FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For Quarterly Period Ended March 31, 1996
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 1-8462
GRAHAM CORPORATION
- ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 16-1194720
- ------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 FLORENCE AVENUE, BATAVIA, NEW YORK 14020
- ------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including Area Code - 716-343-2216
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report.)
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
As of May 14, 1996, there were outstanding 1,056,772 shares of
common stock, $.10 par value.
<PAGE>2
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 1996
PART I - FINANCIAL INFORMATION
Unaudited consolidated financial statements of Graham
Corporation (the company) and its subsidiaries as of March 31, 1996
and for the three month period then ended are presented on the
following pages. The financial statements have been prepared in
accordance with the company's usual accounting policies, are based
in part on approximations and reflect all adjustments which are, in
the opinion of management, necessary to a fair statement of the
results of the interim periods.
This part also includes management's discussion and analysis of
the company's financial condition as of March 31, 1996 and its
results of operations for the three month period then ended.
<PAGE>3
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
Assets
Current Assets:
Cash and equivalents. . . . . . . . . . . . $ 551,000 $ 411,000
Trade accounts receivable . . . . . . . . . 9,201,000 10,611,000
Inventories . . . . . . . . . . . . . . . . 6,319,000 6,621,000
Deferred tax asset. . . . . . . . . . . . . 698,000 698,000
Prepaid expenses and other
current assets. . . . . . . . . . . . . . 296,000 589,000
----------- -----------
17,065,000 18,930,000
----------- -----------
Property, plant and equipment, net. . . . . . 8,780,000 8,918,000
----------- -----------
Deferred tax asset. . . . . . . . . . . . . . 1,600,000 1,600,000
Other assets. . . . . . . . . . . . . . . . . 37,000 32,000
----------- -----------
$27,482,000 $29,480,000
=========== ===========
</TABLE>
<PAGE>4
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (concluded)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt due banks . . . . . . . . . $ 341,000 $ 206,000
Current portion of long-term debt . . . . . 519,000 355,000
Accounts payable. . . . . . . . . . . . . . 2,976,000 4,066,000
Accrued compensation. . . . . . . . . . . . 3,659,000 4,305,000
Accrued expenses and other
liabilities . . . . . . . . . . . . . . . 986,000 1,367,000
Customer deposits . . . . . . . . . . . . . 532,000 966,000
Domestic and foreign income taxes
payable . . . . . . . . . . . . . . . . . 362,000 240,000
Estimated liabilities of
discontinued operations . . . . . . . . . 343,000 351,000
----------- -----------
9,718,000 11,856,000
Long-term debt. . . . . . . . . . . . . . . . 3,076,000 3,303,000
Deferred compensation . . . . . . . . . . . . 1,026,000 1,017,000
Deferred tax liability. . . . . . . . . . . . 109,000 111,000
Other long-term liabilities . . . . . . . . . 246,000 373,000
Deferred pension liability. . . . . . . . . . 1,335,000 1,252,000
Accrued postretirement benefits . . . . . . . 3,135,000 3,161,000
----------- -----------
Total liabilities 18,645,000 21,073,000
----------- -----------
Shareholders' equity:
Preferred Stock, $1 par value -
Authorized, 500,000 shares
Common stock, $.10 par value -
Authorized, 6,000,000 shares
Issued and outstanding, 1,056,772
shares in 1996 and 1,053,999 in
1995. . . . . . . . . . . . . . . . . . 106,000 106,000
Capital in excess of par value. . . . . . . 3,249,000 3,219,000
Cumulative foreign currency
translation adjustment. . . . . . . . . . (1,905,000) (1,891,000)
Retained earnings . . . . . . . . . . . . . 8,218,000 7,854,000
----------- -----------
9,668,000 9,288,000
Less:
Treasury Stock, 442 shares. . . . . . . (6,000) (6,000)
Employee Stock Ownership Plan
Loan Payable . . . . . . . . . . . . . (825,000) (875,000)
----------- -----------
Total shareholders' equity 8,837,000 8,407,000
----------- -----------
$27,482,000 $29,480,000
=========== ===========
</TABLE>
<PAGE>5
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS
ended March 31,
1996 1995
---- ----
<S> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . $11,671,000 $ 9,305,000
----------- -----------
Cost and expenses:
Cost of products sold . . . . . . . . . . 8,424,000 6,805,000
Selling, general and administrative . . . 2,550,000 2,228,000
Interest expense. . . . . . . . . . . . . 126,000 167,000
