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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal year ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
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Commission File Number 0-5214
PEERLESS MFG. CO.
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(Exact name of registrant as specified in its charter)
Texas 75-0724417
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2819 Walnut Hill Lane, Dallas, Texas 75229
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(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
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Common Stock, par value $1.00 The Nasdaq Stock Market's National Market
Securities registered pursuant to Section 12(b) of the Act: None
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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]
At September 21, 2000, Peerless Mfg. Co. had 1,467,992 shares of common
stock, $1.00 par value outstanding. The aggregate market value of the
registrant's common stock on September 21, 2000 (based upon the closing
price of these shares on Nasdaq) held by non-affiliates (excludes officers,
directors and shareholders holding 5% or greater of the registrant's common
stock) was approximately $22,700,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for Annual Meeting of
Shareholders to be held on or about November 16, 2000 (to be filed) are
incorporated by reference into Part III of this Form 10-K.
<PAGE>
TABLE OF CONTENTS
Item Page
PART I
1 Business.............................................. 1
2 Properties............................................ 5
3 Legal Proceedings..................................... 5
4 Submission of Matters to a Vote
of Security Holders ................................ 5
PART II
5 Market for Registrant's Common Equity and
Related Stockholder Matters ........................ 5
6 Selected Financial Data............................... 6
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ................ 6
8 Financial Statements and Supplementary Data.......... 12
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ............ 37
PART III
10 Directors and Executive Officers of
the Registrant .................................... 37
11 Executive Compensation............................... 37
12 Security Ownership of Certain Beneficial
Owners and Management ............................. 37
13 Certain Relationships and Related
Transactions ...................................... 37
PART IV
14 Exhibits, Financial Statement Schedule,
and Reports on Form 8-K ........................... 38
<PAGE>
PART I
ITEM 1. BUSINESS.
Peerless Mfg. Co. (the "Registrant", "Peerless" or "we," "us" or "our")
was organized in 1933 as a proprietorship and was incorporated as a Texas
corporation in 1946. We have wholly-owned subsidiaries in Texas,
Netherlands, United Kingdom, and Barbados.
Products and Operations
We are engaged in the business of designing, engineering, manufacturing
and selling highly specialized products referred to as "Selective Catalytic
Reduction Systems" (we refer to these products as "SCR Systems") used to
separate nitrogen oxide (NOx) emissions from exhaust gases caused by burning
hydrocarbon fuels such as coal, gasoline, natural gas and oil. We combine
these products with other components as totally integrated systems. Many of
the company's components are packaged on skids complete with instruments,
controls and related valves and piping.
We also design, engineer, manufacture and sell specialized products
known as "separators" or "filters" which are used for a variety of purposes
in cleaning gases and liquids as they move through a piping system. These
products are used primarily 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. Separators are also used in nuclear
power plants to remove water from saturated steam.
We likewise design, engineer, manufacture and sell packaged boilers and
other steam generating equipment through our subsidiary, ABCO Industries,
Inc. This equipment is used to produce steam which is used in processes,
heating, drying, driving steam turbines and a variety of other applications.
ABCO Industries, Inc. is also used to support the manufacturing needs of
other Peerless products.
We also design, engineer, manufacture and sell specialized products
known as "pulsation dampeners" which are used primarily to reduce or
eliminate vibrations caused by acoustical pulsations commonly found in
piping connected to reciprocating compressors. Pulsation dampeners reduce
noise levels, improve efficiency and prolong the life of piping systems.
Additionally, we sell gas odorization equipment, quick-opening closures,
parts for our products and other miscellaneous items and render certain
engineering services.
Although we manufacture and stock a limited number of items of
equipment for immediate delivery, the vast majority of our products are
designed and constructed for specific customer requirements or
specifications. In certain cases, our products and components are designed
by us but produced by subcontractors under our supervision.
We market our products worldwide through manufacturers' representatives
who sell on a commission basis under the general direction of an officer of
Peerless. We also sell products directly to customers. Our business
activity and revenues are not seasonal.
<PAGE>
Customers and Export Sales
Environmental control products, principally SCR Systems, are sold to
independent power producers, heat recovery steam generator suppliers, boiler
manufacturers, refineries, petrochemical plants and others who desire or may
be required to reduce nitrogen oxide (NOx) emissions.
Gas separators and filters are sold to gas producers and gas gathering,
transmission and distribution companies, chemical manufacturers and oil
refineries, either directly or through contractors engaged to build plants
and pipelines, and to manufacturers of compressors, turbines, and nuclear
and conventional steam generating equipment. Marine separation/filtration
systems are sold primarily to shipbuilders. Pulsation dampeners are
purchased by customers in the same industries as purchasers of separators
and filters (except shipbuilders and steam generating equipment
manufacturers).
Boilers as supplied by ABCO Industries, Inc. are sold to industrial,
process and utility customers. These products are sold through a number of
sales channels including direct to users of the equipment, consulting
engineers and OEM's.
We are not dependent upon any single customer or group of customers.
The custom-designed nature of our business and the nature of the products
cause year to year variance in our major customers. During Fiscal year
2000, one customer, Pacific Gas & Electric Disbursed Generating, accounted
for 19% of revenues. No customer accounted for 10% or more of our revenues
during Fiscal years 1999 and 1998.
Sales to international customers have been a part of our business for
more than forty years. During our Fiscal year 2000, foreign sales amounted
to $13.6 million, or 23% of total consolidated revenue, compared to sales of
$18 million, or 44% of total consolidated revenue, during our Fiscal year
1999. The custom-designed and project-specific nature of our products
enables us to sell to any geographic region.
Our international sales involve certain risks. Foreign purchasers may
default in the payment of amounts due, causing collection on an
international account to be more difficult than for a domestic account.
Foreign exchange rates may fluctuate, adversely affecting us. Also, the U.S.
and foreign governments may impose regulatory burdens upon exports and
imports of our products. We also incur greater expenses on foreign sales
because of added selling expenses incurred in other countries. To date, we
have not incurred substantial expenses related to these risks.
We have reduced our credit and collection risks because a substantial
part of foreign sales are made to large, well-established international
companies and/or to international operations of domestic companies. When
sales are made to smaller international enterprises, we generally require
progress payments or an appropriate guarantee of payment, such as a letter
of credit from a banking institution. We attempt to minimize the risks of
fluctuating currency exchange rates by requiring payment in U.S. dollars (or
in the functional currency of our foreign subsidiaries) for most of our
foreign product sales.
<PAGE>
Backlog
Our backlog of uncompleted orders at June 30, 2000 was approximately
$29 million, which was unchanged from orders at June 30, 1999. Backlog has
been calculated under our normal practice of including incomplete orders for
products that are deliverable in future periods but that may be changed or
cancelled. Of the $29 million backlog as of June 30, 2000 approximately 90%
is scheduled to be complete by the end of the current Fiscal year.
