<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 75229
DALLAS, TEXAS (Zip Code)
(Address of Principal
Executive Offices)
Registrant's telephone number, including area code: (214) 357-6181
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of Class
COMMON STOCK, $1.00 PAR VALUE
Indicate by 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 such shorter period 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
-----
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference
to the price at which the stock was sold, or the average bid and asked prices
of such stock, as of a specified date within 60 days prior to the date of
filing.
$13,843,910 AT SEPTEMBER 15, 1995
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practical date.
<TABLE>
<S> <C>
Class Outstanding at September 15, 1995
----- ---------------------------------
COMMON STOCK, $1.00 PAR VALUE 1,446,742
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of the Form 10-K
-------- ---------------------
PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD NOVEMBER 16, 1995 PART III
Page 1 of 35 sequentially numbered pages.
Index to Exhibits begins on page 33.
</TABLE>
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C> <C> <C>
PART I
1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4 Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II
5 Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 9
8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . 14
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . 30
PART III
10 Directors and Executive Officers of
the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
12 Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13 Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
PART IV
14 Exhibits, Financial Statement Schedule,
and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS.
Peerless Mfg. Co. (the "Company" or "Registrant") was organized in 1933 as
a proprietorship and was incorporated as a Texas corporation in 1946. The
Company has wholly owned subsidiaries in the Netherlands, the United Kingdom,
the Netherlands Antilles and Barbados.
Products and Operations
The Company is engaged in the business of designing, engineering,
manufacturing and selling highly specialized products, referred to as
"separators" or "filters," which are used for a variety of purposes in cleaning
gases and liquids as they move through a piping system. The Company also
packages these products on skids complete with instruments, controls and
related valves and piping. These products are used, among other applications,
to remove solid and liquid contaminants from natural gas, and salt water
aerosols from the combustion intake air of ship board gas turbine and diesel
engines.
The Company also designs, engineers, manufactures and sells specialized
products referred to as "pulsation dampeners." These products are used
primarily to reduce or eliminate vibrations caused by acoustical pulsations
commonly found in piping connected to the reciprocating compressors generally
used to move gases and air. Pulsation dampeners reduce noise levels, improve
efficiency and prolong the life of piping systems.
The Company's products are also used as components in selective catalytic
reduction systems. Selective catalytic reduction equipment is used to reduce
the level of nitrogen oxide (NOx) emissions caused by burning hydrocarbon fuels
such as gasoline, natural gas and oil. Additionally, the Company sells gas
odorization equipment, quick-opening closures, parts for its products and other
miscellaneous items. It also renders certain engineering services.
While the Company manufactures and stocks a limited number of items of
equipment for immediate delivery, the vast majority of its products are
designed and constructed for specific customer requirements or specifications.
In certain cases, the Company's products and components are designed by the
Company but produced by subcontractors under Company supervision.
The Company markets its products worldwide through manufacturers'
representatives, who sell on a commission basis under the general direction of
an officer of the Company. Additionally, a number of the Company's employees
sell Company products directly to customers. The Company has a sales office in
Singapore with a staff of six engineering and administrative employees. The
Company's United Kingdom subsidiary, Peerless Europe Ltd., began operations in
January of 1992 and currently has a staff of ten full-time employees. The
Company's Netherlands subsidiary has three full-time employees.
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Customers and Export Sales
Gas separators and filters are sold to gas producers and gas gathering,
transmission and distribution companies, and to chemical manufacturers and oil
refineries, either directly or through contractors engaged to build plants and
pipelines. Separators and filters are also sold to manufacturers of
compressors, turbines, and nuclear and conventional steam generating equipment.
Marine separation/filtration systems are sold primarily to ship builders.
Pulsation dampeners are purchased by customers in the same industries as
purchasers of separators and filters (except ship builders and steam generating
equipment manufacturers). Selective catalytic reduction equipment is sold to
gas turbine operators, refineries and others who desire or may be required to
reduce nitrogen oxide (NOx) emissions.
The Company is not dependent upon any single customer or group of
customers. Due to the custom-designed nature of its business and the nature of
the products it sells, the Company's major customers typically vary from year
to year. During fiscal 1993 and 1995 no single customer accounted for 10% or
more of Company revenues. During fiscal 1994, the Company's largest customer,
Mobil Oil Indonesia, accounted for approximately 10.5% of Company revenues. No
other customer accounted for 10% or more of Company revenues during fiscal
1994.
Sales to foreign customers have been a part of the Company's business for
more than forty years. During fiscal 1995, foreign sales amounted to
$17,705,000, or 55.2% of total consolidated revenue. Sales in the Far East
were approximately $7.0 million, or 21.8%, $6.3 million, or 24.6%, and $6.9
million, or 26.6%, of net sales in fiscal 1995, 1994 and 1993, respectively.
Due to the custom-designed and project-specific nature of its products, the
Company's sales to any geographic region may vary from year to year. For a
breakdown of the Company's foreign sales by geographic area during fiscal 1995,
1994 and 1993, see Note I of the Notes to Consolidated Financial Statements.
There are certain risks attendant to the Company's foreign sales. These
include the possibility that foreign purchasers may default in the payment of
amounts due, and that collection of such amounts may be more difficult than for
U.S. customers, that foreign exchange rates may fluctuate adversely, that the
U.S. and foreign governments may impose regulatory burdens upon exports and
imports of the Company's products, and that the Company may be required to
perform its obligations under product warranties, which might result in added
expense due to the requirement that it perform such services in a foreign
country. The Company has not, however, incurred substantial expenses to date
involving these risks.
The Company believes that its credit and collection risks are reduced to a
significant extent because a substantial part of foreign sales are made either
to large, well-established foreign companies or to foreign operations of
domestic companies. When sales are made to smaller foreign enterprises, the
Company generally requires an appropriate guarantee of payment or a letter of
credit from a banking institution. In addition, products sold to foreign
customers are generally priced to provide a higher profit margin, designed in
part to cover the risk of
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potentially greater warranty costs. In order to minimize the risks of
fluctuating currency exchange rates, the Company generally requires payment in
U.S. dollars (or in the functional currency of its foreign subsidiaries) for
its foreign product sales. The Company hedges its exposure, if substantial, to
foreign currency fluctuations on firm commitment sales under contracts that are
not denominated in U.S. dollars.
