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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

            (Mark One)

For the Quarterly Period Ended December 31, 2003

For the Transition Period from __________ to ________________.

Commission File Number 0-5214

PEERLESS MFG. CO.

(214) 357-6181

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

As of February 12, 2004, there were 3,002,784 shares of the registrant’s common stock outstanding.

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PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED DECEMBER 31, 2003

TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

See accompanying notes to the consolidated financial statements.

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PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)

See accompanying notes to the consolidated financial statements.

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PEERLESS MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

See accompanying notes to the consolidated financial statements.

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PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED DECEMBER 31, 2003
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.

Basis of Presentation

	The accompanying consolidated financial statements of Peerless Mfg. Co. and Subsidiaries (hereafter referred to as the “Company”, “we”, “us”, “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. The consolidated financial statements of the Company as of December 31, 2003, and for the three and six months ended December 31, 2003 and 2002 are unaudited and, in the opinion of management, contain all adjustments necessary for the fair presentation of the financial position and results of operations of the Company for the interim periods. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2003. The results of operations for the three and six months ended December 31, 2003 are not necessarily indicative of the results to be expected for the entire year (see Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Factors That May Affect Our Operating Results and Other Risk Factors”). The Company’s fiscal year ends on June 30th. References herein to fiscal 2002, fiscal 2003 and fiscal 2004 refer to our fiscal years ended June 30, 2002, 2003 and 2004, respectively.
	In connection with the sale of our Boiler operations (see Note 4 – “Discontinued Operations”), the current year financial information has been presented, and the prior year financial information has been restated, to report the discontinued operation in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
	Certain fiscal 2003 items have been reclassified to conform to the fiscal 2004 presentation. All dollar and share amounts are in thousands, except per share amounts.

2.

Inventories

	Inventories are stated at the lower of cost (first-in, first-out) or market. Principal components of inventories are as follows:

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PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED DECEMBER 31, 2003

3.

Product Warranties

	The Company warrants that its products will be free from defects in materials and workmanship and will conform to agreed upon specifications, typically for a period of 12 months from installation or 18 months after shipment, whichever occurs first, depending upon the specific product and terms of the customer agreement. Typical warranties require the Company to repair or replace defective products during the warranty period at no cost to the customer. The Company attempts to obtain back-up concurrent warranties for major component parts from our suppliers. The Company provides for the estimated cost of product warranties, based upon historical experience by product type, expectation of future conditions and the extent of back-up concurrent supplier warranties in place, at the time the product revenue is recognized. If these factors, or other factors affecting warranty costs differ from our estimates, revisions to the estimated product warranty liability are made accordingly.
	Product warranty activity for the three and six months ended December 31, 2003 and 2002 is as follows:

4.     Discontinued Operations

During the first quarter of fiscal 2004, the Board of Directors authorized the divestiture and the Company sold its Boiler business unit. In connection with the sale, the Company sold assets with a net book value of approximately $110, for $250, resulting in a gain on disposal of $140. Please see Item 2 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Restructuring and Organizational Realignment” of this Report.

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PEERLESS MFG. CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED DECEMBER 31, 2003

4.     Discontinued Operations - continued

	The following represents a summary of operating results and the gain on disposition of the Boiler segment presented as discontinued operations: