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 December 31, 1999
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 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 14, 2000
----------------------------- --------------------------------
Common stock, $1.00 par value 1,462,492 Shares
PEERLESS MFG. CO.
INDEX
Page
Number
------
Part I: Financial Information
Item 1: Consolidated Financial Statements
Condensed Consolidated Balance Sheets for the
periods ended December 31, 1999 and June 30, 1999. 3
Condensed Consolidated Statements of Earnings for the
three and six months ended December 31, 1999 and 1998. 4
Condensed Consolidated Statements of Cash Flows for
the six months ended December 31, 1999 and 1998. 5
Notes to the Condensed Consolidated Financial Statements. 6 - 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8 - 11
Part II: Other Information
Legal Proceedings 12
Exhibits and Reports 12 - 13
Signatures 14
2 of 14
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1999 1999
---------- ----------
Assets: (UNAUDITED) (AUDITED)
Current assets:
Cash and cash equivalents $ 2,528,940 $ 210,866
Short term investments 273,343 273,343
Accounts receivable-principally trade-net
of allowance for doubtful accounts of
$719,102 at December 31, 1999 and
$685,330 at June 30, 1999 10,399,558 12,195,037
Inventories:
Raw materials 1,072,876 961,450
Work in process 513,963 2,522,182
Finished goods 558,139 247,338
Costs and earnings in excess of billings
on uncompleted contracts 4,569,604 3,268,181
Other 1,292,320 777,635
---------- ----------
Total current assets 21,208,743 20,456,032
Property, plant and equipment-at Cost,
less accumulated depreciation 2,087,582 2,102,546
Property held for investment-at Cost,
less accumulated depreciation 68,900 68,900
Deferred income taxes 59,613 59,613
Other assets 689,252 791,681
---------- ----------
$24,114,090 $23,478,772
========== ==========
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable-trade 5,127,302 5,626,058
Billings in excess of costs and
earnings on uncompleted contracts 1,844,378 572,970
Commissions payable 1,189,459 1,204,584
Accrued liabilities:
Compensation 523,773 1,188,165
Warranty 254,852 313,773
Deferred income taxes 42,736 42,736
Other 254,205 38,669
---------- ----------
Total current liabilities 9,236,705 8,986,955
Stockholders' equity:
Common stock-authorized 10,000,000 shares
of $1 par value; issued and outstanding,
1,459,992 and 1,452,492 shares at December
31, 1999 and June 30, 1999, respectively 1,459,992 1,452,492
Additional paid-in capital 2,610,658 2,539,951
Unamortized value of restricted stock grants (42,486) (4,719)
Cumulative foreign currency
translation adjustment (120,741) (103,824)
Retained earnings 10,969,962 10,607,917
---------- ----------
14,877,385 14,491,817
---------- ----------
$24,114,090 $23,478,772
========== ==========
The accompanying notes are an integral part of these statements.