Backlog
The Company's backlog of unshipped orders at June 30, 1995 was
approximately $15,875,000 compared to approximately $17,100,000 in 1994.
Virtually all of the June 30, 1995 backlog is presently expected to be shipped
in fiscal 1996. Backlog has been calculated under the Company's normal
practice of including unshipped orders for products which are deliverable over
various periods and which may be changed or cancelled in the future.
Competition and Other Market Factors
There are a number of competitors in the manufacture and sale of
separators, filters and pulsation dampeners, some of which are larger than the
Company and have greater financial resources. In addition, several smaller
manufacturers also produce custom-designed equipment that is competitive with
the Company's specialized products and services. The Company believes that
performance, reliability and warranty service are the prime competitive factors
in the markets in which it competes. The Company believes that because of its
reputation in those areas, it is a world leader in sales of custom-built
separators, filters and pulsation dampeners.
The markets for the Company's products are highly competitive worldwide.
In addition, competition may increase as larger and better financed foreign
companies become attracted to the market potential for products manufactured by
the Company.
Patents, Licenses and Product Development
The Company considers itself a world leader in the technology required to
design and apply its high efficiency vapor/liquid separation and filtration
equipment. The Company believes it is also a leader in the design, manufacture
and application of high efficiency pulsation dampeners for reciprocating
compressors, and in the production of selective catalytic reduction component
equipment. The Company's expenditures for new product development and
improvements were approximately $526,000 in fiscal 1995 and $455,000 in fiscal
1994.
The Company has several patents on its products and processes which are
important to its business. However, other companies are marketing competitive
products which may not infringe upon the Company's patents.
Historically the Company's approach to its international markets was
through licensing arrangements with fabricators throughout the world. However,
in 1992 the Company shifted its emphasis from licensing its foreign sales to a
strategy of focusing on direct international marketing through its Singapore
sales branch and its European subsidiaries, Peerless Europe
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B.V. and Peerless Europe Ltd. The decline in royalty revenues, which is
included in net sales, from $455,909 in fiscal 1992 to $184,555, $143,394 and
$272,673 in fiscal 1993, 1994 and 1995, respectively, is the result of the
change in marketing focus. Because of its change to a direct marketing
strategy, the Company believes it is realizing improved sales revenue in place
of the royalty revenues received in previous years.
Employees
At June 30, 1995, the Company and its subsidiaries had approximately 170
employees.
Raw Materials
The Company purchases the raw materials and component parts essential to
its business from established sources with which it has had commercial
relationships for many years. During the fiscal year ended June 30, 1995, the
Company experienced no unusual problems in purchasing required materials and
parts, and the Company believes that raw materials and component parts will be
available in sufficient quantities for it to meet anticipated demand for its
products. However, conditions may occur from time to time which could make it
difficult to obtain desired materials within timely delivery schedules.
Environmental Regulation
The Company does not believe that its compliance with federal, state or
local statutes or regulations relating to the protection of the environment has
had any material effect upon capital expenditures, earnings or the competitive
position of the Company. The manufacturing processes of the Company do not emit
substantial foreign substances into the environment. Regulations related to
nitrous oxide (NOx) emissions have in the past resulted in increased sales of
the Company's component parts for selective catalytic reduction equipment, and
further regulations in that area could increase demand for that equipment.
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Executive Officers of the Company
The executive officers of the Company on September 26, 1995 are listed
below. Each of these officers has been employed by the Company for at least
five years in the same position or a similar capacity, except as noted:
<TABLE>
<CAPTION>
Name and Age Position
- ------------ --------
<S> <C>
Sherrill Stone, 58 Chairman of the Board, President and Chief
Executive Officer (1)
Edward Perry, 57 Vice President (2)
G. D. Cornwell, 51 Vice President (3)
Dayle B. Ellis, 42 Vice President (4)
Kent J. Van Houten, 42 Chief Financial Officer and Secretary -
Treasurer (5)
</TABLE>
____________________
(1) Responsible for formulation of corporate policy, investment and new
business opportunities. Additionally, Mr. Stone is responsible for
marketing, manufacturing and engineering for the Company in general.
Mr. Stone assumed the duties of Chairman of the Board and Chief
Executive Officer of the Company on March 31, 1993.
(2) Responsible for marketing, manufacturing and engineering of filters
and separators associated with pressure applications.
(3) Responsible for marketing, manufacturing and engineering of liquid
vapor separators.
(4) Responsible for marketing, manufacturing and engineering of selective
catalytic reduction equipment.
(5) Mr. Van Houten has been employed by the Company since May 22, 1995.
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ITEM 2. PROPERTIES.
The principal executive offices of the Registrant are located in Dallas,
Texas, on approximately twelve acres of land owned by the Company. These
facilities include two one story buildings, one containing approximately 4,000
square feet of space used for the Company's executive and sales offices, and
the second containing 3,600 square feet used for research and development. The
Company also utilizes 20,000 square feet of a 40,000 square foot building
located on the same site, with the remaining portion leased to other companies.
Rental income from such properties is not material to the Company's results of
operations. The Company owns approximately 21,600 additional square feet of
manufacturing facilities in Denton, Texas, and approximately 29,000 square feet
of manufacturing facilities in Carrollton, Texas. The Company also owns a
79,800 square foot Dallas manufacturing plant which was closed in 1983, and is
now leased to other companies for periods of three years or less.
During fiscal 1995, the estimated average utilization of the Company's
manufacturing facilities was approximately 85% in Denton, Texas, and 85% in
Carrollton, Texas. Because of the availability and use by the Company of
subcontractors, high utilization rates do not necessarily indicate a capacity
problem. The Company believes that its office and manufacturing facilities are
adequate and suitable for its present requirements. While future needs may
require additional manufacturing facilities, space at the Denton, Texas
location is available for expansion. The Company has also determined that a
number of locations in the immediate area could be leased in the event future
needs require such action.
