UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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)
(310) 536-6300
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (g) of the Act:
Title of Class Name of Exchange on Which Registered
-------------- ------------------------------------
Common Stock, $.10 Par Value NASDAQ
- ------------------------------------------------------------------------------
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 _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
__x__
The aggregate market value of voting common stock held by non-affiliates of
Registrant on March 8, 1996, based on the closing sale price on such date, was
$33,082,907.
The number of shares of common stock outstanding on March 8, 1996 was 3,794,211.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
FARR COMPANY
Dated: April 2, 1996 By: /s/ Kenneth W. Gerstner
--------------------------- --------------------------------
Kenneth W. Gerstner
Sr. Vice President, Secretary
and Chief Financial Officer
2
<PAGE>
FARR COMPANY AND SUBSIDIARIES
List of Exhibits
Item Description
---- -----------
3.1 Certificate of Incorporation of Registrant as currently in effect.
3.2 Amended By-Laws of Registrant as currently in effect.
4.31 Rights Agreement, dated as of April 3, 1989, between Farr Company
and Bank of America NT & SA (formerly Security Pacific National
Bank). Filed as Exhibit 1 on Form 8K dated April 18, 1989 and
incorporated herein by this reference.
4.37 Loan Agreement by and between the Mississippi Business Finance
Corporation and Farr Company dated July 1, 1991, in connection
with Holly Springs, Mississippi Industrial Development Revenue
Bond Financing. Filed as Exhibit 4.37 on Form 10-K dated December
28, 1991 and incorporated herein by this reference.
4.39 Letter of Credit No. 910809-IS-284-LA dated August 15, 1991, in
favor of First Tennessee Bank National Association in connection
with Holly Springs, Mississippi Industrial Development Revenue
Bond Financing. Filed as Exhibit 4.39 on Form 10-K dated December
28, 1991 and incorporated herein by this reference.
4.40 Reimbursement Agreement between Farr Company and Bank of America
NT & SA dated as of August 15, 1991, in connection with Holly
Springs, Mississippi Industrial Development Revenue Bond
Financing. Filed as Exhibit 4.40 on Form 10-K dated December 28,
1991 and incorporated herein by this reference.
4.44 First Amendment and Waiver to the Holly Springs Reimbursement
Agreement, dated October 15, 1991, between Bank of America NT & SA
and Farr Company. Filed as Exhibit 4.44 on Form 10-K dated
December 28, 1991 and incorporated herein by this reference.
4.48 Waiver and Agreement dated March 25, 1992 to the Reimbursement
Agreement dated August 15, 1991, between Farr Company and Bank of
America NT & SA in connection with Holly Springs, Mississippi
Industrial Revenue Bond Financing. Filed as Exhibit 4.48 on Form
10-K dated January 1, 1994 and incorporated herein by this
reference.
3
<PAGE>
4.58 Credit Agreement dated as of February 3, 1994 between Farr
Company, as borrower, and 4.58 General Electric Capital
Corporation, as Lender. Filed as Exhibit 1 on Form 8-K dated
February 7, 1994 and incorporated herein by this reference.
4.61 Second Amendment to Reimbursement Agreement, dated as of February
3, 1994, to Reimbursement Agreement dated as of August 15, 1991,
as previously amended, between Farr Company and Bank of America NT
& SA in connection with Holly Springs, Mississippi Industrial
Revenue Bond Financing. Filed as Exhibit 4 on Form 8-K dated
February 7, 1994 and incorporated herein by this reference.
4.63 Amendment, dated July 11, 1995 to Credit Agreement dated February
3, 1994 between Farr 4.63 Company, as borrower, and General
Electric Capital Corporation, as Lender. Filed as Exhibit 4.64 on
Form 10-Q for the quarter ended July 1, 1995 and incorporated
herein by this reference.
4.64 Credit Agreement dated February 15, 1996 between Farr Company, as
borrower, and Bank of America National Trust and Savings
Association, as lender.
Registrant agrees that it will furnish to the Commission upon
request copies of any other instruments with respect to the
long-term debt of Registrant and its subsidiaries; under none of
such other instruments does the total amount of securities
authorized exceed 10 percent of the total assets of Registrant and
its subsidiaries on a consolidated basis.
*10.1 Non-Qualified Deferred Compensation Plan, dated July 31, 1987.
Filed as Exhibit 10.1 to Annual Report on Form 10-K for the year
ended January 2, 1988 and incorporated herein by this reference.
*10.3 Deferred Compensation Plan for Directors dated November 5, 1980.
Filed as Exhibit 10.5 to Annual Report on Form 10-K for the year
ended January 3, 1981 and incorporated herein by this reference.
*10.4 Farr Company Management Incentive Bonus Plan. Filed as Exhibit
10.6 to Annual Report on Form 10-K for the year ended January 3,
1981 and incorporated herein by this reference.
*10.5 Deferred Compensation Plan for Officers dated April 30, 1981.
Filed as Exhibit 10.7 to Annual Report on Form 10-K for the year
ended January 2, 1982 and incorporated herein by this reference.
*10.6 Amendments to Stock Option Plan for Key Employees. Filed as
Exhibit 10.8 to Annual Report on Form 10-K for the year ended
January 2, 1982 and incorporated herein by this reference.
4
<PAGE>
*10.7 1983 Stock Option Plan for Key Employees as amended. Filed as
Exhibit A to registrant's definitive proxy statement for the
annual meeting of stockholders held on May 4, 1988 and
incorporated herein by this reference.
*10.9 Trust Agreement pursuant to the Employee Stock Ownership Plan for
Office Employees of Farr Company and Employee Stock Ownership Plan
for Shop Employees of Farr Company, dated December 1, 1989,
between Farr Company and Bank of America NT & SA (formerly
Security Pacific National Bank) . Filed as Exhibit 10.9 to Annual
Report on Form 10-K for the year ended December 30, 1989 and
incorporated herein by this reference.
*10.10 Employee Stock Ownership Plan for office employees of Farr
Company, dated December 1, 1989. Filed as Exhibit 10.10 to Annual
Report on Form 10-K for the year ended December 30, 1989 and
incorporated herein by this reference.
*10.12 Farr Company Supplemental Executive Benefits Plan dated July 24,
1990. Filed as Exhibit 10.12 on Form 10-K for the year ended
December 29, 1990 and incorporated herein by this reference.
*10.14 Non-Employee Directors Stock Option Plan, filed as Exhibit 10.14
on Form 10-K for the year ended December 29, 1990 and incorporated
herein by this reference.
*10.16 The Office Employees' 401(k) Plan of Farr Company, dated September
10, 1991. Filed as Exhibit 10.16 on Form 10-K for the year ended
December 28, 1991 and incorporated herein by this reference.
*10.17 Twelfth Amendment to the Employees' Profit Sharing Retirement Plan
of Farr Company, dated September 10, 1991. Filed as Exhibit 10.17
on Form 10-K for the year ended December 28, 1991 and incorporated
herein by this reference.
*10.21 The 1993 Stock Option Plan for Key Employees of Farr Company.
Filed as Exhibit 10.21 on Form 10-K for the year ended December
31, 1994 and incorporated herein by this reference.
*10.22 First Amendment to the 1993 Stock Option Plan by key employees of
Farr Company dated September 20, 1994. Filed as Exhibit 10.22 on
Form 10-Q for the quarter ended October 1, 1994 and incorporated
herein by this reference.
5
<PAGE>
*10.23 Amendment to the Company's 1991 Stock Option Plan for Non-Employee
Directors dated September 20, 1994, filed as Exhibit 10.23 on Form
10-Q for the quarter ended October 1, 1994 and incorporated herein
by this reference.
*10.24 The Corporate Plan for Retirement Select Plan, the Profit
Sharing/401(k) Plan, Basic Plan Document dated April 11, 1994.
Filed as Exhibit 10.24 on Form 10-K for the year ended December
31, 1994 and incorporated herein by reference.
*10.25 The Profit Sharing/401(k) Plan for Office Employees of Farr
Company Non-Standardized Adoption Agreement 002, Basic Plan No.
07. dated September 27, 1994. Filed as Exhibit 10.25 on Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference.
*10.26 The Profit Sharing/401(k) Plan for Shop Employees of Farr Company
Non-Standardized Adoption Agreement 002, Basic Plan dated
September 27, 1994. Filed as Exhibit 10.26 on Form 10-K for the
year ended December 31, 1994 and incorporated herein by reference.
*10.27 First amendment to The Office Employees' 401(k) Plan of Farr
Company, dated December 16, 1994. Filed as Exhibit 10.27 on Form
10-K for the year ended December 31, 1994 and incorporated herein
by reference.
*10.28 First amendment to The Shop Employees' 401(k) Plan of Farr
Company, dated December 16, 1994. Filed as Exhibit 10.28 on Form
10-K for the year ended December 31, 1994 and incorporated herein
by reference.
*10.29 Thirteenth Amendment to The Employees' Profit Sharing Retirement
Plan of Farr Company, dated December 16, 1994. Filed as Exhibit
10.29 on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.
