Peerless Manufacturing Co. F1Q09 (Qtr End 30/09/08) Earnings Call Transcript

Nov.10.08 | About: PMFG, Inc. (PMFG)

Peerless Manufacturing Co. (NASDAQ:PMFG)

F1Q09 Earnings Call

November 10, 2008 10:00 am ET

Executives

Peter Burlage - President and Chief Executive Officer

Hank Schopfer - Chief Financial Officer

Kevin McGrath - Investor Relations

Analysts

Rick Hoss - Roth Capital Partners

Fanyl Fable - Detexis

Theod Kundtz - Needham & Company

Dick Ryan - Dougherty & Company

Bill McCann - Brown Advisory

Kevin McGrath

Good morning every one and thank you for joining the PMFG conference call and webcast to discuss the company’s financial results for the first quarter of fiscal year 2009 ended September 30, 2008. During this call non-GAAP financial measures will be discussed. Reconciliation’s to the most directly comparable GAAP financial measures are included in the company’s earnings release for the first quarter, which is available on the Investor Relation’s page at the company’s website at www.peerlessmfg.com.

Before I turn the call over to Peter Burlage, President and CEO of PMFG, I need to inform you that certain statements made in this conference call are forward-looking statements within the meaning of the 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 facts, made during this call are forward-looking statements. These forward-looking statements include statements that reflect the current views of PMFG’s 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 anticipate, preliminary, expect, believe, intend and similar statements of a future or forward-looking nature, identify forward-looking statements. You should not place undue reliance on these statements. Forward-looking statements address matters that involve risks and uncertainties. Accordingly there are or will be important factors that could cause the company’s actual results to differ materially from those indicated in the statements.

Important information regarding factors that may affect the company’s future performance are included in the public reports that the company files with the Securities and Exchange Commission, including the information in items 1.A, Risk Factors of part one to our annual report on Form 10-K for the fiscal year ended June 30, 2008 and for our 10-Q for the period ended September 30, 2008, which we intend to file later today.

The company undertakes no obligation to publicly update or revise any forward -looking statement. Inclusion of any statement in this conference call does not constitute an admission by the company or any person of the events or circumstances describe and such statements are material.

With that said, I will now turn the call over to Peter Burlage, President and CEO of PMFG.

Peter Burlage

Thanks, Kevin. It is my pleasure to welcome all of you to our conference call. Joining me today is Hank Schopfer, our Chief Financial Officer. I will make a few introductory comments regarding our business activities and then Hank will provide you with our financial results for the first quarter.

PMFG had a solid performance for the first quarter with revenue up 45.4%, this was our first full quarter of operating results that included Nitram Energy and we are very pleased with their contribution. Our net earnings for diluted share on a non-GAAP basis were $0.17; Hank will provide more details on our financial results later in the call.

Environmental System segment revenues for the first quarter decrease at 60.3%. As I have stated in the previous calls both the timing of orders and the size of the orders can significantly impact quarterly comparisons. This was the case in Q1 ‘09 comparisons as the first quarter of fiscal year 2008 included approximately $13.3 million from a large environmental order.

While we are mindful of the worldwide business climate, we continue to see healthy business pipeline activity in the areas of combined cycle power plants that are seeking multiple unit auctions, growing demand for biofuel and renewable fuel power generation and continued activity with peaker power generations.

Separation and Filtration System segments revenues for the first quarter increased 171% and benefited from the inclusion of the full quarter of Nitram operating results. Our Separation/Filtration segment continues to benefit from the growth of gas transmissions and pipeline expansion, new gas processing plants and from nuclear power plants that continue to invest in life extension, as well as new generation of nuclear power.

PMFG has been a leader in the nuclear power plant steam separator business for some 40 years and we plan to continue to build on that reputation. We recently announced the opening of our manufacturing plant in China that will manufacture and supply separations/filtrations and sound and equipment for the China and for the Asian markets and will also fabricate Nuclear Steam Dryer equipment for customers throughout China.