ITEM 3. LEGAL PROCEEDINGS.
From time to time the Company is involved in litigation relating to claims
arising in the ordinary course of business operations. In addition, the
Company has been named as a defendant in two lawsuits alleging damages suffered
by former employees or independent contractors of the Company. In Roy L.
Greeson v. Peerless Mfg. Co., filed June 17, 1994 in the 68th Judicial District
Court, Dallas County, Texas, the plaintiff alleged that while working for a
temporary employment agency, he was assigned to perform work at the Company.
He further asserted that while at the Company he was injured and that the
negligence of the Company caused his personal injuries. The plaintiff seeks
lost earnings, front pay, past and future medical expenses and damages for past
and future pain and suffering. In David Kyle Miller v. Peerless Mfg. Co.,
filed August 25, 1995 in the 167th Judicial District Court, Dallas County,
Texas, the plaintiff, a former employee, alleged that while employed by the
Company he was injured and that these injuries were caused by the negligence
and gross negligence of the Company. The plaintiff seeks damages including
exemplary and/or punitive damages, damages for mental and emotional pain and
anguish, physical impairment, loss of income, medical expenses and conscious
physical pain and suffering. Neither of the lawsuits specify the amount of
damages sought by the plaintiffs. At this early stage of the lawsuits, the
Company is unable to determine the likelihood of the Company's success on the
merits or the potential exposure to the Company. The Company intends to
vigorously defend the cases.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is quoted on the NASDAQ National Market under
the symbol PMFG. The Company's Board of Directors reviews the financial
position of the Company periodically to determine the advisability of paying
dividends. The following table sets forth, for the periods indicated, the
range of the daily high and low closing bid prices for the Company's Common
Stock as reported by NASDAQ and cash dividends paid per share.
<TABLE>
<CAPTION>
Quarter Ended: Closing Bid Prices
------------- ----------------------- Cash Dividends
High Low Per Share
------ ----- ---------
<S> <C> <C> <C>
Fiscal 1994
- -----------
September 30, 1993 $ 9 $ 7-1/2 $.125
December 31, 1993 11-1/2 8-1/2 .125
March 31, 1994 12-1/4 9-3/4 .125
June 30, 1994 10-3/4 9 .125
Fiscal 1995
- -----------
September 30, 1994 $14 $ 9-3/4 $.125
December 31, 1994 16-1/2 11 .125
March 31, 1995 11-3/4 9-1/2 .125
June 30, 1995 12-3/4 9-1/2 .125
</TABLE>
The number of record holders of the Company's Common Stock on August 17,
1995 was 263. The Company estimates that approximately 700 additional
shareholders own shares in broker names.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and other data regarding
the Company's results of operations and financial position. This information
should be read in conjunction with the Company's Consolidated Financial
Statements and related Notes included elsewhere herein.
<TABLE>
<CAPTION>
Year ended June 30
-----------------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $32,089,132 $25,567,560 $25,797,270 $23,058,643 $23,576,179
Gross profit 10,583,128 9,038,606 8,828,398 8,518,020 6,999,734
Earnings from
continuing operations
before income taxes 1,860,468 1,227,959 267,092 1,393,594 846,704
Earnings from
continuing operations
before accounting
change 1,226,246 780,275 155,059 979,549 616,320
Cumulative effect of
initial application of
new accounting
standard for income
taxes --- --- --- --- 233,903
----------- ----------- ----------- ----------- -----------
Net earnings $ 1,226,246 $ 780,275 $ 155,059 $ 979,549 $ 850,223
=========== ========== ========== ========== ==========
Earning per
common share:
Continuing operations $.85 $.54 $.11 $.68 $.43
Cumulative effect of
initial application of
new accounting standard
for income taxes --- --- --- --- .16
----------- ----------- ----------- ----------- -----------
Net earnings $ .85 $ .54 $ .11 $ .68 $ .59
=========== =========== =========== =========== ===========
Total assets $17,156,055 $18,022,466 $14,261,243 $14,669,889 $13,568,322
=========== =========== =========== =========== ===========
Long-term obligations --- --- --- --- ---
Cash dividend per common
share $ .50 $ .50 $ .50 $ .50 $ .50
=========== =========== =========== =========== ===========
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Capital Resources And Liquidity
As a general policy, the Company maintains corporate liquidity at a level
it believes adequate to support existing operations and planned growth, as well
as continue operations during reasonable periods of unanticipated adversity.
Management also intends to direct additional resources to strategic new product
development, market expansion and continuing improvement of existing products
to enhance the Company's position as a market leader and to promote planned
internal growth and profitability.
The Company has historically financed and continues to finance working
capital requirements and any expansion, equipment purchases or acquisitions
primarily through the retention of earnings, which is reflected by the absence
of long-term debt on the Company's consolidated balance sheet. In addition to
retained earnings, the Company has infrequently used a short-term bank credit
line of $5,000,000 to supplement working capital. During fiscal 1994 and early
fiscal 1995 it was necessary for the Company to use its short-term bank credit
line in order to finance a temporary shortfall in working capital. At June 30,
1995, the Company had no amounts outstanding against its credit line. The
Company pays an annual commitment fee of 0.25% of the unused balance under the
credit line. The Company has no material commitments for capital expenditures
other than replacing equipment and maintaining its existing plants and
equipment. During fiscal 1995 the Company purchased fixed assets totaling
$339,199, consisting primarily of replacement manufacturing equipment, computer
hardware and software, office equipment and building improvements. This is
compared to purchases of $116,285 during fiscal 1994.
Working capital increased 6.0% or $512,243 during fiscal 1995 as compared
to an increase of $289,364 in fiscal 1994. The increase in working capital
resulted primarily through increased sales volume in 1995 compared to 1994,
offset slightly by a reduction in gross profit margins associated with
Peerless' European operations and an increase in the Company's operating
expenses. For further discussion concerning the change in operating expenses,
see "Comparison of Fiscal 1995 to Fiscal 1994."
