SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
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Commission File Number 0-5214
PEERLESS MFG. CO.
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(Exact name of registrant as specified in its charter)
Texas 75-0724417
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(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
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (214) 357-6181
None
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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 preceding 12 months (or for shorter periods 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 February 17, 1998
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Common stock, $1.00 par value 1,454,492 Shares
PEERLESS MFG. CO.
INDEX
Page
Number
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Part I: Financial Information
Condensed Consolidated Balance Sheets for the
periods ended December 31, 1997 and June 30, 1997. 3 - 4
Condensed Consolidated Statements of Earnings for the
three and six months ended December 31, 1997 and 1996. 5
Condensed Consolidated Statements of Cash Flows for
the three months ended December 31, 1997 and 1996. 6
Notes to the Condensed Consolidated Financial Statements. 7 - 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9 - 11
Part II: Other Information 12 - 13
Exhibits 14 - 15
Signatures 16
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
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PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
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1997 1997
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(UNAUDITED) (AUDITED)
Assets
Current assets
Cash and cash equivalents $1,990,064 $772,553
Short term investments 260,594 259,007
Accounts receivable-principally trade-net of allowance for doubtful
accounts of $351,867 at December 31, 1997 and $312,450 at
June 30, 1997 8,712,369 9,671,067
Inventories
Raw materials 1,045,606 1,084,890
Work in process 2,581,521 1,586,213
Finished goods 235,643 322,752
Costs and earnings in excess of billings on uncompleted contracts 402,259 1,871,817
Deferred income taxes 268,964 269,721
Other 240,105 298,605
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Total current assets 15,737,125 16,136,625
Property, plant and equipment-at Cost, less accumulated depreciation 1,578,125 1,527,856
Property held for investment-at Cost, less accumulated depreciation 856,920 888,383
Other assets 646,053 528,729
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$18,818,223 $19,081,593
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
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PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
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1997 1997
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(UNAUDITED) (AUDITED)
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $1,550,000 $0
Accounts payable-trade 3,155,520 5,054,532
Billings in excess of costs and earnings on uncompleted contracts 47,810 363,257
Commissions payable 861,239 779,474
Accrued liabilities
Compensation 412,237 656,082
Warranty 273,641 406,903
Other 509,153 291,953
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Total current liabilities 6,809,600 7,552,201
Deferred income taxes 99,962 99,962
Stockholders' equity
Common stock-authorized 4,000,000 shares of $1 par value; issued
and outstanding 1,451,992 shares at December 31, 1997 and
1,451,992 at June 30, 1997 1,451,992 1,451,992
Additional paid-in capital 2,535,221 2,535,221
Unamortized value of restricted stock grants (36,939) (44,625)
Cumulative foreign currency translation adjustment (78,346) (93,944)
Retained earnings 8,036,733 7,580,786
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11,908,661 11,429,430
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$18,818,223 $19,081,593
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<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,
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1997 1996 1997 1996
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Revenue $11,041,772 $9,761,204 $18,247,561 $17,276,653
Cost of goods sold 7,278,267 6,776,655 11,893,871 12,227,992
-------------- -------------- -------------- --------------
Gross profit 3,763,505 2,984,549 6,353,690 5,048,661
Operating expenses
Marketing and engineering 2,137,871 2,211,180 4,203,610 4,252,368
General and administrative 670,545 504,290 1,116,277 900,547
-------------- -------------- -------------- --------------
Operating income 955,089 269,079 1,033,803 (104,254)
Other income(expense)
Interest income 6,871 5,598 15,404 17,594
Interest expense (11,790) (6,591) (14,586) (6,591)
Foreign exchange gains(losses) (21,902) 168,355 (50,984) 177,672
Other, net (59,927) (2,289) (48,953) 11,637
-------------- -------------- -------------- --------------
(86,748) 165,073 (99,119) 200,312
-------------- -------------- -------------- --------------
Earnings from operations
before Federal income tax 868,341 434,152 934,684 96,058
Federal income tax
Current 283,387 64,799 349,481 7,825
Deferred (51,126) 0 (51,126) 0
-------------- -------------- -------------- --------------
232,261 64,799 298,355 7,825
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Net earnings 636,080 369,353 636,329 88,233
============== ============== ============== ==============
Basic and diluted earnings per share $0.44 $0.25 $0.44 $0.06
============== ============== ============== ==============
Weighted average number of common
shares outstanding 1,451,992 1,454,742 1,451,992 1,454,101
============== ============== ============== ==============
Cash dividend per common share $0.125 $0.125 $0.125 $0.125
============== ============== ============== ==============
<FN>
The accompanying notes are an integral part of these statements.