3 of 14
PEERLESS MFG. CO.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Revenues $10,358,296 $10,931,835 $22,665,368 $20,301,525
Cost of goods sold 6,457,827 7,295,692 15,170,512 13,722,263
---------- ---------- ---------- ----------
Gross profit 3,900,469 3,636,143 7,494,856 6,579,262
Operating expenses 3,186,881 2,729,934 6,387,992 5,321,089
---------- ---------- ---------- ----------
Operating income 713,588 906,209 1,106,864 1,258,173
Other income(expense)
Interest income 1,612 16,679 3,189 23,673
Interest expense (11,546) (954) (20,486) (18,898)
Foreign exchange
gains(losses) (13,590) (65,851) 63,886 (93,355)
Other, net (8,597) (10,620) (26,470) (12,805)
---------- ---------- ---------- ----------
(32,121) (60,746) 20,119 (101,385)
---------- ---------- ---------- ----------
Earnings from operations
before Federal income tax 681,467 845,463 1,126,983 1,156,788
Federal income tax
Current 242,387 331,608 402,055 436,312
Deferred - 2,037 (741) 8,905
---------- ---------- ---------- ----------
242,387 333,645 401,314 445,217
---------- ---------- ---------- ----------
Net earnings 439,080 511,818 725,669 711,571
========== ========== ========== ==========
Basic and diluted
earnings per share $0.30 $0.35 $0.50 $0.49
========== ========== ========== ==========
Basic weighted average
shares 1,457,747 1,457,492 1,455,272 1,457,492
Dilutive options 4,741 6,369 6,359 7,995
---------- ---------- ---------- ----------
Adjusted weighted average
shares 1,462,488 1,463,861 1,461,631 1,465,487
========== ========== ========== ==========
Cash dividend per
common share $0.125 $0.125 $0.250 $0.250
========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
4 of 14
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended
December 31,
1999 1998
--------- ---------
Cash flows from operating activities:
Net earnings $ 725,669 $ 711,564
Adjustments to reconcile earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 206,596 172,953
Other 3,096 698
Changes in operating assets and liabilities
Accounts receivable 1,795,479 4,205,518
Inventories 1,585,992 78,338
Cost and earnings in excess of billings
on uncompleted contracts (1,301,423) (75,221)
Other current assets (514,685) (20,034)
Other assets 102,429 (45,582)
Accounts payable (498,702) (2,468,612)
Billings in excess of costs and
earnings on uncompleted contracts 1,271,408 288,420
Commissions payable (15,125) (209,617)
Accrued liabilities (507,777) (743,193)
--------- ---------
2,127,288 1,183,668
--------- ---------
Net cash provided by (used in)
operating activities 2,852,957 1,895,232
Cash flows from investing activities:
Net sales (purchases) of property and equipment (191,632) (115,364)
--------- ---------
Net cash provided by (used in)
investing activities (191,632) (115,364)
Cash flows from financing activities:
Net change in short-term borrowings - (200,000)
Sales of common stock 37,344 -
Dividends paid (363,624) (364,374)
--------- ---------
Net cash provided by (used in)
financing activities (326,280) (564,374)
Effect of exchange rate on cash and cash equivalents (16,971) 18,786
--------- ---------
Net increase (decrease) in cash
and cash equivalents 2,318,074 1,234,280
Cash and cash equivalents at beginning of period 210,866 428,482
--------- ---------
Cash and cash equivalents at end period $2,528,940 $1,662,762
========= =========
The accompanying notes are an integral part of these statements.
5 of 14
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
without audit. In our opinion, the financial statements reflect
all adjustments necessary to present fairly the results of
operations for the three and six months ending December 31, 1999
and 1998, the Company's financial position at December 31, 1999,
and June 30, 1999, and cash flows for the six months ending
December 31, 1999 and 1998. These adjustments are of a normal and
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 this Quarterly
Report on Form 10-Q. Therefore, these financial statements should
be read in conjunction with our Annual Report Form 10-K, as
amended, for the Fiscal year ended June 30, 1999 and the
consolidated financial statements and notes included in our June
30, 1999, audited financial statements.
2. The results for interim periods are not necessarily indicative of
the results to be expected for the full year.
6 of 14
3. We have formal agreements with Bank of America N.A., formerly
NationsBank N.A., and Chase Bank of Texas N.A. for $3,500,000 each
for an aggregate of $7,000,000 continuing lines of credit,
renewable annually. Under the terms of these agreements, loans
bear interest at the prevailing prime rate and we are required to
pay 1/4 of 1% per annum on the unused portion of the facility. In
addition, Chase Bank of Texas provides us a LIBOR rate option. As
of December 31, 1999, we had no loans outstanding against these
lines of credit. The Company had $600,000 outstanding as of
September 30, 1999.
4. We consolidate the accounts of our wholly-owned foreign
subsidiaries, Peerless Europe Limited and Peerless Europe B.V.
All significant intercompany accounts and transactions have been
eliminated in the consolidation.
