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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the Quarterly Period ended March 29, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-4723
FARR COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 95-1288401
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2221 Park Place, El Segundo, CA 90245
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 536-6300
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (x) No ( )
Number of shares of common stock outstanding as of close of the period covered
by this report: 5,721,464.
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<PAGE>
PART I - FINANCIAL INFORMATION
FARR COMPANY AND SUBSIDIARIES
INDEX TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997
Part I - Financial Information
INTRODUCTION
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets - March 29, 1997 and December 28, 1996
Income Statements for the three months ended March 29, 1997 and
March 30, 1996
Statements of Cash Flows for the three months ended March 29, 1997 and
March 30, 1996
Notes to Condensed Consolidated Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS
Part II - Other Information
EXHIBITS
<PAGE>
FARR COMPANY AND SUBSIDIARIES
INTRODUCTION TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997
The Condensed Consolidated Financial Statements included herein have
been prepared by the Company without audit, and include all adjustments
which are, in the opinion of management, necessary for a fair presentation
of the financial position as of March 29, 1997 and the results of
operations for the three months ended March 29, 1997 and March 30, 1996
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations although the Company believes that the disclosures are
adequate to make the information presented not misleading. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's latest annual report on Form 10-K.
<PAGE>
<TABLE>
FARR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
<CAPTION>
(Unaudited) (Audited)
Mar. 29, 1997 Dec. 28,1996
------------- ------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents................................. $ 2,899,000 $ 1,997,000
Accounts receivable, less allowance of $309,000 in
1997 and $297,000 in 1996............................. 20,886,000 20,551,000
Inventories
Raw materials........................................ 5,177,000 5,380,000
Work in process...................................... 4,296,000 3,979,000
Finished goods....................................... 3,282,000 3,175,000
----------- -----------
12,755,000 12,534,000
Prepaid expenses.......................................... 836,000 790,000
Deferred tax benefit...................................... 1,807,000 1,807,000
----------- -----------
Total current assets................................ 39,183,000 37,679,000
----------- -----------
Property, Plant and Equipment at cost
Land...................................................... 2,100,000 2,107,000
Buildings and improvements................................ 15,197,000 15,247,000
Machinery and equipment................................... 34,641,000 34,907,000
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51,938,000 52,261,000
Less-accumulated depreciation and amortization............ 36,513,000 36,650,000
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15,425,000 15,611,000
Other........................................................ 721,000 397,000
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$ 55,329,000 $ 53,687,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<TABLE>
FARR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Liabilities & Stockholders' Investment
<CAPTION>
(Unaudited) (Audited)
Mar. 29, 1997 Dec. 28,1996
------------- ------------
Current Liabilities:
<S> <C> <C>
Notes/overdraft payable to banks.......................... $ 739,000 $ 874,000
Current portion of long-term debt......................... -- 23,000
Accounts payable.......................................... 8,589,000 8,665,000
Accrued liabilities....................................... 7,942,000 7,566,000
Income taxes payable and deferred taxes................... 1,525,000 745,000
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Total current liabilities.............................. 18,795,000 17,873,000
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Long-Term Debt, Net of Current Portion....................... 1,000,000 2,068,000
Deferred Income Taxes........................................ 2,350,000 2,350,000
Other Non-current Liabilities................................ 468,000 186,000
Commitments and Contingencies................................ -- --
Stockholders' Investment:
Common stock, $.10 par value--Authorized 10,000,000 shares
Outstanding--5,721,464 shares at March 29, 1997 and
5,707,404 shares at December 28, 1996................. 555,000 544,000
Additional paid-in capital................................ 11,670,000 11,603,000
Cumulative translation adjustments........................ (1,478,000) (1,206,000)
Retained earnings:
Balance beginning of year.............................. 20,269,000 14,379,000
Net income for the period.............................. 1,700,000 5,890,000
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Balance at end of period............................... 21,969,000 20,269,000
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Total stockholders' investment...................... 32,716,000 31,210,000
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$ 55,329,000 $ 53,687,000
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</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
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FARR COMPANY AND SUBSIDIARIES
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CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three Months Ended
March 29, 1997 March 30, 1996
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Net Sales...................................... $ 30,341,000 $ 31,079,000
Cost of Sales.................................. 22,450,000 23,925,000
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Gross Margin................................... 7,891,000 7,154,000
Selling, general and administrative expense.. 5,118,000 4,916,000
Interest expense............................. 75,000 247,000
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Total Expenses................................. 5,193,000 5,163,000
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Income Before Income Taxes..................... 2,698,000 1,991,000
Income Taxes................................... 998,000 813,000
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Net Income..................................... $ 1,700,000 $ 1,178,000
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Earnings per Common Share * ................... $ 0.30 $ 0.21
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* Based upon 5,619,750 and 5,476,564 average shares outstanding at March 29,
1997 and March 30, 1996, respectively.
