Pmfg 10-Q 2012 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2011

OR

o 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 001-34156

PMFG, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization) 51-0661574
(I.R.S. Employer Identification No.)

14651 North Dallas Parkway, Suite 500, Dallas, Texas 75254
(Address of principal executive offices)

(214) 357-6181
(Registrant’s telephone number, including area code)

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. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filero	Accelerated filerþ	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

The number of shares of the registrant’s common stock outstanding on November 4, 2011, was 17,675,474.

TABLE OF CONTENTS

	Page
	Number
Forward-Looking Statements		3
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at October 1, 2011 (unaudited) and July 2, 2011		4
Unaudited Consolidated Statements of Operations for the three months ended October 1, 2011 and October 2, 2010		5
Unaudited Consolidated Statements of Cash Flows for the three months ended October 1, 2011 and October 2, 2010		6
Unaudited Consolidated Statements of Equity and Comprehensive Income (Loss) for the three months ended October 1, 2011		8
Unaudited Notes to the Consolidated Financial Statements		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3. Quantitative and Qualitative Disclosures About Market Risk		30
Item 4. Controls and Procedures		30
PART II: OTHER INFORMATION
Item 1. Legal Proceedings		31
Item 1A. Risk Factors		31
Item 5. Other Information		31
Item 6. Exhibits		32
SIGNATURES		33
Exhibit 10.2
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

2

FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact contained in this Report are forward-looking statements. You should not place undue reliance on these statements. These forward-looking statements include statements that reflect the current views of our senior management with respect to our financial performance and future events with respect to our business and our industry in general. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, the following:

• adverse changes in the current global economic or political environment or in the markets in which we operate, including the power generation, natural gas infrastructure and petrochemical and processing industries;

• compliance with United States and foreign laws and regulations, including export control and economic sanctions laws and regulations which are complex, change frequently and have tended to become more stringent over time;

• changes in current environmental legislation;

• changes in competition;

• changes in demand for our products;

• risks associated with our product warranties;

• changes in the price, supply or demand for natural gas, bio fuel and oil and coal; and

• risks associated with our indebtedness, the terms of our credit facility and our ability to raise additional capital.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this and other reports we file with the Securities and Exchange Commission (the “SEC”), including the information in “Item 1A. Risk Factors” of Part I to our Annual Report on Form 10-K for the year ended July 2, 2011 and Part II of this Report. There may be other factors that may cause our actual results to differ materially from the forward-looking statements. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. We undertake no obligation to publicly update or revise forward-looking statements, except to the extent required by law.

3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PMFG, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

	October 1,			July 2,
	2011			2011
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	16,077		$	12,905
Restricted cash		5,742			6,633
Accounts receivable -trade, net of allowance for doubtful accounts of $571 and $600 at October 1, 2011 and July 2, 2011, respectively		24,511			30,567
Inventories, net		6,818			6,556
Costs and earnings in excess of billings on uncompleted contracts		18,958			16,991
Income taxes receivable		3,859			3,061
Deferred income taxes		1,952			1,952
Other current assets		2,246			2,474
Total current assets		80,163			81,139
Property, plant and equipment, net		8,896			8,854
Intangible assets, net		20,104			20,108
Goodwill		29,702			29,702
Other assets		814			906
Total assets	$	139,679		$	140,709
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	17,492		$	17,308
Current maturities of long-term debt		2,600			2,600
Billings in excess of costs and earnings on uncompleted contracts		5,914			4,866
Accrued product warranties		2,442			2,575
Customer deposits		2,204			1,938
Accrued liabilities and other		6,848			7,944
Total current liabilities		37,500			37,231
Long-term debt, net of current portion		9,321			9,971
Deferred income taxes		7,135			7,135
Other non-current liabilities		1,317			1,331
Commitments and contingencies
Preferred stock – authorized, 5,000,000 shares of $0.01 par value; no shares outstanding at October 1, 2011 or July 2, 2011		—			—
Stockholders’ equity:
Common stock – authorized, 50,000,000 shares of $0.01 par value; issued and outstanding, 17,675,474 and 17,597,186 shares at October 1, 2011 and July 2, 2011, respectively		177			176
Additional paid-in capital		49,629			48,657
Accumulated other comprehensive loss		(1,776	)		(1,331	)
Retained earnings		35,019			36,170
Total PMFG, Inc.’s stockholders’ equity		83,049			83,672
Noncontrolling interest		1,357			1,369
Total equity		84,406			85,041
Total liabilities and equity	$	139,679		$	140,709

See accompanying notes to consolidated financial statements.

4

PMFG, Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share amounts)

	Three months ended
	October 1,			October 2,
	2011			2010
	(unaudited)
Revenue	$	29,088		$	26,961
Cost of goods sold		20,380			18,220
Gross profit		8,708			8,741
Operating expenses
Sales and marketing		2,895			2,736
Engineering and project management		1,985			1,887
General and administrative		4,975			4,162
		9,855			8,785
Operating loss		(1,147	)		(44	)
Other income (expense)
Interest income		10			14
Interest expense		(427	)		(884	)
Foreign exchange gain (loss)		(458	)		67
Change in fair value of derivative liability		—			(5,434	)
Other income (expense), net		21			—
		(854	)		(6,237	)
Loss before income taxes		(2,001	)		(6,281	)
Income tax benefit		831			318
Net loss	$	(1,170	)	$	(5,963	)
Less net income (loss) attributable to noncontrolling interest	$	(19	)	$	75
Net loss attributable to PMFG	$	(1,151	)	$	(6,038	)
Dividends on preferred stock	$	—		$	(319	)
Loss applicable to PMFG common stockholders	$	(1,151	)	$	(6,357	)
Basic and diluted loss per share	$	(0.07	)	$	(0.43	)
Weighted-average shares outstanding:
Basic and diluted shares outstanding		17,670			14,844

See accompanying notes to consolidated financial statements.

5

PMFG, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands, except share amounts)

		Three months ended
		October 1,			October 2,
		2011			2010
		(unaudited)
Cash flows from operating activities:
Net loss		$	(1,170	)	$	(5,963	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			757			1,242
Stock-based compensation			973			741
Excess tax benefits of stock-based compensation			—			(167	)
Bad debt expense			17			7
Inventory valuation reserve			(33	)		90
Provision for warranty expense			345			131
Change in fair value of derivative liability			—			5,434
Foreign exchange loss (gain)			458			(67	)
Deferred tax expense			—			31
Changes in operating assets and liabilities:
Accounts receivable			6,005			4,972
Inventories			(239	)		25
Costs and earnings in excess of billings on uncompleted contracts			(1,985	)		(287	)
Other current assets			224			147
Other assets			—			175
Accounts payable			76			690
Billings in excess of costs and earnings on uncompleted contracts			1,048			155
Commissions payable			(466	)		(32	)
Income taxes			(848	)		(1,797	)
Product warranties			(478	)		(305	)
Accrued liabilities and other			(406	)		(1,452	)
Net cash provided by operating activities:			4,278			3,770
Cash flow from investing activities:
Decrease in restricted cash			1,757			545
Purchases of property and equipment			(473	)		(775	)
Advance payment of license agreement			(248	)		(1,100	)
Net cash provided by (used in) investing activities			1,036			(1,330	)
Cash flows from financing activities:
Payment of debt			(650	)		(1,000	)
Equity contribtuion from noncontrolling interest			—			20
Payment of dividends on preferred stock			—			(319	)
Proceeds from exercise of stock options			—			200
Excess tax benefits from stock-based payment arrangements	��		—			167
Net cash used in financing activities			(650	)		(932	)

Consolidated Statements of Cash Flows continued on next page

6

PMFG, Inc. and Subsidiaries
Consolidated Statements of Cash Flows — Continued
(In thousands, except share amounts)

Consolidated Statements of Cash Flows

	Three months ended
	October 1,			October 2,
	2011			2010
	(unaudited)
Effect of exchange rate changes on cash and cash equivalents		(1,492	)		531
Net increase in cash and cash equivalents		3,172			2,039
Cash and cash equivalents at beginning of period		12,905			24,271
Cash and cash equivalents at end of period	$	16,077		$	26,310
Supplemental information on cash flow:
Income taxes paid	$	—		$	1,285
Interest paid	$	366		$	489

During the three months ended October 1, 2011, holders of warrants exchanged 10,577 warrants for 5,000 shares of common stock having a market price of $112 at the date of exercise. This was a non-cash financing activity.

