UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2011

Commission file number: 333-172207

CPM Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		06-1612494 (I.R.S. Employer Identification No.)
2975 Airline Circle, Waterloo, Iowa (Address of principal executive offices)		50703 (Zip Code)

(319) 464-8275
(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 o No þ

     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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     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.

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

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at May 25, 2011
Common Stock, $0.001 par value per share		936,913 shares

 

 

CPM Holdings, Inc.
Form 10-Q
For the Quarterly Period Ended March 31, 2011
TABLE OF CONTENTS

				BEGINNING
				PAGE
PART I		FINANCIAL INFORMATION
ITEM 1.		Financial Statements
		Consolidated Balance Sheets at September 30, 2010 and March 31, 2011 (Unaudited)			3
		Consolidated Statements of Operations for the three and six months ended March 31, 2010 and 2011 (Unaudited)			4
		Consolidated Statements of Changes in Equity and Comprehensive Income (Loss) (Unaudited)			5
		Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2010 and 2011 (Unaudited)			6
		Notes to Consolidated Financial Statements (Unaudited)			7
ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
ITEM 3.		Quantitative and Qualitative Disclosures About Market Risk			22
ITEM 4.		Controls and Procedures			22
PART II		OTHER INFORMATION
ITEM 1.		Legal Proceedings			23
ITEM 1A.		Risk Factors			23
ITEM 2.		Unregistered Sales of Equity Securities and Use of Proceeds			23
ITEM 3.		Defaults Upon Senior Securities			23
ITEM 4.		Removed and Reserved			23
ITEM 5.		Other Information			23
ITEM 6.		Exhibits			24
		Signatures			25
EX-31.1
EX-31.2
EX-32

CPM Holdings, Inc.
Form 10-Q
For the Quarterly Period Ended March 31, 2011

PART I. Financial Information

Item 1. Financial Statements.

CPM Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)

		September 30,				March 31,
		2010				2011
(dollars in thousands, except per share information)		(as revised)
Assets
Current assets
Cash and cash equivalents		$	58,691			$	73,997
Restricted customer deposits			28,690				29,712
Accounts receivable, net			42,453				36,527
Inventories			49,898				60,289
Costs and estimated earnings in excess of billings on uncompleted contracts			17,451				25,009
Prepaid expenses and other current assets			2,122				4,345
Deferred taxes			3,277				3,308
Total current assets			202,582				233,187
Property, plant and equipment, net			18,398				17,007
Trademarks			54,099				54,447
Goodwill			125,306				126,786
Other intangibles, net			67,026				60,526
Total assets		$	467,411			$	491,953
Liabilities and Equity
Current liabilities
Accounts payable		$	20,904			$	25,954
Accrued expenses			35,275				40,838
Billings in excess of costs and estimated earnings on uncompleted contracts			51,745				55,029
Total current liabilities			107,924				121,821
Long-term debt			196,878				197,207
Deferred taxes			9,050				10,783
Other liabilities			4,180				2,880
Total liabilities			318,032				332,691
Commitments and contingencies
Equity
Parent Company stockholders’ equity
Common stock, $.001 par value, authorized shares 1,100,000; shares issued and outstanding 936,913			1				1
Additional paid-in capital			82,478				82,633
Retained earnings			67,965				71,097
Accumulated other comprehensive loss			(5,958	)			(1,907	)
Total Parent Company stockholders’ equity			144,486				151,824
Noncontrolling interest			4,893				7,438
Total equity			149,379				159,262
Total liabilities and equity		$	467,411			$	491,953

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CPM Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)

		Three months ended								Six months ended
		March 31,								March 31,
(dollars in thousands)		2010				2011				2010				2011
Net sales		$	73,444			$	85,953			$	134,451			$	176,424
Cost of goods sold			52,288				59,390				97,037				127,150
Gross profit			21,156				26,563				37,414				49,274
Operating expenses
Selling, general and administrative expenses			11,282				12,352				21,817				23,315
Amortization expense			2,775				2,641				5,514				5,309
Management fees			625				500				1,250				1,125
Total operating expenses			14,682				15,493				28,581				29,749
Income from operations			6,474				11,070				8,833				19,525
Other expense (income)
Interest expense			6,242				6,105				12,776				12,002
Interest income			(211	)			(612	)			(373	)			(1,167	)
Total other expense			6,031				5,493				12,403				10,835
Income (loss) before income taxes			443				5,577				(3,570	)			8,690
Income tax expense (benefit)			753				2,000				(1,097	)			3,149
Net income (loss)			(310	)			3,577				(2,473	)			5,541
Less: Net income attributable to noncontrolling interest			445				1,219				1,135				2,409
Net income (loss) attributable to Parent Company		$	(755	)		$	2,358			$	(3,608	)		$	3,132