The following table sets forth certain information related to working
capital for the Company's last three fiscal years:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Average working capital as
a percentage of net sales 27.5% 31.0% 32.1%
Annual accounts receivable
turnover(1) 6.0 3.3 4.4
Annual inventory turnover(2) 6.7 4.8 5.6
</TABLE>
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(1) Annual accounts receivable turnover is computed by dividing annual net
sales by the average monthly accounts receivable.
(2) Annual inventory turnover is computed by dividing the cost of goods
sold by the average monthly inventory.
Although year-end working capital increased from fiscal 1994 to fiscal
1995, the average working capital as a percentage of net sales decrease is
related to increased sales volume of approximately $6,500,000 reported in
fiscal 1995 over fiscal 1994. The increase in annual accounts receivable
turnover reflects the continued growth in domestic and foreign sales of the
Company's product lines. Peerless continues to monitor and streamline the
Company's receivable collection procedures to enhance and maximize cash flow.
The increase in average inventory turnover is due primarily to the elimination
of a large foreign project in fiscal 1995 which was in process during the
entire fiscal year of 1994. Half of the products related to this job were
delivered during the fourth quarter of fiscal 1994 with the second half
delivered in the first quarter of fiscal 1995.
Results of Operations
The following table sets forth various measures of performance expressed as
percentages of net sales for the Company's last three fiscal years, as well as
the Company's effective income tax rate for the same periods:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Gross profit margin 33.0% 35.3% 34.2%
Operating expenses 27.5% 31.1% 33.8%
Earnings before income taxes 5.8% 4.8% 1.0%
Effective income tax rate 34.1% 36.5% 41.9%
</TABLE>
Comparison of Fiscal 1995 to Fiscal 1994
Net Sales
The Company's net sales increased approximately $6,500,000, or 25.5%, to
$32,089,000 in fiscal 1995 as compared to $25,568,000 in fiscal 1994. Compared
to fiscal 1994, fiscal 1995 domestic sales increased by 27.6% from $11,268,000
to $14,389,000. Foreign sales increased from $14,300,000 in fiscal 1994 to
$17,700,000 in fiscal 1995, an increase of 23.8%. The increase was primarily
the result of additional sales realized in Western Europe.
The Company's backlog of unfilled orders declined slightly from $17,100,000
at June 30, 1994 to $15,875,000 at June 30, 1995.
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Sales decreased from $4,612,000 in fiscal 1994 to $3,346,000 in fiscal 1995
at the Company's Singapore sales office. The backlog of unfilled orders at
June 30, 1995 includes approximately $425,000 of orders generated through the
Singapore office. The Company continues to believe that its sales in the Far
East are enhanced by its maintenance of an office in that region of the world.
During fiscal 1995, Peerless Europe Ltd., the Company's UK subsidiary,
contributed fiscal 1995 sales revenue of $3,634,000, representing an increase
of $1,491,000, or 69.6% over fiscal 1994 revenue of $2,143,000. Although this
subsidiary continued to operate at a small loss during fiscal 1995, with a
year-end backlog of approximately $1,800,000, it is currently expected that the
subsidiary will be profitable in fiscal 1996.
Peerless Europe B.V., the Company's Dutch subsidiary which became
operational as a trading company late in fiscal 1993, continued its efforts
during fiscal 1995 to implement the Company's direct marketing strategy in
Europe. Sales revenue increased from $178,000 in fiscal 1994 to $1,155,000 in
fiscal 1995, as the subsidiary turned profitable in fiscal 1995 as compared to
a loss in fiscal 1994.
Sales by the Company's SCR (Selective Catalytic Reduction) division
improved from $1,458,000 in fiscal 1994 to $3,696,000 in fiscal 1995. During
fiscal 1995, the SCR division, which designs and manufactures equipment used to
remove nitrogen oxide (NOx) emissions caused by boilers, gas burners, turbines
and internal combustion engines, experienced an improvement in its order intake
activity and ended the year with a backlog of unfilled orders of approximately
$3,832,000.
Gross Profit Margin
The Company's gross profit margin decreased from 35.3% of net sales in
fiscal 1994 to 33.0% of net sales in fiscal 1995. The decrease resulted from a
change in product mix of orders completed in fiscal 1995.
Operating Expenses
Operating expenses increased from $7,953,000 in fiscal 1994 to $8,818,000
in fiscal 1995. However, operating expenses as a percent of sales decreased
from 31.1% in fiscal 1994 to 27.5% in fiscal 1995, due primarily to the
increase in net sales.
Income Tax
The Company's effective income tax rate decreased from 36.5% in fiscal 1994
to 34.1% in fiscal 1995. For a further discussion of the Company's federal
income taxes, see Note H to the Company's Consolidated Financial Statements.
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Comparison of Fiscal 1994 to Fiscal 1993
Net Sales
The Company's net sales decreased .9% or $229,710 in fiscal 1994 as
compared to fiscal 1993. While domestic demand for the Company's products
continued to be limited during fiscal 1994, the Company's vigorous pursuit of
opportunities in Canada, Europe, the Far East, as well as other parts of the
world, continued. Foreign sales for fiscal 1994 were $14,295,000 as compared
to $10,325,000 in fiscal 1993. This increase was primarily the result of
increased deliveries to Canadian customers and increased sales in northern
Europe.
The Company's backlog of unfilled orders at June 30, 1994 of $17,100,000
compared favorably to an adjusted June 30, 1993 backlog of $12,438,000.
During fiscal 1994, revenues amounting to $4,612,000 were recorded from
orders secured through the Company's Singapore sales office. The backlog of
unfilled orders at June 30, 1994 includes approximately $2,600,000 of orders
generated through the Singapore office. The Company believes that its sales in
the Far East are enhanced by its maintenance of an office in that region of the
world.
During fiscal 1994, Peerless Europe Ltd., the Company's UK subsidiary,
contributed sales revenue amounting to $2,143,000, which represented an
increase of $414,000 or 24% over the $1,729,000 of revenues generated during
fiscal 1993. Although this subsidiary continued to operate at a small loss
during fiscal 1994, with a year-end backlog of $2,086,000 it is expected that
the subsidiary will be profitable in fiscal 1995.
