-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DLv3Dbf7b2s7geW0Xpg0BqemxOqbAwdoimiwdUjIxcxg3+kAf6Nk2VsFv3nP4Gv6 jPocrAOy9mQxWIgBtpfn/A== 0000926236-99-000111.txt : 19991021 0000926236-99-000111.hdr.sgml : 19991021 ACCESSION NUMBER: 0000926236-99-000111 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19991020 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEERLESS MANUFACTURING CO CENTRAL INDEX KEY: 0000076954 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 750724417 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-05214 FILM NUMBER: 99731254 BUSINESS ADDRESS: STREET 1: 2819 WALNUT HILL LN CITY: DALLAS STATE: TX ZIP: 75229 BUSINESS PHONE: 2143576181 MAIL ADDRESS: STREET 1: P.O. BOX 540667 CITY: DALLAS STATE: TX ZIP: 75354 10-K405/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (Amendment No. 1) 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, 1999 OR [ ] 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 (IRS 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. [x] At September 21, 1999, Peerless Mfg. Co. had 1,452,492 shares of common stock, $1.00 par value outstanding. The aggregate market value of the registrant's common stock on September 21, 1999 (based upon the closing price of these shares on Nasdaq) held by non-affiliates was approximately $13,200,000. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for Annual Meeting of Shareholders to be held on or about November 18, 1999 (to be filed) are incorporated by reference into Part III of this Form 10-K. This amendment to the Form 10-K for the period ended June 30, 1999, is filed for the purpose of revising ITEM 8, NOTE J-INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION with respect to the 1999 Revenues from customers and Segment profit (loss). ********************************************************************** ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Index to Financial Statements Page REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ........................................... 17 CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1999 AND 1998....... 18 CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997..................... 20 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997.......................................... 21 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997..................... 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997............... 25 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE............................................ 36 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS............. 37 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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Dallas, Texas September 10, 1999 Peerless Mfg. Co. and Subsidiaries CONSOLIDATED BALANCE SHEETS June 30, ASSETS 1999 1998 ---------- ---------- CURRENT ASSETS Cash and cash equivalents $ 210,866 $ 428,482 Short-term investments 273,343 268,065 Accounts receivable - principally trade, net of allowance for uncollectible accounts of $685,330 and $806,200 in 1999 and 1998, respectively 12,195,037 14,241,036 Inventories 3,730,970 2,419,845 Costs and earnings in excess of billings on uncompleted contracts 3,268,181 1,838,641 Deferred income taxes - 433,596 Other 777,635 165,631 ---------- ---------- Total current assets 20,456,032 19,795,296 PROPERTY, PLANT AND EQUIPMENT - AT COST, less accumulated depreciation 2,102,546 2,268,405 DEFERRED INCOME TAXES 59,613 - OTHER ASSETS 860,581 692,520 ---------- ---------- $23,478,772 $22,756,221 ========== ==========
Peerless Mfg. Co. and Subsidiaries CONSOLIDATED BALANCE SHEETS - CONTINUED June 30, LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 ---------- ---------- CURRENT LIABILITIES Accounts payable - trade $ 5,626,058 $ 5,566,068 Notes payable - 200,000 Billings in excess of costs and earnings on uncompleted contracts 572,970 49,977 Commissions payable 1,204,584 1,205,391 Accrued expenses Compensation 1,188,165 1,499,443 Warranty reserve 313,773 434,588 Deferred income taxes 42,736 - Other 38,669 366,408 ---------- ---------- Total current liabilities 8,986,955 9,321,875 DEFERRED INCOME TAXES - 38,543 COMMITMENTS - - STOCKHOLDERS' EQUITY Common stock - authorized, 10,000,000 shares of $1 par value; issued and outstanding, 1,452,492 and 1,457,492 shares in 1999 and 1998, respectively 1,452,492 1,457,492 Additional paid-in capital 2,539,951 2,583,701 Unamortized value of restricted stock grants (4,719) (51,385) Accumulated other comprehensive income (loss) (103,824) (79,849) Retained earnings 10,607,917 9,485,844 ---------- ---------- 14,491,817 13,395,803 ---------- ---------- $23,478,772 $22,756,221 ========== ========== The accompanying notes are an integral part of these statements.
