UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 28, 1996
-----------------------
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)
Registrant's telephone number, including area code (310) 536-6300.
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 7, 1997, based on the closing sale price on such date, was
$67,924,258.
The number of shares of common stock outstanding on March 7, 1997 was 3,814,311.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
PART I AND II:
The Annual Report to Stockholders for the fiscal year ended December 28, 1996.
PART I AND III:
The Proxy Statement for the Annual Meeting of Stockholders to be held April
29, 1997.
PART I
Item 1. Business
-----------------
Farr Company and its subsidiaries (hereinafter collectively referred to as
the "Company" or "Registrant") are 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 application filters for original equipment
manufacturers, diesel-powered truck engines, railroad locomotives, dust
collection systems and gas turbines. Air filter efficiencies range from 20
percent in disposable products to 99.9999+ percent 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 large gas
turbine systems with a single filter component module weighing in excess of
twenty tons.
All of the Company's filter products incorporate at least one of five basic
methods of filtration. These include strainer type filters which block the
passage of particles through the use of various types of materials such as
paper, non-woven cotton fabric, fiberglass and metal screening; impingement
and diffusion type filters which consist of layers of various types of
screening materials sometimes with an oil coating that traps dust
particles; inertial separators which filter high velocity air by changing
its direction; and activated carbon filters which absorb odors and gases.
Paper, fabric, fiberglass and carbon filters are disposable and the Company
sells replacements.
Many products manufactured by the Company are enclosed in hardware ranging
from simple frames to large component modules weighing in excess of twenty
tons. The percentage of the Company's total sales involving the fabrication
of large enclosures used in special filtration was 7 percent, 4 percent and
6 percent in 1996, 1995 and 1994, respectively. These products are sold
primarily for use with gas turbine installations in applications in the
electrical generating, oil and gas industries.
The Company also maintains and services air filtration systems and
accessory equipment in buildings and industrial plants in Southern
California, Detroit, Michigan and Phoenix, Arizona. Services include
replacing disposable filters.
The Company was organized in California in 1938 and reincorporated in
Delaware in 1987.
2
<PAGE>
Materials
---------
The principal materials used in manufacturing the Company's products are
ferrous and non-ferrous materials, plastisols, urethanes, adhesives and
certain finished and semi-finished filter materials, including screen,
activated carbon, cotton fibers, paper and fiberglass. The Company does not
depend on any single materials supplier for a significant portion of its
raw materials.
Product Engineering and Development
-----------------------------------
At December 28, 1996, the Company employed approximately 44 engineers,
draftsmen and technicians in the United States, Canada and England to
improve and develop existing products, to design, develop and test new
products and to improve production equipment and techniques. The Company
spent approximately $2,217,000, $2,251,000 and $2,221,000 for product
engineering and development in 1996, 1995, and 1994, respectively.
The Company owns a number of United States and foreign patents. Although
the Company considers these patents to be of value in its operations, its
business is not dependent on any single patent or group of patents.
Sales and Distribution
----------------------
The Company's products are sold throughout the United States and in over 40
foreign countries through salesmen working out of field sales offices and
through various distributors and manufacturers' representatives.
Certain of the Company's products are manufactured and sold under licensing
agreements with manufacturers located in Argentina, Australia, France, Hong
Kong, India, Indonesia, Italy, Japan, Malaysia, Mexico, New Zealand,
Singapore, Taiwan and Venezuela.
During 1996, no customer accounted for more than 10 percent of net sales.
Backlog
-------
The Company's backlog at December 28, 1996 was $13,899,000 as compared to
$16,017,000 at December 30, 1995.
Historically, backlog has not been a significant measure of the Company's
future business activities since the majority of orders are shipped within
forty-five to sixty days of receipt. During 1996, approximately 7 percent
of the Company's business was derived from products with lead times longer
than 60 days.
These products are primarily heavy fabrication products such as gas turbine
equipment. The backlog of orders relating to heavy fabrication products was
approximately $3,679,000 and $4,611,000 at December 28, 1996 and December
30, 1995, respectively. All of the December 28, 1996 backlog is scheduled
for delivery during 1997.
3
<PAGE>
International Operations
------------------------
The Company engages in operations in foreign countries as described above.
For information regarding the geographic distribution, revenue, operating
profit (loss) and identifiable assets of the Company's domestic and
international operations, see Note 13 of Notes to Consolidated Financial
Statements, included in the Company's Annual Report to Stockholders, which
is incorporated herein by reference.
The Company's international operations are subject to the additional risks
inherent in doing business in countries whose governments have policies
different than those of the United States. To date the Company has
experienced no material problems in foreign countries arising from
political instability or currency restrictions or fluctuations.
Competition
-----------
The fields in which the Company operates are highly competitive with
numerous other companies manufacturing and selling competing products.
While information with respect to the industry ranking of the Company among
manufacturers of similar products is not available, the Company believes
that its principal competitors in most of its major product areas are
Flanders Corporation, American Air Filter Company, Inc., a wholly owned
subsidiary of Snyder General Corporation, Donaldson Company, Inc. and
Clarcor, Inc. A number of the Company's competitors have greater financial
and marketing resources than the Company. The Company believes the
principal competitive factors in the sale of its products are technical
competence, quality and the ability to respond to the individual
requirements of its customers.
Employees
---------
At March 7, 1997, the Company had approximately 1,307 employees as compared
to approximately 1,299 on March 8, 1996.
The Company's five drivers and warehouse operators at its El Segundo
service office are covered by a collective bargaining agreement with the
Teamsters Union that expires on February 6, 2000. Thirty-one employees at
the Company's Delano plant are covered by a collective bargaining agreement
with the Sheet Metal Workers International Association that expires June
30, 1998. At February 28, 1997, 133 employees at the Company's Montreal,
Canada plant were covered by a three year collective bargaining agreement
expiring August 31, 1997, and 52 employees at the Company's Birmingham,
England plant were covered by a collective bargaining agreement that
expired on December 31, 1996 and is currently in negotiation.
4
<PAGE>
Executive Officers of the Registrant
- ------------------------------------
================================================================================
Position Held and
Business Experience During
Name Age Past Five Years
Richard L. Farr 53 Vice President of the Company (since April 1996),
Senior Vice President of the Company (from January
1995 to April 1996), Vice President of the Company
(from November 1987 to January 1995), Director of the
Company (from November 1988 to April 1996), first
cousin of David J. Farr, a Director of the Company.
Kenneth W. Gerstner 53 Senior Vice President, Secretary and Chief Financial
Officer of the Company (since January 1995), Vice
President, Secretary and Chief Financial Officer of
the Company (from June 1993 to January 1995),
Controller, Archive Technology, Inc. (from June 1990
to May 1993), Assistant Corporate Controller, Archive
Corporation (from March 1989 to June 1990).
John C. Johnston 53 Director of the Company (since September 1996),
President and Chief Operating Officer (since February
1996), Senior Vice President of the Company (from
January 1995 to February 1996); President of Easton
Aluminum, Inc. (from January 1986 to December 1994).
H. Jack Meany 74 Chairman and Chief Executive Officer of the Company
(since February 1996), Chairman, President, and Chief
Executive Officer (from April 1994 to February, 1996)
Director of the Company (from June 1976 to March
1994); Chairman of the Board and Chief Executive
Officer (from October 1975 to March 1988) of NI
Industries, Inc., a manufacturer of building,
industrial, and defense products; Director, APS Corp.
and BWP International, Inc.
Myron G. Rasmussen 59 Vice President of the Company (since March 1990),
Director of Engineering of the Company (from August
1977 to May 1990).
================================================================================
5
<PAGE>
Item 2. Properties
-------------------
The location and general description of the Company's principal properties
at March 7, 1997 are set forth in the following tables. All such properties
are owned by the Company except as noted:
Floor Area
Location (Square Feet) Principal Uses
Jonesboro, AR 220,000 Manufacturing
El Segundo, CA 50,000 Corporate Offices
El Segundo, CA 40,000 Warehouse
Delano, CA 39,000 Manufacturing
Corcoran, CA 80,000 Manufacturing
Eatonton, GA (leased) 76,000 Closed
Crystal Lake, IL 120,000 Manufacturing
Holly Springs, MS 208,000 Manufacturing
Conover, NC 107,000 Manufacturing
Pryor, OK (leased) 80,000 Closed
Montreal, Canada 146,000 Manufacturing
Birmingham, England 82,000 Manufacturing
The Company leases sales office and warehouse space in or near San Diego,
California; Phoenix, Arizona; Detroit, Michigan; Toronto, Ontario, Canada;
British Columbia, Canada; Manitoba, Canada; Quebec, Canada; and Singapore.
The Company believes that its facilities and manufacturing equipment are
well maintained and adequate for current operations. During 1996, the
Company believes that utilization of its various production facilities
ranged from 50 to 90 percent, depending upon product mix.
Item 3. Legal Proceedings
--------------------------
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 its
insurance, or would not have a material adverse effect on the financial
position or operations of the Company if disposed of unfavorably.
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
Not applicable.
Incorporation by Reference
--------------------------
The following portion of the Company's Annual Report to Stockholders for
the year ended December 28, 1996 ("Annual Report") is hereby incorporated
by reference.
