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 March 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 xx 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, 1999
Common stock, $1.00 par value 1,452,492 Shares
PEERLESS MFG. CO.
INDEX
Page
Number
------
Part I: Financial Information
Item 1: Consolidated Financial Statements
Condensed Consolidated Balance Sheets for the
periods ended March 31, 1999 and June 30, 1998. 3
Condensed Consolidated Statements of Earnings for the
three and nine months ended March 31, 1999 and 1998. 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended March 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
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1999 1998
---------- ----------
Assets: (UNAUDITED) (AUDITED)
Current assets:
Cash and cash equivalents $ 607,543 $ 428,482
Short term investments 268,065 268,065
Accounts receivable-principally trade-net of
allowance for doubtful accounts of $774,688 at
March 31, 1999 and $806,200 at June 30, 1998 10,860,474 14,241,036
Inventories:
Raw materials 535,342 973,906
Work in process 1,278,201 1,114,524
Finished goods 720,484 331,415
Costs and earnings in excess of billings
on uncompleted contracts 3,337,479 1,838,641
Deferred income taxes 405,227 433,596
Other 299,773 165,631
---------- ----------
Total current assets 18,312,588 19,795,296
Property, plant and equipment-at Cost,
less accumulated depreciation 1,474,424 1,506,465
Property held for investment-at Cost,
less accumulated depreciation 802,274 830,840
Other assets 664,644 623,620
---------- ----------
$21,253,930 $22,756,221
========== ==========
Liabilities and Stockholders' Equity:
Current liabilities:
Notes payable $ 0 $ 200,000
Accounts payable-trade 3,808,084 5,566,068
Billings in excess of costs and earnings
on uncompleted contracts 139,982 49,977
Commissions payable 1,294,933 1,205,391
Accrued liabilities:
Compensation 1,041,931 1,499,443
Warranty 624,182 434,588
Other 446,916 366,408
---------- ----------
Total current liabilities 7,356,028 9,321,875
Deferred income taxes 40,749 38,543
Stockholders' equity:
Common stock-authorized 10,000,000 shares
of $1 par value; issued and outstanding,
1,452,492 shares 1,452,492 1,457,492
Additional paid-in capital 2,539,951 2,583,701
Unamortized value of restricted stock grants (10,698) (51,385)
Cumulative foreign currency translation
adjustment (89,644) (79,849)
Retained earnings 9,965,052 9,485,844
---------- ----------
13,857,153 13,395,803
---------- ----------
$21,253,930 $22,756,221
========== ==========
The accompanying notes are an integral part of these statements.
3 of 15
PEERLESS MFG. CO.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
--------- ---------- ---------- ----------
Revenues $9,741,644 $10,419,822 $30,043,169 $28,667,383
Cost of goods sold 6,226,860 6,765,114 19,949,123 18,658,985
--------- ---------- ---------- ----------
Gross profit 3,514,784 3,654,708 10,094,046 10,008,398
Operating expenses 2,670,421 2,752,457 7,991,510 8,072,344
--------- ---------- ---------- ----------
Operating income 844,363 902,251 2,102,536 1,936,054
Other income(expense)
Interest income 16,840 6,158 40,513 21,562
Interest expense 0 (9,503) (18,898) (24,089)
Foreign exchange
gains (losses) (25,808) (6,357) (119,163) (57,341)
Other, net (59,802) (9,178) (72,607) (58,131)
--------- ---------- ---------- ----------
(68,770) (18,880) (170,155) (117,999)
--------- ---------- ---------- ----------
Earnings from operations
before Federal income tax 775,593 883,371 1,932,381 1,818,055
Federal income tax
Current 261,746 349,747 698,058 699,228
Deferred 18,713 (31,582) 27,618 (82,708)
--------- ---------- ---------- ----------
280,459 318,165 725,676 616,520
--------- ---------- ---------- ----------
Net earnings 495,134 565,206 1,206,705 1,201,535
========= ========= ========= =========
Basic and diluted earnings
per share $ 0.34 $ 0.39 $ 0.83 $ 0.83
========= ========= ========= =========
Basic weighted average shares 1,454,048 1,455,698 1,456,361 1,453,209
Dilutive options 563 1,404 3,084 2,702
--------- ---------- ---------- ----------
Adjusted weighted average
shares 1,454,611 1,457,102 1,459,445 1,455,911
========= ========= ========= =========
Cash dividend per common
share $ 0.125 $ 0.125 $ 0.375 $ 0.375
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
4 of 15
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended
March 31,
1999 1998
--------- ---------
Cash flows from operating activities
Net earnings $1,206,705 $1,201,535
Adjustments to reconcile earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 251,740 271,151
Other (19,323) 15,426
Changes in operating assets and liabilities
Accounts receivable 3,380,562 (132,691)
Inventories (114,182) (908,877)
Cost and earnings in excess of billings
on uncompleted contracts (1,498,838) 1,558,468
Other current assets (105,773) 101,081
Other assets (41,030) (182,746)
Accounts payable (1,757,246) (1,891,119)
Billings in excess of costs and earnings
on uncompleted contracts 90,005 (344,399)
Commissions payable 89,543 202,791
Accrued liabilities (366,767) 620,503
--------- ---------
(91,309) (690,412)
--------- ---------
Net cash provided by (used in) operating activities 1,115,396 511,123
Cash flows from investing activities:
Net sales (purchases) of short-term investments 0 (8,837)
Net sales (purchases) of property and equipment (180,605) (222,115)
--------- ---------
Net cash provided by (used in) investing activities (180,605) (230,952)
Cash flows from financing activities:
Net change in short-term borrowings (200,000) 0
Proceeds from issuance of common stock 0 24,523
Dividends paid (545,935) (544,935)
--------- ---------
Net cash provided by (used in) financing activities (745,935) (520,412)
Effect of exchange rate on cash and cash equivalents (9,795) 7,194
--------- ---------
Net increase (decrease) in cash and cash equivalents 179,061 (233,047)
Cash and cash equivalents at beginning of period 428,482 772,553
--------- ---------
Cash and cash equivalents at end period $ 607,543 $ 539,506
========= =========
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 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 nine months ended
March 31, 1999 and 1998, the Company's financial position at
March 31, 1999, and June 30, 1998, and cash flows for the
nine months ended March 31, 1999 and 1998. 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
this 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, 1998 and the consolidated financial statements and
notes thereto included in the Company's June 30, 1998,
audited financial statements.
