================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
FORM 10-Q
-----------------------
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the Quarterly Period ended October 2, 1999
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
Incorporated pursuant to the Laws of Delaware State
-----------------------
Internal Revenue SService -- Employer Identification Number 95-1288401
2201 Park Place, El Segundo, CA 90245
(310) 727-6300
-----------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (x) No ( )
Number of shares of registrants common stock outstanding as of close of the
period covered by this report: 7,259,676.
================================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
FARR COMPANY AND SUBSIDIARIES
INDEX TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999
Part I - Financial Information
Introduction
Condensed Consolidated Financial Statements
Balance Sheets - October 2, 1999 and January 2, 1999
Income Statements for the three months ended October 2, 1999 and
October 3, 1998 and for the nine months ended October 2, 1999
and October 3, 1998
Statements of Cash Flows for the nine months ended October 2, 1999 and
October 3, 1998
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis
Part II - Other Information
Item 6.a. Exhibits
<PAGE>
FARR COMPANY AND SUBSIDIARIES
INTRODUCTION TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999
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 October 2, 1999 and the results of
operations for the three and nine months ended October 2, 1999 and October
3, 1998 pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations although the Company believes that the
disclosures are adequate to make the information presented not misleading.
These condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's latest annual report on Form 10-K.
<PAGE>
<TABLE>
FARR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
Assets ..................................................... Oct. 2, 1999 Jan. 2, 1999
------------ ------------
............................................................ (Unaudited) (Audited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents ................................ $ 1,324,000 $ 6,083,000
Restricted cash .......................................... 4,853,000 0
Accounts receivable, less allowance of $438,000
in 1999 and $370,000 in 1998 ......................... 19,332,000 19,433,000
Inventories
Raw materials ........................................ 3,281,000 4,629,000
Work in process ...................................... 4,619,000 3,413,000
Finished goods ....................................... 2,657,000 2,774,000
------------ ------------
10,557,000 10,816,000
Prepaid expenses ......................................... 774,000 688,000
Income taxes receivable .................................. 349,000 849,000
Deferred tax benefit ..................................... 1,221,000 1,221,000
------------ ------------
Total current assets ................................. 38,410,000 39,090,000
------------ ------------
Property, Plant and Equipment, at Cost
Land ..................................................... 1,993,000 2,246,000
Buildings and improvements ............................... 16,927,000 18,468,000
Machinery and equipment .................................. 37,153,000 36,340,000
------------ ------------
56,073,000 57,054,000
Less-accumulated depreciation and amortization ........... 38,950,000 39,027,000
------------ ------------
17,123,000 18,027,000
Other ...................................................... 3,870,000 2,784,000
------------ ------------
$ 59,403,000 $ 59,901,000
============ ============
Liabilities & Stockholders' Investment ..................... Oct. 2, 1999 Jan. 2, 1999
------------ ------------
............................................................ (Unaudited) (Audited)
Current Liabilities:
Notes/overdraft payable to banks ......................... $ 0 $ 145,000
Accounts payable ......................................... 5,349,000 6,061,000
Accrued liabilities ...................................... 9,191,000 7,072,000
Income taxes payable and deferred taxes .................. 866,000 1,287,000
------------ ------------
Total current liabilities ............................ 15,406,000 14,565,000
------------ ------------
Deferred Income Taxes ...................................... 1,773,000 1,773,000
Other Non-current Liabilites ............................... 2,777,000 1,509,000
Commitments and Contingencies
Stockholders' Investment:
Common stock, $.10 par value--Authorized 20,000,000 shares
Outstanding--8,888,902 shares at October 2, 1999
and 8,874,468 shares at January 2, 1999 .............. 889,000 887,000
Additional paid-in capital ............................... 13,748,000 13,701,000
Accumulated comprehensive loss ........................... (1,945,000) (2,405,000)
Treasury stock at cost-1,629,226 shares at October 2, 1999
and 743,944 shares at January 2, 1999 ................ (13,773,000) (5,295,000)
Retained earnings:
Balance beginning of year ............................ 35,166,000 27,644,000
Net income for the period ............................ 5,329,000 7,205,000
Other ................................................ 33,000 317,000
