SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
____
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
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 0-5214
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 repor
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 November 13, 1998
- - ----------------------------- -------------------------------------------
Common stock, $1.00 par value 1,457,492 Shares
PEERLESS MFG. CO.
INDEX
Page
Number
-------
Part I: Financial Information
Item 1: Consolidated Financial Statements
Condensed Consolidated Balance Sheets for the
periods ended September 30, 1998 and June 30, 1998. 3
Condensed Consolidated Statements of Earnings for
for the three months ended September 30, 1998 and 1997. 4
Condensed Consolidated Statements of Cash Flows for
the three months ended September 30, 1998 and 1997. 5
Notes to the Condensed Consolidated Financial Statements. 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations. 7 - 9
Part II: Other Information
Legal Proceedings 10
Exhibits and Reports 10 - 11
Signatures 12
2 of 12
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
- - ----------------------------
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
-----------------------------
1998 1998
-------------- --------------
(UNAUDITED) (AUDITED)
Assets:
Current assets:
Cash and cash equivalents $942,455 $428,482
Short term investments 268,065 268,065
Accounts receivable-principally trade-net of allowance for doubtful
accounts of $853,190 at September 30, 1998 and $806,200 at
June 30, 1998 10,379,559 14,241,036
Inventories:
Raw materials 887,053 973,906
Work in process 1,157,653 1,114,524
Finished goods 334,230 331,415
Costs and earnings in excess of billings on uncompleted contracts 2,015,957 1,838,641
Deferred income taxes 428,545 433,596
Other 135,498 165,631
-------------- --------------
Total current assets 16,549,015 19,795,296
Property, plant and equipment-at Cost, less accumulated depreciation 1,485,445 1,506,465
Property held for investment-at Cost, less accumulated depreciation 816,557 830,840
Other assets 714,941 623,620
-------------- --------------
$19,565,958 $22,756,221
============== ==============
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
-----------------------------
1998 1998
-------------- --------------
(UNAUDITED) (AUDITED)
Liabilities and Stockholders' Equity:
Current liabilities:
Notes payable $0 $200,000
Accounts payable-trade 3,338,557 5,566,068
Billings in excess of costs and earnings on uncompleted contracts 151,231 49,977
Commissions payable 1,098,915 1,205,391
Accrued liabilities:
Compensation 815,519 1,499,443
Warranty 504,025 434,588
Other 355,651 366,408
-------------- --------------
Total current liabilities 6,263,898 9,321,875
Deferred income taxes 37,260 38,543
Stockholders' equity:
Common stock-authorized 10,000,000 shares of $1 par value;
issued and outstanding, 1,457,492 shares 1,457,492 1,457,492
Additional paid-in capital 2,583,701 2,583,701
Unamortized value of restricted stock grants (45,406) (51,385)
Cumulative foreign currency translation adjustment (52,210) (79,849)
Retained earnings 9,321,223 9,485,844
-------------- --------------
13,264,800 13,395,803
-------------- --------------
$19,565,958 $22,756,221
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
3 of 12
PEERLESS MFG. CO.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended
September 30,
-----------------------------
1998 1997
-------------- --------------
Revenues $9,369,690 $7,205,789
Cost of goods sold 6,426,571 4,615,604
-------------- --------------
Gross profit 2,943,119 2,590,185
Operating expenses 2,591,155 2,511,472
-------------- --------------
Operating income 351,964 78,713
Other income(expense)
Interest income 6,994 8,533
Interest expense (17,944) (2,796)
Foreign exchange gains(losses) (27,504) (29,082)
Other, net (2,185) 10,975
-------------- --------------
(40,639) (12,370)
-------------- --------------
Earnings from operations
before Federal income tax 311,325 66,343
Federal income tax
Current 104,704 66,094
Deferred 6,868 0
-------------- --------------
111,572 66,094
-------------- --------------
Net earnings 199,753 249
============== ==============
Basic and diluted earnings per share $0.14 $0.00
============== ==============
Basic weighted average shares 1,457,492 1,451,992
Dilutive options 2,981 2,316
-------------- --------------
Adjusted weighted average shares 1,460,473 1,454,308
============== ==============
Cash dividend per common share $0.125 $0.125
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
4 of 12
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months ended
September 30,
-----------------------------
1998 1997
-------------- --------------
Cash flows from operating activities:
Net earnings $199,753 $249
Adjustments to reconcile earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 94,707 98,584
Other (5,281) 3,843
Changes in operating assets and liabilities
Accounts receivable 3,861,477 4,068,543
Inventories 40,909 (1,572,836)
Cost and earnings in excess of billings
on uncompleted contracts (177,316) 589,853
Other current assets 5,051 72,897
Other assets (87,979) 11,943
Accounts payable (2,227,528) (2,074,182)
Billings in excess of costs and earnings
on uncompleted contracts 101,254 (248,513)
Commissions payable (106,476) (96,630)
Accrued liabilities (807,431) (235,432)
-------------- --------------
691,387 618,070
-------------- --------------
