SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period
Ended December 31, 1996 Commission File Number 0-5214
Peerless Mfg. Co.
________________________________________________________________________
(Exact name of registrant as specified in its charter)
Texas 75-0724417
________________________________________________________________________
(State or other jurisdiction of ( I.R.S. Employer
incorporation or organization) identification No.)
2819 Walnut Hill Lane Dallas, Texas 75229
P. O. Box 540667 Dallas, Texas 75354
________________________________________________________________________
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (214) 357-6181
None
________________________________________________________________________
Former name, former address and former fiscal year, if changed since
last report.
Indicate by a 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 preceeding 12 months (or for 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by
this report.
Class Outstanding at December 31, 1996
_____________________________ _________________________________
Common stock, $1.00 par value 1,454,742 Shares
PEERLESS MFG. CO.
INDEX
Page
Number
Part I: Financial Information _________
Condensed Consolidated Balance Sheets for the
periods ended December 31, 1996 and June 30, 1996 3
Condensed Consolidated Statements of Earnings for the
three and six months ended December 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for
the six months ended December 31, 1996 and 1995 5
Notes to the Condensed Consolidated Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 9
Part II: Other Information 10
Exhibits 11 - 12
Signatures 13
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PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1996 1996
_____________ _____________
ASSETS (UNAUDITED) (AUDITED)
Current assets:
Cash and cash equivalents $140,831 $2,082,329
Short term investments 248,950 246,659
Accounts receivable 11,355,273 8,700,762
Inventories:
Raw materials 1,044,908 1,094,774
Work in process 3,043,315 2,757,798
Finished goods 18,395 286,393
Deferred income taxes 226,214 226,214
Other 330,522 620,072
----------- -----------
Total current assets 16,408,408 16,015,001
Property,plant and equipment-net 1,423,676 1,213,859
Property held for investment-net 920,913 948,775
Other assets 380,280 453,390
----------- -----------
$19,133,277 $18,631,025
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $400,000 $0
Accounts payable-trade 4,327,413 4,329,645
Advance payments from customers 1,159,595 435,549
Commissions payable 745,614 566,766
Accrued liabilities 834,053 1,332,441
----------- -----------
Total current liabilities 7,466,675 6,664,401
Deferred income taxes 86,768 86,768
Stockholders' equity:
Common stock-authorized 4,000,000 shares of $1 par
value; issued and outstanding, 1,454,742 shares at
September 30, 1996 and 1,446,742 at June 30, 1996 1,454,742 1,446,742
Additional paid-in capital 2,562,129 2,489,879
Unamortized value of restricted stock issue (89,275) (33,750)
Cumulative foreign currency translation adjustment (25,453) 23,842
Retained earnings 7,677,691 7,953,143
----------- -----------
11,579,834 11,879,856
----------- -----------
$19,133,277 $18,631,025
=========== ===========
<FN>
The accompanying notes are an integral part of these statements.
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PEERLESS MFG. CO.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Six Months Ended
__________________________ ___________________________
December 31, December 31,
__________________________ ___________________________
1996 1995 1996 1995
__________ __________ ___________ ___________
Net sales $9,761,204 $9,206,547 $17,276,653 $15,307,009
Cost of goods sold 6,722,071 6,501,070 12,127,299 11,254,278
---------- ---------- ---------- ----------
Gross profit 3,039,133 2,705,477 5,149,354 4,052,731
Operating expenses
Marketing and engineering 2,255,765 1,927,711 4,346,493 3,710,133
General and administrative 504,290 365,979 900,547 672,946
---------- ---------- ---------- ----------
Operating earnings(loss) 279,078 411,787 (97,686) (330,348)
Other income(expense)
Interest (993) 15,531 11,003 30,112
Sundry 156,067 (36,649) 182,741 (31,239)
---------- ---------- ---------- ----------
155,074 (21,118) 193,744 (1,127)
---------- ---------- ---------- ----------
before Federal Income Tax 434,152 390,669 96,058 (331,475)
Federal Income Tax
Current 64,799 111,324 7,825 (117,586)
Deferred 0 0 0 0
---------- ---------- ---------- ----------
64,799 111,324 7,825 (117,586)
---------- ---------- ---------- ----------
Net earnings(loss) 369,353 279,345 88,233 (213,889)
========== ========== ========== ==========
Earnings(loss) per common share $0.25 $0.19 $0.06 ($0.15)
========== ========== ========== ==========
Weighted average number of common
shares outstanding 1,454,742 1,446,742 1,454,101 1,446,742
========== ========== ========== ==========
Cash dividend per common share $0.125 $0.125 $0.250 $0.250
========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these statements.