Litigation provision. . . . . . . . . . . 78,000
----------- -----------
11,100,000 9,278,000
----------- -----------
Income before income taxes. . . . . . . . . 571,000 27,000
Provision for income taxes. . . . . . . . . 207,000 8,000
----------- -----------
Net income. . . . . . . . . . . . . . . . . 364,000 19,000
Retained earnings at beginning of
period. . . . . . . . . . . . . . . . . . 7,854,000 6,720,000
----------- -----------
Retained earnings at end of
period $ 8,218,000 $ 6,739,000
=========== ===========
Per Share Data:
Net income. . . . . . . . . . . . . . . . . $.34 $.02
==== ====
Average number of shares
outstanding . . . . . . . . . . . . . . . 1,060,000 1,052,000
========= =========
</TABLE>
<PAGE>6
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASHFLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . $ 364,000 $ 19,000
---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . 226,000 241,000
Gain on sale of property, plant and equipment . . (4,000)
(Increase) Decrease in operating assets:
Accounts receivable . . . . . . . . . . . . . . 1,399,000 2,677,000
Inventory, net of customer deposits . . . . . . (146,000) (1,613,000)
Prepaid expenses and other current and
non-current assets. . . . . . . . . . . . . . 281,000 202,000
Increase (Decrease) in operating liabilities:
Accounts payable, accrued compensation,
accrued expenses and other liabilities. . . . (2,019,000) (1,565,000)
Litigation reserve. . . . . . . . . . . . . . . (86,000)
Estimated liabilities of discontinued
operations. . . . . . . . . . . . . . . . . . (4,000) (175,000)
Deferred compensation, deferred pension
liability, and accrued postretirement
benefits. . . . . . . . . . . . . . . . . . . (140,000) (166,000)
Domestic and foreign income taxes . . . . . . . 123,000 (216,000)
---------- ----------
Total adjustments . . . . . . . . . . . . . . (284,000) (701,000)
---------- ----------
Net cash provided (used) by operating
activities. . . . . . . . . . . . . . . . . . . . 80,000 (682,000)
---------- ----------
Investing activities:
Purchase of property, plant and
equipment . . . . . . . . . . . . . . . . . . . . (109,000) (46,000)
Proceeds from sale of property, plant and
equipment . . . . . . . . . . . . . . . . . . . . 15,000
---------- ----------
Net cash used by investing activities. . . . . . . (94,000) (46,000)
---------- ----------
Financing activities:
Increase in short-term debt. . . . . . . . . . . . 138,000 20,000
Proceeds from issuance of long-term debt . . . . . 2,065,000 1,375,000
Principal repayments on long-term debt . . . . . . (2,073,000) (1,043,000)
Issuance of common stock . . . . . . . . . . . . . 30,000
---------- ----------
Net cash provided by financing activities. . . . . 160,000 352,000
---------- ----------
Effect of exchange rate on cash. . . . . . . . . . (6,000) 5,000
---------- ----------
Net increase (decrease) in cash and equivalents. . 140,000 (371,000)
Cash and equivalents at beginning of period. . . . 411,000 454,000
---------- ---------
Cash and equivalents at end of period. . . . . . . $ 551,000 $ 83,000
========== =========
</TABLE>
<PAGE>7
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
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NOTE 1 - INVENTORIES:
- ------------------------------------------------------------------------
Major classifications of inventories are as follows:
<TABLE>
<CAPTION>
3/31/96 12/31/95
------- --------
<S> <C> <C>
Raw materials and supplies. . . . . . . . . . $ 2,537,000 $ 2,579,000
Work in process . . . . . . . . . . . . . . . 3,508,000 3,286,000
Finished products . . . . . . . . . . . . . . 1,177,000 1,100,000
----------- -----------
7,222,000 6,965,000
Less - progress payments. . . . . . . . . . . 903,000 344,000
----------- -----------
$ 6,319,000 $ 6,621,000
=========== ===========
</TABLE>
- ------------------------------------------------------------------------
NOTE 2 - EARNINGS PER SHARE:
- ------------------------------------------------------------------------
Earnings per share is computed by dividing net income by the
weighted average number of common shares and, when applicable,
common equivalent shares outstanding during the period.
- ------------------------------------------------------------------------
NOTE 3 - CASH FLOW STATEMENT:
- ------------------------------------------------------------------------
Actual interest paid was $160,000 and $217,000 for the three
months ended March 31, 1996 and 1995, respectively. In addition,
actual income taxes paid were $84,000 and $224,000 for the three
months ended March 31, 1996 and 1995, respectively.