See accompanying notes to consolidated financial statements

7

PMFG, Inc. and Subsidiaries

Consolidated Statement of Equity and Comprehensive Income (Loss)

(In thousands)

(unaudited)

										Accumulated
					Additional					Other			Total			Non
	Common Stock				Paid-in		Retained			Comprehensive			Stockholders’			Controlling			Total
	Shares		Amount		Capital		Earnings			Loss			Equity			Interest			Equity
Balance at July 2, 2011		17,597	$	176	$	48,657	$	36,170		$	(1,331	)	$	83,672		$	1,369		$	85,041
Comprehensive income (loss)
Net loss								(1,151	)					(1,151	)		(19	)		(1,170	)
Foreign currency translation adjustment											(445	)		(445	)		7			(438	)
Total comprehensive loss														(1,596	)		(12	)		(1,608	)
Stock grants, net of forfeitures		73		1		972								973						973
Warrants exercised		5		—		—								—						—
Balance at October 1, 2011		17,675	$	177	$	49,629	$	35,019		$	(1,776	)	$	83,049		$	1,357		$	84,406

See accompanying notes to consolidated financial statements.

8

PMFG, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

October 1, 2011

(In thousands, except share and per share amounts)

1. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements of PMFG, Inc. and subsidiaries have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. References to “Company,” “we,” “us” and “our” refer to PMFG, Inc. and its subsidiaries. The consolidated financial statements of the Company as of October 1, 2011 and for the three months ended October 1, 2011 and October 2, 2010 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. The results of operations for such interim periods are not necessarily indicative of results for a full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K for the fiscal year ended July 2, 2011.

Each of our interim reporting periods ends on the Saturday closest to the last day of the corresponding quarterly calendar period. The first quarter of 2012 and 2011 ended on October 1, 2011, and October 2, 2010, respectively. References to “fiscal 2012” and “fiscal 2011” refer to fiscal years ended June 30, 2012 and July 2, 2011, respectively.

Basis of Consolidation

The Company’s financial statements for all periods presented are consolidated to include the accounts of all wholly-owned and majority-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. The Company is the majority owner of Peerless Propulsys China Holdings LLC (“Peerless Propulsys”). The Company’s 60% equity investment in Peerless Propulsys entitles it to 80% of the earnings. Peerless Propulsys is the sole owner of Peerless Manufacturing (Zhenjiang) Co. Ltd (“PMZ”). The non-controlling interest of Peerless Propulsys is reported as a separate component on the Consolidated Balance Sheets and Consolidated Statements of Operations.

Cash and 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.

The Company maintains cash balances in bank accounts that normally exceed Federal Deposit Insurance Corporation insured limits. As of October 1, 2011, cash held in the United States exceeded federally insured limits by $9,498. The Company has not experienced any losses related to this cash concentration.

The Company had restricted cash balances of $5,742 and $6,633 as of October 1, 2011 and July 2, 2011, respectively. Foreign restricted cash balances were $5,658 and $5,306 as of October 1, 2011 and July 2, 2011, respectively. Cash balances were restricted to collateralize letters of credit and financial institution guarantees issued in the normal course of business.

9

PMFG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 1, 2011
(In thousands, except share and per share amounts)

1. SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

Accounts Receivable

The Company’s accounts receivable are due from companies in various industries. Credit is extended based on an evaluation of the customer’s financial condition. Generally, collateral is not required except on credit extended to international customers. Accounts receivable are generally due within 30 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than contractual payment terms are considered past due. The Company records an allowance on a specific basis by considering a number of factors, including the length of time the accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company and the condition of the industry and the economy as a whole. The Company writes off accounts receivable when they become uncollectible. Payments subsequently received on such receivables are credited to the allowance for doubtful accounts in the period the payment is received.

Inventories

The Company values its inventory using the lower of weighted average cost or market. The Company regularly reviews the value of inventory on hand, using specific aging categories, and records a provision for obsolete and slow-moving inventory based on historical usage and estimated future usage. In assessing the ultimate realization of its inventory, the Company is required to make judgments as to future demand requirements. As actual future demand or market conditions may vary from those projected by the Company, adjustments to inventory valuations may be required.

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, as follows:

Buildings and improvements	5 - 40 years
Equipment	3 - 10 years
Furniture and fixtures	3 - 15 years

Routine maintenance costs are expensed as incurred. Major improvements that extend the life, increase the capacity or improve the safety or the efficiency of property owned are capitalized. Major improvements to leased buildings are capitalized as leasehold improvements and amortized over the shorter of the estimated life or the lease term.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and exceeds its fair value. If conditions indicate an asset might be impaired, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. The impairment would be measured by the amount by which the asset exceeds its fair value, typically represented by the discounted cash flows associated with the asset.

Goodwill and Other Intangible Assets

The goodwill relates primarily to prior acquisitions. Goodwill is not amortized, however, it is measured at the reporting unit level for impairment annually, or more frequently if conditions indicate an earlier review is necessary. The fair value of goodwill is determined based on discounted cash flow projections. If the estimated fair value of goodwill is less than the carrying value, goodwill is impaired and is written down to its estimated fair value.

10

PMFG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 1, 2011
(In thousands, except share and per share amounts)

1. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Intangible assets subject to amortization include licensing agreements and customer relationships. These intangible assets are amortized over their estimated useful lives based on a pattern in which the economic benefit of the respective intangible asset is realized. Intangible assets considered to have indefinite lives include trade names and design guidelines. The Company evaluates the recoverability of indefinite lived intangible assets annually or whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, trade receivables, other current assets, accounts payable and accrued expenses approximate fair value due to the short maturity of these instruments. As the Company’s debt bears interest at floating rates, the Company estimates that the carrying amounts of its debt at October 1, 2011 and July 2, 2011, approximate fair value.

Revenue Recognition

The Company provides products under long-term, generally fixed-priced, contracts that may extend over multiple financial periods. In connection with these contracts, the Company uses the percentage-of-completion method of accounting for long-term contracts that contain enforceable rights regarding services to be provided and received by the contracting parties, the consideration to be exchanged and the manner and terms of settlement, assuming reasonably dependable estimates of revenue and expenses can be made. The percentage-of-completion method generally results in the recognition of reasonably consistent profit margins over the life of a contract. Amounts recognized in revenue are calculated using the percentage of construction cost completed, generally on a cumulative cost to total cost basis. Cumulative revenue recognized may be less or greater than cumulative costs and profits billed at any point during a contract’s term. The resulting difference is recognized as “costs and earnings in excess of billings on uncompleted contracts” or “billings in excess of costs and earnings on uncompleted contracts” on the Consolidated Balance Sheets.

Contracts that are considered short-term in nature are accounted for under the completed contract method. Because of the short-term nature of these contracts, the completed contract method accurately reflects the economic substance of these contracts. Revenue under the completed contract method is recognized upon shipment of the product.

Pre-contract, Start-up and Commissioning Costs

The Company does not consider the realization of any individual sales order as probable prior to order acceptance. Therefore, pre-contract costs incurred prior to sales order acceptance are included as a component of operating expenses when incurred. Some of the Company’s contracts call for the installation and placing in service of the product after it is distributed to the end user. The costs associated with the start-up and commissioning of these projects are estimated and recorded in cost of goods sold in the period in which the revenue is recognized. Estimates are based on historical experience and expectation of future conditions.

Warranty Costs

The Company provides to its customers product warranties for specific products during a defined period of time, generally less than 18 months after shipment of the product. Warranties cover the failure of a product to perform after it has been placed in service. The Company reserves for estimated future warranty costs in the period in which the revenue is recognized based on historical experience, expectation of future conditions, and the extent of backup concurrent supplier warranties in place. Warranty costs are included in the costs of goods sold.

11

PMFG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 1, 2011
(In thousands, except share and per share amounts)

1. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Income Taxes

The Company utilizes the asset and liability approach in its reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized. Income tax related interest and penalties are included in income tax expense. The Company recognizes in its financial statements the impact of a tax position taken or expected to be taken in a tax return, if that position is “more likely than not” of being sustained upon examination by the relevant taxing authority, based on the technical merits of the position.