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
FARR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Cash Provided by ( Used in ) : Three Months Ended
Mar. 29, 1997 Mar. 30, 1996
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Operating Activities:
<S> <C> <C>
Net Income..................................................... $ 1,700,000 $ 1,178,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................... 579,000 638,000
Provision for loss on accounts receivable................... 41,000 37,000
Benefit retirement trust.................................... 282,000 --
Change in deferred income taxes............................. -- 331,000
Net loss on sale/retirement of P,P & E...................... 4,000 --
Decrease (increase) in inventories.......................... (338,000) 1,159,000
Increase in receivables and prepaid expenses................ (539,000) (772,000)
Increase (decrease) in accounts payable & accrued expenses.. 277,000 (953,000)
Net change in current income taxes payable.................. 803,000 292,000
Exchange gain (loss)........................................ (29,000) 1,000
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Net cash provided by operating activities.................. 2,780,000 1,911,000
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Investing Activities:
Purchases of property, plant and equipment..................... (473,000) (143,000)
Purchase of investments, benefits trust........................ (282,000) --
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Net cash used in investing activities...................... (755,000) (143,000)
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Financing Activities:
Proceeds from revolving line of credit,
and long-term borrowings...................................... -- 8,200,000
Principal payments on revolving line of credit
and long-term debt and overdrafts............................. (1,168,000) (9,900,000)
Principal payments received on notes........................... 2,000 1,000
Proceeds from sale of stock, stock option plans................ 78,000 13,000
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Net cash used in financing activities....................... (1,088,000) (1,686,000)
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Effect of Exchange Rate Changes on Cash........................ (35,000) (1,000)
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Increase in Cash and Cash Equivalents.......................... 902,000 81,000
Cash and Cash Equivalents at Beginning of Period............... 1,997,000 812,000
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Cash and Cash Equivalents at End of Period..................... $ 2,899,000 $ 893,000
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</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
FARR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997
(UNAUDITED)
1. There have been no significant changes in the Company's policies, practices
or position from that described in the notes to the Consolidated Financial
Statements included in the 1996 Annual Report to Stockholders which was
incorporated by reference in the Annual Report on Form 10-K for the year
ended December 28, 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
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As of March 29, 1997, working capital was $20,388,000 compared to $19,806,000 at
the end of 1996, representing a $582,000 increase in total working capital for
the first three months of 1997. The primary components of the change in working
capital during the first quarter were increases in cash ($902,000), accounts
receivable ($335,000) and inventories ($221,000) partially offset by an increase
in accounts payable, taxes and accrued liabilities ($1,080,000).
The increase in accounts payable and accrued liabilities primarily reflects an
increase in income taxes payable during the quarter.
Total long-term debt was decreased $1,091,000, or 53 percent during the first
quarter. Borrowing availability under the Company's domestic revolving credit
facility at the end of the first quarter was $9,000,000.
Capital expenditures of $473,000 during the first quarter increased over the
same period last year by $330,000. Capital expenditures are anticipated to
increase over 1996 levels in order to meet increased plant capacity needs,
upgrade machinery and equipment and to refurbish the Company's corporate
headquarters.
Current debt maturities and operating capital requirements of the Company are
anticipated to be provided through cash flows generated from operating
activities and borrowing availability under the Company's domestic revolving
credit facility.
Cash Flow
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Cash flow from operating activities during the first quarter totaled $2,780,000
compared to $1,911,000 for the same period a year ago. The increase in cash flow
from operating activities was related to increased income and a decrease in
working capital requirements net of changes in cash compared to the same period
a year ago.
<PAGE>
RESULTS OF OPERATIONS
1997 first quarter sales of $30,341,000 were down $738,000 or 2 percent from
1996 first quarter sales of $31,079,000. The decline in sales volume was related
to lower sales of gas turbine filter house products that were near record levels
in the first quarter of 1996.
Foreign subsidiary sales were up 19 percent during the first quarter due to
railroad and heating, ventilating and air conditioning product sales.
Record first quarter net income totaled $1,700,000, up $522,000 or 44 percent
from $1,178,000 in the first quarter last year. Improved gross margins,
operating efficiencies and lower interest expense were the primary factors
driving the improved net income results. Foreign consolidated subsidiaries net
income totaled approximately 21 percent of the consolidated net income, up from
18 percent during last year's first quarter.