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PEERLESS MFG. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended
December 31,
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1997 1996
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Cash flows from operating activities:
Net earnings $636,329 $88,233
Adjustments to reconcile earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 177,166 166,561
Other 7,686 24,725
Changes in operating assets and liabilities
Accounts receivable 958,698 (1,882,043)
Inventories (868,915) (1,134,162)
Cost and earnings in excess of billings
on uncompleted contracts 1,469,558 1,403,199
Other current assets 59,257 (90,308)
Other assets (116,371) 61,124
Accounts payable (1,898,972) 1,820
Billings in excess of costs and earnings
on uncompleted contracts (315,447) 90,696
Commissions payable 81,765 178,848
Accrued liabilities 21,717 (498,388)
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(423,858) (1,677,928)
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Net cash provided by (used in) operating activities 212,471 (1,589,695)
Cash flows from investing activities:
Net sales (purchases) of short-term investments (1,587) (2,291)
Net sales (purchases) of property and equipment (195,972) (336,531)
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Net cash provided by (used in) investing activities (197,559) (338,822)
Cash flows from financing activities:
Net change in short-term borrowings 1,550,000 400,000
Dividends paid (362,999) (363,686)
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Net cash used in financing activities 1,187,001 36,314
Effect of exchange rate on cash and cash equivalents 15,598 (49,295)
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Net increase (decrease) in cash and cash equivalents 1,217,511 (1,941,498)
Cash and cash equivalents at beginning of period 772,553 2,082,329
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Cash and cash equivalents at end period $1,990,064 $140,831
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<FN>
The accompanying notes are an integral part of these statements.
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PEERLESS MFG. CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements of
Peerless Mfg. Co. and its subsidiaries (the "Company") have
been prepared by the Company without audit. In the opinion
of the Company's management, the financial statements
reflect all adjustments necessary to present fairly the
results of operations for the three and six months ended
December 31, 1997 and 1996, the Company's financial position
at December 31, 1997 and June 30, 1997, and cash flows for
the six months ended December 31, 1997 and 1996. These
adjustments are of a normal, recurring nature which are, in
the opinion of management, necessary for a fair presentation
of the financial position and results of operations for the
interim periods.
Certain notes and other information have been condensed or
omitted from the interim financial statements presented in
the Quarterly Report on Form 10-Q. Therefore, these
financial statements should be read in conjunction with the
Company's Annual Report Form 10-K for the Fiscal year ended
June 30, 1997 and the consolidated financial statements and
notes thereto included in the Company's June 30, 1997,
audited financial statements.
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 backlog of uncompleted orders and letters of intent at
December 31, 1997 was approximately $26,800,000 as compared
to a December 31, 1996 backlog of $24,800,000. Of the
$26,800,000 backlog at December 31, 1997, approximately 70%
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. As of December 31, 1997 and 1996,
the Company had $1,550,000 and $400,000 in loans outstanding
respectively against these lines of credit.
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5. The Company consolidates the accounts of its wholly-owned
foreign subsidiaries, Peerless Europe Limited, Peerless
International N.V. and Peerless Europe B.V. All significant
intercompany accounts and transactions have been eliminated
in the consolidation.
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Item 2. Management's discussion and analysis of financial
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condition and results of operations.
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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. The following discussion and
analysis should be read in conjunction with the attached
consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the
fiscal year ended June 30, 1997.
Capital Resources and Liquidity
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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 increased $1,217,511 from June 30, 1997.
Company operations provided $212,471 and proceeds from short-term
borrowings provided $1,550,000, in anticipation of commitments
for material purchases in January 1998. Uses of cash for the six
months ended December 31, 1997 included expenditures of $197,559
for purchase of fixed assets and short-term investments and
$362,999 for dividend payments.
