<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------
FORM 10-K/A
AMENDMENT NO. 1
FOR ANNUAL REPORT AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
------------------------------
COMMISSION FILE NUMBER 0-5214
PEERLESS MFG. CO.
(Exact name of Registrant as specified in its charter)
TEXAS 75-0724417
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2819 WALNUT HILL LANE, DALLAS, TEXAS 75229
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 357-6181
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which Registered:
Common Stock, par value $1.00 The Nasdaq Stock Market's National Market
- ----------------------------- -------------------------------------------
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. |_|
At September 19, 1997, Peerless Mfg. Co. had 1,451,992 shares of common
stock, $1.00 par value outstanding. The Company estimates that the aggregate
market value of the common stock on September 19, 1997 (based upon the closing
price of these shares on Nasdaq) held by non-affiliates was approximately
$20,690,886.
DOCUMENTS INCORPORATED BY REFERENCE
None.
1
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is quoted on the Nasdaq Stock Market's
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 Stock Market's National Market
and cash dividends paid per share.
<TABLE>
<CAPTION>
Quarter Ended: Closing Bid Prices Cash Dividends
High Low Per Share
------- ------ ---------
Fiscal 1996
<S> <C> <C> <C>
September 30, 1995 $12-3/4 $ 9-7/8 $ .125
December 31, 1995 11-5/8 9-1/4 .125
March 31, 1996 9-3/4 8-3/4 .125
June 30, 1996 11-5/8 9-5/8 .125
Fiscal 1997
September 30, 1996 $13-3/4 $ 9-1/4 $ .125
December 31, 1996 14-7/8 11-5/8 .125
March 31, 1997 13-1/4 9-1/2 .125
June 30, 1997 11 9-1/8 .125
</TABLE>
The number of record holders of the Company's Common Stock on August
15, 1997 was 221. The Company estimates that approximately 700 additional
shareholders own shares in broker names.
2
<PAGE> 3
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Liquidity And Capital Resources
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 short term bank credit
lines of $7,500,000 to supplement working capital. During Fiscal 1996 and
Fiscal 1997, it was necessary for the Company to use its short-term bank credit
lines in order to finance a temporary shortfall in working capital. At June 30,
1997, the Company had no amounts outstanding against its credit lines. The
Company pays an annual commitment fee of 0.25% of the unused balance under the
credit lines. The Company has no material commitments for capital expenditures
other than replacing equipment and maintaining its existing plants and
equipment. During Fiscal 1997 the Company purchased fixed assets totaling
$596,395, consisting primarily of replacement manufacturing equipment, computer
hardware and software, office equipment and building improvements. This is
compared to purchases of $273,593 during Fiscal 1996. The Company believes that
these sources will be sufficient to satisfy its needs in the foreseeable
future.
Working capital was $8,584,424 at June 30, 1997, down from $9,350,600
at June 30, 1996, a decline of 8.2%. This decline was due primarily to the
adverse effects of a third-quarter cost overrun related to a major
international project in the Company's environmental equipment division and to
the early declaration of dividends in Fiscal 1997 rather than in Fiscal 1998,
which resulted in a charge against working capital in Fiscal 1997.
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The following table sets forth certain information related to working
capital for the Company's last three fiscal years:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ------
<S> <C> <C> <C>
Average working capital as
a percentage of net sales 20.8% 25.6% 27.5%
Annual accounts receivable
turnover(1) 4.3 3.8 6.0
Annual inventory turnover(2) 6.6 5.7 6.7
</TABLE>
(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 and contract costs.
The average working capital decrease as a percentage of net sales is
related to increased sales volume of approximately $7,842,000 reported in
Fiscal 1997 over Fiscal 1996. The increase in annual accounts receivable
turnover reflects improved collection methods by the Company in Fiscal 1997.
The increase in average inventory turnover is due primarily to increased
efforts to manage inventory in Fiscal 1997. Peerless continues to monitor and
streamline the Company's receivable collection and inventory purchasing
procedures to enhance and maximize cash flow.
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>
1997 1996 1995
-------- -------- ------
<S> <C> <C> <C>
Gross profit margin 27.8% 30.4% 33.0%
Operating expenses 26.8% 26.8% 27.3%
Earnings before income taxes 1.3% 3.5% 6.0%
Effective income tax rate 0.1% 33.2% 35.8%
</TABLE>
Inflation did not have a material impact on the Company's operating
results during the last three fiscal years.