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CPM Holdings, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity and Comprehensive Income (Loss)
(Unaudited)

		Parent Company Stockholders’ Equity
																		Accumulated				Parent
										Additional								Other				Company				Noncontrolling
		Common Stock								Paid-in				Retained				Comprehensive				Stockholders’				Interest in				Total
(dollars in thousands)		Shares				Amount				Capital				Earnings				Income (Loss)				Equity				Subsidiary				Equity
Balances at September 30, 2009			936,913			$	1			$	81,838			$	71,944			$	(5,167	)		$	148,616			$	2,525			$	151,141
Stock-based compensation			—				—				243				—				—				243				—				243
Stock subscription note repayment			—				—				397				—				—				397				—				397
Comprehensive income (loss), net of tax
Foreign currency translation adjustment			—				—				—				—				(435	)			(435	)			78				(357	)
Net income (loss)			—				—				—				(3,979	)			—				(3,979	)			2,290				(1,689	)
Total comprehensive income (loss)																							(4,414	)			2,368				(2,046	)
Balances at September 30, 2010 (as reported)			936,913				1				82,478				67,965				(5,602	)			144,842				4,893				149,735
Prior period revision (see note 3)			—				—				—				—				(356	)			(356	)			—				(356	)
Balances at September 30, 2010 (as revised)			936,913				1				82,478				67,965				(5,958	)			144,486				4,893				149,379
Stock-based compensation			—				—				155				—				—				155				—				155
Comprehensive income, net of tax
Foreign currency translation adjustment			—				—				—				—				4,051				4,051				136				4,187
Net income			—				—				—				3,132				—				3,132				2,409				5,541
Total comprehensive income																							7,183				2,545				9,728
Balances at March 31, 2011			936,913			$	1			$	82,633			$	71,097			$	(1,907	)		$	151,824			$	7,438			$	159,262

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CPM Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

		Six months ended
		March 31,
(dollars in thousands)		2010				2011
Net cash provided by (used in) operating activities		$	(3,755	)		$	13,848
Cash flows from investing activities
Purchases of property, plant and equipment			(1,263	)			(810	)
Proceeds on sales of property, plant and equipment			—				353
Acquisition of other intangibles			(1,485	)			—
Net cash used in investing activities			(2,748	)			(457	)
Cash flows from financing activities
Payments of long-term debt			(9	)			—
Proceeds from revolving credit facilities			696				—
Payments on revolving credit facilities			(696	)			—
Payments of deferred financing fees			(914	)			—
Stock subscription note repayment			397				—
Net cash used in financing activities			(526	)			—
Effect of foreign exchange rate changes on cash and cash equivalents			(1,576	)			1,915
Net increase (decrease) in cash and cash equivalents			(8,605	)			15,306
Cash and cash equivalents
Beginning of period			54,989				58,691
End of period		$	46,384			$	73,997

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

(dollars in thousands, except per share information)

1.

Basis of Presentation

The interim consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the periods presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These adjustments consist of normal, recurring items. The results of operations for any interim period are not necessarily indicative of results for the full year. The interim consolidated financial statements and notes are presented as permitted by the requirements for Quarterly Reports on Form 10-Q.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, pursuant to such rules and regulations. These interim consolidated financial statements should be read in conjunction with the Company’s annual consolidated financial statements and related notes for the fiscal year ended September 30, 2010 included on Form S-4, filed with the SEC.

2.