Net cash provided by (used in) operating activities 891,140 618,319
Cash flows from investing activities:
Net sales (purchases) of short-term investments 0 (1,737)
Net sales (purchases) of property and equipment (22,619) 10,196
-------------- --------------
Net cash provided by (used in) investing activities (22,619) 8,459
Cash flows from financing activities:
Net change in short-term borrowings (200,000) 0
Dividends paid (182,187) (181,499)
-------------- --------------
Net cash used in financing activities (382,187) (181,499)
Effect of exchange rate on cash and cash equivalents 27,639 17,473
-------------- --------------
Net increase (decrease) in cash and cash equivalents 513,973 462,752
Cash and cash equivalents at beginning of period 428,482 772,553
-------------- --------------
Cash and cash equivalents at end period $942,455 $1,235,305
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
5 of 12
PEERLESS MFG. CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The Company employs accounting policies that are in
accordance with generally accepted accounting principles in
the United States. The preparation of financial statements
in conformity with generally accepted accounting principles
requires Company management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the
reporting period. Ultimate results could differ from those
estimates.
The accompanying unaudited condensed consolidated financial
statements present information in accordance with generally
accepted accounting principles for interim financial
information and the instructions to Form 10-Q and applicable
rules of Regulation S-X. Accordingly, they do not include
all information or footnotes required by generally accepted
accounting principles for complete financial statements and
should be read in conjunction with the Company's 1998 Annual
Report on Form 10-K.
In the opinion of the Company, the financial statements
include all adjustments necessary to present fairly the
Company's financial position as of September 30, 1998 and
the results of its operations for the three months ended
September 30, 1998 and 1997 and its cash flows for the three
months then ended. The results of operations for the three
months ended September 30, 1998 and 1997 may not be
indicative of results for the full year.
2. The backlog of uncompleted orders and letters of intent at
September 30, 1998 was approximately $21,300,000 as compared
to a September 30, 1997 backlog of $23,100,000. Of the
$21,300,000 backlog at September 30, 1998, approximately 90%
is scheduled to be completed in the current fiscal year.
3. The Company consolidates the accounts of its wholly-owned
foreign subsidiaries, Peerless Europe Limited and Peerless
Europe B.V. All significant intercompany accounts and
transactions have been eliminated in the consolidation.
6 of 12
Item 2. 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 refer to events that could occur in the future or may
be identified by the use of words such as "expect," "intend,"
"plan," "believe," correlative words, and other expressions
indicating that future events are contemplated and may be
included in the Company's business description or in Management's
Discussion and Analysis of Results of Operations and Financial
Condition, among other places. Such statements are subject to
inherent risks and uncertainties, and actual results could differ
materially from those projected in the forward-looking statements
as a result of certain of the risk factors set forth below and
elsewhere in this Quarterly Report on Form 10-Q. In addition to
the other information contained in this Quarterly Report on Form
10-Q, investors should carefully consider the risk factors
contained in its Annual Report on Form 10-K, which risk factors
are incorporated herein by reference. The Company does not
undertake to update any forward-looking statements.
Capital Resources and Liquidity
- - -------------------------------
The Company believes that it maintains corporate liquidity
adequate to support existing operations and planned growth, as
well as continue operations during reasonable periods of
unanticipated adversity. Management directs additional resources
to strategic new product development, market expansion and
continuing improvement of existing products to enhance the
Company's position as a market leader and to promote planned
internal growth and profitability.
The Company has historically financed and continues to finance
working capital requirements, expansions, equipment purchases or
acquisitions primarily through the retention of earnings, which
is reflected by the absence of long-term debt on the Company's
consolidated balance sheet. In addition to retained earnings,
the Company has used short term bank credit lines of $7,500,000
to supplement working capital. The Company believes that these
sources will be sufficient to satisfy its needs in the
foreseeable future. For the three months ending September 30,
1998, it was necessary for the Company to use its short-term bank
credit lines in order to finance temporary shortfall in working
capital. Loans bear interest at the prevailing prime rate. At
September 30, 1998 the Company had no loans outstanding under its
credit lines. The Company pays an annual commitment fee of 0.25%
of the unused balance under the credit lines. The Company has no
material commitments for capital expenditures other than
replacing equipment and maintaining its existing plants and
equipment.
Working capital was $10,000,000 at September 30, 1998.