*10.30 Thirteenth Amendment to The Retirement Plan for Production and
Maintenance Employees of Farr Company, dated December 16, 1994.
Filed as Exhibit 10.30 on Form 10-K for the year ended December
31, 1994 and incorporated herein by reference.
*10.31 Second Amendment to The Employee Stock Ownership Plan for Shop
Employees of Farr Company dated December 16, 1994. Filed as
Exhibit 10.31 on Form 10-K for the year ended December 31, 1994
and incorporated herein by reference.
*10.32 First Amendment to The Employee Stock Ownership Plan for Office
Employees of Farr Company dated December 16, 1994. Filed as
Exhibit 10.32 on Form 10-K for the year ended December 31, 1994
and incorporated herein by reference.
6
<PAGE>
*10.33 Second Amendment to the 1991 Stock Option Plan for Non-Employee
Directors dated September 12, 1995.
*10.34 Employee contract agreement between John Johnston and Farr Company
dated Novembers 28, 1994.
*10.35 The Farr Company 401(k)/Retirement Plan dated December 15, 1995.
*10.36 The Farr Company Supplemental Executive Savings Plan Adoption
Agreement, dated November 21, 1995.
*10.37 The Corporate Plan for Retirement Select Plan, Fidelity Basic Plan
Document dated April 11, 1994 (SESP).
*10.38 Trust Agreement for Farr Company 401K/Retirement Plan, dated
December 15, 1995.
*10.39 Trust Agreement for Farr Company Supplemental Executive Savings
Plan between Farr Company as sponsor and Fidelity Management Trust
Company (trustee) dated November 21, 1995.
11 Computation of earnings per common share and common share
equivalents.
**13 Annual Report to Stockholders. With the exception of the
information incorporated by reference into Items 1, 2, 5, 6, 7 and
8 of this Form 10-K, the 1995 Annual Report to Stockholders is not
deemed to be filed as a part of this report.
22 A list of all subsidiaries of registrant.
24 Consent of Independent Public Accountants.
27 Financial Data Schedule
* Management contract or compensatory arrangements.
** As amended by Form 10-K/A Amendment No. 1.
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 Annual Report and Form 10-K.
7
Exhibit 13
FARR COMPANY
A PERIOD OF CHANGE
(bar graph showing 1994 and 1995
quarterly net profits appears here)
<TABLE>
<CAPTION>
Measurement
Period Net Profits
(Quarter) (thousands)
--------- -----------
<S> <C>
1994 - Q1 $ (415)
- Q2 $ (625)
- Q3 $ 275
- Q4 $ 410
1995 - Q1 $ 633
- Q2 $ 675
- Q3 $ 726
- Q4 $1,090
</TABLE>
1995 ANNUAL REPORT
-1-
<PAGE>
EVIDENCE OF CHANGE
SALES NET PROFIT
(bar graph showing 1994 and 1995 (bar graph showing 1994 and 1995
quarterly sales, in millions) quarterly net profits, in thousands)
LONG TERM DEBT MARKET CAPITALIZATION
(bar graph showing 1994 and 1995 (bar graph showing 1994 and 1995
end of quarter long term debt, quarterly market capitalization,
in millions) in millions)
<TABLE>
<CAPTION>
Measurement Long Market
Period Sales Net Profits Term Debt Capitalization
(quarter) (millions) (thousands) (millions) (millions)
- --------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
1994 - Q1 $25.2 $ (415) $22.9 $23.4
- Q2 $26.5 $ (625) $22.5 $17.9
- Q3 $27.5 $ 275 $22.0 $25.7
- Q4 $27.8 $ 410 $20.9 $22.5
1995 - Q1 $27.3 $ 633 $17.7 $24.4
- Q2 $28.7 $ 675 $17.5 $27.6
- Q3 $28.4 $ 726 $16.5 $31.3
- Q4 $28.9 $1,090 $10.1 $29.5
</TABLE>
-2-
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(In thousands, except per share items) 1995 1994 1993
===========================================================================
<S> <C> <C> <C>
Net sales $113,275 $106,989 $112,363
Income (loss) before income taxes 5,163 ( 642) 2,161
Income tax provision (benefit) 2,039 ( 287) 728
Net Income (loss) 3,124 ( 355) 1,284
Net Income (loss) per common share .85 ( .10) .35
Current assets 38,928 40,075 37,653
Current liabilities 18,745 18,293 16,800
Working capital 20,183 21,782 20,853
Long-term debt, net of current portion 9,412 18,957 21,913
Property, plant, and equipment, net 16,406 17,930 21,914
Stockholders' Investment 24,785 21,172 21,605
===========================================================================
</TABLE>
ABOUT THE COMPANY
Farr Company's basic business is the control of particulate and vapor
contaminants in air and liquids. The Company is engaged in the design,
development, manufacture, sale and service of filters and filtration
systems. These products are used for a wide variety of applications
including heating, ventilation and air conditioning systems,
manufacturing and process cleanrooms, special filters for original
equipment manufacturers, natural gas, gasoline and diesel-powered
engines, railroad locomotives, dust collection systems and gas
turbines. Air filter efficiencies range from 20 percent (on outdoor
air) in disposable products to 99.9999+ percent (@ .12 microns
particulate) in cleanroom products. Products are available as standard
items or may be custom engineered. They range in size and complexity
from a small throwaway air filter to a large gas turbine system with a
single filter component module weighing in excess of twenty tons.
Products are sold throughout the world. Sales are made through direct
Company salesmen, manufacturer's representatives, distributors and
foreign licensees.
-3-
<PAGE>
To Our Shareholders:
As predicted a year ago, 1995 was a period during which our major efforts were
shifted from being principally that of problem solving and damage control to
pursuing opportunities and developing new ideas. The problem solving was high
priority and the results are strongly evident in every facet of the Company.
For the year of 1995, net profit was $3,124,000 or 85 cents per share, up from a
loss of $355,000 or 10 cents per share in 1994.
Sales for 1995 advanced to a record $113,275,000 or a 6 percent increase from
$106,989,000 in 1994. The increase in sales during 1995 was spread across all of
the Company's markets.
Sales for 1995 were up due to improved quality and delivery times coupled with
the renewed confidence and effort of the sales organization. Costs are down due
to improved manufacturing procedures, lower waste, better expense control and
improved efficiency in almost everything we do.
The charts on the inside cover graphically show the cumulative effects of the
many improvements made throughout the Company.
In 1995, the Company reduced its long-term debt by over $10 million. This debt
reduction was primarily accomplished through increased profits, net loss tax
credit carryforward, the sale of our Rialto facility, capital spending
conservation and controls aimed at minimizing our working capital requirements.
In addition to debt reduction in 1995, we leveraged our improved financial
position and performance to negotiate reductions in the cost of borrowed capital
from our lenders. The decreases in both our borrowing amounts and interest rates
will significantly decrease 1996 interest expense and will contribute towards
improving profit performance. The new borrowing arrangements also relieve us of
some peripheral charges and onerous terms and conditions.
While the numerical results are important, more encouraging are the cultural
changes that are taking place and the effects of these changes on the future
growth and success of the business. Higher levels of accomplishment are being
displayed by all of our managers as they fine-tune the Farr business machine.
During the year, the Company's various U. S. retirement benefit programs were
replaced with a single 401(K) retirement plan. The new plan provides employees
with a basic retirement benefit which is 100% Company funded. It also affords
employees the opportunity for additional investment with matching participation
by the Company up to certain levels. The former retirement plans were difficult
to understand and administrate and did not provide adequate retirement benefits
for all employees. This has been well received and it is felt that this improved
benefit will be an important factor in attracting and retaining good employees
needed for further growth and success.
Obviously we are pleased with the results to date, but more importantly, there
still remain many opportunities for improvements and these are being identified
and undertaken on an ongoing vigorous basis. One of these operating improvements
is the reorganization of our manufacturing and distribution operations in North
America in which, taking advantage of NAFTA, we will be able to supply the
northeast United States from our Canadian facility. This and other improvements
should manifest themselves in continued performance improvement.
-4-
<PAGE>
The business pace at Farr has quickened and morale and enthusiasm have developed
to higher levels as we see previous failures converted to successes and new
programs implemented with goals being realized.
In addressing the matter of what the future holds for your Company, it is
worthwhile to restate some significant parameters. Farr is:
o In a growing industry.
o A recognized leader in several areas of filtration.
o The possessor of considerable technology in product development,
product application and manufacturing.
o Well structured for growth in several markets.
We believe that our long term growth in revenue and profit will come from new
and higher performing products which meet the growing needs for a cleaner
environment.
Many projects are underway for such product enhancements as well as new
products. Several of these have come to fruition and are just now beginning to
enter the market. Others will be ready during 1996 while longer range ideas are
being formulated.
All of this creates an aura of excitement and enthusiasm at Farr as we see the
potential for these new ideas in the marketplace. The die is cast, the
management team is committed and we believe in what we are doing and where we
are heading.