Description of Business

CPM Holdings, Inc. (the “Company” or “CPM” or “Parent”), is engaged in the design, production and marketing of process systems, equipment and parts and services utilized primarily in the agricultural and food producing/processing industries. The Company’s businesses fall into three reporting segments: Process Equipment, Engineered Process Systems and All Other.

The Process Equipment segment manufactures and sells process machinery and other equipment utilized primarily in the agricultural and food producing/processing industries. Products include the manufacture of mills, flakers, and dryers.

The Engineered Process Systems segment sells engineering, design and layout services along with outsourced process equipment for extraction, oilseed processing, biodiesel and edible oil refining industries.

The All Other segment designs, manufactures and sells extrusion equipment, thermal processing equipment and process scaling systems utilized primarily in the plastics, agricultural and other industries.

Operations are worldwide and include production and sales facilities in the United States, the Netherlands, United Kingdom, Singapore, China, Brazil and Argentina.

3.

Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (the “FASB”) issued guidance which amends the consolidation guidance for variable-interest entities. The modifications include the elimination of the exemption for qualifying special purpose entities, a new model for determining who should consolidate a variable-interest entity, changes to when it is necessary to reassess who should consolidate a variable-interest entity, and requires additional disclosures about a Company’s involvement with variable interest entities. The guidance is effective for fiscal years beginning after November 15, 2009. The adoption of this standard did not impact the Company’s financial position or results of operations.

In October 2009, the FASB issued guidance on the accounting for multiple-deliverable revenue arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable; eliminates the residual method of allocation and requires arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method; and requires a vendor to determine its best estimate of selling price in a manner consistent with that used to determine the selling price of the deliverable on a stand-alone basis. This guidance also expands the required disclosures related to a vendor’s multiple-deliverable revenue arrangements. The guidance is effective for fiscal years beginning on or after June 15, 2010, with early adoption permitted. The adoption of this standard did not impact the Company’s financial position or results of operations.

In January 2010, the FASB issued guidance that amends existing disclosure requirements for fair value measurements. The amendments require companies to add disclosures about items transferring into and out of levels 1 and 2 in the fair value hierarchy; adding separate disclosures about purchases, sales, issuances, and settlements relative to level 3 measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. The guidance is effective for fiscal years beginning after December 15, 2009 except for the disclosures about purchases, sales, issuances and settlements in the Level 3 reconciliation, which is effective for fiscal years beginning after December 15, 2010. The adoption of this guidance did not impact the Company’s financial position or results of operations.

In July 2010, the FASB issued guidance that amends disclosure requirements related to financing receivables. The amendment requires disclosures of information regarding the credit quality, aging, nonaccrual status and impairments by class of receivable. A receivable class is a subdivision of a portfolio segment with similar measurement attributes, risk characteristics and common methods to monitor and assess credit risk. Trade accounts receivable with maturities of one year or less are excluded from the disclosure requirements. The effective date for disclosures as of the end of the reporting period is for interim and annual reporting periods ending on or after December 15, 2010. The effective date for disclosures for activity during the reporting period is for interim and annual reporting periods beginning on or after December 15, 2010. The adoption of this guidance did not impact the Company’s financial position or results of operations.

Prior Period Revisions

During the three month period ended March 31, 2011, the Company determined that the foreign currency translation adjustments included within other comprehensive income in the statement of changes in equity and other comprehensive income had historically not been recorded net of income taxes. As a result, the Company has corrected the 2010 balance sheet and statements of changes in equity and other comprehensive income to appropriately reflect the tax effects of the foreign currency translation adjustments on other comprehensive income for this period. This correction had no impact on the results of operations and cash flows, and the Company concluded that the impact to the 2010 balance sheet and statements of changes in equity and comprehensive income is immaterial. The revisions to the Company’s historical financial statements are as follows:

		As Reported				Adjustment				As Revised
September 30, 2010:
Deferred tax liability			8,694				356				9,050
Total liabilities			317,676				356				318,032
Accumulated Other comprehensive income (loss)			(5,602	)			(356	)			(5,958	)
Total Parent Company stockholders’ equity			144,842				(356	)			144,486
Total Parent Company comprehensive income (loss)			(4,414	)			(356	)			(4,770	)
Total equity			149,735				(356	)			149,379

4.

