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, 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 November 12, 1999
Common stock, $1.00 par value 1,456,492 Shares
PEERLESS MFG. CO.
INDEX
Page
Number
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Part I: Financial Information
Item 1: Consolidated Financial Statements
Condensed Consolidated Balance Sheets for the
periods ended September 30, 1999 and June 30, 1999. 3
Condensed Consolidated Statements of Earnings for
for the three months ended September 30, 1999 and 1998. 4
Condensed Consolidated Statements of Cash Flows for
the three months ended September 30, 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
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
1999 1999
---------- ----------
Assets: (UNAUDITED) (AUDITED)
Current assets:
Cash and cash equivalents $ 429,551 $ 210,866
Short term investments 273,343 273,343
Accounts receivable-principally trade-net
of allowance for doubtful accounts of
$714,387 at September 30, 1999 and
$685,330 at June 30, 1999 13,145,145 12,195,037
Inventories:
Raw materials 769,975 961,450
Work in process 1,441,236 2,522,182
Finished goods 734,635 247,338
Costs and earnings in excess of billings
on uncompleted contracts 3,596,932 3,268,181
Other 1,663,645 777,635
---------- ----------
Total current assets 22,054,462 20,456,032
Property, plant and equipment-at Cost,
less accumulated depreciation 2,028,285 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 868,548 791,681
---------- ----------
$25,079,808 $23,478,772
========== ==========
Liabilities and Stockholders' Equity:
Current liabilities:
Notes payable $ 600,000 $ 0
Accounts payable-trade 6,673,422 5,626,058
Billings in excess of costs and
earnings on uncompleted contracts 508,263 572,970
Commissions payable 1,428,801 1,204,584
Accrued liabilities:
Compensation 814,508 1,188,165
Warranty 190,808 313,773
Deferred income taxes 42,736 42,736
Other 381,044 38,669
---------- ----------
Total current liabilities 10,639,582 8,986,955
Stockholders' equity:
Common stock-authorized 10,000,000 shares
of $1 par value; issued and outstanding,
1,456,492 shares at September 30, 1999
and 1,452,492 shares at June 30, 1999 1,456,492 1,452,492
Additional paid-in capital 2,573,295 2,539,951
Unamortized value of restricted stock grants (3,171) (4,719)
Accumulated other comprehensive income(loss) (117,272) (103,824)
Retained earnings 10,530,882 10,607,917
---------- ----------
14,440,226 14,491,817
---------- ----------
$25,079,808 $23,478,772
========== ==========
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
September 30,
---------------------------
1999 1998
---------- ---------
Revenues $12,307,071 $9,369,690
Cost of goods sold 8,664,242 6,426,571
---------- ---------
Gross profit 3,642,829 2,943,119
Operating expenses 3,260,580 2,591,155
---------- ---------
Operating income 382,249 351,964
Other income(expense)
Interest income 1,577 6,994
Interest expense (8,940) (17,944)
Foreign exchange gains(losses) 77,475 (27,504)
Other, net (6,845) (2,185)
---------- ---------
63,267 (40,639)
---------- ---------
Earnings from operations
before Federal income tax 445,516 311,325
Federal income tax
Current 159,668 104,704
Deferred (741) 6,868
---------- ---------
158,927 111,572
---------- ---------
Net earnings 286,589 199,753
========== =========
Basic and diluted earnings per share $0.20 $0.14
Basic weighted average shares 1,452,796 1,457,492
Dilutive options 8,689 2,981
---------- ---------
Adjusted weighted average shares 1,461,485 1,460,473
========== =========
Cash dividend per common share $0.125 $0.125
========== =========
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 three months ended
September 30,
1999 1998
--------- ---------
Cash flows from operating activities:
Net earnings $ 286,589 $ 199,753
Adjustments to reconcile earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 99,460 94,707
Other 1,548 (5,281)
Changes in operating assets and liabilities
Accounts receivable (950,108) 3,861,477
Inventories 785,124 40,909
Cost and earnings in excess of billings
on uncompleted contracts (328,751) (177,316)
Other current assets (886,010) 5,051
Other assets (84,074) (87,979)
Accounts payable 1,047,364 (2,227,528)
Billings in excess of costs and earnings
on uncompleted contracts (64,707) 101,254
Commissions payable 224,217 (106,476)
Accrued liabilities (336,309) (807,431)
--------- ---------
(492,246) 691,387
--------- ---------
Net cash provided by (used in) operating activities (205,657) 891,140
Cash flows from investing activities:
Net purchases of property and equipment (18,683) (22,619)
Cash flows from financing activities:
Net change in short-term borrowings 600,000 (200,000)
Sales of common stock 37,344 0
Dividends paid (181,562) (182,187)
--------- ---------
Net cash provided by (used in) financing activities 455,782 (382,187)
Effect of exchange rate on cash and cash equivalents (12,757) 27,639
--------- ---------
Net increase in cash and cash equivalents 218,685 513,973
Cash and cash equivalents at beginning of period 210,866 428,482
--------- ---------
Cash and cash equivalents at end period $ 429,551 $ 942,455
========= =========
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
without audit. In our opinion, the financial statements reflect
all adjustments necessary to present fairly the results of
operations for the three months ended September 30, 1999 and 1998,
the Company's financial position at September 30, 1999, and June
30, 1999, and cash flows for the three months ended September 30,
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 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. 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. We generally recognize 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.
