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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
( X ) EXCHANGE ACT OF 1934
For the fiscal year ended January 2, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
2201 Park Place, El Segundo, CA 90245
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 727-6300 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 12, 1999, based on the closing sale price on such date, was
$75,469,630.
The number of shares of common stock outstanding on March 12, 1999 was
8,878,780.
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DOCUMENTS INCORPORATED BY REFERENCE
PART I AND II:
The Annual Report to Stockholders for the fiscal year ended January 2, 1999.
PART I AND III:
The Proxy Statement for the Annual Meeting of Stockholders to be held
May 4, 1999.
PART I
Item 1. Business
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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 6 percent, 5 percent and
7 percent in 1998, 1997 and 1996, 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.
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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 January 2, 1999, the Company employed approximately 47 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 $2,530,000, $2,129,000 and $2,217,000 for product
engineering and development in 1998, 1997, and 1996, 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 1998, no customer accounted for more than 10 percent of net sales.
Backlog
The Company's backlog at January 2, 1999 was $14,961,000 as compared to
$14,631,000 at January 3, 1998.
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 1998, approximately 14 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 $2,231,000 and $3,006,000 at January 2, 1999 and January 3,
1998, respectively. All of the January 2, 1999 backlog is scheduled for
delivery during 1999.
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International Operations
The Company engages in operations in foreign countries as described above.
For information regarding the geographic distribution of revenue and
long-lived assets of the Company's domestic and international operations,
see Note 12 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 12, 1999, the Company had approximately 1,285 employees as
compared to approximately 1,319 on March 6, 1998.
The Company's four 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. Twenty-eight 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, 2001. At January 2, 1999, 140 employees at the Company's Montreal,
Canada plant were covered by a three year collective bargaining agreement
expiring August 31, 2000, and 48 employees at the Company's Birmingham,
England plant were covered by a collective bargaining agreement that
expires on December 31, 1999.
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Executive Officers of the Registrant
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Position Held and
Business Experience During
Name Age Past Five Years
John C. Johnston 55 President and Chief Executive Officer of the
Company (since February 1999), Director of the
Company (since September 1996), President and Chief
Operating Officer of the Company (from February 1996
to February 1999), Senior Vice President of the
Company (from January 1995 to February 1996);
President of Easton Aluminum, Inc. (from January 1986
to December 1994).
Richard C. Larson 49 Senior Vice President of the Company (since February
1998), Vice President of the Company (from June 1997
to February 1998), President and Chief Executive
Officer of Mac Equipment, Inc., from May 1994 to May
1997.
H. Jack Meany 76 Chairman of the Board (since April 1994), Chief
Executive Officer of the Company (from February 1996
to February 1999), 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.
Steve Pegg 40 Senior Vice President, Secretary and Chief Financial
Officer of the Company (since August 1998); Vice
President and Chief Financial Officer of Mac
Equipment, Inc., from June 1992 toAugust 1998.
Myron G. Rasmussen 61 Vice President of the Company (since March 1990),
Director of Engineering of the Company (from August
1977 to May 1990).
John Vissers 49 Vice President, Controller, Assistant Secretary and
Assistant Treasurer of the Company (since April
1998), Controller and Assistant Secretary of the
Company (from March 1992 to April 1998).
Philip L. Whitaker 35 Vice President of the Company (since September 1998);
International Sales Manager of Crisparire Corporation
(from June 1997 to September 1998); General Sales
Manager of Airflow Company (from May 1992 to June
1997).
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Item 2. Properties
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The location and general description of the Company's principal properties
at March 12, 1999 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 Closed
El Segundo, CA 40,000 Corporate Offices
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
Washington, NC (leased) 15,000 Manufacturing
Montreal, Canada 146,000 Manufacturing
Birmingham, England 82,000 Manufacturing
Memphis, Tennessee 5,000 Sales/Engineering Office
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 1998, the
Company believes that utilization of its various production facilities
ranged from 50 to 90 percent.
Item 3. Legal Proceedings
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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.
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Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable.
Incorporation by Reference
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The following portion of the Company's Annual Report to Stockholders for
the year ended January 2, 1999 ("Annual Report") is hereby incorporated by
reference.