Form 10-K Item No. Document Portion of Document
---------------------- ------------- -------------------
Part I -- Item 1 and 2 Annual Report Pages 8 through 20
6
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
---------------------------------------------------------------------------
Matters
-------
The Company's Common Stock trades on the Nasdaq National Market under the
symbol FARC. At March 7, 1997, there were approximately 494 stockholders of
record of the Company's Common Stock.
Dividends
---------
The Company did not pay any dividends on its Common Stock over the last two
years.
On February 18, 1997, The Company's Board of Directors declared a dividend
to be paid in the form of a 3 for 2 stock split, payable on March 28, 1997,
to stockholders of record on March 7, 1997.
This Item 5 should be read in conjunction with information appearing under
the captions "Consolidated Statements of Stockholders' Investment",
"Selected Financial Data" and "Summary of Stock Quotations" on pages 9, 21
and 25, respectively, of the Annual Report.
Item 6. Selected Financial Data
-------------------------------
The five year summary under "Selected Financial Data" included on page 21
of the Annual Report is incorporated herein by this reference. The
five-year summary should be read in conjunction with the Company's
consolidated financial statements and accompanying notes included under
Item 8, Consolidated Financial Statements and Supplementary Data.
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------------------
Results of Operations
---------------------
"Management's Discussion and Analysis" on pages 22 through 24 of the Annual
Report is incorporated herein by this reference.
Item 8. Consolidated Financial Statements and Supplementary Data
----------------------------------------------------------------
Pages 8 through 20 of the Annual Report, which include the consolidated
financial statements, and the Report of Independent Public Accountants as
listed in Item 14 (a) (1), are incorporated herein by this reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
7
<PAGE>
PART III
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
Information appearing under the caption "Compliance With Section 16(a) of
the Exchange Act" in the Company's 1996 Proxy Statement is incorporated
herein by this reference.
Item 10. Directors and Executive Officers of the Registrant
-----------------------------------------------------------
Information appearing under the caption "Election of Directors" in the
Company's 1996 Proxy Statement is incorporated herein by this reference.
Item 11. Executive Compensation
-------------------------------
Information appearing under the caption "Executive Compensation" in the
Company's 1996 Proxy Statement is incorporated herein by this reference.
Information appearing under the captions "Compensation Committee Report"
and "Performance Graph" in the Company's 1996 Proxy Statement is not
incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------
Information appearing under the caption "Ownership of the Company's
Securities" in the Company's 1996 Proxy Statement is incorporated herein by
this reference.
Item 13. Certain Relationships and Related Transactions
-------------------------------------------------------
Note 1 to the consolidated financial statements, included on page 11 of the
Annual Report, and the caption "Independent Public Accountants" in the
Company's 1996 Proxy Statement contain information about certain
relationships and are incorporated herein by this reference.
8
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
------------------------------------------------------------------------
(a) Financial Statements, Schedules and Exhibits:
(1) Index to Financial Statements and Supplementary Data.
The financial statements listed below are set forth in the Annual
Report for the fiscal year ended December 28, 1996 and are
incorporated herein by this reference.
Annual Report
Page No.
-------------
Consolidated Balance Sheets at December 28, 1996 and
December 30, 1995. 8
Consolidated Operations Statements and Consolidated
Statements of Stockholders' Investment for the three
years ended December 28, 1996, December 30, 1995
and December 31, 1994. 9
Consolidated Statements of Cash Flows for the three
years ended December 28, 1996, December 30, 1995
and December 31, 1994. 10
Notes to the Consolidated Financial Statements 11-19
Report of Independent Public Accountants 20
(2) The exhibits filed as part of this report are listed in the Exhibit
Index which follows the Supplemental Schedules referred to above.
Management contracts and compensatory plans and arrangements listed
in the Exhibit Index are denoted with an asterisk (*).
(b) 8-K Reports:
None
9
<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: March 20, 1997 By: /s/ H. Jack Meany
-------------- ------------------------------
H. Jack Meany
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: March 20, 1997 By: /s/ H. Jack Meany
-------------- ------------------------------
H. Jack Meany
Chairman and Chief Executive Officer
Dated: March 20, 1997 By: /s/ Robert G. Batinovich
-------------- ------------------------------
Robert G. Batinovich
Director
Dated: March 20, 1997 By: /s/ Richard P. Bermingham
-------------- ------------------------------
Richard P. Bermingham
Director
Dated: March 20, 1997 By: /s/ Denis R. Brown, Jr.
-------------- ------------------------------
Denis R. Brown, Jr.
Director
Dated: March 20, 1997 By: /s/ David J. Farr
-------------- ------------------------------
David J. Farr
Director
Dated: March 20, 1997 By: /s/ John C. Johnston
-------------- ------------------------------
John C. Johnston
Director
Dated: March 20, 1997 By: /s/ John J. Kimes
-------------- ------------------------------
John J. Kimes
Director
Dated: March 20, 1997 By: /s/ John A. Sullivan
-------------- ------------------------------
John A. Sullivan
Director
Dated: March 20, 1997 By: /s/ Kenneth W. Gerstner
-------------- ------------------------------
Kenneth W. Gerstner
Sr. Vice President, Secretary
and Chief Financial Officer
10
<PAGE>
FARR COMPANY AND SUBSIDIARIES
List of Exhibits
Item Description
3.1 Certificate of Incorporation of Registrant as currently in
effect. Filed as Exhibit 3.1 on Form 10-K dated December
30, 1995 and incorporated herein by this reference.
3.2 Amended By-Laws of Registrant as currently in effect. Filed
as Exhibit 3.2 on Form 10-K dated December 30, 1995 and
incorporated herein by this reference.
4.31 Rights Agreement, dated as of April 3, 1989, between Farr
Company and Chase Mellon Shareholder Services (formerly
Bank of America NT & SA). Filed as Exhibit 1 on Form 8K
dated April 18, 1989 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. Filed as Exhibit 4.64
to Annual Report on Form 10-K for the year ended December
30, 1995 and incorporated herein by this reference.
4.65 Amendment, dated September 24, 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.
11
<PAGE>
* 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.
* 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.
* 10.12 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.
* 10.21 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.
* 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.
* 10.33 Second Amendment to the 1991 Stock Option Plan for
Non-Employee Directors dated September 12, 1995. Filed as
Exhibit 10.33 on Form 10-K dated December 30, 1995 and
incorporated herein by this reference.
* 10.34 Employee contract agreement between John Johnston and
Farr Company dated Novembers 28, 1994. Filed as Exhibit
10.34 on Form 10-K dated December 30, 1995 and incorporated
herein by this reference.
* 10.35 The Farr Company 401(k)/Retirement Plan dated December 15,
1995. Filed as Exhibit 10.35 on Form 10-K dated December
30, 1995 and incorporated herein by this reference.
12
<PAGE>
* 10.36 The Farr Company Supplemental Executive Savings Plan
Adoption Agreement, dated November 21, 1995. Filed as
Exhibit 10.36 on Form 10-K dated December 30, 1995 and
incorporated herein by this reference.
* 10.37 The Corporate Plan for Retirement Select Plan, Fidelity
Basic Plan Document dated April 11, 1994 (SESP). Filed as
Exhibit 10.37 on Form 10-K dated December 30, 1995 and
incorporated herein by this reference.
10.38 Trust Agreement for Farr Company 401K/Retirement Plan,
dated December 15, 1995. Filed as Exhibit 10.38 on Form
10-K dated December 30, 1995 and incorporated herein by
this reference.
10.39 Trust Agreement for Farr Company Supplemental Executive
Savings Plan between Farr Company as sponsor and Fidelity
Management Trust Company as trustee dated November 21,
1995. Filed as Exhibit 10.39 on Form 10-K dated
December 30, 1995 and incorporated herein by this
reference.
* 10.40 Approved salary arrangement for Farr Company's Chairman and
Chief Executive Officer compensation. Filed as Exhibit
10.40 on Form 10-Q dated June 29, 1996 and incorporated
herein by this reference.
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 1996 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.
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.
13
Exhibit 4.65
Bank of America Amendment to Documents
- --------------------------------------------------------------------------------
AMENDMENT NO. 1 TO BUSINESS LOAN AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of September 24, 1996,
is between Bank of America National Trust and Savings Association (the "Bank")
and Farr Company (the "Borrower").
RECITALS
--------
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of February 15, 1996 (the "Agreement)".
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
---------
1. Definitions. Capitalized terms used but not defined in this
Agreement shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 In Sub-paragraph 1.1(a) of the Agreement, the amount "Ten
Million Dollars ($10,000,000)" is substituted for the amount
"Fifteen Million Dollars ($15,000,000)."
2.2 In Paragraph 1.6 of the Agreement, the percent "one and
three-quarters (1.75)" is substituted for the percent "one
and seven-eighths (1.875)."
2.3 Article 2 of the Agreement is deleted in its entirety.
2.4 Article 4 of the Agreement is deleted in its entirety.
2.5 The following Paragraphs are deleted from the Agreement in
their entirety: 6.2, 6.3, 6.5, 7.8, 8.17, and 10.2.
2.6 In Paragraph 8.4 of the Agreement, the ratio "1.25:1.0" is
substituted for the ratio "1.50:1.0."
2.7 Paragraph 8.19 of the Agreement is amended to read in its
entirety as follows:
"8.19 General Business Insurance. To maintain insurance as
is usual for the business it is in."