As indicated in the preceding paragraph, cash flows from
operating activities provided $212,471 of cash in the six months
ended December 31, 1997. Funds provided by these operations were
primarily from decreases in accounts receivable of $958,698, cost
and earnings in excess of billings on uncompleted contracts of
$1,469,558 and other current assets of $59,257, and increases in
commissions payable and accrued liabilities of $81,765 and
$21,717 respectively. These sources of cash were offset by uses
of cash in inventories of $868,915, other assets of $116,371,
accounts payable of $1,898,972 and billings in excess of cost and
earnings on uncompleted contracts of $315,447.
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 the Company's
statement of financial position. 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. The Company has no material commitments for capital
expenditures other than its established program of maintaining
existing plant and equipment.
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REVENUE: Revenue increased 13% to $11,042,000 for the three
months ended December 31, 1997 from $9,761,000 for the three
months ended December 31, 1996. For the six month period,
revenues increased 6% to $18,248,000 for the six months ended
December 31, 1997 from $17,277,000 for the six months ended
December 31, 1996. For both periods the increases were primarily
the results of increased sales volumes to customers in Asia for
filtration and separation products and increases in sales volumes
recorded for nuclear steam dryers, commercial mist extractors,
and various other marine products. These increases in both
periods were partially offset by reduced sales of its SCR
products for the three and six months ended December 31, 1997
compared to the three and six months ended December 31, 1996.
GROSS PROFIT: Gross profit increased 25% to $3,764,000 for the
three months ended December 31, 1997 from $2,985,000 for the
three months ended December 31, 1996. The increase in gross
profit attributable to the increased volumes in sales revenue was
approximately 50% of the $780,000 increase from the comparable
three month period ending December 31, 1996. For the six month
period, gross profit increased 26% to $6,354,000 for the six
months ended December 31, 1997 from $5,049,000 for the six months
ended December 31, 1996. The increase in gross profit
attributable to the increased volumes in sales revenue was
approximately 21% of the $1,305,000 increase from the comparable
six month period ended December 31, 1996.
For the three and six month period, the balance of the increase
in gross profits resulted in a change in the mix of products sold
in Fiscal 1998 compared Fiscal 1997. Sales revenue on nuclear
steam dryers and commercial mist extractors have a lower
percentage cost of goods than the Company's traditional line of
pressure vessels, allowing for increased gross profits as a
percentage of revenues. As discussed above in the revenues
section, the sales of nuclear steam dryers and commercial mist
extractors increased for the three months and six months ended
December 31, 1997 compared to the three months and six months
ended December 31, 1996, resulting in increased gross profits.
OPERATING EXPENSES: Operating expenses increased 3% to
$2,808,000 for the three months ended December 31, 1997 from
$2,715,000 for the three months ended December 31, 1996. For the
six months, operating expenses also increased 3% to $5,320,000
for the six months ended December 31, 1997 from $5,153,000 for
the six months ended December 31, 1996. Marketing and
engineering expenses declined slightly due to cost control
measures implemented over the last 12 months. General and
administrative expenses increased primarily due to various cost
increases associated with increased sales volume and profits
related to various accurals for profit sharing and compensation
plans.
10 of 16
OTHER INCOME/(EXPENSE): The Company recognized net other expense
of $87,000 and $99,000 for the three and six months ending
December 31, 1997 for interest, foreign exchange losses and the
settlement of an employee issue. These expenses compare
unfavorably to the $165,000 and $200,000 net other income
associated primarily with the recording of foreign exchange gains
for the three and six months period ending December 31, 1996.
YEAR 2000 ISSUE: The Company embarked on a program of upgrading
its current computer system in 1996 and the Year 2000 Issue was
addressed.
The Company has reviewed and continues to monitor its exposure to
the SEC's Staff Legal Bulletin No. 5 regarding the Year 2000
Issue. The Company believes that the cost of addressing the Year
2000 Issue will not be material or create uncertainty that would
cause reported financial information not to be necessarily
indicative of future operating results or financial condition.
Further, the Company believes that any cost or any consequences
of incomplete or untimely resolution of any Year 2000 Issues will
not represent a known material event or uncertainty that is
reasonably expected to affect the Company's future financial
results, or cause the Company's reported financial information
not to be necessarily indicative of future operating results or
future financial condition.
SOUTHEAST ASIA: The Company does not anticipate any material
affect on the demand for its products in Southeast Asia as a
result of the current financial crisis there. Oil and gas
products in the area contribute hard currency and are still being
scheduled. Secondary projects financed in local currencies are
expected to experience some delays. The Company is hopeful also
that demand for its products in Mexico and South America could
offset the potential for reduced opportunities in Southeast Asia.