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<PAGE> 5
Comparison of Fiscal 1997 to Fiscal 1996
Net Sales
The Company's net sales increased approximately $7,842,000, or 23.3%,
to $41,486,000 in Fiscal 1997 from $33,644,000 in Fiscal 1996. Compared to
Fiscal 1996, Fiscal 1997 domestic sales increased by 11.5% from $14,244,000 to
$15,886,000. Foreign sales increased from $19,400,000 in Fiscal 1996 to
$25,600,000 in Fiscal 1997, an increase of 32.0%. The increase resulted
primarily from additional sales realized in Asia.
The Company's backlog of unfilled orders increased from $15,300,000 at
June 30, 1996 to $20,200,000 at June 30, 1997.
Sales increased from $2,562,000 in Fiscal 1996 to $3,326,000 in Fiscal
1997 at the Company's Singapore sales office. The backlog of unfilled orders at
June 30, 1997 includes approximately $2,000,000 of orders generated through the
Singapore office. The Company continues to believe that its sales in Asia are
enhanced by its maintenance of a Singapore office.
During Fiscal 1997, Peerless Europe Ltd., the Company's UK subsidiary,
contributed Fiscal 1997 sales revenue of $4,605,000, representing a decrease of
$789,000, or 14.6% below Fiscal 1996 revenue of $5,394,000. This subsidiary
continued to operate solidly during Fiscal 1997, with a year-end backlog of
approximately $2,515,000 as compared with $1,000,000 in Fiscal 1996.
Approximately $800,000 of this increase is attributable to Peerless Europe Ltd.
assuming certain sales of Peerless Europe B.V. in Fiscal 1997.
Peerless Europe B.V., the Company's Dutch subsidiary, continued its
efforts during Fiscal 1997 to implement the Company's direct marketing strategy
in Europe. Sales revenue decreased from $2,105,000 in Fiscal 1996 to $1,332,000
in Fiscal 1997. Peerless Europe B.V. is winding down its operations, which will
be continued by Peerless Europe Ltd., the Company's U.K. subsidiary.
Sales by the Company's SCR (Selective Catalytic Reduction) division
improved from $6,013,000 in Fiscal 1996 to $9,632,000 in Fiscal 1997. During
Fiscal 1997, 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, ended the year with a backlog of unfilled
orders of approximately $2,123,000, a decrease from the Fiscal 1996 backlog of
$4,838,000.
Gross Profit Margin
The Company's gross profit margin decreased from 30.4% of net sales in
Fiscal 1996 to 27.8% of net sales in Fiscal 1997. The decrease resulted from a
change in product mix of orders completed in Fiscal 1997 and adverse effects of
a cost overrun related to a major international project in the Company's
environmental equipment division in the third quarter.
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Operating Expenses
Operating expenses increased from $9,009,000 in Fiscal 1996 to
$11,118,000 in Fiscal 1997. However, operating expenses as a percent of sales
held steady at 26.8% in Fiscal 1996 and 26.8% in Fiscal 1997. This increase in
operating expenses was primarily due to increased sales and additional
personnel hired to support the increased level of sales anticipated by the
Company.
Income Tax
The Company's effective income tax rate decreased from 33.2% in Fiscal
1996 to 0.1% in Fiscal 1997. This decrease resulted from foreign deferred tax
benefits offsetting domestic tax expenses. The Company anticipates that it will
not be able to continue utilizing these deferred tax benefits to the same
extent and expects that the Company's effective income tax rates will return to
historical levels in Fiscal 1998. For a further discussion of the Company's
federal income taxes, see Note H to the Company's Consolidated Financial
Statements.
Comparison of Fiscal 1996 to Fiscal 1995
Net Sales
The Company's net sales increased approximately $1,555,000, or 4.8%,
to $33,644,000 in Fiscal 1996 as compared to $32,089,000 in Fiscal 1995.
Compared to Fiscal 1995, Fiscal 1996 domestic sales decreased by 1.0% from
$14,389,000 to $14,244,000. Foreign sales increased from $17,700,000 in Fiscal
1995 to $19,400,000 in Fiscal 1996, an increase of 9.6%. The increase was
primarily the result of additional sales realized in Europe.
The Company's backlog of unfilled orders decreased slightly from
$15,875,000 at June 30, 1995 to $15,300,000 at June 30, 1996.
Sales decreased from $3,346,000 in Fiscal 1995 to $2,562,000 in Fiscal
1996 at the Company's Singapore sales office. The backlog of unfilled orders at
June 30, 1996 includes approximately $510,000 of orders generated through the
Singapore office. The Company continues to believe that its sales in Asia are
enhanced by its maintenance of a Singapore office.