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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 September 30, 1999, we had $600,000 outstanding against these
lines of credit. Nothing was outstanding at June 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 Catalytic Unallocated Consolidated
Filtration Reduction Corporate
Systems Expenses
---------- --------- ----------- ------------
First Quarter
2000
-------------
Revenues from
Customers $9,415,000 $2,892,000 - $12,307,000
Segment
profit(loss) $891,000 $642,000 ($1,151,000) $382,000
First Quarter
1999
-------------
Revenues from
Customers $8,985,000 $385,000 - $9,370,000
Segment
profit(loss) $1,273,000 ($53,000) ($868,000) $352,000
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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, 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 $219,000 from June 30, 1999. Net
earnings of $287,000, increases in short term borrowings of $600,000,
increases in accounts payable of $1,047,000 and commissions payable of
$224,000, and decreases in inventory of $785,000 increased cash flow
for the period. These positive cash flows were offset by increases in
accounts receivable of $950,000; increases in other assets of $970,000
consisting primarily of advances to subcontractors; decreases in
accrued liabilities of $336,000 and dividends paid of $182,000.
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.
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REVENUE: Revenue increased 31% from $9,370,000 for the three months
ended September 30, 1998 to $12,307,000 for the three months ended
September 30, 1999. The increase in revenue was attributed primarily
to the increased sales of Catalytic Reduction Systems which increased
from $385,000 in the first quarter of Fiscal year 1999 to $2,892,000 in
the first quarter of Fiscal year 2000.
The backlog of uncompleted orders and letters of intent at September
30, 1999 was approximately $25,400,000 as compared to a September 30,
1998 backlog of $21,300,000. Of the $25,400,000 backlog at September
30, 1999, approximately 80% is scheduled to be completed in the current
fiscal year.
GROSS PROFIT: Gross profit increased 24% from $2,943,000 for the three
months ended September 30,1998 to $3,643,000 for the three months ended
September 30, 1999. The increased gross profit is primarily
attributable to the greater revenue from SCR product sales for the
three months ended September 30,1999. Gross profit as a percent of
revenue decreased from 31.4% for the first quarter of Fiscal year 1999
to 29.6% for the first quarter of Fiscal year 2000. The gross profit
percentage declined because a subcontractor for two major contracts
filed bankruptcy and increased our costs to complete the contracts.
OPERATING EXPENSES: Operating expenses increased 26% from $2,591,000
for the three months ended September 30, 1998 to $3,261,000 for the
three months ended September 30,1999. The increase in operating
expenses is due primarily to the increased volume of contracts
processed. Operating expenses decreased as a percent of revenue from
27.6% for the first quarter of Fiscal year 1999 to 26.5% for the first
quarter of Fiscal year 2000.
OTHER INCOME/(EXPENSE): We recognized net other income of
approximately $63,000 for the three months ended September 30, 1999
compared to net other expenses of approximately $40,000 for the three
months ended September 30, 1998. Foreign exchange gains of
approximately $105,000 were the primary contributor to other income.
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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, we are in the process of addressing the Year 2000
Compliance issue. We began converting our information systems in 1996
through the purchase of a new information system that is already Year
2000 compliant. We have incurred and expended approximately $150,000
through September 30, 1999 for remediation costs associated with our
Year 2000 compliance activities to date and we expect to incur and
expense an additional $20,000 in the future to remediate our
information systems and to write off unamortized costs for systems
replaced. In addition to these remediation costs expended, we have
also capitalized approximately $340,000 of capital expenditures through
September 30, 1999 for the replacement and upgrading of purchased
software and hardware for our existing systems. Our new system was
implemented during the quarter ending March 31, 1999, and was
successfully tested. Time sensitive schedules, purchase orders and
invoices were successfully generated.
We purchase computer hardware and software products from third parties
for incorporation into our 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 our systems
and operations rely will be timely converted or that the failure of
these systems would not have an adverse effect on our systems. We have
advised our customers inquiring about this issue to contact our vendors
for Year 2000 information. We are 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 we currently use.
We believe that all Year 2000 remediation efforts for our business will
be completed on time and within budget estimates. Should any critical
service providers, suppliers or customers be unable to achieve timely
compliance, there may be an adverse impact on our operations. Our
current assessment of risks, based on the most reasonable worst case
scenario, is that there will be no significant adverse impact on our
operations or financial performance. We believe that if any disruption
to operations does occur, it will be isolated and/or short-term in
duration.
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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 Southeast
Asia.
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.
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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 three months ended September 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).
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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) 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 Peerless Mfg. Co. (filed as
Exhibit 10(f) to our 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 Peerless
Mfg. Co. (Filed as Exhibit 10(g) to our 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 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 No. 1 dated November 11, 1999.*
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.*
10(k) Agreement dated as of July 23, 1999 by and between Peerless
Mfg. Co. and G.D. Cornwell.*
21 Our Subsidiaries (filed as Exhibit 21 too our Annual Report
on Form 10-K dated June 30, 1999, and incorporated herein by
reference).
27 Financial Data Schedule.*
*Filed herewith
(b) Reports on form 8-K. None.
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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: November 12, 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
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