10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 28, 2013

OR

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

For the transition period from                      to                     

Commission File Number 001-34156

PMFG, INC.

(Exact name of registrant as specified in its charter)

Delaware	51-0661574
(State or other jurisdiction of incorporation or organization)	(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.    Yes  x    No  ¨

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).    Yes  x    No  ¨

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 filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of the registrant’s common stock outstanding on October 31, 2013, was 21,108,266.

TABLE OF CONTENTS

	Page Number
Forward-Looking Statements		3
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 28, 2013 (unaudited) and June 29, 2013		4
Unaudited Consolidated Statements of Operations for the three months ended September  28, 2013 and September 29, 2012		5
Unaudited Consolidated Statements of Comprehensive Income for the three months ended September  28, 2013 and September 29, 2012		6
Unaudited Consolidated Statement of Equity for the three months ended September 28, 2013		7
Unaudited Consolidated Statements of Cash Flows for the three months ended September  28, 2013 and September 29, 2012		8
Notes to Consolidated Financial Statements (unaudited)		10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
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 6. Exhibits		32
SIGNATURES		33

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 natural gas infrastructure, power generation, 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 or regulations;

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

• changes in competition;

• changes in demand for our products;

• our ability to realize the full value of our backlog and the timing of our receipt of revenue under contracts included in backlog;

• risks associated with our product warranties; and

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

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 June 29, 2013 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)

	September 28,			June 29,
	2013			2013
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	59,900		$	53,020
Restricted cash		5,827			5,029
Accounts receivable—trade, net of allowance for doubtful accounts of $300 at September 28, 2013 and June 29, 2013		21,375			22,509
Inventories, net		7,595			6,488
Costs and earnings in excess of billings on uncompleted contracts		17,585			16,544
Income taxes receivable		1,354			1,152
Deferred income taxes		304			304
Other current assets		4,513			3,427
Total current assets		118,453			108,473
Property, plant and equipment, net		27,424			24,031
Intangible assets, net		16,014			16,180
Goodwill		30,429			30,429
Other assets		927			998
Total assets	$	193,247		$	180,111
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	17,392		$	14,899
Current maturities of long-term debt		1,017			—
Billings in excess of costs and earnings on uncompleted contracts		9,682			6,277
Commissions payable		2,031			1,763
Income taxes payable		745			339
Accrued product warranties		2,177			2,241
Customer deposits		2,432			2,566
Accrued liabilities and other		7,804			5,386
Total current liabilities		43,280			33,471
Long-term debt		11,041			8,719
Deferred income taxes		4,135			4,135
Other long-term liabilities		1,878			1,900
Commitments and contingencies
Preferred stock – authorized, 5,000,000 shares of $0.01 par value; no shares outstanding at September 28, 2013 or September 29, 2012		—			—
Stockholders’ equity:
Common stock – authorized, 50,000,000 shares of $0.01 par value; issued and outstanding, 21,108,266 and 20,966,426 shares at September 28, 2013 and June 29, 2013, respectively		211			210
Additional paid-in capital		97,097			96,634
Accumulated other comprehensive loss		(697	)		(2,004	)
Retained earnings		31,533			33,114
Total PMFG, Inc.’s stockholders’ equity		128,144			127,954
Noncontrolling interest		4,769			3,932
Total equity		132,913			131,886
Total liabilities and equity	$	193,247		$	180,111

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
	September 28,			September 29,
	2013			2012
	(unaudited)
Revenue	$	29,071		$	32,977
Cost of goods sold		19,364			21,585
Gross profit		9,707			11,392
Operating expenses:
Sales and marketing		3,513			3,067
Engineering and project management		2,526			2,324
General and administrative		5,328			5,541
		11,367			10,932
Operating income (loss)		(1,660	)		460
Other income (expense):
Interest income		18			10
Interest expense		(438	)		(105	)
Loss on extinguishment of debt		—			(291	)
Foreign exchange loss		(203	)		(82	)
Other income		66			1
		(557	)		(467	)
Loss before income taxes		(2,217	)		(7	)
Income tax benefit		647			1
Net loss		(1,570	)		(6	)
Net income attributable to noncontrolling interest	$	11		$	305
Net loss attributable to PMFG, Inc.	$	(1,581	)	$	(311	)
Weighted-average common shares outstanding:
Basic		21,077			20,917
Diluted		21,077			20,917
Basic loss per common share	$	(0.07	)	$	(0.01	)
Diluted loss per common share	$	(0.07	)	$	(0.01	)

See accompanying notes to consolidated financial statements.

5

PMFG, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

	Three months ended
	September 28,			September 29,
	2013			2012
	(unaudited)
Net loss	$	(1,570	)	$	(6	)
Other comprehensive income:
Foreign currency translation adjustment		1,333			435
Other comprehensive income		1,333			435
Comprehensive income (loss)		(237	)		429
Net income attributable to noncontrolling interest		11			305
Other comprehensive income:
Foreign currency translation adjustment		26			9
Comprehensive income attributable to noncontrolling interests		37			314
Comprehensive income (loss) attributable to PMFG, Inc.	$	(274	)	$	115

See accompanying notes to consolidated financial statements

6

PMFG, Inc. and Subsidiaries

Consolidated Statement of Equity

(In thousands)

(unaudited)

										Accumulated
					Additional					Other			Total			Non
	Common Stock				Paid-in		Retained			Comprehensive			Stockholders’			Controlling		Total
	Shares		Amount		Capital		Earnings			Income (Loss)			Equity			Interest		Equity
Balance at June 29, 2013		20,966	$	210	$	96,634	$	33,114		$	(2,004	)	$	127,954		$	3,932	$	131,886
Net loss								(1,581	)					(1,581	)		11		(1,570	)
Foreign currency translation adjustment											1,307			1,307			26		1,333
Stock grants, net of forfeitures		142		1		463								464					464
Equity contribution from noncontrolling interest in subsidiary														—			800		800
Balance at September 28, 2013		21,108	$	211	$	97,097	$	31,533		$	(697	)	$	128,144		$	4,769	$	132,913

See accompanying notes to consolidated financial statements

7

PMFG, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

	Three months ended
	September 28,			September 29,
	2013			2012
	(unaudited)
Cash flows from operating activities:
Net loss	$	(1,570	)	$	(6	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		578			679
Amortization of deferred finance charges		63			15
Stock-based compensation		464			347
Bad debt expense		—			805
Inventory valuation reserve		(71	)		(43	)
Provision for warranty expense		221			414
Loss on extinguishment of debt		—			291
(Gain) loss on disposal of property		(348	)		19
Foreign exchange loss		203			82
Change in fair value of interest rate swap		51			—
Changes in operating assets and liabilities:
Accounts receivable		1,237			9,741
Inventories		(925	)		(456	)
Costs and earnings in excess of billings on uncompleted contracts		(938	)		(4,566	)
Other assets		(1,120	)		(107	)
Accounts payable		2,532			1,357
Billings in excess of costs and earnings on uncompleted contracts		3,474			795
Commissions payable		268			1
Income taxes		204			618
Product warranties		(285	)		(593	)
Accrued liabilities and other		807			(165	)
Net cash provided by operating activities:		4,845			9,228
Cash flows from investing activities:
(Increase) decrease in restricted cash		(584	)		6
Purchases of property and equipment		(3,944	)		(481	)
Net proceeds from sale of property		521			—
Payments of deferred consideration		(22	)		(14	)
Net cash used in investing activities		(4,029	)		(489	)
Cash flows from financing activities:
Payment of debt		(533	)		—
Payment of debt issuance costs		—			(630	)
Proceeds from short-term debt		1,634			—
Proceeds from long-term debt		3,872			—
Equity contribution from noncontrolling interest		800			—
Net cash provided by (used in) financing activities		5,773			(630	)

Consolidated Statements of Cash Flows continued on next page

8

PMFG, Inc. and Subsidiaries

Consolidated Statements of Cash Flows – Continued

(In thousands)

	Three months ended
	September 28,			September 29,
	2013			2012
	(unaudited)
Effect of exchange rate changes on cash and cash equivalents		291			(282	)
Net increase in cash and cash equivalents		6,880			7,827
Cash and cash equivalents at beginning of period		53,020			52,286
Cash and cash equivalents at end of period	$	59,900		$	60,113
Supplemental information on cash flow:
Income taxes (received) paid	$	(653	)	$	842
Interest paid	$	353		$	175

See accompanying notes to consolidated financial statements

9

PMFG, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - Unaudited

September 28, 2013

1. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements of PMFG, Inc. and subsidiaries have been prepared in conformity with accounting principles generally accepted in the United States of America (“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 September 28, 2013 and for the three months ended September 28, 2013 and September 29, 2012 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 June 29, 2013.

Each of the Company’s interim reporting periods ends on the Saturday closest to the last day of the corresponding quarterly calendar period. References to “fiscal 2014” and “fiscal 2013” refer to fiscal years ended June 28, 2014 and June 29, 2013, respectively. The first quarter of fiscal 2014 and fiscal 2013 ended on September 28, 2013, and September 29, 2012, 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 China Manufacturing Co. Ltd. (“PCMC”), formerly known as Peerless Manufacturing (Zhenjiang) Co. Ltd. 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

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 September 28, 2013, cash held in the United States exceeded federally insured limits by $39.4 million. The Company has not experienced any losses related to this cash concentration.

The Company had restricted cash balances of $5.8 million and $5.0 million as of September 28, 2013 and June 29, 2013, respectively. Foreign restricted cash balances were $5.5 million and $4.7 million as of September 28, 2013 and June 29, 2013, respectively. Cash balances were restricted to collateralize letters of credit and financial institution guarantees issued in the normal course of business.

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. 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.

10

PMFG, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - Unaudited

September 28, 2013

1. SIGNIFICANT ACCOUNTING POLICIES—CONTINUED

The Company records an allowance for doubtful accounts based on a specific identification, taking into consideration 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 are deemed to be uncollectible. Payments subsequently received on such receivables are credited to the allowance for doubtful accounts in the period the payment is received.

Changes in the Company’s allowance for doubtful accounts are as follows (in thousands):

	Three months ended
	September 28,		September 29,
	2013		2012
Balance at beginning of period	$	300	$	650
Bad debt expense		—		805
Accounts written off		—		(1,181	)
Balance at end of period	$	300	$	274

Inventories

The Company values its inventories using the lower of weighted average cost or market. The Company regularly reviews the value of inventories on hand, using specific aging categories, and records a provision for obsolete and slow-moving inventory based on historical 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.

Property, Plant and Equipment

Depreciation of property, plant and equipment is calculated using the straight-line method over a period considered adequate to depreciate the total cost over the useful lives of the assets, 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 remaining lease term.

In September 2013, the Company exited its lease manufacturing and office facility in Zhenjiang, China. The property was leased from the noncontrolling interest owner of Peerless Propulsys. Early termination of the lease resulted in $0.2 million of expense included in costs of goods sold in the three months ended September 28, 2013.

11

PMFG, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - Unaudited

September 28, 2013

1. SIGNIFICANT ACCOUNTING POLICIES—CONTINUED

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

Goodwill represents the difference between the purchase price and the fair value of the net assets acquired upon acquisition. Goodwill is not amortized, however, it is measured at the reporting unit level to test for impairment annually, in the fourth quarter, or more frequently if conditions indicate an earlier review is necessary. A discounted future cash flow analysis is primarily used to determine whether impairment exists. If the fair value of a reporting unit is less than the carrying amount, then the Company writes down goodwill to its estimated fair value.

Intangible assets subject to amortization include licensing agreements, customer relationships and acquired sales order backlog. 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, in the fourth quarter, or whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. The Company uses the market and income approach methods to determine whether impairment exists.

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. The carrying amount of the Company’s debt approximates fair value as the debt bears interest at floating market rates.

Revenue Recognition

The Company recognizes revenue, net of sales taxes, from product sales or services provided when the following revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.

The Company provides certain products under long-term, generally fixed-priced, contracts that may extend over multiple financial periods, where revenue and cost of sales are recognized in accordance with accounting rules relating to construction-type and production-type contracts. Amounts recognized in revenue are calculated using the percentage of cost completed (i.e., cumulative cost incurred to date in comparison to the estimated total cost at completion). This method requires the Company to make estimates regarding the total costs of the project at completion, which impacts the amount of gross margin the Company recognizes in each reporting period. The Company routinely reviews its estimates relating to estimated total costs at completion and recognizes changes in those estimates as they are determined. The percentage-of-completion method generally results in the recognition of reasonably consistent profit margins over the life of a contract. Anticipated losses on these contracts are recorded in full in the period in which they become evident. 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.

12

PMFG, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - Unaudited

September 28, 2013

1. SIGNIFICANT ACCOUNTING POLICIES—CONTINUED

Contracts that are considered short-term in nature and require less product customization are accounted for under the completed contract method. 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 require the installation and placing in service of the product after it is distributed to the end user. The costs of start-up and commissioning and the related revenue associated with the relevant percentage of completion of these projects are recognized in the period incurred.