------------ ------------
Balance at end of period ............................. 40,528,000 35,166,000
------------ ------------
Total stockholders' investment ................... 39,447,000 42,054,000
------------ ------------
$ 59,403,000 $ 59,901,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
<TABLE>
FARR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
<CAPTION>
........................................... Three Months Ended Nine Months Ended
Oct. 2, 1999 Oct. 3, 1998 Oct. 2, 1999 Oct. 3, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales ................................. $ 28,146,000 $ 31,011,000 $ 87,353,000 $ 93,434,000
Cost of Sales ............................. 21,232,000 23,114,000 64,912,000 69,431,000
------------ ------------ ------------ ------------
Gross Margin .............................. 6,914,000 7,897,000 22,441,000 24,003,000
Selling, general and administrative ... 4,925,000 5,112,000 15,254,000 15,450,000
Interest expense ...................... 19,000 25,000 60,000 89,000
Interest income ....................... (62,000) (71,000) (172,000) (201,000)
Gain on disposal of assets, net ....... (1,545,000) 0 (1,545,000) 0
Retirement benefit .................... 443,000 0 443,000 0
------------ ------------ ------------ ------------
Total Expenses ............................ 3,780,000 5,066,000 14,040,000 15,338,000
------------ ------------ ------------ ------------
Income Before Income Taxes ................ 3,134,000 2,831,000 8,401,000 8,665,000
Income taxes .......................... 1,139,000 1,047,000 3,072,000 3,087,000
------------ ------------ ------------ ------------
Net Income ................................ $ 1,995,000 $ 1,784,000 $ 5,329,000 $ 5,578,000
============ ============ ============ ============
Net Income per diluted common share ....... $ 0.27 $ 0.21 $ 0.68 $ 0.66
============ ============ ============ ============
Net Income per basic common share ......... $ 0.27 $ 0.21 $ 0.70 $ 0.67
============ ============ ============ ============
Shares outstanding for diluted earnings ... 7,494,888 8,408,761 7,792,728 8,443,112
============ ============ ============ ============
Shares outstanding for basic earnings ..... 7,310,694 8,303,045 7,620,734 8,313,662
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
<TABLE>
FARR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
Cash Provided by ( Used in ) : ........................... Oct. 2, 1999 Oct. 3, 1998
------------ ------------
Operating Activities:
<S> <C> <C>
Net Income ........................................... $ 5,329,000 $ 5,578,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 1,912,000 1,854,000
Provision for loss on accounts receivable ........ 117,000 120,000
Equity in loss of affiliate ...................... 50,000 35,000
Benefit retirement trust ......................... 1,268,000 614,000
Change in deferred income taxes .................. (35,000) 16,000
Exchange (gain) loss ............................. 50,000 (32,000)
Net (gain) loss on sale/retirement of assets ..... (1,555,000) 4,000
Loss on asset held for sale ...................... 25,000 0
Changes in assets and liabilities
Inventories .................................... 395,000 80,000
Receivables and prepaid expenses ............... 57,000 (968,000)
Accounts payable & accrued expenses ............ 3,902,000 (4,128,000)
Net change in current income taxes payable ..... (510,000) 137,000
------------ ------------
Net cash provided by operating activities .......... 11,005,000 3,310,000
------------ ------------
Investing Activities:
Purchases of property, plant and equipment ........... (1,304,000) (2,136,000)
Redemptions of short term investments ................ 0 2,031,000
Note receivable - affiliate .......................... 0 (106,000)
Net proceeds from sale of assets ..................... 10,000 0
Purchase of investments, benefits trust .............. (1,268,000) (614,000)
Other ................................................ (25,000) 0
------------ ------------
Net cash used in investing activities .............. (2,587,000) (825,000)
------------ ------------
Financing Activities:
Principal payments on revolving line of credit
and long-term debt borrowings & overdrafts ....... (149,000) (93,000)
Treasury stock acquired .............................. (8,478,000) (2,844,000)
Proceeds from sale of stock, stock option plans ...... 49,000 719,000
Other ................................................ 140,000 9,000
------------ ------------
Net cash used in financing activities .............. (8,438,000) (2,209,000)
------------ ------------
Effect of Exchange Rate Changes on Cash ................ 114,000 (146,000)
------------ ------------
Increase in Cash and Cash Equivalents .................. 94,000 130,000
Cash and Cash Equivalents at Beginning of Period ....... 6,083,000 5,109,000
------------ ------------
Cash and Cash Equivalents at End of Period ........... $ 6,177,000 $ 5,239,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
FARR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999
(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 1998 Annual Report to
Stockholders which was incorporated by reference in the Annual Report
on Form 10-K for the year ended January 2, 1999.