We expect our existing sales offices in Singapore to provide additional opportunities for this new manufacturing capability in Asia. We are pleased that both segments of our business have been performing well, and at the integration of Nitram Energy are on track. Backlog at the end of September was approximately $102 million and should position us well for continued growth in fiscal 2009.

With that said, it is important for investors to understand that timing and size of our orders has always been a big factor in our business and we do not see that changing. Additionally, we are closely monitoring the markets we serve in view of the current global business environment.

While we are understandably cautious, we continued to experienced near term solid demand for our systems and products and believe the long-term fundamentals driving demand have not changed and we remain positive about our growth opportunities over the next several fiscal years.

That concludes my review of our two business segments I’d like to ask Hank to now share with you the key financial results, the first quarter of fiscal year 2009.

Hank Schopfer

Thank you, Peter. Let me take a moment to summarize our financial highlights for the first quarter of fiscal year 2009. We completed the Nitram acquisition on April 30. Since the date of acquisition we have included Nitram’s financial results with those of the company in the first quarter of fiscal year 2009.

Our first quarter results include purchase accounting adjustments resulting from this acquisition. In the first quarter of fiscal 2009 we completed the holding company reorganization where each share of Peerless common stock was converted into two shares of PMFG common stock. All per share information including in our earnings release and in this presentation have been adjusted retroactively to give effect to the 2-for-1 conversion.

Revenues for the first quarter of fiscal year 2009 were $43.7 million, an increase of $13.7 million or 45.4% compared to revenues of $30 million for the first quarter fiscal year 2008. Net loss for the first quarter of fiscal year 2009 was $700,000, or $0.05 per diluted share, a decrease of $4.1 million, or $0.31 per diluted share, compared to net earnings of 3.4 million, or $0.26 per diluted share, for the first quarter of fiscal year 2008.

In the fourth quarter of fiscal year 2008, the company recorded as part of the purchase accounting Nitram acquisition $6.4 million and $4.6 million in fair value adjustments related to backlog and inventory acquired respectively.

During the first quarter of fiscal year 2009, the company recorded as part of cost of good sold 2.7 million of backlog amortization expense and an additional $1.8 million of expense related to the fair value inventory adjustments. The remaining balance of the backlog intangible asset and the fair value adjustment related to inventory acquired will be expensed in the second quarter of fiscal year 2009.

On a non-GAAP basis, excluding the expenses related to the fair value adjustments of Nitram’s backlog and inventory, the company would have recorded net earnings of $2.3 million, or $0.17 per diluted share, for the first quarter of fiscal year 2009. Calculations of non-GAAP results are shown in the tables accompanying our earnings release that was announced earlier today.

Separation/Filtration Systems segment revenues for the first quarter of fiscal year 2009 were $37.2 million, an increase of $23.5 million or 171.0%, compared to revenues of $13.7 million for the first quarter of fiscal year 2008. Nitram’s operating results since the acquisition on April 30, 2008 are reported in the Separation/Filtration Systems segment and include expenses of $2.7 million and $1.8 million related to fair value adjustments of Nitram’s backlog and inventory during the first quarter of fiscal year 2009 respectively.

On a non-GAAP basis, excluding the expenses related to the fair value adjustments of Nitram’s backlog and inventory the Separation/Filtration System segment would have reported operating income of $7.9 million for the first quarter of fiscal year 2009.

Environmental System segment revenue for the first fiscal year 2009 were $6.5 million, a decrease of $9.8 million on 60.3%, compared to revenues of $16.3 million for the first quarter of fiscal year 2008. Environmental Systems, the segment revenues for the first quarter of fiscal year 2008 included approximately $13 million from a large environmental order. Environmental Systems segment operating income for the first quarter of fiscal year 2009 was $1.8 million; a decrease $2.8 million, compared to operating of $4.6 million for the first quarter of fiscal year 2008.

At September 30, 2008 the company reported $9.1 million of cash and investments, $59 million of debt, total assets of a $160.4 million, working capital of $43.9 million, and a current ratio of $1.9 million to $1 million . As Peter said earlier to companies backlog was approximately $102 million at September 30, 2008, as compared to approximately $107 million at June 30, 2008, $83 million at September 30, 2007.