- ------------------------------------------------------------------------
NOTE 4 - RECENTLY ISSUED ACCOUNTING STANDARD:
- ------------------------------------------------------------------------
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," which requires adoption
no later than fiscal years beginning after December 15, 1995. The
new standard defines a fair value method of accounting for stock
options and similar equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on
the fair value of the award and is recognized over the service
period, which is usually the vesting period.
Pursuant to the new standard, companies are encouraged, but not
required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue
<PAGE>8
to account for such transactions under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," (APB
25) but would be required to disclose in a note to the financial
statements pro forma net income and, if presented, earnings per
share as if the company had applied the new method of accounting.
The accounting requirements of the new method are effective for
all employee awards granted after the beginning of the fiscal year
of adoption. The company has elected to continue to account for
employee stock-based transactions under APB 25, however, it has not
disclosed pro forma net income and earnings per share as if the
company had applied the new method of accounting as these amounts
have not yet been determined.
<PAGE>9
GRAHAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1996
Results of Operations
- ---------------------
Sales increased 25% in the first quarter 1996 compared to 1995.
Sales increased 27% and 15% in the United States and United Kingdom
operations, respectively. This increase in sales in the United
States is reflective of the company's strong backlog entering 1996
and the ability to ship the orders in the first quarter. The
increased sales in the U.K. reflects shorter processing time for
orders received in the first quarter.
Cost of products sold was 72% of sales for the first quarter of
1996 compared to 73% for the same period in 1995. The percentages
reflect management's conserted effort to maintain overhead costs at
a relatively constant level while increasing sales volume and
selling prices. Cost of products sold in the United States was 73%
of sales compared to 74% in the first quarter of 1995. In the
United Kingdom cost of products sold was 60% of sales compared to
64% for the same period in 1995.
Selling, general and administrative expenses increased 14% from
the first quarter of 1995. This increase is due to salary
increases granted in 1996 and additional selling expenses incurred
due to the rise in sales levels. Selling, general and
administrative expenses represented 22% and 24% of sales for the
three-month periods ended March 31, 1996 and 1995, respectively.
Interest expense decreased 25% from $167,000 for the first
quarter of 1995 to $126,000 for the current period. This decline
resulted solely from lower levels of borrowing on the United States
revolving credit facility as working capital needs have been
financed primarily by cash flows from operating activities.
The income tax provision for the first quarter of 1996 was 36%
of pretax income as compared to a 30% effective tax rate for the
same period in 1995.
Financial Condition
- -------------------
There were no significant changes in the financial condition
of the company during the first quarter of 1996.
Working capital of $7,347,000 at March 31, 1996 compares to
$7,074,000 at December 31, 1995. The working capital increase
reflects a decrease in current assets of $1,865,000 related mainly
to accounts receivable and a decrease in current liabilities of
$2,138,000 which related primarily to accounts payable and accrued
compensation. The decrease in accounts receivable was attributable
to collections from customers on the significant sales in the
fourth quarter of 1995 as well as first quarter sales being
substantially lower than 1995 fourth quarter sales. The working
capital ratio was 1.76 at March 31, 1996 and 1.60 at December 31,
1995.
<PAGE>10
Short-term debt increased from $206,000 at year-end to $341,000
at March 31, 1996 and represents solely borrowings by the United
Kingdom operation for working capital requirements. Total
long-term debt decreased $63,000 due substantially to the the
scheduled paydown on the Employee Stock Ownership Plan Loan
Payable. The long-term debt to equity ratio is 41% compared to 44%
at year-end 1995 and the total liabilities to assets ratio is 68%
compared to 71% at year-end 1995. These ratios reflect
management's success in its efforts to reduce debt.
Capital expenditures for the three month period were $109,000
compared to $46,000 for the same period in 1995. There were no
major commitments for capital expenditures as of March 31, 1996.
In 1996, the company expects to spend approximately $750,000 in
capital additions primarily for upgrade of computer equipment and
machinery.
Management expects that the cash flow from operations and lines
of credit will be sufficient to fund the 1996 cash requirements.
New Orders and Backlog
- ----------------------
New orders were $11,431,000 compared to $13,167,000 in the
first quarter of 1995 and backlog of unfilled orders of $21,588,000
currently compares to $21,837,000 at December 31, 1995. New orders
in the United States were $10,114,000 as compared to $12,189,000 in
the first quarter 1995. New orders in the United Kingdom were
$1,317,000 compared to $978,000 in the first quarter 1995. Backlog
at March 31, 1996 in the United States is $20,665,000 compared to
$21,136,000 at year-end 1995. Backlog at March 31, 1996 in the
United Kingdom is $923,000 compared to $701,000 at year end 1995.
