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 March 31, 1997 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 latest practicable date.
Class Outstanding at May 14, 1997
_____________________________ _________________________________
Common stock, $1.00 par value 1,451,992 Shares
PEERLESS MFG. CO.
INDEX
Page
Number
Part I: Financial Information _________
Condensed Consolidated Balance Sheets for the
periods ended March 31, 1997 and June 30, 1996 3
Condensed Consolidated Statements of Earnings for the
three and nine months ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended March 31, 1997 and 1996 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
2 of 13
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30,
1997 1996
------------ ------------
ASSETS (UNAUDITED) (AUDITED)
Current assets:
Cash and cash equivalents $658,420 $2,082,329
Short term investments 299,511 246,659
Accounts receivable 11,620,325 8,700,762
Inventories:
Raw materials 1,263,567 1,094,774
Work in process 2,820,299 2,757,798
Finished goods 215,984 286,393
Deferred income taxes 226,214 226,214
Other 638,339 620,072
----------- -----------
Total current assets 17,742,659 16,015,001
Property,plant and equipment-net 1,504,724 1,213,859
Property held for investment-net 906,982 948,775
Other assets 403,189 453,390
----------- -----------
$20,557,554 $18,631,025
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $1,145,550 $0
Accounts payable-trade 5,706,246 4,329,645
Advance payments from customers 434,130 435,549
Commissions payable 944,291 566,766
Accrued liabilities 958,619 1,332,441
----------- -----------
Total current liabilities 9,188,836 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, 1,455,992 shares at
March 31, 1997 and 1,446,742 at June 30, 1996 1,455,992 1,446,742
Additional paid-in capital 2,572,441 2,489,879
Unamortized value of restricted stock issue (74,013) (33,750)
Cumulative foreign currency translation adjustment (65,443) 23,842
Retained earnings 7,392,973 7,953,143
----------- -----------
11,281,950 11,879,856
----------- -----------
$20,557,554 $18,631,025
=========== ===========
<FN>
The accompanying notes are an integral part of these statements.
3 of 13
PEERLESS MFG. CO.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
-------------------------- --------------------------
March 31, March 31,
-------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Net sales $14,826,299 $8,625,252 $32,102,952 $23,932,261
Cost of goods sold 11,391,915 5,865,651 23,519,214 17,119,929
---------- ---------- ---------- ----------
Gross profit 3,434,384 2,759,601 8,583,738 6,812,332
Operating expenses
Marketing and engineering 2,757,240 1,926,270 7,103,733 5,636,403
General and administrative 486,248 420,649 1,386,795 1,093,595
---------- ---------- ---------- ----------
Operating earnings(loss) 190,896 412,682 93,210 82,334
Other income(expense)
Interest (11,266) 3,936 (263) 34,048
Sundry (66,371) 84,163 116,370 52,924
---------- ---------- ---------- ----------
(77,637) 88,099 116,107 86,972
---------- ---------- ---------- ----------
before Federal Income Tax 113,259 500,781 209,317 169,306
Federal Income Tax
Current 35,370 155,670 43,195 38,084
Deferred 0 0 0 0
---------- ---------- ---------- ----------
35,370 155,670 43,195 38,084
---------- ---------- ---------- ----------
Net earnings(loss) $77,889 $345,111 $166,122 $131,222
========== ========== ========== ==========
Earnings(loss) per common share $0.05 $0.24 $0.11 $0.09
========== ========== ========== ==========
Weighted average number of common
shares outstanding 1,455,298 1,446,742 1,454,494 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 nine months ended
March 31,
-------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
Net earnings(loss) from operating activities $166,122 $131,222
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation and amortization 244,305 228,866
Other 39,988 47,518
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable (2,919,563) (1,537,940)
Inventories (160,885) (1,003,372)
Other current assets (18,281) (35,164)
Other assets 49,126 231,037
Increase (decrease) in:
Accounts payable 1,376,601 1,184,761
Commissions payable 377,525 (60,306)
Advance payments from customers (1,419) 285,207
Accrued liabilities (554,571) (86,297)
---------- ----------
(1,567,175) (745,690)
---------- ----------
Net cash (used in) provided by continuing operations (1,401,053) (614,468)
Cash flows from investing activities:
Net purchases of short term investments (52,852) 343,805
Purchase of equipment net of disposals (480,741) (62,174)
---------- ----------
Net cash used in investing activities (533,593) 281,631
Cash flows from financing activities:
Dividends paid (545,529) (542,528)
Net borrowing 1,145,550 650,000
---------- ----------
Net cash used in financing activities 600,021 107,472
Effect of exchange rate on cash (89,285) (13,680)
---------- ----------
Net increase (decrease) in cash
and cash equivalents (1,423,910) (239,045)
Cash and cash equivalents at beginning of period 2,082,329 961,747
---------- ----------
Cash and cash equivalents at end period $658,420 $722,702
========== ==========
<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 March 31,
1997, and June 30, 1996 and the results of operations and
cash flows for the nine months ended March 31, 1997 and
1996.
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 March 31, 1997 was approximately $22,200,000 as
compared to a March 31, 1996 backlog of $17,600,000. Of the
$22,200,000 backlog at March 31, 1997, approximately 47% is
scheduled to be completed in the current fiscal year.
4. The Company has a formal agreement with two banks for an
aggregate of $7,500,000 continuing lines of credit,
renewable annually. Under the terms of these agreements,
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 $1,145,550
outstanding under these lines at March 31, 1997, and
$650,000 outstanding at March 31, 1996.
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.
6. The FASB has issued Statement of Financial Accounting
Standards No. 128 Earnings Per Share, which is effective for
financial statements issued after December 15, 1997. Early
adoption of the new standard is not permitted. The adoption
of this new standard is not expected to have a material
impact on the disclosure of earnings per share in the
financial statements.
6 of 13
Item 2. Management's discussion and analysis of financial
-------------------------------------------------
condition and results of operations.
------------------------------------
PEERLESS MFG. CO.
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 $1,423,910 from June 30, 1996.
Company operations used $1,401,053 of cash during the nine months
ended March 31, 1997. Additional uses of cash for the nine
months ended March 31, 1997 included expenditures of $480,741 for
fixed asset acquisitions and $545,529 for dividend payments.
As indicated, operations used $1,401,053 of cash in the nine
months ended March 31, 1997. Funds used in operations were
primarily from increases in accounts receivable of $2,919,563,
inventories of $160,885, accrued liabilities and advances from
customers of $554,571 and $1,419 respectively. These uses of
cash were offset by provisions in accounts payable of $1,376,601,
commissions payable of $377,525 and other assets of $30,845.
The Company has historically 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 two
short-term bank credit lines totaling $7,500,000 to supplement
working capital. At March 31, 1997 the Company had currently
drawn down $1,145,550 on these two lines of credit. The Company
has no material commitments for capital expenditures other than
its established program of maintaining existing plant and
equipment.
7 of 13
Changes - Third Quarter of Fiscal 1997 vs. Third Quarter 1996
- - --------------------------------------------------------------
Results of 3rd Qtr. Nine Months
Operations 1997 vs.1996 1997 vs. 1996
- - --------------------- --------------------- ---------------------
Sales $6,201,047 increase $8,170,691 increase
71.9% 34.1%
Sales for the three months ended March 31, 1997 compare favorably
to sales for the three months ended March 31, 1996 largely
reflective of a $5,000,000 shipment to a international customer.
Sales for the nine months ended March 31, 1997 compare favorably
to sales for the nine months ended March 31, 1996.
- - --------------------- --------------------- ---------------------
Gross Profit $674,783 increase $1,771,406 increase
24.5% 26.0%
Gross profit for the three months ended March 31, 1997 compare
favorably to gross profit for the three months ended March 31,
1996. Gross profit as a percent of sales was 23.2% for the three
months ended March 31, 1997 vs. 32.0% for the three months ended
March 31, 1996. Though gross profit increased by $674,783 for
the quarter, as indicated above, the gross profit percentage on
sales declined from 32.0% to 23.2% and is primarily related to
adverse affects of a cost overrun related to a substantial
international project in the Company's environmental equipment
division.
- - --------------------- --------------------- ---------------------
Operating Expenses $893,569 increase $1,760,530 increase
38.0% 26.2%
Operating expenses for the three months ended March 31, 1997
increased $893,569 from the three months ended March 31, 1996.
This increase is primarily attributable to agent commissions,
engineering expenses and selling general & administrative
expenses of $389,515, $285,445 and $242,627 respectively. These
increases reflect the operating expenses to support the
additional sales as reflected above.
8 of 13
3rd Qtr. Nine Months
1997 vs.1996 1997 vs. 1996
- - --------------------- --------------------- ---------------------
Other Income(Expense) $165,736 decrease $29,135 increase
The decrease in Other Income is largely reflective of the
$110,000 insurance proceeds received during the three months
ended March 31, 1996 for the excess of cost for refurbishment of
the Company's facilities, and a Foreign Currency Losses recorded
during the three months ended March 31, 1997 of approximately
$188,000, offset by additional Miscellaneous Income from rental
properties received during the three months ended March 31, 1997
of approximately $167,000.
- - --------------------- --------------------- ---------------------
Net Earnings (Loss) $267,222 decrease $34,900 increase
The decrease in net earnings for the three months ended March 31,
1997, when compared to the equivalent period in the preceding
fiscal year, reflects a cost overrun principally related to a
substantial international project in the Company's environmental
equipment division.
9 of 13
PEERLESS MFG. CO.
PART II
OTHER INFORMATION
Item 1 -- Legal proceedings
- - ----------------------------
In March 1997 the Company entered into a final agreement
with Senior Engineering Company ("Senior"), settling
effective April 1, 1997 the action the Company filed against
Senior in Peerless Mfg. Co. v. Senior Engineering Company on
November 13, 1995, in the United States District Court for
the Northern District of Texas. Pursuant to the settlement
agreement, the Company and Senior have established a
strategic alliance to cooperate in the marketing and sales of
technology and equipment to the nuclear power generation
industry.
Item 9 -- Exhibits and Reports -- Form 8-K
- - -------------------------------------------
There were no reports on Form 8-K for the three months ended
March 31, 1997.
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) Fifth Amended and Restated Loan Agreement, dated as of
February 3, 1997, between NationsBank of Texas, N.A.
and the Company.*
10(g) Loan Agreement, dated as of March 7, 1997, by and
between Texas Commerce Bank National Association and
the Company.*
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.
Dated: May 14, 1997
/s/ Sherrill Stone /s/ Kent J. Van Houten
By: Sherrill Stone By: Kent J. Van Houten
Chairman, President and Secretary - Treasurer and
Chief Executive Officer Chief Financial Officer
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