Selected Consolidated Financial Statement Information

Inventories

		September 30,				March 31,
		2010				2011
Raw materials		$	14,145			$	14,429
Work-in-process			7,535				12,761
Finished goods			28,218				33,099
		$	49,898			$	60,289

CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Accrued Warranties

		Twelve months				Six months
		ended				ended
		September 30,				March 31,
		2010				2011
Accrued warranties
Beginning of period		$	1,820			$	2,089
Settlements made			(1,363	)			(530	)
Change in liability related to product warranties issued			1,632				665
End of period		$	2,089			$	2,224

Contracts in Progress

		September 30,				March 31,
		2010				2011
Costs incurred on uncompleted contracts		$	256,010			$	286,820
Estimated earnings on uncompleted contracts			58,951				62,514
Less: Billings on contracts in progress			(349,255	)			(379,354	)
		$	(34,294	)		$	(30,020	)

These amounts are included in the unaudited consolidated financial statements as follows:

		September 30,				March 31,
		2010				2011
Costs and estimated earnings in excess of billings on uncompleted contracts		$	17,451			$	25,009
Billings in excess of costs and estimated earnings on uncompleted contracts			(51,745	)			(55,029	)
		$	(34,294	)		$	(30,020	)

5.

Debt

The Company’s debt at September 30, 2010 and March 31, 2011, consists of the following:

		September 30,				March 31,
		2010				2011
Senior Notes, net of unamortized discount		$	196,878			$	197,207
Less: Amounts due within one year			—				—
		$	196,878			$	197,207

In August 2009, the Company issued $200,000 of Senior Notes due September 1, 2014 at 98.101% of par (the “Senior Notes”), resulting in an original issue discount of $3,798. The original issue discount was $3,122 and $2,793 at September 30, 2010 and March 31, 2011, respectively. The original issue discount is being amortized using the effective interest method over the term of the debt. The Senior Notes bear interest at 10.625% per year and provide for semi-annual interest payments, in arrears, due on March 1 and September 1. All principal will be paid at maturity. The net proceeds from the offering were used to retire the remaining outstanding borrowings on the previous term loan and revolving credit facility, which provided for a term loan of $210,000 and a revolving credit facility up to $30,000.

The Senior Notes are subject to certain covenants and restrictions, such as restrictions on the payment of dividends, incurrence of certain additional indebtedness, issuance of preferred stock or entering into certain merger transactions, as defined by the Senior Notes Offering Memorandum. The Senior Notes are collateralized by a second priority interest in

CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

the Company’s U.S. current assets and a first priority interest in substantially all of the Company’s U.S. other assets. The Senior Notes are also guaranteed by the Company’s U.S. subsidiaries.

The Senior Notes contain an optional redemption feature whereby the Company can redeem all or a portion of the Senior Notes, including applicable premiums for early redemptions as defined in the agreement. In addition, the Senior Notes have a change of control provision which gives each holder the right to require the Company to purchase all or a portion of such holders’ Senior Notes upon a change in control, as defined in the agreement, at a purchase price equal to 101% of the principal amount plus accrued interest to the date of purchase.

In November 2009, the Company entered into a Credit Agreement (the “Credit Agreement”) with certain financial institutions which provides for a revolving credit facility consisting of a revolving credit loan and letters of credit in an aggregate amount of up to $14,500, including swing line loans in the principal amount of $5,000. The swing line loans are subfacilities of the revolving credit facility used for daily fluctuations on borrowings. As of September 30, 2010 and March 31, 2011, there were no borrowings outstanding under the revolving credit facility. The availability under the facility is subject to a borrowing base, which is based on the eligible receivables and inventory of the Company’s U.S. subsidiaries. Under the revolving credit facility, the Company had unused credit of $14,500 at September 30, 2010 and March 31, 2011. The credit available for borrowing was limited by the borrowing base to $12,500 and $11,000 on September 30, 2010 and March 31, 2011, respectively. The Credit Agreement expires on April 20, 2013.