Peerless Mfg. Co. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS Year ended June 30, 1999 1998 1997 ---------- ---------- ---------- Net sales $40,568,443 $43,455,136 $41,486,492 Cost of goods sold 26,296,724 28,215,330 29,961,203 ---------- ---------- ---------- Gross profit 14,271,719 15,239,806 11,525,289 Operating expenses Marketing and engineering 8,630,962 8,932,180 9,129,347 General and administrative 2,662,289 2,662,725 1,988,618 ---------- ---------- ---------- 11,293,251 11,594,905 11,117,965 ---------- ---------- ---------- Operating profit 2,978,468 3,644,901 407,324 Other income (expense) Interest income 58,987 34,055 24,687 Interest expense (23,696) (27,430) (55,475) Foreign exchange gains (losses) (118,866) (90,050) 103,583 Other, net (49,323) (39,338) 57,877 ---------- ---------- ---------- (132,898) (122,763) 130,672 ---------- ---------- ---------- Earnings before income taxes 2,845,570 3,522,138 537,996 Income tax expense (benefit) Current 617,824 1,262,998 65,766 Deferred 378,176 (190,421) (65,186) ---------- ---------- ---------- 996,000 1,072,577 580 ---------- ---------- ---------- NET EARNINGS $ 1,849,570 $ 2,449,561 $ 537,416 ========== ========== ========== Earnings per common share - basic and diluted $1.27 $1.68 $.37 ==== ==== === The accompanying notes are an integral part of these statements.
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 --------- --------- ------- --------- ----------- ---------- Balances as of July 1, 1996 1,446,742 $2,489,879 $(33,750) $ 23,842 $ 7,953,143 $11,879,856 Comprehensive income Net earnings - - - - 537,416 537,416 Foreign currency translation adjustment - - - (117,786) - (117,786) Total comprehensive income 419,630 Issuance of 8,000 shares of common stock 8,000 72,250 (80,250) - - - Forfeiture of 4,000 shares of common stock (4,000) (38,750) 42,750 - - - Stock options exercised 1,250 10,312 - - - 11,562 Cash dividends paid ($.50 per share) - - - - (727,149) (727,149) Cash dividends declared ($.125 per share) - - - - (182,624) (182,624) Amortization of restricted stock grants - - 26,625 - - 26,625 Income tax benefit related to restricted stock plans - 1,530 - - - 1,530 --------- --------- ------- --------- ----------- ---------- Balances as of June 30, 1997 1,451,992 2,535,221 (44,625) (93,944) 7,580,786 11,429,430 Comprehensive income Net earnings - - - - 2,449,561 2,449,561 Foreign currency translation adjustment - - - 14,095 - 14,095 ---------- Total comprehensive income 2,463,656 Issuance of 3,000 shares of common stock 3,000 28,875 (31,875) - - - Stock options exercised 2,500 20,625 - - - 23,125 Cash dividends ($.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
Peerless Mfg. Co. and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - CONTINUED Unamortized Accumulated Additional value of other Common paid-in restricted comprehensive Retained stock capital stock grants income (loss) earnings Total --------- --------- ------- --------- ----------- ---------- 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 ========= ========= ======= ========= =========== ========== The accompanying notes are an integral part of this statement.