During Fiscal 1996, Peerless Europe Ltd., the Company's UK subsidiary,
contributed Fiscal 1996 sales revenue of $5,394,000, representing an increase
of $1,760,000, or 48.4% over Fiscal 1995 revenue of $3,634,000. This subsidiary
continued to operate solidly during Fiscal 1996, with a year-end backlog of
approximately $1,000,000.
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 1996 to implement the Company's direct marketing strategy in
Europe. Sales revenue increased from $1,155,000 in Fiscal 1995 to $2,105,000 in
Fiscal 1996.
6
<PAGE> 7
Sales by the Company's SCR (Selective Catalytic Reduction) division
improved from $3,696,000 in Fiscal 1995 to $6,013,000 in Fiscal 1996. During
Fiscal 1996, 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
$4,838,000.
Gross Profit Margin
The Company's gross profit margin decreased from 33.0% of net sales in
Fiscal 1995 to 30.4% of net sales in Fiscal 1996. The decrease resulted from a
change in product mix of orders completed in Fiscal 1996.
Operating Expenses
Operating expenses increased from $8,770,000 in Fiscal 1995 to
$9,009,000 in Fiscal 1996. However, operating expenses as a percent of sales
decreased slightly from 27.3% in Fiscal 1995 to 26.8% in Fiscal 1996, due
primarily to the increase in net sales.
Income Tax
The Company's effective income tax rate decreased from 35.8% in Fiscal
1995 to 33.2% in Fiscal 1996. For a further discussion of the Company's federal
income taxes, see Note H to the Company's Consolidated Financial Statements.
Outlooks and Uncertainties
This Annual Report on Form 10-K contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such statements refer to events that could occur in the future or may be
identified by the use of words such as "expect," "intend," "plan," "believe,"
correlative words, and other expressions indicating that future events are
contemplated. Such statements are subject to inherent risks and uncertainties,
and actual results could differ materially from those projected in the
forward-looking statements as a result of certain of the risk factors set forth
below and elsewhere in this Annual Report on Form 10-K. In addition to the
other information contained in this Annual Report on Form 10-K, investors
should carefully consider the following risk factors.
Competition. The Company operates in highly competitive markets worldwide. The
Company competes with manufacturers and sellers 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. Competition may also increase as larger and better
financed foreign companies become attracted to the market potential for
products
7
<PAGE> 8
manufactured by the Company. There can be no assurance that the Company will be
able to compete successfully with current or future competitors.
Foreign Operations. The Company derives a significant portion of its revenues
from foreign sales, particularly in Asia. The Company is subject to risks of
doing business abroad, including 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, adverse fluctuations in currency
exchange rates, 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 occurrence of any one or more of the
foregoing could adversely affect the Company's operations.
Concentrations of Credit Risk. The Company continues to closely monitor the
creditworthiness of its customers and has never experienced significant credit
losses; however, 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. Its exposure to credit risk is affected by conditions within the oil
and gas industry, and with respect to foreign sales, collection may be more
difficult in the event of a default. However, substantially all foreign sales
are made to large, well-established companies and the Company generally
requires collateral or guarantees on foreign sales to smaller companies.
Backlog. The Company's backlog represents incomplete customer orders. Although
the Company has historically completed and shipped virtually all of its backlog
and expects to complete and ship all outstanding orders in Fiscal 1998,
customers may cancel outstanding orders prior to their completion. In such
cases, the Company would not recognize revenues for canceled orders. However,
the Company has contractual protection to recover from its customers at least
the Company's costs related to canceled orders.