Competition
There are many competitors, both larger and smaller than us, in the
manufacturing and selling of SCR systems, separators, filters and pulsation
dampeners. Management believes that performance, reliability and warranty
service are the prime competitive factors in our markets. We believe that
we strongly compete in these areas and have become a world leader in sales
of these custom-built products.
Patents, Licenses and Product Development
We believe that we are a leader in the design, manufacturing and
application of efficient, dependable SCR systems. We also consider our
ourselves to be a world leader in the technology required to design and
apply our high efficiency vapor/liquid separation and filtration equipment.
In addition, we believe that we are also a leader in the design, manufacture
and application of high efficiency pulsation dampeners for reciprocating
compressors. Our expenditures for new product development and improvements
were approximately $848,000 in Fiscal 2000 and $667,000 in Fiscal 1999. We
expect product development expenditures to be approximately $792,000 in
Fiscal 2001.
We have existing patents and patent applications pending on some
of our products and processes that are important to our business. These
include patents on vane designs, separator profiles, marine/separator
filtration systems and pressure testing capabilities. In addition, most of
our products are proprietary and are sold utilizing our proven technology
and knowledge of the applications. However, other companies are marketing
competitive products that may not infringe upon our patents and there can be
no assurance that other companies won't sell products similar to our
proprietary products.
Employees
At June 30, 2000, Peerless and its subsidiaries had approximately 265
employees.
Raw Materials
We purchase raw materials and component parts essential to our business
from established sources and have not experienced any unusual problems in
purchasing required materials and parts. We believe that raw materials and
component parts will be available in sufficient quantities to meet
anticipated demand. However, there can be no assurance that we will
continue to find our raw materials in quantities or at prices satisfactory
to us.
<PAGE>
Environmental Regulation
We do not believe that our 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 our
competitive position. Our manufacturing processes do not emit substantial
foreign substances into the environment. Regulations related to NOx
emissions have in the past resulted in increased sales of our component
parts for SCR systems.
Market Risk
Although we generally require payment in U.S. dollars on our
international projects, we sometimes conduct business in foreign currencies
and are subject to foreign currency exchange rate risk on cash flows related
to such transactions. We make very limited use of currency exchange
contracts to reduce the risk of adverse foreign currency movements related
to certain foreign currency transactions. Exposure from market rate
fluctuations related to these contracts is not material.
Executive Officers
Our executive officers on September 21, 2000 are listed below.
Name and Age Position
------------------ ------------------------------------
Sherrill Stone, 63 Chairman of the Board, President and
Chief Executive Officer (1)
Roy C. Cuny, 47 Executive Vice President and
Chief Operating Officer (2)
Thomas J. Reeve, 44 Chief Financial Officer, Treasurer
and Secretary (3)
G. D. Cornwell, 56 Sr. Vice President (4)
____________________
(1) Mr. Stone is responsible for formulation of corporate policy,
investment and new business opportunities. Mr. Stone assumed the
duties of Chairman of the Board and Chief Executive Officer on March
31, 1993.
(2). Mr. Cuny is responsible for marketing, manufacturing and engineering
operations of the company. Mr. Cuny joined the company on May 16, 2000
after twenty years with Foster Wheeler Corporation.
(3) Mr. Reeve is responsible for financial administration and has been
employed by us since January 3, 2000. He was formerly employed by
Trinity Industries from 1996 to 1999 as Chief Financial Officer for the
Transportation Products Division.
(4) Mr. Cornwell is responsible for manufacturing, purchasing, estimating,
and quality control operations.
<PAGE>
ITEM 2. PROPERTIES.
We own our principal executive offices located in Dallas, Texas, which
include office, warehouse and manufacturing facilities. Approximately 4,000
square feet of space is used for executive and sales offices, 3,600 square
feet is used for research and development and a 40,000 square foot building
located on the same site is used for administrative, engineering and
drafting offices. We own four manufacturing facilities consisting of
approximately 21,600 square feet in Denton, Texas, approximately 29,000
square feet in Carrollton, Texas, approximately 80,000 square feet in
Dallas, Texas and approximately 77,700 square feet in Abilene, Texas. Only
approximately 35,000 square feet of the manufacturing facility in Dallas is
currently usable for manufacturing. We believe that our office and
manufacturing facilities are adequate and suitable for its present
requirements. Future needs can be met by building, modernizing or expanding
manufacturing facilities at the Denton, Texas, Dallas, Texas or Abilene,
Texas locations, where space is available for expansion.
The manufacturing facility in Abilene, Texas is pledged as collateral
for a bank loan used to purchase the property.
ITEM 3. LEGAL PROCEEDINGS.
We are involved in various legal proceedings and claims arising in the
ordinary course of business. On the basis of information presently
available, it is the opinion of management that such legal proceedings and
claims are not material to our financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Our Common Stock is listed on the Nasdaq Stock Market's National Market
under the symbol "PMFG". Our Board of Directors reviews our financial
position 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 our Common Stock as reported by
Nasdaq and cash dividends paid per share.
Quarter Ended: Closing Bid Prices Cash Dividends
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High Low Per Share
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Fiscal 1999
September 30, 1998 $15-3/8 $10 $.125
December 31, 1998 13 9 .125
March 31, 1999 11-1/4 9-5/16 .125
June 30, 1999 11-1/8 8-3/4 .125
Fiscal 2000
September 30, 1999 $14-1/8 $10-1/2 $.125
December 31, 1999 13 9-7/8 .125
March 31, 2000 15-13/16 12 .125
June 30, 2000 17-7/8 12 .125
<PAGE>
There were 178 record holders of our Common Stock on September 19,
2000. We estimate that approximately 700 additional shareholders own shares
in broker names.
We intend to pay cash dividends on our common stock as our Board deems
appropriate, after consideration of our operating results, financial
condition, cash requirements, compliance with financial covenants in our
credit facilities and such other factors as the Board deems appropriate.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
The following selected financial data should be read in conjunction
with, and is qualified in its entirety by, "Managements Discussion and
Analysis of Financial Condition and results of Operations" and the
Consolidated Financial Statements and related Notes included in this report.
Year ended June 30
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2000 1999 1998 1997 1996
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<S> <C> <C> <C> <C> <C>
Net sales $58,561,396 $40,568,443 $43,455,136 $41,486,492 $33,643,998
Gross profit 15,657,989 14,271,719 15,239,806 11,525,289 10,213,237
Earnings before 1,578,363 2,845,570 3,522,138 537,996 1,182,148
income taxes
Net earnings $930,777 $1,849,570 $2,449,561 $537,416 $789,721
========== ========== =========== ========== ==========
Earnings per
common share - basic $.64 $1.27 $1.68 $.37 $.55
========== ========== =========== ========== ==========
Earnings per
common share - diluted $.63 $1.27 $1.68 $.37 $.55
========== ========== =========== ========== ==========
Total assets $32,120,953 $23,478,772 $23,756,221 $19,046,720 $18,191,426
========== ========== =========== ========== ==========
Long-term obligations 1,406,144 --- --- --- ---
Cash dividend per
common share $ .50 $ .50 $ .50 $ .50 $ .50
========== ========== =========== ========== ==========
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Liquidity And Capital Resources
We believe that we maintain corporate liquidity adequate to support
existing operations and planned growth, as well as continue operations
during reasonable periods of unanticipated adversity. Management directs
additional resources to strategic new product development, market expansion
and continuing improvement of existing products to enhance our position as a
market leader and to promote planned internal growth and profitability.
