<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 March 31, 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
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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
- -------------------------------------------------------------------------------
(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 May 15, 1998
- ----------------------------- -----------------------------------
Common stock, $1.00 par value 1,457,492 Shares
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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 March 31, 1998 and June 30, 1997. 3-4
Condensed Consolidated Statements of Earnings for the
three and nine months ended March 31, 1998 and 1997. 5
Condensed Consolidated Statements of Cash Flows for
the nine months ended March 31, 1998 and 1997. 6
Notes to the Condensed Consolidated Financial Statement 7 - 8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9 - 12
Part II: Other Information 13
Exhibits 14 - 15
Signatures 16
2 of 15
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<TABLE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, June 30,
-----------------------------
1998 1997
-------------- --------------
<S> (UNAUDITED) (AUDITED)
Assets <C> <C>
Current assets
Cash and cash equivalents $539,506 $772,553
Short term investments 267,844 259,007
Accounts receivable-principally trade-net of allowance for doubtful
accounts of $374,591 at March 31, 1998 and $312,450 at
June 30, 1997 9,803,758 9,671,067
Inventories
Raw materials 1,066,460 1,084,890
Work in process 2,570,726 1,586,213
Finished goods 265,546 322,752
Costs and earnings in excess of billings on uncompleted contracts 313,349 1,871,817
Deferred income taxes 270,096 269,721
Other 197,149 298,605
-------------- --------------
Total current assets 15,294,434 16,136,625
Property, plant and equipment-at Cost, less accumulated depreciation 1,535,888 1,527,856
Property held for investment-at Cost, less accumulated depreciation 841,185 888,383
Other assets 701,176 528,729
-------------- --------------
$18,372,683 $19,081,593
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
3 of 16
</TABLE>
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<TABLE>
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, June 30,
-----------------------------
1998 1997
-------------- --------------
<S> (UNAUDITED) (AUDITED)
Liabilities and Stockholders' Equity <C> <C>
Current liabilities
Notes payable $0 $0
Accounts payable-trade 3,163,387 5,054,532
Billings in excess of costs and earnings on uncompleted contracts 18,858 363,257
Commissions payable 982,265 779,474
Accrued liabilities
Compensation 619,173 656,082
Warranty 390,133 406,903
Other 966,698 291,953
-------------- --------------
Total current liabilities 6,140,514 7,552,201
Deferred income taxes 99,962 99,962
Stockholders' equity
Common stock-authorized 10,000,000 shares of $1 par value; issued
and outstanding, 1,457,492 shares at March 31, 1998 and authorized
4,000,000 shares; issued and outstanding 1,451,992 at June 30, 1997 1,457,492 1,451,992
Additional paid-in capital 2,584,721 2,535,221
Unamortized value of restricted stock grants (61,074) (44,625)
Cumulative foreign currency translation adjustment (86,750) (93,944)
Retained earnings 8,237,818 7,580,786
-------------- --------------
12,132,207 11,429,430
-------------- --------------
$18,372,683 $19,081,593
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
4 of 16
</TABLE>
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<TABLE>
PEERLESS MFG. CO.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------- -----------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue $10,419,822 $14,826,299 $28,667,383 $32,102,952
Cost of goods sold 6,765,114 11,446,432 18,658,985 23,674,424
-------------- -------------- -------------- --------------
Gross profit 3,654,708 3,379,867 10,008,398 8,428,528
Operating expenses
Marketing and engineering 2,208,071 2,705,972 6,411,681 6,958,340
General and administrative 544,386 486,248 1,660,663 1,386,795
-------------- -------------- -------------- --------------
Operating income 902,251 187,647 1,936,054 83,393
Other income(expense)
Interest income 6,158 3,670 21,562 21,264
Interest expense (9,503) (14,936) (24,089) (21,527)
Foreign exchange gains(losses) (6,357) (60,537) (57,341) 117,135
Other, net (9,178) (2,585) (58,131) 9,052
-------------- -------------- -------------- --------------
(18,880) (74,388) (117,999) 125,924
-------------- -------------- -------------- --------------
Earnings from operations
before Federal income tax 883,371 113,259 1,818,055 209,317
Federal income tax
Current 349,747 35,370 699,228 43,195
Deferred (31,582) (82,708) 0
-------------- -------------- -------------- --------------
318,165 35,370 616,520 43,195
-------------- -------------- -------------- --------------
Net earnings 565,206 77,889 1,201,535 166,122
============== ============== ============== ==============
Basic and diluted earnings per share $0.39 $0.05 $0.83 $0.11
============== ============== ============== ==============
Weighted average number of common
shares outstanding 1,455,698 1,455,298 1,453,209 1,454,494
============== ============== ============== ==============
Cash dividend per common share $0.125 $0.125 $0.125 $0.125
============== ============== ============== ==============
<FN>
The accompanying notes are an integral part of these statements.