At the Company’s option, borrowings under the revolving credit facility are either Base Rate loans, bearing interest at a rate equal to the greater of (a) the lender’s prime rate (3.25% at March 31, 2011), (b) the LIBOR rate (0.25% at March 31, 2011) plus 1.00% or (c) the federal funds rate (0.10% at March 31, 2011) plus 0.50%; or Eurodollar loans, bearing interest at the adjusted LIBOR rate (0.42% at March 31, 2011). Interest on the Base Rate loans is payable on the last day of each calendar month. Interest on the Eurodollar loans is payable on the last day of each interest period relating to such loan, but not to exceed six months. An applicable margin is added for the Base Rate loans and Eurodollar loans ranging from 2.75% and 4.25%, based on the Company’s fixed charge coverage ratio at the end of a given period, as further defined in the Credit Agreement.

Commitment fees on the revolving credit facility range from 0.625% to 0.75% per year payable quarterly in amounts. Commitment fees on the letters of credit vary, as further defined in the Credit Agreement, and range from 3.75% to 4.25% (or 2.00% if cash collateralized) payable quarterly. Total commitment fees under the revolving credit facility were $31 and $31 for the three month periods ended March 31, 2010 and 2011, respectively, and $55 and $59 for the six month periods ended March 31, 2010 and 2011, respectively. Outstanding letters of credit were $300 and $4,029 at September 30, 2010 and March 31, 2011, respectively. In conjunction with entering into the Credit Agreement, the Company paid $914 in costs capitalized as deferred financing fees, consisting of legal, accounting and deal fees directly related to consummation of the Credit Agreement.

Borrowings under the revolving credit facility are subject to certain restrictive financial covenants, including a fixed charge coverage ratio. The Credit Agreement also includes a subjective acceleration clause which permits the financial institution to accelerate the due date of the facility under certain circumstances, including, but not limited to, material adverse effect on the Company’s financial status or otherwise. Borrowings under the Credit Agreement are collateralized by a first priority security interest in substantially all U.S. current assets of the Company and are guaranteed by the Company’s U.S. subsidiaries. The Credit Agreement also requires the Company to maintain all of its U.S. lockbox accounts, disbursement accounts and other operating accounts with the lenders.

CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

The Company entered into interest rate swap agreements under the provisions of their previous credit agreement to swap a variable rate of interest for fixed rates. The effective date of the swaps ranged from September 2007 through January 2008, and they expired at various dates from September 2010 through January 2011. The Company’s interest rate swap contracts are not associated with any of the Company’s existing debt at September 30, 2010 and March 31, 2011. The interest rate swap contracts were reflected at fair value and the related gains of $865 and $130 for the three month periods ended March 31, 2010 and 2011, respectively, and $1,663 and $802 for the six month periods ended March 31, 2010 and 2011, respectively, were recorded as a component of interest expense in the consolidated statements of operations. The fair value of the interest rate swaps were determined using a valuation model that reflected the contractual terms of the derivatives, the period to maturity, and market-based parameters such as interest rates, volatility, and the credit quality of the counterparty. The model used did not contain a high level of subjectivity, as the methodologies used in the model did not require significant judgment, and inputs to the model were level 2 inputs readily observable from actively quoted markets. The fair value of the interest rate swaps of $802 and $0 was included in accrued expenses in the consolidated balance sheets at September 30, 2010 and March 31, 2011, respectively. Any interest differentials received or paid under the interest rate swap contracts were recognized as an adjustment to interest expense on the consolidated statements of operations.

6.

Income Taxes

Income tax expense (benefit) differs from the expected income tax expense (benefit) computed by applying the U.S. statutory rate for the three and six months ended March 31, 2010 and 2011 primarily due to state income taxes, permanent items such as meals and entertainment and stock based compensation, and foreign taxes. Our effective tax rate decreased during the three months ended March 31, 2011 compared to the three months ended March 31, 2010 due to the mix of income or loss in our U.S. and foreign jurisdictions, and a decrease in the impact of foreign permanent items and state taxes to the effective tax rate. Our effective tax rate increased during the six months ended March 31, 2011 compared to the six months ended March 31, 2010 due to the mix of income or loss in our U.S. and foreign jurisdictions, and a decrease in the impact of foreign permanent items and state taxes on the effective tax rate.