The Company is required to estimate income taxes in each jurisdiction in which it operates. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities and are included in the Company’s consolidated balance sheets. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In the event that actual results differ from these estimates, the Company’s provision for income taxes could be materially impacted.

Earnings (Loss) Per Common Share

The Company calculates earnings (loss) per common share by dividing the earnings (loss) applicable to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per common share include the dilutive effect of stock options and warrants granted using the treasury stock method. Options to acquire 55,200 shares of common stock and warrants to acquire 1,310,673 shares of common stock were omitted from the calculation of dilutive securities for the three months ended October 1, 2011, because they were anti-dilutive. Options to acquire 119,667 shares of common stock and warrants to acquire 1,321,250 shares of common stock were omitted from the calculation of dilutive securities for the three months ended and October 2, 2010, because they were anti-dilutive.

Use of Estimates

The preparation of financial statements in conformity with US GAAP 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 revenue and expenses during the reporting period. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). ASU 2011-04 clarifies existing fair value measurement and disclosure requirements by amending certain fair value measurement principles and requiring additional disclosures regarding fair value measurements. ASU 2011-04 is effective for the Company beginning in the third quarter of fiscal 2012. Management does not expect that ASU 2011-04 will have an impact on its consolidated financial statements.

12

PMFG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 1, 2011
(In thousands, except share and per share amounts)

2. RECENT ACCOUNTING PRONOUNCEMENTS — CONTINUED

In June 2011, the FASB issued Accounting Standards Update 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 requires that all non-owner changes in shareholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but continuous statements. If presented in two separate statements, the first statement should present total net income and its components followed immediately by a second statement of total other comprehensive income, its components and the total comprehensive income. ASU 2011-05 is effective for the Company in the first quarter of fiscal 2013. The Company is currently evaluating the impact that ASU 2011-05 will have on its consolidated financial statements.

In September 2011, the FASB issued Accounting Standards Update 2011-08,“Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU 2011-08”). ASU 2011-08 will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. ASU 2011-08 is effective for the Company beginning in the first quarter of fiscal 2013. Management does not anticipate that ASU 2011-08 will have an impact on its consolidated financial statements.

3. INVENTORIES

Principal components of inventories are as follows:

	October 1,			July 2,
	2011			2011
Raw materials	$	3,242		$	3,261
Work in progress		3,639			3,382
Finished goods		380			389
		7,261			7,032
Reserve for obsolete and slow-moving inventory		(443	)		(476	)
	$	6,818		$	6,556

4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

The components of uncompleted contracts are as follows:

	October 1,			July 2,
	2011			2011
Costs incurred on uncompleted contracts and estimated earnings	$	68,558		$	64,457
Less billings to date		(55,514	)		(52,332	)
	$	13,044		$	12,125

13

PMFG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 1, 2011
(In thousands, except share and per share amounts)

4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS — CONTINUED

The components of uncompleted contracts are reflected in the consolidated balance sheets as follows:

	October 1,			July 2,
	2011			2011
Costs and earnings in excess of billings on uncompleted contracts	$	18,958		$	16,991
Billings in excess of costs and earnings on uncompleted contracts		(5,914	)		(4,866	)
	$	13,044		$	12,125

5. GOODWILL AND OTHER INTANGIBLE ASSETS

All goodwill and other intangible assets are allocated to the Process Products segment.

Acquisition-Related Intangibles

Acquisition-related intangible assets are as follows:

	Weighted
	Average
	Estimated							Net Book							Net Book
	Useful Life		Gross Value		Accumulated			Value		Gross Value		Accumulated			Value
	(Years)		October 1, 2011		Amortization			October 1, 2011		July 2, 2011		Amortization			July 2, 2011
Design guidelines	Indefinite		$	6,940	$	—		$	6,940	$	6,940	$	—		$	6,940
Customer relationships		13		6,890		(2,346	)		4,544		6,890		(2,204	)		4,686
Trade names	Indefinite			4,729		—			4,729		4,729		—			4,729
Licensing agreements		5		2,199		(1,503	)		696		2,199		(1,393	)		806
Acquired backlog		0.7		6,489		(6,489	)		—		6,489		(6,489	)		—
			$	27,247	$	(10,338	)	$	16,909	$	27,247	$	(10,086	)	$	17,161

Amortization expense of $252 and $270 were recorded to the Consolidated Statements of Operations for the three months ended October 1, 2011 and October 2, 2010, respectively. The Company’s estimated amortization for the current and each of the next five fiscal years is as follows:

Estimated Amortization Expense
For the fiscal years ended
June 30, 2012	$	753
June 29, 2013		922
June 28, 2014		555
June 27, 2015		480
July 02, 2016		405
July 01, 2017		404

14

PMFG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 1, 2011
(In thousands, except share and per share amounts)

5. GOODWILL AND OTHER INTANGIBLE ASSETS — CONTINUED

CEFCO Licensing Agreement

In July 2010, the Company entered into the CEFCO Process Manufacturing License Agreement (the “License Agreement”) with CEFCO Global Clean Energy, LLC, a Texas limited liability company (“CEFCO”). The Company advanced $1,100 to CEFCO at the inception of the License Agreement. The Company has deferred certain additional costs incurred related to the construction and testing of a scaled version of the technology as advances on future payments due under the License Agreement. As of October 1, 2011 and July 2, 2011, $3,195 and $2,947 were included in intangibles, net, respectively. Amortization of the CEFCO licensing agreement will be recognized over the life of the licensing agreement (10 years) commencing after the initial sale, construction and commissioning of a full scale version of the CEFCO processing technology.

6. ACCRUED PRODUCT WARRANTIES

Accrued product warranty activity is as follows:

	Three months ended
	October 1,			October 2,
	2011			2010
Balance at beginning of period	$	2,575		$	2,480
Provision for warranty expenses		345			131
Warranty charges		(478	)		(305	)
Balance at end of period	$	2,442		$	2,306

7. ACCRUED LIABILITIES AND OTHER

The components of accrued liabilities and other are as follows:

	October 1,		July 2,
	2011		2011
Accrued start-up and commissioning expense	$	783	$	794
Accrued compensation		2,395		1,733
Commissions payable		1,720		2,186
Income taxes payable		231		281
Accrued professional expenses		1,208		2,510
Other		511		440
	$	6,848	$	7,944

8. DEBT

Outstanding long-term debt obligations are as follows:

			October 1,			July 2,
	Maturities		2011			2011
Term loan		2016	$	11,921		$	12,571
Revolving credit facility		2013		—			—
Total long-term debt				11,921			12,571
Less current maturites				(2,600	)		(2,600	)
Total long-term debt, net of current portion			$	9,321		$	9,971

15

PMFG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 1, 2011
(In thousands, except share and per share amounts)

8. DEBT — CONTINUED

Interest on the senior term loan is payable quarterly, calculated on either a base or LIBOR rate per annum, at the Company’s option (5.75% at October 1, 2011 and July 2, 2011). The Credit Agreement requires payments on the senior term loan of equal quarterly principal installments of $650, to be paid on the first day of each fiscal quarter, with the balance of the senior term loan due at maturity.

The senior term loan and any borrowings under the revolving credit facility are secured by a first lien on substantially all assets of the Company. At October 1, 2011, the Company was required to maintain a Consolidated Total Leverage (“CTL”) not to exceed 3.0 to 1.0 and a Consolidated Fixed Charge Coverage (“FCC”) ratio of no less than 1.1 to 1.0. The CTL is calculated as the ratio of the Company’s outstanding debt and letters of credit to the Company’s trailing twelve months earnings before interest, income taxes, depreciation, amortization, and other non-cash expenses (“EBITDA”). The FCC ratio is calculated as the ratio of the Company’s EBITDA less certain capitalized expenditures to the sum of the Company’s current maturities of long-term debt and the amount of cash paid for interest on a trailing twelve month basis. The Credit Agreement also contains other covenants, including restrictions on additional debt, dividends, capital expenditures, acquisitions and dispositions. At October 1, 2011, the Company was not in compliance with the CTL and FCC ratio covenant requirements. On November 9, 2011, the Company entered into the ninth amendment to its Credit Agreement (the “Ninth Amendment”). The Ninth Amendment waives the CTL and FCC ratio defaults by the Company with its current financial covenants as of October 1, 2011 and modifies the computation of available borrowing base. The Ninth Amendment also amends the Credit Agreement to require that 100% of any net cash proceeds received as a result of any equity issuances be applied towards the prepayment of the term loan and it amends the banking fees to be paid by the Company when the Company’s CTL ratio is more than 2.5 to 1.0.

