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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 April 3, 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 __________
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Commission file number 0-4723
FARR COMPANY
Incorporated pursuant to the Laws of Delaware State
-----------------------
Internal Revenue Service -- 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: 8,880,186.
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<PAGE>
PART I - FINANCIAL INFORMATION
FARR COMPANY AND SUBSIDIARIES
INDEX TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 3, 1999
Part I - Financial Information
Introduction
Condensed Consolidated Financial Statements
Balance Sheets - April 3, 1999 and January 2, 1999
Income Statements for the three months ended April 3, 1999 and April 4, 1998
Statements of Cash Flows for the three months ended April 3, 1999 and
April 4, 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
APRIL 3, 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 April 3, 1999 and the results of operations for the three months
ended April 3, 1999 and April 4, 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 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
<CAPTION>
Assets Apr. 3, 1999 Jan. 2, 1999
------------ -------------
(Unaudited) (Audited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents......................................... $ 5,356,000 $ 6,083,000
Accounts receivable, less allowance of $388,000 in
1999 and $370,000 in 1998..................................... 18,617,000 19,433,000
Inventories
Raw materials................................................ 3,847,000 4,629,000
Work in process.............................................. 3,516,000 3,413,000
Finished goods............................................... 3,101,000 2,774,000
------------ ------------
10,464,000 10,816,000
Prepaid expenses.................................................. 680,000 688,000
Income taxes receivable........................................... 849,000 849,000
Deferred tax benefit.............................................. 1,221,000 1,221,000
------------ ------------
Total current assets........................................ 37,187,000 39,090,000
------------ ------------
Property, Plant and Equipment at cost
Land.............................................................. 2,264,000 2,246,000
Buildings and improvements........................................ 18,490,000 18,468,000
Machinery and equipment........................................... 36,118,000 36,340,000
------------ ------------
56,872,000 57,054,000
Less-accumulated depreciation and amortization.................... 39,236,000 39,027,000
------------ ------------
17,636,000 18,027,000
Other................................................................ 2,926,000 2,784,000
------------ ------------
$ 57,749,000 $ 59,901,000
============ ============
Liabilities & Stockholders' Investment Apr. 3, 1999 Jan. 2, 1999
------------ ------------
Current Liabilities:
Notes/overdraft payable to banks.................................. $ 34,000 $ 145,000
Accounts payable.................................................. 5,384,000 6,061,000
Accrued liabilities............................................... 6,734,000 7,072,000
Income taxes payable and deferred taxes........................... 1,491,000 1,287,000
------------ ------------
Total current liabilities...................................... 13,643,000 14,565,000
------------ ------------
Deferred Income Taxes................................................ 1,773,000 1,773,000
Other Non-current Liabilities........................................ 1,718,000 1,509,000
Commitments and Contingencies........................................ -- --
Stockholders' Investment:
Common stock, $.10 par value--Authorized 10,000,000 shares
Issued and outstanding--8,880,186 shares at April 3,
1999 and 8,874,468 shares at January 2, 1999................... 778,000 813,000
Additional paid-in capital........................................ 5,240,000 8,480,000
Cumulative translation adjustments................................ (2,324,000) (2,405,000)
Retained earnings:
Balance beginning of year...................................... 35,166,000 27,644,000
Net income for the period...................................... 1,722,000 7,205,000
Other.......................................................... 33,000 317,000
------------ ------------
Balance at end of period....................................... 36,921,000 35,166,000
------------ ------------
Total stockholders' investment.............................. 40,615,000 42,054,000
------------ ------------
$ 57,749,000 $ 59,901,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
<TABLE>
FARR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<CAPTION>
Three Months Ended
April 3, 1999 April 4, 1998
------------- -------------
<S> <C> <C>
Net Sales........................................ $ 29,743,000 $ 31,989,000
Cost of Sales.................................... 22,001,000 23,783,000
------------ ------------
Gross Margin..................................... 7,742,000 8,206,000
Selling, general and administrative expense.. 5,054,000 5,282,000
Interest expense............................. 24,000 36,000
Interest income.............................. (64,000) (68,000)
------------ ------------
Total Expenses................................... 5,014,000 5,250,000
------------ ------------
Income Before Income Taxes....................... 2,728,000 2,956,000
Income Taxes..................................... 1,006,000 1,038,000
------------ ------------
Net Income....................................... $ 1,722,000 $ 1,918,000
============ ============
Diluted Earnings per Common Share *.............. $ 0.21 $ 0.23
============ ============
Basic Earnings per Common Share.................. $ 0.22 $ 0.23
============ ============
</TABLE>
* Based upon 8,167,194 and 8,476,084 average shares outstanding at April
3, 1999 and April 4, 1998, respectively. The average shares outstanding
have been restated to reflect the 3-for-2 stock split declared in April
1998.