<PAGE>
2.8 A new Paragraph 8.22 is added to the Agreement, which reads
in its entirety as follows:
"8.22 Clean Down Period. Not to have more than Five Million
Dollars ($5,000,000) outstanding, and not to draw any
additional advances on its revolving line of credit, for a
period of at least 30 consecutive days in each line-year.
"Line-year" means the period between the date of this
Agreement and June 01, 1997, and each subsequent one-year
period (if any). For the purposes of this Paragraph,
"advances" does not include undrawn amounts of outstanding
letters of credit."
3. Effect of Amendment. Except as provided in this Amendment, all
of the terms and conditions of the Agreement shall remain in full force and
effect.
This Amendment is executed as of the dated stated at the beginning of
this Amendment.
Bank Of America
National Trust and Savings Association Farr Company
/s/ William R. Cave /s/ H. J. Meany
By: William R. Cave By: H. J. Meany
Title: Vice President Title: Chairman and
Chief Financial Officer
Exhibit 11
Earnings Per Share Calculation
As a result of the 3 for 2 stock split to be distributed on March 28, 1997, per
share amounts for the 1996 and prior years have been restated to reflect the
weighted average number of shares of common stock outstanding, increased by
shares issued for the stock split. The per share amounts in 1996 are calculated
as though the stock split occurred on the first day of the year.
<TABLE>
<CAPTION>
Dec. 28, 1996 Dec. 30, 1995 Dec. 31, 1994
------------- ------------- -------------
BASIC EARNINGS PER SHARE CALCULATION
------------------------------------
<S> <C> <C> <C>
Earnings:
Net Income (Loss) $5,890,000 $3,124,000 ($ 355,000)
========== ========== ===========
Shares:
Weighted average number of common
shares outstanding 5,445,122 5,525,373 5,517,327
========= ========= =========
Net Income (Loss) Per Common Share $1.08 $0.57 ($0.07)
===== ===== ======
PRIMARY EARNINGS PER SHARE CALCULATION
- --------------------------------------
Earnings:
Net Income (Loss) $5,890,000 $3,124,000 ($355,000)
========== ========== =========
Shares:
Weighted average number of common
shares outstanding 5,445,122 5,525,373 5,517,327
Assuming exercise of options reduced by
the number of shares which could have
been purchased with the proceeds from
exercise of such options 113,557 11,891 0
Weighted average number of common --------- --------- ---------
shares and dilutive common share
equivalents outstanding 5,558,679 5,537,264 5,517,327
========= ========= =========
Net Income (Loss) Per Common Share $1.06 $0.57 ($0.07)
===== ===== ======
</TABLE>
FARR
Innovative Product Leadership in Filtration
(picture of E-Series Riga-Flo (picture of RF-180 filter, a high
filter, a totally disposable, efficiency railroad bag air filter
low pressure drop, high which eliminates carry over of
performance rigid air filter adhesives into the turbocharger,
for HVAC systems) aftercooler and other engine
components)
E-Series Riga-Flo RF-180
(picture of Riga-RP Filter System,
an economical replaceable panel
air filtration system for high
efficiency particulate filtration
and/or carbon absorption, designed
for new or retrofit installation
in HVAC systems)
Riga-RP Filter System
1996 Annual Report
<PAGE>
Mission Statement
To be a highly successful company
providing filtration products and
services of premium value that
protect people, equipment and their
environment from contaminants.
To produce acceptable rewards to those having a stake in the
success of the enterprise.
+ + +
SALES NET PROFIT
(bar graph showing 1994, 1995 and (bar graph showing 1994, 1995 and 1996
1996 quarterly sales, in millions) quarterly net profits, in thousands)
LONG TERM DEBT MARKET CAPITALIZATION
(bar graph showing 1994, 1995 and (bar graph showing 1994, 1995 and 1996
1996 end of quarter long term quarterly market capitalization,
debt, 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 $21.0 $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
1996 - Q1 $31.1 $1,178 $ 8.5 $35.2
- Q2 $31.4 $1,499 $ 6.1 $49.2
- Q3 $30.0 $1,595 $ 4.5 $53.8
- Q4 $29.6 $1,618 $ 2.1 $61.7
</TABLE>
- 2 -
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Items) 1996 1995 1994
------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $122,021 $113,275 $106,989
Income (loss) before income taxes 9,680 5,163 ( 642)
Income tax provision (benefit) 3,790 2,039 ( 287)
Net Income (loss) 5,890 3,124 ( 355)
Net Income (loss) per common share 1.06 .57 ( .07)
Current assets 37,679 38,928 40,075
Current liabilities 17,873 18,745 18,293
Working capital 19,806 20,183 21,782
Long-term debt, net of current portion 2,068 9,412 18,957
Property, plant and equipment, net 15,611 16,406 17,930
Stockholders' Investment 31,210 24,785 21,172
------------------------------------------------------------------------------
</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>
LETTER TO STOCKHOLDERS
- ----------------------
1996 was a good year for Farr. All-time financial records were set and steady
rates of improvement were seen in every functional area.
For the year of 1996, net income set a record at $5,890,000 or $1.06 per share
compared to $3,124,000 or $.57 per share for the prior year, an 89% increase.
Sales for 1996 also set a record at $122,021,000 which was an increase of
$8,746,000 or 8%.
During 1996, the Company continued to strengthen its financial position.
Long-term debt was reduced by $7,985,000 down to $2,091,000. This debt reduction
was primarily accomplished through increased profits, capital spending
conservation and controls aimed at minimizing our working capital requirements.
Of significant note, the Company reduced its inventories by over $2,900,000 in
1996 as a result of specific programs to improve inventory turnover while at the
same time decreasing customer delivery lead times. As a result of our continued
debt reduction, 1996 interest expense was reduced by $1,109,000 compared to
1995. For 1997, we anticipate further interest expense reductions.
In addition to debt reduction in 1996, we again leveraged our improved financial
position and performance to negotiate reductions in the cost of borrowed capital
from our lenders. Stockholders' Investment increased $6,425,000 to $31,210,000,
an increase of 26% during 1996.
Along with these financial accomplishments, significant changes were made in
other areas during the year and while positive results were realized during the
year from these changes, we anticipate the major benefits will be felt in
succeeding years.
OPERATIONAL CHANGES
- -------------------
Plant rationalization was completed with the closing of the Hazleton,
Pennsylvania assembly plant. The production from Hazleton was distributed among
other Farr plants in Illinois, North Carolina and Montreal, Canada. The main
purpose of this move was to enable more consolidation of shipments from single
source regional plants because the Hazleton plant had capability to produce a
limited number of products. While our Montreal plant is near the northeast U.S.
market, it was not until implementation of the North American Free Trade
Agreement (NAFTA) that it became a practical sourcing point for U.S.
customers.
Farr has been in the dust collection and engineered systems business,
domestically, for a number of years and they had developed as separate
organizations. A study suggested that the reasons for operating these two
divisions separately were no longer of major importance. In fact,
- 4 -
<PAGE>
considerable gains were possible in combining these units into a single business
unit with all functions centralized at one location. This is now complete and we
plan to grow this unit in both sales and profit without further investment for
some time. A turnaround in these products will mean worthwhile gains to Farr
because they have been only marginal to negative performers for many years.
A program of improved customer service has succeeded in that our standard stock
product delivery times have been cut in half with further improvement being
planned. Three of our five product order desks have been relocated from the
corporate headquarters to the actual producing plants to speed communications,
resolve questions and make transactions more accurate.
The results have been gratifying.
NEW PRODUCTS
- ------------
In the product development area, our activity has ranged from minor improvements
in features and performance of existing products to the introduction of new
products, having considerably new and different characteristics and performance
profiles. These new products provide the customer with cleaner air, more
convenient handling, lower operating and disposal costs and are more
environmentally friendly.
Some examples are pictured on the front cover. They are:
o The new RF-180 engine air intake filter for railroad locomotives which
doubles the time between replacements saving purchase cost, labor, down-time and
disposal costs. A number of railroads have recognized this as a significant
advantage over anything else available.
o The E-Series Riga-Flo(R), a truly innovative product, has just been
introduced creating widespread interest in this incinerable high performance
industrial/commercial filter. It is strong yet lightweight so it handles and
installs with less effort, resists damage more than conventional filters of
equal performance and is ecologically friendly. Our sales force and distributors
are enthusiastic about all of our new products and especially about this one.
However, only time will measure its market performance.
o The Riga-RP(R) which provides the opportunity to upgrade the indoor air
quality (IAQ) of older systems without the cost of replacing duct work, blowers,
etc. Among its many features is the incinerability of the filter panels with no
need to change the metal housing.
UPGRADED MANUFACTURING FACILITIES
- ---------------------------------
o New equipment has been installed in our United Kingdom factory. This
enables us to provide shorter lead time on dust collection and engineered
systems equipment from that facility.
- 5 -
<PAGE>
We believe this is responsible for some orders which may have otherwise gone to
competitors. Also, a new pleater has been installed which enables the U.K. to
produce cleanroom and HEPA filters from raw stock. The prior practice was to
order pleated stock from the U.S. which increased freight costs and inventories
and stretched out customer deliveries.
o A new state-of-the-art computer aided metal stamping center has been
installed in the Jonesboro plant. This will cut costs, reduce lead times and
improve quality of many of the metal products made there.
STRENGTHENING THE ORGANIZATION
- ------------------------------
o During the year a formal corporate purchasing function was created. Phil
Hochstein was recruited as Corporate Purchasing Director. Benefits to both Farr
and its suppliers are being realized from this move. Our suppliers benefit from
the opportunity to sell greater quantities of combined plant requirements,
whereas Farr can participate with the supplier in the economics of volume.