5 of 16
</TABLE>
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<TABLE>
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended
March 31,
-----------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net earnings $1,201,535 $166,122
Adjustments to reconcile earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 271,151 244,305
Other 15,426 39,988
Changes in operating assets and liabilities
Accounts receivable (132,691) (2,846,228)
Inventories (908,877) (1,327,394)
Cost and earnings in excess of billings
on uncompleted contracts 1,558,468 1,039,066
Other current assets 101,081 (33,992)
Other assets (182,746) 49,126
Accounts payable (1,891,119) 1,380,651
Billings in excess of costs and earnings
on uncompleted contracts (344,399) 64,350
Commissions payable 202,791 377,525
Accrued liabilities 620,503 (554,571)
-------------- --------------
(690,412) (1,567,174)
-------------- --------------
Net cash provided by (used in) operating activities 511,123 (1,401,052)
Cash flows from investing activities:
Net sales (purchases) of short-term investments (8,837) (52,852)
Net sales (purchases) of property and equipment (222,115) (480,741)
-------------- --------------
Net cash provided by (used in) investing activities (230,952) (533,593)
Cash flows from financing activities:
Net change in short-term borrowings 0 1,145,550
Proceeds from issuance of common stock 24,524 0
Dividends paid (544,935) (545,529)
-------------- --------------
Net cash provided by (used in) financing activities (520,412) 600,021
Effect of exchange rate on cash and cash equivalents 7,194 (89,285)
-------------- --------------
Net increase (decrease) in cash and cash equivalents (233,047) (1,423,909)
Cash and cash equivalents at beginning of period 772,553 2,082,329
-------------- --------------
Cash and cash equivalents at end period $539,506 $658,420
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
6 of 16
</TABLE>
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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 and nine months ended
March 31, 1998 and 1997, the Company's financial position at
March 31, 1998 and June 30, 1997, and cash flows for the
nine months ended March 31, 1998 and 1997. 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. 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, 1997 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
March 31, 1998 was approximately $29,000,000 as compared to
a March 31, 1997 backlog of $22,200,000. Of the $29,000,000
backlog at March 31, 1998, approximately 55% 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. The Company had no loans
outstanding under these lines at March 31, 1998, and
$1,145,550 outstanding at March 31, 1997.
7 of 16
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5. The Company consolidates the accounts of its wholly-owned
foreign subsidiaries, Peerless Europe Limited, Peerless
International N.V. and Peerless Europe B.V. All significant
intercompany accounts and transactions have been eliminated
in the consolidation.
8 of 16
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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, 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 decreased by $233,047 from June 30, 1997.
Company operations provided $511,123 and proceeds from issuance
of common stock provided $24,524 for the nine month period ending
March 31, 1998. Uses of cash for the nine months ended March 31,
1998 included expenditures of $230,952 for purchase of fixed
assets and short-term investments and $544,935 for dividend
payments.
As indicated in the preceding paragraph, cash flows from
operating activities provided $511,123 of cash in the nine months
ended March 31, 1998 when compared to uses of $1,401,052 for the
nine months ended March 31, 1997.
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 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 $7,500,000 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 16
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REVENUE: Revenue decreased 30% to $10,420,000 for the three
months ended March 31, 1998 when compared to $14,826,000 for the
three months ended March 31, 1997. For the nine month period,
revenues decreased 11% to $28,667,000 for the nine months ended
March 31, 1998 when compared to $32,103,000 for the nine months
ended March 31, 1997. For both periods, the decreases resulted
primarily from a significant $5,000,000 shipment of environmental
equipment to an international customer in the third quarter
ending March 31, 1997. This decrease was slightly offset by
increased sales volumes to customers for the Company's filtration
and separation products.
GROSS PROFIT: Gross profit increased 8% to $3,655,000 for the
three months ended March 31, 1998 when compared to $3,380,000 for
the three months ended March 31, 1997. The increase in gross
profits is primarily attributable to increased sales recorded for
engineering service projects which carry a greater gross profit
margin than the standard or regular custom engineered and
fabricated products sold by the Company. For the nine month
period, gross profit increased 19% to $10,008,000 for the nine
months ended March 31, 1998 from $8,429,000 for the nine months
ended March 31, 1997.
For the three and nine month period, a change in the mix of
products sold in Fiscal 1998 compared to Fiscal 1997 also
contributed to the increase in gross profits. Sales revenue on
engineering services, nuclear steam dryers and commercial mist
extractors have a lower percentage cost of goods than the
Company's traditional line of pressure vessels, allowing for
increased gross profits as a percentage of revenues. For the
nine months ended March 31, 1998, percentage of revenue generated
from engineering services and sales of nuclear steam dryers and
commercial mist extractors increased as compared to the nine
months ended March 31, 1997.