Warranty Costs

The Company provides 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 concurrent supplier warranties in place. Warranty costs are included in “cost of goods sold” in the Consolidated Statements of Operations.

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 basis 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. 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.

At September 28, 2013, the Company had $5.1 million of operating loss carry forwards available for carryover to future periods, subject to certain limitations and expiring beginning in fiscal 2032. A valuation allowance of $1.3 million has been established to reduce the credits to the estimated future realization of the tax related benefit.

Earnings (Loss) Per Common Share

The Company calculates earnings (loss) per common share by dividing the earnings (loss) applicable to PMFG, Inc. stockholders by the weighted average number of common shares outstanding. Diluted earnings per common share include the dilutive effect of stock options, restricted stock units and warrants granted using the treasury stock method. For the three months ended September 28, 2013, 77,460 restricted stock units with performance and

13

PMFG, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - Unaudited

September 28, 2013

1. SIGNIFICANT ACCOUNTING POLICIES—CONTINUED

service based restrictions were omitted from the calculation of dilutive securities because they were anti-dilutive. Options to acquire 37,200 shares of common stock and warrants to acquire 839,063 shares of common stock were omitted from the calculation of dilutive securities for the three months ended September 28, 2013 and the three months ended September 29, 2012, because they were anti-dilutive.

The warrants entitle the holders to purchase common stock for $10.56 per share, through a cashless exercise. The warrants expire on September 4, 2014.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“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. INVENTORIES

Principal components of inventories are as follows (in thousands):

	September 28,			June 29,
	2013			2013
Raw materials	$	4,522			3,729
Work in progress		2,743			2,516
Finished goods		509			493
		7,774			6,738
Reserve for obsolete and slow-moving inventory		(179	)		(250	)
	$	7,595		$	6,488

3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

The components of uncompleted contracts are as follows (in thousands):

	September 28,			June 29,
	2013			2013
Costs incurred on uncompleted contracts and estimated earnings	$	80,972		$	70,389
Less billings to date		(73,069	)		(60,122	)
	$	7,903		$	10,267

14

PMFG, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - Unaudited

September 28, 2013

3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS—CONTINUED

The components of uncompleted contracts are reflected in the Consolidated Balance Sheets as follows (in thousands):

	September 28,			June 29,
	2013			2013
Costs and earnings in excess of billings on uncompleted contracts	$	17,585		$	16,544
Billings in excess of costs and earnings on uncompleted contracts		(9,682	)		(6,277	)
	$	7,903		$	10,267

4. GOODWILL AND OTHER INTANGIBLE ASSETS

All goodwill and other intangible assets are allocated to the Process Products segment. Goodwill is not deductible for income tax purposes.

Goodwill

There were no changes in the carrying amount of goodwill for the three months ended September 28, 2013.

Acquisition-Related Intangibles

Acquisition-related intangible assets are as follows (in thousands):

	Weighted Average Estimated Useful Life (Years)	Gross Value Sept 28, 2013		Accumulated Amortization			Net Book Value Sept 28, 2013		Gross Value June 29, 2013		Accumulated Amortization			Net Book Value June 29, 2013
Design guidelines	Indefinite	$	6,940	$	—		$	6,940	$	6,940	$	—		$	6,940
Customer relationships	8		7,940		(3,595	)	$	4,345		7,940		(3,429	)		4,511
Trade names	Indefinite		4,729		—		$	4,729		4,729		—			4,729
		$	19,609	$	(3,595	)	$	16,014	$	19,609	$	(3,429	)	$	16,180

Amortization expense on finite-lived intangible assets was $0.2 million and $0.3 million for the three months ended September 28, 2013 and September 29, 2012, respectively. Estimated aggregate finite-lived intangible asset amortization expense for the next five years is as follows (in thousands):

Fiscal Year
2014	660
2015	585
2016	510
2017	509
2018	504

15

PMFG, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - Unaudited

September 28, 2013

5. ACCRUED PRODUCT WARRANTIES

Accrued product warranty activity is as follows (in thousands):

	Three months ended
	September 28,			September 29,
	2013			2012
Balance at beginning of period	$	2,241		$	2,615
Provision for warranty expenses		221			414
Warranty charges		(285	)		(593	)
Balance at end of period	$	2,177		$	2,436

6. ACCRUED LIABILITIES AND OTHER

The components of accrued liabilities and other are as follows (in thousands):

	September 28,		June 29,
	2013		2013
Accrued start-up and commissioning expense	$	230	$	230
Accrued compensation		2,748		2,393
Accrued professional expenses		1,983		1,819
PCMC short-term debt		1,634		—
Deferred consideration related to Burgess Manning GmbH acquisition		15		36
Other		1,194		908
	$	7,804	$	5,386

In July 2013, the Company obtained short-term financing from Bank of China Limited. The financing provides for borrowings up to ¥10 million ($1.6 million) at an interest rate of 6.6%. Interest is payable quarterly. All amounts outstanding are due July 2014. At September 28, 2013, $1.6 million was included in Accrued liabilities and other on the Consolidated Balance Sheet.

16

PMFG, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - Unaudited

September 28, 2013

7. DEBT

Outstanding long-term debt obligations are as follows (in thousands):

			September 28,			June 29,
	Maturities		2013			2013
Term loan A		2019	$	830		$	604
Term loan B		2022		8,450			8,115
PCMC loan		2017		2,778			—
Total long-term debt				12,058			8,719
Less current maturites				(1,017	)		—
Total long-term debt, net of current portion			$	11,041		$	8,719

In September 2012, the Company entered into a new Credit Agreement (the “Credit Agreement”) with Citibank, N.A., as administrative agent and other financial institutions party thereto. The Credit Agreement provides for, among other things, revolving credit commitments of $30.0 million to be used for working capital and general corporate purposes, term loan commitments of $2.0 million to be used for the purchase of equipment for a manufacturing facility in Denton, Texas (“Term Loan A”) and term loan commitments of $10.0 million to fund the construction of the Denton facility (“Term Loan B”). All borrowings and other obligations of the Company are guaranteed by substantially all of its domestic subsidiaries and are secured by substantially all of the assets of the Company.

The revolving credit facility under the Credit Agreement will terminate on September 30, 2015, and all revolving credit loans mature on that date. Under the revolving credit facility, the Company has a maximum borrowing availability equal to the lesser of (a) $30.0 million or (b) the sum of 80% of eligible accounts receivable plus 50% of eligible inventory plus 100% of the cash amount held in a special collateral account less a foreign currency letter of credit reserve. At September 28, 2013, there were no outstanding borrowings and approximately $6.2 million of outstanding letters of credit under the Credit Agreement, leaving the Company with approximately $2.7 million of available capacity for additional borrowings and letters of credit under the Credit Agreement.

The term loan commitments expire 18 months after the date of the Credit Agreement. Beginning June 30, 2014, the Company is required to make quarterly principal payments on the term loans that were incurred during that 18-month period. The Credit Agreement also requires the Company to maintain an interest rate protection agreement with respect to at least 50% of the aggregate outstanding principal amount of the term loans.

Interest on all loans must generally be paid quarterly. Interest rates on term loans use floating rates plus  ¹/₂ of 1% up to 2%, plus a margin of between 0 to 75 basis points based upon the Company’s consolidated funded debt to consolidated EBITDA for the trailing four consecutive fiscal quarters.

At September 28, 2013, the Company was required to maintain a Consolidated Total Leverage Ratio (“CTL”) not to exceed 1.75 to 1.00 and a Debt Service Coverage Ratio (“DSC”) of not less than 1.50 to 1.00. The CTL ratio is calculated as the ratio of the Company’s aggregate total liabilities to the sum of the excess of the Company’s total assets over its total liabilities as each is determined on a consolidated basis in accordance with generally accepted accounting principles. The DSC ratio is calculated as the ratio of the Company’s consolidated EBITDA less certain

17

PMFG, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - Unaudited

September 28, 2013

7. DEBT – CONTINUED

restricted cash payments, capitalized expenditures and taxes to the Company’s consolidated fixed charges, which is the sum of the Company’s current maturities of long-term debt and the amount of cash paid for interest on a trailing 12 month basis. The Credit Agreement also contains other covenants, including restrictions on additional debt, dividends, capital expenditures, acquisitions and dispositions. At September 28, 2013, the Company was in compliance with all of its debt covenants.

On September 30, 2013, the Company and its subsidiary, Peerless Mfg. Co., entered into an amendment to the Credit Agreement. The Amendment allows the Company to permit maturity dates on letters of credit provided by the Company to its customers beyond the term of the Credit Agreement and to allow unsecured parent guarantees to be issued on behalf of its foreign subsidiaries up to a maximum aggregate value of $10 million.

In July 2013, the Company’s subsidiary in China entered into a loan agreement with The People’s Bank of China. The loan agreement provides for a loan commitment of ¥45.0 million ($7.0 million) to fund the construction of a manufacturing facility in Zhenjiang, China. The loan is guaranteed by PCMC’s property, plant and equipment. The loan matures on September 30, 2018. At September 28, 2013, there was an outstanding borrowing of ¥17.0 million ($2.8 million). Beginning June 20, 2014, the Company is required to make semi-annual principal payments on the loan incurred during the six month period. Interest rates use floating rates not to exceed 10% plus 1% of annual fixed rate and must be paid quarterly. The loan agreement also contains covenants, including restrictions on additional debt, dividends, acquisitions and dispositions. At September 28, 2013, the Company was in compliance with all of its debt covenants.

The Company’s U.K. subsidiary has a debenture agreement used to facilitate issuances of letters of credit and bank guarantees of £6.0 million ($9.7 million) at September 28, 2013 and £6.0 million ($9.4 million) at June 29, 2013. This facility was secured by substantially all of the assets of the Company’s U.K. subsidiary and by a cash deposit of £1.9 million ($3.1 million) at September 28, 2013 and £2.1 million ($3.2 million) at June 29, 2013, which is recorded as restricted cash on the Consolidated Balance Sheets. At September 28, 2013, there was £4.8 million ($7.7 million) of outstanding stand-by letters of credit and bank guarantees under this debenture agreement. At June 29, 2013, there was £4.4 million ($6.8 million) of outstanding stand-by letters of credit and bank guarantees under this debenture agreement.

The Company’s German subsidiary has a debenture agreement used to facilitate issuances of letters of credit and bank guarantees of €4.8 million ($6.5 million) at September 28, 2013 and €4.8 million ($6.2 million) at June 29, 2013. This facility is secured by substantially all of the assets of the Company’s German subsidiary and by a cash deposit of €0.9 million ($1.2 million) at September 28, 2013 and €0.7 million ($0.9 million) at June 29, 2013, which is recorded as restricted cash on the Consolidated Balance Sheets. At September 28, 2013, there was €2.9 million ($3.9 million) of outstanding stand-by letters of credit and bank guarantees under this debenture agreement. At June 29, 2013, there was €2.7 million ($3.5 million) of outstanding stand-by letters of credit and bank guarantees under this debenture agreement.

The Company’s subsidiary in Singapore had bank guarantees of $0.9 million and $0.6 million at September 28, 2013 and June 29, 2013, respectively. These guarantees are secured with deposits held by the institution issuing the guarantee. The Company’s subsidiary in China had bank guarantees of $1.2 million and $0.6 million at September 28, 2013 and June 29, 2013, respectively, secured by $1.2 million and $0.6 million of restricted cash balances.

18

PMFG, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - Unaudited

September 28, 2013

8. COMMITMENTS AND CONTINGENCIES

Litigation

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. Prior to the final escrow payment release in October 2009, the Company made claims relating to environmental matters and indemnification for breach of representations and warranties of the Nitram purchase agreement, totaling approximately $2.0 million against the escrow, and a total of $1.4 million was withheld from the release of the escrow amount, which represents the Company’s claims, less the one percent deductible, estimated at $0.6 million. 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 currently believe it will have additional losses or claims against the former Nitram stockholders that are in excess of the amounts already claimed or accrued.

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.

Other Matters

The Company has entered into certain non-cancelable agreements to construct a manufacturing facility in Zhenjiang, China. The total obligation is $11.4 million and the remaining cost to be incurred as of September 28, 2013 is $2.9 million.

9. STOCK-BASED COMPENSATION

The following information represents the Company’s grants of stock-based compensation to employees and directors during the three months ended September 28, 2013 and September 29, 2012 (in thousands, except share amounts):

	Three months ended
	September 28,				September 29,
	2013				2012
Grant Type	Number of Shares Granted		Fair Value of Grant		Number of Shares Granted		Fair Value of Grant
Stock to directors		40,430	$	300		36,000	$	291
Restricted stock awards		101,410		752		110,377		894
Restricted stock units		77,460		575		—		—

The fair value of the stock granted to the Board of Directors is recognized immediately. The compensation expense for the restricted stock awards granted in fiscal year 2014 is recognized over a three-year vesting period whereas the awards granted in fiscal year 2013 are recognized over a four-year vesting period. The compensation expense is based on the fair value of the awards on the grant date, net of forfeitures.