8
<PAGE> 9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS ............................................ 16
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1997 AND 1996............ 17
CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS
ENDED JUNE 30, 1997, 1996 AND 1995...................... 19
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED JUNE 30, 1997,
1996 AND 1995........................................... 20
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED JUNE 30, 1997, 1996 AND 1995...................... 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED JUNE 30, 1997, 1996 AND 1995................ 24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE............................................. 36
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT................... 37
</TABLE>
9
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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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended June 30, 1997, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Dallas, Texas
September 2, 1997
10
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PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
<TABLE>
<CAPTION>
ASSETS 1997 1996
---------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 772,553 $ 2,082,329
Short-term investments 259,007 246,659
Accounts receivable - principally trade - net of allowance
for doubtful accounts of $312,450 and $100,000 in 1997
and 1996, respectively 9,671,067 8,404,331
Inventories 2,993,855 2,972,456
Costs and earnings in excess of billings on uncompleted
contracts 1,871,817 1,403,199
Deferred income taxes 269,721 226,214
Other 298,605 240,214
----------- -----------
TOTAL CURRENT ASSETS 16,136,625 15,575,402
PROPERTY, PLANT AND EQUIPMENT - AT COST, less
accumulated depreciation 1,527,856 1,213,859
PROPERTY HELD FOR INVESTMENT - AT COST, less
accumulated depreciation 888,383 948,775
OTHER ASSETS 528,729 453,390
----------- -----------
$19,081,593 $18,191,426
=========== ===========
</TABLE>
11
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PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
June 30,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable - trade $ 5,054,532 $ 4,325,595
Billings in excess of costs and earnings on uncompleted
contracts 363,257 --
Commissions payable 779,474 566,766
Accrued expenses
Compensation 656,082 549,210
Warranty reserve 406,903 286,384
Other 291,953 496,847
------------ ------------
TOTAL CURRENT LIABILITIES 7,552,201 6,224,802
DEFERRED INCOME TAXES 99,962 86,768
COMMITMENTS -- --
STOCKHOLDERS' EQUITY
Common stock - authorized, 4,000,000 shares of $1 par value;
issued and outstanding, 1,451,992 and 1,446,742 shares in
1997 and 1996, respectively 1,451,992 1,446,742
Additional paid-in capital 2,535,221 2,489,879
Unamortized value of restricted stock grants (44,625) (33,750)
Cumulative foreign currency translation adjustment (93,944) 23,842
Retained earnings 7,580,786 7,953,143
------------ ------------
11,429,430 11,879,856
------------ ------------
$ 19,081,593 $ 18,191,426
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
12
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PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended June 30,
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET SALES $ 41,486,492 $ 33,643,998 $ 32,089,132
COST OF GOODS SOLD 29,961,203 23,430,761 21,506,004
------------ ------------ ------------
GROSS PROFIT 11,525,289 10,213,237 10,583,128
OPERATING EXPENSES
Marketing and engineering 9,129,347 7,524,363 7,011,380
General and administrative 1,988,618 1,485,113 1,758,432
------------ ------------ ------------
11,117,965 9,009,476 8,769,812
------------ ------------ ------------
OPERATING PROFIT 407,324 1,203,761 1,813,316
OTHER INCOME (EXPENSE)
Interest income 24,687 45,559 93,974
Interest expense (55,475) (16,858) (8,040)
Foreign exchange gains (losses) 103,583 (28,628) (56,368)
Other, net 57,877 (21,686) 65,779
------------ ------------ ------------
130,672 (21,613) 95,345
------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 537,996 1,182,148 1,908,661
INCOME TAX EXPENSE (BENEFIT)
Current 65,766 397,023 661,046
Deferred (65,186) (4,596) 21,369
------------ ------------ ------------
580 392,427 682,415
------------ ------------ ------------
NET EARNINGS $ 537,416 $ 789,721 $ 1,226,246
============ ============ ============
Earnings per common share $ .37 $ .55 $ .85
============ ============ ============
Weighted average number of common
shares outstanding 1,454,045 1,446,742 1,442,039
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
13
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PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative
Unamortized foreign
Additional value of currency
Common paid-in restricted translation Retained
stock capital stock grants adjustment earnings Total
----- ------- ------------ ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances as of July 1995 1,436,742 $ 2,383,870 $ (49,841) $ (76,063) $ 7,381,682 $ 11,076,390
Net earnings -- -- -- -- 1,226,246 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 -- 132,173
Cash dividends paid ($.50 per share) -- -- -- -- (721,122) (721,122)
Amortization of restricted stock grants -- -- 67,234 -- -- 67,234
Income tax benefit related to restricted
stock plans -- 5,058 -- -- -- 5,058
----------- ----------- --------- --------- ----------- ------------
Balances as of June 30, 1995 1,446,742 2,493,428 (97,107) 56,110 7,886,806 11,785,979
Net earnings -- -- -- -- 789,721 789,721
Translation adjustment -- -- -- (32,268) -- (32,268)
Cash dividends paid ($.50 per share) -- -- -- -- (723,384) (723,384)
Amortization of restricted stock grants -- -- 63,357 -- -- 63,357
Income tax expense related to restricted
stock plans -- (3,549) -- -- -- (3,549)
----------- ----------- --------- --------- ----------- ------------
Balances as of June 30, 1996 1,446,742 2,489,879 (33,750) 23,842 7,953,143 11,879,856