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
FARR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
Cash Provided by ( Used in ) : April 3, 1999 April 4, 1998
------------- -------------
<S> <C> <C>
Operating Activities:
Net Income............................................... $ 1,722,000 $ 1,918,000
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization......................... 617,000 626,000
Provision for loss on accounts receivable............. 40,000 40,000
Equity in loss of affiliate........................... 21,000 --
Benefit retirement trust.............................. 231,000 397,000
Exchange gain (loss).................................. (47,000) 16,000
Net loss on sale/retirement of P,P & E................ (10,000) --
Change in assets and liabilities
Inventories....................................... 372,000 (730,000)
Receivables and prepaid expenses.................. 849,000 108,000
Accounts payable & accrued expenses............... (896,000) (2,902,000)
Net change in current income taxes payable........ 186,000 875,000
----------- -----------
Net cash provided by operating activities............. 3,085,000 348,000
----------- -----------
Investing Activities:
Purchases of property, plant and equipment............... (300,000) (777,000)
Redemption of short term investments..................... -- 2,031,000
Issuance of note receivable - affiliate.................. -- (106,000)
Investments in joint venture............................. 42,000 --
Proceeds from sales of property, plant and equipment..... 10,000 --
Purchase of investments, benefits trust.................. (231,000) (397,000)
----------- -----------
Net cash provided by (used in) investing activities.. (479,000) 751,000
----------- -----------
Financing Activities:
Proceeds from (payments on) revolving line of credit..... (111,000) 128,000
Treasury stock acquired.................................. (3,296,000) (19,000)
Proceeds from sale of stock, stock option plans.......... 21,000 34,000
Other (Principal payments on notes receivable)........... 5,000 2,000
----------- -----------
Net cash provided by (used in) financing activities... (3,381,000) 145,000
----------- -----------
Effect of Exchange Rate Changes on Cash.................. 48,000 6,000
----------- -----------
(Decrease) increase in Cash and Cash Equivalents......... (727,000) 1,250,000
Cash and Cash Equivalents at Beginning of Period......... 6,083,000 5,109,000
----------- -----------
Cash and Cash Equivalents at End of Period............... $ 5,356,000 $ 6,359,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
FARR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 3, 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. 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 first quarter of 1999, 360,000 shares were acquired
under the repurchase program, bringing the total purchases to 720,550
shares.
As of April 3, 1999 and January 2, 1999 the Company held in treasury
1,103,944 and 743,944 shares of its common stock at a cost of
$8,591,000 and $5,295,000, respectively. Outstanding stock amounts are
reflected net of outstanding treasury shares in the Consolidated
Statements of Stockholders' Investment.
On March 23, 1999, the Board of Directors extended the expiration date
of the Company's stock Rights Agreement from April 3, 1999 to April 3,
2009.
3. 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>
April 3, 1999 April 4, 1998
------------- -------------
BASIC EARNINGS PER SHARE CALCULATION
<S> <C> <C>
Earnings:
---------
Net Income................................. $1,722,000 $1,918,000
========== ==========
Shares:
-------
Weighted average number of common
shares outstanding....................... 8,001,502 8,273,979
========= =========
Net Income Per Common Share................ $ 0.22 $ 0.23
========== ==========
<PAGE>
April 3, 1999 April 4, 1998
------------- -------------
DILUTED EARNINGS PER SHARE CALCULATION
Earnings:
---------
Net Income................................. $1,722,000 $1,918,000
========== ==========
Shares:
-------
Weighted average number of common
shares outstanding....................... 8,001,502 8,273,979
Assuming exercise of options reduced by
the number of shares which could have
been purchased with the proceeds from
exercise of such options................. 165,692 202,105
--------- ----------
Weighted average number of common
shares and dilutive common share
equivalents outstanding.................. 8,167,194 8,476,084
========= =========
Net Income Per Common Share................ $ 0.21 $ 0.23
========== ==========
</TABLE>
4. Comprehensive income for the current quarter and comparable prior
year's quarter are as follows:
<TABLE>
<CAPTION>
April 3, 1999 April 4, 1998
------------- -------------
<S> <C> <C>
Net Income...................................... $1,722,000 $1,918,000
Other Comprehensive income, net of tax
Foreign currency translation adjustments...... 81,000 235,000
---------- ----------
Comprehensive Income............................ $1,803,000 $2,153,000
========== ==========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
- -------------------------------
FINANCIAL CONDITION
As of April 3, 1999, working capital was $23,544,000 compared to $24,525,000 at
the end of 1998, representing a $981,000 decrease in total working capital for
the first three months of 1999. The primary components of the change in working
capital during the first quarter were decreases in accounts receivable
($816,000), inventories ($352,000), and cash and short term investments
($727,000) partially offset by decreases in accounts payable and accrued
liabilities ($1,126,000).