We have historically financed, and continue to finance, working capital
requirements, expansion, and equipment purchases primarily through the
retention of earnings and the use of a short-term bank credit line. During
Fiscal 2000 we increased our short-term line of credit to $11,000,000. It
was necessary for us to use our short-term bank credit lines in order to
finance a temporary shortfall in working capital during Fiscal 2000 and
Fiscal 1999. On June 30, 2000 we had $5,821,000 outstanding and as of
June 30, 1999, we had no debt outstanding under our credit lines. We pay an
annual commitment fee of 0.25% of the unused balance under the credit lines.
The ABCO acquisition was made on February 25, 2000 and was financed with a 5
year fully amortized term note that will be repaid with equal quarterly
principle installments plus accrued interest. The assets of the ABCO
acquisition secure the term note. The balance on the term note as of June
30, 2000 was $1,806,000. We have no material commitments for capital
expenditures other than replacing equipment and maintaining our existing
plants and equipment. During Fiscal 2000 we purchased fixed assets totaling
$327,000, consisting primarily of replacement manufacturing equipment,
computer hardware and software, office equipment and building improvements.
This is compared to purchases of $233,000 during Fiscal 1999.
Working capital was $11,900,000 at June 30, 2000, an increase of less
than 4% from $11,500,000 at June 30, 1999.
The following table sets forth certain information related to working
capital for our last three Fiscal years:
2000 1999 1998
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Average working capital as
a percentage of net sales 18.5% 25.9% 20.5%
Annual accounts receivable
turnover(1) 5.3 3.8 5.0
Annual inventory turnover(2) 9.4 6.2 6.3
(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.
<PAGE>
The average working capital as a percentage of net sales declined from
25.9% in Fiscal 1999 to 18.5% in Fiscal 2000. The decrease in Fiscal 2000
was the result of average working capital increasing $300,000 or 3% offset
by an increase in sales volume of 44% or approximately $17,993,000 over
Fiscal 1999. The increase in annual accounts receivable turnover from 3.8
in Fiscal 1999 to 5.3 in Fiscal 2000 was caused by improved collections. The
average account receivable balance increased approximately $468,000 from
Fiscal 1999 to Fiscal 2000, while sales increased $17,993,000 for the same
time period. Average inventory turnover has improved from 6.2 in Fiscal 1999
to 9.4 in Fiscal 2000. The average inventory level increased $316,000, from
$4,254,000 in Fiscal 1999 to $4,570,000 in Fiscal 2000. This combined with
an approximately $16,600,000 increase in cost of sales increased the
inventory turnover. The higher inventory turnover is primarily due to
increased sub-contracting and SCR specialty components purchased and shipped
direct to the customer.
Results of Operations
The following table sets forth various measures of performance
expressed as percentages of net sales for our last three Fiscal years, as
well as our effective income tax rate for the same periods:
2000 1999 1998
---- ---- ----
Gross profit margin 26.7% 35.2% 35.1%
Operating expenses 23.5% 27.8% 26.7%
Earnings before income taxes 2.7% 7.0% 8.1%
Effective income tax rate 41.0% 35.0% 30.5%
Inflation did not have a material impact on our operating results
during the last three Fiscal years.
Comparison of Fiscal 2000 to Fiscal 1999
Net Sales
Our net sales increased approximately $17,993,000, or 44%, from
$40,568,000 to $58,561,000. Domestic sales increased 99% from $22,593,000
in Fiscal 1999 to $44,978,000 in Fiscal 2000. Domestic sales growth was
caused primarily by a significant increase in the sales of environmental
products (SCR systems) from $6,132,000 in Fiscal 1999 to $28,533,000 in
Fiscal 2000. Foreign sales decreased 24.4% from $17,975,000 in Fiscal 1999
to $13,583,000 in Fiscal 2000.
Our backlog of unfilled orders remained unchanged at $29,000,000 as of
June 30, 1999 and June 30, 2000.
<PAGE>
Gross Profit Margin
Our gross profit increased $1,386,000 from $14,272,000 in Fiscal 1999
to $15,658,000 in Fiscal 2000. However the gross profit margin decreased
from 35.2% of net sales in Fiscal 1999 to 26.7% of net sales in Fiscal 2000.
The lower gross profit margin is primarily due to cost overruns on a
significant order and lower margins inherent with specialty components
purchased and shipped direct to customers associated with environmental
products.
Operating Expenses
Operating expenses increased 22.1% from $11,293,000 in Fiscal 1999 to
$13,791,000 in Fiscal 2000. This increase in operating expenses is
primarily due to increased implementation cost for an ERP system, costs
associated with integration of ABCO Industries and the addition of personnel
to support the higher sales volume. However, operating expenses as a
percent of sales decreased from 27.8% in Fiscal 1999 to 23.5% in Fiscal
2000.
Income Tax
Our effective tax rate was 41.0% in Fiscal 2000 compared to 35.0% in
Fiscal 1999. For a further discussion of our federal income taxes, see Note
J to our Financial Statements.
Comparison of Fiscal 1999 to Fiscal 1998
Net Sales
Our net sales decreased approximately $2,887,000, or 6.6%, from
$43,455,000 to $40,568.000. Domestic sales increased 39.6% from $16,181,000
in Fiscal 1998 to $22,593,000 in Fiscal 1999. Foreign sales decreased 34.1%
from $27,274,000 in Fiscal 1998 to $17,975,000 in Fiscal 1999.
Our backlog of unfilled orders increased from $22,000,000 at June 30,
1998 to $29,000,000 at June 30, 1999.
Gross Profit Margin
Our gross profit margin increased slightly from 35.1% of net sales in
Fiscal 1998 to 35.2% of net sales in Fiscal 1999.
Operating Expenses
Operating Expenses decreased 2.6% from $11,595,000 in Fiscal 1998 to
$11,293,000 in Fiscal 1999. This decrease in operating expense was
primarily due to decreased sales in Fiscal 1999. However, operating
expenses as a percent of sales increased slightly from 26.7% in Fiscal 1998
compared to 27.8% in Fiscal 1999.
Income Tax
Our effective tax rate was 35.0% in Fiscal 1999 compared to 30.5% in
Fiscal 1998. For a further discussion of our federal income taxes, see Note
J to our Financial Statements.