This concludes my remarks about the financial results. We will now address your questions. Operator, please proceed.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Rick Hoss - Roth Capital Partners.

Rick Hoss – Roth Capital Partners

I was hoping you could give a little bit more detail into what is in backlog as far as a segment composition and if it’s a loose percentage of Separation/Filtration versus Environmental Systems that fine?

Peter Burlage

I think, our backlog, as a ratio is very similar to what the ratios and revenue is just as we recognizing there in the quarter, its still very similar type back as a percentage. I don’t have exact value there, but those aren’t exact value, but it’s very close to that ratio that we just reported.

Rick Hoss – Roth Capital Partners

The vast majority of separation/Filtration is in that backlog?

Peter Burlage

Yes. With this I don’t see any transfer, yes absolute.

Rick Hoss – Roth Capital Partners

Okay and then looking at the segments results and I realize that the Environmental Systems is going to be lumpy; Separation/Filtration looked extremely strong for the quarter. Were there some one-time benefits or acceleration of projects or give any additional detail you can share there?

Hank Schopfer

Sure. This is Hank. The Separation/Filtration now in a quarter is all of Nitram. That’s the Separation/Filtrations segment and that’s the largest reason for the increase year-over-year in Separation/Filtration segment.

Rick Hoss – Roth Capital Partners

Okay. So, but it should a relatively stable quarter-over-quarter type business, correct or is there seasonally involved?

Peter Burlage

There is a little bit of seasonality, so there is larger projects that are associated with the transmission industry and pipeline industry, so they’ll take delivery on those units in the spring for summer time projects. The work we do up in the oil sands for example, obviously it work that has no more seasonality to it. It has a tendency to have some seasonality in acquire and traditionally our fourth quarters are usually our higher quarters, because we ship in the fourth quarter for summer installation of that equipment for those larger capital projects.

Rick Hoss – Roth Capital Partners

Okay, but this quarter, I would imply an installation or shipping in the wintertime right? So, I mean, this quarter should be fairly low quarters as far as Separation/Filtration goes correct?

Peter Burlage

Traditionally, yes. That’s our expectations here that this and this is not the peak quarter for the year.

Rick Hoss – Roth Capital Partners

Okay. Perfect. Okay and then can you just provide a little bit more insight in this. It would be more of a philosophical or anecdotal type question about the constraint that where seeing as far as affecting the utilities out there and the projects and that sort of thing. Just any additional information you can share based on conversation that you had with customers or potential customers, that sort of thing?

Peter Burlage

Well, we have a limited number of customers that are really end users, owners. We have a lot of customers who the OEMs or providers that of the motors and other equipment or compressors that we sell, our equipment too in the Nitram. Our immediate customers orders are strong and have a pretty big backlog in their shops and their facilities, but limited dialogue we’ve had with some of our end users, the people that are going to run this equipment.

It’s the early stages, I mean we’re seeing some of the announcements of slowdown in capital expenditures, but I think it’s a wait and see, a little bit of what’s going to happen with the oil and gas pricing, but I also as recently put into articles and discussions around the cost savings with some of the commodity prices coming down, fuel prices coming down. Some of these projects are hoping to picked up some reduced cost of installation in construction.

Rick Hoss – Roth Capital Partners

Okay and then lastly, I know your Separation/Filtration, well specifically it seems like separators have a prepared relationship with Westinghouse. Can you describe or explain the Nitram relationship and with GE, if that’s correct?

Peter Burlage

Sure, yes it is. Nitram, the Burgess-Manning product line has had the similar relationship with General Electric over the years, as Peerless has had with Westinghouse and that they are the only preferred supplier of that component for the GE, steam turbines, steam generators and so they have their relationship with the General Electric product lines of have the vane profile that meets the GE specification and they are the ones that are that meet that relationship.

Rick Hoss – Roth Capital Partners

So, basically excluding or either you had a preferred relationship with all the nuclear reactor technology out there?