Admittedly, this is a slow process but we are exerting much effort to move
things along at the fastest pace -- in the end the market will make its own
determination of our success.
While we are happy to recognize 1995 as a turnaround year for Farr Company, we
are also saddened by the passing in January 1996 of its remaining founder,
Chairman Emeritus Morrill Spencer Farr who had devoted almost 60 years to the
endeavor bearing his name.
We believe the future remains bright for Farr Company and its dedicated
employees without whom there would be no enterprise at all. Your management team
also joins us in appreciation of the support shown by our shareholders -- we are
dedicated to achievement and continuous improvement.
H. Jack Meany John C. Johnston
Chairman and Chief Executive Officer President and Chief Operating Officer
John C. Johnston, a former Farr manager, returned to the Company as Vice
President in January 1995 from J. D. Easton, Inc. where he was President of
Easton Aluminum, Van Nuys Division. He was elected President and Chief Operating
Officer of Farr Company on February 27, 1996.
-5-
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
FARR COMPANY AND SUBSIDIARIES
<CAPTION>
December 30, 1995 December 31, 1994
----------------- -----------------
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 812,000 $ 127,000
Accounts receivable, less allowances of
$214,000 in 1995 and $266,000 in 1994 20,077,000 21,011,000
Inventories 15,437,000 14,655,000
Prepaid expenses 622,000 597,000
Asset held for sale 2,083,000
Deferred income tax benefit 1,980,000 1,602,000
---------- ----------
Total current assets 38,928,000 40,075,000
---------- ----------
Property, plant and equipment at cost
Land 2,094,000 2,092,000
Buildings and improvements 15,231,000 14,879,000
Machinery and equipment 33,829,000 33,766,000
----------- -----------
51,154,000 50,737,000
Less accumulated depreciation and amortization 34,748,000 32,807,000
----------- -----------
16,406,000 17,930,000
Investments and other 236,000 1,264,000
----------- -----------
$55,570,000 $59,269,000
=========== ===========
Liabilities & Stockholders' Investment
Current Liabilities:
Notes payable to banks $ 432,000 $
Current portion of long-term debt 664,000 2,012,000
Accounts payable 8,875,000 8,326,000
Accrued liabilities 8,248,000 7,692,000
Income taxes payable and current deferred
income taxes 526,000 263,000
----------- ------------
Total current liabilities 18,745,000 18,293,000
----------- ------------
Long-term debt, net of current portion 9,412,000 18,957,000
Deferred income taxes 2,628,000 847,000
Commitments and contingencies
Stockholders' investment
Common stock, $.10 par value -
Authorized - 10,000,000 shares
Outstanding 3,794,336 shares at
December 30, 1995 and 3,782,806 shares
at December 31, 1994 362,000 368,000
Additional paid-in capital 11,668,000 12,005,000
Cumulative translation adjustments (1,624,000) (1,847,000)
Retained earnings 14,379,000 11,281,000
Loans to ESOPs (635,000)
----------- -----------
Total stockholders' investment 24,785,000 21,172,000
----------- -----------
$55,570,000 $59,269,000
=========== ===========
<FN>
The accompanying notes are an integral part of these balance sheets.
</FN>
</TABLE>
-6-
<PAGE>
<TABLE>
CONSOLIDATED OPERATIONS STATEMENTS
FARR COMPANY AND SUBSIDIARIES
<CAPTION>
For the Years Ended December 30, 1995 December 31, 1994 January 1, 1994
- -------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Net Sales $113,275,000 $106,989,000 $112,363,000
Costs and Expenses:
Cost of sales 85,496,000 84,437,000 87,489,000
Selling, general and administrative expenses 20,956,000 20,065,000 20,268,000
Interest expense 1,796,000 2,129,000 2,445,000
Restructuring costs 540,000 1,000,000
Gain on sale of assets (676,000)
------------ ------------- -------------
Total Costs and Expenses 108,112,000 107,631,000 110,202,000
------------ ------------- -------------
Income (Loss) Before Income Taxes 5,163,000 ( 642,000) 2,161,000
Income Tax (Benefit) Provision 2,039,000 ( 287,000) 728,000
------------ ------------- -------------
Income (Loss) Before Extraordinary Item 3,124,000 ( 355,000) 1,433,000
Extraordinary Item (149,000)
------------ ------------- -------------
Net Income (Loss) $ 3,124,000 ($ 355,000) $ 1,284,000
============ ============= =============
Income (Loss) Before Extraordinary
Item per common share $ .85 ($ .10) $ .39
Extraordinary Item per common share ( .04)
----------- ------------ -------------
Net Income (Loss) per common share $ .85 ($ .10) $ .35
=========== ============ =============
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FARR COMPANY AND SUBSIDIARIES
<CAPTION>
Cumulative
For the Years Ended December 30, 1995, Common Additional Retained Translation Loans to
December 31, 1994 and January 1, 1994 Stock Paid-in Capital Earnings Adjustments ESOPs
- ---------------------------------------- --------- --------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance-- January 2, 1993 $367,000 $11,909,000 $10,377,000 ($1,188,000) ($876,000)
Exercise of Stock Options 2,000 112,000
Cumulative Translation Adjustment ( 451,000)
Treasury Stock Acquired-- 8,235 shares ( 1,000) ( 26,000) ( 25,000)
Principal Loan Payments from ESOPs 121,000
Net Income 1,284,000
--------- ------------ ------------ ----------- ---------
Balance-- January 1, 1994 368,000 11,995,000 11,636,000 ( 1,639,000) ( 755,000)
Exercise of Stock Options 10,000
Cumulative Translation Adjustment ( 208,000)
Principal Loan Payments from ESOPs 120,000
Net Loss ( 355,000)
--------- ------------ ------------ ----------- ---------
Balance-- December 31, 1994 368,000 12,005,000 11,281,000 ( 1,847,000) ( 635,000)
Exercised and Granted Stock Options 1,000 174,000
Cumulative Translation Adjustment 223,000
Principal Loan Payments from ESOP's ( 26,000) 635,000
Treasury Stock Acquired - 66,033 shares ( 7,000) ( 511,000)
Net Income 3,124,000
--------- ------------ ------------ ----------- ---------
Balance -- December 30, 1995 $362,000 $11,668,000 $14,379,000 ($1,624,000) $ 0
========= ============ ============ =========== =========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
-7-
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FARR COMPANY AND SUBSIDIARIES
<CAPTION>
For the Years Ended December 30, 1995 December 31, 1994 January 1, 1994
- ------------------- ----------------- ----------------- ---------------
Operating Activities:
<S> <C> <C> <C>
Net Income (Loss) $ 3,124,000 ($ 355,000) $1,284,000
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation and amortization 3,299,000 3,308,000 3,482,000
Provision for loss on accounts receivable 151,000 202,000 330,000
Change in deferred income taxes 1,501,000 ( 466,000) 177,000
Extraordinary item 149,000
Exchange loss (gain) 14,000 ( 128,000) 304,000
Net (gain) loss on sale/retirement of
property, plant and equipment ( 701,000) 33,000 94,000
Provision for (gain) loss on investments ( 115,000) 170,000
Change in assets and liabilities
Inventories ( 734,000) 815,000 2,251,000
Receivables and prepaid expenses 1,186,000 ( 1,393,000) ( 594,000)
Accounts payable and accrued expenses 1,104,000 1,695,000 ( 1,669,000)
Income taxes payable ( 100,000) ( 103,000) 1,340,000
------------ ------------ -----------
Net cash provided by operating activities 8,729,000 3,778,000 7,148,000
------------ ------------ -----------
Investing Activities:
Purchases of property, plant and equipment ( 1,163,000) ( 987,000) ( 674,000)
Proceeds from sale of property, plant and
equipment 2,945,000 44,000
Proceeds from sale of investments 567,000
------------ ------------ -----------
Net cash provided by (used in) investing activities 2,349,000 ( 987,000) ( 630,000)
------------ ------------ -----------
Financing Activities:
Proceeds from revolving line of credit and
long-term debt 432,000 18,939,000
Principal payments on revolving line of credit
and long-term debt ( 10,893,000) ( 21,843,000) ( 6,765,000)
Principal payments received on ESOP loans 635,000 120,000 121,000
Deferred financing costs ( 552,000) ( 26,000)
Proceeds from sale of stock, stock option plans 175,000 10,000 114,000
Treasury stock acquired (66,033 and 8,235
shares in 1995 and 1993, respectively) ( 518,000) ( 52,000)
Other ( 167,000)
----------- ------------ -----------
Net cash used in financing activities ( 10,336,000) ( 3,326,000) ( 6,608,000)
----------- ------------ -----------
Effect of Exchange Rate Changes on Cash ( 57,000) ( 9,000) ( 33,000)
Increase (decrease) in cash and cash equivalents 685,000 ( 544,000) ( 123,000)
Cash and Cash Equivalents at Beginning of Period 127,000 671,000 794,000
------------ ------------ -----------
Cash and Cash Equivalents at End of Period $ 812,000 $ 127,000 $ 671,000
============ ============ ===========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
-8-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FARR COMPANY AND SUBSIDIARIES
1. SIGNIFICANT ACCOUNTING POLICIES
Farr Company and its wholly-owned subsidiaries (the "Company") has
prepared its financial statements in accordance with generally accepted
accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Following are the
Company's significant accounting policies:
Basis of Presentation -- Farr Company is a multinational company engaged
principally in the design, development, manufacture, sale and service
of air and liquid filters. The principal market for the Company's
products and services are North American based commercial wholesale
distributors, HVAC OEMs and contractors and transportation businesses.