Form 10-K Item No. Document Portion of Document
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Part I -- Item 1 and 2 Annual Report Pages 7 through 19
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
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Matters
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The Company's Common Stock trades on the Nasdaq National Market under the
symbol FARC. At March 12, 1999, there were approximately 428 stockholders
of record of the Company's Common Stock.
Dividends
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The Company did not pay any dividends on its Common Stock over the last two
years.
On April 29, 1998, The Company's Board of Directors declared a dividend to
be paid in the form of a 3 for 2 stock split, payable on May 29, 1998, to
stockholders of record on May 8, 1998.
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 8, 20
and 25, respectively, of the Annual Report.
Item 6. Selected Financial Data
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The five year summary under "Selected Financial Data" included on page 20
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
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Results of Operations
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"Management's Discussion and Analysis" on pages 21 through 24 of the Annual
Report is incorporated herein by this reference.
Item 8. Consolidated Financial Statements and Supplementary Data
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Pages 7 through 19 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
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Financial Disclosure
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Not applicable.
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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 1999 Proxy Statement is incorporated
herein by this reference.
Item 10. Directors and Executive Officers of the Registrant.
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Information appearing under the caption "Election of Directors" in the
Company's 1999 Proxy Statement is incorporated herein by this reference.
Item 11. Executive Compensation
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Information appearing under the caption "Executive Compensation" in the
Company's 1999 Proxy Statement is incorporated herein by this reference.
Information appearing under the captions "Compensation Committee Report"
and "Performance Graph" in the Company's 1999 Proxy Statement is not
incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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Information appearing under the caption "Ownership of the Company's
Securities" in the Company's 1999 Proxy Statement is incorporated herein by
this reference.
Item 13. Certain Relationships and Related Transactions
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Note 1 to the consolidated financial statements, included on pages 10 and
11 of the Annual Report, and the caption "Independent Public Accountants"
in the Company's 1999 Proxy Statement contain information about certain
relationships and are incorporated herein by this reference.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
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(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 January 2, 1999 and are
incorporated herein by this reference.
Annual Report
Page No.
Consolidated Balance Sheets at January 2, 1999
and January 3, 1998. 7
Consolidated Statements of Income and
Consolidated Statements of Stockholders'
Investment for the three years ended January 2,
1999, January 3, 1998 and December 28, 1996. 8
Consolidated Statements of Cash Flows for the
three years ended January 2, 1999, January 3,
1998 and December 28, 1996. 9
Notes to the Consolidated Financial Statements 10-19
Report of Independent Public Accountants 19
(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
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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 23, 1999 By: /s/ H. Jack Meany
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H. Jack Meany
Chairman of the Board of Directors
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 23, 1999 By: /s/ H. Jack Meany
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H. Jack Meany
Chairman of the Board of Directors
Dated: March 23, 1999 By: /s/ Robert G. Batinovich
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Robert G. Batinovich
Director
Dated: March 23, 1999 By: /s/ Richard P. Bermingham
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Richard P. Bermingham
Director
Dated: March 23, 1999 By: /s/ Denis R. Brown, Jr.
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Denis R. Brown, Jr.
Director
Dated: March 23, 1999 By: /s/ A. Frederick Gerstell
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A. Frederick Gerstell
Director
Dated: March 23, 1999 By: /s/ John C. Johnston
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John C. Johnston
Director, President and
Chief Executive Officer
Dated: March 23, 1999 By: /s/ John J. Kimes
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John J. Kimes
Director
Dated: March 23, 1999 By: /s/ John A. Sullivan
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John A. Sullivan
Director
Dated: March 23, 1999 By: /s/ Steve Pegg
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Steve Pegg
Sr. Vice President, Secretary, Treasurer
and Chief Financial Officer
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. 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.
*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.
*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.
10.41 Joint Venture Agrement between Farr Company and Quest
Technology SDN.BHD dated as of April 15, 1997. Filed as Exhibit
10.41 on Form 10-K dated January 3, 1998 and incorporated herein
by this reference.
10.42 Metalcraft Stock Purchase Agreement datd October 28, 1997. Filed
as Exhibit 10.42 on Form 10-K dated January 3, 1998 and
incorporated herein by this reference.
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 1998 Annual Report to Stockholders
is not deemed to be filed as a part of this report.
21 A list of all subsidiaries of registrant.
23 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.