4 of 13
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended
December 31,
_________________________
1996 1995
____________ ____________
Cash flows from operating activities:
Net earnings(loss) from operating activities $88,233 ($213,889)
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation and amortization 166,561 167,121
Other 24,725 31,679
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable (2,654,511) (1,340,884)
Inventories 32,347 (687,169)
Other current assets 289,550 (34,590)
Other assets 61,124 256,349
Increase (decrease) in:
Accounts payable (2,230) 884,050
Commissions payable 178,848 (119,578)
Advance payments from customers 724,046 572,340
Accrued liabilities (498,388) (64,314)
---------- ----------
(1,677,928) (334,996)
---------- ----------
Net cash (used in) provided by continuing operations (1,589,695) (548,885)
Cash flows from investing activities:
Net purchases of short term investments (2,291) (11,105)
Purchase of equipment net of disposals (336,531) (28,198)
---------- ----------
Net cash used in investing activities (338,822) (39,303)
Cash flows from financing activities:
Dividends paid (363,686) (361,696)
Net borrowing 400,000 0
---------- ----------
Net cash used in financing activities 36,314 (361,696)
Effect of exchange rate on cash (49,295) (4,604)
---------- ----------
Net increase (decrease) in cash
and cash equivalents (1,941,498) (954,488)
Cash and cash equivalents at beginning of period 2,082,329 961,747
---------- ----------
Cash and cash equivalents at end period $140,831 $7,259
========== ==========
<FN>
The accompanying notes are an integral part of these statements
5 of 13
PEERLESS MFG. CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments,
consisting of only the normal recurring accruals, necessary
to present fairly its financial position as of December
31,and June 30, 1996 and the results of operations and cash
flows for the six months ended December 31, 1996 and 1995.
2. The results for the interim periods are not necessarily
indicative of the results to be expected for the full year.
Peerless Mfg. Co. designs and manufactures custom contracted
pressure vessels and other products to customer
specifications, sales of which are obtained by competitive
bids and may result in material sales and profitability
increases or decreases when comparing interim periods
between years. The Company generally recognizes sales of
custom-contracted products at the completion of the
manufacturing process, which is normally less than one year.
The percentage-of-completion method is used for significant
long-term contracts.
3. The adjusted backlog of uncompleted orders and letters of
intent at December 31, 1996 was approximately $24,800,000 as
compared to a December 31, 1995 backlog of $19,000,000. The
Company has scheduled approximately 90% of the backlog for
shipment in the third and fourth quarters of the current
fiscal year.
4. The Company has a formal agreement with a bank for a
$5,000,000 continuing line of credit, renewable annually.
Under the terms of this agreement, loans bear interest at
the prevailing prime rate and the Company is required to pay
1/4 of 1% per annum on the unused portion of the facility.
The Company had $400,000 outstanding under this line at
December 31, 1996, and no loans outstanding December 31,
1995.
5. The Company consolidates the accounts of its wholly-owned
foreign subsidiaries, Peerless Europe Limited, Peerless
International N.V. and its wholly-owned foreign subsidiary,
Peerless Europe B.V. All significant intercompany accounts
and transactions have been eliminated in the consolidation.
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PEERLESS MFG. CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such
statements are subject to inherent risks and uncertainties, some
of which cannot be predicted or quantified. Actual results could
differ materially from those projected in the forward-looking
statements as a result of changes in market conditions, increased
competition, or other factors.
Capital Resources and Liquidity
- - -------------------------------
As a general policy, the Company maintains corporate liquidity at
a level adequate to support existing operations and planned
internal growth, and to allow continued operations through
periods of unanticipated adversity.