The accompanying consolidated financial statements include the accounts
of Farr Company and its wholly-owned subsidiaries. A functional
currency has been determined for each foreign entity of the Company,
and the exchange gain or loss from translating the foreign currency
statements to their U. S. dollar equivalents at the rates of exchange
in effect at the end of each period is charged or credited to
cumulative translation adjustments within stockholders' investment.
Differences from converting nonfunctional to functional currencies and
transaction gains and losses are included in income. During 1995, 1994
and 1993, $14,000 was charged, $128,000 was credited and $304,000 was
charged to income, respectively.
Accounting Period -- The Company's fiscal year ends on the Saturday closest
to December 31. The fiscal year ended December 30, 1995, December 31,
1994 and January 1, 1994, were all comprised of fifty-two weeks.
Cash and Cash Equivalents -- Cash includes currency on hand, demand deposits
with financial institutions and investments with original maturities of
three months or less.
Inventories -- Inventories include material, labor and factory overhead.
Domestic inventories are stated at cost, determined by the last-in,
first-out method. All other inventories are stated at the lower of
cost, using the first-in, first-out method, or market.
Property, Plant and Equipment -- The cost of property, plant and equipment is
depreciated over the estimated useful lives of the respective assets,
using declining-balance and straight-line methods, based upon the
following lives.
Building and improvements 10 - 40 years
Machinery and equipment 3 - 12 years
Maintenance and repairs are charged to expense as incurred and the cost
of additions and betterments are capitalized. When assets are retired
or otherwise disposed of, the assets and the related accumulated
depreciation accounts are relieved, and any resulting gains or losses
from sales or retirements, are reflected in income.
Investments and Other -- Investments and other include intangible assets that
are amortized on a straight-line basis over various periods of time
ranging from 3 to 5 years. The accumulated amount of amortization at
December 30, 1995 and December 31, 1994 was $950,000, and $1,228,000,
respectively. In 1992, pursuant to an employment contract, the Company
invested $350,000 in a private residence of the Company's former
Chairman, President and Chief Executive Officer. This residence was
sold in 1994 and in February 1995, the Company settled this investment.
Product Engineering and Development -- Engineering and development costs
aggregating $2,251,000, $2,221,000 and $2,048,000 in 1995, 1994, and
1993, respectively, for new products or improvements of existing
products, were expensed as incurred.
Revenue Recognition -- Revenue is recognized at the time the product is
shipped to the customer.
Income Taxes -- The Company accounts for income taxes in accordance with the
Statement of Financial Accounting Standards No. 109, "Accounting for
Incomes Taxes," which requires the use of the liability method of
accounting for deferred income taxes. The provision for income taxes
includes Federal, foreign, state and local income taxes currently
payable and those deferred because of temporary differences between the
financial statement and tax bases of assets and liabilities.
In 1995, the Financial Accounting Standards Board (FASB) issued Statement No.
121 - "Accounting for the Impairment of Long Lived Assets to Be Disposed Of"
(FASB No. 121), effective for 1996. The Company is completing an analysis of
FASB No. 121 which is not expected to have a material impact on the Company's
results of operations or financial position.
Certain reclassifications have been made to the prior years' financial
statements to conform with current year presentation.
-9-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FARR COMPANY AND SUBSIDIARIES
2. INVENTORIES
Domestic inventories totaling $11,140,000 and $10,908,000 at December
30, 1995 and December 31, 1994, respectively, are stated at cost
determined by the last-in, first-out method. If the first-in, first-out
method of inventory valuation had been used, inventories would have
been $6,857,000 and $6,713,000 higher than reported at December 30,
1995 and December 31, 1994, respectively.
3. RESTRUCTURING COSTS
In the fourth quarter of 1995, the Company recorded a restructuring
charge of $360,000 related to the costs associated with the
reorganization of its manufacturing and distribution operations in
North America. This reorganization is being implemented as part of the
Company's effort to consolidate manufacturing and distribution
operations and increase production efficiency, asset utilization and
profitability. The charge was comprised of $230,000 of work force
related costs (approximately 40 people) and $130,000 for facility
related costs. The majority of the costs associated with this
restructuring are planned to be incurred during the first quarter of
1996. At December 30, 1995, the balance of this restructuring charge
was approximately $308,000 and was included as a component of accrued
liabilities in the accompanying Consolidated Balance Sheets.
In the second quarter of 1994, the Company recorded a
restructuring charge of $1,000,000 related to the costs associated with
closing its manufacturing facility located in Rialto, California. This
plant was closed as part of the Company's effort to consolidate
manufacturing operations and increase production efficiency, asset
utilization and profitability. This facility was sold during the fourth
quarter of 1995. As of December 31, 1994 this facility's net book value
was classified in current assets.
The Company recorded a restructuring charge of $1,500,000 in
the fourth quarter of 1992 related to anticipated costs associated with
the closures of two manufacturing plants. The two United States plants
located in Pryor, Oklahoma and Eatonton, Georgia were closed in 1993 as
part of the Company's efforts to consolidate manufacturing operations
and increase production efficiency, asset utilization and
profitability. During the fourth quarter of 1995, the Company recorded
and increased its restructuring costs by $180,000 for facility related
costs associated with these two facilities. The remaining $418,000
balance of this restructuring charge is included as a component of
accrued liabilities in the accompanying Consolidated Balance Sheet as
of December 30, 1995. If the present weak real estate market in
Eatonton, Georgia continues beyond 1998, the Company may need to record
an additional provision to cover the costs of leasing and maintaining
the facility beyond the estimated disposition date.
4. GAIN ON SALE OF U.S. PLANT
In November 1995, the Company sold its plant located in Rialto,
California for $3,050,000 which resulted in a gain of $676,000. The
entire amount of the net proceeds were received in cash and were
primarily used to retire secured debt on the subject property.
5. COMMON STOCK
On April 3, 1989, the Company's Board of Directors declared a dividend
distribution of one common share purchase right for each share of
common stock outstanding on April 18, 1989. An exercisable right will,
under certain conditions, entitle its holder to purchase from the
Company one-half of one share of common stock at the exercise price,
subject to adjustment, at a price of $40 per whole share, subject to
adjustment. The exercise price as of March 31, 1996 is $32 per whole
share of common stock. The rights will become exercisable ten days
after any person acquires 20 percent or more of the Company's
outstanding common stock, or announces an offer which would result in
such person acquiring 30 percent or more of the Company's common stock.
The rights will expire on April 3, 1999, and may be redeemed by the
Company for $.01 per right at any time until ten business days after a
person acquires 20 percent or more of the Company's common stock. Under
certain circumstances after a person acquires 20 percent or more of the
Company's common stock, or after a merger or other business combination
involving the Company, an exercisable right will entitle its holder to
purchase shares of common stock (or shares of an acquiring company)
having a market value of twice the exercise price of one right.
In 1995 the Company received 66,033 shares from the Employee
Stock Ownership Plans as payment against the Company's outstanding
loans to the Plans. As of December 30, 1995 and December 31, 1994 the
Company held in treasury 168,687 and 102,654 shares of its common stock
at a cost of $1,417,000 and $899,000, respectively. Treasury shares are
reflected net of outstanding amounts in the Consolidated Statements of
Stockholder's Investment.
-10-
<PAGE>
6. NOTES PAYABLE AND LONG-TERM DEBT
The Company's foreign subsidiaries utilize overdraft facilities that
amounted to approximately $2,309,000 of which $432,000 was utilized as
of December 30, 1995. As of December 31, 1994, total foreign overdraft
facilities amounted to approximately $2,268,000 of which none were
utilized.