Net earnings -- -- -- -- 537,416 537,416
Issuance of 8,000 shares of common stock 8,000 72,250 (80,250) -- -- --
Forfeiture of 4,000 shares of common stock (4,000) (38,750) 42,750 -- -- --
Stock options exercised 1,250 10,312 -- -- -- 11,562
Translation adjustment -- -- -- (117,786) -- (117,786)
Cash dividends paid ($.50 per share) -- -- -- -- (727,149) (727,149)
Cash dividends declared ($.125 per share) -- -- -- -- (182,624) (182,624)
Amortization of restricted stock grants -- -- 26,625 -- -- 26,625
Income tax benefit related to restricted
stock plans -- 1,530 -- -- -- 1,530
----------- ----------- --------- --------- ----------- ------------
Balances as of June 30, 1997 $ 1,451,992 $ 2,535,221 $ (44,625) $ (93,944) $ 7,580,786 $ 11,429,430
=========== =========== ========= ========= =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE> 15
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 537,416 $ 789,721 $ 1,226,246
Adjustments to reconcile net earnings to net
cash provided by (used in) operating
activities
Depreciation and amortization 370,525 416,207 386,364
Deferred income taxes (65,185) (4,596) 21,369
Foreign exchange loss (gain) (103,583) 28,628 56,368
Other 1,530 (2,342) 5,058
Changes in operating assets and liabilities
Accounts receivable (1,586,991) 508,764 (323,226)
Inventories (11,463) (154,231) 1,695,052
Cost and profit in excess of billings
on uncompleted contracts (468,618) (1,287,644) 115,555
Other current assets (59,501) (285,196) 108,174
Other assets (40,466) 156,025 (195,985)
Accounts payable 791,364 1,240,661 464,022
Billings in excess of costs and earnings
on uncompleted contracts 363,257 (197,010) (1,624,268)
Commissions payable 212,708 57,254 6,981
Accrued expenses 22,497 266,563 (133,144)
----------- ----------- -----------
(573,926) 743,083 582,320
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (36,510) 1,532,804 1,808,566
CASH FLOWS FROM INVESTING ACTIVITIES
Net sales (purchases) of short-term investments (12,348) (24,691) 415,017
Purchase of property and equipment (596,395) (273,593) (339,199)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (608,743) (298,284) 75,818
</TABLE>
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<PAGE> 16
PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended June 30,
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock $ 11,562 $ -- $ --
Net changes in short-term borrowings -- -- (260,400)
Dividends paid (727,149) (723,384) (721,122)
----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (715,587) (723,384) (981,522)
EFFECT OF EXCHANGE RATE ON CASH AND CASH
EQUIVALENTS 51,064 9,446 25,691
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,309,776) 520,582 928,553
Cash and cash equivalents at beginning of year 2,082,329 1,561,747 633,194
----------- ----------- -----------
Cash and cash equivalents at end of year $ 772,553 $ 2,082,329 $ 1,561,747
=========== =========== ===========
Supplemental information on cash flows:
Interest paid $ 55,475 $ 16,858 $ 9,597
Income taxes paid $ 379,347 $ 138,018 $ 1,059,500
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 17
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, 1996 and 1995
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
Nature of Operations
Peerless Mfg. Co. designs, engineers, and manufactures specialized products
for the removal of contaminants from gases and liquids and for air pollution
abatement. The Company's products are manufactured principally at plants
located in Dallas, Texas and are sold worldwide with the principal markets
located in the United States and Europe. Primary customers are equipment
manufacturers, engineering contractors and operators of power plants.
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.
Depreciable Assets
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.
17
<PAGE> 18
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED
Revenue Recognition
The Company generally recognizes sales of custom-contracted products at the
completion of the manufacturing process. The percentage-of-completion method
is used for significant long-term contracts. Percentage-of-completion is
generally determined using the actual labor incurred to date as compared to
management's estimate of total labor to be incurred on each contract.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting
for Stock-Based Compensation, encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25 (APB 25), Accounting for Stock Issued to Employees, and related
interpretations.
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. The dilutive effect of stock options is not material.
Statement of Financial Accounting Standards No. 128 (SFAS 128), Earnings Per
Share, is effective for financial statements issued after December 15, 1997.
The adoption of SFAS 128 is not expected to have a material impact on the
disclosure of earnings pr share in the financial statements.
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
18
<PAGE> 19
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED
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.
From time to time, 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 prior years' amounts have been reclassified to conform with the 1997
presentation.
Financial Instruments
The carrying amounts of cash and cash equivalents and short-term investments
approximate fair value because of the short-term nature of these items.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
19
<PAGE> 20
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
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. Its exposure to credit risk is affected by conditions within 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. Substantially all foreign sales are
made to large, well-established companies. The Company generally requires
collateral or guarantees on foreign sales to smaller companies.
Sales to one customer accounted for approximately 12.3% of revenues for the
year ended June 30, 1997. No single customer accounted for more than 10% of
revenues in 1996 or 1995.