Cash and equivalents decreased $1,941,498 from June 30, 1996.
Company operations used $1,589,695 of cash during the six months
ended December 31, 1996. Additional uses of cash for the six
months ended December 31, 1996 included expenditures of $336,531
for fixed asset acquisitions and dividend payments of $363,686.
As indicated, operations used $1,589,695 of cash in the six
months ended December 31, 1996. Funds used in operations were
primarily from increases in accounts receivable of $2,654,511 and
payments of accounts payable and accrued liabilities of $2,230
and $498,388 respectively. These uses of cash were offset by
provisions by advances from customers and increases in
commissions to agents of $724,046 and $178,848 respectively, and
decreases in inventories, and other assets of $32,347 and
$350,674 respectively.
The Company has historically financed and continues to finance
plant expansion, equipment purchases, acquisitions and working
capital requirements primarily through the retention of earnings,
which is reflected by the absence of long-term debt. In addition
to retained earnings, the Company has from time to time used a
short-term bank credit line of $5,000,000 to supplement working
capital. At December 31, 1996 the Company had currently drawn
down $400,000 on this line of credit. The Company has no
material commitments for capital expenditures other than its
established program of maintaining existing plant and equipment.
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Changes - Second Quarter of Fiscal 1997 vs. Second Quarter 1996
- - ---------------------------------------------------------------
Results of 2nd Qtr. Six Months
Operations 1997 vs.1996 1997 vs. 1996
- - ------------------- -------------------- ---------------------
Sales $554,657 increase $1,969,644 increase
6.0% 12.9%
Sales for the three months ended December 31, 1996 compare
favorably to sales for the three months ended December 31, 1995.
Sales for the six months ended December 31, 1996 compare
favorably to sales for the six months ended December 31, 1995
reflecting increased product shipment and fewer delays by
customers in taking product as scheduled.
- - ------------------- -------------------- ---------------------
Gross Profit $333,656 increase $1,096,623 increase
12.3% 27.1%
Gross profit increase resulted from increased sales recorded in
the three months ended December 31, 1996. Gross profit as a
percent of sales was 31.1% for the three months ended December
31, 1996 vs. 29.4% for the three months ended December 31, 1995.
The increase in the gross profit percentage in the current
quarter and six month period was primarily due to the higher
profits available on the mix of products shipped in Fiscal 1997
vs. Fiscal 1996.
- - ------------------- -------------------- ---------------------
Operating Expenses $466,365 increase $863,961 increase
20.3% 19.7%
Operating expenses increased $466,365 from second quarter Fiscal
1997 vs. second quarter Fiscal 1996. This increase is primarily
attributable to agent commissions and engineering expenses of
approximately $160,000 each, and other administrative expenses of
approximately $140,000. These increases reflect the operating
expenses as a base to realize additional sales as reflected in
the increased sales and gross profits realized in the three
months ended December 31, 1996 vs. the three months ended
December 31, 1995.
8 of 13
- - ------------------- -------------------- ---------------------
Other Income(Expense) $176,619 increase $194,871 increase
Changes in other income reflect gains related to foreign exchange
transactions of approximately $168,000 in the three months ended
December 31, 1996 vs. losses related to foreign exchange
transactions of approximately $28,000 in the three months ended
December 31, 1995.
- - ------------------- -------------------- ---------------------
Net Earnings (Loss) $90,008 increase $302,122 increase
The increase in net earnings for the three months ended December
31, 1996, when compared to the preceding Fiscal year, reflects
the foreign exchange gains and reduction of taxes of
approximately $196,000 and $46,000 respectively offset by
decreases in operating earnings and interest income of
approximately $133,000 and $16,000 respectively.
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PEERLESS MFG. CO.
PART II
OTHER INFORMATION
Item 1 -- Legal proceedings
- - ---------------------------
Reference is made to Form 10-K Annual Report, as amended,
Item 3, Page 6, "Legal Proceedings" for the Fiscal year
ended June 30, 1996. For the three months ended December
31, 1996 there were no new proceedings filed against the
Company.
Item 4 -- Submission of Matters to a Vote of Security Holders
- - -------------------------------------------------------------
The Company held its annual meeting on November 21, 1996.