7 of 12
REVENUE: Revenue increased 30% to $9,370,000 for the three
months ended September 30, 1998 compared to $7,206,000 for the
three months ended September 30, 1997. The increases resulted
primarily from increased revenues from the sale of separation
products primarily to international customers.
GROSS PROFIT: Gross profit increased 14% to $2,943,000 for the
three months ended September 30, 1998 compared to $2,590,000 for
the three months ended September 30, 1997. The increase in gross
profits is attributable to greater revenue realized for the three
months ended September 30, 1998 vs. the three months ended
September 30, 1997. Higher costs were incurred on separators
manufactured for a Russian project and a North Sea project and
caused the overall gross profit percentage for the Company to
drop from 35.9% for the three months ended September 30, 1997 to
31.4% for the three months ended September 30, 1998.
OPERATING EXPENSES: Operating expenses increased 3% due
primarily to increased personnel costs from $2,511,000 for the
three months ended September 30, 1997 to $2,591,000 for the three
months ended September 30, 1998.
YEAR 2000 COMPLIANCE:
The inability of computers, software and other equipment
utilizing microprocessors to recognize and properly process data
fields containing a two-digit year is commonly referred to as the
Year 2000 Compliance issue. As the Year 2000 approaches, such
systems may be unable to accurately process certain date-based
information.
As the case with most other companies using computers in their
operations, the Company is in the process of addressing the Year
2000 Compliance issue. The Company began converting its
information systems in 1996 through the purchase of a new
information system that is already Year 2000 compliant. The
Company has incurred approximately $450,000 to date in
implementing this new system and expects to incur an additional
$50,000 for future modifications, testing and services. Planned
implementation is expected by January 1, 1999 with testing of the
new system to commence at that time for a three to six month
period. The vendor has assured management that the new system
will be Year 2000 compliant. These cost and timing estimates are
based on management's best estimates, which were derived
utilizing numerous assumptions regarding future events, including
the continued availability of certain resources and the accuracy
of third-party representations. However, there can be no
guarantee that the estimates will be achieved and actual results
could differ from those plans.
8 of 12
The Company purchases computer hardware and software products
from third parties for incorporation into the Company's products
and such third-party products may be affected by the Year 2000
problem. There can be no guarantee, however, that these products
or the systems of other companies on which the Company's systems
and operations rely will be timely converted or that the failure
of these systems would not have an adverse effect on the
Company's systems. The Company has advised its customers
inquiring about this issue to contact the Company's vendors for
Year 2000 information. The Company has consulted with such
vendors in an effort to assure that the vendors have minimized
the risk of Year 2000 problems in the systems currently used by
the Company.
SOUTHEAST ASIA:
The Company markets a significant portion of its products in
Southeast Asia. Southeast Asia continues to experience economic
decline, and the Company expects that revenues derived in the
region will remain flat or decline slightly in the future.
However, a worsening of the region's economic condition in the
oil and gas industry (in which the Company derives most of its
Asian revenues) could adversely affect operating results.
9 of 12
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, 1998. For the three months ended
September 30, 1998 there were no new proceedings filed
against the Company.
Item 6 -- Exhibits and Reports -- Form 8-K
- - ------------------------------------------
(a) EXHIBITS:
References to the Company's SEC File Number 0-05214.
3(a) The Company's Articles of Incorporation, as amended to
date (filed as Exhibit 3(a) to the Company's Quarterly
Report on Form 10-Q, dated December 31, 1997, 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, 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 of 12
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).
10(f) Sixth Amended and Restated Loan Agreement, dated as of
January 12, 1998, between NationsBank of Texas, N.A.
and the Company (filed as Exhibit 10(f) to the
Company's Quarterly Report on Form 10-Q, dated December
31, 1997, and incorporated herein by reference).
10(g) Amended and Restated Loan Agreement, dated as of
January 12, 1998, by and between Texas Commerce Bank
National Association and the Company (filed as Exhibit
10(g) to the Company's Quarterly Report on Form 10-Q,
dated December 31, 1997, and incorporated herein by
reference).
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 as Exhibit 1
to the Company's Registration Statement on Form 8-A
(File No. 0-05214) 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,
1997, and incorporated herein by reference).
27 Financial Data Schedule.*
*Filed herewith
(b) Reports on form 8-K. None.
11 of 12
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: November 13, 1998
/s/Sherrill Stone /s/Paul W. Willey
----------------------- -----------------------
By: Sherrill Stone By: Paul W. Willey
Chairman, President and Chief Financial Officer
Chief Executive Officer
/s/Kent J. Van Houten
-----------------------
By: Kent J. Van Houten
Controller
12 of 12