Under the revolving credit facility, the Company has a maximum borrowing capacity based on eligible accounts receivable and inventory, not to exceed $20,000. At October 1, 2011, there was $5,404 borrowing availability after the borrowing base was adjusted for $4,399 in outstanding letters of credit. At October 1, 2011 and July 2, 2011 there were no outstanding borrowings under the revolving credit facility.

The Company entered into a LIBOR interest rate cap transaction with respect to its senior term loan, with a notional amount of $20,000 (the “Interest Rate Cap Transaction”). The Interest Rate Cap Transaction became effective on August 15, 2008 and will terminate on April 2, 2012. Under the terms of the Interest Rate Cap Transaction, the counterparty will pay to the Company, on the first business day of each quarter, an amount equal to the greater of $0 and the product of (i) the outstanding notional amount of the Interest Rate Cap Transaction during the prior quarter, (ii) the difference between the three month LIBOR rate at the beginning of the prior quarter and 3.70% and (iii) the quotient of the number of days in the prior quarter over 360. The notional amount of the Interest Rate Cap Transaction amortized $4,500 on October 3, 2011, and $5,000 on October 1, 2010, 2009 and 2008 and the remaining $500 upon termination on April 2, 2012. As long as the counterparty makes the payments required under the Interest Rate Cap Transaction, the Company will have a maximum annual LIBOR interest rate exposure equal to the sum of 3.70% and a margin of 375 to 500 basis points, based on its CTL ratio, for the term of the Interest Rate Cap Transaction. At October 1, 2011 the Interest Rate Cap Transaction has an estimated fair market value of $0.

The Company’s U.K. subsidiary has debenture agreements used to facilitate issuances of letters of credit and bank guarantees of £6,000 ($9,352) at October 1, 2011 and £6,000 ($9,645) at July 2, 2011. This facility was secured by substantially all of the assets of the Company’s U.K. subsidiary and by a cash deposit of £3,630 ($5,658) at October 1, 2011 and £3,301 ($5,306) at July 2, 2011, which is recorded as restricted cash on the consolidated balance sheets. At October 1, 2011, there was £5,376 ($8,379) outstanding under stand-by letters of credit and bank guarantees under the debenture agreements. At July 2, 2011, there was £3,222 ($5,180) outstanding under stand-by letters of credit and bank guarantees under the debenture agreements. There are no amounts outstanding under the U.K. subsidiary’s debenture agreements at October 1, 2011 or July 2, 2011.

16

PMFG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 1, 2011
(In thousands, except share and per share amounts)

9. COMMITMENTS AND CONTINGENCIES

Litigation

In June 2010, the Company received notice from a customer claiming approximately $9,100 in repair costs associated with four heat exchangers sold by Alco Products, a division of Nitram, in 2006 prior to the Company’s acquisition of Nitram. The customer requested reimbursement for the repair costs pursuant to Alco Products’ warranty obligations under the terms and conditions of the purchase order. The Company is in the process of assessing the validity of the claim and has notified the Nitram insurance carrier and the selling stockholders of Nitram of this claim. The Company believes if any valid claim exists, the Company is entitled to be indemnified by the Nitram selling stockholders pursuant to the terms of the Nitram acquisition agreement for any amounts that are paid by the Company in connection with such claim. At this time, the Company cannot estimate any potential range of loss that may result from this asserted claim as the claim is in its early stages and the Company is still investigating its merits and the facts and circumstances surrounding the claim. No amount has been accrued in the financial statements for this claim as of October 1, 2011. At this time, no lawsuit has been filed by the customer.

On June 19, 2007, Martin-Manatee Power Partners, LLC (“MMPP”) filed a complaint against the Company in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida. In the complaint, MMPP asserted claims for breach of contract and express warranty, breach of implied warranty and indemnification against the Company. MMPP’s claims arise out of an incident in September 2005 when an electric fuel gas start-up heater, which was a component of a fuel gas heater skid supplied by the Company to MMPP, allegedly ruptured, resulting in a fire. In the complaint, MMPP did not make a specific demand for damages. The Company and its insurers have entered into a confidential settlement agreement and the District Court dismissed all claims on September 20, 2011. The settlement amount will be paid by the Company’s insurers, less the cost of the $100 deductible, which will be paid by the Company.

In April 2008, Burgess-Manning, Inc., a subsidiary of Nitram, made a voluntary disclosure to the Office of Foreign Assets Control (“OFAC”) regarding sales of industrial separators to Iran. The Company cannot predict the response of OFAC, the outcome of any related proceeding or the likelihood that future proceedings will be instituted against the Company. In the event that there is an adverse ruling in any proceeding, the Company may be required to pay fines and penalties.

In connection with the Company’s acquisition of Nitram and the related financing transactions, environmental site assessments were performed on both its existing manufacturing properties and Nitram’s properties in Cisco, Texas and Wichita Falls, Texas. These assessments involved visual inspection, testing of soil and groundwater, interviews with site personnel and a review of publicly available records. The results of these assessments indicated soil and groundwater contamination at the Vermont Street facility in Wichita Falls and groundwater concerns at the Jacksboro Highway facility in Wichita Falls and the Cisco facilities. Additional sampling and evaluation of the groundwater concerns at Jacksboro Highway and Cisco facilities indicated levels of impact did not exceed applicable regulatory standards and that further investigation and remediation was not required. Soil remediation at the Vermont Street facility in Wichita Falls was completed in July 2009 and the Company will continue to monitor groundwater at and near the site for an additional five years. The total costs accrued are $120 at October 1, 2011 and July 2, 2011, which have been discounted using a rate of 3.25%. The Company may incur additional one-time costs related to the installation of four new test wells and the preparation of environmental reports, which the Company estimates will be $90. The Company believes that the cost of the monitoring will be approximately $10 per year until complete. The Company expects that the monitoring will continue for a period not to exceed five years. The Company is seeking reimbursement for the full cost of the remediation and ongoing and future monitoring activities under our purchase agreement with Nitram’s former stockholders in the amount of $633. Funds have been deposited into an escrow account that may be used to reimburse these costs.

17

PMFG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 1, 2011
(In thousands, except share and per share amounts)

9. COMMITMENTS AND CONTINGENCIES – CONTINUED

Under the contract for the Nitram acquisition, the Company has certain rights to indemnification against the selling stockholders for claims relating to breach of representation and certain other claims, including litigation costs and damages. The Nitram selling stockholders previously placed $10,920 of the purchase price in escrow to reimburse the Company for breach of representation and certain other claims. The escrow amount, less any claim amounts made by the Company or amounts paid to third parties as agreed upon by the Company and sellers, was released to the seller in five installments on each of October 8, 2008, January 30, 2009, April 30, 2009, July 30, 2009 and October 30, 2009. Certain claims made by the Company against the escrow are subject to a deductible equal to one percent of the purchase price paid by the Company for the Nitram acquisition. Prior to the final escrow payment release on October 30, 2009, the Company had filed claims with the sellers relating to environmental matters and indemnification for breach of representations and warranties of the Nitram purchase agreement, totaling approximately $1,976 against the escrow, and a total of $1,388 was withheld from the escrow releases, which represents the Company’s claims, less the one percent deductible, estimated at $610. Following the final escrow release in October 2009, the Company has made additional claims directly against the selling stockholders under the terms of the Nitram acquisition agreement totaling approximately $9,500, related to the customer warranty dispute for the four Alco Products heat exchangers and other environmental matters. The sellers have objected to the claims made by the Company and the parties are currently in the process of negotiating the various claims. The Company does not believe it will have any additional losses or claims against the former Nitram selling stockholders that are in excess of the amounts already claimed or accrued as previously discussed.

From time to time the Company is involved in various litigation matters arising in the ordinary course of its business. The Company accrues for its litigation contingencies when losses are both probable and reasonably estimable.

