-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HI1KYmj5bFABiNK0gXI1EgYKLS4z0ghKy2YwpGU+mPYAM/7ku1W3AmJnbtB7XUSG mOuI6jeBUdndK2O9t6GV+w== 0000034629-98-000012.txt : 19980519 0000034629-98-000012.hdr.sgml : 19980519 ACCESSION NUMBER: 0000034629-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980404 FILED AS OF DATE: 19980518 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARR CO CENTRAL INDEX KEY: 0000034629 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 951288401 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04723 FILM NUMBER: 98627277 BUSINESS ADDRESS: STREET 1: 2201 PARK PLACE CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: (310) 727-6300 MAIL ADDRESS: STREET 2: 26161 MARQUERITE PARKWAY SUITE B CITY: MISSION VIEJO STATE: CA ZIP: 92692 10-Q 1 QUARTERLY REPORT FOR FARR COMPANY ================================================================================ 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 4, 1998 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 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 common stock outstanding as of close of the period covered by this report: 8,638,974. ================================================================================ PART I - FINANCIAL INFORMATION FARR COMPANY AND SUBSIDIARIES INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS APRIL 4, 1998 Part I - Financial Information Introduction Condensed Consolidated Financial Statements Balance Sheets - April 4, 1998 and January 3, 1998 Income Statements for the three months ended April 4, 1998 and March 29, 1997 Statements of Cash Flows for the three months ended April 4, 1998 and March 29, 1997 Notes to Condensed Consolidated Financial Statements Management's Discussion and Analysis Part II - Other Information Item 6.a. Exhibits FARR COMPANY AND SUBSIDIARIES INTRODUCTION TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS APRIL 4, 1998 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 4, 1998 and the results of operations for the three months ended April 4, 1998 and March 29, 1997 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. FARR COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited) Assets Apr. 4, 1998 Jan. 3, 1998 ------------ ------------ Current Assets: Cash and cash equivalents ................................... $ 6,359,000 $ 5,109,000 Short term investments ...................................... 0 2,031,000 Accounts receivable, less allowance of $326,000 in 1998 and $254,000 in 1997 ............................... 20,269,000 20,267,000 Inventories Raw materials .......................................... 5,071,000 4,812,000 Work in process ........................................ 4,078,000 3,307,000 Finished goods ......................................... 2,467,000 2,690,000 ------------ ------------ 11,616,000 10,809,000 Prepaid expenses ............................................ 765,000 904,000 Income taxes receivable ..................................... 666,000 666,000 Deferred tax benefit ........................................ 1,221,000 1,221,000 ------------ ------------ Total current assets .................................. 40,896,000 41,007,000 ------------ ------------ Property, Plant and Equipment at cost Land ........................................................ 2,098,000 2,098,000 Buildings and improvements .................................. 17,464,000 17,429,000 Machinery and equipment ..................................... 36,047,000 35,935,000 ------------ ------------ 55,609,000 55,462,000 Less-accumulated depreciation and amortization .............. 37,799,000 37,843,000 ------------ ------------ 17,810,000 17,619,000 Other .......................................................... 2,828,000 2,202,000 ------------ ------------ $ 61,534,000 $ 60,828,000 ============ ============ Liabilities & Stockholders' Investment Current Liabilities: Notes/overdraft payable to banks ............................ $ 222,000 $ 93,000 Accounts payable ............................................ 7,358,000 9,701,000 Accrued liabilities ......................................... 8,306,000 8,726,000 Income taxes payable and deferred taxes ..................... 1,429,000 750,000 ------------ ------------ Total current liabilities ................................ 17,315,000 19,270,000 ------------ ------------ Deferred Income Taxes .......................................... 2,244,000 2,196,000 Other Non-current Liabilities .................................. 