<PAGE>
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 and may be included in our business description or
in Management's Discussion and Analysis of Results of Operations and
Financial Condition, among other places. 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. We do not undertake to update any forward-looking
statements.
Quantitative and Qualitative Disclosures about Market Risk. The
company is exposed to market risk from changes in interest rates. The
company's cash equivalents and short-term investments and its outstanding
debt bear variable interest rates. The company has not used derivative
instruments to offset the exposure to changes in interest rates. Changes in
interest rates are not expected to have a material impact on the company's
results of operations.
Competition. We operate in highly competitive markets worldwide. We
compete with manufacturers and sellers of selective catalytic reduction
systems, separators, filters, and pulsation dampeners, some of which are
larger than us and have greater financial resources. In addition, several
smaller manufacturers also produce custom-designed equipment that is
competitive with our specialized products and services. There can be no
assurance that we will be able to compete successfully with current or
future competitors.
International Operations. We derive a significant portion of revenues
from international sales. Economic conditions across international regions
could materially and adversely affect us. Our operations and earnings
throughout the world have been, and may in the future be, affected from time
to time in varying degrees by political developments and foreign laws and
regulations, such as forced divestiture of assets, restrictions on
production, imports and exports, price controls, tax cancellation of
contract rights and environmental regulations. The likelihood of such
occurrences and their overall effect upon us vary greatly from country to
country and are not predictable.
Further, foreign purchasers may default in the payment of amounts due,
causing collection on an international account to be more difficult than for
a domestic account. Fluctuations in foreign exchange rates may have an
adverse affect. Also, U.S. and foreign governments may impose regulatory
burdens upon exports and imports of our products. We also incur greater
expenses on foreign sales because of added selling expense incurred in other
countries. The occurrence of any one or more of the foregoing could
adversely affect our operations.
<PAGE>
Concentrations of Credit Risk. We continue to closely monitor the
creditworthiness of our customers and have not experienced significant
credit losses to date. A significant portion of our sales are to customers
whose activities are related to the oil and gas industry, including some who
are located in other countries. We generally extend credit to these
customers. Our exposure to credit risk is affected by conditions within the
oil and gas industry. When sales are made to smaller international
enterprises, we generally require progress payments or an appropriate
guarantee of payment, such as a letter of credit from a banking institution.
Backlog. Our backlog represents incomplete customer orders. We have
historically completed and shipped virtually all of the backlog. However,
customers may cancel outstanding orders prior to their completion. In such
cases, we would not recognize revenues for canceled orders. We have
contractual protection to recover from our customers our costs related to
canceled orders.
Potential Cost Overruns. From time to time we enter into contracts
for custom designed, engineered and manufactured products that contain a
fixed price. In the event of a cost over run, the additional cost may not
be recoverable from the customer.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS ........................................... 14
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2000 AND 1999....... 15
CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS
ENDED JUNE 30, 2000, 1999 AND 1998..................... 17
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED JUNE 30, 2000,
1999 AND 1998.......................................... 18
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED JUNE 30, 2000, 1999 AND 1998..................... 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED JUNE 30, 2000, 1999 AND 1998............... 21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE............................................ 34
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS............. 35
<PAGE>
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, 2000 and 1999, 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, 2000.
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 auditing standards generally
accepted in the United States of America. 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, 2000 and 1999, and the consolidated
results of their operations and their consolidated cash flows for each of
the three years in the period ended June 30, 2000, in conformity with
accounting principles generally accepted in the United States of America.
GRANT THORNTON LLP
Dallas, Texas
September 15, 2000
<PAGE>
<TABLE>
Peerless Mfg. Co. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS 2000 1999
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 561,017 $ 210,866
Short-term investments 273,343 273,343
Accounts receivable - principally trade,
net of allowance for uncollectible
accounts of $777,546 and $685,330
in 2000 and 1999, respectively 12,319,171 12,195,037
Inventories 3,287,957 3,730,970
Costs and earnings in excess of billings
on uncompleted contracts 9,911,587 3,268,181
Deferred income taxes 470,884 -
Other 704,118 777,635
---------- ----------
Total current assets 27,528,077 20,456,032
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation 3,509,846 2,102,546
DEFERRED INCOME TAXES - 59,613
OTHER ASSETS 1,083,030 860,581
---------- ----------
$32,120,953 $23,478,772
========== ==========
</TABLE>
<PAGE>
<TABLE>
Peerless Mfg. Co. and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable - trade $ 6,471,280 $ 5,626,058
Lines of credit 5,800,000 -
Current maturities of long-term debt 421,212 -
Billings in excess of costs and earnings
on uncompleted contracts 363,577 572,970
Commissions payable 984,784 1,204,584
Accrued expenses
Compensation 745,911 1,188,165
Warranty reserve 354,534 313,773
Deferred income taxes - 42,736
Other 448,194 38,669
---------- ----------
Total current liabilities 15,589,492 8,986,955
LONG-TERM DEBT, net of current maturities 1,406,000 -
DEFERRED INCOME TAXES 376,061 -
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Common stock - authorized, 10,000,000
shares of $1 par value; issued and
outstanding, 1,467,992 and 1,452,492
shares in 2000 and 1999, respectively 1,467,992 1,452,492
Additional paid-in capital 2,692,099 2,539,951
Unamortized value of restricted stock grants (71,096) (4,719)
Accumulated other comprehensive income (loss) (148,954) (103,824)
Retained earnings 10,809,359 10,607,917
---------- ----------
14,749,400 14,491,817
---------- ----------
$32,120,953 $23,478,772
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Peerless Mfg. Co. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended June 30,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $58,561,396 $40,568,443 $43,455,136
Cost of goods sold 42,903,407 26,296,724 28,215,330
---------- ---------- ----------
Gross profit 15,657,989 14,271,719 15,239,806
Operating expenses
Marketing and engineering 10,035,579 8,630,962 8,932,180
General and administrative 3,755,087 2,662,289 2,662,725
---------- ---------- ----------
13,790,666 11,293,251 11,594,905
---------- ---------- ----------
Operating profit 1,867,323 2,978,468 3,644,901
Other income (expense)
Interest income 38,413 58,987 34,055
Interest expense (180,128) (23,696) (27,430)