2. Restructuring Costs
The Company recorded a restructuring charge of $1,500,000 in the fourth
quarter of 1992 related to anticipated costs associated with 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 third quarter of 1999, the Company increased its
restructuring reserve through the recognition of a $570,000 long-term
lease obligation charge netted against the reported gain on disposal of
assets to cover anticipated lease buy-out costs for the remaining net
present value of all future lease payments related to the Eatonton,
Georgia facility. As of October 2, 1999, a restructuring charge balance
of $776,000 is included as a component of accrued liabilities in the
accompanying Consolidated Balance Sheet. Approximately 97 percent of
this reserve balance is associated with the Eatonton, Georgia facility
covering estimated cost associated with a lease buy-out. In the event
management is unable to negotiate an early termination of the lease by
paying a lump sum equal to the discounted value of the future lease
payments over the remaining term of the lease, the Company will likely
need to increase the reserve to cover the future expenses with making
actual lease payments and cover actual operating expenses for taxes,
utilities, insurance and maintenance of the facility. This additional
reserve is estimated to be less that $300,000.
3. Common Stock
On February 16, 1999 and May 4, 1999, the Board of Directors authorized
purchases of 500,000 shares and 1,000,000 shares, respectively, in
addition to the original 500,000 shares under the stock repurchase plan
approved on June 26, 1998. Under the plan, the Company may purchase
from time to time a cumulative total of 2,000,000 shares of its common
stock either on the open market or through negotiated transactions. No
time limit has been set for completion of this stock repurchase
program. Shares purchased are planned to be made with existing cash on
hand. During the third quarter of 1999, 87,500 shares were acquired
under the repurchase program, bringing the total purchases to 1,245,550
shares.
<PAGE>
As of October 2, 1999 and January 2, 1999 the Company held in treasury
1,629,226 and 743,944 shares of its common stock at a cost of
$13,773,000 and $5,295,000, respectively.
During the third quarter of 1999, the method of presenting the treasury
stock was changed. Common stock, additional paid-in capital and
retained earnings amounts previously reported net of treasury stock
costs have been restated to present treasury shares at cost as a
separate line item under Stockholders' Investment. Certain
reclassifications have been made to the prior year's Stockholders'
Equity to conform to the current year's presentation.
4. Earnings per Share Calculation
As a result of the 3-for-2 stock split distributed on May 29, 1998, per
share amounts for 1998 have been restated to reflect the weighted
average number of shares of common stock outstanding. The per share
amounts are calculated as though the stock split occurred in the first
day of the year.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Oct. 2, 1999 Oct. 3, 1998 Oct. 2, 1999 Oct. 3, 1998
------------ ------------ ------------ ------------
BASIC EARNINGS PER SHARE CALCULATION
Earnings:
---------
<S> <C> <C> <C> <C>
Net Income $1,995,000 $1,784,000 $5,329,000 $5,578,000
========== ========== ========== ==========
Shares:
-------
Weighted average number of common
shares outstanding 7,310,694 8,303,045 7,620,734 8,313,662
========= ========= ========= =========
Net Income Per Common Share $ 0.27 $ 0.21 $ 0.70 $ 0.67
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE CALCULATION
Earnings:
---------
Net Income $1,995,000 $1,784,000 $5,329,000 $5,578,000
========== ========== ========== ==========
Shares:
-------
Weighted average number of common
shares outstanding 7,310,694 8,303,045 7,620,734 8,313,662
Assuming exercise of options reduced by
the number of shares which could have
been purchased with the proceeds from
exercise of such options 184,194 105,716 171,994 129,450
---------- ---------- ---------- ---------
Weighted average number of common
shares and dilutive common share
equivalents outstanding 7,494,888 8,408,761 7,792,728 8,443,112
========= ========= ========= =========
Net Income Per Common Share $ 0.27 $ 0.21 $ 0.68 $ 0.66
========== ========== ========== ==========
</TABLE>
<PAGE>
5. Gain on Disposal of Assets
During the third quarter of 1999, the Company reported a net gain of
$1,545,000 related to the disposal of assets. The net gain is comprised
of two components, one a $2,115,000 gain from the sale of surplus real
estate located in El Segundo, California and two, a $570,000 charge
related to anticipated lease-buy out cost for the Company's leased
Eatonton, Georgia facility.