Peerless Mfg. Co. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended June 30, 1999 1998 1997 ---------- ---------- ---------- Cash flows from operating activities Net earnings $ 1,849,570 $ 2,449,561 $ 537,416 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities Depreciation and amortization 413,026 379,752 370,526 Deferred income taxes 378,176 (190,421) (65,186) Foreign exchange loss (gain) 118,886 90,050 (103,583) Other (34,160) (1,020) 1,530 Changes in operating assets and liabilities Accounts receivable 1,949,880 (4,703,504) (1,586,991) Inventories (1,301,720) 544,993 (11,463) Cost and earnings in excess of billings on uncompleted contracts (1,429,540) 33,176 (468,618) Other current assets (612,004) 132,974 (59,501) Other assets (186,421) (231,004) (40,466) Accounts payable 59,008 837,205 791,364 Billings in excess of costs and earnings on uncompleted contracts 522,993 (353,174) 363,257 Commissions payable (807) 425,917 212,708 Accrued expenses (788,479) 985,395 22,497 ---------- ---------- ---------- (911,162) (2,049,661) (573,926) ---------- ---------- ---------- Net cash provided by (used in) operating activities 938,408 399,900 (36,510) Cash flows from investing activities Net purchases of short-term investments (5,278) (9,058) (12,348) Proceeds from sale of property and equipment 30,850 - - Purchase of property and equipment (233,323) (262,362) (596,395) ---------- ---------- ---------- Net cash used in investing activities (207,751) (271,420) (608,743)
Peerless Mfg. Co. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED Year ended June 30, 1999 1998 1997 ---------- ---------- ---------- Cash flows from financing activities Sale of common stock $ - $ 23,125 $ 11,562 Advances on short-term borrowings - 200,000 - Net payments on short-term borrowings (200,000) - - Dividends paid (727,497) (727,127) (727,149) ---------- ---------- ---------- Net cash used in financing activities (927,497) (504,002) (715,587) Effect of exchange rate changes on cash and cash equivalents (20,776) 31,451 51,064 ---------- ---------- ---------- Net decrease in cash and cash equivalents (217,616) (344,071) (1,309,776) Cash and cash equivalents at beginning of year 428,482 772,553 2,082,329 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 210,866 $ 428,482 $ 772,553 ========== ========== ========== Supplemental information on cash flows: Interest paid $ 21,170 $ 29,956 $ 55,475 Income taxes paid $ 900,814 $ 957,860 $ 379,347 The accompanying notes are an integral part of these statements.
Peerless Mfg. Co. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1999, 1998 and 1997 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 wholly-owned subsidiaries, all of which are foreign. 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. NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 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 ------------------------- 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. 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. 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 - 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. No single customer accounted for more than 10% of revenues in the years ended June 30, 1999 or 1998. Sales to one customer accounted for approximately 12.3% of revenues for the year ended June 30, 1997. NOTE C - INVENTORIES Principal components of inventories are as follows: June 30, 1999 1998 ---------- ---------- Raw materials $ 961,450 $ 973,906 Work in process 2,522,182 1,114,524 Finished goods 247,338 331,415 ---------- ---------- $ 3,730,970 $ 2,419,845 ========== ========== At June 30, 1999 and 1998, progress payments of $1,237,771 and $100,472, respectively, have been offset against inventories and costs of uncompleted contracts. NOTE D - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is summarized as follows: June 30, 1999 1998 ---------- ---------- Buildings $ 3,096,993 $ 3,029,175 Equipment 2,670,878 2,842,401 Furniture and fixtures 1,815,592 1,587,383 ---------- ---------- 7,583,463 7,458,959 Less accumulated depreciation (6,201,643) (5,911,280) ---------- ---------- 1,381,820 1,547,679 Land 720,726 720,726 ---------- ---------- $ 2,102,546 $ 2,268,405 ========== ========== NOTE E - CREDIT ARRANGEMENT The Company has banking agreements for unsecured revolving lines of credit in the combined amount of $7,000,000 due upon demand, with interest at the banks' prime lending rate (7.75% at June 30, 1999), payable monthly. The banks charge usage fees at an annual rate of .25% of the average daily unused portion of the line. No amounts were borrowed under these arrangements at June 30, 1999. At June 30, 1998, $200,000 was outstanding under the lines of credit. The Company had letters of credit outstanding under separate arrangements of $3,246,567 and $3,027,911 at June 30, 1999 and 1998, respectively. Other assets with a cost of approximately $635,000 and $526,000 were pledged against the letters of credit outstanding at June 30, 1999 and 1998, respectively. 