RESTRUCTURING: At the Annual Shareholders Meeting conducted
November 20, 1997, Mr. Stone, Chairman and Chief Executive
Officer of the Company, announced its organizational
restructuring and reorganization of its two separation and
filtration units into one combined group. The restructuring and
reorganization was designed to lower costs of goods and improve
on time delivery of product. The restructuring is complete and
the Company continues to audit this progress.
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PEERLESS MFG. CO.
PART II
OTHER INFORMATION
Item 1 -- Legal proceedings
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Reference is made to Form 10-K Annual Report, as amended,
Item 3, Page 6, "Legal Proceedings" for the Fiscal year
ended June 30, 1997. For the three months ended September
30, 1997 there were no new proceedings filed against the
Company.
Item 4. -- Submission of Matters to a vote of Security Holders
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On November 21, 1997 the Company held its Annual Meeting of
Shareholders of Peerless Mfg. Co. The meeting involved the
re-election of Mr. Sherrill Stone, Mr. Donald A. Sillers,
Jr., Mr David D. Battershell, Mr. Bernard S. Lee and Mr.
Joseph V. Mariner, Jr. as Directors of the Company to a
classified board. The Directors were elected to serve in
their respective successor capacity as follows:
David D. Battershell - Class I Director - Term to expire at
the 1998 Annual Shareholders Meeting. Mr. Battershell had
1,284,040 votes cast for, 83,020 shares withheld from voting
for and no broker non-votes.
Bernard S. Lee - Class II Director - Term to expire at the
1999 Annual Shareholders Meeting. Mr. Lee had 1,284,440
votes cast for, 82,620 shares withheld from voting for and
no broker non-votes.
Joseph V. Mariner, Jr. - Class II Director - Term to expire
at the 1999 Annual Shareholders Meeting. Mr. Mariner had
1,221,590 shares cast for, 145,470 shares withheld from
voting for and no broker non-votes.
Sherrill Stone - Class III Director - Term to expire at the
2000 Annual Shareholders Meeting. Mr. Stone had 1,220,133
shares cast for, 146,927 shares withheld from voting for and
no broker non-votes.
Donald A. Sillers, Jr. - Class III Director - Term to expire
at the 2000 Annual Shareholders Meeting. Mr. Sillers had
1,220,140 shares cast for, 146,920 shares withheld from
voting for and no broker non-votes.
An additional matter voted upon at the meeting was to amend
the Company s Articles of Incorporation to authorize
1,000,000 shares of blank check preferred stock. The
results of voting were 601,760 shares cast for, 420,242
shares cast against, 14,005 shares abstained and 331,053
broker non-votes. The proposal was not approved.
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Another matter voted upon at the meeting was to amend the
Company s Articles of Incorporation to authorize an
additional 6,000,000 shares of the Common Stock. The
results of voting were 1,127,805 shares cast for, 232,055
shares cast against, 7,200 shares abstained and no broker
non-votes. The proposal was approved.
Item 6 -- Exhibits and Reports -- Form 8-K
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There were no reports on Form 8-K for the three months ended
December 31, 1997.
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EXHIBITS:
3(a) The Company's Articles of Incorporation, as amended to
date.*
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, 1997, 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).
10(e) Agreement, dated as of April 29, 1994 by and between
Company and Sherrill Stone (filed as Exhibit 10(e) to
the Company's Annual Report on Form 10-K dated June 30,
1994 and incorporated herein by reference).
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10(f) Sixth Amended and Restated Loan Agreement, dated as of
January 12, 1998, between NationsBank of Texas, N.A.
and the Company.*
10(g) Amended and Restated Loan Agreement, dated as of
January 12, 1998, by and between Texas Commerce Bank
National Association and the Company.*
10(h) Peerless Mfg. Co. 1995 Stock Option and Restricted
Stock Plan, adopted by the Board of Directors December
31, 1995 and approved by the Shareholders of the
Company November 21, 1996 (filed as Exhibit 10(h) to
the Company's Annual Report on Form 10-K dated June 30,
1997 and incorporated herein by reference).
10(i) Rights Agreement between Peerless Mfg. Co. and
ChaseMellon Shareholder Services, L.L.C., adopted by the
Board of Directors May 21, 1997 (filed separately on
May 22, 1997 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
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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: February 17, 1998
/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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