2. The results for 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 long-term
contracts.
3. The backlog of uncompleted orders and letters of intent at
March 31, 1999 was approximately $25,500,000 as compared to
a March 31, 1998 backlog of $29,000,000. Of the $25,500,000
backlog at March 31, 1999, approximately 50% is scheduled to
be completed in the current fiscal year.
6 of 14
4. The Company has 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 the Company is required to pay 1/4 of 1% per
annum on the unused portion of the facility. In addition,
Chase Bank of Texas provided the Company a LIBOR rate
option. As of March 31, 1999 and 1998, the Company had
nothing outstanding against these lines of credit.
5. 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.
7 of 14
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, 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,
1998.
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 increased $179,061 from June 30, 1998. Net
earnings of $1,206,705 and accounts receivable collections were
$3,380,562. These positive cash flows were offset by reductions
in cost and earnings in excess of billings on uncompleted
contracts of $1,498,838, decreases in accounts payable of
$1,757,246, capital expenditures of $180,605, dividend payments
of $545,935 and repayment of short term borrowing of $200,000.
The Company 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 $7,000,000 to supplement working capital. The
Company currently has no material commitments for capital
expenditures other than with respect to its established plant
and equipment maintenance program.
8 of 14
REVENUE: Revenue decreased 6.5% to $9,741,644 for the three
months ended March 31, 1999, from $10,419,822 for the three
months ended March 31, 1998. For the nine month period ended
March 31, 1999, revenues increased 5% to $30,043,169, from
$28,667,383 for the nine months ended March 31, 1998. Sales
volumes continued to be firm for SCR products, filtration and
separation products, nuclear steam dryers, commercial mist
extractors, and other marine products, partially offset by
reduced sales of pressure vessels for the three and nine months
ended March 31, 1999 compared to the three and nine months ended
March 31, 1998.
GROSS PROFIT: Gross profit at $3,514,784 for the three months
ended March 31, 1999 was down 3.8% on lower volume compared to
the $3,654,708 earned for the three months ended March 31, 1998.
Gross profit increased approximately 1% to $10,094,046 for the
nine months ended March 31, 1999 from $10,008,398 for the nine
months ended March 31, 1998. The $85,648 increase in gross
profit is attributable to increased sales revenue.
OPERATING EXPENSES: Operating expenses decreased by 3% (as
the result of reduced compensation based on lower income) to
$2,670,421 for the three months ended March 31, 1999 from
$2,752,457 for the three months ended March 31, 1998. For
the nine month period, operating expenses remained stable at
$7,991,510 for the nine months ended March 31, 1999 from
$8,072,344 for the nine months ended March 31, 1998.
OTHER INCOME/(EXPENSE): The Company recognized net other
expenses of approximately $69,000 and $170,000 for the three and
nine months ended March 31, 1999, for interest, foreign exchange
losses and other expenses. These expenses compare unfavorably
to the $19,000 and $118,000 net other expenses reported for the
three and nine month periods ended March 31, 1998, and are
primarily due to expenses incurred to settle an employee injury
claim.
9 of 14
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 $475,000 to date in
implementing this new system and does not expect to incur any
additional material costs to become year 2000 compliant. The
system was implemented during the quarter ending March 31, 1999,
and was successfully tested. Time sensitive schedules, purchase
orders and invoices were successfully generated.
The Company purchases computer hardware and software products
from third parties for incorporation into the Company's products
and these third-party products may be affected by the Year 2000
problem. There can be no guarantee 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 is in the process of consulting with
such vendors in an effort to ascertain whether they have
addressed the risk of Year 2000 problems in the systems currently
used by the Company.
10 of 14
INTERNATIONAL MARKETS:
Demand for the Company's products in Southeast Asia has declined
as a result of the current financial situation there. However,
recent economic reports indicate business activity is improving
in this area.
The competition from local fabricators and the Company's
traditional competitors in Latin America has intensified during
the recent period of depressed oil prices. The Company is
attempting to address these trends with new technology and by
utilizing less expensive global sources for materials and labor.
Recently oil prices have improved and management anticipates
increased demand for products utilized to process oil.
SCR Products:
Inquiries for the purchase of SCR environmental protection
products have increased. As previously reported, 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.
11 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 6, "Legal Proceedings" for the Fiscal year
ended June 30, 1998. For the three months ended
March 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) 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).
12 of 14
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) Seventh Amended and Restated Loan Agreement, dated as
of December 12, 1998, between Bank of America N.A.,
formerly 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, 1998 and
incorporated herein by reference).
10(g) Amended and Restated Loan Agreement, dated as of
December 12, 1998, by and between Chase Bank of Texas
N.A, and the Company (Filed as Exhibit 10(g) to the
Company's Quarterly Report on Form 10-Q, dated December
21, 1998 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.
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: May 14, 1999
/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
Chief Accounting Officer
14 of 14