Greater efficiency and improved vendor quality performance are goals to be
realized.
o In January of this year, Don Thornburg joined Farr as Engineering
Manager. He brings considerable experience in cleanroom and HEPA products that
were areas of needed strength. He also augments our excellent capability in HVAC
product development and engineering.
o As of February 1, 1997 Janet Peet became Corporate Director of Human
Resources and assumed functional responsibility for all of Farr's U.S. human
relations. This will improve uniformity of policies and practices throughout the
Company's U.S. operations without imposing another bureaucratic layer. It is a
necessary preparation for the Company's future growth.
These are organizational enhancements and we are fortunate to have such highly
professional managers join our team.
Your Company is solidly pursuing the dual paths of performance improvement and
sales growth. We have been underway on the first goal for almost three years and
there is no doubt as to our ability to find ways to improve our performance.
While this has been done with varying degrees of success among the many
undertakings, it nonetheless has proven to be very successful overall. We can
and will continue to capture those opportunities for greater efficiencies, less
scrap, shorter lead times, better quality and improved customer satisfaction.
- 6 -
<PAGE>
Improvements in operations have allowed us more time to concentrate on sales
growth opportunities. This process was started in 1996 and some early programs
have been replaced or modified and new plans are being formulated and tested.
New goals are being set as we see opportunities evolve.
An encouraging fact is that we have accomplished some modest sales growth while
simultaneously dropping or de-emphasizing certain products or markets. More of
this may have to occur before a healthy growth pattern develops.
The sales growth goal is seen by your management as the challenge of our time
and is taken on with great enthusiasm and a burning desire to accomplish it. We
call your attention to the Company's Mission Statement printed on the inside
front cover. The last phrase means we will be successful when all parties are
adequately rewarded, i.e., stockholders, customers, employees, suppliers and the
community at large and in that order.
We appreciate the contributions of each of those parties and believe we will
accomplish our mission.
On February 18, 1997, the board of directors took two actions which are worthy
of note. First, Denis R. Brown was elected to the board in a newly created
position. Mr. Brown is President and Chief Executive Officer of Pinkerton, Inc.
His considerable experience in manufacturing and international operations will
be a valuable asset to the Company. Second, the board authorized a 3 for 2 stock
split of the common stock in the form of a 50 percent stock dividend, to be
distributed March 28, 1997 to stockholders of record March 7, 1997.
---------------------------------- -----------------------------------
H. Jack Meany John C. Johnston
Chairman & Chief Executive Officer President & Chief Operating Officer
- 7 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS FARR COMPANY AND SUBSIDIARIES
December 28, 1996 December 30, 1995
- ------------------------------------------------------------------------------------
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 1,997,000 $ 812,000
Accounts receivable, less allowances
of $297,000 in 1996 and $214,000 in 1995 20,551,000 20,077,000
Inventories
Raw materials 5,380,000 6,392,000
Work in progress 3,979,000 5,119,000
Finished goods 3,175,000 3,926,000
----------- -----------
12,534,000 15,437,000
Prepaid expenses 790,000 622,000
Deferred income tax benefit 1,807,000 1,980,000
----------- -----------
Total current assets 37,679,000 38,928,000
----------- -----------
Property, plant and equipment at cost
Land 2,107,000 2,094,000
Buildings and improvements 15,247,000 15,231,000
Machinery and equipment 34,907,000 33,829,000
----------- -----------
52,261,000 51,154,000
Less accumulated depreciation and amortization 36,650,000 34,748,000
----------- -----------
15,611,000 16,406,000
Investments and other 397,000 236,000
----------- -----------
$53,687,000 $55,570,000
=========== ===========
Liabilities & Stockholders' Investment
Current Liabilities:
Notes payable to banks $ 874,000 $ 432,000
Current portion of long-term debt 23,000 664,000
Accounts payable 8,665,000 8,875,000
Accrued liabilities 7,566,000 8,248,000
Income taxes payable and current deferred
income taxes 745,000 526,000
----------- -----------
Total current liabilities 17,873,000 18,745,000
----------- -----------
Long-term debt, net of current portion 2,068,000 9,412,000
Deferred income taxes 2,350,000 2,628,000
Other noncurrent liabilities 186,000 --
Commitments and contingencies
Stockholders' investment
Common stock, $.10 par value -
Authorized - 10,000,000 shares
Outstanding 5,707,404 shares at
December 28, 1996 and 5,690,004 shares
at December 30, 1995 544,000 543,000
Additional paid-in capital 11,603,000 11,487,000
Cumulative translation adjustments ( 1,206,000) ( 1,624,000)
Retained earnings 20,269,000 14,379,000
----------- -----------
Total stockholders' investment 31,210,000 24,785,000
----------- -----------
$53,687,000 $55,570,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
- 8 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED OPERATIONS STATEMENTS FARR COMPANY AND SUBSIDIARIES
For the Years Ended December 28, 1996 December 30, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $122,021,000 $113,275,000 $106,989,000
Cost of Sales 91,276,000 85,496,000 84,437,000
------------ ------------ ------------
Gross Margin 30,745,000 27,779,000 22,552,000
Selling, general and administrative expenses 20,378,000 20,956,000 20,065,000
Interest expense 687,000 1,796,000 2,129,000
Restructuring costs -- 540,000 1,000,000
Gain on sale of assets -- ( 676,000) --
------------ ------------ ------------
Total Expenses 21,065,000 22,616,000 23,194,000
------------ ------------ ------------
Income (Loss) Before Income Taxes 9,680,000 5,163,000 ( 642,000)
Income Tax (Benefit) Provision 3,790,000 2,039,000 ( 287,000)
------------ ------------ ------------
Net Income (Loss) $ 5,890,000 $ 3,124,000 ($ 355,000)
============ ============ ============
Net Income (Loss) per common share $ 1.06 $ .57 ($ .07)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
Cumulative
For the Years Ended December 28, 1996, Common Additional Retained Translation Loans to
December 30, 1995 and December 31, 1994 Stock Paid-in Capital Earnings Adjustments ESOPs
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance-- January 1, 1994 $552,000 $11,811,000 $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 552,000 11,821,000 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 - 99,050 shares ( 10,000) ( 508,000) -- -- --
Net Income -- -- 3,124,000 -- --
-------- ----------- ----------- ---------- --------
Balance -- December 30, 1995 543,000 11,487,000 14,379,000 ( 1,624,000) 0
Exercise of Stock Options 1,000 98,000 -- -- --
Cumulative Translation Adjustment -- -- -- 418,000 --
Treasury Stock Sold - 1,974 shares -- 18,000 -- -- --
Net Income -- -- 5,890,000 -- --
-------- ----------- ----------- ---------- --------
Balance - December 28, 1996 $544,000 $11,603,000 $20,269,000 ($1,206,000) $ 0
======== =========== =========== ========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
- 9 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS FARR COMPANY AND SUBSIDIARIES
For the Years Ended December 28, 1996 December 30, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------------------
Operating Activities:
<S> <C> <C> <C>
Net Income (Loss) $ 5,890,000 $ 3,124,000 ($ 355,000)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 2,392,000 3,299,000 3,308,000
Provision for loss on accounts receivable 109,000 151,000 202,000
Benefit retirement trust 186,000 -- --
Change in deferred income taxes 86,000 1,501,000 ( 466,000)
Exchange loss (gain) 97,000 14,000 ( 128,000)
Net (gain) loss on sale/retirement of
property, plant and equipment 49,000 ( 701,000) 33,000
Provision for (gain) loss on investments -- ( 115,000) 170,000
Change in assets and liabilities
Inventories 3,048,000 ( 734,000) 815,000
Receivables and prepaid expenses ( 600,000) 1,186,000 ( 1,393,000)
Accounts payable and accrued expenses ( 960,000) 1,104,000 1,695,000
Income taxes payable 2,000 ( 100,000) ( 103,000)
----------- ----------- -----------
Net cash provided by operating activities 10,299,000 8,729,000 3,778,000
----------- ----------- -----------
Investing Activities:
Purchases of property, plant and equipment ( 1,465,000) ( 1,163,000) ( 987,000)
Proceeds from sale of property, plant and
equipment 6,000 2,945,000 --
Proceeds from sale of investments -- 567,000 --
Purchase of investments, benefit trust ( 186,000) -- --
----------- ----------- -----------
Net cash provided by (used in) investing activities ( 1,645,000) 2,349,000 ( 987,000)
----------- ----------- -----------
Financing Activities:
Proceeds from revolving line of credit and
long-term debt 8,603,000 432,000 18,939,000
Principal payments on revolving line of credit
and long-term debt ( 16,195,000) ( 10,893,000) ( 21,843,000)
Principal payments received on ESOP loans 7,000 635,000 120,000
Deferred financing costs -- -- ( 552,000)
Proceeds from sale of stock, stock option plans 99,000 175,000 10,000
Treasury stock sold (acquired) 18,000 ( 518,000) --
Other -- ( 167,000) --
---------- ----------- -----------
Net cash used in financing activities ( 7,468,000) ( 10,336,000) ( 3,326,000)
---------- ----------- -----------
Effect of Exchange Rate Changes on Cash ( 1,000) ( 57,000) ( 9,000)
---------- ----------- -----------
Increase (decrease) in cash and cash equivalents 1,185,000 685,000 ( 544,000)
Cash and Cash Equivalents at Beginning of Period 812,000 127,000 671,000
----------- ----------- -----------
Cash and Cash Equivalents at End of Period $ 1,997,000 $ 812,000 $ 127,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
- 10 -
<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 1996, 1995
and 1994, $97,000 was charged, $14,000 was charged and $128,000 was
credited to income, respectively.