10. CONVERTIBLE REDEEMABLE PREFERRED STOCK AND WARRANTS

On September 4, 2009, the Company issued and sold 21,140 shares of Preferred Stock, par value $0.01 per share, and attached warrants to certain accredited investors (each a “Purchaser” and collectively, the “Purchasers”) for an aggregate purchase price of $21,140 (the “Offering”). The Company and each Purchaser entered into a securities purchase agreement (the “Purchase Agreement”) in connection with the Offering. The Offering was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”). The Company used the $19,235 net proceeds received from the Offering and available cash to repay all of the Company’s outstanding indebtedness under its subordinated term loan.

Preferred Stock

The terms, rights, obligations and preferences of the Preferred Stock were set forth in the Certificate of Designations of the Preferred Stock (the “Certificate of Designations”) filed with the Secretary of State of the State of Delaware on September 4, 2009.

During fiscal year 2011, holders of Preferred Stock converted all of the outstanding shares of Preferred Stock into 2,642,500 shares of the Company’s common stock. Prior to conversion, holders of Preferred Stock were entitled to quarterly dividends at an annual rate of 6.0%. All dividends were cumulative, compounded quarterly and paid in cash. The Company paid $319 of cash dividends during the three months ended October 2, 2010.

The Company considered the conversion rights and redemption options of the Preferred Stock to be embedded derivatives and, as a result, the fair value of the Derivative Liability was measured using a Monte Carlo simulation model and valuation techniques that required the Company to make various key assumptions for inputs into the model, including assumptions about the expected behavior of the Preferred Stock holders and expected future volatility of the price of the Company’s common stock. For the three months ended October 2, 2010, an increase in fair value of $5,434 was recorded in Other income (expense) in the Consolidated Statements of Operations.

18

PMFG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 1, 2011
(In thousands, except share and per share amounts)

10. CONVERTIBLE REDEEMABLE PREFERRED STOCK AND WARRANTS — CONTINUED

Warrants

The warrants entitle the holders to purchase 50% of the number of shares of common stock that may be obtained upon conversion of the Preferred Stock, or 1,321,250 shares. The warrants have a five-year term and became exercisable on March 4, 2010. The exercise price is equal to the closing bid price of the common stock on September 3, 2009, or $10.56, and is not subject to anti-dilution protection, except in the case of stock splits and dividends. During the three months ended October 1, 2011, holders of warrants, in a cashless exercise, exchanged 10,577 warrants for 5,000 shares of common stock having a market price of $112 at the date of exercise.

11. STOCKHOLDER RIGHTS PLAN

On August 15, 2008, the Company adopted a new stockholder rights plan. The new rights plan replaced a previous rights plan, which was adopted in May 2007 and terminated in connection with the holding company reorganization.

Stockholders of record at the close of business on August 15, 2008 received a dividend distribution of one right for each share of common stock outstanding on that date. The rights generally will become exercisable and allow the holder to acquire the Company’s common stock at a discounted price if a person or group (other than certain institutional investors specified in the rights plan) acquires beneficial ownership of 20% or more of the Company’s outstanding common stock. Rights held by those that exceed the 20% threshold will be void.

The rights plan also includes an exchange option. In general, after the rights become exercisable, the Board of Directors may, at its discretion, effect an exchange of part or all of the rights (other than rights that have become void) for shares of the Company’s common stock. Under this option, the Company would issue one share of common stock for each right, subject to adjustment in certain circumstances.

The Board of Directors may, at its discretion, redeem all outstanding rights for $0.001 per right at any time prior to the time the rights become exercisable. The rights will expire on August 15, 2018, unless earlier redeemed, exchanged or amended by the Board of Directors.

12. STOCK-BASED COMPENSATION

The following information represents the Company’s grants of stock-based compensation to employees and directors during the three months ended October 1, 2011 and October 2, 2010:

	Three months ended
	October 1,				October 2,
	2011				2010
	Number of		Fair				Fair
	Shares		Value of		Number of		Value of
Grant Type	Granted		Grant		Shares Granted		Grant
Stock		36,000	$	765		36,000	$	523
Restricted stock		38,438		816		67,800		1,006

19

PMFG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 1, 2011
(In thousands, except share and per share amounts)

12. STOCK-BASED COMPENSATION — CONTINUED

The fair value of the stock granted to the Board of Directors is recognized immediately. The Company recognizes compensation expense for restricted stock awards over the four-year vesting period based on the fair value of the awards on the grant date, net of forfeitures. The fair value of stock and restricted stock awards is based on the fair market value of the Company’s stock on the date of grant.

13. SEGMENT INFORMATION

The Company has two reportable segments: Process Products and Environmental Systems. The Nitram acquisition is included in the Process Products segment. The main product of the Environmental Systems segment is its Selective Catalytic Reduction Systems, referred to as “SCR systems.” These environmental control systems are used for air pollution abatement and converting nitrogen oxide (NOx) emissions from exhaust gases caused by burning hydrocarbon fuels such as coal, gasoline, natural gas and oil. Along with the SCR Systems, this segment offers systems to reduce other pollutants such as carbon monoxide (CO) and particulate matter. The Company combines these systems with other components, such as instruments, controls and related valves and piping to offer its customers a totally integrated system. The Process Products segment produces various types of separators and filters used for removing liquids and solids from gases and air. The segment also includes industrial silencing equipment to control noise pollution on a wide range of industrial processes and heat transfer equipment to conserve energy in many industrial processes and in petrochemical processing.

Segment profit and loss is based on revenue less direct expenses of the segment before allocation of general, administrative, research and development costs. All inter-company transfers between segments have been eliminated. The Company allocates all costs associated with the manufacture, sale and design of its products to the appropriate segment. Segment information and reconciliation to operating profit for the three months ended October 1, 2011 and October 2, 2010 are presented below. The Company does not allocate general and administrative expenses (“reconciling items”), assets, expenditures for assets or depreciation expense on a segment basis for internal management reporting; therefore this information is not presented.

	Three months ended
	October 1,			October 2,
	2011			2010
Revenue
Process Products	$	24,235		$	22,099
Environmental Systems		4,853			4,862
Consolidated	$	29,088		$	26,961
Operating income (loss)
Process Products	$	3,352		$	3,174
Environmental Systems		476			944
Corporate and other general and administrative expenses		(4,975	)		(4,162	)
Consolidated	$	(1,147	)	$	(44	)

20

PMFG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 1, 2011
(In thousands, except share and per share amounts)

14. SUBSEQUENT EVENTS

Acceleration of Unvested Restricted Stock Awards

On October 11, 2011 NSB Advisors, LLC (“NSB Advisors”) reported to the Securities and Exchange Commission a beneficial ownership of 69% of the Company’s common stock, which constituted a change in control as defined in the Company’s 2007 Incentive Stock Plan, resulting in the automatic acceleration of vesting of approximately 146,000 unvested restricted stock awards. The stock-based compensation expense, related to the change in control, will be approximately $1,200, net of related tax benefit, in the Company’s fiscal quarter ending December 31, 2011.

Acquisition of Burgess-Manning GmbH

On November 4, 2011 the Company acquired all of the outstanding shares of Burgess-Manning GmbH. Prior to the acquisition, Burgess-Manning GmbH held an exclusive license throughout Germany and surrounding European countries to design, manufacture, and market custom engineered systems and products under the Burgess-Manning trademark, which is owned by the Company. Burgess-Manning GmbH’s annual revenue for the fiscal year ended September 30, 2010 was approximately $13,000, determined using accounting principles generally accepted in Germany. The acquisition will increase our ability to serve companies located within the territories previously serviced under the license agreement. The purchase price is approximately $5,500 (4,000 Euros) and is subject to certain post-closing purchase price adjustments.

21

PMFG, Inc. and Subsidiaries
October 1, 2011
(In thousands, except share and per share amounts)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand PMFG, Inc., our operations, and our present business environment. MD&A is provided to supplement – and should be read in conjunction with – our unaudited consolidated financial statements and the accompanying notes thereto contained in “Item 1. Financial Statements” of this report. This overview summarizes the MD&A, which includes the following sections:

• Our Business– a general description of our business and the key drivers of product demand.

• Results of Operations– an analysis of our Company’s consolidated and reporting segment results of operations for the three month periods presented in our consolidated unaudited financial statements.