Peerless Europe B.V. continued its efforts to implement the Company's
direct marketing strategy in Europe. Generating revenues of $178,000 during
fiscal 1994, it operated at a loss for the year.
Sales by the SCR division improved from $929,000 in fiscal 1993 to
$1,458,000 in fiscal 1994. During fiscal 1994, the SCR division experienced
an improvement in its order intake activity and ended the year with a backlog
of unfilled orders amounting to $3,473,000. This year-end backlog compared
favorably to the June 30, 1993 backlog of $439,000.
Gross Profit Margin
The Company's gross profit margin increased to 35.3% of net sales in fiscal
1994 as compared to 34.2% of net sales in fiscal 1993. The increase was due
primarily to the gross profit realized from a large foreign contract and an
increase in sales of approximately $1,000,000 in fiscal 1994 over fiscal 1993
of products which traditionally carry a higher gross margin than other products
sold by the Company.
12
<PAGE> 15
Operating Expenses
Operating expenses for fiscal 1994 were $7,953,224, a decrease of $767,037
or 8.8% compared to fiscal 1993. A significant portion of this decrease was
the result of cost reduction and control actions implemented in the Singapore
sales office. Other operating expense reductions were achieved through the
improved control or elimination of certain administrative and personnel costs
throughout the Company.
Income Tax
The Company's effective income tax rate for fiscal 1994 was 36.5% as
compared to 41.9% in fiscal 1993. For a further discussion of the Company's
federal income taxes, see Note H to the Company's Consolidated Financial
Statements.
13
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1995 AND 1994 . . . . . . . . . . . . . . . . . . . . . . . 16
CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS
ENDED JUNE 30, 1995, 1994 AND 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED JUNE 30, 1995,
1994 AND 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED JUNE 30, 1995, 1994 AND 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED JUNE 30, 1995, 1994 AND 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 22
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
14
<PAGE> 17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Peerless Mfg. Co.
We have audited the accompanying consolidated balance sheets of Peerless Mfg.
Co. and Subsidiaries as of June 30, 1995 and 1994, and the related consolidated
statements of earnings, changes in stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of Peerless Mfg. Co.
and Subsidiaries as of June 30, 1995 and 1994, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended June 30, 1995, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Dallas, Texas
September 9, 1995
15
<PAGE> 18
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
<TABLE>
<CAPTION>
ASSETS 1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 961,747 $ 633,194
Short-term investments - at cost which approximates market 821,968 636,985
Accounts receivable - principally trade - net of allowance for
doubtful accounts of $99,082 and $85,827 in 1995
and 1994, respectively 9,135,623 8,798,617
Inventories (Note C) 2,816,774 4,638,956
Deferred income taxes (Note H) 232,554 235,210
Other (Note E) 334,876 443,050
----------- -----------
TOTAL CURRENT ASSETS 14,303,542 15,386,012
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation (Note D) 1,282,275 1,227,761
PROPERTY HELD FOR INVESTMENT, less accumulated
depreciation (Note D) 952,823 987,263
OTHER ASSETS (Note E) 617,415 421,430
----------- -----------
$17,156,055 $18,022,466
=========== ===========
</TABLE>
16
<PAGE> 19
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
June 30,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Note payable (Note E) $ - $ 260,400
Accounts payable - trade 3,096,025 2,679,907
Advance payments from customers 600,957 2,225,225
Commissions payable 509,512 502,531
Accrued expenses
Compensation 593,550 437,025
Warranty reserve 317,092 226,230
Other 155,236 535,767
------------- ------------
TOTAL CURRENT LIABILITIES 5,272,372 6,867,085
DEFERRED INCOME TAXES (Note H) 97,704 78,991
COMMITMENTS AND CONTINGENCY (Notes E and J) - -
STOCKHOLDERS' EQUITY
Common stock - authorized, 4,000,000 shares of $1 par value;
issued and outstanding, 1,446,742 shares in 1995 and 1,436,742
shares in 1994 1,446,742 1,436,742
Additional paid-in capital 2,493,428 2,383,870
Unamortized value of restricted stock grants (Note F) (97,107) (49,841)
Cumulative foreign currency translation adjustment 56,110 (76,063)
Retained earnings 7,886,806 7,381,682
------------- ------------
11,785,979 11,076,390
------------- ------------
$ 17,156,055 $ 18,022,466
============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE> 20
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended June 30,
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $32,089,132 $25,567,560 $25,797,270
COST OF GOODS SOLD 21,506,004 16,528,954 16,968,872
----------- ----------- -----------
GROSS PROFIT 10,583,128 9,038,606 8,828,398
OPERATING EXPENSES
Marketing and engineering 5,885,595 5,349,216 5,847,650
General and administrative 2,932,410 2,604,008 2,872,611
----------- ----------- -----------
8,818,005 7,953,224 8,720,261
----------- ----------- -----------
OPERATING PROFIT 1,765,123 1,085,382 108,137
OTHER INCOME (EXPENSE)
Interest income 93,974 37,073 55,597
Interest expense (8,040) (35,596) -
Sundry 9,411 141,100 103,358
----------- ----------- -----------
95,345 142,577 158,955
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 1,860,468 1,227,959 267,092
INCOME TAX EXPENSE (BENEFIT) (Note H)
Current 612,853 468,063 104,886
Deferred 21,369 (20,379) 7,147
----------- ----------- -----------
634,222 447,684 112,033
----------- ----------- -----------
NET EARNINGS $ 1,226,246 $ 780,275 $ 155,059
=========== =========== ===========
Earnings per common share $.85 $.54 $.11
==== ==== ====
Weighted average number of common shares outstanding 1,442,039 1,437,192 1,436,680
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE> 21
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative
foreign Unamortized
Additional currency value of
Common paid-in translation Retained restricted
stock capital adjustment earnings stock grants
---------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balances as of July 1, 1992 $1,435,867 $2,371,773 $ 35,088 $7,882,783 $(169,699)
Net earnings - - - 155,059 -
Issuance of 1,625 shares of common stock 1,625 15,641 - - (17,266)
Translation adjustment - - (144,006) - -