Accounting Period -- The Company's fiscal year ends on the Saturday closest
to December 31. The fiscal years ended December 28, 1996, December 30,
1995 and December 31, 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.
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's
adoption of FASB No. 121 resulted in no impact on the Company's results
of operations or financial position.
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.
Product Engineering And Development -- Engineering and development costs
aggregating $2,217,000, $2,251,000 and $2,221,000 in 1996, 1995, and
1994, 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.
Certain reclassifications have been made to the prior years' financial
statements to conform with current year presentation.
- 11 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FARR COMPANY AND SUBSIDIARIES
2. INVENTORIES
Domestic inventories totaling $7,375,000 and $11,140,000 at December
28, 1996 and December 30, 1995, 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 $6,801,000 and $6,857,000 higher than reported at December 28,
1996 and December 30, 1995, 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 was 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 were incurred during the first quarter of 1996. At
December 28, 1996, the balance of this restructuring charge was
$103,000 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.
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 $365,000
balance of this restructuring charge is included as a component of
accrued liabilities in the accompanying Consolidated Balance Sheet as
of December 28, 1996. If the present weak real estate market in
Eatonton, Georgia continues beyond 1999, 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 December 28, 1996 is $21.33 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 1996 the Company transferred 1,974 shares to the Employee
Stock Ownership Plan. In 1995 the Company received 99,050 shares from
the Employee Stock Ownership Plans as payment against the Company's
outstanding loans to the Plans. As of December 28, 1996 and December
30, 1995 the Company held in treasury 251,057 and 253,031 shares of its
common stock at a cost of $1,399,000 and $1,417,000, respectively.
Outstanding stock amounts are reflected net of outstanding treasury
shares in the Consolidated Statements of Stockholder's Investment. Per
share amounts and shares outstanding in the current and prior periods
have been restated to reflect a 3 for 2 stock split paid in the form of
a stock dividend (see note 6).
- 12 -
<PAGE>
FARR COMPANY AND SUBSIDIARIES
6. DIVIDEND AND STOCK SPLIT
On February 18, 1997, The Company's Board of Directors declared a
dividend to be paid in the form of a 3 for 2 stock split, payable on
March 28, 1997, to stockholders of record on March 7, 1997.
7. NOTES PAYABLE AND LONG-TERM DEBT
The Company's foreign subsidiaries utilize overdraft facilities that
amounted to approximately $2,326,000 of which $874,000 was utilized as
of December 28, 1996. As of December 30, 1995, total foreign overdraft
facilities amounted to approximately $2,309,000 of which $432,000 was
utilized. The weighted average interest rate was 7.3% in 1996 and 8.6%
in 1995.
In February 1996, the Company restructured its long term
credit facilities financing. A new $10,000,000 long-term revolving
credit facility replaced the Company's $22,000,000 revolving credit
facility and $4,000,000 term credit facility. 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. In addition, the
Company retired the outstanding portion of its $2,500,000 Holly
Springs, Mississippi Industrial Revenue Bonds in August, 1996.
Long-term debt as of December 28, 1996 and December 30, 1995 were as
follows:
<TABLE>
<CAPTION>
December 28, 1996 December 30, 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit facility $2,000,000 $4,603,000
Term loan 91,000 105,000
Notes secured by deeds of trust on real property -
Term loan -- 2,753,000
Jonesboro, Arkansas Industrial Revenue Bonds -- 385,000
Holly Springs, Mississippi Industrial Revenue Bonds -- 2,230,000
2,091,000 10,076,000
---------- -----------
Less current portion ( 23,000) ( 664,000)
---------- ----------
Net long-term debt $2,068,000 $9,412,000
========== ==========
</TABLE>
At December 28, 1996, real, personal and intangible property of $177,000
were pledged as security for long-term debt.
Under the Company's domestic credit agreement, 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
1.25 to 1.0.
Interest paid on outstanding debt and obligations net of
amounts capitalized were $788,000, $1,839,000, and $1,964,000 in 1996,
1995, and 1994, respectively.
Principal payments are as follows:
Year ending Long-term debt
---------------------------------
1997 $ 23,000
1998 2,023,000
1999 23,000
2000 22,000
----------
Total $2,091,000
==========
- 13 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FARR COMPANY AND SUBSIDIARIES
8. INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
For the Years Ended December 28, 1996 December 30, 1995 December 31, 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current -- Federal $2,772,000 $ 81,000 $ --
State 432,000 171,000 48,000
Foreign 282,000 286,000 69,000
---------- ---------- --------
3,486,000 538,000 117,000
---------- ---------- --------
Deferred -- Federal ( 96,000) 1,230,000 ( 489,000)
State -- 173,000 --
Foreign 400,000 98,000 85,000
---------- ---------- --------
304,000 1,501,000 ( 404,000)
---------- ---------- --------
$3,790,000 $2,039,000 ($287,000)
========== ========== ========
</TABLE>
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 28, 1996 December 30, 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed income taxes at statutory rate $3,291,000 $1,755,000 ($218,000)
State income taxes, net of federal income tax benefit 285,000 113,000 31,000
Taxes on foreign subsidiaries' net income in excess
of (less than) income taxes at statutory rates 40,000 46,000 (86,000)
Other items, net 174,000 125,000 (14,000)
---------- ---------- --------
Provision (benefit) for income taxes $3,790,000 $2,039,000 ($287,000)
========== ========== ========
</TABLE>
Deferred taxes are recorded based upon differences between the
financial statement and tax bases of assets andliabilities and
available tax credit carryforwards. Temporary differences and
carryforwards which give rise to a significantportion of deferred tax
assets and liabilities were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 28, 1996 December 30, 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Net operating loss $ -- $ 231,000
Depreciation ( 537,000) ( 622,000)
Employee compensation accruals 716,000 753,000
Plant relocation and restructuring 184,000 230,000
DISC commission accrual ( 1,782,000) ( 1,782,000)
Acquisition reserves ( 639,000) ( 735,000)
Inventory 928,000 788,000
Other items, net 587,000 290,000
---------- ----------
($ 543,000) ($ 847,000)
========== ==========
</TABLE>
Included in income taxes payable and current deferred income taxes at
December 28, 1996 and December 30, 1995were $408,000 and $199,000,
respectively, of foreign deferred income taxes.
- 14 -
<PAGE>
FARR COMPANY AND SUBSIDIARIES
The consolidated income (loss) before income tax, by domestic and
foreign sources is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 28, 1996 December 30, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $7,792,000 $4,170,000 ($1,350,000)
Foreign 1,888,000 993,000 708,000
---------- ---------- ----------
$9,680,000 $5,163,000 ($ 642,000)
========== ========== ==========
</TABLE>
Net income taxes paid were $3,461,000, $466,000, and $613,000 in 1996,
1995, and 1994, respectively.
9. EMPLOYEE BENEFIT PLANS
The Company has defined contribution retirement 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 $851,000 in 1996, $916,000 in 1995 and
$352,000 in 1994, were charged to expense in accordance with the
approved plan formulas.
The Company had two employee stock ownership plans (ESOPs)
that operated in conjunction with the Company's prior 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 and $180,000 to cover
interest and principal payments on outstanding borrowings in 1995 and
1994, respectively. The Company recognized expense for the ESOPs using
the cash payments method, which is subject to certain minimum amounts.
The Company terminated the ESOP's in 1996.
Pension costs for the Company's defined benefit plans,
covering eligible employees in foreign operations, are determined by
independent actuarial valuations.
Pension (benefit) expense under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 87,"Employers' Accounting for
Pensions", was ($39,000) in 1996, ($17,000) in 1995 and $56,000 in
1994. The components of the 1996, 1995 and 1994 net periodic pension
cost were as follows:
<TABLE>
<CAPTION>
For the Years Ended 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service Cost $196,000 $165,000 $216,000
Interest cost on projected benefit obligation 337,000 302,000 288,000
Actual loss (return) on plan assets ( 570,000) ( 696,000) 115,000
Net amortization and deferral ( 2,000) 212,000 ( 563,000)
-------- -------- --------
($ 39,000) ($ 17,000) $ 56,000
======== ======== ========
The Assumptions used were:
Discount rate 7.8%-- 8.0% 8.0%-- 9.0% 9.0%
Rate of compensation increase 5.0%-- 6.0% 5.0%-- 6.0% 5.0%-- 6.5%
Long-term rate of return on assets 9.0%--10.0% 9.0%--10.0% 9.0%--10.0%
</TABLE>
- 15 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FARR COMPANY AND SUBSIDIARIES
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 28, 1996 and December 30,
1995:
<TABLE>
<CAPTION>
For the Years Ended 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations --
Vested benefit obligation $4,660,000 $3,947,000
Accumulated benefit obligation 4,660,000 3,947,000
========== ==========
Projected benefit obligation 4,962,000 4,219,000
Plan assets at fair value 6,030,000 5,112,000
---------- ----------
Plan assets in excess of projected benefit obligation 1,068,000 893,000
Unrecognized net gain ( 1,463,000) ( 1,003,000)
Prior service cost not yet recognized
in net periodic pension cost 135,000 142,000
Unrecognized net transition asset ( 111,000) ( 119,000)
---------- ----------
Accrued pension cost obligation recognized in the
consolidated balance sheets ($ 371,000) ($ 87,000)
========== ==========
</TABLE>
The Company provides no post-retirement health care and life insurance
benefits or other post-employment benefits to its employees.