Foreign exchange gains (losses) (6,710) (118,866) (90,050)
Other, net (140,535) (49,323) (39,338)
---------- ---------- ----------
(288,960) (132,898) (122,763)
---------- ---------- ----------
Earnings before income taxes 1,578,363 2,845,570 3,522,138
Income tax expense (benefit)
Current 725,532 617,824 1,262,998
Deferred (77,946) 378,176 (190,421)
---------- ---------- ----------
647,586 996,000 1,072,577
---------- ---------- ----------
NET EARNINGS $ 930,777 $ 1,849,570 $ 2,449,561
========== ========== ==========
Earnings per common share - basic $ .64 $1.27 $1.68
==== ==== ====
Earnings per common share - diluted $ .63 $1.27 $1.68
==== ==== ====
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Peerless Mfg. Co. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Unamortized Accumulated
Additional value of other
Common paid-in restricted comprehensive Retained
stock capital stock grants income (loss) earnings Total
--------- --------- ------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances as of June 30, 1997 1,451,992 $2,535,221 $(44,625) $ (93,944) $ 7,580,786 $11,429,430
Comprehensive income
Net earnings - - - - 2,449,561 2,449,561
Foreign currency translation
adjustment - - - 14,095 - 14,095
----------
Total comprehensive income 2,463,656
Issuance of 3,000 shares of
common stock 3,000 28,875 (31,875) - - -
Stock options exercised 2,500 20,625 - - - 23,125
Cash dividends ($.375 per share) - - - - (544,503) (544,503)
Amortization of restricted
stock grants - - 25,115 - - 25,115
Income tax expense related to
restricted stock plans - (1,020) - - - (1,020)
--------- --------- ------- --------- ----------- ----------
Balances as of June 30, 1998 1,457,492 2,583,701 (51,385) (79,849) 9,485,844 13,395,803
Comprehensive income
Net earnings - $ - $ - $ - $ 1,849,570 $ 1,849,570
Foreign currency translation
adjustment - - - (23,975) (23,975)
----------
Total comprehensive income 1,825,595
Cash dividends paid
($.50 per share) - - - - (727,497) (727,497)
Forfeiture of restricted
stock grant (5,000) (43,750) 29,250 - - (19,500)
Amortization of restricted
stock grants - - 17,416 - - 17,416
--------- --------- ------- --------- ----------- ----------
Balance at June 30, 1999 1,452,492 $2,539,951 $ (4,719) $ (103,824) $ 10,607,917 $14,491,817
Comprehensive income
Net earnings - - - - 930,777 930,777
Foreign currency translation
adjustment - - - (45,130) - (45,130)
----------
Total comprehensive income 885,647
Cash dividends paid
($.50 per share) - - - - (729,335) (729,335)
Stock options exercised 9,000 74,937 - - - 83,937
Issuance of stock grants 6,500 73,711 (80,211) - - -
Amortization of restricted
stock grants - - 13,834 - - 13,834
Income tax expense related to
restricted stock plans - 3,500 - - - 3,500
--------- --------- ------- --------- ----------- ----------
Balance at June 30, 2000 1,467,992 $2,692,099 $(71,096) $ (148,954) $ 10,809,359 $14,749,400
========= ========= ======= ========= =========== ==========
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
Peerless Mfg. Co. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings $ 930,777 $ 1,849,570 $ 2,449,561
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities
Depreciation and amortization 489,739 413,026 379,752
Deferred income taxes (77,946) 378,176 (190,421)
Foreign exchange loss 6,710 118,886 90,050
Other (671) (34,160) (1,020)
Changes in operating assets and
liabilities, net of effect
of acquisitions
Accounts receivable (124,134) 1,949,880 (4,703,504)
Inventories 443,013 (1,301,720) 544,993
Cost and earnings in excess
of billings on uncompleted
contracts (6,643,406) (1,429,540) 33,176
Other current assets 73,517 (612,004) 132,974
Other assets (222,449) (186,421) (231,004)
Accounts payable 845,222 59,008 837,205
Billings in excess of costs
and earnings on uncompleted
contracts (209,393) 522,993 (353,174)
Commissions payable (219,800) (807) 425,917
Accrued expenses 8,032 (788,479) 985,395
---------- ---------- ----------
(5,631,566) (911,162) (2,049,661)
---------- ---------- ----------
Net cash provided by (used in)
operating activities (4,700,789) 938,408 399,900
Cash flows from investing activities
Net purchases of short-term investments - (5,278) (9,058)
Proceeds from sale of property
and equipment 88,000 30,850 -
Purchase of property and equipment (1,967,034) (233,323) (262,362)
---------- ---------- ----------
Net cash used in investing activities (1,879,034) (207,751) (271,420)
</TABLE>
<PAGE>
<TABLE>
Peerless Mfg. Co. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended June 30,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from financing activities
Sale of common stock $ 83,937 $ - $ 23,125
Net changes in lines of credit 5,800,000 - -
Advances on short-term borrowings 2,827,212 - 200,000
Payments on short-term borrowings (1,000,000) (200,000) -
Dividends paid (729,335) (727,497) (727,127)
---------- ---------- ----------
Net cash provided by (used in)
financing activities 6,981,814 (927,497) (504,002)
Effect of exchange rate changes on
cash and cash equivalents (51,840) (20,776) 31,451
---------- ---------- ----------
Net decrease in cash and cash
equivalents 350,151 (217,616) (344,071)
Cash and cash equivalents at
beginning of year 210,866 428,482 772,553
---------- ---------- ----------
Cash and cash equivalents at
end of year $ 561,017 $ 210,866 $ 428,482
========== ========== ==========
Supplemental information on cash flows:
Interest paid $ 150,183 $ 21,170 $ 29,956
Income taxes paid $ 780,945 $ 900,814 $ 957,860
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
Peerless Mfg. Co. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT 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.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements
follows.
Consolidation
-------------
The Company consolidates the accounts of its subsidiaries, all of which are
whole-owned. 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.
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 based upon engineering work performed,
materials purchased and manufacturing labor hours incurred.
<PAGE>
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
Stock-Based Compensation
------------------------
The Company accounts 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
-------------------------
Basic earnings per common share is computed by dividing net earnings by
the weighted average number of common shares outstanding during each year
presented. Diluted earnings per common share give effect to the assumed
issuance of shares pursuant to outstanding stock option plans, when
dilutive.
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.
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.
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. The carrying amount of debt approximates fair value because
all debt has interest rates tied to market.
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.
<PAGE>
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
Reclassification
----------------
Certain reclassifications of prior year amounts have been made to conform
to the current year presentation.
NOTE B - BUSINESS COMBINATION
On February 25, 2000, the Company purchased substantially all of the
assets of ABCO Industries, Inc. (ABCO) for approximately $1,700,000. No
goodwill resulted from the acquisition. ABCO is in the business of
designing and manufacturing industrial boilers. Following is unaudited
pro forma data assuming that the acquisition of ABCO had occurred on July
1, 1998:
Year ended June 30,
-------------------------
2000 1999
---------- ----------
Sales $69,316,000 $55,569,000
Net loss before extraordinary credit (13,000) (327,000)
Net earnings (loss) 2,109,000 (327,000)
Per share - basic
Net loss before extraordinary credit (.01) (.22)
Net earnings (loss) 1.44 (.22)
Per share - diluted
Net loss before extraordinary credit (.01) (.22)
Net earnings (loss) 1.43 (.22)
NOTE C - 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.