Peter Burlage

Correct and fortunately we do have a good working relationship with them and so, we do majority of their business.

Operator

Your next question comes from Fanyl Fable with Detexis.

Fanyl Fable - Detexis

A couple of questions, I guess in the last conference call you talked about some large environmental projects, which you are in the process of bidding on. I was wondering, if you could update a little bit on that in terms of where that bidding process stand then when could we expect to here any results on those?

Peter Burlage

One of the opportunities we did lose on that opportunity was a competitive bid situation. It was a situation where we weren’t position in preferred with that customer, we did lose. There are still active proposals for two other large projects that we are working with. The order dates are pending, they continue to push a portion find other reasons to string it out, but right now we’ve only lost one of those opportunities.

Fanyl Fable - Detexis

Okay and in terms of your chances of winning or even some rough sizes of these projects, could you provide us any inside into that?

Peter Burlage

As far as, our probability, I’m sorry, the clarification on that is as far as our probability of winning those gaps?

Fanyl Fable - Detexis

Right. How many people are you competing with on those jobs and also just the rough size of those projects?

Peter Burlage

I’ll tell you; the competitive aspect is that and a one of the jobs it has numerous bidders on it, a nearly seven bidders I think we’re bidding against. The other job, we helped write expect and now it is out for bid and we have two additional competitors on it.

Fanyl Fable - Detexis

Okay and in terms of the relative little size of these projects?

Peter Burlage

I mean, these are multiple unit SCR type systems so they are in excess of $10 million, but nowhere close to the $40 million-type project that we had.

Fanyl Fable - Detexis

Okay. That’s very helpful. Also I want to understand, if you’re starting to see any impact of that credit crunch and especially, in your discussions that with your clients?

Peter Burlage

Yes. Probably most notable impact we have had is some foreign banks don’t want to accept LCs from our American Banks that was surprising to do, but we’ve worked a way around that. I mean, at this point we’re trying to monitor that close what we see is, increase need for LC bank guarantee type of vehicles in order to complete these contracts, we sort of expected to have larger demand on that anywhere as we focus on our international work, most international projects require that type of banking facility there.

So, as far as domestic projects and their impacts we have not had a specific project being canceled or delayed as a result of the credit crisis, the quotation activity and those projects that are pending are moving forward. It’s the one that we are trying to monitor those are on the further out on horizon as to whether or not, they will have any impact as a result of the credit crisis.

Fanyl Fable - Detexis

A couple of just housekeeping questions with regard to the number. In terms of the amortization expense from Nitram acquisition and I think last quarter you said, the total impact was $11.2 million or so, out of which about $5 million floor that amortized last quarter and this quarter your amortized another $4.5 million; these numbers are right?

Peter Burlage

Yes.

Fanyl Fable - Detexis

Okay. So, and whatever is the remaining from that, that we should expect to amortize in the next quarter?

Peter Burlage

That’s correct.

Fanyl Fable - Detexis

Okay. Also one of line items you had in the today results for the other income or expense of $1.94 million, my understanding would be that is primarily all interest expense?

Peter Burlage

Yes, it is the largest piece of this interest expense, we did have some foreign exchange loss during the quarter, but most of it was interest expense.

Fanyl Fable - Detexis

For going forward on a run rate basis, but it is good interest expense for us to look for?

Peter Burlage

The interest expense on the subordinated debt, it’s 15%, it’s a 11.5 in a pick of 3.5, that’s a $20 million. The interest expense on the senior debt $20 million of it is on based LIBOR and that’s a rate that fixed at the beginning of the quarter. So, I can tell you for this quarter coming up it’s going to be capped at 3.7%, because we purchased interest rate cap and it caps at 3.7 and that’s going to take that 3.7 plus our leverage fact which is I think 3 points; that’s what we’re paying on have the senior debt in the second quarter of this fiscal year. On the other half it’s related to prom and the prom rate is a floating rate.

Operator

Your next question comes from Theod Kundtz - Needham & Company.