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 generally vest ratably over a three-year period. The Company awarded 8,000 shares (fair value at date of grant of $80,250) in fiscal 1997, of which 5,000 and 3,000 shares were subsequently forfeited, in fiscal 1999 and 1997, respectively, and awarded 3,000 shares (fair value at date of grant of $31,875) in fiscal 1998. Compensation expense for stock grants is charged to earnings over the restriction period and amounted to $17,416, $25,115, and $26,625 in fiscal 1999, 1998, and 1997, 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. NOTE F - STOCKHOLDERS' EQUITY - Continued 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, generally vest ratably over four years, and expire ten years from date of grant. At June 30, 1999, 36,250 shares of common stock were available for issuance under the 1995 Plan, and 1,750 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 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, 1999 1998 1997 --------- --------- ------- Net earnings - as reported $1,849,570 $2,449,561 $537,416 Net earnings - pro forma 1,813,141 2,440,327 527,012 Basic earnings per share As reported 1.27 1.68 .37 Pro forma 1.25 1.68 .36 Diluted earnings per share As reported 1.27 1.68 .37 Pro forma 1.24 1.67 .36 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 43% for fiscal 1999, 41% for fiscal 1998 and 45% for fiscal 1997; risk-free interest rates ranging from 4.6% to 5.6%; dividend yield of 3.7%, 5.6%, and 3.8% in fiscal 1999, 1998 and 1997, respectively; and expected lives of five to seven years. NOTE F - 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, 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 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 ====== Options exercisable at June 30, 1997 9,250 10.14 ====== Options exercisable at June 30, 1998 16,125 10.12 ====== Options exercisable at June 30, 1999 31,000 10.15 ====== Weighted average fair value of options granted: Year ended June 30, 1997 $3.22 Year ended June 30, 1998 $3.24 Year ended June 30, 1999 $4.72 NOTE F - STOCKHOLDERS' EQUITY - Continued The following table summarizes information about the Plan's stock options at June 30, 1999: Options outstanding --------------------------------------------------- Weighted average Range of Number remaining contractual Weighted average Exercise Prices outstanding life (in years) exercise price --------------- ----------- --------------- -------------- $9.25 26,500 6.6 $ 9.25 $10.625-$11.875 24,000 8.6 10.73 $12.125-$14.25 9,500 8.7 13.56 ------ 60,000 ====== Options exercisable ----------------------------------- Range of Number Weighted average Exercise Prices exercisable exercise price --------------- --------------- --------------- $9.25 19,250 $ 9.25 $10.625-$11.875 7,500 10.96 $12.125-$14.25 4,250 12.77 ------ 31,000 ====== 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, 1999, 1998 and 1997 was approximately $157,000, $128,000, and $119,500, respectively. NOTE H - 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, 1999 1998 -------- -------- Deferred tax assets Restricted stock grants $ 6,083 $ 10,760 Inventories 80,597 22,349 Foreign subsidiaries' net operating loss carryforwards 232,122 115,473 Accrued expenses 164,317 253,012 Accounts receivable 108,285 148,983 Other 29,461 - -------- -------- 620,865 550,577 Deferred tax liabilities Property, plant and equipment (100,088) (111,762) Uncompleted contracts (500,396) (40,258) Other (3,504) (3,504) -------- -------- (603,988) (155,524) -------- -------- Net deferred tax asset $ 16,877 $ 395,053 ======== ======== Deferred tax assets and liabilities included in the balance sheet are as follows: June 30, 1999 1998 -------- -------- Current deferred tax asset (liability) $ (42,736) $ 433,596 Noncurrent deferred tax asset (liability) 59,613 (38,543) -------- -------- $ 16,877 $ 395,053 ======== ======== NOTE H - INCOME TAXES - Continued The provision for income taxes consisted of the following: Years ended June 30, 1999 1998 1997 ------- --------- -------- Federal Current $552,824 $1,157,345 $ 41,765 Deferred 378,176 (190,421) (65,185) State 65,000 105,653 24,000 ------- --------- -------- $996,000 $1,072,577 $ 580 ======= ========= ======== 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 and $130,000 for 1998 and 1997, respectively. The effective income tax rate varies from the statutory rate due to the