10. 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 28, 1996 had an exercise
price equal to 100 percent of the fair market value on the date the
option was granted except for 118,500 shares that were granted in 1995.
Compensation expense recorded under the plan was $27,000 in both 1996
and 1995, respectively. 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 468,750 shares of the Company's common
stock of which at December 28, 1996, 103,293 shares were subject to
presently outstanding options. At December 28, 1996, 525,000 shares of
common stock were reserved for distribution under the 1993 plan, of
which 230,625 shares were subject to outstanding options.
As permitted by Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123),
effective for 1996, the Company continues to account for stock
compensation costs in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Had compensation cost for the Company's stock plans been
determined in accordance with FASB Statement No. 123, "Accounting for
Stock-Based Compensation", the Company's net income and earnings per
share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
For the Year Ended December 28, 1996 December 30, 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Net Income As Reported $5,890,000 $3,124,000
Pro Forma $5,814,000 $3,062,000
Primary EPS As Reported $ 1.06 $ .57
Pro Forma $ 1.05 $ .55
</TABLE>
Because the Statement No. 123 method of accounting has not
been applied to options granted prior to December 31, 1994, the
resulting pro forma compensation cost may not be representative of that
to be expected in future years.
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in 1996 and
1995: risk-free interest rates of 7.83, 7.13, 6.19 and 6.1 percent for
options granted in 1995 and 6.28 and 6.76 percent for options granted
in 1996; expected dividend yields of 0 percent; expected volatility of
45; expected life of 7 years for both 1996 and 1995 options.
- 16 -
<PAGE>
FARR COMPANY AND SUBSIDIARIES
Activity under the 1983 and 1993 plans is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Shares Avg. Option Price Shares Avg. Option Price Shares Avg. Option Price
------ ----------------- ------ ----------------- ------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
beginning of year 362,545 $4.69 250,117 $5.32 224,472 $5.86
Granted 3,750 6.17 148,500 3.59 165,750 4.25
Exercised 17,400 5.26 9,795 4.11 -- --
Cancelled and expired 14,978 5.51 26,277 4.69 140,105 4.91
------- ----- ------- ----- ------- -----
Options outstanding
end of year 333,917 $4.64 362,545 $4.69 250,117 $5.32
======= ===== ======= ===== ======= =====
End of year shares
exercisable 167,231 $5.53 147,258 $5.93 127,455 $5.95
======= ===== ======= ===== ======= =====
</TABLE>
- --------------------------------------------------------------------------------
The following table summarizes information about fixed stock options
outstanding as of December 28, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------- ---------------------------
Number Weighted-Avg. Number
Range of Outstanding Remaining Weighted-Avg. Exercisable Weighted-Avg.
Exercise Prices at Dec. 28 Contractual Life Exercise Price at Dec. 28 Exercise Price
--------------- ---------- ---------------- -------------- ----------- --------------
<S><C> <C> <C> <C> <C> <C> <C>
$4.40 - $6.67 19,968 .8 Years $5.45 19,968 $5.45
5.87 - 6.00 43,125 2.9 5.95 43,125 5.95
7.17 - 7.50 40,200 4.6 7.29 40,200 7.29
3.50 - 4.83 88,124 7.1 4.31 46,875 4.33
3.33 - 6.17 142,500 8.1 3.59 17,063 3.63
---- ---- ------- --- ----- ------- -----
$3.33 - $7.50 333,917 6.3 $4.64 167,231 $5.53
===== ===== ======= === ===== ======= =====
</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
72,000 shares of common stock to the Company's non-employee directors
of which 57,000 shares are subject to presently outstanding options. In
1995, the Company amended this plan to increase the number of shares
issuable under the plan to 150,000 shares. Activity for fiscal years
1996, 1995 and 1994 under the 1991 Plan are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Shares Avg. Option Price Shares Avg. Option Price Shares Avg. Option Price
------ ----------------- ------ ----------------- ------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
beginning of year 42,000 $4.76 51,000 $4.89 36,000 $5.43
Granted 15,000 6.63 12,000 4.96 18,000 4.03
Exercised -- -- 6,000 3.79 3,000 3.33
Cancelled and expired -- -- 15,000 5.75 -- --
------ ----- ------ ----- ------ -----
Options outstanding
end of year 57,000 $5.26 42,000 $4.76 51,000 $4.89
====== ===== ====== ===== ====== =====
End of year shares
exercisable 42,000 $4.76 30,000 $4.69 33,000 $5.37
====== ===== ====== ===== ====== =====
</TABLE>
- 17 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FARR COMPANY AND SUBSIDIARIES
The following table summarizes information about fixed stock options
outstanding as of December 28, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------- --------------------------
Number Weighted-Avg. Number
Range of Outstanding Remaining Weighted-Avg. Exercisable Weighted-Avg.
Exercise Prices at Dec. 28 Contractual Life Exercise Price at Dec. 28 Exercise Price
--------------- ---------- ---------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$6.09 - $6.17 12,000 4.8 Years $6.13 12,000 $6.13
3.33 - 4.25 18,000 7.0 3.72 18,000 3.72
4.59 - 8.59 27,000 8.9 3.57 12,000 4.96
----- ----- ------ --- ----- ------ -----
$3.33 - $8.59 57,000 7.4 $5.26 42,000 $4.76
===== ===== ====== === ===== ====== =====
</TABLE>
- -------------------------------------------------------------------------------
11. PER SHARE AMOUNTS
The weighted average number of common shares outstanding for 1996,
1995, and 1994 were 5,558,679, 5,525,373, and 5,517,327, respectively.
These share amounts approximated the number of shares outstanding for
fully diluted earnings per share calculations. As a result of the 3 for
2 stock split to be distributed on March 28, 1997, per share amounts
for the 1996 and prior years have been restated to reflect the weighted
average number of shares of common stock outstanding increased by
shares issued for the stock split.
12. 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 $1,145,000 for the year
ended December 28, 1996, $1,274,000 for the year ended December 30,
1995 and $1,182,000 for the year ended December 31, 1994. As of
December 28, 1996, approximate minimum rental commitments under
noncancelable leases which have not been capitalized were as follows:
Year Ending Amount
----------- ------
1997 $ 962,000
1998 682,000
1999 306,000
2000 198,000
2001 158,000
Thereafter 446,000
----------
Total $2,752,000
==========
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.
- 18 -
<PAGE>
FARR COMPANY AND SUBSIDIARIES
13. 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 contaminants in air and liquids.
Information about the Company's operations in different geographic
areas for the three years ended December 28, 1996, are presented as
follows:
<TABLE>
<CAPTION>
Net Sales Transfers
(In thousands) Sales to Unaffiliated Customers Between Geographic Areas Total Net Sales
- -----------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
---------------------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $100,008 $ 93,189 $ 88,831 $ 4,107 $ 3,540 $ 2,809 $104,115 $ 96,729 $ 91,640
Canada 11,632 11,002 9,165 5,854 4,251 2,412 17,486 15,253 11,577
Europe 10,381 9,084 8,993 365 268 23 10,746 9,352 9,016
-------- -------- -------- ------ ------- ------ -------- -------- --------
Total Segments 122,021 113,275 106,989 10,326 8,059 5,244 132,347 121,334 112,233
-------- -------- -------- ------ ------- ------ -------- -------- --------
Adjustments &
Eliminations -- -- -- ( 10,326) ( 8,059) ( 5,244) ( 10,326)( 8,059)( 5,244)
-------- -------- -------- ------- ------ ------ -------- -------- --------
Consolidated Totals $122,021 $113,275 $106,989 $ -- $ -- $ -- $122,021 $113,275 $106,989
======== ======== ======== ======= ====== ====== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Operating Profit (Loss)
(In thousands) Before Income Taxes Identifiable Assets
- ----------------------------------------------------------- ---------------------------
1996 1995 1994 1996 1995 1994
-------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $ 7,618 $ 5,239 ($ 58) $39,261 $43,286 $48,788
Canada 1,939 867 669 10,809 11,055 10,001
Europe 863 909 829 7,109 6,078 6,033
------- ------- ------ ------- ------- -------
Total Segments 10,420 7,015 1,440 57,179 60,419 64,822
Adjustments & Eliminations ( 53) ( 56) 47 ( 3,492) ( 4,849) ( 5,935)
Interest Expense ( 687) ( 1,796) ( 2,129) -- -- --
Corporate Assets -- -- -- -- -- 382
------- ------- ------ ------- ------- -------
Consolidated Totals $ 9,680 $ 5,163 ($ 642) $53,687 $55,570 $59,269
======= ======= ======= ======= ======= =======
</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: $10,326,000 in 1996, $8,059,000 in 1995
and $5,244,000 in 1994 of intercompany sales; a loss of $53,000 in
1996, a loss of $56,000 in 1995 and a gain of $47,000 in 1994 relating
to the net change in unrealized operating profit in beginning and
ending inventories; $3,492,000 in 1996, $4,849,000 in 1995 and
$5,935,000 in 1994 of intercompany accounts receivable and unrealized
operating profit in inventory at the end of each year.