The Company received approximately $5,000,000 in cash from the sale of
surplus real estate and intends to a portion of the proceeds from the
sale for the purchase of a new facility. The new facility is intended
to be used primarily for manufacturing. The purchase of this facility
is anticipated to be completed during the first quarter of 2000 and is
intended to be accounted for under IRS section 1031 like-property
exchange rules.
6. Comprehensive income for the current quarter and year-to-date, and
comparable prior year's three months and nine months, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Oct. 2, 1999 Oct. 3, 1998 Oct. 2, 1999 Oct. 3, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Income $1,995,000 $1,784,000 $5,329,000 $5,578,000
Other Comprehensive income, net of tax
Foreign currency translation adjustments gain (loss) 246,000 (399,000) 460,000 (503,000)
------- --------- ------- ---------
Comprehensive Income $2,241,000 $1,385,000 $5,789,000 $5,075,000
========== ========== ========== ==========
</TABLE>
7. Cash and Restricted Cash
As of October 2, 1999, cash and restricted cash included $4,853,000
held in trust received from the sale of surplus real estate. This cash
is being held in a trust account pending completion of an IRS section
1031 like-property exchange. Upon completion of the exchange,
anticipated net cash proceeds from the trust will be approximately
$2,400,000. The exchange is anticipated to be completed during the
first quarter of 2000.
8. Retirement Benefit
On September 15, 1999, the Company entered into a five-year employment
and retirement agreement with its Chairman of the Board of Directors.
Under terms of the agreement, the Company purchased an annuity at a
cost of $998,000 to fund the Chairman's retirement benefits that will
be paid monthly over a ten year period commencing October 1, 2004. The
Company had previously accrued $555,000 for estimated retirement
benefits and recorded an additional $443,000 retirement benefit
provision during the third quarter of 1999 to cover the total funding
cost of the retirement benefit.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
- -------------------------------
FINANCIAL CONDITION
As of October 2, 1999, working capital was $23,004,000 compared to $24,525,000
at the end of 1998, representing a $1,521,000 decrease in total working capital
for the first nine months of 1999. The primary components of the change in
working capital during the first nine months were increases in current
liabilities ($841,000) and a decrease other current assets ($414,000).
The increase in current liabilities primarily reflects the deferred gain from
the sale of the Company's surplus real estate in El Segundo, California that
will be applied toward reducing the cost basis of the anticipated purchase of a
new manufacturing facility. The decrease in other current assets reflects a
reduction in income taxes receivable.
As of October 2, 1999, borrowing availability under the Company's domestic
revolving credit facility was $10,000,000 and no borrowings were outstanding.
During the third quarter, the Company acquired 87,500 shares of its common stock
at a cost of $854,000 under its stock repurchase program. As of October 2, 1999,
a cumulative total of 1,245,550 shares have been purchased under the stock
repurchase program.
The Company's cash flow generated from operating activities combined with
current cash balances are anticipated to generate adequate cash flow to meet
planned operating needs, provide for capital spending and fund stock repurchase
program activity.
During the third quarter of 1999, the Company increased its restructuring
reserve through the recognition of a $570,000 long-term lease obligation charge
netted against the reported gain on disposal of assets to cover anticipated
lease buy-out costs for the remaining net present value of all future lease
payments related to the Eatonton, Georgia facility. As of October 2, 1999, a
restructuring charge balance of $776,000 is included as a component of accrued
liabilities in the accompanying Consolidated Balance Sheet. Approximately 97
percent of this reserve balance is associated with the Eatonton, Georgia
facility covering estimated cost associated with a lease buy-out. In the event
management is unable to negotiate a early lease buy-out on its Eatonton, Georgia
lease, or successfully sublease the facility over the remaining 60 month lease
period, the Company would likely need to increase its reserve to cover future
expenses related to undiscounting future lease payments, property taxes,
insurance and maintenance that are estimated to be less than $300,000.