5. We identify reportable segments based on management responsibility
within our corporate structure. We have two reportable industry
segments which are set out below:
Gas/Liquid Selective Unallocated Consolidated
Filtration Catalytic Corporate
Reduction Expenses
Systems
--------- --------- --------- -----------
Three months
ending
12/31/99
------------
Revenues $ 6,784,000 $3,574,000 - $ 10,358,000
from
Customers
Segment $ 1,110,000 $ 686,000 ($1,082,000) $ 714,000
profit(loss)
Three months
ending
12/31/98
------------
Revenues $ 9,333,000 $1,599,000 - $ 10,932,000
from
Customers
Segment $ 1,259,000 $ 325,000 ($ 678,000) $ 906,000
profit(loss)
Six months
ending
12/31/99
------------
Revenues $16,199,000 $6,466,000 - $ 22,665,000
from
Customers
Segment $ 2,001,000 $1,328,000 ($2,233,000) $ 1,096,000
profit(loss)
Six months
ending
12/31/98
------------
Revenues $18,318,000 $1,984,000 - $ 20,302,000
from
Customers
Segment $ 2,532,000 $ 272,000 ($1,546,000) $ 1,258,000
profit(loss)
7 of 14
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 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, global and domestic economic
conditions, 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, 1999.
Capital Resources and Liquidity
As a general policy, corporate liquidity is maintained 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 $2,318,000 from June 30, 1999. Company
operations provided $2,853,000 primarily from net earnings of $726,000,
reductions in Account Receivable of $1,795,000 and inventories of
$1,586,000, combined with increased billings in excess of costs of
$1,271,000. These positive cash flows were offset by increases in
costs in excess of billings by $1,301,000, increased other current
assets of $515,000, reductions in accounts payable of $499,000, accrued
liabilities of $508,000, and dividends paid of $364,000.
We continue 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 our balance sheet. In addition to retained earnings, we have
from time to time used two short-term bank credit lines totaling
$7,000,000 to supplement working capital. We currently have no
material commitments for capital expenditures other than with respect
to our established plant and equipment maintenance program.
8 of 14
REVENUE: Revenue decreased 5% from $10,932,000 for the three months
ended December 31, 1998 to $10,358,000 for the three months ended
December 31, 1999. The decrease in revenues was primarily due to lower
revenues from the traditional products of filtration and separation
systems, which was partially offset by improved sales for SCR products.
For the six month period, revenues increased 12% from $20,302,000 for
the six months ended December 31, 1998 to $22,665,000 for the six
months ended December 31, 1999. The year to date sales improvement is
due to strong sales of SCR products.
The backlog of uncompleted orders and letters of intent at December 31,
1999 was approximately $38,700,000 as compared to a December 31, 1998
backlog of approximately $25,000,000. Of the $38,700,000 backlog at
December 31, 1999, approximately 80% is scheduled to be completed in
the current fiscal year.
GROSS PROFIT: Gross profit increased 7% from $3,636,000 for the three
months ended December 31,1998 to $3,900,000 for the three months ended
December 31, 1999. For the six month period ending December 31, 1999,
gross profit increased 14% to $7,495,000 from $6,579,000 for the six
months ending December 31, 1998. The increased gross profit is
primarily attributable to the increased revenue from environmental,
nuclear, and marine products.
OPERATING EXPENSES: Operating expenses increased 17% from $2,730,000
for the three months ended December 31, 1998 to $3,187,000 for the
three months ended December 31,1999. For the six months, operating
expenses increased 20% from $5,321,000 for the six months ending
December 31, 1998 compared to $6,388,000 for the six months ending
December 31, 1999. Higher operating expenses are due to increased
volume of orders, increased implementation cost for an ERP System and
higher warranty expense for the period.
OTHER INCOME/(EXPENSE): We recognized net other expense of
approximately $32,000 for the three months ended December 31, 1999
compared to net other expenses of approximately $61,000 for the three
months ended December 31, 1998. This is primarily due to foreign
exchange losses declining from $66,000 for the three months ending
December 31, 1998 to $14,000 for the three months ended December 31,
1999.
9 of 14
YEAR 2000 COMPLIANCE:
The year 2000 problem is the result of computer programs being written
using two digits rather than four digits to define the applicable year.