1,300,000 855,000 Commitments and Contingencies .................................. -- -- Stockholders' Investment: Common stock, $.10 par value--Authorized 10,000,000 shares Issued and outstanding--8,638,974 shares at April 4, 1998 and 8,629,131 shares at January 3, 1998 ............. 552,000 551,000 Additional paid-in capital .................................. 12,075,000 12,061,000 Cumulative translation adjustments .......................... (1,514,000) (1,749,000) Retained earnings: Balance beginning of year ................................ 27,644,000 20,269,000 Net income for the period ................................ 1,918,000 7,375,000 ------------ ------------ Balance at end of period ................................. 29,562,000 27,644,000 ------------ ------------ Total stockholders' investment ........................ 40,675,000 38,507,000 ------------ ------------ $ 61,534,000 $ 60,828,000 ============ ============
The accompanying notes are an integral part of these balance sheets. FARR COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)
Three Months Ended April 4, 1998 March 29, 1997 ------------- -------------- Net Sales ....................................... $ 31,989,000 $ 30,341,000 Cost of Sales ................................... 23,783,000 22,450,000 ------------ ------------ Gross Margin .................................... 8,206,000 7,891,000 Selling, general and administrative expense . 5,282,000 5,142,000 Interest expense ............................ 36,000 75,000 Interest income ............................. (68,000) (24,000) ------------ ------------ Total Expenses .................................. 5,250,000 5,193,000 ------------ ------------ Income Before Income Taxes ...................... 2,956,000 2,698,000 Income Taxes .................................... 1,038,000 998,000 ------------ ------------ Net Income ...................................... $ 1,918,000 $ 1,700,000 ============ ============ Diluted Earnings per Common Share * ............. $ 0.23 $ 0.20 ============ ============ Basic Earnings per Common Share ................. $ 0.23 $ 0.21 ============ ============
* Based upon 8,476,084 and 8,425,249 average shares outstanding at April 4, 1998 and March 29, 1997, 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. FARR COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Cash Provided by ( Used in ) : Three Months Ended April 4, 1998 March 29, 1997 ------------- -------------- Operating Activities: Net Income ............................................ $ 1,918,000 $ 1,700,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ...................... 626,000 579,000 Provision for loss on accounts receivable .......... 40,000 41,000 Benefit retirement trust ........................... 397,000 282,000 Exchange gain (loss) ............................... 16,000 (29,000) Net loss on sale/retirement of P,P & E ............. -- 4,000 Change in assets and liabilities Inventories .................................... (730,000) (338,000) Receivables and prepaid expenses ............... 108,000 (539,000) Accounts payable & accrued expenses ............ (2,902,000) 277,000 Net change in current income taxes payable ..... 875,000 803,000 ----------- ----------- Net cash provided by operating activities .......... 348,000 2,780,000 ----------- ----------- Investing Activities: Purchases of property, plant and equipment ............ (777,000) (473,000) Redemption of short term investments .................. 2,031,000 -- Issuance of note receivable - affiliate ............... (106,000) -- Purchase of investments, benefits trust ............... (397,000) (282,000) ----------- ----------- Net cash provided by (used in) investing activities 751,000 (755,000) ----------- ----------- Financing Activities: Proceeds from (payments on) revolving line of credit .. 128,000 (103,000) Principal payments on revolving line of credit ........ -- (1,065,000) Treasury stock acquired ............................... (19,000) -- Proceeds from sale of stock, stock option plans ....... 34,000 78,000 Other (Principal payments on notes receivable) ........ 2,000 2,000 ----------- ----------- Net cash provided by (used in) financing activities 145,000 (1,088,000) ----------- ----------- Effect of Exchange Rate Changes on Cash ............... 6,000 (35,000) ----------- ----------- Increase in Cash and Cash Equivalents ................. 1,250,000 902,000 Cash and Cash Equivalents at Beginning of Period ...... 5,109,000 1,997,000 ----------- ----------- Cash and Cash Equivalents at End of Period ............ $ 6,359,000 $ 2,899,000 =========== =========== The accompanying notes are an integral part of these statements.