In July 2013, the Company also awarded restricted stock units (“RSUs”), which are subject to both service and performance conditions, to the executive officers of the Company. The fair value of the RSUs is based on the probability of the performance condition being achieved on the date of grant. The actual number of shares that will ultimately vest is dependent on the Company’s performance during the performance period, which is a year from

19

PMFG, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - Unaudited

September 28, 2013

9. STOCK-BASED COMPENSATION—CONTINUED

the date of grant, against established metrics and could range from 0% to 200% of the number of units originally granted. The RSUs have a cliff vesting of three years from the date of grant. The Company recognizes compensation expense for the RSUs based upon management’s determination of the potential likelihood of achievement of the performance conditions at each reporting date in fiscal 2014, net of forfeitures.

The Company recognized $0.5 million and $0.3 million of stock-based compensation expense in the three months ended September 28, 2013 and September 29, 2012, respectively.

10. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Derivative Financial Instruments

The Company has entered into interest rate swap agreements that effectively convert the interest rates on the long-term debt issued under the Senior Credit facility from floating to fixed rates. The following table summarizes the interest rate agreements in effect as of September 28, 2013 (in thousands):

Fixed Interest Rate	Expiration Date		Notional Amounts
1.95%		September 30, 2022	$	9,000
1.50%		September 30, 2019		1,000

The swap agreements are recorded as an asset or liability in the Consolidated Balance Sheets at fair value, with the change in fair value recorded as interest expense within the Consolidated Statements of Operations.

The Company is exposed to market risk under these arrangements due to the possibility of interest rates on the term loans under the Credit Agreement declining to below the rates on the interest rate swap agreements. Credit risk under these arrangements is believed to be remote as the counterparty to the interest rate swap agreements is a major financial institution; however, if the counterparty to the derivative instrument arrangements becomes unable to fulfill its obligations to the Company, the financial benefits of the arrangements may be lost.

The derivatives recorded at fair value in the Company’s Consolidated Balance Sheets were (in thousands):

	Derivative Assets				Derivative Liabilities
	September 28,		June 29,		June 29,		June 30,
	2013		2013		2013		2012
Interest rate swap contracts	$	109	$	160	$	—	$	—

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

20

PMFG, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - Unaudited

September 28, 2013

10. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS—CONTINUED

• Level 1 — Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

• Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily-available pricing sources for comparable instruments.

• Level 3 — Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

A summary of derivative assets and liabilities measured at fair value on a recurring basis is as follows (in thousands):

	Fair Value as of September 28, 2013		Level 1		Level 2		Level 3
Asset - Interest rate swap contracts	$	109	$	—	$	109	$	—

The fair value of the interest rate swaps is determined based on the notional amounts of the swaps and the forward LIBOR curve relative to the fixed interest rates under the swap agreements. The Company classifies these instruments in Level 2 because quoted market prices can be corroborated utilizing observable benchmark market rates at commonly quoted intervals, observable current and forward commodity market prices on active exchanges, and observable market transactions of spot currency rates and forward currency prices.

11. SEGMENT INFORMATION

The Company has two reportable segments: Process Products and Environmental Systems. 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. 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 Company allocates all costs associated with the manufacture, sale and design of its products to the appropriate segment. Segment profit and loss is based on revenue less direct expenses of the segment before general and administrative expenses. The Company does not allocate general and administrative expenses, assets, or expenditures for assets on a segment basis for internal management reporting, therefore, this information is not presented. Segment information and reconciliation to operating income (loss) for the three months ended September 28, 2013 and September 29, 2012 are presented below (in thousands).

21

PMFG, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - Unaudited

September 28, 2013

11. SEGMENT INFORMATION—CONTINUED

	Three months ended
	September 28,			September 29,
	2013			2012
Revenue:
Process Products	$	24,511		$	28,715
Environmental Systems		4,560			4,262
	$	29,071		$	32,977
Operating income (loss):
Process Products	$	2,768		$	5,380
Environmental Systems		900			621
Corporate and other unallocated expenses		(5,328	)		(5,541	)
	$	(1,660	)	$	460

12. FACILITY CLOSURES

In July 2013, the Company sold the property, plant and equipment at a former production facility in Denton, Texas. The facility had a carrying value of $0.2 million and the disposal resulted in proceeds of $0.5 million. The Company recorded a gain on disposal of $0.3 million which is included in cost of goods sold in the Consolidated Statement of Operations for the three months ended September 28, 2013.

In August 2013, management announced the pending closure of the manufacturing facility located in Cisco, Texas. The Company anticipates completion of the transition process during the second quarter of fiscal 2014. At September 28, 2013, the facility had a carrying value of $0.2 million included in property, plant and equipment, net on the Consolidated Balance Sheet.

22

PMFG, Inc. and Subsidiaries

September 28, 2013

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 our 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 June 29, 2013. 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 natural gas infrastructure, power generation and refining and petrochemical processing. We offer a broad range of separation and filtration products, Selective Catalytic Reduction Systems (“SCR Systems”), and other complementary products including heat exchangers, pulsation dampeners and silencers. Our primary customers include equipment manufacturers, engineering contractors and operators of power facilities.

Our products and systems are marketed worldwide. Revenue generated from outside the United States was approximately 50% in the three months ended September 28, 2013 compared to 54% in the three months ended September 29, 2012. As a result of global demand for our products and our increased sales resources outside of the United States, we expect our international revenue will continue to be a significant percentage of our consolidated revenue in the future.

We believe 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 with our customers. Our gross profit during any particular period may be impacted by several factors, primarily shifts in our product mix, material cost changes, and warranty costs. Shifts in the geographic composition of our revenue also can have a significant impact on our reported margins.

We have two reporting segments: Process Products and Environmental Systems. 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. The primary product of our Environmental Systems business is SCR Systems. SCR Systems are integrated systems, with instruments, controls and related valves and piping. Our SCR Systems convert nitrogen oxide into nitrogen and water, reducing air pollution and helping our customers comply with environmental regulations.

23

PMFG, Inc. and Subsidiaries

September 28, 2013

Key Drivers of Product Demand

We believe demand for our products is driven by the increasing demand for energy in both developed and emerging markets, coupled with the global trend towards increasingly restrictive environmental regulations. These trends should stimulate investment in new power generation facilities and related infrastructure, and in upgrading existing facilities.

With a shift to cleaner, more environmentally responsible power generation, power providers and industrial power consumers are building new facilities that use cleaner fuels, such as natural gas, nuclear technology and renewable resources. In developed markets, natural gas is increasingly becoming one of the energy sources of choice. We supply product offerings throughout the entire natural gas infrastructure value chain and believe the expansion of natural gas infrastructure will drive growth of our process products and the global market for our SCR Systems for natural-gas-fired power plants.

Despite existing concerns over safety and government regulations related to the construction of new nuclear power facilities and the re-licensing of existing facilities, we believe rising nuclear capacity utilization rates and concerns about energy security and emissions will drive the increase for nuclear power generation, both domestically and internationally. China is expected to lead the global expansion of nuclear power generation growth. Re-licensing of existing nuclear facilities in the United States and Europe also will contribute to product demand.

We believe these market trends will drive the demand for both our separation/filtration products and 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.

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 June 29, 2013. Since the date of that report, there have been no material changes to our critical accounting policies.

24

PMFG, Inc. and Subsidiaries

September 28, 2013

Results of Operations

The following summarizes our Consolidated Statements of Operations as a percentage of revenue:

	Three months ended
	September 28,			September 29,
	2013			2012
Net revenue		100.0	%		100.0	%
Cost of goods sold		66.6			65.5
Gross profit		33.4			34.5
Operating expenses		39.1			33.2
Operating income (loss)		(5.7	)		1.3
Other expense, net		(1.9	)		(1.4	)
Income (loss) before income taxes		(7.6	)		(0.1	)
Income tax benefit (expense)		2.2			0.0
Net income (loss)		(5.4	)%		(0.1	)%
Net income (loss) attributable to noncontrolling interest		—			0.9
Net income (loss) attributable to PMFG, Inc.		(5.4	)%		(1.0	)%

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, professional services and other administrative fees.

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 50% and 54% of consolidated revenue in the quarters ended September 28, 2013 and September 29, 2012, respectively.

25

PMFG, Inc. and Subsidiaries

September 28, 2013

The following summarizes consolidated revenue (in thousands):

	Three months ended
	September 28, 2013		% of Total Revenue			September 29, 2012		% of Total Revenue
Domestic	$	14,573		50.1	%	$	15,260		46.3	%
International		14,498		49.9	%		17,717		53.7	%
Total	$	29,071		100.0	%	$	32,977		100.0	%

Total revenue decreased $3.9 million, or 11.8%, to $29.1 million in the first quarter of fiscal 2014 compared to the same period in fiscal 2013. The lower revenue in fiscal 2014 reflects the overlap of strong quarterly results in the EMEA and APAC regions in fiscal 2013 and the impact of disruptions resulting from the startup of the new manufacturing facilities in Denton, Texas and China. During the quarter the Company ceased manufacturing operations at two facilities and began manufacturing activities at two new facilities. The transition disrupted the Company’s manufacturing capabilities during the quarter as it was necessary to shut down and dismantle equipment to be moved and reinstalled in the new facilities.

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

	Three months ended
	September 28, 2013		% of Total Revenue			September 29, 2012		% of Total Revenue
Revenue	$	29,071		100.0	%	$	32,977		100.0	%
Cost of goods sold		19,364		66.6	%		21,585		65.5	%
Gross profit	$	9,707		33.4	%	$	11,392		34.5	%

Gross profit in the first quarter of fiscal 2014 decreased $1.7 million compared to the same period in fiscal 2013. The decrease in fiscal 2014 gross profit is attributed primarily to the lower revenue in the period. The gross profit as a percentage of revenue declined as a result of variances in product and geographic mix, as well as one-time costs and inefficiencies related to the transition of manufacturing facilities.

Operating Expenses. The following summarizes operating expenses (in thousands):

	Three months ended
	September 28, 2013		% of Total Revenue			September 29, 2012		% of Total Revenue
Sales and marketing	$	3,513		12.1	%	$	3,067		9.3	%
Engineering and project management		2,526		8.7	%		2,324		7.0	%
General and administrative		5,328		18.3	%		5,541		16.8	%
Total	$	11,367		39.1	%	$	10,932		33.2	%

Operating expenses increased $0.4 million, or 4.0%, for the first quarter of fiscal 2014 compared to the same period in fiscal 2013. The increase in operating expenses primarily relates to sales commissions, personnel-related and consulting costs, partially offset by lower bad debt expense in the period. As the Company’s operating expenses are largely fixed in nature, the operating expenses as a percentage of revenue increased significantly from period to period on the lower relative level of revenue.

26

PMFG, Inc. and Subsidiaries

September 28, 2013

Other Income and Expense. The following summarizes other income and expense (in thousands):

	Three months ended
	September 28, 2013			September 29, 2012
Interest income	$	18		$	10
Interest expense		(438	)		(105	)
Loss on extinguishment of debt		—			(291	)
Foreign exchange gain (loss)		(203	)		(82	)
Other income (expense), net		66			1
Total other income (expense)	$	(557	)	$	(467	)

Total other income and expense was a net expense of $0.6 million and $0.5 million in the first quarter of fiscal 2014 and 2013, respectively. In the first quarter of fiscal 2013, we recorded a loss on the extinguishment of debt associated with paying off our outstanding term loan. There was no similar activity in the first quarter of fiscal 2014. The higher level of interest expense reflects borrowings related to the Company’s two new manufacturing facilities.

Income Taxes. Our effective income tax rates were 29.2% and 20.7% for the quarters ended September 28, 2013 and September 29, 2012, respectively.

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 84% and 87% of our revenue in the quarters ended September 28, 2013 and September 29, 2012, respectively. With the increase in demand for environmental system solutions, we anticipate the Environmental Systems segment will continue to increase as a percentage of our consolidated revenue.

The following summarizes the Process Products segment revenue and operating income (in thousands):

	Three months ended
	September 28,			September 29,
	2013			2012
Revenue	$	24,511		$	28,715
Operating income		2,768			5,380
Operating income as % of revenue		11.3	%		18.7	%

Process Products revenue decreased $4.2 million, or 14.6%, to $24.5 million in the first quarter of fiscal 2014, compared to the first quarter of fiscal 2013. The Process Products segment revenue was negatively impacted by the transition of our manufacturing facilities in the quarter as we exited two older facilities and started up two new facilities. The inefficiencies associated with the transitions significantly reduced our manufacturing capacity during the quarter. As evidenced by the increase in backlog, the lower Process Products segment revenue is not reflective of the current market activity.