• Liquidity, Capital Resources and Financial Position– an analysis of cash flows; aggregate contractual obligations; foreign currency exposure; and an overview of financial position.

This discussion includes forward-looking statements that are subject to risks, uncertainties and other factors described in this and other reports we file with the Securities and Exchange Commission (the “SEC”), including the information in “Item 1A. Risk Factors” of Part I to our Annual Report for the year ended July 2, 20111. These factors could cause our actual results for future periods to differ materially from those experienced in, or implied by, these forward-looking statements.

Our Business

We are a leading provider of custom-engineered systems and products designed to help ensure that the delivery of energy is safe, efficient and clean. We primarily serve the markets for power generation, natural gas infrastructure, refining and petrochemical processing. We offer a broad range of separation and filtration products, selective catalytic reduction (”SCR”) systems, and other complementary products including specialty heat exchangers, pulsation dampeners and silencers. Our primary customers include equipment manufacturers, engineering contractors and operators of power plants.

Our products and systems are marketed worldwide. Revenue generated from outside the United States was approximately 39% in the three month period ended October 1, 2011. We expect our international sales to continue to be an increasingly important part of our business.

We believe that our success depends on our ability to understand the complex operational demands of our customers and deliver systems and products that meet or exceed the indicated design specifications. Our success further depends on our ability to provide such products in a cost effective manner and within the time frames established by our customers.

Our systems and products can be separated into two broad groups: Process Products and Environmental Systems.

• Process Products– includes separation and filtration systems and products that improve the efficiency, reduce maintenance, and extend the life of energy collection and distribution infrastructure by removing liquid contaminants from gases, removing solid contaminants from gases or liquids, and separating different liquids.

• Environmental Systems– includes systems and products utilized to abate air and noise pollution

22

PMFG, Inc. and Subsidiaries
October 1, 2011
(In thousands, except share and per share amounts)

Key Drivers of Product Demand

We believe the long-term demand for energy will significantly exceed existing capacity. Despite a generally weak global economy throughout 2010 and 2011, the demand for energy has risen. However, during the same period, this demand has not resulted in a significant increase in the construction of new power generation facilities. Domestically, the increased demand has largely been absorbed by excess capacity that existed within the industry. Internationally, we believe political uncertainties, economic conditions, and uncertainty as to the long-term solutions have dampened the pace of new construction.

We believe the growth in long-term demand for energy will drive the need for additional energy infrastructure. Incremental energy supply will come from new construction, retrofitting existing facilities to improve efficiency, and bringing older facilities back on line. At the same time, increased environmental awareness is resulting in the adoption of stricter environmental regulations not only in the United States, but in a number of other countries. In response to the demand for cleaner, more environmentally responsible power generation, power providers and industrial power consumers are building new facilities that use cleaner fuels, such as natural gas, and in certain countries nuclear power facilities.

Significant uncertainty continues to revolve around the role that nuclear power facilities will play in meeting the long-term demand for energy needs. Cost overruns, financing constraints, safety concerns and government regulations are challenges that must be addressed related to the construction of new nuclear power facilities and the recommissioning of existing facilities. We believe nuclear power will continue to represent a significant source of power.

These market trends will drive the demand for both our separation/filtration products as well as our SCR systems, creating significant opportunities for us. We face strong competition from numerous other providers of custom-engineered systems and products. We, along with other companies that provide alternative products and solutions, are affected by a number of factors, including, but not limited to, global economic conditions, level of capital spending by companies engaged in energy production, processing, transportation, storage and distribution, as well as current and anticipated environmental regulations.

Recent Developments

Acceleration of Unvested Restricted Stock Grants

On October 11, 2011 NSB Advisors filed a Schedule 13G/A with the Securities and Exchange Commission reporting beneficial ownership of approximately 69% of our common stock. NSB Advisors’ ownership position constituted a change in control as defined in our 2007 Incentive Stock Plan, resulting in the automatic acceleration of vesting of approximately 146,000 unvested restricted stock awards.

Acquisition of Burgess-Manning GmbH

On November 4, 2011 the Company acquired all of the outstanding shares of Burgess-Manning GmbH. Prior to the acquisition, Burgess-Manning GmbH held an exclusive license throughout Germany and surrounding countries to design, manufacture, and market custom engineered systems and products under the Burgess-Manning trademark. The Burgess-Manning trademark is owned by the Company. Burgess-Manning GmbH’s annual revenue for the fiscal year ended September 30, 2010 was approximately $13,000, determined using accounting principles generally accepted in Germany. We believe the acquisition will increase our ability to serve companies located within the territories previously serviced.

Critical Accounting Policies

See the Company’s critical accounting policies as described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Part II of our Annual Report on Form 10-K for the year ended July 2, 2011. Since the date of that report, there have been no material changes to our critical accounting policies.

23

PMFG, Inc. and Subsidiaries
October 1, 2011
(In thousands, except share and per share amounts)

Results of Operations

The following summarizes our consolidated statements of operations as a percentage of revenue:

	Three months ended
	October 1,			October 2,
	2011			2010
Net revenue		100.0	%		100.0	%
Cost of goods sold		70.1			67.6
Gross profit		29.9			32.4
Operating expenses		33.9			32.6
Operating loss		(4.0	)		(0.2	)
Other expense, net		(2.9	)		(23.1	)
Loss before income taxes		(6.9	)		(23.3	)
Income tax benefit		2.8			1.2
Net loss		(4.1)	%		(22.1	)%
Less net income (loss) attributable to noncontrolling interest		(0.1	)		0.3
Net loss attributable to PMFG, Inc.		(4.0	)		(22.4	)
Dividends on preferred stock		—			(1.2	)
Loss applicable to PMFG, Inc. common stockholders		(4.0)	%		(23.6	)%

Cost of goods sold includes manufacturing and distribution costs for products sold. The manufacturing and distribution costs include material, direct and indirect labor, manufacturing overhead, depreciation, sub-contract work, inbound and outbound freight, purchasing, receiving, inspection, warehousing, internal transfer costs and other costs of our manufacturing and distribution processes. Cost of goods sold also includes the costs of commissioning the equipment and warranty related costs. Operating expenses include sales and marketing expenses, engineering and project management expenses and general and administrative expenses which are further described below.

• Sales and marketing expenses- include payroll, employee benefits, stock-based compensation and other employee-related costs associated with sales and marketing personnel. Sales and marketing expenses also include travel and entertainment, advertising, promotions, trade shows, seminars and other programs and sales commissions paid to independent sales representatives.

• Engineering and project management expenses- include payroll, employee benefits, stock-based compensation and other employee-related costs associated with engineering, project management and field service personnel. Additionally, engineering and project management expenses include the cost of sub-contracted engineering services.

• General and administrative expenses- include payroll, employee benefits, stock-based compensation and other employee-related costs and costs associated with executive management, finance, human resources, information systems and other administrative employees. General and administrative costs also include board of director compensation and expenses, facility costs, insurance, audit fees, legal fees, reporting expense, professional services and other administrative fees.

24

PMFG, Inc. and Subsidiaries
October 1, 2011
(In thousands, except share and per share amounts)

Revenue.We classify revenue as domestic or international based upon the origination of the order. Revenue generated by orders originating from within the United States is classified as domestic revenue, regardless of where the product is shipped or where it will eventually be installed. Revenue generated by orders originating from a country other than the United States is classified as international revenue. International revenue was approximately 39% of consolidated revenue in the three month periods ended October 1, 2011 and October 2, 2010. The following summarizes consolidated revenue:

	Three months ended
	October 1,					October 2,
	2011		% of Total			2010		% of Total
Domestic	$	17,767		61.1	%	$	16,490		61.2	%
International		11,321		38.9	%		10,471		38.8	%
Total	$	29,088		100.0	%	$	26,961		100.0	%

Total revenue increased $2,127 or 7.9% to $29,088 in the quarter ended October 1, 2011, compared to prior year. The revenue growth resulted primarily from increased sales in Europe and the Middle East driven by continued focused sales efforts in those regions. Our international sales have traditionally been weighted toward Process Products, although there is increased quote activity related to Environmental Systems products and solutions.