- 19 -
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS FARR COMPANY AND SUBSIDIARIES
To the Board of Directors and Stockholders of Farr Company:
We have audited the accompanying consolidated balance sheets
of Farr Company (a Delaware corporation) and subsidiaries as of
December 28, 1996 and December 30, 1995, and the related consolidated
statements of operations, stockholders' investment and cash flows for
each of the three years in the period ended December 28, 1996. 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 28, 1996 and December 30,
1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 28, 1996, in conformity
with generally accepted accounting principles.
Los Angeles, California Arthur Andersen LLP
February 18, 1997
- 20 -
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA FARR COMPANY AND SUBSIDIARIES
Years Ended (In Thousands Except Share And Per Share Data)
Dec. 28, 1996 Dec. 30, 1995 Dec. 31, 1994 Jan. 1, 1994 Jan. 2, 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 122,021 $ 113,275 $ 106,989 $ 112,363 $ 112,094
Net Income (Loss) 5,890 3,124 ( 355) 1,284 ( 4,590)
(Notes D, E, F & H)
Net Income (Loss) per share (I) 1.06 .57 ( .07) .23 ( .84)
Total Assets (Notes A & B) 53,687 55,570 59,269 60,905 67,383
Long-term Debt, net of current portion
(Notes A, B, C, G & H) 2,068 9,412 18,957 21,913 27,001
Cash Dividends per share -- -- -- -- .04
Weighted average number of shares (I) 5,558,679 5,525,373 5,517,327 5,503,946 5,479,727
Capital expenditures 1,465 1,163 987 674 715
Net property, plant and equipment 15,611 16,406 17,930 21,914 24,595
Working Capital (Notes A & B) 19,806 20,183 21,782 20,853 21,289
- ------------------------------------------------------------------------------------------------------
</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. In August 1996, the
Company fully retired these bonds.
Note C. In February 1996, the Company completed refinancing of its
domestic long-term debt with a new lending institution, including
a $15,000,000 revolving credit facility that was subsequently
amended and reduced to $10,000,000 commensurate with the Company's
financing requirements.
Note D. 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 and reorganizing U.S. manufacturing
facilities.
Note E. 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 F. In 1993, the Company recorded a $149,000 extraordinary charge
relating to the write off of deferred financing costs as a result
of refinancing its long-term debt with new lending institutions.
Note G. 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 H. 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.
Note I. As a result of the 3 for 2 stock split declared on February 18,
1997 payable on March 28, 1997, per share amounts for the current
and prior years have been restated to reflect the weighted average
number of shares of common stock outstanding, increased by shares
to be issued for the stock split.
- 21 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS FARR COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
---------------------
1996 COMPARED TO 1995
Record 1996 net sales of $122,021,000 were up $8,746,000 or 7.7 percent from
prior year sales of $113,275,000. For the year, Industrial Products sales
were up 14 percent, Commercial Products were up 5 percent and Engine
Products were up 4 percent. The increase in Industrial Products sales was
led by strong sales in our Gas Turbine Filter House Market.
Foreign subsidiary sales increased 6.6 percent in 1996 due to Railroad
Product and Industrial Product sales that were up 28 and 31 percent,
respectively.
Record net income for 1996 totaled $5,890,000, up significantly from
$3,124,000 in the prior year. Increased sales volume, improved operating
efficiencies and lower interest expense were the primary reasons for the
gain in 1996. Our foreign consolidated subsidiaries totaled approximately 20
percent of our consolidated net income, down from 21 percent in the prior
year.
Gross margin for 1996 increased to 25.2 percent, up .7 percent from 24.5
percent in 1995. The increase in gross margins was the result of improved
operating efficiencies and a better sales mix of products with higher
margins compared to the prior year. The Company anticipates that gross
margin percentage will continue to improve during 1997 as a result of
efficiency improvement and product sales mix.
Selling, general and administrative expenses as a percentage of sales for
1996 and 1995 were 16.7 and 18.5 percent, respectively. 1996 spending
totaled $20,378,000 compared to $20,956,000 in 1995, which reflects a
decrease of $578,000, or 3 percent. Most of the decreased expense related to
lower loan fee amortization and sales and marketing related expenses.
Interest expense declined $1,109,000, or 62 percent in the year primarily
due to the significant decrease in long-term debt. The declining interest
expense trend is anticipated to continue in 1997.
Total backlogs of $13,899,000 were down 13 percent from the prior year end.
Reduced orders of Industrial Products, primarily gas turbine filter house
orders were significantly off from last year's levels. Backlogs of orders
scheduled for delivery in over 90 days were $3,706,000 compared to
$4,611,000 as of December 30, 1995.
1995 COMPARED TO 1994
Sales for 1995 were a record $113,275,000 up 6 percent from $106,989,000 in
the prior year. The 1995 increase was spread across all of the Company's
products.
During 1995, net income increased to $3,124,000 up from a loss of $355,000
in 1994. The $3,479,000 improvement in net income was attributable to
increased sales volume, improved operating efficiencies resulting in higher
gross margins, lower interest expense, a reduction in reorganization costs
from the prior year and a gain on sales of assets recorded in 1996 of the
Company's Rialto, California facility.
Gross margins for 1995 increased to 24.5 percent, up 3.4 percent from 21.1
percent in 1994. The increase in gross margins was the result of improved
operating efficiencies and lower fixed manufacturing costs primarily
associated with closing the Company's Rialto, California plant in 1994.
- 22 -
<PAGE>
FARR COMPANY AND SUBSIDIARIES
Selling, general and administrative expenses as a percentage of sales for 1995
and 1994 were 18.5 and 18.8 percent, respectively. 1995 spending totaled
$20,956,000 compared to $20,065,000 in 1994 which reflects an increase of
$891,000 or 4.4 percent. Most of the increase in 1995 related to increased loan
fee amortization, selling and marketing and management performance based
incentive plan expenses.
Interest expense declined $333,000 or 16 percent during the year primarily due
to the significant decrease in long-term debt.
Restructuring cost charges were recorded in both 1995 and 1994 for closing and
consolidating manufacturing operations and increasing production efficiency,
asset utilization and profitability. Restructuring costs recorded during the
fourth quarter of 1995 amounted to $540,000 relating to the Company's
reorganization of its manufacturing and distribution operations in North America
and increased costs anticipated from the closure of its Eatonton, Georgia and
Pryor, Oklahoma plants. In 1994, the Company recorded a second quarter
restructuring cost charge of $1,000,000 for closing its Rialto, California
plant.
A gain of $676,000 was recognized during the fourth quarter of 1995 from the
sale of the Company's previously closed Rialto, California plant.
The effective income tax rate for 1995 was 39.5 percent, compared to 44.7
percent in 1994. The decrease in 1995 tax rates related to the Company's return
to profitability and the assumption that certain tax credit carry forwards would
be utilized in the future.
1994 COMPARED TO 1993
Sales for 1994 were $106,989,000, down $5,374,000 or 4.8 percent from
$112,363,000 in 1993. The decrease in sales from the prior year was primarily
attributable to a decline from 1993's record level Gas Turbine Filter House
product sales volume experienced in the first half of 1993 that were a result of
delayed 1992 scheduled shipments being carried over in 1993.
1994 results yielded a loss of $355,000 compared to a profit of $1,284,000 in
1993. Operating results for the year were unfavorably impacted by decreased
sales volume, unfavorable manufacturing efficiencies at the Company's Holly
Springs, Mississippi plant and by a restructuring charge to close the Company's
Rialto, California plant.
Gross margins for 1994 decreased to 21.1 percent, down 1 percent from 22.1
percent in 1993. The decrease in gross margins for 1994 was the result of
unfavorable manufacturing efficiencies, increased warranty costs and an
unfavorable sales mix of products with a lower margin compared to the prior
year.
Selling, general and administrative expenses as a percentage of sales for 1994
and 1993 were 18.8 and 18 percent, respectively. 1994 spending totaled
$20,065,000 compared to $20,268,000 in 1993, which reflected a decrease of
$203,000, or 1 percent.
Interest expense declined $316,000 or 13 percent in the year as a result of
lower average borrowings outstanding during the year compared to 1993.
The effective tax rate in 1994 was 44.7 percent, compared to 33.7 percent in
1993. The increase was due to the Company's loss and nonrecurring foreign tax
benefits that decreased 1993's effective tax rate.
- 23 -
<PAGE>
FARR COMPANY AND SUBSIDIARIES
LIQUIDITY & CAPITAL RESOURCES
- -----------------------------
FINANCIAL CONDITION
As of December 28, 1996, the Company's capital structure included $897,000 of
current debt, $2,068,000 of long-term debt and $31,210,000 of stockholders'
investment. The ratio of long term debt to stockholders' equity was 6.7 percent
compared with 38.0 percent at December 30, 1995.
Total debt was decreased during 1996 by $7,543,000 or 72 percent to $2,965,000
from $10,508,000 as of December 30, 1995.
During 1996, 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 1996, the Company retired both its
Jonesboro, Arkansas Industrial Revenue Bonds and Holly Springs, Mississippi
Industrial Revenue Bonds. In addition, the Company completed the restructuring
of its $4,000,000 term loan and $22,000,000 revolving credit facility in
February of 1996. Under the domestic long-term debt financing restructure, the
Company replaced its two debt facilities with a $15,000,000 secured revolving
credit facility. Subsequent amendments to this facility reduced its borrowing
limit down to $10,000,000 and eliminated all collateral security requirements.