27

PMFG, Inc. and Subsidiaries

September 28, 2013

Process Products operating income for the first quarter of fiscal 2014 decreased $2.6 million, or 48.6%, compared to the first quarter of fiscal 2013. As the Company’s sales and marketing are largely fixed in nature the lower revenue in the quarter negatively impacted the segment profitability.

Environmental Systems

The primary product of our Environmental Systems business is 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 16% and 13% of our revenue in the quarters ended September 28, 2013 and September 29, 2012, respectively.

The following summarizes the Environmental Systems segment revenue and operating income (in thousands):

	Three months ended
	September 28,			September 29,
	2013			2012
Revenue	$	4,560		$	4,262
Operating income		900			621
Operating income as % of revenue		19.7	%		14.6	%

Environmental Systems revenue increased $0.3 million, or 7.0%, to $4.6 million in the first quarter of fiscal 2014 compared to the first quarter of fiscal 2013. Our SCR projects tend to be larger in scope and longer in duration then systems and solutions included in the Process Products segment. Further, the costs are incurred inconsistently throughout the fabrication process which increases the variability of segment revenue from period to period. The higher revenue in fiscal 2014 reflects the timing of incurring project related costs as the backlog of Environmental Systems projects at September 28, 2013 was nearly double that of the prior year.

Environmental Systems operating income for the first quarter of fiscal 2014 increased $0.3 million compared to the first quarter of fiscal 2013. As a percentage of revenue, operating income increased to 19.7% in the first quarter of fiscal 2014 compared to 14.6%, in the first quarter of fiscal 2013. The increase in segment operating income as a percentage of revenue reflects the relative profitability of projects in process, partially offset by higher sales and marketing costs.

General and Administrative Expenses

General and administrative expenses include those related to the corporate office, as well as general and administrative costs of international locations. General and administrative expenses decreased $0.2 million or 3.8% in the quarter ended September 28, 2013 in comparison to the prior year. The increase in personnel-related and public company costs in the period were more than offset by lower bad debt expense. Included in the first quarter of fiscal 2013 was $0.8 million related to the write-off of a customer accounts receivable balance.

28

PMFG, Inc. and Subsidiaries

September 28, 2013

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.

Net Bookings and Backlog

The following table shows the activity and balances related to our backlog for the three months ended as of September 28, 2013 and September 29, 2012 (in millions):

	Three Months Ended
	September 28, 2013			September 29, 2012
Backlog at beginning of period	$	84.2		$	99.9
Net bookings		42.4			24.7
Revenue recognized		(29.1	)		(33.0	)
Backlog at end of period	$	97.5		$	91.6

Backlog includes contractual purchase orders for products that are deliverable in future periods less revenue recognized on such orders to date. Our backlog increased $13.3 million from June 29, 2013 to $97.5 million at September 28, 2013. The increase in backlog reflects the relative strength in bookings both in comparison to the prior year and the immediately preceding quarter, as well as delays in our manufacturing resulting from the transition of manufacturing facilities. Included in the backlog as of September 29, 2012 was approximately $12.5 million related to two customer contracts which were cancelled in the fourth quarter of fiscal 2013. The Company anticipates approximately 80% of the backlog as of September 28, 2013 will be recognized as revenue over the next 12 months.

Financial Position

Assets. Total assets increased by $13.1 million, or 7.3%, from $180.1 million at June 29, 2013, to $193.2 million at September 28, 2013. On September 28, 2013, we held cash, including restricted cash, and cash equivalents of $65.7 million, had working capital of $75.2 million and a current liquidity ratio of 2.7-to-1.0. This compares with cash, including restricted cash, and cash equivalents of $58.0 million, working capital of $75.0 million, and a current liquidity ratio of 3.2-to-1.0 at June 29, 2013.

Liabilities and Equity. Total liabilities increased by $12.1 million, or 25.1%, from $48.2 million at June 29, 2013 to $60.3 million at September 29, 2013. The increase in our total liabilities is attributed to an increase in long-term debt associated with the construction of manufacturing facilities in Denton, Texas and Zhenjiang, China, in addition to an increase in accounts payable, billings in excess of costs and earnings on uncompleted contracts and other accrued liabilities.

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 invoice 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 September 29, 2013, the balance of these working capital accounts was $11.9 million compared to $17.9 million at June 29, 2013, reflecting a decrease of our investment in these working capital items of $6.0 million.

29

PMFG, Inc. and Subsidiaries

September 28, 2013

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 7 of Item 1 in the Notes to the Consolidated Financial Statements). As of September 28, 2013 and June 29, 2013, we had outstanding letters of credit and bank guarantees of $19.9 million and $18.1 million, respectively.

Our cash and cash equivalents were $65.7 million as of September 28, 2013, compared to $58.0 million at June 29, 2013, of which $5.8 million and $5.0 million were restricted as collateral for stand-by letters of credit and bank guarantees at September 28, 2013, and June 29, 2013, respectively. During the three months ended September 28, 2013, cash provided by operating activities was $4.8 million compared to cash provided by operating activities of $9.2 million for the three months ended September 29, 2012.

Cash used in investing activities was $4.0 million for the three months ended September 28, 2013, compared to cash used in investing activities of $0.5 million for the three months ended September 29, 2012. Cash used in investing activities during the three months ended September 28, 2013, primarily related to construction costs incurred to date on our manufacturing facilities under construction in Denton, Texas and Zhenjiang, China. Cash used in investing activities during the three months ended September 29, 2012 primarily related to the purchase of property, plant and equipment, partially offset by a reduction in cash restricted to serve as collateral against open letters of credit.

Cash provided by financing activities during the three months ended September 28, 2013, was $5.8 million compared to cash used by financing activities of $0.6 million during the three months ended September 29, 2012. The cash provided by financing activities for the three months ended September 28, 2013, primarily consisted of proceeds from long-term debt as we drew on our construction term loan and the equity contribution from a non-controlling interest in our China subsidiary, offset by a payment of our long term debt. The cash provided by financing activities for the three months ended September 29, 2012 primarily consisted of payment of debt issuance costs for the new credit facility.

As a result of the events described above, our cash and cash equivalents during the three months ended September 28, 2013, increased by $6.9 million compared to an increase of $7.8 million during the three months ended September 29, 2012

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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our market risk exposures from those disclosed in Item 7A of Part II of our Annual Report on Form 10-K for the year ended June 29, 2013.

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.

30

PMFG, Inc. and Subsidiaries

September 28, 2013

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.

During the three months ended September 28, 2013, 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

We are 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 June 29, 2013.

31

PMFG, Inc. and Subsidiaries

September 28, 2013

Item 6. Exhibits

The following exhibits are filed as part of this report.

Exhibit No.	Exhibit Description
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 Certifications of Chief Executive Officer and Chief Financial Officer.
101.INS	XBRL Report Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

32

PMFG, Inc. and Subsidiaries

September 28, 2013

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 7, 2013	/s/ Peter J. Burlage
	Peter J. Burlage
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: November 7, 2013	/s/ Ronald L McCrummen
	Ronald L. McCrummen Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

33

EX-31.1

EXHIBIT 31.1

RULE 13a – 14(a)/15d – 14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Peter J. Burlage, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PMFG, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter, the registrant’s fourth fiscal quarter in the case of an annual report, that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2013	/s/ Peter J. Burlage
	Peter J. Burlage
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

RULE 13a – 14(a)/15d – 14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Ronald L. McCrummen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PMFG, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter, the registrant’s fourth fiscal quarter in the case of an annual report, that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2013	/s/ Ronald L McCrummen
	Ronald L. McCrummen
	Executive Vice President and Chief Financial Officer

EX-32

EXHIBIT 32

SECTION 1350 CERTIFICATIONS

Each of the undersigned officers of the Company certifies that pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code:

(1) The Quarterly Report on Form 10-Q of the Company for the period ended September 28, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

Date: November 7, 2013	/s/ Peter J. Burlage
	Peter J. Burlage
	President and Chief Executive Officer
	/s/ Ronald L. McCrummen
	Ronald L. McCrummen
	Executive Vice President and Chief Financial Officer

The foregoing Certification is being furnished solely pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

3 Months Ended

Sep. 28, 2013

Fair Value Disclosures [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

10. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Derivative Financial Instruments

The Company has entered into interest rate swap agreements that effectively convert the interest rates on the long-term debt issued under the Senior Credit facility from floating to fixed rates. The following table summarizes the interest rate agreements in effect as of September 28, 2013 (in thousands):

Fixed Interest Rate	Expiration Date		Notional Amounts
1.95%		September 30, 2022	$	9,000
1.50%		September 30, 2019		1,000

The swap agreements are recorded as an asset or liability in the Consolidated Balance Sheets at fair value, with the change in fair value recorded as interest expense within the Consolidated Statements of Operations.

The Company is exposed to market risk under these arrangements due to the possibility of interest rates on the term loans under the Credit Agreement declining to below the rates on the interest rate swap agreements. Credit risk under these arrangements is believed to be remote as the counterparty to the interest rate swap agreements is a major financial institution; however, if the counterparty to the derivative instrument arrangements becomes unable to fulfill its obligations to the Company, the financial benefits of the arrangements may be lost.

The derivatives recorded at fair value in the Company’s Consolidated Balance Sheets were (in thousands):

	Derivative Assets				Derivative Liabilities
	September 28,		June 29,		June 29,		June 30,
	2013		2013		2013		2012
Interest rate swap contracts	$	109	$	160	$	—	$	—

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

• Level 1 — Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

• Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily-available pricing sources for comparable instruments.

• Level 3 — Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

A summary of derivative assets and liabilities measured at fair value on a recurring basis is as follows (in thousands):

	Fair Value
	as of
	September 28, 2013		Level 1		Level 2		Level 3
Asset—Interest rate swap contracts	$	109	$	—	$	109	$	—

The fair value of the interest rate swaps is determined based on the notional amounts of the swaps and the forward LIBOR curve relative to the fixed interest rates under the swap agreements. The Company classifies these instruments in Level 2 because quoted market prices can be corroborated utilizing observable benchmark market rates at commonly quoted intervals, observable current and forward commodity market prices on active exchanges, and observable market transactions of spot currency rates and forward currency prices.

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Facility Closures - Additional Information (Detail) (USD $)	3 Months Ended		1 Months Ended	3 Months Ended
	Sep. 28, 2013	Jun. 29, 2013	Jul. 31, 2013 Denton Texas [Member]	Sep. 28, 2013 Denton Texas [Member]	Sep. 28, 2013 Cisco [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, net	$ 27,424,000	$ 24,031,000	$ 200,000		$ 200,000
Proceeds from disposal of assets	521,000		500,000
Gain on disposal of property, plant and equipment				$ 300,000

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Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Sep. 28, 2013	Sep. 29, 2012
Income Statement [Abstract]
Revenue	$ 29,071	$ 32,977
Cost of goods sold	19,364	21,585
Gross profit	9,707	11,392
Operating expenses:
Sales and marketing	3,513	3,067
Engineering and project management	2,526	2,324
General and administrative	5,328	5,541
Operating expenses, Total	11,367	10,932
Operating income (loss)	(1,660)	460
Other income (expense):
Interest income	18	10
Interest expense	(438)	(105)
Loss on extinguishment of debt		(291)
Foreign exchange loss	(203)	(82)
Other income	66	1
Nonoperating income (expense), Total	(557)	(467)
Loss before income taxes	(2,217)	(7)
Income tax benefit	647	1
Net loss	(1,570)	(6)
Net income attributable to noncontrolling interest	11	305
Net loss attributable to PMFG, Inc.	$ (1,581)	$ (311)
Weighted-average common shares outstanding:
Basic	21,077	20,917
Diluted	21,077	20,917
Basic loss per common share	$ (0.07)	$ (0.01)
Diluted loss per common share	$ (0.07)	$ (0.01)

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COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

3 Months Ended

Sep. 28, 2013

Contractors [Abstract]

COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

The components of uncompleted contracts are as follows (in thousands):

	September 28,			June 29,
	2013			2013
Costs incurred on uncompleted contracts and estimated earnings	$	80,972		$	70,389
Less billings to date		(73,069	)		(60,122	)
	$	7,903		$	10,267

The components of uncompleted contracts are reflected in the Consolidated Balance Sheets as follows (in thousands):

	September 28,			June 29,
	2013			2013
Costs and earnings in excess of billings on uncompleted contracts	$	17,585		$	16,544
Billings in excess of costs and earnings on uncompleted contracts		(9,682	)		(6,277	)
	$	7,903		$	10,267

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

3 Months Ended

Sep. 28, 2013

Goodwill And Intangible Assets Disclosure [Abstract]

Acquisition-Related Intangible Assets

Acquisition-related intangible assets are as follows (in thousands):

	Weighted Average Estimated Useful Life (Years)	Gross Value Sept 28, 2013		Accumulated Amortization			Net Book Value Sept 28, 2013		Gross Value June 29, 2013		Accumulated Amortization			Net Book Value June 29, 2013
Design guidelines	Indefinite	$	6,940	$	—		$	6,940	$	6,940	$	—		$	6,940
Customer relationships	8		7,940		(3,595	)	$	4,345		7,940		(3,429	)		4,511
Trade names	Indefinite		4,729		—		$	4,729		4,729		—			4,729
		$	19,609	$	(3,595	)	$	16,014	$	19,609	$	(3,429	)	$	16,180

Estimated Aggregate Finite-Lived Intangible Asset Amortization Expense

Estimated aggregate finite-lived intangible asset amortization expense for the next five years is as follows (in thousands):

Fiscal Year
2014	660
2015	585
2016	510
2017	509
2018	504

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SEGMENT INFORMATION

3 Months Ended

Sep. 28, 2013

Segment Reporting [Abstract]

SEGMENT INFORMATION

11. SEGMENT INFORMATION

The Company has two reportable segments: Process Products and Environmental Systems. 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. 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 Company allocates all costs associated with the manufacture, sale and design of its products to the appropriate segment. Segment profit and loss is based on revenue less direct expenses of the segment before general and administrative expenses. The Company does not allocate general and administrative expenses, assets, or expenditures for assets on a segment basis for internal management reporting, therefore, this information is not presented. Segment information and reconciliation to operating income (loss) for the three months ended September 28, 2013 and September 29, 2012 are presented below (in thousands).