NOTE C - INVENTORIES AND UNCOMPLETED CONTRACTS
Principal components of inventories are as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Raw materials $1,084,890 $1,094,774
Work in process 1,586,213 1,591,289
Finished goods 322,752 286,393
-------- --------
$2,993,855 $2,972,456
========== ==========
</TABLE>
At June 30, 1997 and 1996, progress payments of $318,043 and $296,431,
respectively, have been offset against inventories and costs of uncompleted
contracts.
20
<PAGE> 21
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE D - PROPERTY, PLANT AND EQUIPMENT AND PROPERTY HELD FOR INVESTMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
June 30,
------------------
1997 1996
---- ----
<S> <C> <C>
Buildings $ 1,380,241 $ 1,418,842
Equipment 2,432,792 2,300,777
Furniture and fixtures 1,585,930 1,114,583
----------- -----------
5,398,963 4,834,202
Less accumulated depreciation (4,131,323) (3,880,559)
----------- -----------
1,267,640 953,643
Land 260,216 260,216
----------- -----------
$ 1,527,856 $ 1,213,859
=========== ===========
Property held for investment is summarized as follows:
June 30,
------------------
1997 1996
---- ----
Buildings $ 1,641,769 $ 1,641,776
Equipment 158,171 158,171
----------- -----------
1,799,940 1,799,947
Less accumulated depreciation (1,440,967) (1,380,582)
----------- -----------
358,973 419,365
Land 529,410 529,410
----------- -----------
$ 888,383 $ 948,775
=========== ===========
</TABLE>
21
<PAGE> 22
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE E - CREDIT ARRANGEMENT
The Company has banking agreements for unsecured revolving lines of credit
in the combined amount of $7,500,000 due upon demand, with interest at the
banks' prime lending rate (8.50% at June 30, 1997), payable monthly. The
banks charge usage fees at an annual rate of .25% of the average daily
unused portion of the line. At June 30, 1997 and 1996, no amounts were
outstanding under the lines. The Company had letters of credit outstanding
under separate arrangements of $3,597,646 and $3,259,533 at June 30, 1997
and 1996, respectively. Other assets with a cost of approximately $566,000
were pledged against the letters of credit outstanding at June 30, 1997.
NOTE F - STOCKHOLDERS' EQUITY
The Company has a 1985 restricted stock plan (the 1985 Plan) under which
75,000 shares of common stock were reserved for awards to employees.
Restricted stock grants made under the 1985 Plan vest over a five-year
period. The Company awarded 12,000 shares (fair value at date of grant of
$135,000) in fiscal 1995 and 8,000 shares (fair value at date of grant of
$80,250), of which 3,000 shares were subsequently forfeited, in fiscal 1997.
Compensation expense for stock grants is charged to earnings over the
five-year restriction period and amounted to $26,625, $63,357 and $67,234 in
fiscal 1997, 1996, and 1995, respectively. The tax effect of differences
between compensation expense for financial statement and income tax purposes
is charged or credited to additional paid-in capital.
In December 1995, the Company adopted a stock option and restricted stock
plan (the 1995 Plan), which provides for a maximum of 100,000 shares of
common stock to be issued. Stock options are granted at market value, vest
generally over four years, and expire ten years from date of grant.
At June 30, 1997, 67,250 shares of common stock were available for issuance
under the 1995 Plan, and 4,750 shares were available under the 1985 Plan.
The Company has adopted the disclosure provisions of SFAS 123. It applies
APB 25 and related interpretations in accounting for stock options issued
and, therefore, does not recognize compensation expense for stock options
granted at or greater than market value. If the Company had elected to
recognize compensation expense based upon the fair value at the
22
<PAGE> 23
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE F - STOCKHOLDERS' EQUITY - CONTINUED
grant date for awards under this plan consistent with the methodology
prescribed by SFAS 123, the effect on net earnings and earnings per share
would have been as follows:
<TABLE>
<CAPTION>
Year ended Year ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net earnings - as reported $537,416 $789,721
Net earnings - pro forma 527,012 784,896
Earnings per share - as reported .37 .55
Earnings per share - pro forma .36 .54
</TABLE>
The fair value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: expected volatility of 45%; risk-free interest rates ranging
from 4.6% to 5.3%; dividend yield of 3.7% in fiscal 1997 and 5.4% in fiscal
1996; and expected lives of five years.