Gross Profit.Our gross profit during any particular period may be impacted by several factors, primarily sales volume, shifts in our product mix, material cost changes, and warranty costs. Shifts in the geographic composition of our sales also can have a significant impact on our reported margins. The following summarizes revenue, cost of goods sold, and gross profit:

	Three months ended
	October 1,					October 2,
	2011		% of Total			2010		% of Total
Revenue	$	29,088		100.0	%	$	26,961		100.0	%
Cost of goods sold		20,380		70.1	%		18,220		67.6	%
Gross profit	$	8,708		29.9	%	$	8,741		32.4	%

While gross profit in the three month period ended October 1, 2011 was essentially flat in comparison to the prior year, it declined as a percentage of revenue from 32.4% in the prior year to 29.9% in the current year. The decrease in gross profit as a percentage of revenue during the three months ended October 1, 2011 primarily related to changes in our product mix, cost overruns on certain projects, and continued pricing pressure primarily in the United States.

Operating Expenses.The following summarizes operating expenses:

	Three months ended
	October 1,					October 2,
	2011		% of Total			2010		% of Total
Sales and marketing	$	2,895		10.0	%	$	2,736		10.1	%
Engineering and project management		1,985		6.8	%		1,887		7.0	%
General and administrative		4,975		17.1	%		4,162		15.5	%
Total	$	9,855		33.9	%	$	8,785		32.6	%

25

PMFG, Inc. and Subsidiaries
October 1, 2011
(In thousands, except share and per share amounts)

Operating expenses increased $1,070 or 12.2% for the three months ended October 1, 2011 in comparison to the prior year. As a percentage of revenue, these expenses increased to 33.9% during the three months ended October 1, 2011 from 32.6% during the three months ended October 2, 2010. Our sales and marketing expenses increased $159 as a result of the higher revenue and the increased international sales resources. Our engineering and project management expenses increased $98 for the three months ended October 1, 2011 compared to the three months ended October 2, 2011 in line with the increased revenue. General and administrative expenses increased $813 during the three months ended October 1, 2011 compared to the same period a year ago as a result of the increased cost of maintaining foreign offices, higher employee-related costs and higher professional fees.

Other Income and Expense.The following summarizes other income and expense:

	Three months ended
	October 1,			% of			October 2,			% of
	2011			Revenues			2010			Revenues
Interest income	$	10			—	%	$	14			0.1	%
Interest expense		(427	)		(1.5)	%		(884	)		(3.3)	%
Foreign exchange gain (loss)		(458	)		(1.6)	%		67			0.2	%
Change in fair value of derivative liability		—			—	%		(5,434	)		(20.2)	%
Other income (expense), net		21			0.1	%		—			—	%
Total other income (expense)	$	(854	)		(2.9)	%	$	(6,237	)		(23.1)	%

For the three months ended October 1, 2011, total other income (expense) was a net expense of $854 compared to $6,237 in the prior year. Interest expense decreased $457 from the prior year on lower average debt balances outstanding. A loss on foreign exchange was recognized in the quarter ended October 1, 2011 primarily as a result of negative movements in the Canadian dollar and Euro in relation to the United States dollar. The change in the fair value of derivative liability recognized in the prior year relates to the convertible redeemable preferred stock issued by the Company in September 2009. All of the convertible redeemable preferred stock was converted prior to July 2, 2011.

Income Taxes.Our effective income tax rate was 41.5% and 5.1% for the three months ended October 1, 2011 and October 2, 2010, respectively. For the quarter ended October 1, 2011, the effective tax rate was impacted by a credit related to research and development expenditures. For the quarter ended October 2, 2010, the effective tax rate varied from statutory rates because of the change in fair value of derivative liability, which is not a deductible item for tax purposes.

Results of Operations – Segments

We have two reporting segments: Process Products and Environmental Systems.

Process Products

The Process Products segment produces specialized systems and products that remove contaminants from gases and liquids, improving efficiency, reducing maintenance and extending the life of energy infrastructure. The segment also includes industrial silencing equipment to control noise pollution on a wide range of industrial processes and heat transfer equipment to conserve energy in many industrial processes and in petrochemical processing. Process Products represented 83% and 82% of our revenue in the three months ended October 1, 2011 and October 2, 2010, respectively.

26

PMFG, Inc. and Subsidiaries
October 1, 2011
(In thousands, except share and per share amounts)

The following summarizes Process Products revenue and operating income:

	Three months ended
	October 1,			October 2,
	2011			2010
Revenue	$	24,235		$	22,099
Operating income		3,352			3,174
Operating income as % of revenue		13.8	%		14.4	%

The Process Products segment revenue increased $2,136 or 9.7% to $24,235 in the quarter ended October 1, 2011, compared to prior year. The revenue growth resulted primarily from increased pressure product sales in Europe and the Middle East driven by continued focused sales efforts in those regions. Although we did report higher revenue in this segment for the quarter, revenue from our Process Products for the three months ended October 1, 2011 was negatively impacted by customer-requested delays in shipment dates and unanticipated delays at our subcontractors. These delays will move the projected revenue and profit margin from the impacted projects to future quarters.

Process Products operating income for the three months ended October 1, 2011 increased $178, or 5.6%, compared to the same period a year ago. As a percentage of revenue, operating income was 13.8% and 14.4% for the three months ended October 1, 2011 and October 2, 2010, respectively. The decline resulted from lower gross margin percentage on jobs completed and in process, as well as higher operating expenses. The lower gross margin percentage reflects both a change in product mix as well as continued competitive pricing pressure primarily in the United Sates. The higher operating expenses are attributed to the higher revenue and increased international sales resources.

Environmental Systems

The primary product of our Environmental Systems business is selective catalytic reduction systems, which we refer to as SCR systems. SCR systems are integrated systems, with instruments, controls and related valves and piping. Our SCR systems convert nitrogen oxide, or NOx, into nitrogen and water, reducing air pollution and helping our customers comply with environmental regulations. Environmental Systems represented 17% and 18.0% of our revenue in the three months ended October 1, 2011 and October 2, 2010, respectively.

The following summarizes Environmental Systems revenue and operating income:

	Three months ended
	October 1,			October 2,
	2011			2010
Revenue	$	4,853		$	4,862
Operating income		476			944
Operating income as % of revenue		9.8	%		19.4	%

Revenue from Environmental Systems was essentially flat in the quarter ended October 1, 2011 in comparison to the prior year.

27

PMFG, Inc. and Subsidiaries
October 1, 2011
(In thousands, except share and per share amounts)

Environmental Systems operating income for the three months ended October 1, 2011 decreased $468, or 49.6%, in comparison to the prior year. As a percentage of revenue, operating income decreased to 9.8% during the three months ended October 1, 2011 from 19.4% for the same period in the prior year primarily as a result of a decrease in relative gross profit margin. The decline in gross profit margin is attributable primarily to cost overruns on certain projects.

General and Administrative Expenses

General and administrative expenses include those related to the Corporate office, as well as those of international subsidiaries. General and administrative expenses increased $813 or 19.5% in the quarter ended October 1, 2011 in comparison to the prior year as a result of the increased cost of maintaining foreign offices, higher employee-related costs and higher professional fees.

Contingencies

From time to time we are involved in various litigation matters arising in the ordinary course of our business. We do not believe the disposition of any current matter will have a material adverse effect on our consolidated financial position or results of operations. See Note 9 of the consolidated financial statements.

Backlog

Our backlog of uncompleted orders was approximately $86,000 at October 1, 2011, compared to $89,000 at July 2, 2011. Backlog has been calculated under our customary practice of including incomplete orders for products that are deliverable in future periods but that could be changed or cancelled. Of our backlog at October 1, 2011, we estimate approximately 80% will be completed during the next 12 months.

Financial Position

Assets.Total assets decreased by $1,030, or 0.7%, from $140,709 at July 2, 2011, to $139,679 at October 1, 2011. On October 1, 2011, we held cash, including restricted cash, and cash equivalents of $21,819, had working capital of $42,663 and a current liquidity ratio of 2.1-to-1.0. This compares with cash, including restricted cash, and cash equivalents of $19,538, working capital of $43,908, and a current liquidity ratio of 2.2-to-1.0 at July 2, 2011.