The Company recognizes the financial statement effect of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. We have adequately provided for liabilities resulting from tax assessments by taxing authorities, positions taken by these tax authorities could have a material impact on the Company’s effective tax rate in future periods. During the three and six months ended March 31, 2011, one of the uncertain tax liabilities was reversed as it no longer met the more likely than not criteria based upon current quarter activity thus reducing the related liability and decreasing deferred taxes by $1.3 million. The Company does not expect a significant change in the liability for unrecognized tax benefits in the next 12 months.

7.

Commitments and Contingencies

Litigation

The Company is involved in various legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

8.

Segment and Geographic Data

The Company identified three reportable segments: Process Equipment, Engineered Process Systems and All Other. Segment selection was based on the internal organizational structure, management of operations and performance evaluation by the chief operating decision maker.

Corporate and Unallocated includes corporate expenses determined to be nonallocable to the segments, interest income, interest expense and income taxes. Assets included in Corporate and Unallocated principally are cash and cash equivalents, certain prepaid expenses and other current assets, and deferred taxes. Segment allocated assets are primarily accounts receivable, inventories, property, plant and equipment, goodwill and intangible assets, and certain other assets. Reconciling items included in Corporate and Unallocated are created based on accounting differences between segment reporting and the consolidated, external reporting as well as internal allocation methodologies.

CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Segment detail is summarized as follows:

						Engineered
		Process				Process								Corporate
		Equipment				Systems								and				Total
		Segment				Segment				All Other				Unallocated				Company
Three months ended March 31, 2010
Net sales		$	39,020			$	27,021			$	7,403			$	—			$	73,444
Income (loss) before income taxes			7,134				860				(381	)			(7,170	)			443
Depreciation and amortization			736				1,992				826				845				4,399
Capital expenditures			874				2				46				1				923
Six months ended March 31, 2010
Net sales			68,930				50,039				15,482				—				134,451
Income (loss) before income taxes			11,836				203				(578	)			(15,031	)			(3,570	)
Depreciation and amortization			1,492				3,936				1,668				1,618				8,714
Capital expenditures			1,151				21				53				38				1,263
Three months ended March 31, 2011
Net sales			35,601				40,844				9,508				—				85,953
Income (loss) before income taxes			5,305				6,274				735				(6,737	)			5,577
Depreciation and amortization			827				1,943				794				857				4,421
Capital expenditures			229				27				60				314				630
Six months ended March 31, 2011
Net sales			70,366				85,555				20,503				—				176,424
Income (loss) before income taxes			10,785				9,505				1,853				(13,453	)			8,690
Depreciation and amortization			1,532				3,890				1,624				1,715				8,761
Capital expenditures			299				63				134				314				810
Total assets March 31, 2011			218,827				216,502				30,924				25,700				491,953

9.

Related Party Transactions

The Company has a management advisory agreement with GGEP Management, L.L.C. and GGEP Management Ltd. (“Gilbert”) which are related parties. The agreement requires an annual management fee for management services provided, plus certain fees and expenses. Expense under the management agreement was $625 and $500 for the three month periods ended March 31, 2010 and 2011, respectively, and $1,250 and $1,125 for the six month periods ended March 31, 2010 and 2011, respectively.

10.

Guarantor Subsidiary Financial Information

The Senior Notes issued in August 2009 (Note 5) have been guaranteed, fully and unconditionally on a joint and several basis, by its 100% owned U.S. domestic subsidiaries. The following condensed consolidating balance sheets at September 30, 2010 and March 31, 2011, the condensed consolidating statements of operations for the three and six month periods ended March 31, 2010 and 2011, and the condensed consolidating statements of cash flows for the six month periods ended March 31, 2010 and 2011 have been prepared in accordance with the requirements for presentation of Rule 3-10(f) of Regulation S-X promulgated under the Securities Act. These condensed consolidating statements reflect CPM Holding, Inc. as the issuer of the Senior Notes, the Company’s wholly owned U.S. domestic subsidiaries as the guarantors presented on a combined basis, the Company’s non-guarantor subsidiaries presented on a combined basis, and consolidating and eliminating adjustments, to combine such entities on a consolidated basis.