Cash dividends paid ($.50 per share) - - - (718,344) -
Amortization of restricted stock grants - - - - 101,411
Income tax expense related to restricted
stock plans - (2,712) - - -
---------- ---------- ---------- ---------- ---------
Balances as of June 30, 1993 1,437,492 2,384,702 (108,918) 7,319,498 (85,554)
Net earnings - - - 780,275 -
Issuance of 3,000 shares of common stock 3,000 27,750 - - (30,750)
Forfeiture of 3,750 shares of common stock (3,750) (27,031) - - 30,781
Translation adjustment - - 32,855 - -
Cash dividends paid ($.50 per share) - - - (718,091) -
Amortization of restricted stock grants - - - - 35,682
Income tax expense related to restricted
stock plans - (1,551) - - -
---------- ---------- ---------- ---------- ---------
Balances as of June 30, 1994 1,436,742 2,383,870 (76,063) 7,381,682 (49,841)
Net earnings - - - 1,226,246 -
Issuance of 12,000 shares of common stock 12,000 123,000 - - (135,000)
Forfeiture of 2,000 shares of common stock (2,000) (18,500) - - 20,500
Translation adjustment - - 132,173 - -
Cash dividends paid ($.50 per share) - - - (721,122) -
Amortization of restricted stock grants - - - - 67,234
Income tax benefit related to restricted
stock plans - 5,058 - - -
---------- ---------- ---------- ---------- ---------
Balances as of June 30, 1995 $1,446,742 $2,493,428 $ 56,110 $7,886,806 $ (97,107)
========== ========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE> 22
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 1,226,246 $ 780,275 $ 155,059
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 386,364 392,524 475,380
Deferred income taxes 21,369 (20,379) 7,147
Gain on sale of assets - - (1,973)
Exchange loss 56,368 - -
Other 5,058 (1,551) (2,712)
Changes in operating assets and
liabilities
(Increase) decrease in
Accounts receivable (323,226) (2,253,588) (1,400,100)
Inventories 1,810,607 (2,429,406) 1,574,223
Other current assets 108,174 15,010 (164,936)
Other assets (195,985) (78,551) 294,153
Increase (decrease) in
Accounts payable 464,022 1,320,851 458,917
Advance payments from customers (1,624,268) 1,834,049 (525,161)
Commissions payable 6,981 (54,684) 151,321
Accrued expenses (133,144) 342,836 29,794
----------- ------------ -----------
582,320 (932,889) 896,053
----------- ------------ -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,808,566 (152,614) 1,051,112
CASH FLOWS FROM INVESTING ACTIVITIES
Net sales of short-term investments (184,983) 685,984 (117,715)
Purchase of property and equipment (339,199) (116,285) (270,121)
----------- ------------ -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (524,182) 569,699 (387,836)
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE> 23
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended June 30,
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net changes in short-term borrowings $ (260,400) $ 190,813 $ 69,587
Dividends paid (721,127) (718,091) (718,344)
----------- ------------ -----------
NET CASH USED IN FINANCING ACTIVITIES (981,527) (527,278) (648,757)
EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS 25,696 32,855 (144,006)
----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 328,553 (77,338) (129,487)
Cash and cash equivalents at beginning of year 633,194 710,532 840,019
----------- ------------ -----------
Cash and cash equivalents at end of year $ 961,747 $ 633,194 $ 710,532
=========== ============ ===========
Supplemental information on cash flows:
- --------------------------------------
Interest paid $ 9,597 $33,961 $ 2,187
Income taxes paid $1,059,500 $60,069 $82,500
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE> 24
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows.
Consolidation
The Company consolidates the accounts of its wholly-owned foreign
subsidiaries, Peerless Europe Limited (Europe Limited), Peerless
International N.V. (International) and Peerless Europe B.V. (Europe B.V.).
All significant intercompany accounts and transactions have been eliminated
in consolidation.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost.
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives,
principally by the straight-line method.
Revenue Recognition
The Company recognizes sales of custom-contracted products at the completion
of the manufacturing process.
Earnings Per Common Share
Earnings per common share are computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during the
year. There are no common stock equivalents or other dilutive securities.
22
<PAGE> 25
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1995, 1994 AND 1993
NOTE A - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
Foreign Currency
All balance sheet accounts of foreign operations are translated into U.S.
dollars at the year-end rate of exchange and statements of earnings items
are translated at the weighted average exchange rates for the year. The
resulting translation adjustments are made directly to a separate component
of stockholders' equity. Gains and losses from foreign currency
transactions, such as those resulting from the settlement of foreign
receivables or payables, are included in the consolidated statements of
earnings.
The Company enters into forward exchange contracts in anticipation of future
movements in certain foreign exchange rates and to hedge against foreign
currency fluctuations. Realized and unrealized gains and losses on these
contracts are included in net income, except that gains and losses on
contracts to hedge specific foreign currency commitments are deferred and
accounted for as part of the underlying transaction.
Reclassifications
Certain 1994 amounts have been reclassified to conform with the 1995
presentation.
NOTE B - CONCENTRATIONS OF CREDIT RISK
A significant portion of the Company's sales are to customers whose
activities are related to the oil and gas industry, including some who are
located in foreign countries. The Company generally extends credit to these
customers whose economic welfare is affected by the economy of the oil and
gas industry. Also, with respect to foreign sales, collection may be more
difficult in the event of a default.
However, the Company closely monitors extensions of credit and has never
experienced significant credit losses. Also, most foreign sales are made to
large, well-established companies. The Company generally requires
collateral or guarantees on foreign sales to smaller companies.
The Company invests excess cash in low risk, liquid instruments. No losses
have been experienced on such investments.