In February 1996, the Company completed the restructure of its
long term credit facilities financing. The new secured long term
revolving credit facility retired and replaced the Company's
$22,000,000 revolving credit facility and $4,000,000 term credit
facility. In addition, a new $2,155,000 term credit facility will be
used to retire and replace the Company's $2,500,000 Holly Springs
Mississippi Industrial Revenue Bonds. Long-term debt as of December 30,
1995 and December 31, 1994 (as revised to reflect the maturity terms
under the replacement credit facilities) were as follows:
<TABLE>
<CAPTION>
December 30, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Revolving credit facility $4,603,000 $11,348,000
Term loan 106,000
Notes secured by deeds of trust on real property -
Term loans 2,753,000 6,361,000
Jonesboro, Arkansas Industrial Revenue
Bonds at 5.6 percent 385,000 885,000
Holly Springs, Mississippi Industrial Revenue
Bonds at 7.4 percent 2,230,000 2,375,000
---------- -----------
10,076,000 20,969,000
Less current portion (664,000) (2,012,000)
---------- -----------
Net long-term debt $9,412,000 $18,957,000
========== ===========
</TABLE>
At December 30, 1995, real, personal and intangible property of
$44,641,000 were pledged as security for long-term debt. At December
30, 1995, the Company's domestic operations had the following long-term
credit facilities:
o A $22,000,000 revolving credit facility obtained in February 1994, was
secured by liens on accounts receivables and inventories. The facility
also contained certain restrictive covenants, including limitations on
the Company's ability to incur debt, grant liens, make investments,
sell assets, make capital expenditures, pay dividends or merge or
consolidate with another entity. Available borrowings under the
revolving credit facility were limited under a formula percentage
calculation of combined domestic inventories and accounts receivables
up to $22,000,000. As of December 30, 1995, the Company had borrowed
$4,603,000 under this agreement. Interest was payable on the loan at a
floating rate equal to the latest published rate for 30-day dealer
placed commercial paper plus 2.5 percent. The applicable interest rate
on December 30, 1995 was 8.3 percent. This facility was retired in
February 1996, as part of the Company's new long-term debt financing
restructure.
o A $4,000,000 term credit facility obtained in February 1994, was
secured by liens on substantially all of the unencumbered personal
property at various locations and real property located in El Segundo,
California. The facility also contained certain restrictive covenants
similar to the Company's $22,000,000 revolving credit facility. Under
the terms of the agreement, the principal was required to be repaid
monthly in installments of $55,556. As of December 30, 1995, the
Company had borrowed $2,753,000 under this agreement. Interest was
payable on the loan at a floating rate equal to the latest published
rate for 30-day dealer placed commercial paper plus 2.75 percent. The
applicable interest rate on December 30, 1995 was 8.55 percent. This
facility was retired in February 1996, as part of the Company's new
long-term debt financing restructure.
o Industrial Revenue Bond financing of $8,000,000 was obtained in
December 1985, to finance the Company's facility in Jonesboro,
Arkansas. Terms of the sixteen year bonds required annual principal
payments of $500,000 commencing December 1, 1986. The interest rate was
the lesser of 12.5 percent or a rate adjusted weekly and which, based
upon prevailing market conditions, was the rate necessary to keep the
price of the bonds at 100 percent of their face value. The credit
rating and liquidity of the bonds were guaranteed by an irrevocable
letter of credit issued by a bank at an annual cost to the Company of
1.5 percent of the principal amount of the bonds outstanding as of
December 15, each year. These bonds were retired in January 1996.
o Industrial Revenue Bond financing of $2,500,000 was obtained in August
1991, to finance the Company's facility in Holly Springs, Mississippi.
Terms of the twenty year bonds require principal payments commencing on
August 1, 1994. The interest rates on scheduled principal payments
through August 2002, covering $1,100,000 are fixed and vary from 6.5
percent to 7.625 percent. The interest rate on the remaining principal
is fixed at 7.625 percent. The credit rating and liquidity of the bonds
are guaranteed by an irrevocable letter of credit issued by a bank at
an annual cost to the Company of 1.5 percent of the principal amount of
the bonds outstanding as of August 15, each year. These bonds will be
retired in August 1996 as part of the Company's long-term debt
financing restructure.
-11-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FARR COMPANY AND SUBSIDIARIES
The principal sources of the Company's domestic long-term debt
financing restructure completed in February 1996 includes a $15,000,000
revolving credit facility and a $2,155,000 term credit facility. The
new facilities consists of:
A $15,000,000 revolving credit facility obtained in February
1996, is secured by liens on accounts receivable and inventories. The
facility also contains certain restrictive covenants, including the
Company's ability to incur additional debt, sell assets or merge or
consolidate with another entity. This loan will mature on June 1, 1998
when the then outstanding loan balance will be due. Interest is payable
on the loan at a floating rate equal to the Prime rate or the bank's
Offshore rate plus 1.75 percent.
A $2,155,000 term credit facility to be funded in August 1996
to replace the Company's existing Holly Springs Mississippi Industrial
Revenue Bonds. Under terms of the lending commitment, principal will be
repaid monthly in approximate installments of $17,958 through August
2001 when the remaining principal balance of $1,078,000 will become
due. Interest will be payable on the loan at a floating rate equal to
the Prime rate plus .25 percent or the bank's Offshore rate plus 2.25
percent.
Under the Company's new domestic credit agreements effective
February 1996, the Company is required to maintain among other things,
a minimum net domestic tangible net worth less foreign intercompany
receivables balance of $10,500,000, a minimum fixed charge coverage
ratio of not less than 1.35, a quick ratio of not less than .7 to 1.0
and a minimum consolidated liabilities to tangible net worth ratio of
not more than 1.5 to 1.0 through December 31, 1996 and not more than
1.25 to 1.0 thereafter.
Interest paid on outstanding debt and obligations net of
amounts capitalized were $1,839,000, $1,964,000, and $2,643,000 in
1995, 1994, and 1993, respectively.
Principal payments, as revised to reflect the maturity terms of the
Company's new long-term credit facilities, are as follows:
Year Ending Long-term Debt
----------- --------------
1996 $ 664,000
1997 237,000
1998 7,482,000
1999 237,000
2000 237,000
Thereafter 1,219,000
-----------
$10,076,000
===========
7. INCOME TAXES
As of December 30, 1995, the Company has net loss carryforwards of
approximately $600,000 which are available to offset future taxable
income. These carryforwards, which are expected to be fully utilized,
expire in the years 2006 through 2009. Accordingly, the Company has
recognized a deferred tax asset relating to these carryforwards.
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
For the Years Ended December 30, 1995 December 31, 1994 January 1, 1994
- ------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Current -- Federal $ 81,000 $ $
State 171,000 48,000 22,000
Foreign 286,000 69,000 529,000
---------- --------- ---------
538,000 117,000 551,000
---------- --------- ---------
Deferred-- Federal 1,230,000 ( 489,000) 324,000
State 173,000
Foreign 98,000 85,000 ( 147,000)
---------- --------- ---------
1,501,000 ( 404,000) 177,000
---------- --------- ---------
$2,039,000 ($287,000) $728,000
========== ========= =========
</TABLE>
-12-
<PAGE>
The following is a reconciliation of income taxes at the Federal
statutory rate with income taxes recorded by the Company:
<TABLE>
<CAPTION>
For the Years Ended December 30, 1995 December 31, 1994 January 1, 1994
- --------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Computed income taxes at statutory rate $1,755,000 ($218,000) $735,000
State income taxes, net Federal Income Tax benefit 113,000 31,000 15,000
Taxes on foreign subsidiaries' net income in excess
of (less than) income taxes at statutory rates 46,000 ( 86,000) ( 8,000)
Other items, net 125,000 ( 14,000) ( 14,000)
---------- --------- ---------
Provision (benefit) for income taxes $2,039,000 ($287,000) $728,000
========== ========== =========
</TABLE>
Deferred taxes are recorded based upon differences between the
financial statement and tax basis of assets and liabilities and
available tax credit carryforwards. Temporary differences and
carryforwards which give rise to a significant portion of deferred tax
assets and liabilities were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 30, 1995 December 31, 1994 January 1, 1994
- --------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Net operating loss $ 231,000 $1,873,000 $2,060,000
Depreciation ( 622,000) ( 671,000) ( 813,000)
Employee compensation accruals 753,000 633,000 651,000
Plant relocation and restructuring 230,000 385,000 191,000
DISC commission accrual ( 1,782,000) ( 1,974,000) ( 1,834,000)
Acquisition reserves ( 735,000) ( 832,000) ( 928,000)
Inventory 788,000 908,000 683,000
Other items, net 290,000 332,000 178,000
----------- ----------- -----------
($ 847,000) $ 654,000 $ 188,000
=========== ========== ===========
</TABLE>
Included in income taxes payable and current deferred income
taxes at December 30, 1995 and December 31, 1994 were $199,000 and
$101,000, respectively, of foreign deferred income taxes.
The consolidated income (loss) before income tax, by domestic and
foreign sources is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 30, 1995 December 31, 1994 January 1, 1994
- ------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Domestic $4,170,000 ($1,350,000) $1,060,000
Foreign 993,000 708,000 1,101,000
---------- ----------- ----------
$5,163,000 ($ 642,000) $2,161,000
========== =========== ==========
</TABLE>
Net income taxes paid (refunded) were $466,000, $613,000 and ($748,000)
in 1995, 1994 and 1993, respectively.
8. EMPLOYEE BENEFIT PLANS
The Company has defined contribution retirement plans and 401(K)
deferred salary plans covering domestic employees who meet eligibility
requirements. Company contributions are based on a formula as specified
in the respective plan agreements. Contributions, which aggregated
$916,000 in 1995, $352,000 in 1994, and $347,000 in 1993, were charged
to expense in accordance with the approved plan formulas. In 1995, the
Company approved a new 401(K) retirement plan to be effective January
1996, that will replace the previously effective defined contribution
plans.