OPERATING EXPENSES: Operating expenses decreased 14% from
$3,192,000 for the three months ended March 31, 1997 to
$2,752,000 for the three months ended March 31, 1998. Operating
expenses also decreased 3% from $8,345,000 for the nine months
ended March 31, 1997 to $8,072,000 for the nine months ended
March 31, 1998. The declines in both periods reflect the
decrease in commissions and engineering expenses associated with
the $5,000,000 shipment of environmental equipment shipped to an
international customer recorded in the third quarter ended March
31, 1997. General and administrative expenses increased
primarily due to various cost increases associated with increased
profits, and various accruals for profit sharing and compensation
plans.
10 of 16
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OTHER INCOME/(EXPENSE): The Company recognized net other expense
of $19,000 and $118,000 for the three and nine months ending
March 31, 1998 for interest, foreign exchange losses and the
settlement of an employee issue in the nine month period. These
expenses compare favorably to the $74,000 other expense for the
three months ended March 31, 1997 and unfavorably to the $126,000
other income for the nine months ended March 31, 1997. Foreign
exchange loss of $6,000 for the three month period ending March
31, 1998 compare favorably to the foreign exchange loss of
$61,000 for the three month period ending March 31, 1997. For
the nine month period, foreign exchange losses of $57,000 compare
unfavorably to the foreign exchange gain of $117,000 for the nine
month period ending March 31, 1997.
YEAR 2000 ISSUE: The Company embarked on a program of upgrading
its current computer system in 1996 and the Year 2000 Issue was
addressed.
The Company has reviewed and continues to monitor its exposure to
the SEC's Staff Legal Bulletin No. 5 regarding the Year 2000
Issue. The Company believes that the cost of addressing the Year
2000 Issue will not be material or create uncertainty that would
cause reported financial information not to be necessarily
indicative of future operating results or financial condition.
Further, the Company believes that any cost or any consequences
of incomplete or untimely resolution of any Year 2000 Issues will
not represent a known material event or uncertainty that is
reasonably expected to affect the Company's future financial
results, or cause the Company's reported financial information
not to be necessarily indicative of future operating results or
future financial condition.
SOUTHEAST ASIA: The Company does not anticipate any material
affect on the demand for its products in Southeast Asia as a
result of the current financial crisis there. Oil and gas
products in the area contribute hard currency and currently
continue to be scheduled. Secondary projects financed in local
currencies are expected to experience some delays. The Company
is hopeful that demand for its products in Mexico and South
America may offset the potential for reduced opportunities in
Southeast Asia. However, there can be no assurances that the
Company's results of operations will not be materially and
adversely affected by the Asian financial situation.
11 of 16
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RESTRUCTURING: At the Annual Shareholders Meeting conducted
November 20, 1997, Mr. Stone, Chairman and Chief Executive
Officer of the Company, announced its organizational
restructuring and reorganization of its two separation and
filtration units into one combined group. The restructuring and
reorganization was designed to lower costs of goods and improve
on time delivery of product. The restructuring is complete and
the Company continues to audit the results of this process.
12 of 16
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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 March 31,
1998 there were no new proceedings filed against the Company.
Item 6 -- Exhibits and Reports -- Form 8-K
- ------------------------------------------
There were no reports on Form 8-K for the three months ended
March 31, 1998.
13 of 16
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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(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).
14 of 16
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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,
1993, and incorporated herein by reference).
27 Financial Data Schedule.*
*Filed herewith
15 of 16
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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: May 15, 1998
/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
16 of 16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 539,506
<SECURITIES> 267,844
<RECEIVABLES> 10,178,349
<ALLOWANCES> 374,591
<INVENTORY> 3,902,732
<CURRENT-ASSETS> 15,294,434
<PP&E> 8,207,716
<DEPRECIATION> 5,830,643
<TOTAL-ASSETS> 18,372,683
<CURRENT-LIABILITIES> 6,140,514
<BONDS> 0
0
0
<COMMON> 1,457,492
<OTHER-SE> 10,674,715
<TOTAL-LIABILITY-AND-EQUITY> 18,372,683
<SALES> 28,667,383
<TOTAL-REVENUES> 28,667,383
<CGS> 18,658,985
<TOTAL-COSTS> 18,658,985
<OTHER-EXPENSES> 6,411,681
<LOSS-PROVISION> 41,718
<INTEREST-EXPENSE> 24,089
<INCOME-PRETAX> 1,818,055
<INCOME-TAX> 616,520
<INCOME-CONTINUING> 1,201,535
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,201,535
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0
</TABLE>