As of December 28, 1996, $2,000,000 was outstanding under this facility and
unused borrowing availability was $8,000,000.
The Company's foreign subsidiaries borrow under term and overdraft credit
facilities. Term facility borrowing as of December 28, 1996 amounted to $91,000
and overdraft facilities amounted to $2,326,000 of which $874,000 was utilized.
As of December 30, 1995, term borrowings outstanding were $106,000 and total
foreign overdraft facilities amounted to approximately $2,309,000 of which
$432,000 was utilized.
CASH FLOW
During 1996 cash flows from operating activities increased to $10,299,000
compared to $8,729,000 in 1995 and $3,778,000 in 1994. The increase in 1996 was
largely the result of increased earnings and a decrease in working capital
associated with decreased inventories. Cash flow from operations were used to
support $1,465,000 of capital expenditures and reduce debt.
Cash and cash equivalents increased $1,185,000 during 1996.
Capital expenditures increased slightly to $1,465,000 from $1,163,000 in 1995.
Although capital expenditures increased during 1996, overall capital spending
remained relatively low to conserve capital resources. Capital expenditures are
anticipated to increase in 1997 to support expansion in Canada, remodeling of
the Company's corporate offices and support operating needs.
The Company's cash flow generated from operating activities are anticipated to
generate adequate cash flow to meet planned operating needs, provide for capital
spending and meet current debt service requirements.
As of December 28, 1996, the Company's 1992 restructuring reserve balance was
$365,000. 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 1996,
$43,000 in facility related costs were charged against this reserve.
As of December 28, 1996, the Company's 1995 restructuring reserve balance was
$104,000. This reserve is related to the anticipated costs associated with the
reorganization of its North America distribution and manufacturing operations
and is included as a component under accrued liabilities in the Company's
Consolidated Balance Sheets. During 1996, $204,000 in severance and facility
related costs were charged against this reserve.
# # #
- 24 -
<PAGE>
<TABLE>
<CAPTION>
SUMMARIZED QUARTERLY FINANCIAL DATA (Unaudited)
(In Thousands Except Per Share Data)*
1996 1995 1994
---------------------------------- ---------------------------------- --------------------------------
Net Gross Net Per Net Gross Net Per Net Gross Net Per
Quarter Sales Margin Income Share Sales Margin Income Share Sales Margin Income Share
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First $ 31,079 $ 7,154 $ 1,178 $ .21 $ 27,253 $ 6,396 $ 633 $ .11 $ 25,171 $ 4,876 ($ 415) ($.08)
Second 31,356 8,072 1,499 .27 28,682 6,956 675 .12 26,525 5,181 ( 625) ( .11)
Third 29,951 7,533 1,595 .29 28,444 6,752 726 .14 27,462 5,775 275 .05
Fourth 29,635 7,986 1,618 .29 28,896 7,675 1,090 .20 27,831 6,720 410 .07
-------- ------- ------- ------ -------- ------- ------- ----- -------- ------- ----- ----
Year $122,021 $30,745 $ 5,890 $ 1.06 $113,275 $27,779 $ 3,124 $ .57 $106,989 $22,552 ($ 355) ($.07)
======== ======= ======= ====== ======== ======= ======= ===== ======== ======= ===== ====
</TABLE>
* Per share data has been restated for the 3 for 2 stock split declared in
February 1997.
<TABLE>
<CAPTION>
SUMMARY OF STOCK QUOTATIONS
1996 1995 1994
--------------------- -------------------- ----------------------
Quarter High Low High Low High Low
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First $ 6 11/16 $ 5 $ 5 5/16 $ 3 15/16 $ 4 7/16 $ 3 13/16
Second 9 15/16 6 5 4 1/4 4 1/4 3
Third 10 7 13/16 6 5/16 4 7/16 4 13/16 3 1/16
Fourth 12 1/2 9 3/4 5 1/2 4 9/16 4 13/16 3 13/16
------- --------- -------- --------- --------- ---------
Year $ 12 1/2 $ 5 $ 6 5/16 $ 3 15/16 $ 4 13/16 $ 3
========= ========= ======== ========= ========= =========
</TABLE>
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. Price Per Share Has Been
Restated For The 3 For 2 Stock Split Declared In February 1997.
No Cash Dividends Were Declared On The Company's Common Stock In 1996, 1995 Or
1994.
- 25 -
<PAGE>
CORPORATE OMFORMATION FARR COMPANY AND SUBSIDIARIES
DIRECTORS
---------
FARR COMPANY
Robert Batinovich
Chairman and Chief Executive Officer
Glenborough Realty Trust Incorporated
Management of Commercial Real Estate (2)
Richard P. Bermingham
Vice Chairman of the Board
American Golf Corporation
Golf Course Management (1) (3)
Denis R. Brown, Jr.
President and Chief Executive Officer
Pinkerton, Inc.
Security & Investigation Services (2)
David J. Farr
President
David J. Farr Insurance Services
Provider of Financial Planning Services (2)
John C. Johnston
President and Chief Operating Officer
Farr Company
John J. Kimes
President and Chief Executive Officer
Computerized Security Systems, Inc.
Manufacturer of Electronic and
Mechanical Lock Hardware and Systems (1) (3)
H. Jack Meany
Chairman and Chief Executive Officer
Farr Company (3)
John A. Sullivan
Financial Consultant
Batchelder & Partners, Inc. (1)
(1) Audit Committee
(2) Compensation Committee
(2) Executive Committee
OFFICERS
--------
FARR COMPANY
H. Jack Meany
Chairman and Chief Executive Officer
John C. Johnston
President and Chief Operating Officer
Kenneth W. Gerstner
Senior Vice President,
Chief Financial Officer and Secretary
Richard L. Farr
Vice President
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
- 26 -
<PAGE>
FARR COMPANY AND SUBSIDIARIES
CORPORATE OFFICES MANUFACTURING DISTRIBUTORS
2221 Park Place Genmech Engineering, Singapore
El Segundo, California 90245 FEI (France Equipement Industriels),
310-536-6300 Florange, France
Internet address: http://www.farrco.com
Company's Internet home page offers
access to a variety of information including
Farr's products and services, worldwide
operations, financial data, and stockholder-
related information.
SUBSIDIARIES REGISTRAR AND TRANSFER AGENT
Farr, Inc., Montreal, Canada Chemical Mellon Shareholder Services
Farr Filtration, Ltd., Birmingham, England Los Angeles, California
MANUFACTURING AND DISTRIBUTION FACILITIES LEGAL COUNSEL
Jonesboro, Arkansas Gibson, Dunn & Crutcher LLP
Corcoran, California Los Angeles, California
Delano, California
Crystal Lake, Illinois AUDITORS
Holly Springs, Mississippi
Conover, North Carolina Arthur Andersen LLP
Montreal, Canada Los Angeles, California
Birmingham, England
Singapore
FORM 10-K
MANUFACTURING LICENSEES Stockholders of record as of March 7,
1997 may obtain copies of the
Anfilco Ltd., Curgaon, India Company's Annual Report on Form 10-K
Antung Trading Corp., Taipei, Taiwan filed with the Securities and
Boart MSA (PTY) Ltd., South Africa Exchange Commission by writing to:
Casiba S. A., Buenos Aires, Argentina Kenneth Gerstner, 2221 Park Place,
Clyde-Apac Ltd., Woodville, Australia El Segundo, California 90245-4900
Genmech Engineering, Singapore
Industries Filvac S.A. de C.V., Mexico
Nihon Spindle Mfg., Co., Ltd.
Osaka, Japan
Quest Technology, SND. BHD, Malaysia
Taymac 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
- 27 -
<PAGE>
FARR
1996 Annual Report
Exhibit 22
List of Subsidiaries
FARR COMPANY AND SUBSIDIARIES
Jurisdiction
Name of Subsidiary of Incorporation
------------------ ----------------
Farr Filtration Limited England
Farr Company International California
Farr Inc. Canada
Farr International U.S. Virgin Islands
Exhibit 24
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
of our report incorporated by reference in this Form 10-K, into Farr
Company's previously filed Registration Statements on File Numbers
2-83890, 33-18897, 33-47836, 33-71400 and 33-64387.
Los Angeles, California Arthur Andersen LLP
March 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 1,997
<SECURITIES> 0
<RECEIVABLES> 20,551
<ALLOWANCES> 297
<INVENTORY> 12,534
<CURRENT-ASSETS> 37,679
<PP&E> 52,261
<DEPRECIATION> 36,650
<TOTAL-ASSETS> 53,687
<CURRENT-LIABILITIES> 17,871
<BONDS> 0
0
0
<COMMON> 544
<OTHER-SE> 30,666
<TOTAL-LIABILITY-AND-EQUITY> 53,687
<SALES> 122,021
<TOTAL-REVENUES> 122,021
<CGS> 91,276
<TOTAL-COSTS> 91,276
<OTHER-EXPENSES> 20,378
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 687
<INCOME-PRETAX> 9,680
<INCOME-TAX> 3,790
<INCOME-CONTINUING> 5,890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,890
<EPS-PRIMARY> $1.59
<EPS-DILUTED> $1.59
</TABLE>