The Company has two employee stock ownership plans (ESOPs)
that operated in conjunction with the Company's former defined
contribution plans. The ESOPs previously purchased outstanding shares
on a leveraged basis, with the Company making sufficient contributions
to cover the interest and principal payments resulting from the
borrowings. The Company contributed $133,000, $180,000 and $169,000 to
cover interest and principal payments on outstanding borrowings in
1995, 1994, and 1993, respectively. The Company recognizes expense for
the ESOPs using the cash payments method, which is subject to certain
minimum amounts. In 1995, the Company discontinued its contributions to
the ESOPs and plans to terminate the plans subject to IRS approval.
-13-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FARR COMPANY AND SUBSIDIARIES
Pension costs for the Company's defined benefit plans,
covering eligible employees in foreign operations, are determined by
independent actuarial valuations.
Pension expense under the provisions of Statement of Financial
Accounting Standards (SFAS) No. 87, "Employers' Accounting for
Pensions", was ($17,000) in 1995, $56,000 in 1994, and $92,000 in 1993.
The components of the 1995, 1994 and 1993 net periodic pension cost
were as follows:
For the Years Ended 1995 1994 1993
- -------------------------------------------- --------- --------- ---------
Service cost $165,000 $216,000 $176,000
Interest cost on projected benefit obligation 302,000 288,000 244,000
Actual loss (return) on plan assets ( 696,000) 115,000 ( 798,000)
Net amortization and deferral 212,000 ( 563,000) 470,000
--------- --------- ---------
($ 17,000) $ 56,000 $ 92,000
========= ========= =========
The assumptions used were:
Discount rate 8.0%-- 9.0% 9.0% 6.5%-- 8.5%
Rate of compensation increase 5.0%-- 6.0% 5.0%-- 6.5% 5.5%-- 8.0%
Long-term rate of return on assets 9.0%--10.0% 9.0%--10.0% 8.5%--10.0%
The following table sets forth the funded status of the
defined benefit plans and amounts recognized in the Company's
consolidated balance sheets as of December 30, 1995 and December 31,
1994:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations --
Vested benefit obligation $3,947,000 $3,255,000
Accumulated benefit obligation 3,947,000 3,257,000
=========== ===========
Projected benefit obligation 4,219,000 3,402,000
Plan assets at fair value 5,112,000 4,324,000
----------- -----------
Plan assets in excess of projected benefit obligation 893,000 922,000
Unrecognized net (gain) loss ( 1,003,000) ( 806,000)
----------- -----------
Prior service cost not yet recognized in
net periodic pension cost 142,000 102,000
Unrecognized net transition asset ( 119,000) ( 147,000)
----------- -----------
Prepaid (accrued) pension cost obligation
recognized in the consolidated balance sheets ($ 87,000) $ 71,000
=========== ===========
</TABLE>
The Company provides no post-retirement health care and life
insurance benefits or other post-employment benefits to its employees.
9. STOCK OPTIONS
Under the 1983 and 1993 stock option plans, the Company may grant
non-qualified and incentive stock options to officers and employees.
Options are contingent upon continued employment, and become
exercisable from at least one year after date of grant at such times
and installments as the Compensation Committee of the Board shall
provide. All options outstanding at December 30, 1995 had an exercise
price equal to 100 percent of the fair market value on the date the
option was granted except for 79,000 shares that were granted in 1995.
Compensation expense recorded under the plan was $27,000 in 1995.
Options expire ten years from the date of grant, subject to earlier
expiration under the terms of the plan. The 1983 plan covered a total
of 312,500 shares of the Company's common stock of which at December
30, 1995, 80,822 shares were subject to presently outstanding options.
At December 30, 1995, 350,000 shares of common stock were reserved for
distribution under the 1993 plan, of which 160,875 shares were subject
to outstanding options.
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" (SFAS 123). SFAS 123 encourages, but does
not require, companies to adopt a fair value based method for
determining expenses related to stock based compensation. Companies who
do not adopt the provisions of SFAS 123 for recognition purposes must
disclose pro forma effects as if the fair value based method of
accounting had been applied. The Company does not intend to adopt the
new recognition aspects of SFAS 123 but will provide required
disclosure of pro forma information beginning in 1996. The pro forma
impact has not yet been determined.
-14-
<PAGE>
Activity under both plans is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
Shares Option Price Shares Option Price Shares Option Price
------------------------ ------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 166,745 $ 5.25 - $11.25 149,648 $ 5.25 - $11.63 185,475 $ 5.52 - $11.63
Granted 99,000 $ 5.00 - $ 7.25 110,500 $ 6.38 31,000 $ 5.25 - $ 7.25
Exercised 6,530 $ 6.16 - $ 6.38 20,605 $ 5.52 - $ 6.16
Cancelled and expired 17,518 $ 5.25 - $11.25 93,403 $ 5.25 - $11.63 46,222 $ 5.52 - $11.25
------- --------------- ------- --------------- ------- ---------------
Options outstanding
end of year 241,697 $ 5.00 - $11.25 166,745 $ 5.25 - $11.25 149,648 $ 5.25 - $11.63
======= =============== ======= =============== ======= ===============
End of year shares exercisable 98,172 84,970 81,745
====== ====== ======
</TABLE>
On January 22, 1991, the Company's Board of Directors adopted and
approved the 1991 Stock Option Plan for Non-Employee Directors. Under
the 1991 Stock Option Plan, the Company is authorized to issue up to
48,000 shares of common stock to the Company's non-employee directors
of which 28,000 shares are subject to presently outstanding options. In
1995 the Company amended this plan, subject to stockholder approval, to
increase the number of shares issuable under the plan to 100,000
shares. Activity for fiscal years 1995, 1994 and 1993 under the 1991
Plan are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
Shares Option Price Shares Option Price Shares Option Price
------------------------ ------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 34,000 $ 5.00 - $ 9.25 24,000 $ 5.00 - $ 9.25 16,000 $ 9.13 - $ 9.25
Granted 8,000 $ 6.88 - $ 9.13 12,000 $ 5.38 - $ 6.38 8,000 $ 5.00
Exercised 4,000 $ 5.00 - $ 6.38 2,000 $ 5.00
Cancelled 10,000 $ 6.38 - $ 9.25
------ --------------- ------ --------------- ------ ---------------
Options outstanding at
end of year 28,000 $ 5.00 - $ 9.25 34,000 $ 5.00 - $ 9.25 24,000 $ 5.00 - $ 9.25
====== =============== ====== =============== ====== ===============
End of year shares exercisable 20,000 22,000 16,000
====== ====== ======
</TABLE>
10. PER SHARE AMOUNTS
The weighted average number of common shares outstanding for 1995,
1994, and 1993 were 3,683,582, 3,678,218, and 3,669,297, respectively.
These share amounts approximated the number of shares outstanding for
fully diluted earnings per share calculations.
11. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under agreements,
the majority of which expire at various dates through 2004. The
majority of the Company's leases provide for the payment of real estate
taxes and insurance. Net rental expense was $1,120,000 for the year
ended December 30, 1995, $1,083,000 for the year ended December 31,
1994 and $1,448,000 for the year ended January 1, 1994. As of December
30, 1995, approximate minimum rental commitments under noncancelable
leases which have not been capitalized were as follows:
Year Ending Amount
----------- ----------
1996 $1,024,000
1997 773,000
1998 543,000
1999 205,000
2000 187,000
Thereafter 472,000
----------
Total $3,204,000
==========
The Company is involved in several claims and suits that arise
out of the ordinary course of business, and has tax returns under
review. Management believes that these matters are either adequately
reserved, covered by insurance, or would not have a material adverse
effect on the financial position or operations of the Company if
disposed of unfavorably.
-15-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FARR COMPANY AND SUBSIDIARIES
12. SEGMENT INFORMATION
Industry Segments: The Company is engaged in one line of business -
filtration. The Company's basic business is manufacturing filters for
the control of particulate and vapor containments in air and liquids.
