of number
common shares outstanding .............. 3,625,656 3,684,446 3,625,656 3,684,446
Assuming exercise of options reduced by
the number of shares which could have
been purchased with the proceeds from
exercise of such options ............... 47,374 5,881 47,374 5,881
---------- ---------- ---------- ----------
Total shares ....................... 3,673,030 3,690,327 3,673,030 3,690,327
========== ========== ========== ==========
Net Income Per Common Share
Assuming Full Dilution .................... $ 0.41 $ 0.18 $ 0.73 $ 0.35
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-29-1996
<CASH> 1,310,000
<SECURITIES> 0
<RECEIVABLES> 21,007,000
<ALLOWANCES> 215,000
<INVENTORY> 13,388,000
<CURRENT-ASSETS> 37,795,000
<PP&E> 51,390,000
<DEPRECIATION> 35,401,000
<TOTAL-ASSETS> 53,950,000
<CURRENT-LIABILITIES> 18,031,000
<BONDS> 0
0
0
<COMMON> 362,000
<OTHER-SE> 27,126,000
<TOTAL-LIABILITY-AND-EQUITY> 53,950,000
<SALES> 62,435,000
<TOTAL-REVENUES> 62,435,000
<CGS> 47,209,000
<TOTAL-COSTS> 47,209,000
<OTHER-EXPENSES> 10,359,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 418,000
<INCOME-PRETAX> 4,449,000
<INCOME-TAX> 1,772,000
<INCOME-CONTINUING> 2,677,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,677,000
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
</TABLE>