Liabilities and Equity.Total liabilities decreased by $395, or 0.7%, from $55,668 at July 2, 2011 to $55,273 at October 1, 2011. The decrease in our total liabilities is attributed to a decrease in debt balance outstanding.

The decrease in our stockholder’s equity of $635, or 0.7%, from $85,041 at July 2, 2011 to $84,406 at October 1, 2011 is primarily attributable to our net loss for the three months ended October 1, 2011.Our ratio of debt (total liabilities)-to-equity was 0.7-to-1.0 at October 1, 2011 and July 2, 2011.

Liquidity and Capital Resources

Because we are engaged in the business of manufacturing systems, our progress billing practices are event-oriented rather than date-oriented and vary from contract to contract. Generally, a contract will either allow for amounts to be billed upon shipment or on a progress basis based on the attainment of certain milestones. We typically bill our customers upon the occurrence of project milestones. Billings to customers affect the balance of billings in excess of costs and earnings on uncompleted contracts or the balance of costs and earnings in excess of billings on uncompleted contracts, as well as the balance of accounts receivable. Consequently, we focus on the net amount of these accounts, along with accounts payable, to determine our management of working capital. At October 1, 2011, the balance of these working capital accounts was $20,063 compared to $25,384 at July 2, 2011, reflecting a decrease of our investment in these working capital items of $5,321.

Many of our customers require bank letters of credit or other forms of financial guarantees to secure progress payments and performance. Such letters of credit and guarantees are issued under various bank and financial institution arrangements (see Note 8 of Item 1 in the Notes to the Consolidated Financial Statements). As of October 1, 2011 and July 2, 2011, we had outstanding letters of credit and bank guarantees of $12,778 and $9,999, respectively.

28

PMFG, Inc. and Subsidiaries
October 1, 2011
(In thousands, except share and per share amounts)

Our cash and cash equivalents were $21,819 as of October 1, 2011 compared to $19,538 at July 2, 2011, of which $5,742 was restricted as collateral for stand-by letters of credit and bank guarantees, compared to $6,633 at July 2, 2011. During the three months ended October 1, 2011, cash provided by operating activities was $4,278 compared to cash provided by operating activities of $3,770 for the three months ended October 2, 2010. Cash provided by operating activities primarily related to a decrease in accounts receivable partially offset by an increase in cost and earnings in excess of billings.

Cash provided by investing activities was $1,036 for the three months ended October 1, 2011, compared to cash used in investing activities of $1,330 for the three months ended October 2, 2010. Cash provided by investing activities during the three months ended October 1, 2011 primarily related to a reduction in cash restricted to serve as collateral against open letters of credit of $4,399, partially offset by cash used to purchase property and equipment. Cash used in investing activities during the three months ended October 2, 2010 primarily related to purchases of property and equipment and the investment in the CEFCO manufacturing license agreement.

Cash used in financing activities during the three months ended October 1, 2011 was $650 compared to cash used in financing activities of $932 during the three months ended October 2, 2010. The cash used in financing activities for the three months ended October 1, 2011 related to principal payment on long-term debt. The cash used in financing activities for the three months ended October 2, 2010 consisted primarily of payment of long-term debt and dividends on preferred stock, partially offset by the proceeds from the sale of common stock and excess tax benefits from stock options exercised.

As a result of the events described above, our cash and cash equivalents during the three months ended October 1, 2011 increased by $3,172 compared to an increase of $2,039 during the three months ended October 2, 2010.

We believe we maintain adequate liquidity and the capacity to enter into letters of credit and guarantees to support existing operations and planned growth over the next 12 months.

29

PMFG, Inc. and Subsidiaries
October 1, 2011
(In thousands, except share and per share amounts)

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposures are in the areas of interest rate risk and foreign currency exchange rate risk.

Interest Rate Risk

We are subject to interest rate risk on outstanding borrowings under our Senior Secured Credit Agreement, which bears interest at a variable rate. At October 1, 2011, we had $11,921 of outstanding borrowings under this Agreement. Currently we have an interest rate cap transaction with a notional amount of $500, or 4.2% of our variable rate debt. This cap transaction complies with our obligation under our Senior Secured Credit Agreement.

Foreign Currency Risk

We have global operations and thus enter into transactions in various foreign currencies. In general, we attempt to align the currency stated in the customer contract with the currency in which the contract costs will be incurred; thus, creating a natural hedge. However, the timing of cash collections may vary from the timing of payment for contract costs resulting in foreign currency risks. The value of our consolidated assets and liabilities located outside the United States (translated at period end exchange rates) and income and expense (translated using average rates prevailing during the period) are affected by the translation into our reporting currency (the U.S. Dollar). Such translation adjustments are reported as a separate component of shareholder’s equity. As our international operations and customer contracts expand outside of the United States, foreign exchange rate fluctuations could have an increased impact on our reported results of operations. We did not have any currency derivatives outstanding as of, or during, the three months ended October 1, 2011. This market risk discussion contains forward-looking statements. Actual results may differ materially from this discussion based upon general market conditions and changes in domestic and global financial markets.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information related to the Company (including its consolidated subsidiaries) that is required to be disclosed in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

The Company’s management has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of these disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated by the SEC under the Securities Exchange Act of 1934) as of the end of the period covered by this Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective in ensuring that all information required to be disclosed in this Report has been recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Additionally, based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Report, the Company’s disclosure controls and procedures were effective in ensuring that all material information required to be filed in this Report has been accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, in a timely fashion to allow decisions regarding required disclosures.

Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls could be circumvented by the individual acts of some persons or by collusion of two or more people. The Company’s controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met. Notwithstanding the foregoing, the Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.

30

PMFG, Inc. and Subsidiaries
October 1, 2011
(In thousands, except share and per share amounts)

During the three months ended October 1, 2011, there have been no changes in the Company’s internal control over financial reporting, or in other factors, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On June 19, 2007, Martin-Manatee Power Partners, LLC (“MMPP”) filed a complaint against the Company in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida. In the complaint, MMPP asserted claims for breach of contract and express warranty, breach of implied warranty and indemnification against the Company. MMPP’s claims arise out of an incident in September 2005 when an electric fuel gas start-up heater, which was a component of a fuel gas heater skid supplied by the Company to MMPP, allegedly ruptured, resulting in a fire. In the complaint, MMPP did not make a specific demand for damages. The Company and its insurers have entered into a confidential settlement agreement and the District Court dismissed all claims on September 20, 2011. The settlement amount will be paid by the Company’s insurers, less the cost of the $100 deductible, which will be paid by the Company.

We are also involved, from time to time, in various litigation, claims and proceedings arising in the normal course of business that are not expected to have any material effect on the financial condition of the Company.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Item 1A of part I of our Annual Report on 10-K for the year ended July 2, 2011.

Item 5. Other Information

On November 9, 2011, we entered into the Ninth Amendment to our Senior Secured Credit Facilities to waive Consolidated Fixed Charge Coverage Ratio and Consolidated Total Leverage Ratio defaults for the quarter ending October 1, 2011 and to amend certain other provisions of the agreement. See Note 8 of Item 1 in the Notes to the Consolidated Financial Statements.

31

PMFG, Inc. and Subsidiaries
October 1, 2011
(In thousands, except share and per share amounts)

Item 6. Exhibits

The following exhibits are filed as part of this report.

Exhibit
Number		Exhibit
	10.2	Ninth Amendment to Credit Agreement, dated November 9, 2011, between Peerless Mfg. Co., Nitram Energy, Inc., Bos-Hatten, Inc., Burgess-Manning, Inc., Burman Management, Inc., PMFG, Inc., Comerica Bank and other lenders a party thereto.
	31.1	Rule 13a — 14(a)/15d — 14(a) Certification of Chief Executive Officer.
	31.2	Rule 13a — 14(a)/15d — 14(a) Certification of Chief Financial Officer.
	32	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer.

32

PMFG, Inc. and Subsidiaries
October 1, 2011
(In thousands, except share and per share amounts)

SIGNATURES

Pursuant to the requirements 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.

	PMFG, INC.
Date: November 10, 2011	/s/ Peter J. Burlage
	Peter J. Burlage
	President and Chief Executive Officer (Principal Executive Officer)
Date: November 10, 2011	/s/ Ronald L McCrummen
	Ronald L. McCrummen
	Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

33