	Three months ended
	September 28,			September 29,
	2013			2012
Revenue:
Process Products	$	24,511		$	28,715
Environmental Systems		4,560			4,262
	$	29,071		$	32,977
Operating income (loss):
Process Products	$	2,768		$	5,380
Environmental Systems		900			621
Corporate and other unallocated expenses		(5,328	)		(5,541	)
	$	(1,660	)	$	460

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Summary of Various Interest Rate Agreements (Detail) (Interest Rate Swap [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 28, 2013
1.95 % Fixed Interest Rate Due In September 30, 2022 [Member]
Derivative [Line Items]
Expiration Date	Sep. 30, 2022
Notional Amounts	$ 9,000
1.50 % Fixed Interest Rate Due In September 30, 2019 [Member]
Derivative [Line Items]
Expiration Date	Sep. 30, 2019
Notional Amounts	$ 1,000

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Goodwill and Other Intangible Assets - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Sep. 28, 2013	Sep. 29, 2012
Goodwill And Intangible Assets Disclosure [Abstract]
Amortization expense	$ 0.2	$ 0.3

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DEBT (Tables)

3 Months Ended

Sep. 28, 2013

Debt Disclosure [Abstract]

Outstanding Long-Term Debt Obligations

Outstanding long-term debt obligations are as follows (in thousands):

			September 28,			June 29,
	Maturities		2013			2013
Term loan A		2019	$	830		$	604
Term loan B		2022		8,450			8,115
PCMC loan		2017		2,778			—
Total long-term debt				12,058			8,719
Less current maturites				(1,017	)		—
Total long-term debt, net of current portion			$	11,041		$	8,719

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ACCRUED LIABILITIES AND OTHER (Tables)

3 Months Ended

Sep. 28, 2013

Payables And Accruals [Abstract]

Components of Accrued Liabilities and Other

The components of accrued liabilities and other are as follows (in thousands):

	September 28,		June 29,
	2013		2013
Accrued start-up and commissioning expense	$	230	$	230
Accrued compensation		2,748		2,393
Accrued professional expenses		1,983		1,819
PCMC short-term debt		1,634		—
Deferred consideration related to Burgess Manning GmbH acquisition		15		36
Other		1,194		908
	$	7,804	$	5,386

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Restricted Stock Award activity (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Sep. 28, 2013	Sep. 29, 2012
Stock to directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock awards	40,430	36,000
Restricted stock awards	$ 300	$ 291
Restricted stock awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock awards	101,410	110,377
Restricted stock awards	752	894
Restricted stock units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock awards	77,460
Restricted stock awards	$ 575

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Principal Components of Inventories (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 28, 2013	Jun. 29, 2013
Inventory Disclosure [Abstract]
Raw materials	$ 4,522	$ 3,729
Work in progress	2,743	2,516
Finished goods	509	493
Inventory, Gross, Total	7,774	6,738
Reserve for obsolete and slow-moving inventory	(179)	(250)
Inventories, net	$ 7,595	$ 6,488

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Accrued Product Warranty Activity (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 28, 2013	Sep. 29, 2012
Guarantees [Abstract]
Balance at beginning of period	$ 2,241	$ 2,615
Provision for warranty expenses	221	414
Warranty charges	(285)	(593)
Balance at end of period	$ 2,177	$ 2,436

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Derivatives Recorded at Fair Value in Consolidated Balance Sheets (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 28, 2013	Jun. 29, 2013	Jun. 30, 2012
Derivative Instruments And Hedging Activities Disclosure [Abstract]
Derivative Assets	$ 109	$ 160
Derivative Liabilities

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Significant Accounting Policies - Additional Information (Detail) (USD $)	3 Months Ended		3 Months Ended
	Sep. 28, 2013	Jun. 29, 2013	Sep. 28, 2013 Restricted stock units [Member]	Sep. 28, 2013 Peerless Propulsys [Member]	Sep. 28, 2013 Stock Options [Member]	Sep. 29, 2012 Stock Options [Member]	Sep. 28, 2013 Warrants [Member]	Sep. 29, 2012 Warrants [Member]
Schedule of Equity Method Investments [Line Items]
Equity method investment, ownership percentage				60.00%
Equity investment entitles to earnings				80.00%
Maturity of liquid investments purchased	Three months or less
Cash held in the United States exceeding federally insured limits	$ 39,400,000
Restricted cash balances	5,827,000	5,029,000
Foreign restricted cash balances	5,500,000	4,700,000
Accounts receivables due date	Thirty days or less
Lease termination expense	200,000
Period of product warranty	Less than 18 months
Operating loss carry forwards	5,100,000
Operating loss carry forwards, Expiration date	Jul. 01, 2032
Operating loss carry forwards, Valuation allowance	$ 1,300,000
Anti-dilutive securities omitted from computation of earnings per common share calculation			77,460		37,200	37,200	839,063	839,063
Common stock per share value	$ 0.01	$ 0.01					$ 10.56
Warrants expiration date	Sep. 04, 2014

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Outstanding Long-Term Debt Obligation (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 28, 2013	Jun. 29, 2013
Debt Instrument [Line Items]
Total long-term debt	$ 12,058	$ 8,719
Less current maturities	(1,017)
Total long-term debt, net of current portion	11,041	8,719
Term A loan [Member]
Debt Instrument [Line Items]
Long-term debt, maturity year	2019
Total long-term debt	830	604
Term B Loan [Member]
Debt Instrument [Line Items]
Long-term debt, maturity year	2022
Total long-term debt	8,450	8,115
PCMC loan [Member]
Debt Instrument [Line Items]
Long-term debt, maturity year	2017
Total long-term debt	$ 2,778

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ACCRUED PRODUCT WARRANTIES (Tables)

3 Months Ended

Sep. 28, 2013

Guarantees [Abstract]

Accrued Product Warranty Activity

Accrued product warranty activity is as follows (in thousands):

	Three months ended
	September 28,			September 29,
	2013			2012
Balance at beginning of period	$	2,241		$	2,615
Provision for warranty expenses		221			414
Warranty charges		(285	)		(593	)
Balance at end of period	$	2,177		$	2,436

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Consolidated Statement of Equity (USD $) In Thousands	Total	Common Stock	Additional Paid - in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total Stockholders' Equity	Non Controlling Interest
Beginning Balance at Jun. 29, 2013	$ 131,886	$ 210	$ 96,634	$ 33,114	$ (2,004)	$ 127,954	$ 3,932
Beginning Balance, shares at Jun. 29, 2013		20,966
Net (loss)	(1,570)			(1,581)		(1,581)	11
Foreign currency translation adjustment	1,333				1,307	1,307	26
Stock grants, net of forfeitures (in shares)		142
Stock grants, net of forfeitures	464	1	463			464
Equity contribution from noncontrolling interest in subsidiary	800						800
Ending Balance at Sep. 28, 2013	$ 132,913	$ 211	$ 97,097	$ 31,533	$ (697)	$ 128,144	$ 4,769
Ending Balance, shares at Sep. 28, 2013		21,108

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SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Sep. 28, 2013

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

1. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements of PMFG, Inc. and subsidiaries have been prepared in conformity with accounting principles generally accepted in the United States of America (“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 September 28, 2013 and for the three months ended September 28, 2013 and September 29, 2012 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 June 29, 2013.

Each of the Company’s interim reporting periods ends on the Saturday closest to the last day of the corresponding quarterly calendar period. References to “fiscal 2014” and “fiscal 2013” refer to fiscal years ended June 28, 2014 and June 29, 2013, respectively. The first quarter of fiscal 2014 and fiscal 2013 ended on September 28, 2013, and September 29, 2012, 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 China Manufacturing Co. Ltd. (“PCMC”), formerly known as Peerless Manufacturing (Zhenjiang) Co. Ltd. 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

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 September 28, 2013, cash held in the United States exceeded federally insured limits by $39.4 million. The Company has not experienced any losses related to this cash concentration.

The Company had restricted cash balances of $5.8 million and $5.0 million as of September 28, 2013 and June 29, 2013, respectively. Foreign restricted cash balances were $5.5 million and $4.7 million as of September 28, 2013 and June 29, 2013, respectively. Cash balances were restricted to collateralize letters of credit and financial institution guarantees issued in the normal course of business.

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. 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 for doubtful accounts based on a specific identification, taking into consideration 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 are deemed to be uncollectible. Payments subsequently received on such receivables are credited to the allowance for doubtful accounts in the period the payment is received.

Changes in the Company’s allowance for doubtful accounts are as follows (in thousands):

	Three months ended
	September 28,		September 29,
	2013		2012
Balance at beginning of period	$	300	$	650
Bad debt expense		—		805
Accounts written off		—		(1,181	)
Balance at end of period	$	300	$	274

Inventories

The Company values its inventories using the lower of weighted average cost or market. The Company regularly reviews the value of inventories on hand, using specific aging categories, and records a provision for obsolete and slow-moving inventory based on historical 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.

Property, Plant and Equipment

Depreciation of property, plant and equipment is calculated using the straight-line method over a period considered adequate to depreciate the total cost over the useful lives of the assets, 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 remaining lease term.

In September 2013, the Company exited its lease manufacturing and office facility in Zhenjiang, China. The property was leased from the noncontrolling interest owner of Peerless Propulsys. Early termination of the lease resulted in $0.2 million of expense included in costs of goods sold in the three months ended September 28, 2013.

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

Goodwill represents the difference between the purchase price and the fair value of the net assets acquired upon acquisition. Goodwill is not amortized, however, it is measured at the reporting unit level to test for impairment annually, in the fourth quarter, or more frequently if conditions indicate an earlier review is necessary. A discounted future cash flow analysis is primarily used to determine whether impairment exists. If the fair value of a reporting unit is less than the carrying amount, then the Company writes down goodwill to its estimated fair value.

Intangible assets subject to amortization include licensing agreements, customer relationships and acquired sales order backlog. 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, in the fourth quarter, or whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. The Company uses the market and income approach methods to determine whether impairment exists.

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. The carrying amount of the Company’s debt approximates fair value as the debt bears interest at floating market rates.

Revenue Recognition

The Company recognizes revenue, net of sales taxes, from product sales or services provided when the following revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.

The Company provides certain products under long-term, generally fixed-priced, contracts that may extend over multiple financial periods, where revenue and cost of sales are recognized in accordance with accounting rules relating to construction-type and production-type contracts. Amounts recognized in revenue are calculated using the percentage of cost completed (i.e., cumulative cost incurred to date in comparison to the estimated total cost at completion). This method requires the Company to make estimates regarding the total costs of the project at completion, which impacts the amount of gross margin the Company recognizes in each reporting period. The Company routinely reviews its estimates relating to estimated total costs at completion and recognizes changes in those estimates as they are determined. The percentage-of-completion method generally results in the recognition of reasonably consistent profit margins over the life of a contract. Anticipated losses on these contracts are recorded in full in the period in which they become evident. 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 and require less product customization are accounted for under the completed contract method. 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 require the installation and placing in service of the product after it is distributed to the end user. The costs of start-up and commissioning and the related revenue associated with the relevant percentage of completion of these projects are recognized in the period incurred.

Warranty Costs

The Company provides 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 concurrent supplier warranties in place. Warranty costs are included in “cost of goods sold” in the Consolidated Statements of Operations.

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 basis 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. 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.

At September 28, 2013, the Company had $5.1 million of operating loss carry forwards available for carryover to future periods, subject to certain limitations and expiring beginning in fiscal 2032. A valuation allowance of $1.3 million has been established to reduce the credits to the estimated future realization of the tax related benefit.