The current backlog is scheduled to be shipped during the next
twelve months and represents orders from traditional markets in the
company's established product lines.
<PAGE>11
GRAHAM CORPORATION
FORM 10-Q
MARCH 31, 1996
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. See index to exhibits.
b. No reports on Form 8-K were filed during the quarter ended
March 31, 1996.
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.
Graham Corporation
s\J. R. Hansen
------------------------------
J. R. Hansen
Vice President Finance and
Administration / CFO
Date 05/14/96
<PAGE>12
INDEX TO EXHIBITS
(2) Plan of acquisition, reorganization, arrangement, liquidation
or succession.
Not applicable.
(4) Instruments defining the rights of security holders,
including indentures.
(a) Equity securities
The instruments defining the rights of the holders of
Registrant's equity securities are as follows:
Certificate of Incorporation, as amended, of
Registrant (filed as Exhibit 3(a) to the Registrant's
annual report on Form 10-K for the fiscal year ended
December 31, 1989, and incorporated herein by
reference.)
By-laws of registrant, as amended (filed as Exhibit
3(ii) to the Registrant's annual report on Form 10-K
for the fiscal year ended December 31, 1995, and is
incorporated herein by reference.)
Shareholder Rights Plan of Graham Corporation (filed
as Exhibit (4) to Registrant's current report filed on
Form 8-K on February 26, 1991, as amended by
Registrant's Amendment No. 1 on Form 8 dated June 8,
1991, and incorporated herein by reference.)
(b) Debt securities
Not applicable.
(10) Material Contracts
1989 Stock Option and Appreciation Rights Plan of Graham
Corporation (filed on the Registrant's Proxy Statement for
its 1991 Annual Meeting of Shareholders and incorporated
herein by reference.)
1995 Graham Corporation Incentive Plan to Increase
Shareholder Value (filed on the Registrant's Proxy Statement
for its 1996 Annual Meeting of Shareholders and incorporated
herein by reference.)
(11) Statement re-computation of per share earnings
Computation of per share earnings is included herein as
Exhibit 11 of this report.
(15) Letter re-unaudited interim financial information.
Not applicable.
<PAGE>13
(18) Letter re-change in accounting principles.
Not applicable.
(19) Report furnished to security holders.
None
(22) Published report regarding matters submitted to vote of
security holders.
None
(23) Consents of experts and counsel.
Not applicable.
(24) Power of Attorney
Not applicable.
(27) Financial Data Schedule
Financial Data Schedule is included herein as Exhibit 27 of
this report.
(99) Additional exhibits.
None
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Calculation of common and
common equivalent shares:
Shares outstanding at beginning
of the period 1,054,000 1,051,000
Weighted average number of
shares issued during the
period:
Issuance of shares 1,000
--------- ---------
Weighted average shares
outstanding 1,055,000 1,051,000
Common equivalent shares if
stock options were exercised 5,000 1,000
--------- ---------
Average number of common and
common equivalent shares
outstanding 1,060,000 1,052,000
========= =========
Calculation of earnings per share:
Net income $364,000 $19,000
Average number of common and
common equivalent shares
outstanding 1,060,000 1,052,000
--------- ---------
Net income per common and common
equivalent share $.34 $.02
==== ====
<FN>
Fully diluted earnings per share is equivalent to primary earnings
per share as the period-end market price of common stock does not result
in greater dilution.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Graham
Corporation consolidated balance sheet and consolidated statement of operations
and retained earnings and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 551
<SECURITIES> 0
<RECEIVABLES> 9,201
<ALLOWANCES> 0
<INVENTORY> 6,319
<CURRENT-ASSETS> 17,065
<PP&E> 23,453
<DEPRECIATION> 14,673
<TOTAL-ASSETS> 27,482
<CURRENT-LIABILITIES> 9,718
<BONDS> 3,076
<COMMON> 106
0
0
<OTHER-SE> 8,731
<TOTAL-LIABILITY-AND-EQUITY> 27,482
<SALES> 11,671
<TOTAL-REVENUES> 11,671
<CGS> 8,424
<TOTAL-COSTS> 8,424
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126
<INCOME-PRETAX> 571
<INCOME-TAX> 207
<INCOME-CONTINUING> 364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 364
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