Theod Kundtz - Needham & Company

A couple of questions for you; how much did Nitram contribute to the quarter?

Peter Burlage

We don’t break that out Theod. Obviously if you look at the historical from Nitram it’s a pretty larger number. I think we don’t break it out today because we’re well down in the road of integrating Nitram in to Peerless. So, that would be somewhat arbitrary for us to say how much is Nitram and how much is not Nitram. I’m pleased that we’re for a long in the integration of the two companies, but Nitram’s the business for Nitram, it was strong and it’s pretty consistent one what they’ve done in the past.

Theod Kundtz - Needham & Company

Okay. Yes. I was just trying to get a sense of the growth rate ex that.

Peter Burlage

Yes, I think, if you look at a pro-forma’s where Nitram has done in the past they have continue to track.

Theod Kundtz - Needham & Company

Okay. Could you comment a little bit on maybe just kind of the bidding activity you are seeing on both the domestic and the international site given the current economic environment here; just sort of what you’ve got on your proposals, and how that’s tracking? Have you got some update or color on that?

Peter Burlage

Yes, the bidding activity has been has not drop-off any. Again we look at it both on a near term basics as well as a future basis, because of the size of some of our projects we bid on a over a longer purchase cycles, so we see a little visibility there and to date we have not seen any measurable drop-off in that activity.

Theod Kundtz - Needham & Company

Okay, which would be the stronger side for guys is it domestic or is it international?

Peter Burlage

If you look at from both those, I mean in total dollar value our domestic its still our bigger chunk of our business and so I guess from that aspect its also the same way in our proposal activity and that’s a larger percentage of our business comes from the domestic focus, but our international is where we see the biggest growth potential for us and that’s why that segment of our business is going on.

With the China nuclear business and as well as some of the other separations projects going on in Indonesia, that segment of the country has probably the biggest percentage of increase in our proposal activity.

Operator

(Operator Instructions) Your next question comes from Dick Ryan - Dougherty & Company.

Dick Ryan - Dougherty & Company

Just a clarification regarding a previous question, that I didn’t catch; on the acquisition expenses for Q2 did you a quantify those?

Peter Burlage

The acquisition; you’re talking about the expenses that we sort of incurred because at the acquisitions.

Dick Ryan - Dougherty & Company

Yes, then the inventory and in the backlog side?

Peter Burlage

Yes, well that’s $4.5 million combined it to the backlog adjustment in the work-in-process. To clarify though something Dick, did you say….

Dick Ryan - Dougherty & Company

For this coming for the quarter end Q2?

Peter Burlage

Also Q2 would be the remainder I think was about 2 million, Dick.

Dick Ryan - Dougherty & Company

Okay, $2 million for the total?

Peter Burlage

Yes, that will give us to the regional by the $11 million I think we’ve done, but non.

Dick Ryan - Dougherty & Company

Okay. I think on the previous call, you talked about kind of entering a healthy period historically Q2, Q3 where you see a healthy order flows. I mean you talked around the issue here, kind of still sensing that the near term pipeline is pretty healthy here?

Peter Burlage

Yes, I still get that sense. Our first month of the quarter our bookings were on target, where we thought they should be, so where we are expect them to be and the number of projects that are - that were actively bidding on and selling is right mind of that but we thought it should be for the year.

Dick Ryan - Dougherty & Company

Okay. On the integration are you seeing any cross selling or any synergies on the sales front with Nitram being fold an incremental?

Peter Burlage

Yes, a little bit. I mean a lot of what we expected, that Peerless has had a strong presence in the OEM market in the border side, and we are cross selling the challenging business, which on those borders is a significant, vice verse and they are also helping us bring in our environmental products to some of the smaller turbine suppliers that they sale saw, pulsation dampeners and silencers too.

So, it is there is some cross selling for those product lines. I mean, the Separation product and Separation/Filtration where there is same products so there’s not really cross-selling opportunity, but between the silencing and the Environmental seems to have biggest opportunity.

