<PAGE>
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 September 30, 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 __________
- - --------------------------------------------------------------------------------
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
- - --------------------------------------------------------------------------------
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 14, 1997
- - ----------------------------- --------------------------------------------
Common stock, $1.00 par value 1,451,992 Shares
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PEERLESS MFG. CO.
INDEX
Page
Number
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Part I: Financial Information
Condensed Consolidated Balance Sheets for the
periods ended September 30, 1997 and June 30, 1997. 3 - 4
Condensed Consolidated Statements of Earnings for
for the three months ended September 30, 1997 and 1996. 5
Condensed Consolidated Statement of Cash Flows for
the three months ended September 30, 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
Exhibits 13 - 14
Signatures 15
2 of 15
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
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PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
-------------- --------------
1997 1997
<S> -------------- --------------
Assets (UNAUDITED) (AUDITED)
Current assets <C> <C>
Cash and cash equivalents $1,145,581 $772,553
Short term investments 260,744 259,007
Accounts receivable-principally trade-net of allowance for
doubtful accounts of $337,574 at September 30, 1997 and
$312,450 at June 30, 1997 5,602,524 9,671,067
Inventories
Raw materials 1,026,393 1,084,890
Work in process 3,314,252 1,586,213
Finished goods 226,046 322,752
Costs and earnings in excess of billings on uncompleted contracts 1,281,964 1,871,817
Deferred income taxes 267,180 269,721
Other 228,249 298,605
-------------- --------------
Total current assets 13,352,933 16,136,625
Property, plant and equipment-at Cost, less accumulated depreciation 1,528,194 1,527,856
Property held for investment-at Cost, less accumulated depreciation 872,655 888,383
Other assets 513,120 528,729
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$16,266,902 $19,081,593
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
3 of 15
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PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
-------------- --------------
1997 1997
<S> -------------- --------------
Liabilities and Stockholders' Equity (UNAUDITED) (AUDITED)
Current liabilities <C> <C>
Notes payable $0 $0
Accounts payable-trade 2,980,350 5,054,532
Billings in excess of costs and earnings on uncompleted contracts 114,744 363,257
Commissions payable 682,844 779,474
Accrued liabilities
Compensation 526,756 656,082
Warranty 294,478 406,903
Other 297,151 291,953
-------------- --------------
Total current liabilities 4,896,323 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 September 30,
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 (40,782) (44,625)
Cumulative foreign currency translation adjustment (76,471) (93,944)
Retained earnings 7,400,657 7,580,786
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11,270,617 11,429,430
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$16,266,902 $19,081,593
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
4 of 15
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PEERLESS MFG. CO.
CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
Three Months Ended
September 30,
-----------------------------
1997 1996
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<S> <C> <C>
Net sales $7,205,789 $7,515,449
Cost of goods sold 4,615,604 5,451,337
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Gross profit 2,590,185 2,064,112
Operating expenses
Marketing and engineering 2,065,740 2,041,188
General and administrative 445,732 396,257
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Operating income 78,713 (373,333)
Other income(expense)
Interest income 8,533 11,996
Interest expense (2,796) 0
Foreign exchange gains(losses) (29,082) 9,317
Other, net 10,975 13,926
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(12,370) 35,239
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Earnings from operations
before Federal income tax 66,343 (338,094)
Federal income tax
Current 66,094 (56,974)
Deferred 0 0
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66,094 (56,974)
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Net earnings 249 (281,120)
============== ==============
Net earnings per common share $0.00 ($0.19)
============== ==============
Weighted average number of common
shares outstanding 1,451,992 1,453,459
============== ==============
Cash dividend per common share $0.125 $0.125
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
5 of 15
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PEERLESS MFG. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months ended
September 30,
-----------------------------
1997 1996
<S> -------------- --------------
Cash flows from operating activities: <C> <C>
Net earnings $249 ($281,120)
Adjustments to reconcile earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 98,584 78,130
Other 3,843 9,462
Changes in operating assets and liabilities
Accounts receivable 4,068,543 1,146,023
Inventories (1,572,836) (1,382,325)
Cost and profit in excess of billings
on uncompleted contracts 589,853 1,403,199
Other current assets 72,897 93,180
Other assets 11,943 72,924
Accounts payable (2,074,182) (785,830)
Billings in excess of costs and earnings
on uncompleted contracts (248,513) 0
Commissions payable (96,630) (115,035)
Accrued liabilities (235,432) (557,489)
-------------- --------------
618,070 (37,761)
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Net cash provided by (used in) operating activities 618,319 (318,881)
Cash flows from investing activities
Net sales (purchases) of short-term investments (1,737)
Purchases of property and equipment (89,724) (90,193)
Proceeds from sale of property and equipment 10,196 0
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Net cash provided by (used in) investing activities (81,265) (90,193)
Cash flows from financing activities
Net change in short-term borrowings 0
Dividends paid (181,499) (181,843)
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Net cash used in financing activities (181,499) (181,843)
Effect of exchange rate on cash and cash equivalents 17,473 (10,518)
-------------- --------------
Net increase (decrease) in cash and cash equivalents 373,028 (601,435)
Cash and cash equivalents at beginning of period 772,553 2,082,329
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Cash and cash equivalents at end period $1,145,581 $1,480,894
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
6 of 15
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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 months ended September
30, 1997 and 1996, the Company's financial position at
September 30, 1997 and June 30, 1997, and cash flows for the
three months ended September 30, 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. Therfore, these
financial statements should be read in conjuction with the
Company's 1997 Form 10-K 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
September 30 1997 was approximately $23,100,000 as compared
to a September 30, 1996 backlog of $26,300,000. Of the
$23,100,000 backlog at September 30, 1997, approximately 96%
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 September 30, 1997 and 1996,
the Company had no loans outstanding.