following: As a percentage of pretax earnings 1999 1998 1997 ----- ----- ----- 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 1.5 2.0 2.9 Foreign sales corporation exclusions (2.9) (6.7) (10.2) Change in valuation allowance - (0.8) (24.3) Other 2.4 2.0 (2.3) ----- ----- ----- Income tax expense at effective rate 35.0% 30.5% 0.1% ===== ===== ===== NOTE I - EARNINGS PER SHARE Summarized basic and diluted earnings per common share for each of the three years ended June 30, 1999 is as follows: 1999 1998 1997 ---------------------------- --------------------------- ------------------------- Per Per Per Net share Net share Net share earnings Shares amount earnings Shares amount earnings Shares amount --------- --------- ---- --------- --------- ---- ------- --------- --- Basic earnings per share $1,849,570 1,455,396 $1.27 $2,449,561 1,454,277 $1.68 $537,416 1,454,045 $.37 Effect of dilutive options - 4,751 - - 2,698 - - 1,034 - --------- --------- ---- --------- --------- ---- ------- --------- --- Diluted earnings per share $1,849,570 1,460,147 $1.27 $2,449,561 1,456,975 $1.68 $537,416 1,455,079 $.37 ========= ========= ==== ========= ========= ==== ======= ========= ===
For fiscal 1999, 1998 and 1997, stock options covering 11,500, 2,500, and 2,500 shares, respectively were excluded in the computations of diluted earnings per share because their effect was antidilutive. NOTE J - 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 used for air pollution abatement to reduce nitrogen oxide emissions. NOTE J - 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, 1999, 1998 and 1997 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. Catalytic Unallocated Gas/liquid reduction corporate Filtration Systems overhead Consolidated ---------- ---------- ---------- ---------- 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 1997 Revenues from customers 31,854,000 9,632,000 - 41,486,000 Segment profit (loss) 4,207,000 (1,038,000) (2,762,000) 407,000 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: United States Europe Eliminations Consolidated ---------- --------- ---------- ---------- 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 ========== ========= ========== ==========
NOTE J - INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION - Continued United States Europe Eliminations Consolidated ---------- --------- ---------- ---------- 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 ========== ========= ========== ========== United States Europe Eliminations Consolidated ---------- --------- ---------- ---------- 1997 Net sales to unaffiliated customers $35,553,000 $5,933,000 $ - $41,486,000 Transfers between geographic areas 889,000 4,000 (893,000) - ---------- --------- ---------- ---------- Total $36,442,000 $5,937,000 $ (893,000) $41,486,000 ========== ========= ========== ========== Identifiable assets $17,374,000 $3,817,000 $(2,144,000) $19,047,000 ========== ========= ========== ==========
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. 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 10, 1999, 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, 1999. 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 10, 1999 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 (1) Deductions (2) end of period ----------- ------- -------- -------------- ---------- ------------- 1999 Allowance for uncollectible accounts $806,200 $184,471 $ - $305,341 $685,330 ======= ======= ===== ======= ======= 1998 Allowance for uncollectible accounts $312,450 $621,560 $ - $127,810 (2) $806,200 ======= ======= ===== ======= ======= Deferred tax valuation allowance $ 29,710 $ - $ - $ 29,710 (3) $ - ======= ======= ===== ======= ======= 1997 Allowance for uncollectible accounts $100,000 $249,612 $ - $ 37,162 (2) $312,450 ======= ======= ===== ======= ======= Deferred tax valuation allowance $160,405 $ - $ - $130,695 (3) $ 29,710 ======= ======= ===== ======= ======= (1) Collections on accounts previously written off. (2) Write offs. (3) Utilization and/or revaluation of deferred tax assets.
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: October 19, 1999 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: October 19, 1999 /s/ Sherrill Stone Sherrill Stone, Chairman of the Board, President, Director and Chief Executive Officer October 19, 1999 /s/ Paul W. Willey Paul W. Willey, Principal Financial Officer, October 19, 1999 /s/ Kent J. Van Houten Kent J. Van Houten, Principal Accounting Officer October 19, 1999 /s/ Donald A. Sillers, Jr. Donald A. Sillers, Jr., Director October 19, 1999 /s/ Bernard S. Lee Bernard S. Lee, Director October 19, 1999 /s/ D. D. Battershell D. D. Battershell, Director -----END PRIVACY-ENHANCED MESSAGE-----