Gross margin as a percent of sales during the first quarter increased to 26
percent, up 3 percent from 23 percent in the first quarter last year. The
increase in gross margin percentage was related to improved operating
efficiencies and a better sales mix of products with higher margins. In the
first quarter of 1996, gross margins were unfavorably impacted by poor
manufacturing efficiencies related to gas turbine filter house products.
Selling, general and administrative expenses as a percentage of sales during the
first quarter of 1997 and 1996 were 17 and 16 percent, respectively. First
quarter spending totaled $5,118,000 compared to $4,916,000 for the same period
last year, reflecting modest increases in marketing and selling expenses.
Interest expense declined to $75,000 during the first quarter compared to
$247,000 last year. The continued decrease in interest expense is related to the
decrease in the Company's long-term debt.
The effective tax rate during the first quarter dropped to 37 percent from 40.8
percent last year due to the utilization of foreign tax credits.
On March 3, 1997, the FASB released Statement of Financial Accounting Standards
No. 128, "Earnings per Share", (SFAS 128), and Statement of Financial Accounting
Standards No. 129, "Disclosure of Information About Capital Structure", (SFAS
129). The new statements are effective for fiscal years ending after December
15, 1997. When adopted, SFAS 128 will require restatement of the Company's 1996
and prior years' earnings per share information. Under the provisions of SFAS
128, the Company's basic earnings per share for 1996 and 1995 would be $1.08 and
$.57, respectively. SFAS 129 requires additional disclosures regarding the
Company's capital structure. Adoption of these standards will not have a
material effect on the Company's financial position or results of operations.
<PAGE>
FARR COMPANY AND SUBSIDIARIES
List of Exhibits
Item 6.a. Exhibits
The following are being filed with this Quarterly Report on Form 10-Q.
- Exhibit 11 Earnings per share calculation. (unaudited).
- Exhibit 27 Financial Data Schedule.
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Copies of Exhibits are available, on prepayment of 15 cents per page, by writing
to the Secretary of the Company at the address set forth on the cover page of
this Form 10-Q.
<PAGE>
PART II - OTHER INFORMATION - CONTINUED
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FARR COMPANY
---------------------------------
(Registrant)
May 6, 1997 /s/ Kenneth W. Gerstner
---------------------------------
Kenneth W. Gerstner
Senior Vice President
Chief Financial Officer
Exhibit 11
FARR COMPANY AND SUBSIDIARIES
EARNINGS PER SHARE CALCULATIONS
(Unaudited)
As a result of the 3 for 2 stock split to be distributed on March 28, 1997, per
share amounts for 1996 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.
March 29, 1997 March 30, 1996
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BASIC EARNINGS PER SHARE CALCULATION
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Earnings:
Net Income................................ $1,700,000 $1,178,000
========== ==========
Shares:
Weighted average number of common
shares outstanding...................... 5,466,879 5,437,732
========== ==========
Net Income Per Common Share.................. $ 0.31 $ 0.21
========== ==========
PRIMARY EARNINGS PER SHARE CALCULATION
- --------------------------------------
Earnings:
Net Income................................. $1,700,000 $1,178,000
========== ==========
Shares:
Weighted average number of common
shares outstanding....................... 5,466,879 5,437,732
Assuming exercise of options reduced by
the number of shares which could have
been purchased with the proceeds from
exercise of such options................. 152,871 38,832
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Weighted average number of common
shares and dilutive common share
equivalents outstanding.................. 5,619,750 5,476,564
========== ==========
Net Income Per Common Share.................... $ 0.30 $ 0.21
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 2,899,000
<SECURITIES> 0
<RECEIVABLES> 20,886,000
<ALLOWANCES> 309,000
<INVENTORY> 12,755,000
<CURRENT-ASSETS> 39,183,000
<PP&E> 51,938,000
<DEPRECIATION> 36,513,000
<TOTAL-ASSETS> 55,329,000
<CURRENT-LIABILITIES> 18,795,000
<BONDS> 0
0
0
<COMMON> 555,000
<OTHER-SE> 32,161,000
<TOTAL-LIABILITY-AND-EQUITY> 55,329,000
<SALES> 30,341,000
<TOTAL-REVENUES> 30,341,000
<CGS> 22,450,000
<TOTAL-COSTS> 22,450,000
<OTHER-EXPENSES> 5,118,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,000
<INCOME-PRETAX> 2,698,000
<INCOME-TAX> 998,000
<INCOME-CONTINUING> 1,700,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,700,000
<EPS-PRIMARY> $0.30
<EPS-DILUTED> $0.30
</TABLE>