At this meeting, the shareholders elected as directors of
the Company, Sherrill Stone, Donald A. Sillers, Jr., David
D. Battershell, Bernard S. Lee, and Joseph V. Mariner, Jr.
The tabulation of the votes with respect to the election of
directors is as follows:
Nominee Shares For Shares Withheld
--------- ---------- ---------------
Sherrill Stone 1,299,098 10,048
Donald A. Sillers, Jr. 1,297,368 11,778
David D. Battershell 1,298,368 10,778
Bernard S. Lee 1,298,905 10,241
Joseph V. Mariner, Jr. 1,295,393 13,753
The shareholders approved the adoption of the Peerless Mfg.
Co. 1995 Stock Option and Restricted Stock Plan. The
tabulation of the votes with respect to the approval of the
Plan is as follows:
For 900,347
Against 122,641
Abstain 11,767
Non-Votes 274,391
Item 9 -- Exhibits and Reports -- Form 8-K
- - ------------------------------------------
There were no reports on Form 8-K for the three months ended
December 31, 1996.
10 of 13
EXHIBITS:
3(a) The Company's Articles of Incorporation, as amended to
date (filed as Exhibit 1 to the Company's Registration
Statement on Form S-1, Registration No. 2-35767, and
amended by the Company's December 12, 1990 Form 8
amending Exhibit 3(a) to the Company's Annual Report on
Form 10-K dated June 30, 1990, and incorporated herein
by reference).
3(b) The Company's Bylaws, as amended to date (filed as
Exhibit 3(b) to the Company's Annual Report on Form 10-
K, dated June 30, 1993, and incorporated herein by
reference).
10(a) Incentive Compensation Plan effective January 1, 1981,
as amended January 23, 1991 (filed as Exhibit 10(b) to
the Company's Annual Report on Form 10-K, dated June
30, 1991, and incorporated herein by reference).
10(b) 1985 Restricted Stock Plan for Peerless Mfg. Co.,
effective December 13, 1985 (filed as Exhibit 10(b) to
the Company's Annual Report on Form 10-K, dated June
30, 1993, and incorporated herein by reference).
10(c) 1991 Restricted Stock Plan for Non-Employee Directors
of Peerless Mfg. Co., adopted subject to shareholder
approval May 24, 1991, and approved by shareholders
November 20, 1991 (filed as Exhibit 10(e) to the
Company's Annual Report on Form 10-K dated June 30,
1991, and incorporated herein by reference).
10(d) Employment Agreement, dated as of April 29, 1994, by
and between the Company and Sherrill Stone (filed as
Exhibit 10(d) to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1994, and
incorporated herein by reference).
11 of 13
10(e) Agreement, dated as of April 29, 1994, by and between
the Company and Sherrill Stone (filed as Exhibit 10(e)
to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994, and incorporated
herein by reference).
10(f) Loan Agreement, dated as of December 14, 1993, between
NationsBank of Texas, N.A. and the Company (filed as
Exhibit 10(f) to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1994, and
incorporated herein by reference).
10(g) Second Amended and Restated Loan Agreement, dated as of
February 13, 1995, by and between NationsBank of Texas,
N.A. and the Company (filed as Exhibit 10(g) to the
Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996, and incorporated herein by
reference).
10(h) Third Amended and Restated Loan Agreement, dated as of
December 12, 1995, by and between NationsBank of Texas,
N.A. and the Company (filed as Exhibit 10(f) to the
Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996, and incorporated herein by
reference).
21 Subsidiaries of the Company (filed as Exhibit 21 to the
Company's Annual Report on Form 10-K dated June 30,
1993, and incorporated herein by reference).
27 Financial Data Schedule.*
*Filed herewith
12 of 13
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 thereto duly authorized.
PEERLESS MFG. CO. -- Registrant
Dated: February 14, 1997
/s/ SHERRILL STONE /s/ KENT J. VAN HOUTEN
- - ------------------------------ -------------------------------
Sherrill Stone Kent J. Van Houten
Chairman, President and Secretary - Treasurer and
Chief Executive Officer Chief Financial Officer
13 of 13