NOTE C - INVENTORIES
Principal components of inventories are as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------
1995 1994
---------- ----------
<S> <C> <C>
Raw materials $ 988,275 $ 823,933
Work in process 1,590,050 3,688,690
Finished goods 238,449 126,333
---------- ----------
$2,816,774 $4,638,956
========== ==========
</TABLE>
23
<PAGE> 26
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1995, 1994 AND 1993
NOTE D - PROPERTY, PLANT AND EQUIPMENT AND PROPERTY HELD FOR INVESTMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
June 30,
------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Buildings $ 1,364,693 $ 1,313,414
Equipment 2,224,037 1,836,427
Furniture and fixtures 1,078,826 1,135,883
----------- -----------
4,667,556 4,285,724
Less accumulated depreciation (3,645,497) (3,318,179)
----------- -----------
1,022,059 967,545
Land 260,216 260,216
----------- -----------
$ 1,282,275 $ 1,227,761
=========== ===========
</TABLE>
Property held for investment is summarized as follows:
<TABLE>
<CAPTION>
June 30,
-------------------------------
1995 1994
------------ -----------
<S> <C> <C>
Buildings $ 1,639,792 $ 1,617,364
Equipment 102,963 102,963
----------- -----------
1,742,755 1,720,327
Less accumulated depreciation (1,319,342) (1,262,474)
----------- -----------
423,413 457,853
Land 529,410 529,410
----------- -----------
$ 952,823 $ 987,263
=========== ===========
</TABLE>
NOTE E - CREDIT ARRANGEMENT
The Company has an agreement with a bank for an unsecured continuing line of
credit in the amount of $5,000,000 due upon demand. Interest accrues at the
bank's prime lending rate (9% at June 30, 1995) and is paid monthly. The
bank charges usage fees at an annual rate of .25% of the average daily
unused portion of the line. At June 30, 1995, no amounts outstanding were
under the line. There was $260,400 outstanding under the line at June 30,
1994. The Company had letters of credit outstanding under separate
arrangements of $2,898,534 and $2,747,899 at June 30, 1995 and 1994,
respectively. Other assets with a cost of approximately $297,000 were
pledged against the letters of credit at June 30, 1995.
24
<PAGE> 27
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1995, 1994 AND 1993
NOTE F - RESTRICTED STOCK PLANS
The Company has a restricted stock plan whereby the Company can award up to
75,000 shares of common stock to employees. Sale of the stock awarded is
restricted for two to five years from the date of grant. For the years ended
June 30, 1995 and 1994, the Company awarded 12,000 and 3,000 shares of
common stock which had a fair value at the date of grant of $135,000 and
$30,750, respectively. Compensation under the plan is charged to earnings
over the restriction period and amounted to $67,234, $18,907 and $57,949 in
1995, 1994 and 1993, respectively. At June 30, 1995, 8,750 shares were
available for issuance.
The Company has a restricted stock plan for non-employee directors of the
Company. Vesting is pro rata over a three- year period. Pursuant to the
Plan, the maximum number of shares that may be granted is 16,200 shares. At
July 1, 1991, the Company had awarded 10,800 shares of common stock which
had a fair value at the date of grant of $164,699. Compensation under the
plan is charged to earnings over the vesting period and amounted to $16,775
and $43,463 in 1994 and 1993, respectively. At June 30, 1995, 5,400 shares
were available for issuance.
The tax effect of income tax deductions that differ from compensation
expense under these plans is credited or charged to additional paid-in
capital.
NOTE G - EMPLOYEE BENEFIT PLANS
In 1983, the Company established the Peerless Mfg. Co. 401(k) Plan to
provide eligible employees with a retirement savings plan. All employees
are eligible to participate in the plan upon completing 90 days of service.
Company contributions are voluntary and at the discretion of the Board of
Directors of the Company. The Company's contribution expense for the years
ended June 30, 1995, 1994 and 1993 was $17,000, $16,000 and $17,000,
respectively.
25
<PAGE> 28
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1995, 1994 AND 1993
NOTE H - FEDERAL INCOME TAXES
Deferred taxes are provided for the temporary differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities. The temporary differences that give rise to the deferred tax
assets or liabilities are as follows:
<TABLE>
<CAPTION>
June 30,
--------------------------
1995 1994
---------- -----------
<S> <C> <C>
Deferred tax assets
Restricted stock grants $ 18,754 $ 39,861
Accrued compensation 90,020 89,860
Warranty reserve 107,461 76,741
Inventories 9,167 44,499
Foreign subsidiaries' net operating loss carryforwards 37,493 101,035
Interest expense 103,385 53,829
Other 15,613 27,859
---------- -----------
381,893 433,684
Less valuation allowance (121,091) (147,071)
---------- -----------
260,802 286,613
Deferred tax liabilities
Property, plant and equipment (85,475) (103,470)
Other (40,477) (26,924)
---------- -----------
(125,952) (130,394)
---------- -----------
Net deferred tax asset $ 134,850 $ 156,219
========== ===========
</TABLE>
Deferred tax assets and liabilities included in the balance sheet are as
follows:
<TABLE>
<CAPTION>
June 30,
-------------------------
1995 1994
---------- -----------
<S> <C> <C>
Current deferred tax asset $ 232,554 $ 235,210
Noncurrent deferred tax liability (97,704) (78,991)
---------- -----------
$ 134,850 $ 156,219
========== ===========
</TABLE>
26
<PAGE> 29
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1995, 1994 AND 1993
NOTE H - FEDERAL INCOME TAXES - CONTINUED
The effective income tax rate varies from the statutory rate due to the
following:
<TABLE>
<CAPTION>
As a percentage
of pretax earnings
-------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed "expected" income tax expense 34.0% 34.0% 34.0%
Increase (decrease) in income taxes resulting from
Foreign sales corporation exclusions (3.1) (3.7) (10.7)
Tax-exempt interest income (.8) (.2) (.5)
Change in valuation allowance (1.4) 4.0 16.1
Other 5.4 2.4 3.0
----- ---- -----
Actual income tax expense 34.1% 36.5% 41.9%
===== ==== =====
</TABLE>
The valuation allowance relates to deferred tax assets of foreign
subsidiaries. These assets are recoverable only from future income of the
respective foreign subsidiaries. Utilization of foreign net operating
carryforwards reduced income tax expense for 1995 by approximately $55,000.