Dick Ryan - Dougherty & Company

Okay and the new facility in China; what’s the gain plan as far as staffing or what’s the investment that’s you’re seeing to get that ramped up?

Peter Burlage

It’s a modest investment I guess. We have the long-term Peerless employee who has worked in China as they welding expert in the years going to be leading the technology, transfer the know-how; I guess transfer for the over side in the manufacturing and then the actual operations over there. We have worked with another U.S company that is going to provide us the back office management support that we need to operate the company over there.

So, we feel confident in fact that we have a strong partner to mange our back office operations for us in the existing facility there as well as the capabilities are bringing our technology in transferring our know-how over to that workforce using one of our own experienced employees.

Dick Ryan - Dougherty & Company

Okay, looking at the backlog, can you give us sense of how do you expect that follow through this year?

Peter Burlage

As far as, the rate is going to turnout.

Dick Ryan - Dougherty & Company

Yes.

Peter Burlage

Yes, I mean that the think about the backlog you have now, this $107 million this is all our normal type of work, it’s not large projects and also it’s still heavily waited towards the Separation/Filtration and the astonishing and heat transfer products which have a sorter recycle time then what our environmental business. So, that one of two third, 1.65, 1.7 type turned should be at the rate of not little hard, but that’s over the next 12 months.

Dick Ryan - Dougherty & Company

Yes.

Operator

Your next question comes from Bill McCann - Brown Advisory.

Bill McCann - Brown Advisory

I have really some kind a longer-term questions; may be even on the general side, this whole shale gas thing, what do you see going on their and it was interesting -- only six months so go we were talking about how much gas and this country would have reverse L&G. In other words exporting from here into that of importing some; do you have any thoughts on that; Shale gas in general and L&G?

Peter Burlage

Well, I mean yes I guess. This L&G is an interesting question, I haven’t heard much about that. The Shale gas that’s going on, the plays that are going on North America are our combined cycle power friends, the guys that are burning natural gas for that are quite pleased to see the natural gas price to state reasonably well.

The center place in that our existing North Texas as well as in the Colorado state; those companies are heavily invested into that and I think, they’re going to continue to focus and finished up their plans on those things. We haven’t seen anything that suggested that’s going to change.

The next place is up in the Pennsylvania region as well as here in the Western Louisiana and North Texas area. They are starting to drill wells and putting some of the test wells and getting the plans laid out. I suspect what’s going to happen is that the companies that are cash trap are going to slow their progress down little bit compared to the companies who have more strength in their balance sheet.

With that being said, I do believe that if what we are seeing is certainly a short lift reduction in our natural gas prices, I want to take many coal days to have big impact to that. I think if you look out, the futures hold true to that and the natural gas prices and sort of the demand is going to be there so the prices going to support what they’re doing.

Bill McCann - Brown Advisory

Right, so what you’re saying is that from what you’ve heard, any slowdown -- I won’t say any; if there’s slowdown taking place by some of the bigger name drillers that we’ve seen involve in the past, but has more to do with balance sheet items and the price of gas today?

Peter Burlage

No absolutely not of them that we talked to or evolved with our looking at the -- short-term gas prices and they never have. I mean the look at gas on a longer play. I mean the macroeconomic aspects over the still what they look at it in these type of expenditures and that is still strong and there’s really nothing that goes from that. IEA just had a report in a last three general last week regarding, energy prices that we have -- they’re projections are just a short live that the long-term energy prices and the macro drivers behind that is still there.

Bill McCann - Brown Advisory

Second thing, even a little bit further out there is been lot a talk by [inaudible] on others about nature gas the transportation the when your customers even sort of thinking about the share?

Peter Burlage

As far as C&G or compressed natural gas.

Bill McCann - Brown Advisory

Yes,

Peter Burlage

Our customer mean more of the gas transmission, the middle and the end of the process, we don’t have the gas customers at looking at the L&G outside. You know your Chesapeake and your and some of those people who are looking at that, but C&G I think will be a small play, but its going to continue to creep into the business and I think like the other scenarios with alternative fields, its right now with the low price of gasoline, it’s loose in a lot a momentum, but and is that gas prices rebound back you’ll see that pick up.