Geographic Segments: Information about the Company's operations in
different geographic areas for the three years ended December 30, 1995,
are presented as follows:
<TABLE>
<CAPTION>
Transfers
Net Sales Sales to Unaffiliated Customers Between Geographic Areas Total Net Sales
(In thousands) 1995 1994 1993 1995 1994 1993 1995 1994 1993
- ------------------ -------------------------------- --------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $ 93,189 $ 88,831 $ 95,165 $3,540 $ 2,809 $2,540 $ 96,729 $ 91,640 $ 97,705
Canada 11,002 9,165 8,639 4,251 2,412 3,990 15,253 11,577 12,629
Europe 9,084 8,993 8,559 268 23 79 9,352 9,016 8,638
--------- --------- --------- ------- ------- ------- -------- -------- --------
Total Segments 113,275 106,989 112,363 8,059 5,244 6,609 121,334 112,233 118,972
Adjustments &
Eliminations ( 8,059) ( 5,244) ( 6,609) ( 8,059) ( 5,244) ( 6,609)
--------- --------- --------- ------- ------- ------- -------- -------- --------
Consolidated Totals $113,275 $106,989 $112,363 $ $ $ $113,275 $106,989 $112,363
========= ========= ========= ======= ======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Operating Profit (Loss)
Before Income Taxes Identifiable Assets
(In thousands) 1995 1994 1993 1995 1994 1993
- ------------------------------------------------------ --------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $5,239 ($ 58) $2,639 $43,286 $48,788 $51,274
Canada 867 669 1,101 11,055 10,001 10,525
Europe 909 829 815 6,078 6,033 5,669
------- ------- ------- -------- -------- -------
Total Segments 7,015 1,440 4,555 60,419 64,822 67,468
Adjustments & Eliminations ( 56) 47 51 ( 4,849) ( 5,935) ( 7,115)
Interest Expense ( 1,796) ( 2,129) ( 2,445)
Corporate Assets 382 552
------- ------- ------- -------- -------- -------
Consolidated Totals $5,163 ($ 642) $2,161 $55,570 $59,269 $60,905
======= ======= ======= ======== ======== =======
</TABLE>
Transfers between geographic areas are accounted for on an
"arms-length" basis. Operating profit is total net sales less costs and
expenses excluding interest. Identifiable assets are those of the
Company that are identified with the operations in each geographic
area. Corporate assets consist principally of real estate. To reconcile
geographic information with consolidated totals, the following
eliminations have been made: $8,059,000 in 1995, $5,244,000 in 1994,
and $6,609,000 in 1993 of intercompany sales; a loss of $56,000 in
1995, a gain of $47,000 in 1994, and a gain of $51,000 in 1993 relating
to the net change in unrealized operating profit in beginning and
ending inventories; $4,849,000 in 1995, $5,935,000 in 1994 and
$7,115,000 in 1993 of intercompany accounts receivable and unrealized
operating profit in inventory at the end of each year.
-16-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Farr Company:
We have audited the accompanying consolidated balance sheets of
Farr Company (a Delaware corporation) and subsidiaries as of December 30, 1995
and December 31, 1994, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended December 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Farr Company and
subsidiaries as of December 30, 1995 and December 31, 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 30, 1995, in conformity with generally accepted accounting
principles.
Los Angeles, California Arthur Andersen LLP
February 7, 1996
-17-
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
FARR COMPANY AND SUBSIDIARIES
<CAPTION>
Years Ended
(In thousands, except share and per share data) Dec. 30, 1995 Dec. 31, 1994 Jan. 1, 1994 Jan. 2, 1993 Dec. 28, 1991
- ----------------------------------------------- ------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 113,275 $ 106,989 $ 112,363 $ 112,094 $ 112,410
Net Income (Loss)
(Notes D, E, F, G & I) 3,124 ( 355) 1,284 ( 4,590) ( 2,996)
Net Income (Loss) per share .85 ( .10) .35 ( 1.26) ( .83)
Total Assets (Notes A, B & C) 55,570 59,269 60,905 67,383 83,531
Long-term Debt, net of current portion
(Notes A, B, C, H & I) 9,412 18,957 21,913 27,001 32,747
Cash Dividends per share .06 .24
Weighted average number of shares 3,683,582 3,678,218 3,669,297 3,653,151 3,611,386
Capital expenditures 1,163 987 674 715 5,139
Net property, plant and equipment 16,406 17,930 21,914 24,595 27,903
Working Capital (Notes A & B) 20,183 21,782 20,853 21,289 32,206
==========================================================================================================================
</TABLE>
Note A. In December 1985, the Company negotiated an agreement for
$8,000,000 in Industrial Revenue Bonds to finance the Company's
facility in Jonesboro, Arkansas. In December 1993 and February
1994, the Company redeemed a total of $2,615,000 of the bonds with
surplus cash held in trust. In January 1996 the Company fully
retired these bonds.
Note B. In August 1991, the Company negotiated an agreement for
$2,500,000 in Industrial Revenue Bonds to finance the Company's
facility in Holly Springs, Mississippi.
Note C. In April 1991, the Company negotiated an agreement to purchase
substantially all of the assets and assume certain liabilities of
Cambridge Filter Corporation. The purchase was financed with
$15,000,000 in term loan borrowings and available cash flows.
Note D. In 1991, pretax loss included a provision of $5,733,000 for the
estimated restructuring cost relative to the Cambridge Filter
Corporation asset acquisition.
Note E. In 1995, 1994, and 1992, pretax income (loss) included
provisions of $540,000, $1,000,000 and $1,500,000 respectively for
the estimated cost of closing U.S. manufacturing facilities.
Note F. In 1992, the Company changed its method of accounting for
income taxes, to comply with the provisions of Statement of the
Financial Accounting Standards Board (SFAS) No. 109, "Accounting
for Income Taxes", and the cumulative effect of this change
($500,000) is included in 1992 results.
Note G. In 1993, the Company recorded a $149,000 extraordinary charge
relating to the write off of unamortized deferred financing costs
as a result of refinancing its long-term debt with new lending
institutions.
Note H. In 1994, the Company completed refinancing of its long-term
debt with new lending institutions including a $22,000,000
revolving credit facility and $7,500,000 of term loan credit
facilities.
Note I. In November 1995, the Company sold its plant located in Rialto,
California for $3,050,000 which resulted in a gain of $676,000.
The entire amount of the net proceeds were received in cash and
were primarily used to retire secured debt on the subject
property.
-18-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
- ---------------------
Sales -- Sales for 1995 were a record $113,275,000, up 6.0 percent from
$106,989,000. The 1995 increase in sales was spread across all of the
Company's market segments.
Sales were $106,989,000 in 1994, representing a decrease of
$5,374,000 from the $112,363,000 level achieved in 1993. The decrease
in sales from the prior year was primarily attributable to a decline
from 1993's record level Engineered Systems volume experienced in the
first half of 1993 that resulted from delayed 1992 shipments carried
over into 1993.
Costand Expenses -- During 1995, selling, general and administrative
expenses increased primarily as a result of performance based incentive
plans and loan fee amortization.
Interest expense decreased in 1995 as a result of lower debt
levels and interest rates. As a result of lower interest rates
negotiated with new lenders effective February 1996 and lower debt
levels, interest expense will significantly decrease in 1996.
A gain of $676,000 was recognized during the fourth quarter of
1995 from the sale of the Company's Rialto California plant.
Profit -- For the year of 1995 net profit was $3,124,000, up from a loss of
$355,000 in 1994.
More progress in the area of operating efficiencies will be
realized in 1996 as a result of the operating improvements made during
1995 coupled with the added reductions in overhead from reorganizing
the manufacturing and distribution operations in North America.
During 1995 manufacturing efficiencies at the Company's Holly
Springs, Mississippi plant improved substantially over 1994's levels
and are anticipated to improve more during 1996. In the fourth quarter
of 1995, the Company recorded a restructuring charge of $360,000
related to the costs associated with the reorganization of its
manufacturing and distribution operations in North America. The charge
was comprised of $230,000 of work force related costs (approximately 40
people) and $130,000 for facilities. As of December 30, 1995 the
Company had incurred approximately $52,000 of the $360,000 provision.
By the end of July 1996, the Company anticipates that all costs
associated with this reorganization will have been incurred.
1994 results yielded a loss of $355,000 compared to a profit
of $1,284,000 in 1993. Operating results continued to be unfavorably
impacted during most of 1994 by manufacturing inefficiencies at the
Holly Springs, Mississippi plant.
In the second quarter of 1994, the Company recorded a
restructuring charge of $1,000,000 related to the costs associated with
closing its manufacturing facility located in Rialto, California. This
plant was closed as part of the Company's effort to consolidate
manufacturing operations and increase production efficiency, asset
utilization and profitability.
The two United States plants located in Pryor, Oklahoma and
Eatonton, Georgia were closed in 1993 as part of the Company's efforts
to consolidate manufacturing operations and increase production
efficiency, asset utilization and profitability. During the fourth
quarter of 1995, the Company recorded and increased its restructuring
costs by $180,000 for facility related cost associated with these two
facilities. If the present weak real estate market in Eatonton, Georgia
continues beyond 1998, the Company may need to record an additional
provision to cover the costs of leasing and maintaining that facility
beyond the estimated disposition date.
Liquidity and Capital Resources
- -------------------------------
During 1995, the Company significantly improved its cash flow
from operating activities. As a result of 1995 operating improvements,
cash flows provided by operating activities totaled $8,729,000, a 131
percent increase over cash flows of $3,778,000 from operating
activities in 1994. The 1995 increase in cash flow was attributable to
an increase in net income, a decrease in working capital requirements
and a net decrease in deferred taxes relating to the utilization of net
operating loss carryforward credits.
-19-
<PAGE>
As a result of completing the sale of the Company's previously
closed manufacturing plant located in Rialto, California, cash proceeds
of $2,890,000 were received during the fourth quarter of 1995. As a
result, cash flows generated from 1995 investing activities totaled
$2,349,000. 1995 capital expenditures increased to $1,163,000 from
$987,000 in 1994. Although capital expenditures increased modestly in
1995, overall capital spending remained relatively low to conserve
capital resources. Capital expenditures in 1996 are expected to
increase moderately to support operating requirements.