FARR COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS APRIL 4, 1998 (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 1997 Annual Report to Stockholders which was incorporated by reference in the Annual Report on Form 10-K for the year ended January 3, 1998. 2. Earnings per Share Calculation As a result of the 3-for-2 stock split to be distributed on May 29, 1998, per share amounts for 1998 and 1997 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 are calculated as though the stock split occurred in the first day of the year. April 4, 1998 March 29, 1997 ------------- -------------- BASIC EARNINGS PER SHARE CALCULATION ------------------------------------ Earnings: Net Income $1,918,000 $1,700,000 ========== ========== Shares: Weighted average number of common shares outstanding 8,273,979 8,200,318 ========= ========= Net Income Per Common Share $ 0.23 $ 0.21 ========== ========== DILUTED EARNINGS PER SHARE CALCULATION -------------------------------------- Earnings: Net Income $1,918,000 $1,700,000 ========== ========== Shares: Weighted average number of common shares outstanding 8,273,979 8,200,318 Assuming exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options 202,105 224,931 ---------- --------- Weighted average number of common shares and dilutive common share equivalents outstanding 8,476,084 8,425,249 ========= ========= Net Income Per Common Share $ 0.23 $ 0.20 ========== ========== 3. On April 28, 1998, the Company's Board of Directors authorized a stock dividend as a 3-for-2 stock split, payable May 29, 1998 to stockholders of record on May 8, 1998. 4. During fiscal 1998, the Company adopted Financial Accounting Standard No.130, "Reporting Comprehensive Income", (SFAS No. 130), which established standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. April 4, 1998 March 29, 1997 ------------- -------------- Net Income $1,918,000 $1,700,000 Other Comprehensive income, net of tax Foreign currency translation adjustments gain (loss) 235,000 (272,000) ---------- ---------- Comprehensive Income $2,153,000 $1,428,000 ========== ========== MANAGEMENT'S DISCUSSION AND ANALYSIS Liquidity and Capital Resources - ------------------------------- FINANCIAL CONDITION As of April 4, 1998, working capital was $23,581,000 compared to $21,737,000 at the end of 1997, representing a $1,844,000 increase in total working capital for the first three months of 1998. The primary components of the change in working capital during the first quarter were decreases in accounts payable and accrued liabilities ($2,763,000) and increases in inventories ($807,000), partially offset by decreases in cash and short term investments ($781,000) and an increase in income taxes payable ($679,000). The decreases in accounts payable and accrued liabilities primarily reflected large accounts payable payments against open capital expenditure payables as of year end and payments related to accrued employee benefit expenses. Borrowing availability under the Company's domestic revolving credit facility at the end of the first quarter was $10,000,000. Capital expenditures of $777,000 during the first quarter increased over the same period last year by $304,000. Capital expenditures are anticipated to decrease from 1997 levels as 1997 expenditures for the Company's headquarters will not reoccur in 1998. 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 Cash flow from operating activities during the first quarter totaled $348,000 compared to $2,780,000 for the same period a year ago. The decrease in cash flow from operating activities was primarily related to the decreases in accounts payable and accrued expenses as compared to the same period a year ago. Results of Operations - --------------------- 1998 first quarter sales of $31,989,000 were up $1,648,000 or 5 percent from 1997 first quarter sales of $30,341,000. The increase in sales volume was related to increased sales in engine, railroad, dust collection and heating, ventilating and air conditioning products. Foreign subsidiary sales were up 15 percent during the first quarter due to railroad and heating, ventilating and air conditioning product sales. Record first quarter net income totaled $1,918,000, up $218,000 or 13 percent from $1,700,000 in the first quarter last year. Sales volume and lower effective tax rates were the primary factors driving the improved net income results. Foreign consolidated subsidiaries net income totaled approximately 30 percent of the consolidated net income, up from 21 percent during last year's first quarter. Gross margin as a percent of sales during the first quarter decreased slightly to 25.7 percent as compared to 26 percent during the first quarter of last year. The decrease was primarily due to FIFO inventory adjustments. Selling, general and administrative expenses as a percentage of sales during the first quarter of 1998 dropped to 16.5 percent compared to 16.9 percent during the first quarter of 1997. First quarter spending totaled $5,282,000 compared to $5,142,000 for the same period last year, reflecting modest increases in marketing and selling expenses. Interest expense decreased to $36,000 during the first quarter compared to $75,000 last year. The decrease in interest expense is related to the decrease in long-term debt. Interest income increased to $68,000, up $44,000 from $24,000 in the first quarter last year. The increase in interest income is related to the Company's investment of cash that has increased since the first quarter of 1997. The effective tax rate during the first quarter dropped to 35 percent from 37 percent last year due to tax benefits associated with the Company's Foreign Sales Corporation (FSC). 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. On April 28, 1998, the Company's Board of Directors authorized a stock dividend as a 3-for-2 stock split, payable May 29, 1998 to stockholders of record on May 8, 1998. 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 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. 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 By: /s/ Kenneth W. Gerstner - ----------------------------- Kenneth W. Gerstner Senior Vice President Chief Financial Officer Dated: May 15, 1998 EX-27 2 ART. 5 FDS FOR FIRST QUARTER 10-Q 1998
5 3-MOS JAN-02-1999 JAN-04-1998 APR-04-1998 6,359,000 0 20,269,000 326,000 11,616,000 40,896,000 55,609,000 37,799,000 61,534,000 17,315,000 0 0 0 552,000 40,123,000 61,534,000 31,989,000 31,989,000 23,783,000 23,783,000 5,214,000 0 36,000 2,956,000 1,038,000 1,918,000 0 0 0 1,918,000 0.23 0.23
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