Earnings (Loss) Per Common Share

The Company calculates earnings (loss) per common share by dividing the earnings (loss) applicable to PMFG, Inc. stockholders by the weighted average number of common shares outstanding. Diluted earnings per common share include the dilutive effect of stock options, restricted stock units and warrants granted using the treasury stock method. For the three months ended September 28, 2013, 77,460 restricted stock units with performance and service based restrictions were omitted from the calculation of dilutive securities because they were anti-dilutive. Options to acquire 37,200 shares of common stock and warrants to acquire 839,063 shares of common stock were omitted from the calculation of dilutive securities for the three months ended September 28, 2013 and the three months ended September 29, 2012, because they were anti-dilutive.

The warrants entitle the holders to purchase common stock for $10.56 per share, through a cashless exercise. The warrants expire on September 4, 2014.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“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.

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GOODWILL AND OTHER INTANGIBLE ASSETS

3 Months Ended

Sep. 28, 2013

Goodwill And Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS

4. GOODWILL AND OTHER INTANGIBLE ASSETS

All goodwill and other intangible assets are allocated to the Process Products segment. Goodwill is not deductible for income tax purposes.

Goodwill

There were no changes in the carrying amount of goodwill for the three months ended September 28, 2013.

Acquisition-Related Intangibles

Acquisition-related intangible assets are as follows (in thousands):

	Weighted Average Estimated Useful Life (Years)	Gross Value Sept 28, 2013		Accumulated Amortization			Net Book Value Sept 28, 2013		Gross Value June 29, 2013		Accumulated Amortization			Net Book Value June 29, 2013
Design guidelines	Indefinite	$	6,940	$	—		$	6,940	$	6,940	$	—		$	6,940
Customer relationships	8		7,940		(3,595	)	$	4,345		7,940		(3,429	)		4,511
Trade names	Indefinite		4,729		—		$	4,729		4,729		—			4,729
		$	19,609	$	(3,595	)	$	16,014	$	19,609	$	(3,429	)	$	16,180

Amortization expense on finite-lived intangible assets was $0.2 million and $0.3 million for the three months ended September 28, 2013 and September 29, 2012, respectively. Estimated aggregate finite-lived intangible asset amortization expense for the next five years is as follows (in thousands):

Fiscal Year
2014	660
2015	585
2016	510
2017	509
2018	504

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INVENTORIES

3 Months Ended

Sep. 28, 2013

Inventory Disclosure [Abstract]

INVENTORIES

2. INVENTORIES

Principal components of inventories are as follows (in thousands):

	September 28,			June 29,
	2013			2013
Raw materials	$	4,522			3,729
Work in progress		2,743			2,516
Finished goods		509			493
		7,774			6,738
Reserve for obsolete and slow-moving inventory		(179	)		(250	)
	$	7,595		$	6,488

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Components of Accrued Liabilities and Other (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 28, 2013	Jun. 29, 2013
Schedule of Accrued Liabilities [Line Items]
Accrued start-up and commissioning expense	$ 230	$ 230
Accrued compensation	2,748	2,393
Accrued professional expenses	1,983	1,819
PCMC short-term debt	1,634
Other	1,194	908
Accrued liabilities and other	7,804	5,386
Burgess Manning GmbH [Member]
Schedule of Accrued Liabilities [Line Items]
Deferred consideration related to Burgess Manning GmbH acquisition	$ 15	$ 36

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STOCK-BASED COMPENSATION (Tables)

3 Months Ended

Sep. 28, 2013

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Grants of Stock-Based Compensation to Employees and Directors

The following information represents the Company’s grants of stock-based compensation to employees and directors during the three months ended September 28, 2013 and September 29, 2012 (in thousands, except share amounts):

	Three months ended
	September 28,				September 29,
	2013				2012
Grant Type	Number of Shares Granted		Fair Value of Grant		Number of Shares Granted		Fair Value of Grant
Stock to directors		40,430	$	300		36,000	$	291
Restricted stock awards		101,410		752		110,377		894
Restricted stock units		77,460		575		—		—

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Allowance for Doubtful Accounts (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 29, 2012	Sep. 28, 2013	Jun. 29, 2013
Allowance For Doubtful Accounts Receivable Rollforward
Balance at beginning of period	$ 650	$ 300	$ 300
Bad debt expense	805
Accounts written off	(1,181)
Balance at end of period	$ 274	$ 300	$ 300

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Acquisition-Related Intangible Assets (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 28, 2013	Jun. 29, 2013
Finite And Indefinite Lived Intangible Assets [Line Items]
Total Gross Value	$ 19,609	$ 19,609
Accumulated Amortization	(3,595)	(3,429)
Total Net Book Value	16,014	16,180
Customer relationships [Member]
Finite And Indefinite Lived Intangible Assets [Line Items]
Weighted Average Estimated Useful Life	8 years
Finite Gross Value	7,940	7,940
Accumulated Amortization	(3,595)	(3,429)
Finite Net Book Value	4,345	4,511
Design guidelines [Member]
Finite And Indefinite Lived Intangible Assets [Line Items]
Indefinite Gross Value	6,940	6,940
Indefinite Net Book Value	6,940	6,940
Trade names [Member]
Finite And Indefinite Lived Intangible Assets [Line Items]
Indefinite Gross Value	4,729	4,729
Indefinite Net Book Value	$ 4,729	$ 4,729

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Summary of Derivative Assets and Liabilities Measured at Fair Value (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 28, 2013
Derivative [Line Items]
Asset-Interest rate swap contracts	$ 109
Fair Value, Inputs, Level 2 [Member]
Derivative [Line Items]
Asset-Interest rate swap contracts	$ 109

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Commitments and Contingencies - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Sep. 28, 2013
Commitments And Contingencies Disclosure [Abstract]
Claims against escrow	$ 2.0
Claims withheld from escrow releases	1.4
Percentage of claims deductible	1.00%
Estimated claims deductible	0.6
Total contracts obligation	11.4
Contract cost for new construction	$ 2.9

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 28, 2013	Jun. 29, 2013
Statement Of Financial Position [Abstract]
Allowance for doubtful accounts	$ 300	$ 300
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares outstanding
Common stock, shares authorized	50,000,000	50,000,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares issued	21,108,266	20,966,426
Common stock, shares outstanding	21,108,266	20,966,426

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DEBT

3 Months Ended

Sep. 28, 2013

Debt Disclosure [Abstract]

DEBT

7. DEBT

Outstanding long-term debt obligations are as follows (in thousands):

			September 28,			June 29,
	Maturities		2013			2013
Term loan A		2019	$	830		$	604
Term loan B		2022		8,450			8,115
PCMC loan		2017		2,778			—
Total long-term debt				12,058			8,719
Less current maturites				(1,017	)		—
Total long-term debt, net of current portion			$	11,041		$	8,719

In September 2012, the Company entered into a new Credit Agreement (the “Credit Agreement”) with Citibank, N.A., as administrative agent and other financial institutions party thereto. The Credit Agreement provides for, among other things, revolving credit commitments of $30.0 million to be used for working capital and general corporate purposes, term loan commitments of $2.0 million to be used for the purchase of equipment for a manufacturing facility in Denton, Texas (“Term Loan A”) and term loan commitments of $10.0 million to fund the construction of the Denton facility (“Term Loan B”). All borrowings and other obligations of the Company are guaranteed by substantially all of its domestic subsidiaries and are secured by substantially all of the assets of the Company.

The revolving credit facility under the Credit Agreement will terminate on September 30, 2015, and all revolving credit loans mature on that date. Under the revolving credit facility, the Company has a maximum borrowing availability equal to the lesser of (a) $30.0 million or (b) the sum of 80% of eligible accounts receivable plus 50% of eligible inventory plus 100% of the cash amount held in a special collateral account less a foreign currency letter of credit reserve. At September 28, 2013, there were no outstanding borrowings and approximately $6.2 million of outstanding letters of credit under the Credit Agreement, leaving the Company with approximately $2.7 million of available capacity for additional borrowings and letters of credit under the Credit Agreement.

The term loan commitments expire 18 months after the date of the Credit Agreement. Beginning June 30, 2014, the Company is required to make quarterly principal payments on the term loans that were incurred during that 18-month period. The Credit Agreement also requires the Company to maintain an interest rate protection agreement with respect to at least 50% of the aggregate outstanding principal amount of the term loans.

Interest on all loans must generally be paid quarterly. Interest rates on term loans use floating rates plus ¹/₂ of 1% up to 2%, plus a margin of between 0 to 75 basis points based upon the Company’s consolidated funded debt to consolidated EBITDA for the trailing four consecutive fiscal quarters.

At September 28, 2013, the Company was required to maintain a Consolidated Total Leverage Ratio (“CTL”) not to exceed 1.75 to 1.00 and a Debt Service Coverage Ratio (“DSC”) of not less than 1.50 to 1.00. The CTL ratio is calculated as the ratio of the Company’s aggregate total liabilities to the sum of the excess of the Company’s total assets over its total liabilities as each is determined on a consolidated basis in accordance with generally accepted accounting principles. The DSC ratio is calculated as the ratio of the Company’s consolidated EBITDA less certain restricted cash payments, capitalized expenditures and taxes to the Company’s consolidated fixed charges, which is the sum of the Company’s current maturities of long-term debt and the amount of cash paid for interest on a trailing 12 month basis. The Credit Agreement also contains other covenants, including restrictions on additional debt, dividends, capital expenditures, acquisitions and dispositions. At September 28, 2013, the Company was in compliance with all of its debt covenants.

On September 30, 2013, the Company and its subsidiary, Peerless Mfg. Co., entered into an amendment to the Credit Agreement. The Amendment allows the Company to permit maturity dates on letters of credit provided by the Company to its customers beyond the term of the Credit Agreement and to allow unsecured parent guarantees to be issued on behalf of its foreign subsidiaries up to a maximum aggregate value of $10 million.

In July 2013, the Company’s subsidiary in China entered into a loan agreement with The People’s Bank of China. The loan agreement provides for a loan commitment of ¥45.0 million ($7.0 million) to fund the construction of a manufacturing facility in Zhenjiang, China. The loan is guaranteed by PCMC’s property, plant and equipment. The loan matures on September 30, 2018. At September 28, 2013, there was an outstanding borrowing of ¥17.0 million ($2.8 million). Beginning June 20, 2014, the Company is required to make semi-annual principal payments on the loan incurred during the six month period. Interest rates use floating rates not to exceed 10% plus 1% of annual fixed rate and must be paid quarterly. The loan agreement also contains covenants, including restrictions on additional debt, dividends, acquisitions and dispositions. At September 28, 2013, the Company was in compliance with all of its debt covenants.

The Company’s U.K. subsidiary has a debenture agreement used to facilitate issuances of letters of credit and bank guarantees of £6.0 million ($9.7 million) at September 28, 2013 and £6.0 million ($9.4 million) at June 29, 2013. This facility was secured by substantially all of the assets of the Company’s U.K. subsidiary and by a cash deposit of £1.9 million ($3.1 million) at September 28, 2013 and £2.1 million ($3.2 million) at June 29, 2013, which is recorded as restricted cash on the Consolidated Balance Sheets. At September 28, 2013, there was £4.8 million ($7.7 million) of outstanding stand-by letters of credit and bank guarantees under this debenture agreement. At June 29, 2013, there was £4.4 million ($6.8 million) of outstanding stand-by letters of credit and bank guarantees under this debenture agreement.

The Company’s German subsidiary has a debenture agreement used to facilitate issuances of letters of credit and bank guarantees of €4.8 million ($6.5 million) at September 28, 2013 and €4.8 million ($6.2 million) at June 29, 2013. This facility is secured by substantially all of the assets of the Company’s German subsidiary and by a cash deposit of €0.9 million ($1.2 million) at September 28, 2013 and €0.7 million ($0.9 million) at June 29, 2013, which is recorded as restricted cash on the Consolidated Balance Sheets. At September 28, 2013, there was €2.9 million ($3.9 million) of outstanding stand-by letters of credit and bank guarantees under this debenture agreement. At June 29, 2013, there was €2.7 million ($3.5 million) of outstanding stand-by letters of credit and bank guarantees under this debenture agreement.

The Company’s subsidiary in Singapore had bank guarantees of $0.9 million and $0.6 million at September 28, 2013 and June 29, 2013, respectively. These guarantees are secured with deposits held by the institution issuing the guarantee. The Company’s subsidiary in China had bank guarantees of $1.2 million and $0.6 million at September 28, 2013 and June 29, 2013, respectively, secured by $1.2 million and $0.6 million of restricted cash balances.