Condensed Consolidating Balance Sheet
September 30, 2010
(as revised)

		Parent				Guarantors				Non-Guarantors
(dollars in thousands)		Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets
Current assets
Cash and cash equivalents		$	—			$	2,930			$	55,761			$	—			$	58,691
Restricted customer deposits			—				—				28,690				—				28,690
Accounts receivable, net			2,261				45,199				37,762				(42,769	)			42,453
Inventories			—				25,132				24,766				—				49,898
Costs and estimated earnings in excess of billings on uncompleted contracts			—				3,374				14,077				—				17,451
Prepaid expenses and other current assets			—				676				1,446				—				2,122
Deferred taxes			—				2,971				306				—				3,277
Total current assets			2,261				80,282				162,808				(42,769	)			202,582
Property, plant and equipment, net			—				12,079				6,319				—				18,398
Investment in subsidiaries			323,564				57,566				—				(381,130	)			—
Trademarks			—				53,696				403				—				54,099
Goodwill			—				116,084				9,222				—				125,306
Other intangibles, net			8,860				54,195				3,971				—				67,026
Total assets		$	334,685			$	373,902			$	182,723			$	(423,899	)		$	467,411
Liabilities and Equity
Current liabilities
Accounts payable		$	—			$	14,132			$	49,541			$	(42,769	)		$	20,904
Accrued expenses			1,799				12,792				20,684				—				35,275
Billings in excess of costs and estimated earnings on uncompleted contracts			—				6,922				44,823				—				51,745
Total current liabilities			1,799				33,846				115,048				(42,769	)			107,924
Long-term debt			196,878				—				—				—				196,878
Deferred taxes			(8,478	)			12,312				5,216				—				9,050
Other liabilities			—				4,180				—				—				4,180
Total liabilities			190,199				50,338				120,264				(42,769	)			318,032
Commitments and contingencies
Equity
Total Parent Company stockholders’ equity			144,486				323,564				57,566				(381,130	)			144,486
Noncontrolling interest			—				—				4,893				—				4,893
Total equity			144,486				323,564				62,459				(381,130	)			149,379
Total liabilities and equity		$	334,685			$	373,902			$	182,723			$	(423,899	)		$	467,411

CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2010

		Parent				Guarantor				Non-Guarantor
(dollars in thousands)		Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	41,154			$	36,533			$	(4,243	)		$	73,444
Cost of goods sold			—				28,456				28,075				(4,243	)			52,288
Gross profit			—				12,698				8,458				—				21,156
Operating expenses			102				9,272				5,308				—				14,682
Income (loss) from operations			(102	)			3,426				3,150				—				6,474
Interest expense (income), net			5,906				268				(143	)			—				6,031
Income (loss) before income taxes			(6,008	)			3,158				3,293				—				443
Income tax expense (benefit)			(2,114	)			1,271				1,596				—				753
Income (loss) before equity income (loss) in subsidiaries			(3,894	)			1,887				1,697				—				(310	)
Equity in income (loss) of subsidiaries			3,139				1,252				—				(4,391	)			—
Net income (loss)			(755	)			3,139				1,697				(4,391	)			(310	)
Less: Net income attributable to noncontrolling interest			—				—				445				—				445
Net income (loss) attributable to Parent Company		$	(755	)		$	3,139			$	1,252			$	(4,391	)		$	(755	)

Condensed Consolidating Statement of Operations
Six Months Ended March 31, 2010

		Parent				Guarantor				Non-Guarantor
(dollars in thousands)		Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	70,853			$	72,635			$	(9,037	)		$	134,451
Cost of goods sold			—				50,343				55,731				(9,037	)			97,037
Gross profit			—				20,510				16,904				—				37,414
Operating expenses			199				17,850				10,532				—				28,581
Income (loss) from operations			(199	)			2,660				6,372				—				8,833
Interest expense (income), net			12,134				525				(256	)			—				12,403
Income (loss) before income taxes			(12,333	)			2,135				6,628				—				(3,570	)
Income tax expense (benefit)			(4,839	)			932				2,810				—				(1,097	)
Income (loss) before equity income (loss) in subsidiaries			(7,494	)			1,203				3,818				—				(2,473	)
Equity in income (loss) of subsidiaries			3,886				2,683				—				(6,569	)			—
Net income (loss)			(3,608	)			3,886				3,818				(6,569	)			(2,473	)
Less: Net income attributable to noncontrolling interest			—				—				1,135				—				1,135
Net income (loss) attributable to Parent Company		$	(3,608	)		$	3,886			$	2,683			$	(6,569	)		$	(3,608	)

CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Condensed Consolidating Statement of Cash Flows
Six Months Ended March 31, 2010

		Parent				Guarantor				Non-Guarantor
(dollars in thousands)		Issuer				Subsidiaries				Subsidiaries				Consolidated
Net cash provided by (used in) operating activities		$	(12,163	)		$	(2,834	)		$	11,242			$	(3,755	)
Cash flows from investing activities
Purchases of property, plant and equipment			—				(828	)			(435	)			(1,263	)
Acquisition of other intangibles			—				(1,000	)			(485	)			(1,485	)
Net cash used in investing activities			—				(1,828	)			(920	)			(2,748	)
Cash flows from financing activities
Payments of long-term debt			—				—				(9	)			(9	)
Proceeds from revolving credit facilities			—				696				—				696
Payments on revolving credit facilities			—				(696	)			—				(696	)
Proceeds (payments) of dividends			—				4,400				(4,400	)			—
Payments of deferred financing fees			—				(914	)			—				(914	)
Stock subscription note repayment			397				—				—				397
Investment in subsidiaries			11,766				(15,473	)			3,707				—
Net cash provided by (used in) financing activities			12,163				(11,987	)			(702	)			(526	)
Effect of foreign exchange rate changes on cash and cash equivalents			—				—				(1,576	)			(1,576	)
Net increase (decrease) in cash and cash equivalents			—				(16,649	)			8,044				(8,605	)
Cash and cash equivalents
Beginning of period			—				19,117				35,872				54,989
End of period		$	—			$	2,468			$	43,916			$	46,384

CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Condensed Consolidating Balance Sheet
March 31, 2011

		Parent				Guarantors				Non-Guarantors
(dollars in thousands)		Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets
Current assets
Cash and cash equivalents		$	—			$	14,870			$	59,127			$	—			$	73,997
Restricted customer deposits			—				4,029				25,683				—				29,712
Accounts receivable, net			2,260				45,245				36,161				(47,139	)			36,527
Inventories			—				29,135				31,154				—				60,289
Costs and estimated earnings in excess of billings on uncompleted contracts			—				3,789				21,220				—				25,009
Prepaid expenses and other current assets			—				1,613				2,732				—				4,345
Deferred taxes			—				3,018				290				—				3,308
Total current assets			2,260				101,699				176,367				(47,139	)			233,187
Property, plant and equipment, net			—				11,008				5,999				—				17,007
Investment in subsidiaries			328,049				58,808				—				(386,857	)			—
Trademarks			—				54,035				412				—				54,447
Goodwill			—				117,369				9,417				—				126,786
Other intangibles, net			7,716				49,841				2,969				—				60,526
Total assets		$	338,025			$	392,760			$	195,164			$	(433,996	)		$	491,953
Liabilities and Equity
Current liabilities
Accounts payable		$	—			$	19,124			$	53,969			$	(47,139	)		$	25,954
Accrued expenses			(2,528	)			21,273				22,093				—				40,838
Billings in excess of costs and estimated earnings on uncompleted contracts			—				7,823				47,206				—				55,029
Total current liabilities			(2,528	)			48,220				123,268				(47,139	)			121,821
Long-term debt			197,207				—				—				—				197,207
Deferred taxes			(8,478	)			13,611				5,650				—				10,783
Other liabilities			—				2,880				—				—				2,880
Total liabilities			186,201				64,711				128,918				(47,139	)			332,691
Commitments and contingencies
Equity
Total Parent Company stockholders’ equity			151,824				328,049				58,808				(386,857	)			151,824
Noncontrolling interest			—				—				7,438				—				7,438
Total equity			151,824				328,049				66,246				(386,857	)			159,262
Total liabilities and equity		$	338,025			$	392,760			$	195,164			$	(433,996	)		$	491,953