The decrease in accounts receivable reflects improved collections during the
first quarter of 1999 compared to the fourth quarter of 1998. The decreases in
accounts payable and accrued liabilities primarily reflect payments related to
accrued employee benefit expenses made during the first quarter.
As of April 3, 1999, borrowing availability under the Company's domestic
revolving credit facility was $10,000,000 and no borrowings were outstanding.
This credit facility expires in June 1999 and is anticipated to be extended to
June 2001 with the same credit terms and borrowing limit.
During the first quarter, the Company acquired 360,000 shares of its common
stock ($3,296,000) under its stock repurchase program. As of April 3, 1999, a
cumulative total of 720,550 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, complete the stock
repurchase program covering 2,000,000 shares and meet current debt service
requirements.
CASH FLOW
Cash flow from operating activities during the first quarter totaled $3,085,000
compared to $348,000 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 the smaller decrease in accounts payable and accrued
expenses as compared to the same period a year ago and the current quarter's
decrease in accounts receivable.
Capital expenditures during the first quarter decreased to $300,000 from
$777,000 for the same period last year. Capital expenditures decreased from 1998
levels as 1998 expenditures included the Company's new headquarters facility
that did not reoccur in 1999.
<PAGE>
Results of Operations
- ---------------------
First quarter 1999 sales of $29,743,000 were down $2,246,000 or 7 percent from
1998 first quarter sales of $31,989,000. The decrease in sales reflected
continued softness in demand for air filtration products both in our foreign and
domestic markets. Foreign subsidiary sales were down 14 percent during the first
quarter compared to the same period a year ago.
First quarter net income totaled $1,722,000, down $196,000 or 10 percent from
$1,918,000 in the first quarter last year. The sales decrease discussed above
was the primary factor driving the decline in net income results. Foreign
subsidiaries' net income accounted for approximately 27 percent of the
consolidated net income, and was down from 30 percent from last year's first
quarter primarily as a result of lower sales volume in our U.K. subsidiary.
Gross margin as a percent of sales during the first quarter increased slightly
to 26.0 percent as compared to 25.7 percent during the first quarter of last
year. The increase was primarily due to improved domestic operating
efficiencies.
Selling, general and administrative expenses as a percentage of sales during the
first quarter of 1999 were 17.0 percent compared to 16.5 percent during the
first quarter of 1998. First quarter spending totaled $5,054,000 compared to
$5,282,000 for the same period last year, reflecting modest decreases in total
marketing and selling expenses associated with lower sales volume.
The nominal changes in interest expense and interest income over the first
quarter last year reflect changes in the Company's average cash and borrowing
balances.
The effective tax rate during the first quarter increased to 37 percent from 35
percent last year due to lower tax benefits associated with the Company's
Foreign Sales Corporation (FSC).
<PAGE>
PART II - OTHER INFORMATION
Item 6.a. Exhibits
- --------- --------
The following is being filed with this Quarterly Report on Form 10-Q.
- 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)
May 14, 1999 /s/ Steve Pegg
Steve Pegg
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> APR-03-1999
<CASH> 5,356,000
<SECURITIES> 0
<RECEIVABLES> 18,617,000
<ALLOWANCES> 388,000
<INVENTORY> 10,464,000
<CURRENT-ASSETS> 37,187,000
<PP&E> 56,872,000
<DEPRECIATION> 39,236,000
<TOTAL-ASSETS> 57,749,000
<CURRENT-LIABILITIES> 13,643,000
<BONDS> 0
0
0
<COMMON> 778,000
<OTHER-SE> 39,837,000
<TOTAL-LIABILITY-AND-EQUITY> 57,749,000
<SALES> 29,743,000
<TOTAL-REVENUES> 29,743,000
<CGS> 22,001,000
<TOTAL-COSTS> 22,001,000
<OTHER-EXPENSES> 4,990,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,000
<INCOME-PRETAX> 2,728,000
<INCOME-TAX> 1,006,000
<INCOME-CONTINUING> 1,722,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,722,000
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.21
</TABLE>