Additional information with respect to options outstanding under the plan is
as follows:
<TABLE>
<CAPTION>
Number of shares Weighted average
Stock options underlying options exercise price
------------- ------------------ --------------
<S> <C> <C>
Outstanding at June 30, 1995 -- $ --
Granted 34,000 9.25
------
Outstanding at June 30, 1996 34,000 9.25
Granted 2,500 13.33
Exercised (1,250) 9.25
Canceled/forfeited (3,750) 9.25
------
Outstanding at June 30, 1997 31,500 9.57
======
Exercisable at June 30, 1997 9,250 9.25
======
Exercisable at June 30, 1996 --
======
</TABLE>
23
<PAGE> 24
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE F - STOCKHOLDERS' EQUITY - CONTINUED
The weighted-average remaining life of options outstanding at June 30, 1997
was 9.08 years. The weighted average fair-value at grant date for options
granted in 1997 was $1.82.
On May 21, 1997, the Board of Directors declared a dividend of one common
share purchase right for each outstanding share of common stock to
shareholders of record at the close of business on June 2, 1997. Each Right
entitles the registered holder to purchase from the Company one common share
at a price of $30.00, subject to adjustment, as more fully set forth in a
Rights Agreement dated May 22, 1997.
The Rights will become exercisable only in the event that any person or
group of affiliated persons acquires, or obtains the right to acquire,
beneficial ownership of 20% or more of the outstanding common shares or
commences a tender or exchange offer, the consummation of which would result
in the beneficial ownership by a person or group of 20% or more of such
outstanding common shares. The rights are redeemable under certain
circumstances at $.01 each and expire in May 2007.
NOTE G - EMPLOYEE BENEFIT PLANS
The Company has a 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, 1997, 1996 and
1995 was $119,500, $109,000 and $103,000, respectively.
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:
24
<PAGE> 25
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE H - FEDERAL INCOME TAXES - CONTINUED
<TABLE>
<CAPTION>
June 30,
----------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets
Restricted stock grants $ 13,938 $ 19,125
Inventories 28,362 16,052
Foreign subsidiaries' net operating loss carryforwards 145,157 15,371
Accrued expenses 243,090 311,237
Other 52,701 70,158
--------- ---------
483,248 431,943
Less valuation allowance (29,710) (160,405)
--------- ---------
$ 453,538 $ 271,538
========= =========
Deferred tax liabilities
Property, plant and equipment $(110,396) $ (88,491)
Uncompleted contracts (135,006) (39,014)
Other (3,504) (4,587)
--------- ---------
$(248,906) $(132,092)
========= =========
Net deferred tax asset $ 204,632 $ 139,446
========= =========
</TABLE>
Deferred tax assets and liabilities included in the balance sheet are as
follows:
<TABLE>
<CAPTION>
June 30,
-------------------
1997 1996
---- ----
<S> <C> <C>
Current deferred tax asset $ 269,721 $ 226,214
Noncurrent deferred tax asset 34,873 --
Noncurrent deferred tax liability (99,962) (86,768)
--------- ---------
$ 204,632 $ 139,446
========= =========
</TABLE>
25
<PAGE> 26
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE H - FEDERAL INCOME TAXES - CONTINUED
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
Federal
Current $ 41,765 $ 348,830 $581,976
Deferred (65,185) (4,596) 21,369
State 24,000 48,193 79,070
--------- --------- --------
$ 580 $ 392,427 $682,415
========= ========= ========
</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. Because of a recapitalization of Europe
Limited and a reorganization of European operations, the Company concluded
at June 30, 1997 that it was more likely than not that certain of the
deferred tax assets are recoverable, and the valuation allowance was
reduced. Utilization of foreign net operating carryforwards reduced income
tax expense by approximately $130,000, $19,000 and $55,000 for 1997, 1996
and 1995, respectively.
The effective income tax rate varies from the statutory rate due to the
following:
<TABLE>
<CAPTION>
As a percentage
of pretax earnings
---------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income tax expense at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) in income taxes resulting from
State tax, net of federal benefits 2.9 2.8 2.9
Foreign sales corporation exclusions (10.2) (1.5) (3.1)
Change in valuation allowance (24.3) 3.5 (1.4)
Other (2.3) (5.6) 3.4
----- ----- -----
Income tax expense at effective rate .1% 33.2% 35.8%
===== ===== =====
</TABLE>
26
<PAGE> 27
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE I - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company's operations consist of a dominant industry segment, the
designing and manufacturing of specialized products for the removal of
contaminants from gases and liquids and for air pollution abatement,
principally in the United States and the United Kingdom.