NOTE I - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company's operations consist of a dominant industry segment - the
designing, manufacturing and selling of specialized products for the removal
of liquid, solid and other contaminants from gases and liquids.
Export sales account for a significant portion of the Company's revenues and
are summarized by geographic area as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Western Europe $ 6,051,000 $ 3,353,000 $ 2,057,000
North America (excluding U.S.A.) 3,248,000 2,835,000 563,000
South America 569,000 1,215,000 613,000
Middle East 826,000 599,000 60,000
Far East 7,011,000 6,293,000 6,855,000
Other - - 177,000
------------ ------------ ------------
Total export sales $ 17,705,000 $ 14,295,000 $ 10,325,000
============ ============ ============
</TABLE>
NOTE J - CONTINGENCY
The Company is defendant in a lawsuit filed in August 1995, in which the
plaintiff claims damages from injuries suffered during the scope of his
employment at the Company. At this early stage of the lawsuit, it is not
possible to assess the probable outcome.
27
<PAGE> 30
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors
Peerless Mfg. Co.
In connection with our audit of the consolidated financial statements of
Peerless Mfg. Co. and Subsidiaries referred to in our report dated September 9,
1995, which is included in Part II of this form, we have also audited Schedule
II as of June 30, 1995. In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth therein.
GRANT THORNTON LLP
Dallas, Texas
September 9, 1995
28
<PAGE> 31
PEERLESS MFG. CO. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
June 30,
<TABLE>
<CAPTION>
Additions
Balance at -------------------------------
beginning of Charged to Charged to Balance at
Description period expenses other accounts(1) Deductions(2) end of period
----------- ------------ ---------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1995
- ----
Allowance for doubtful accounts $ 85,827 $ 55,401 $ - $ 42,146 $ 99,082
======== ======== ======= ======== =========
1994
- ----
Allowance for doubtful accounts $ 39,176 $ 60,000 $ - $ 13,349 $ 85,827
======== ======== ======= ======== =========
1993
- ----
Allowance for doubtful accounts $113,876 $ 29,062 $ 9,403 $113,165 $ 39,176
======== ======== ======= ======== =========
</TABLE>
(1) Amounts represent current year collections on accounts previously
written off.
(2) Amounts represent current year write offs.
29
<PAGE> 32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information concerning the Company's Directors, reference is made to
the caption "Election of Directors and Stock Ownership of Certain Beneficial
Owners" of the Company's Proxy Statement for the Annual Meeting of Shareholders
to be held November 16, 1995 (the "Proxy Statement"), which information is
incorporated herein by reference.
For information concerning the Company's Executive Officers, see Item 1.
"Business - Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION.
For information concerning the Company's executive compensation, reference
is made to the caption "Executive Compensation" of the Company's Proxy
Statement, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
For information concerning the security ownership of certain beneficial
owners and management, reference is made to the caption "Election of Directors
and Stock Ownership of Certain Beneficial Owners" of the Company's Proxy
Statement, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information concerning certain relationships and related transactions,
reference is made to the Company's Proxy Statement, which information is
incorporated herein by reference.
30
<PAGE> 33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM
8-K.
(A) 1. All Financial Statements: see "Item 8. Financial Statements
and Supplementary Data" in Part II of this Report.
2. Financial Statement Schedule and Exhibits filed in Part IV of
this report are as follows:
SCHEDULES*:
II - Valuation and Qualifying Account - Years Ended June
30, 1995, 1994 and 1993
*All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes.
(B) Reports on Form 8-K: None
(C) Exhibits: See Index to Exhibits, pages 35 - 36.
31
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PEERLESS MFG. CO.
(Registrant)
By: /s/ Sherrill Stone
-----------------------------------
Sherrill Stone, Chairman,
President, and Chief Executive
Officer
Date: September __, 1995.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Date:
<S> <C>
September __, 1995 /s/ Sherrill Stone
-------------------------------------
Sherrill Stone, Chairman of the
Board, President, Director and
Chief Executive Officer
September __, 1995 /s/ Kent J. Van Houten
-------------------------------------
Kent J. Van Houten, Treasurer,
Principal Financial Officer and
Principal Accounting Officer
September __, 1995 /s/
-------------------------------------
Donald A. Sillers, Jr., Director
September __, 1995 /s/ J.V. Mariner
-------------------------------------
J. V. Mariner, Director
September __, 1995 /s/ Bernard S. Lee
-------------------------------------
Bernard S. Lee, Director
September __, 1995 /s/ D.D. Battershell
-------------------------------------
D. D. Battershell, Director
</TABLE>
32
<PAGE> 35
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON 28
FINANCIAL STATEMENT SCHEDULES:
II Valuation and Qualifying Accounts - Years
Ended June 30, 1995, 1994 and 1993 (included in Item 8) 29
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). [N/A]
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, 1993, and incorporated
herein by reference). [N/A]
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). [N/A]
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). [N/A]
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). [N/A]
</TABLE>
33
<PAGE> 36
<TABLE>
<S> <C> <C>
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). [N/A]
10(e) Agreement, dated as of April 29, 1994, by and between the Company and
Sherrill Stone (filed as Exhibit 10(e) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1994 and incorporated herein by
reference). [N/A]
10(f) Loan Agreement, dated as of December 14, 1993, between Nations Bank of
Texas, N.A. and the Company (filed as Exhibit 10(f) to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994 and incorporated
herein by reference). [N/A]
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). [N/A]
27 Financial Data Schedule. 35
</TABLE>
34
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 961747
<SECURITIES> 821968
<RECEIVABLES> 9234705
<ALLOWANCES> 99082
<INVENTORY> 2816774
<CURRENT-ASSETS> 14303542
<PP&E> 7199937
<DEPRECIATION> 4964539
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0
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<EPS-PRIMARY> 0.85
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