Miscalculations or system failures could result from the year 2000
problem. Based on our review of our business since January 1, 2000, we
have not experienced any material effects of the year 2000 problem.
Although we have not been informed of any material risks associated
with the year 2000 problem from third parties, there can be no
assurance that they may not impact our business in the future. We
regularly monitor our business applications and communicate with key
business relations so that we expect we will be able to resolve any
year 2000 problems that may arise in the future. Our current assessment
of risks related to the year 2000 problem is that there will be no
significant adverse impact on our operations or financial performance.
INTERNATIONAL MARKETS:
Demand for the Company's products in Southeast Asia remain slow as a
result of the current financial situation there. However, we are
experiencing an increase in orders of our company's products through
our UK subsidiary, Peerless Europe Ltd.
SCR Products:
Orders for the purchase of SCR environmental protection products have
increased as evidenced by an order in the amount of $11.9 million
placed in December. New SCR opportunities are the result of the new
gas turbine powered electric generating facilities being built to fill
demand for electric power in the U.S. These projects require clean
burning gas which in turn creates the opportunity to sell the Company's
gas cleaning equipment. Coal fired electric power plants are also
adding SCR products to comply with US Government mandated lower NOx
emission levels.
10 of 14
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 5, "Legal Proceedings" for the Fiscal year ended June 30,
1999. For the six months ended December 31, 1999 there were no
material developments or 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) Articles of Incorporation, as amended to date (filed as
Exhibit 3(a) to our Quarterly Report on Form 10-Q, dated
December 31, 1997, and incorporated herein by reference).
3(b) Bylaws, as amended to date (filed as Exhibit 3(b) to our
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 our
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 our 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 our Annual Report on Form 10-K
dated June 30, 1991, and incorporated herein by reference).
11 of 14
10(d) Employment Agreement, dated as of April 29, 1994, by and
between Peerless Mfg. Co. and Sherrill Stone (filed as
Exhibit 10(d) to our 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 Peerless
Mfg. Co. and Sherrill Stone (filed as Exhibit 10(e) to our
Annual Report on Form 10-K dated June 30, 1994 and
incorporated herein by reference).
10(f) * Eighth Amended and Restated Loan Agreement, dated as of
December 12, 1999, between Bank of America N.A., formerly
NationsBank of Texas, N.A., and Peerless Mfg. Co.
10(g) * Second Amended and Restated Loan Agreement, dated as of
December 12, 1999, and Waiver and First Amendment to Second
Amended and Restated Loan Agreement dated December 12, 1999,
by and between Chase Bank of Texas N.A, and Peerless Mfg.
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 on November 21, 1996 (filed as
Exhibit 10(h) to our Annual Report on Form 10-K dated June
30, 1997 and incorporated herein by reference), as amended by
Amendment #1 dated November 11, 1999. (filed as exhibit
10(h) to our Quarterly Report on Form 10-Q, dated September
30, 1999 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 our
Registration Statement on Form 8-A(File No. 0-05214) and
incorporated herein by reference).
10(j) Employment Agreement dated as of July 23, 1999 by and between
Peerless Mfg. Co. and G.D. Cornwell (filed as exhibit 10(j)
to our Quarterly Report on Form 10-Q, dated September 30,
1999 and incorporated herein by reference).
10(k) Agreement dated as of July 23, 1999 by and between Peerless
Mfg. Co. and G.D. Cornwell (filed as exhibit 10(k) to our
Quarterly Report on Form 10-Q, dated September 30, 1999 and
incorporated herein by reference).
12 of 14
21 Our Subsidiaries (filed as Exhibit 21 too our Annual Report
on Form 10-K dated September 30, 1999, and incorporated
herein by reference).
27 Financial Data Schedule.*
*Filed herewith
(b) Reports on Form 8-K. None.
13 of 14
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 14, 2000
/s/ Sherrill Stone /s/ Thomas J. Reeve
____________________________ ___________________________
By: Sherrill Stone By: Thomas J. Reeve
Chairman, President and Chief Financial Officer
Chief Executive Officer
14 of 14