7 of 15
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5. The Company consolidates the accounts of its wholly-owned
foreign subsidiary, Peerless Europe Limited, it's wholly-
owned foreign subsidiary, Peerless International N.V. and
its wholly-owned foreign subsidiary, Peerless Europe B.V.
All significant intercompany accounts and transactions have
been eliminated in the consolidation.
6. The FASB has issued Statement of Financial Accounting
Standards No. 128 Earnings Per Share, which is effective for
financial statements issued after December 15, 1997. Early
adoption of the new standard is not permitted. The adoption
of this new standard is not expected to have a material
impact on the disclosure of earnings per share in the
financial statements.
8 of 15
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Item 2. Management's discussion and analysis of financial
- - ------- -------------------------------------------------
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
- - -------------------------------
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 $373,028 from June 30, 1997.
Company operations provided $618,319 of cash during the three
months ended September 30, 1997. Uses of cash for the three
months ended September 30, 1997 included expenditures of $89,724
for fixed asset acquisitions and $181,499 for dividend payments.
As indicated, operations provided $618,319 of cash in the three
months ended September 30, 1997. Funds provided by operations
were primarily from decreases in accounts receivable of
$4,068,543, cost and profit in excess of billings on uncompleted
contracts of $589,853 and other assets, both current and non
current, of $84,840. These sources of cash were offset by
inventories of $1,572,836, accounts payable of $2,074,182,
billings in excess of cost and earnings on uncompleted contracts
of $248,513, commissions payable of $96,630 and accrued
liabilities of $235,432.
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 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.
9 of 15
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Changes - First Quarter of Fiscal 1998 vs. First Quarter 1997
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Results of 1st Qtr.
Operations 1998 vs.1997
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Sales $309,660 Decrease
4.1%
Sales for the three months ended September 30, 1997 compare
unfavorably to sales for the three months ended September 30,
1996 by $309,660, or approximately 4%. The sales decrease is
mainly attributable to customer imposed delays on completion
and shipping of certain of the Company's separation products,
packaged filtration and SCR units.
- - ----------------------------------------------------------------------
Gross Profit $526,073 Increase
25.5%
Gross profit for the three months ended September 30, 1997
compare favorably to gross profit for the three months ended
September 30, 1996. Traditional products in the nuclear
moisture separation and the oil and gas sectors were produced
with higher margins than in the prior three month period ending
September 30, 1996.
- - ----------------------------------------------------------------------
Operating Expenses $74,027 Increase
3.0%
Operating expenses for the three months ended September 30, 1997
increased $74,027, or approximately 3% from the three months
ended September 30, 1996. This increase is primarily
attributable to increased sales, general and administrative, and
research and development expenses offset by reductions in
commissions and engineering expenses.
10 of 15
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1st Qtr.
1998 vs.1997
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Other Income(Expense) $47,609 Decrease
The decrease in other income (expenses) is largely reflective of
a $28,000 foreign exchange loss in the first three months ended
September 30, 1997 vs a $9,000 foreign exchange gain in the first
three months ended September 30, 1996.
- - ----------------------------------------------------------------------
Net Earnings (Loss) $281,369 Decrease
The increase in net earnings for the three months ended September
30, 1997 reflect favorable cost advantages in cost of goods sold
which increase gross margins for the current period when compared
to the equivalent period in the preceding fiscal year.
11 of 15
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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 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 9 -- Exhibits and Reports -- Form 8-K
There were no reports on Form 8-K for the three months ended
September 30, 1997.
12 of 15
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EXHIBITS:
3(a) The Company's Articles of Incorporation, as amended to
date (filed as Exhibit 1 to the Company's Registration
Statement on Form S-1, Registration No. 2-35767, and
amended by the Company's December 12, 1990 Form 8
amending Exhibit 3(a) to the Company's Annual Report on
Form 10-K dated June 30, 1990, 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(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).
13 of 15
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10(f) Fifth Amended and Restated Loan Agreement, dated as of
February 3, 1997, between NationsBank of Texas, N.A.
and the Company (filed as Exhibit 10(f) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997 and incorporated herein by
reference).
10(g) Loan Agreement, dated as of March 7, 1997, 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 for the quarter ended
March 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 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
14 of 15
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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 14, 1997
/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
15 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 1,145,581
<SECURITIES> 260,744
<RECEIVABLES> 5,940,098
<ALLOWANCES> 337,574
<INVENTORY> 4,566,691
<CURRENT-ASSETS> 13,352,933
<PP&E> 8,060,712
<DEPRECIATION> 5,659,863
<TOTAL-ASSETS> 16,266,902
<CURRENT-LIABILITIES> 4,896,323
<BONDS> 0
0
0
<COMMON> 1,451,992
<OTHER-SE> 9,818,625
<TOTAL-LIABILITY-AND-EQUITY> 16,266,902
<SALES> 7,205,789
<TOTAL-REVENUES> 7,205,789
<CGS> 4,615,604
<TOTAL-COSTS> 4,615,604
<OTHER-EXPENSES> 2,065,740
<LOSS-PROVISION> 9,999
<INTEREST-EXPENSE> 2,796
<INCOME-PRETAX> 66,343
<INCOME-TAX> 66,094
<INCOME-CONTINUING> 249
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 249
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