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Consolidated Statements of Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 28, 2013	Sep. 29, 2012
Statement Of Income And Comprehensive Income [Abstract]
Net loss	$ (1,570)	$ (6)
Other comprehensive income:
Foreign currency translation adjustment	1,333	435
Other comprehensive income	1,333	435
Comprehensive income (loss)	(237)	429
Net income attributable to noncontrolling interest	11	305
Other comprehensive income:
Foreign currency translation adjustment	26	9
Comprehensive income attributable to noncontrolling interests	37	314
Comprehensive income (loss) attributable to PMFG, Inc.	$ (274)	$ 115

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 28, 2013	Jun. 29, 2013
Current assets:
Cash and cash equivalents	$ 59,900	$ 53,020
Restricted cash	5,827	5,029
Accounts receivable-trade, net of allowance for doubtful accounts of $300 at September 28, 2013 and June 29, 2013	21,375	22,509
Inventories, net	7,595	6,488
Costs and earnings in excess of billings on uncompleted contracts	17,585	16,544
Income taxes receivable	1,354	1,152
Deferred income taxes	304	304
Other current assets	4,513	3,427
Total current assets	118,453	108,473
Property, plant and equipment, net	27,424	24,031
Intangible assets, net	16,014	16,180
Goodwill	30,429	30,429
Other assets	927	998
Total assets	193,247	180,111
Current liabilities:
Accounts payable	17,392	14,899
Current maturities of long-term debt	1,017
Billings in excess of costs and earnings on uncompleted contracts	9,682	6,277
Commissions payable	2,031	1,763
Income taxes payable	745	339
Accrued product warranties	2,177	2,241
Customer deposits	2,432	2,566
Accrued liabilities and other	7,804	5,386
Total current liabilities	43,280	33,471
Long-term debt	11,041	8,719
Deferred income taxes	4,135	4,135
Other long-term liabilities	1,878	1,900
Commitments and contingencies
Preferred stock-authorized, 5,000,000 shares of $0.01 par value; no shares outstanding at September 28, 2013 or September 29, 2012
Stockholders' equity:
Common stock - authorized, 50,000,000 shares of $0.01 par value; issued and outstanding, 21,108,266 and 20,966,426 shares at September 28, 2013 and June 29, 2013, respectively	211	210
Additional paid-in capital	97,097	96,634
Accumulated other comprehensive loss	(697)	(2,004)
Retained earnings	31,533	33,114
Total PMFG, Inc.'s stockholders' equity	128,144	127,954
Noncontrolling interest	4,769	3,932
Total equity	132,913	131,886
Total liabilities and equity	$ 193,247	$ 180,111

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Segment Information - Additional Information (Detail)	3 Months Ended
	Sep. 28, 2013 Segment
Segment Reporting [Abstract]
Number of reportable segments	2

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DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Tables)

3 Months Ended

Sep. 28, 2013

Fair Value Disclosures [Abstract]

Summary of Various Interest Rate Agreements

The following table summarizes the interest rate agreements in effect as of September 28, 2013 (in thousands):

Fixed Interest Rate	Expiration Date		Notional Amounts
1.95%		September 30, 2022	$	9,000
1.50%		September 30, 2019		1,000

Derivatives Recorded at Fair Value in Consolidated Balance Sheets

The derivatives recorded at fair value in the Company’s Consolidated Balance Sheets were (in thousands):

	Derivative Assets				Derivative Liabilities
	September 28,		June 29,		June 29,		June 30,
	2013		2013		2013		2012
Interest rate swap contracts	$	109	$	160	$	—	$	—

Summary of Derivative Assets and Liabilities Measured at Fair Value

A summary of derivative assets and liabilities measured at fair value on a recurring basis is as follows (in thousands):

	Fair Value
	as of
	September 28, 2013		Level 1		Level 2		Level 3
Asset—Interest rate swap contracts	$	109	$	—	$	109	$	—

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COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (Tables)

3 Months Ended

Sep. 28, 2013

Contractors [Abstract]

Components of Uncompleted Contracts

The components of uncompleted contracts are as follows (in thousands):

	September 28,			June 29,
	2013			2013
Costs incurred on uncompleted contracts and estimated earnings	$	80,972		$	70,389
Less billings to date		(73,069	)		(60,122	)
	$	7,903		$	10,267

Components of Uncompleted Contracts Reflected in Consolidated Balance Sheets

The components of uncompleted contracts are reflected in the Consolidated Balance Sheets as follows (in thousands):

	September 28,			June 29,
	2013			2013
Costs and earnings in excess of billings on uncompleted contracts	$	17,585		$	16,544
Billings in excess of costs and earnings on uncompleted contracts		(9,682	)		(6,277	)
	$	7,903		$	10,267

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Debt - Additional Information (Detail)				3 Months Ended				3 Months Ended						3 Months Ended				3 Months Ended										1 Months Ended	3 Months Ended
	Sep. 28, 2013 USD ($)	Sep. 28, 2013 CNY	Jun. 29, 2013 USD ($)	Sep. 28, 2013 Minimum [Member]	Sep. 28, 2013 Maximum [Member]	Sep. 28, 2013 Libor Plus [Member]	Sep. 28, 2013 Federal Reserve System Plus [Member]	Sep. 28, 2013 Senior Secured Credit Agreement [Member] USD ($)	Sep. 28, 2012 Senior Secured Credit Agreement [Member] USD ($)	Sep. 28, 2013 German Subsidiary Debenture [Member] USD ($)	Sep. 28, 2013 German Subsidiary Debenture [Member] EUR (€)	Jun. 29, 2013 German Subsidiary Debenture [Member] USD ($)	Jun. 29, 2013 German Subsidiary Debenture [Member] EUR (€)	Sep. 29, 2012 Term A loan [Member]	Sep. 28, 2013 Term A loan [Member] USD ($)	Jun. 29, 2013 Term A loan [Member] USD ($)	Sep. 28, 2012 Term A loan [Member] USD ($)	Sep. 29, 2012 Term B Loan [Member]	Sep. 28, 2013 Term B Loan [Member] USD ($)	Jun. 29, 2013 Term B Loan [Member] USD ($)	Sep. 28, 2012 Term B Loan [Member] USD ($)	Sep. 28, 2013 U.K. Subsidiary Debenture [Member] USD ($)	Sep. 28, 2013 U.K. Subsidiary Debenture [Member] GBP (£)	Jun. 29, 2013 U.K. Subsidiary Debenture [Member] USD ($)	Jun. 29, 2013 U.K. Subsidiary Debenture [Member] GBP (£)	Sep. 28, 2013 Singapore Subsidiary Debenture [Member] USD ($)	Jun. 29, 2013 Singapore Subsidiary Debenture [Member] USD ($)	Jul. 31, 2013 China Subsidiary [Member] JPY (¥)	Sep. 28, 2013 China Subsidiary [Member] USD ($)	Sep. 28, 2013 China Subsidiary [Member] JPY (¥)	Jun. 29, 2013 China Subsidiary [Member] USD ($)
Debt Instrument [Line Items]
New Credit Facility Borrowing Capacity		17,000,000							$ 30,000,000								$ 2,000,000				$ 10,000,000
Maturity period of revolving credit facility								Sep. 30, 2015
Percentage of eligible accounts receivable								80.00%
Percentage of eligible inventory								50.00%
Percentage of the cash amount held in a special collateral account								100.00%
Outstanding borrowings under revolving credit facility								0		3,900,000	2,900,000	3,500,000	2,700,000									7,700,000	4,800,000	6,800,000	4,400,000
Outstanding letters of credit								6,200,000
Available capacity for additional borrowings								2,700,000
Maximum borrowing availability								30,000,000
Expiry period of term loan commitments														18 months				18 months
Minimum interest rate protection								50.00%
Basis point based on CFD ratio				0.00%	0.75%
Effective reserve rate						2.00%	0.50%
Line of credit facility, interest rate description								Interest on all loans must generally be paid quarterly. Interest rates on term loans use floating rates plus 1/2of 1% up to 2%, plus a margin of between 0 to 75 basis points based upon the Company's consolidated funded debt to consolidated EBITDA for the trailing four consecutive fiscal quarters
Consolidated total leverage ratio				1.00%	1.75%
Debt service coverage ratio				1.00%	1.50%
Unsecured parent guarantees	10,000,000
Credit agreement amendment date	Sep. 30, 2013	Sep. 30, 2013
loan commitment amount																												45,000,000
Borrowing amount outstanding	12,058,000		8,719,000												830,000	604,000			8,450,000	8,115,000										17,000,000
Interest rate																													10.00%	10.00%
Annual fixed rate																													1.00%	1.00%
Issuance of letters of credit and bank guarantees										6,500,000	4,800,000	6,200,000	4,800,000									9,700,000	6,000,000	9,400,000	6,000,000	900,000	600,000		1,200,000		600,000
Restricted cash balances	5,827,000		5,029,000							1,200,000	900,000	900,000	700,000									3,100,000	1,900,000	3,200,000	2,100,000
Secured restricted cash balances																													$ 1,200,000		$ 600,000

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Estimated Aggregate Finite-Lived Intangible Asset Amortization Expense (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 28, 2013
Goodwill And Intangible Assets Disclosure [Abstract]
2014	$ 660
2015	585
2016	510
2017	509
2018	$ 504

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Components of Uncompleted Contracts (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 28, 2013	Jun. 29, 2013
Contractors [Abstract]
Costs and earnings in excess of billings on uncompleted contracts	$ 17,585	$ 16,544
Billings in excess of costs and earnings on uncompleted contracts	(9,682)	(6,277)
Total uncompleted contracts	$ 7,903	$ 10,267

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Components of Uncompleted Contracts Reflected in Consolidated Balance Sheets (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 28, 2013	Jun. 29, 2013
Contractors [Abstract]
Costs incurred on uncompleted contracts and estimated earnings	$ 80,972	$ 70,389
Less billings to date	(73,069)	(60,122)
Total uncompleted contracts	$ 7,903	$ 10,267

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ACCRUED LIABILITIES AND OTHER

3 Months Ended

Sep. 28, 2013

Payables And Accruals [Abstract]

ACCRUED LIABILITIES AND OTHER

6. ACCRUED LIABILITIES AND OTHER

The components of accrued liabilities and other are as follows (in thousands):

	September 28,		June 29,
	2013		2013
Accrued start-up and commissioning expense	$	230	$	230
Accrued compensation		2,748		2,393
Accrued professional expenses		1,983		1,819
PCMC short-term debt		1,634		—
Deferred consideration related to Burgess Manning GmbH acquisition		15		36
Other		1,194		908
	$	7,804	$	5,386

In July 2013, the Company obtained short-term financing from Bank of China Limited. The financing provides for borrowings up to ¥10 million ($1.6 million) at an interest rate of 6.6%. Interest is payable quarterly. All amounts outstanding are due July 2014. At September 28, 2013, $1.6 million was included in Accrued liabilities and other on the Consolidated Balance Sheet.

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SEGMENT INFORMATION (Tables)

3 Months Ended

Sep. 28, 2013

Segment Reporting [Abstract]

Segment Information and Reconciliation to Operating Income (Loss)

Segment information and reconciliation to operating income (loss) for the three months ended September 28, 2013 and September 29, 2012 are presented below (in thousands).

	Three months ended
	September 28,			September 29,
	2013			2012
Revenue:
Process Products	$	24,511		$	28,715
Environmental Systems		4,560			4,262
	$	29,071		$	32,977
Operating income (loss):
Process Products	$	2,768		$	5,380
Environmental Systems		900			621
Corporate and other unallocated expenses		(5,328	)		(5,541	)
	$	(1,660	)	$	460

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Accrued Liabilities and Other - Additional Information (Detail) In Millions, unless otherwise specified	3 Months Ended
	Sep. 28, 2013 USD ($)	Sep. 28, 2013 JPY (¥)
Payables And Accruals [Abstract]
Short-term borrowings	$ 1.6	¥ 10.0
Interest rate on borrowings	6.60%	6.60%
Maturity date of borrowing	2014-07	2014-07

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STOCK-BASED COMPENSATION

3 Months Ended

Sep. 28, 2013

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

STOCK-BASED COMPENSATION

9. STOCK-BASED COMPENSATION

The following information represents the Company’s grants of stock-based compensation to employees and directors during the three months ended September 28, 2013 and September 29, 2012 (in thousands, except share amounts):

	Three months ended
	September 28,				September 29,
	2013				2012
Grant Type	Number of Shares Granted		Fair Value of Grant		Number of Shares Granted		Fair Value of Grant
Stock to directors		40,430	$	300		36,000	$	291
Restricted stock awards		101,410		752		110,377		894
Restricted stock units		77,460		575		—		—

The fair value of the stock granted to the Board of Directors is recognized immediately. The compensation expense for the restricted stock awards granted in fiscal year 2014 is recognized over a three-year vesting period whereas the awards granted in fiscal year 2013 are recognized over a four-year vesting period. The compensation expense is based on the fair value of the awards on the grant date, net of forfeitures.