For the year ended June 30, 2000, sales to one customer amounted to
approximately 19% of revenues. For the years ended June 30, 1999 and
1998, no single customer accounted for more than 10% of revenues.
<PAGE>
NOTE D - INVENTORIES
Principal components of inventories are as follows:
June 30,
-----------------------
2000 1999
--------- ---------
Raw materials $1,252,111 $ 961,450
Work in process 1,669,348 2,522,182
Finished goods 366,498 247,338
--------- ---------
$3,287,957 $3,730,970
========= =========
At June 30, 2000 and 1999, progress payments of $261,374 and $1,237,771,
respectively, have been offset against inventories and costs of
uncompleted contracts.
NOTE E - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
June 30,
-------------------------
2000 1999
---------- ----------
Buildings $ 3,783,724 $ 3,096,993
Equipment 3,449,821 2,670,878
Furniture and fixtures 2,044,660 1,815,592
Land improvements 5,169 -
---------- ----------
9,283,374 7,583,463
Less accumulated depreciation (6,609,254) (6,201,643)
---------- ----------
2,674,120 1,381,820
Land 835,726 720,726
---------- ----------
$ 3,509,846 $ 2,102,546
========== ==========
NOTE F - LINES OF CREDIT
The Company has unsecured revolving lines of credit in the amount of $11.0
million due in December 2000, with interest at the banks' prime lending
rate (9.5% at June 30, 2000), payable monthly. The bank charges usage
fees at an annual rate of .25% of the average daily unused portion of the
line. At June 30, 2000, $5.8 million was outstanding under the lines of
credit. The Company had letters of credit outstanding under these
arrangements of $4,094,479 and $3,246,567 at June 30, 2000 and 1999,
respectively. Other assets with a cost of approximately $649,000 and
$635,000 were pledged against the letters of credit outstanding at June
30, 2000 and 1999, respectively.
<PAGE>
NOTE G - LONG-TERM DEBT
2000 1999
--------- ---------
Note payable, due June 30, 2005, principal
due in 19 quarterly installments of
$100,000 beginning June 30, 2000,
interest at the bank's prime rate
(9.5% at June 30, 2000) $1,827,212 $ -
Less current maturities (421,212) -
--------- ---------
$1,406,000 $ -
========= =========
The aggregate annual maturities of long-term debt at June 30, 2000 are as
follows:
Year ended
June 30,
--------
2001 $ 421,212
2002 400,000
2003 400,000
2004 400,000
2005 206,000
---------
$1,827,212
=========
NOTE H - 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 generally vest ratably
over a three to five-year period. The Company awarded 3,000 shares (fair
value at date of grant of $31,875) in fiscal 1998 and 6,500 shares (fair
value at date of grant of $80,211) in fiscal 2000. Compensation expense
for stock grants is charged to earnings over the restriction period and
amounted to $13,835, $17,416, and $25,115 in fiscal 2000, 1999 and 1998,
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 120,000 shares of
common stock to be issued. Stock options are granted at market value,
generally vest ratably over four years, and expire ten years from date of
grant.
At June 30, 2000, 27,450 shares of common stock were available for
issuance under the 1995 Plan, and 250 shares were available under the 1985
Plan.
<PAGE>
NOTE H - STOCKHOLDERS' EQUITY - Continued
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 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:
Year ended June 30,
2000 1999 1998
------- --------- ---------
Net earnings - as reported $930,777 $1,849,570 $2,449,561
Net earnings - pro forma 836,372 1,813,141 2,440,327
Basic earnings per share
As reported .64 1.27 1.68
Pro forma .57 1.25 1.68
Diluted earnings per share
As reported .63 1.27 1.68
Pro forma .57 1.24 1.67
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 41% to 44% for fiscal 2000, 43% for
fiscal 1999 and 41% for fiscal 1998; risk-free interest rates ranging from
4.6% to 6%; dividend yield of 4.2%, 3.7%, and 5.6% in fiscal 2000, 1999
and 1998, respectively; and expected lives of five to seven years.
<PAGE>
NOTE H - STOCKHOLDERS' EQUITY - Continued
Additional information with respect to options outstanding under the plan
is as follows:
Number of Weighted
shares average
underlying exercise
Stock options options price
------- ------
Outstanding at July 1, 1997 31,500 $ 9.57
Granted 24,000 10.73
Exercised (2,500) 9.25
------
Outstanding at June 30, 1998 53,000 10.11
Granted 7,000 13.64
------
Outstanding at June 30, 1999 60,000 10.52
Granted 42,800 12.00
Exercised (9,000) 9.33
Canceled (14,000) 12.12
------
Outstanding at June 30, 2000 79,800 11.17
====== =====
Options exercisable at June 30, 1998 16,125 10.12
====== =====
Options exercisable at June 30, 1999 31,000 10.15
====== =====
Options exercisable at June 30, 2000 63,175 11.14
====== =====
Weighted average fair value per share of options granted:
Year ended June 30, 1998 $3.24
Year ended June 30, 1999 $4.72
Year ended June 30, 2000 $3.94
<PAGE>
NOTE H - STOCKHOLDERS' EQUITY - Continued
The following table summarizes information about the Plan's stock options
at June 30, 2000:
Options outstanding
--------------------------------------------------
Weighted average
Range of Number remaining contractual Weighted average
Exercise Prices outstanding life (in years) exercise price
--------------- ----------- -------------- --------------
$9.25 16,000 5.6 $ 9.25
$10.625-$11.875 22,500 7.8 10.79
$12.00-$13.375 41,300 9.0 12.12
------
79,800
======
Options exercisable
Range of Number Weighted average
Exercise Prices exercisable exercise price
--------------- ----------- --------------
$9.25 16,000 $ 9.25
$10.625-$11.875 12,000 10.83
$12.00-$13.375 35,175 12.10
------
63,175
======
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 I - 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, 2000, 1999
and 1998 was approximately $151,000, $157,000, and $128,000, respectively.