<PAGE>
CASH FLOW
Cash flow generated from operating activities during the first nine months
totaled $11,005,000 compared to $3,310,000 for the same period a year ago. The
increase in cash flow from operating activities was primarily related to the
decrease in working capital associated with increases in current liabilities as
compared with a decrease over the same period last year.
Capital expenditures for the first nine months declined to $1,304,000 from
$2,136,000 for the same period a year ago. Total 1999 capital expenditures are
anticipated to remain below 1998 levels as 1998 expenditures for the Company's
headquarters will not reoccur in 1999.
On August 24, 1999, the Company completed the sale of its surplus real estate
located at 2221 Park Place in El Segundo, California, for $5,000,000 in cash.
The Company intends to use a portion of the proceeds from the sale for the
purchase of a new facility. The new facility is intended to be used for
manufacturing various high performance products that are currently being
manufactured in Arkansas, Mississippi and North Carolina. The purchase of the
new facility is anticipated to be completed during the fourth quarter of 1999
and is intended to be accounted for under IRS section 1031 like-property
exchange rules.
On September 15, 1999, the Company entered into a five-year employment and
retirement agreement with its Chairman of the Board of Directors. Under terms of
the agreement, the Company purchased an annuity at a cost of $998,000 to fund
the Chairman's retirement benefits that will be paid monthly over a ten year
period commencing October 1, 2004. The Company had previously accrued $555,000
for estimated retirement benefits and recorded an additional $443,000 retirement
benefit provision during the third quarter of 1999 to cover the total funding
cost of the retirement benefit.
Results of Operations
- ---------------------
For the third quarter of 1999, the Company's sales of $28,146,000 were down
$2,865,000 or 9 percent from 1998 third quarter sales of $31,011,000. Third
quarter year-to-date sales of $87,353,000 were behind last year's first nine
months sales of $93,434,000 by 7 percent. Both the third quarter and first
nine-month's sales results reflected softness across all of the company's
products. HVAC product sales continue to reflect a slight downtrend as industry
conditions continue to be soft coupled with increased pricing competition.
Lingering effects from financial problems in the Pacific Rim countries adversely
impacted Export business, and reduced orders for custom OEM filters continued to
erode sales in our OEM business. In addition, weaker Canadian and UK foreign
currency exchange rates, as compared to last year's level, reduced comparable
reported third quarter and first nine months sales for 1999 by approximately
$190,000 and $350,000, respectively.
<PAGE>
Foreign subsidiaries third quarter 1999 sales declined from the same period last
year by 10 percent and first nine months sales declined from last year's first
nine month sales by 6 percent in part due to weak foreign currency exchange
rates as compared to the prior year and weak economic conditions in the United
Kingdom that have unfavorably impacted sales of our UK subsidiary. In terms of
products, decreases in Gas Turbine sales accounted for a majority of the sales
decline in both the third quarter and first nine month periods.
Third quarter net income totaled $1,995,000, up $211,000 or 12 percent from
$1,784,000 in the third quarter last year. First nine month 1999 net income
declined to $5,329,000, representing a decrease of 4 percent from last year's
first nine months net income of $5,578,000. The current quarter included net
nonrecurring income of $678,000 from the sale of surplus real estate in El
Segundo, California, partially offset by a charge related to long-term lease
obligations and a retirement benefit expense related to an employment agreement
with the Company's Chairman of the Board. Excluding the net nonrecurring net
income of $678,000, third quarter and the first nine month's net income
decreased by 26 and 17 percent, respectively from the same periods a year ago.
Foreign subsidiaries net income for the third quarter and first nine month
periods of 1999 decreased compared to the same periods a year ago by 32 and 14
percent, respectively. The decreases are primarily related to the drop in sales
volumes.
Gross margin as a percent of sales during the third quarter decreased to 24.6
percent as compared to 25.5 percent during the third quarter of last year. The
decrease in gross margin is primarily related to fixed manufacturing cost
included in cost of sales increasing as a percentage of sales as third quarter
sales volume declined from the prior year.