Information about the Company's operations in different geographic areas as
of and for the years ended June 30, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
United United
States Kingdom Other Eliminations Consolidated
------ ------- ----- ------------ ------------
1997
- ----
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated
customers $35,553,000 $ 4,601,000 $ 1,332,000 $ -- $41,486,000
Transfers between
geographic areas 889,000 4,000 -- (893,000) --
----------- ----------- ----------- ----------- -----------
Total $36,442,000 $ 4,605,000 $ 1,332,000 $ (893,000) $41,486,000
=========== =========== =========== =========== ===========
Operating profit (loss) $ 549,000 $ (129,000) $ (12,000) $ (1,000) $ 407,000
=========== =========== =========== =========== ===========
Identifiable assets $17,409,000 $ 2,790,000 $ 1,027,000 $(2,144,000) $19,082,000
=========== =========== =========== =========== ===========
1996
- ----
Net sales to unaffiliated
customers $26,775,000 $ 4,764,000 $ 2,105,000 $ -- $33,644,000
Transfers between
geographic areas 984,000 630,000 -- (1,614,000) --
----------- ----------- ----------- ----------- -----------
Total $27,759,000 $ 5,394,000 $ 2,105,000 $(1,614,000) $33,644,000
=========== =========== =========== =========== ===========
Operating profit (loss) $ 1,119,000 $ 145,000 $ (39,000) $ (21,000) $ 1,204,000
=========== =========== =========== =========== ===========
Identifiable assets $17,244,000 $ 2,112,000 $ 1,599,000 $(2,764,000) $18,191,000
=========== =========== =========== =========== ===========
</TABLE>
27
<PAGE> 28
PEERLESS MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997, 1996 and 1995
NOTE I - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION - CONTINUED
<TABLE>
<CAPTION>
United United
States Kingdom Other Eliminations Consolidated
------ ------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
1995
- ----
Net sales to unaffiliated
customers $27,673,000 $ 3,261,000 $1,155,000 $ -- $32,089,000
Transfers between
geographic areas 479,000 373,000 -- (852,000) --
----------- ----------- ---------- ----------- -----------
Total $28,152,000 $ 3,634,000 $1,155,000 $ (852,000) $32,089,000
=========== =========== ========== =========== ===========
Operating profit (loss) $ 1,812,000 $ (13,000) $ 9,000 $ 5,000 $ 1,813,000
=========== =========== ========== =========== ===========
Identifiable assets $16,048,000 $ 2,113,000 $1,237,000 $(2,242,000) $17,156,000
=========== =========== ========== =========== ===========
</TABLE>
Transfers between the geographic areas primarily represent intercompany
export sales and are accounted for based on established sales prices between
the related companies. In computing operating profit (loss), no allocations
of general corporate expenses have been made.
Identifiable assets of geographic areas are those assets related to the
Company's operations in each area. United States assets consist of all other
operating assets of the Company.
Export sales account for a significant portion of the Company's revenues and
are summarized by geographic area as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
North and South America (excluding U.S.A.) $ 5,899,000 $ 5,864,000 $ 3,817,000
Europe 5,213,000 6,627,000 5,055,000
Asia 11,023,000 5,188,000 8,008,000
Other 3,470,000 1,756,000 826,000
----------- ----------- -----------
$25,605,000 $19,435,000 $17,706,000
=========== =========== ===========
</TABLE>
28
<PAGE> 29
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 2,
1997, which is included in Part II of this form, we have also audited Schedule
II for each of the three years in the period ended June 30, 1997. 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 2, 1997
29
<PAGE> 30
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>
1997
- ----
Allowance for doubtful
accounts $100,000 $249,612 $ -- $ 37,162(2) $312,450
======== ======== ==== ======== ========
Deferred tax valuation
allowance $160,405 $ -- $ -- $130,695(3) $ 29,710
======== ======== ==== ======== ========
1996
- ----
Allowance for doubtful
accounts $ 99,082 $ 44,307 $852 $ 44,241(2) $100,000
======== ======== ==== ======== ========
Deferred tax valuation
allowance $121,091 $ 39,314 $ -- $ -- $160,405
======== ======== ==== ======== ========
1995
- ----
Allowance for doubtful
accounts $ 85,827 $ 55,401 $ -- $ 42,146(2) $ 99,082
======== ======== ==== ======== ========
Deferred tax valuation
allowance $147,071 $ -- $ -- $ 25,980(3) $121,091
======== ======== ==== ======== ========
</TABLE>
(1) Collections on accounts previously written off.
(2) Write offs.
(3) Utilization and/or revaluation of net operating loss carryovers.
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEERLESS MFG. CO.
Date: October 28, 1997 By: /s/ Sherrill Stone
-----------------------------
Sherrill Stone,
Chairman, President
and Chief Executive Officer