<PAGE>
NOTE J - 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:
June 30,
2000 1999
--------- ---------
Deferred tax assets
Restricted stock grants $ 7,264 $ 6,083
Inventories 126,175 80,597
Foreign subsidiaries' net operating
loss carryforwards 115,421 232,122
Accrued expenses 229,712 164,317
Accounts receivable 91,684 108,285
Other 25,727 29,461
--------- ---------
595,983 620,865
Deferred tax liabilities
Property, plant and equipment (122,359) (100,088)
Uncompleted contracts (375,297) (500,396)
Other (3,504) (3,504)
--------- ---------
(501,160) (603,988)
--------- ---------
Net deferred tax asset $ 94,823 $ 16,877
========= =========
Deferred tax assets and liabilities included in the balance sheet are as
follows:
June 30,
2000 1999
--------- ---------
Current deferred tax asset (liability) $ 470,884 $ (42,736)
Noncurrent deferred tax asset (liability) (376,061) 59,613
--------- ---------
$ 94,823 $ 16,877
========= =========
<PAGE>
NOTE J - INCOME TAXES - Continued
The provision for income taxes consisted of the following:
Years ended June 30,
---------------------------------
2000 1999 1998
------- ------- ---------
Federal
Current $599,431 $552,824 $1,157,345
Deferred (77,946) 378,176 (190,421)
State 126,101 65,000 105,653
------- ------- ---------
$647,586 $996,000 $1,072,577
======= ======= =========
The Company had provided a valuation allowance at June 30, 1997 related to
deferred tax assets of foreign subsidiaries. These assets are recoverable
only from future income of the respective foreign subsidiaries. Because
of a recapitalization 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. The valuation
allowance was reduced in 1997 and eliminated in 1998. Utilization of
foreign net operating carryforwards reduced income tax expense by
approximately $12,000 for 1998.
The effective income tax rate varies from the statutory rate due to the
following:
As a percentage
of pretax earnings
--------------------
2000 1999 1998
---- ---- ----
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 3.8 1.5 2.0
Foreign sales corporation exclusions (2.5) (2.9) (6.7)
Change in valuation allowance - - (0.8)
Adjustment to prior year taxes 5.4 - -
Effect of lower foreign tax rate (1.4) - -
Other 1.7 2.4 2.0
---- ---- ----
Income tax expense at effective rate 41.0% 35.0% 30.5%
==== ==== ====
<PAGE>
NOTE K - EARNINGS PER SHARE
<TABLE>
Summarized basic and diluted earnings per common share for each of the
three years ended June 30, 2000 is as follows:
2000 1999 1998
---------------------------- --------------------------- ---------------------------
Per Per Per
Net share Net share Net share
earnings Shares amount earnings Shares amount earnings Shares amount
--------- --------- ---- --------- --------- ---- --------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic earnings
per share $ 930,777 1,459,590 $ .64 $1,849,570 1,455,396 $1.27 $2,449,561 1,454,277 $1.68
Effect of
dilutive
options - 10,753 - - 4,751 - - 2,698 -
--------- --------- ---- --------- --------- ---- --------- --------- ----
Diluted earnings
per share $ 930,777 1,470,343 $ .63 $1,849,570 1,460,147 $1.27 $2,449,561 1,456,975 $1.68
========= ========= ==== ========= ========= ==== ========= ========= ====
</TABLE>
For fiscal 2000, 1999, and 1998, stock options covering 2,500, 11,500, and
2,500 shares, respectively were excluded in the computations of diluted
earnings per share because their effect was antidilutive.
<PAGE>
NOTE L - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company identifies reportable segments based on management
responsibility within the corporate structure. The Company has two
reportable industry segments: gas/liquid filtration and catalytic reduction
systems. The gas/liquid filtration segment produces various types of
separators and filters used for removing liquids and solids from gases and
air. The segment also provides engineering design and services, pulsation
dampeners, natural gas odorizers, quick-opening closures and parts for its
products. The catalytic reduction systems segment produces "Selective
Catalytic Reduction Systems (SCR)" used to separate nitrogen oxide (NOx)
emissions from exhaust gases caused by burning hydrocarbon fuels such as
coal, gasoline, natural gas and oil. We combine these products with other
components as totally integrated systems. Many of the Company's components
are packaged on skids complete with instruments, controls and related valves
and piping.
NOTE L - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION - Continued
Segment profit and loss is based on revenue less direct costs of the
segment before allocation of general, administrative, research and
development costs. There were no sales or transfers between segments.
Segment information and a reconciliation to operating profit for the years
ended June 30, 2000, 1999, and 1998 are presented below. Note that the
Company does not allocate assets, expenditures for assets or depreciation
expense on a segment basis for internal management reporting, and therefore
such information is not presented.
<TABLE>
Catalytic Unallocated
Gas/liquid reduction corporate
Filtration Systems overhead Consolidated
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
2000
----
Revenues from customers $30,028,000 $28,533,000 $ - $58,561,000
Segment profit (loss) 2,634,000 3,793,000 (4,560,000) 1,867,000
1999
----
Revenues from customers $34,436,000 $ 6,132,000 $ - $40,568,000
Segment profit (loss) 5,580,000 849,000 (3,451,000) 2,978,000
1998
----
Revenues from customers $39,234,000 $ 4,221,000 $ - $43,455,000
Segment profit (loss) 6,708,000 84,000 (3,147,000) 3,645,000
</TABLE>
<PAGE>
The Company attributes revenues from external customers to individual
geographic areas based on the country where the sale is originated.
Information about the Company's operations in different geographic areas
as of and for the years ended June 30, 1999, 1998 and 1997 is as follows:
<TABLE>
United
States Europe Eliminations Consolidated
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
2000
----
Net sales to unaffiliated
customers $51,917,000 $6,644,000 $ - $58,561,000
Transfers between
geographic areas 1,750,000 - (1,750,000) -
---------- --------- ---------- ----------
Total $53,667,000 $6,644,000 $(1,750,000) $58,561,000
========== ========= ========== ==========
Identifiable assets $31,744,000 $3,094,000 $(2,717,000) $32,121,000
========== ========= ========== ==========
United
States Europe Eliminations Consolidated
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
1999
----
Net sales to unaffiliated
customers $34,707,000 $5,861,000 $ - $40,568,000
Transfers between
geographic areas 726,000 - (726,000) -
---------- --------- ---------- ----------
Total $35,433,000 $5,861,000 $ (726,000) $40,568,000
========== ========= ========== ==========
Identifiable assets $21,723,000 $4,285,000 $(2,529,000) $23,479,000
========== ========= ========== ==========
1998
----
Net sales to unaffiliated
customers $37,357,000 $6,098,000 $ - $43,455,000
Transfers between
geographic areas 1,847,000 1,000 (1,848,000) -
---------- --------- ---------- ----------
Total $39,204,000 $6,099,000 $(1,848,000) $43,455,000
========== ========= ========== ==========
Identifiable assets $20,736,000 $4,521,000 $(2,501,000) $22,756,000
========== ========= ========== ==========
</TABLE>
Transfers between the geographic areas primarily represent intercompany
export sales and are accounted for based on established sales prices
between the related companies.
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.
<PAGE>
Report of Independent Certified Public Accountants on Schedules
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
15, 2000, 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, 2000.