Selling, general and administrative expenses as a percentage of sales during the
quarter increased to 17.5 percent compared to 16.5 percent during the third
quarter of 1998. Third quarter spending totaled $4,925,000 compared to
$5,112,000 for the same period last year, reflecting nominal decreases in
foreign selling and marketing related expenses.
Changes in both interest expense and interest income were nominal and generally
reflect the Company's lower average cash position as compared to last year's
ending third quarter average cash balance.
The effective tax rate during the third quarter dropped to 36.3 percent from 37
percent last year due to recognizing certain deferred tax benefits associated
with the Company's Foreign Sales Corporation (FSC). Tax rates are expected to
remain between 35 and 37 percent for both the fourth quarter and the full year
period of 1999.
<PAGE>
On April 3, 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities". Application of this statement will have no
significant impact to the Company's financial position or operating results.
YEAR 2000
The Company's internal business systems including all manufacturing processes
are Year 2000(Y2K) compliant. All external systems of major customers and
suppliers areY2K compliant. The Company does not anticipate material or
significant external risks or exposures associated with year 2000 issues.
Contingency plans that address a reasonably likely worst case Y2K scenario
including those related with a Company supply chain or critical service
interruption are approximately 50 percent complete and are expected to be
finalized before November 30, 1999. These plans address key systems and third
parties that present potential significant risk and analyze the strategies and
resources necessary to restore operations in the unlikely event that an
interruption does occur. The plans also outline recovery programs detailing the
necessary participants needed to restore operations.
The Company's costs for Y2K efforts was approximately $250,000. This cost does
not include internal costs incurred for the Y2K efforts that were principally
related to payroll costs for information systems group employees. Collectively,
incurred Y2K remediation costs are not material to the Company's business,
operations or financial condition. Future unforeseen cost associated with Y2K
issues are uncertain and cannot be assessed in terms of their impact to the
Company's balance sheet, operations or financial condition, although based upon
current information such costs are not anticipated to be material.
<PAGE>
PART II. - OTHER INFORMATION
Item 6.a. Exhibits
The following are being filed with this Quarterly Report on Form 10-Q.
- - Schedule II Valuation and Qualifying Accounts
- - Exhibit 27 Financial data schedule.
-------------------
Copies of Exhibits are available, on prepayment of 15 cents per page, by
writing to the Secretary of the Company at the address set forth on the
cover page of this Form 10-Q.
<PAGE>
PART II - OTHER INFORMATION
(Continued)
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FARR COMPANY
(Registrant)
November 15, 1999 /s/ Stephen E. Pegg
Stephen E. Pegg
Senior Vice President and
Chief Financial Officer
<PAGE>
<TABLE>
Schedule II
FARR COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Additions
Balance at Charged to Charged to Deductions Balance at
beginning cost and other charged to end of
Description of period expense accounts allowance period
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1998
Allowance for doubtful accounts .............. 254 174 (3) 55 370
For the year ended December 31, 1997
Allowance for doubtful accounts .............. 297 206 0 249 254
For the year ended December 31, 1996
Allowance for doubtful accounts .............. 214 108 1 26 297
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> OCT-02-1999
<CASH> 6,177,000
<SECURITIES> 0
<RECEIVABLES> 19,332,000
<ALLOWANCES> 438,000
<INVENTORY> 10,557,000
<CURRENT-ASSETS> 38,410,000
<PP&E> 56,073,000
<DEPRECIATION> 38,950,000
<TOTAL-ASSETS> 59,403,000
<CURRENT-LIABILITIES> 15,406,000
<BONDS> 0
0
0
<COMMON> 889,000
<OTHER-SE> 38,558,000
<TOTAL-LIABILITY-AND-EQUITY> 59,403,000
<SALES> 87,353,000
<TOTAL-REVENUES> 87,353,000
<CGS> 64,912,000
<TOTAL-COSTS> 64,912,000
<OTHER-EXPENSES> 13,980,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,000
<INCOME-PRETAX> 8,401,000
<INCOME-TAX> 3,072,000
<INCOME-CONTINUING> 5,329,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,329,000
<EPS-BASIC> .70
<EPS-DILUTED> .68
</TABLE>