We got short term. I don’t see any significant changes any type of C&G, but in long-term it certainly make sense wit the gas parity ratios still out there significant from water use to be between oil and gas.

Bill McCann - Brown Advisory

I want to talk and was in about stimulus plan with infrastructure build out; do you think from anything that you heard today or again things you might have heard from your customers and any idea how this may effect in either markets that you serve?

Peter Burlage

Well, the choose I guess scenario where you’re looking at it whether it’s going to be the roads and bridges type work, whether it’s going to be transmission lines, whether it would be electric or gas and both of those aspects of it, have the biggest drivers for our business.

The gas transmission systems as well as the electric transmission, those two factors, are going to have a big impact into what our future business looks like. The more constraint they have in that process to more distributed generation at the go in – in addition to the transmission lines and been able to get the gas from the sale areas into those geographic regions at that need to gas service.

So, obviously it’s all in the case as the energy from where it’s located to where’s its’ needed. So, those infrastructure type activities, I think it’s going to be an opportunity in the coming years to make sure that we position ourselves and one of the strategic things we have to do is with any new legislation that’s going to come or any new leadership in the government, we have to position ourselves in the right point to make sure we get the maximum benefit out of there policy’s.

Operator

Your next question comes from Fanyl Fable - Detexis.

Fanyl Fable – Detexis

I think in the past, you’ve talk about your market size $875 million and $245 million for the two business segments and I was curious about how specially on the Separation/Filtration business that might have change with the Nitram acquisition and also if you could give some color on specific benefits on the energy side from the Nitram acquisition?

Peter Burlage

As far as the size that our market’s obviously we picked up a challenging market that was, the new industry and segment that we had no presence before as well as the heat exchange in market that with serve. The challenging market is the little bit more difficult to put your hands around. Globally we have a better understanding primarily because the focus on Nitram had been serving the US market predominately not doing much outside the United States.

So, we’ve see that market in North America. I mean the overall types of business is a $1 billion industry, but they have focused their point into more of that energy related type silencing and dampening and so that size market is probably, we’re estimating it around $100 million a year market that they have and involvement with a lot of upside potential as we look into where the other industries and products that we can take that product as well as take it internationally

E-transfer silencing, that’s a much smaller market. It’s certainly less than $50 million, we don’t have a really good grasp at where that’s at and then the additional markets that were brought in as a result of the Separation/Filtration business at Nitram, we feel that it only had about may be a 20% increase in our market size as a result of just their focus in their specialty in gas compressors and OEM type suppliers.

Fanyl Fable – Detexis

So, I guess the total of some of their market size expansion are somewhere between $150 to $200 million overall from the Nitram acquisition?

Peter Burlage

I would say that 150 type ranges is pretty close. As far as synergies, the second half of your question, the synergies that we expect into this process were pretty minimal. We have recognized what we thought we are going to see in a way of consolidating back office support activities, but the engineering and sales staffs that were made up and the majority of the company that we acquired, both of those resources is being fully utilized.

Manufacturing operations, the same scenario there. Their capacity needs for our manufacturing still outstrips our capabilities and so the facilities are fully functioning and operating. The synergies were small but we have recognized everything that we thought we were going to get.

Fanyl Fable – Detexis

So, I guess then from this point onwards it’s merely the sales synergies that will get the positive impact, right?

Peter Burlage

Yes.

Operator

At this time there are no additional questions. I would now like to turn the call over to Peter Burlage, CEO of Peerless Manufacturing for closing remarks.

Peter Burlage

I want a thank everyone who have participated in the call today and those who listening we are appreciate the interest in Peerless and hopefully we can continue the process and answer your questions. Please don’t hesitate to contact Hank or myself if other questions come up, as well as Kevin McGrath was our Investment Relations Group and thank you for your time today.

Operator

Ladies and gentlemen, this concludes the presentation. You may now disconnect. Thank you and have a good day.

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