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 15, 2000
<PAGE>
<TABLE>
Peerless Mfg. Co. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
June 30,
Balance at Additions
beginning of Charged to Charged to Balance at
Description period expenses other accounts Deductions end of period
----------- ------- -------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
2000
----
Allowance for uncollectible
accounts $685,330 $162,727 $ - $ 70,511 (1) $777,546
======= ======= ======= ======= =======
1999
----
Allowance for uncollectible
accounts $806,200 $184,471 $ - $305,341 (1) $685,330
======= ======= ======= ======= =======
1998
----
Allowance for uncollectible
accounts $312,450 $621,560 $ - $127,810 (1) $806,200
======= ======= ======= ======= =======
Deferred tax valuation allowance $ 29,710 $ - $ - $ 29,710 (2) $ -
======= ======= ======= ======= =======
(1) Write offs.
(2) Utilization and/or revaluation of deferred tax assets.
</TABLE>
<PAGE>
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 our Directors, we refer to the information
set forth under the caption "Election of Directors" and "Common Stock
Ownership of Management and Certain Beneficial Owners" in our Proxy
Statement for the Annual Meeting of Shareholders to be held November 16,
2000 (we refer to it as the "2000 Proxy Statement"), which information is
incorporated herein by reference.
For information concerning our Executive Officers, see Item 1,
"Business - Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION.
For information concerning our executive compensation, we refer to the
information set forth under the caption "Executive Compensation" in the 2000
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 information set forth under
the caption "Election of Directors" and "Common Stock Ownership of
Management and Certain Beneficial Owners" in the 2000 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 information set forth under the
caption "Compensation Committee Interlocks and Insider Participation" in the
2000 Proxy Statement, which information is incorporated herein by reference.
<PAGE>
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 Accounts - Years Ended June 30,
2000, 1999 and 1998
*All other schedules are omitted because the required information
is inapplicable or the information is presented in the financial
statements and the related notes.
(b) Reports on Form 8-K: None
(c) Exhibits: see Index to Exhibits, pages 41-42.
<PAGE>
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 28, 2000.
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.
Date:
September 28, 2000 /s/ Sherrill Stone
----------------------------------
Sherrill Stone, Chairman of the
Board, President, Director and
Chief Executive Officer
September 28, 2000 /s/ Thomas J. Reeve
----------------------------------
Thomas J. Reeve,
Principal Financial Officer,
September 28, 2000 /s/ Donald A. Sillers
----------------------------------
Donald A. Sillers, Jr., Director
September 28, 2000 /s/ J. V. Mariner, Jr.
----------------------------------
J. V. Mariner, Jr. Director
September 28, 2000 /s/ Bernard S. Lee
----------------------------------
Bernard S. Lee, Director
September 28, 2000 /s/ D. D. Battershell
----------------------------------
D. D. Battershell, Director
<PAGE>
INDEX TO EXHIBITS
3(a) Articles of Incorporation, as amended to date (filed as
Exhibit 3(a) the registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1997, and
incorporated herein by reference)
3(b) Bylaws, as amended to date (filed as Exhibit 3(b) to the
registrant's Annual Report on Form 10-K for the year
ended June 30, 1997, and incorporated herein by
reference)
4(a) Specimen of common stock certificate (filed as Exhibit
__ to the registrant's Form 8-A registration statement
(File No. 0-05214), dated October 29, 1970 and
incorporated herein by reference)
4(b) Rights Agreement between Peerless Mfg. Co. and
ChaseMellon Shareholder Services, L.L.C., adopted by the
Board of Directors on May 21, 1997 (filed as Exhibit 1
to the registrant's Registration Statement on Form 8-A
(File No. 0-05214), dated May 22, 1997 and incorporated
herein by reference)
10(a) Incentive Compensation Plan effective January 1, 1981,
as amended January 23, 1991 (filed as Exhibit 10(b) to
the registrant's Annual Report on Form 10-K for the year
ended June 30, 1991 and incorporated herein by
reference)
10(b) 1985 Restricted Stock Plan for Peerless Mfg. Co.,
effective December 13, 1985 (filed as Exhibit 10(b) to
the registrant's Annual Report on Form 10-K for the year
ended June 30, 1993 and incorporated herein by
reference)
10(c) 1991 Restricted Stock Plan for Non-Employee Directors of
Peerless Mfg. Co., adopted subject to shareholder
approval on May 24, 1991, and approved by shareholders
on November 20, 1991 (filed as Exhibit 10(e) to the
registrant's Annual Report on Form 10-K for the year
ended June 30, 1991 and incorporated herein by
reference)
10(d) Employment Agreement, dated as of April 29, 1994, by and
between Peerless Mfg. Co. and Sherrill Stone (filed as
Exhibit 10(d) to the registrant's Annual Report on Form
10-K for the year ended June 30, 1994 and incorporated
herein by reference)
10(e) Agreement, dated as of April 29, 1994 by and between
Peerless Mfg. Co. and Sherrill Stone (filed as Exhibit
10(e) to the registrant's Annual Report on Form 10-K for
the year ended June 30, 1994 and incorporated herein by
reference)
<PAGE>
10(f) Eighth Amended and Restated Loan Agreement, dated as of
December 12, 1999, between Bank of America, N.A. and
Peerless Mfg. Co. (filed as Exhibit 10(f) to the
registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1999 and incorporated herein
by reference)
10(g) Second Amended and Restated Loan Agreement, dated as of
December 12, 1999, and Waiver and First Amendment to
Second Amended and Restated Loan Agreement, dated as of
December 12, 1999, by and between Chase Bank of Texas
and Peerless Mfg. Co. (filed as Exhibit 10(g) to the
registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1999 and incorporated herein
by reference)
10(h) Peerless Mfg. Co. 1995 Stock Option and Restricted Stock
Plan, adopted by the Board of Directors on December 31,
1995 and approved by the shareholders on November 21,
1996 (filed as Exhibit 10(h) to the registrant's Annual
Report on Form 10-K for the year ended June 30, 1997 and
incorporated herein by reference)
10(i) Asset Purchase Agreement, dated February 25, 2000, by
and between PMC Acquisition, Inc. and ABCO Industries,
Inc. (filed as Exhibit 2.1 to the registrant's Current
Report on Form 8-K dated February 25, 2000 and
incorporated herein by reference)
10(j) Employment Agreement, dated as of July 23, 1999, by and
between Peerless Mfg. Co. and G.D. Cornwell (filed as
exhibit 10(j) to the registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999 and
incorporated herein by reference)
10(k) Agreement dated as of July 23, 1999 by and between
Peerless Mfg. Co. and G.D. Cornwell (filed as exhibit
10(k) to the registrant's Quarterly Report Form 10-Q,
for the quarter ended September 30, 1999 and
incorporated herein by reference)
10(l) Employment Agreement, dated as of May 16, 2000, by and
between Peerless Mfg. Co. and Roy C. Cuny*
10(m) The Term Note with Bank of America date May 30th of 2000
by and between Bank of America, N.A. and Peerless Mfg. Co.*
21 Subsidiaries of Peerless*
23 Consent of Grant Thorton LLP*
27 Financial Data Schedule*
______________
* Filed herewith