During the first quarter of 1995, the Company settled the sale
transactions of two investment properties that generated $567,000 in
proceeds. One investment was formerly held pursuant to an employment
contract with the Company's former Chairman, President and Chief
Executive Officer and the other investment was an unimproved parcel of
land.
Working capital decreased $1,599,000 in 1995. The 1995
decrease in working capital was primarily accounted for by decreases in
asset held for sale of $2,083,000 and accounts receivable of $934,000
and increases in accounts payable and accrued liabilities of $1,105,000
partially offset by increases in inventories of $782,000 and cash of
$685,000 and a decrease in notes payable to banks and the current
portion of long term debt of $916,000. The increase in accounts payable
and accrued liabilities is primarily related to accrued restructuring
costs, accrued employee benefit plan liabilities and deferred
compensation liabilities.
As a result of the decrease in working capital requirements
coupled with the Company's improvement in operating income and limited
capital expenditures, long term debt was decreased by $10,893,000 or 52
percent compared to the balance at December 31, 1994.
The Company's cash flows from operating activities and surplus
borrowing availability under its revolving credit facility are
anticipated to generate adequate cash flow to meet planned operating
needs, provide for capital spending, and to meet current debt service
requirements.
The Company's foreign subsidiaries utilize overdraft
facilities that amounted to approximately $2,309,000 of which $432,000
was utilized as of December 30, 1995. As of December 31, 1994, total
foreign overdraft facilities amounted to approximately $2,268,000 of
which none was utilized.
During 1995, the Company's domestic operations were financed
through a combination of long-term credit facilities and Industrial
Revenue Bonds which were utilized for major capital projects. In
December 1995, the Company completed and committed to the terms of
restructuring its long term debt credit facilities with a new lender.
The new long term credit facilities will provide $17,155,000 of long
term revolving and term loan credit that will be secured by inventories
and accounts receivable and are anticipated to meet the Company's
general working capital and capital expenditure requirements over the
next two years. As of December 30, 1995, $4,603,000 was outstanding
under the Company's existing $22,000,000 revolving credit facility.
Unused borrowing availability under the existing credit facility was
$10,917,000 as of December 30, 1995. As of December 30, 1995, the
Company had $2,615,000 of Industrial Revenue Bonds outstanding related
to the financing of its Jonesboro, Arkansas and Holly Springs,
Mississippi plants.
As of December 30, 1995, the Company has net loss
carryforwards of approximately $600,000 which are available to offset
future taxable income. These carryforwards, which are expected to be
fully utilized, expire in the years 2006 through 2009. Accordingly, the
Company has recognized a deferred tax asset relating to these
carryforwards.
In December 1995, the Company recorded a $540,000
restructuring charge related to the reorganization of its North
American distribution and manufacturing operations and additional
reserves for the previous closure of its Eatonton, Georgia facility.
Financing of the restructuring costs are anticipated to be provided by
operating cash flows and borrowing availability under its revolving
credit facility.
-20-
<PAGE>
The primary component of 1995's restructuring includes the
closure of the Company's Hazleton, Pennsylvania plant which is
anticipated to provide better service to our customers and improve
asset utilization.
As of December 30, 1995, the Company's 1992 restructuring
reserve balance was $418,000. This reserve is related to the
anticipated costs associated with the closures of two manufacturing
plants and is included as a component under accrued liabilities in the
Company's Consolidated Balance Sheets. During 1995, $149,000 in
facility related costs were charged against this reserve and $180,000
of additional reserves were provided to dispose of these lease
commitments.
# # #
<TABLE>
SUMMARIZED QUARTERLY FINANCIAL DATA
(Unaudited)
FARR COMPANY AND SUBSIDIARIES
(In thousands, except per share data)
<CAPTION>
1995 1994 1993
Net Gross Net Per Net Gross Net Per Net Gross Net Per
Quarter Sales Profit Income Share Sales Profit Income Share Sales Profit Income Share
- --------- -------------------------------- -------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First $ 27,253 $ 6,396 $ 633 $ .17 $ 25,171 $ 4,876 ($415) ($ .11) $ 30,631 $ 7,097 $ 578 $ .16
Second 28,682 6,956 675 .18 26,525 5,181 ( 625) ( .17) 29,652 7,047 505 .14
Third 28,444 6,752 726 .20 27,462 5,775 275 .07 26,704 5,519 168 .04
Fourth 28,896 7,675 1,090 .30 27,831 6,720 410 .11 25,376 5,211 33 .01
-------- ------- ------ ----- -------- ------- ----- ------ -------- ------- ------ -----
Year $113,275 $27,779 $3,124 $ .85 $106,989 $22,552 ($355) ($ .10) $112,363 $24,874 $1,284 $ .35
======== ======= ====== ===== ======== ======= ===== ====== ======== ======= ====== =====
</TABLE>
SUMMARY OF STOCK QUOTATIONS
1995 1994 1993
Quarter High Low High Low High Low
- ------------ -------------- -------------- --------------
First $8 $5 7/8 $6 5/8 $5 3/4 $7 5/8 $4 5/8
Second 7 1/2 6 3/8 6 3/8 4 1/2 8 1/4 5 1/8
Third 9 1/2 6 5/8 7 1/4 4 5/8 8 3/8 6
Fourth 8 1/4 6 7/8 7 1/4 5 3/4 7 3/8 6
------ ------ ------ ------ ------ ------
Year $9 1/2 $5 7/8 $7 1/4 $4 1/2 $8 3/8 $4 5/8
====== ====== ====== ====== ====== ======
The above information was obtained from the National Association of Securities
Dealers, Inc. (NASD) Monthly Statistical Report. The Company's stock is traded
in the over-the-counter National Market System.
No cash dividends were declared on the Company's common stock in 1995, 1994 or
1993.
-21-
<PAGE>
CORPORATE INFORMATION
FARR COMPANY AND SUBSIDIARIES
Directors
FARR COMPANY
H. Jack Meany
Chairman and
Chief Executive Officer
Robert Batinovich
President, Glenborough Realty Trust Incorporated
Management of Commercial Real Estate
Richard P. Bermingham
Vice Chairman of the Board
American Golf Corporation
David J. Farr
President, David J. Farr Insurance Services
Provider of Financial Planning Services
Richard L. Farr
Senior Vice President, Farr Company
John J. Kimes
President and CEO
Computerized Security Systems Inc.
Manufacturer of Electronic and Mechanical Lock Hardware and Systems
Officers
FARR COMPANY
H. Jack Meany
Chairman and
Chief Executive Officer
John C. Johnston
President and
Chief Operating Officer
Richard L. Farr
Senior Vice President
Kenneth W. Gerstner
Senior Vice President,
Chief Financial Officer and Secretary
Myron G. Rasmussen
Vice President
FARR FILTRATION, LTD. (UNITED KINGDOM)
Donald A. Parker
Managing Director
FARR INC. (CANADA)
Dominique Mignacco
Vice President and
General Manager
-22-
<PAGE>
Corporate Offices
2221 Park Place
El Segundo, California 90245
310-536-6300
Subsidiaries
Farr, Inc., Montreal, Canada
Farr Filtration, Ltd., Birmingham, England
Manufacturing and Distribution Facilities
Jonesboro, Arkansas
Corcoran, California
Delano, California
Crystal Lake, Illinois
Holly Springs, Mississippi
Conover, North Carolina
Montreal, Canada
Birmingham, England
Singapore
Manufacturing Licensees
Anfilco Ltd., Curgaon, India
Antung Trading Corp., Taipei, Taiwan
Boart MSA (PTY) Ltd., South Africa
Casiba S. A., Buenos Aires, Argentina
Clyde-Apac Ltd., Woodville, Australia
Genmech Engineering, Singapore
Industries Filvac S.A. de C.V., Mexico
Nihon Spindle Mfg., Co., Ltd., Osaka, Japan
Quest Technology, SND. BHD, Malaysia
Taylor's Ltd., Christchurch, New Zealand
Turbiparts, C.A., Caracas, Venezuela
Vibran Engineering (M) SDN. BHD., Petaling Jaya, Malaysia
Wilectec Co., Ltd., Kwai Chung, N.T., Hong Kong
Yamashita Iron Works Ltd., Osaka, Japan
Manufacturing Distributors
Genmech Engineering, Singapore
FEI (France Equipement Industriels), Florange, France
Registrar and Transfer Agent
Chemical Mellon Shareholder Services
Los Angeles, California
Legal Counsel
Latham & Watkins
Los Angeles, California
Auditors
Arthur Andersen LLP
Los Angeles, California
Form 10-K
Shareholders of record as of March 8, 1996 may obtain copies of the
Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission by writing to:
Kenneth Gerstner
Farr Company
2221 Park Place
El Segundo, California 90245-4900
-23-
<PAGE>
FARR
1995 ANNUAL REPORT
-24-