In July 2013, the Company also awarded restricted stock units (“RSUs”), which are subject to both service and performance conditions, to the executive officers of the Company. The fair value of the RSUs is based on the probability of the performance condition being achieved on the date of grant. The actual number of shares that will ultimately vest is dependent on the Company’s performance during the performance period, which is a year from the date of grant, against established metrics and could range from 0% to 200% of the number of units originally granted. The RSUs have a cliff vesting of three years from the date of grant. The Company recognizes compensation expense for the RSUs based upon management’s determination of the potential likelihood of achievement of the performance conditions at each reporting date in fiscal 2014, net of forfeitures.

The Company recognized $0.5 million and $0.3 million of stock-based compensation expense in the three months ended September 28, 2013 and September 29, 2012, respectively.

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ACCRUED PRODUCT WARRANTIES

3 Months Ended

Sep. 28, 2013

Guarantees [Abstract]

ACCRUED PRODUCT WARRANTIES

5. ACCRUED PRODUCT WARRANTIES

Accrued product warranty activity is as follows (in thousands):

	Three months ended
	September 28,			September 29,
	2013			2012
Balance at beginning of period	$	2,241		$	2,615
Provision for warranty expenses		221			414
Warranty charges		(285	)		(593	)
Balance at end of period	$	2,177		$	2,436

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 28, 2013	Sep. 29, 2012
Cash flows from operating activities:
Net loss	$ (1,570)	$ (6)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	578	679
Amortization of deferred finance charges	63	15
Stock-based compensation	464	347
Bad debt expense		805
Inventory valuation reserve	(71)	(43)
Provision for warranty expense	221	414
Loss on extinguishment of debt		291
(Gain) loss on disposal of property	(348)	19
Foreign exchange loss	203	82
Change in fair value of interest rate swap	51
Changes in operating assets and liabilities:
Accounts receivable	1,237	9,741
Inventories	(925)	(456)
Costs and earnings in excess of billings on uncompleted contracts	(938)	(4,566)
Other assets	(1,120)	(107)
Accounts payable	2,532	1,357
Billings in excess of costs and earnings on uncompleted contracts	3,474	795
Commissions payable	268	1
Income taxes	204	618
Product warranties	(285)	(593)
Accrued liabilities and other	807	(165)
Net cash provided by operating activities:	4,845	9,228
Cash flows from investing activities:
(Increase) decrease in restricted cash	(584)	6
Purchases of property and equipment	(3,944)	(481)
Net proceeds from sale of property	521
Payments of deferred consideration	(22)	(14)
Net cash used in investing activities	(4,029)	(489)
Cash flows from financing activities:
Payment of debt	(533)
Payment of debt issuance costs		(630)
Proceeds from short-term debt	1,634
Proceeds from long-term debt	3,872
Equity contribution from noncontrolling interest	800
Net cash provided by (used in) financing activities	5,773	(630)
Effect of exchange rate changes on cash and cash equivalents	291	(282)
Net increase in cash and cash equivalents	6,880	7,827
Cash and cash equivalents at beginning of period	53,020	52,286
Cash and cash equivalents at end of period	59,900	60,113
Supplemental information on cash flow:
Income taxes (received) paid	(653)	842
Interest paid	$ 353	$ 175

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Segment Information and Reconciliation to Operating Profit (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 28, 2013	Sep. 29, 2012
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Revenue	$ 29,071	$ 32,977
Operating income (loss)	(1,660)	460
Operating Segments [Member] | Process Products [Member]
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Revenue	24,511	28,715
Operating income (loss)	2,768	5,380
Operating Segments [Member] | Environmental [Member]
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Revenue	4,560	4,262
Operating income (loss)	900	621
Corporate and other unallocated expenses [Member]
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Operating income (loss)	$ (5,328)	$ (5,541)

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Stock Based Compensation - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		1 Months Ended
	Sep. 28, 2013	Sep. 29, 2012	Jul. 31, 2013 Minimum [Member]	Jul. 31, 2013 Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Change in range on the number of units granted			0.00%	200.00%
Stock-based compensation	$ 464	$ 347

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Depreciation of Property, Plant and Equipment (Detail)	3 Months Ended
	Sep. 28, 2013
Buildings and improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, estimated useful lives	40 years
Buildings and improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, estimated useful lives	5 years
Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, estimated useful lives	10 years
Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, estimated useful lives	3 years
Furniture and fixtures [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, estimated useful lives	15 years
Furniture and fixtures [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, estimated useful lives	3 years

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FACILITY CLOSURES

3 Months Ended

Sep. 28, 2013

Discontinued Operations And Disposal Groups [Abstract]

FACILITY CLOSURES

12. FACILITY CLOSURES

In July 2013, the Company sold the property, plant and equipment at a former production facility in Denton, Texas. The facility had a carrying value of $0.2 million and the disposal resulted in proceeds of $0.5 million. The Company recorded a gain on disposal of $0.3 million which is included in cost of goods sold in the Consolidated Statement of Operations for the three months ended September 28, 2013.

In August 2013, management announced the pending closure of the manufacturing facility located in Cisco, Texas. The Company anticipates completion of the transition process during the second quarter of fiscal 2014. At September 28, 2013, the facility had a carrying value of $0.2 million included in property, plant and equipment, net on the Consolidated Balance Sheet.

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Sep. 28, 2013

Commitments And Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

8. COMMITMENTS AND CONTINGENCIES

Litigation

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. Prior to the final escrow payment release in October 2009, the Company made claims relating to environmental matters and indemnification for breach of representations and warranties of the Nitram purchase agreement, totaling approximately $2.0 million against the escrow, and a total of $1.4 million was withheld from the release of the escrow amount, which represents the Company’s claims, less the one percent deductible, estimated at $0.6 million. 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 currently believe it will have additional losses or claims against the former Nitram stockholders that are in excess of the amounts already claimed or accrued.

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.

Other Matters

The Company has entered into certain non-cancelable agreements to construct a manufacturing facility in Zhenjiang, China. The total obligation is $11.4 million and the remaining cost to be incurred as of September 28, 2013 is $2.9 million

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INVENTORIES (Tables)

3 Months Ended

Sep. 28, 2013

Inventory Disclosure [Abstract]

Principal Components of Inventories

Principal components of inventories are as follows (in thousands):

	September 28,			June 29,
	2013			2013
Raw materials	$	4,522			3,729
Work in progress		2,743			2,516
Finished goods		509			493
		7,774			6,738
Reserve for obsolete and slow-moving inventory		(179	)		(250	)
	$	7,595		$	6,488

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SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Sep. 28, 2013

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited consolidated financial statements of PMFG, Inc. and subsidiaries have been prepared in conformity with accounting principles generally accepted in the United States of America (“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 September 28, 2013 and for the three months ended September 28, 2013 and September 29, 2012 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 June 29, 2013.

Each of the Company’s interim reporting periods ends on the Saturday closest to the last day of the corresponding quarterly calendar period. References to “fiscal 2014” and “fiscal 2013” refer to fiscal years ended June 28, 2014 and June 29, 2013, respectively. The first quarter of fiscal 2014 and fiscal 2013 ended on September 28, 2013, and September 29, 2012, respectively.

Basis of Consolidation

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 China Manufacturing Co. Ltd. (“PCMC”), formerly known as Peerless Manufacturing (Zhenjiang) Co. Ltd. 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

Cash and Cash Equivalents

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 September 28, 2013, cash held in the United States exceeded federally insured limits by $39.4 million. The Company has not experienced any losses related to this cash concentration.

The Company had restricted cash balances of $5.8 million and $5.0 million as of September 28, 2013 and June 29, 2013, respectively. Foreign restricted cash balances were $5.5 million and $4.7 million as of September 28, 2013 and June 29, 2013, respectively. Cash balances were restricted to collateralize letters of credit and financial institution guarantees issued in the normal course of business.

Accounts Receivable

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. 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 for doubtful accounts based on a specific identification taking into consideration 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 are deemed to be uncollectible. Payments subsequently received on such receivables are credited to the allowance for doubtful accounts in the period the payment is received.

Changes in the Company’s allowance for doubtful accounts are as follows (in thousands):

	Three months ended
	September 28, 2013		September 29, 2012
Balance at beginning of period	$	300	$	650
Bad debt expense		—		805
Accounts written off		—		(1,181	)
Balance at end of period	$	300	$	274

Inventories

Inventories

The Company values its inventories using the lower of weighted average cost or market. The Company regularly reviews the value of inventories on hand, using specific aging categories, and records a provision for obsolete and slow-moving inventory based on historical 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.

Property, Plant and Equipment

Property, Plant and Equipment

Depreciation of property, plant and equipment is calculated using the straight-line method over a period considered adequate to depreciate the total cost over the useful lives of the assets, 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 remaining lease term.

In September 2013, the Company exited its lease manufacturing and office facility in Zhenjiang, China. The property was leased from the noncontrolling interest owner of Peerless Propulsys. Early termination of the lease resulted in $0.2 million of expense included in costs of goods sold in the three months ended September 28, 2013.

Long-Lived Assets

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

Goodwill and Other Intangible Assets

Goodwill represents the difference between the purchase price and the fair value of the net assets acquired upon acquisition. Goodwill is not amortized, however, it is measured at the reporting unit level to test for impairment annually, in the fourth quarter, or more frequently if conditions indicate an earlier review is necessary. A discounted future cash flow analysis is primarily used to determine whether impairment exists. If the fair value of a reporting unit is less than the carrying amount, then the Company writes down goodwill to its estimated fair value.

Intangible assets subject to amortization include licensing agreements, customer relationships and acquired sales order backlog. 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, in the fourth quarter, or whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. The Company uses the market and income approach methods to determine whether impairment exists.

Fair Value of Financial Instruments

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. The carrying amount of the Company’s debt approximates fair value as the debt bears interest at floating market rates.

Revenue Recognition

Revenue Recognition

The Company recognizes revenue, net of sales taxes, from product sales or services provided when the following revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.

The Company provides certain products under long-term, generally fixed-priced, contracts that may extend over multiple financial periods, where revenue and cost of sales are recognized in accordance with accounting rules relating to construction-type and production-type contracts. Amounts recognized in revenue are calculated using the percentage of cost completed (i.e., cumulative cost incurred to date in comparison to the estimated total cost at completion). This method requires the Company to make estimates regarding the total costs of the project at completion, which impacts the amount of gross margin the Company recognizes in each reporting period. The Company routinely reviews its estimates relating to estimated total costs at completion and recognizes changes in those estimates as they are determined. The percentage-of-completion method generally results in the recognition of reasonably consistent profit margins over the life of a contract. Anticipated losses on these contracts are recorded in full in the period in which they become evident. 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 and require less product customization are accounted for under the completed contract method. Revenue under the completed contract method is recognized upon shipment of the product.

Pre-contract, Start-up and Commissioning Costs

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 require the installation and placing in service of the product after it is distributed to the end user. The costs of start-up and commissioning and the related revenue associated with the relevant percentage of completion of these projects are recognized in the period incurred.

Warranty Costs

Warranty Costs

The Company provides 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 concurrent supplier warranties in place. Warranty costs are included in “cost of goods sold” in the Consolidated Statements of Operations.

Income Taxes

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 basis 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. 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.

At September 28, 2013, the Company had $5.1 million of operating loss carry forwards available for carryover to future periods, subject to certain limitations and expiring beginning in fiscal 2032. A valuation allowance of $1.3 million has been established to reduce the credits to the estimated future realization of the tax related benefit.

Earnings (Loss) Per Common Share

Earnings (Loss) Per Common Share

The Company calculates earnings (loss) per common share by dividing the earnings (loss) applicable to PMFG, Inc. stockholders by the weighted average number of common shares outstanding. Diluted earnings per common share include the dilutive effect of stock options, restricted stock units and warrants granted using the treasury stock method. For the three months ended September 28, 2013, 77,460 restricted stock units with performance and service based restrictions were omitted from the calculation of dilutive securities because they were anti-dilutive. Options to acquire 37,200 shares of common stock and warrants to acquire 839,063 shares of common stock were omitted from the calculation of dilutive securities for the three months ended September 28, 2013 and the three months ended September 29, 2012, because they were anti-dilutive.

The warrants entitle the holders to purchase common stock for $10.56 per share, through a cashless exercise. The warrants expire on September 4, 2014.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“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.

XML

Document and Entity Information	3 Months Ended
	Sep. 28, 2013	Oct. 31, 2013
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 28, 2013
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Trading Symbol	PMFG
Entity Registrant Name	PMFG, INC.
Entity Central Index Key	0001422862
Current Fiscal Year End Date	--06-29
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		21,108,266

XML

SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Sep. 28, 2013

Accounting Policies [Abstract]

Allowance for Doubtful Accounts

Changes in the Company’s allowance for doubtful accounts are as follows (in thousands):

	Three months ended
	September 28, 2013		September 29, 2012
Balance at beginning of period	$	300	$	650
Bad debt expense		—		805
Accounts written off		—		(1,181	)
Balance at end of period	$	300	$	274

Depreciation of Property, Plant and Equipment

Depreciation of property, plant and equipment is calculated using the straight-line method over a period considered adequate to depreciate the total cost over the useful lives of the assets, as follows:

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