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 September 30, 1997
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 incorporation (I.R.S. Employer
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 November 7, 1997, there were outstanding 1,686,632
shares of common stock, $.10 par value.
<PAGE>2
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
SEPTEMBER 30, 1997
PART I - FINANCIAL INFORMATION
Unaudited consolidated financial statements of Graham
Corporation (the company) and its subsidiaries as of September
30, 1997 and for the three month and six month periods 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 normal and recurring adjustments which are, in the
opinion of management, necessary to a fair presentation of the
results of the interim periods.
This part also includes management's discussion and analysis
of the Company's financial condition as of September 30, 1997 and
its results of operations for the three month and six month
periods then ended.
<PAGE>3
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash and equivalents $ 1,295,000 $ 854,000
Marketable securities 2,246,000 548,000
Trade accounts receivable 8,802,000 10,388,000
Inventories 5,473,000 6,609,000
Deferred tax asset 438,000 841,000
Prepaid expenses and other
current assets 840,000 507,000
----------- -----------
19,094,000 19,747,000
----------- -----------
Property, plant and equipment, net 9,346,000 9,490,000
Deferred tax asset 1,894,000 1,894,000
Other assets 48,000 65,000
----------- -----------
$30,382,000 $31,196,000
=========== ===========
</TABLE>
<PAGE>4
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (concluded)
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
---- ----
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt due banks $ 143,000
Current portion of long-term debt 397,000 $ 479,000
Accounts payable 2,293,000 3,887,000
Accrued compensation 3,251,000 3,100,000
Accrued expenses and other
liabilities 854,000 1,056,000
Customer deposits 460,000 509,000
Domestic and foreign income taxes
payable 227,000 212,000
Estimated liabilities of
discontinued operations 105,000 232,000
----------- -----------
7,730,000 9,475,000
Long-term debt 1,126,000 2,764,000
Deferred compensation 1,242,000 1,170,000
Deferred tax liability 31,000 31,000
Other long-term liabilities 234,000 302,000
Deferred pension liability 1,920,000 1,765,000
Accrued postretirement benefits 3,228,000 3,179,000
----------- -----------
Total liabilities 15,511,000 18,686,000
----------- -----------
Shareholders' equity:
Preferred Stock, $1 par value -
Authorized, 500,000 shares
Common stock, $.10 par value -
Authorized, 6,000,000 shares
Issued 1,675,895 shares on
September 30, 1997 and 1,587,655
on March 31, 1997 168,000 159,000
Capital in excess of par value 4,078,000 3,226,000
Cumulative foreign currency
translation adjustment (1,831,000) (1,812,000)
Retained earnings 12,987,000 11,568,000
----------- -----------
15,402,000 13,141,000
Less:
Treasury Stock (6,000) (6,000)
Employee Stock Ownership Plan
Loan Payable (525,000) (625,000)
----------- -----------
Total shareholders' equity 14,871,000 12,510,000
----------- -----------
$30,382,000 $31,196,000
=========== ===========
</TABLE>
<PAGE>5
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ended September 30, ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $14,615,000 $12,705,000 $26,687,000 $26,114,000
----------- ----------- ----------- -----------
Cost and expenses:
Cost of products sold 9,679,000 8,860,000 17,979,000 18,432,000
Selling, general and
administrative 3,471,000 2,869,000 6,407,000 5,807,000
Interest expense 61,000 68,000 140,000 181,000
----------- ----------- ----------- -----------
13,211,000 11,797,000 24,526,000 24,420,000
----------- ----------- ----------- -----------
Income before income taxes 1,404,000 908,000 2,161,000 1,694,000
Provision for income taxes 477,000 351,000 742,000 665,000
----------- ----------- ----------- -----------
Net income 927,000 557,000 1,419,000 1,029,000
Retained earnings at
beginning of period 12,060,000 8,690,000 11,568,000 8,218,000
----------- ----------- ----------- -----------
Retained earnings at end
of period $12,987,000 $ 9,247,000 $12,987,000 $ 9,247,000
=========== =========== =========== ===========
Per Share Data:
Net income $.55 $.35 $.85 $.64
==== ==== ==== ====
Average number of common
and common equivalent
shares outstanding 1,698,000 1,613,000 1,676,000 1,611,000
========= ========= ========= =========
</TABLE>
<PAGE>6
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net income $1,419,000 $1,029,000
---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 513,000 456,000
(Gain) Loss on sale of property, plant and
equipment (22,000) 1,000
(Increase) Decrease in operating assets:
Accounts receivable 1,573,000 1,373,000
Inventory, net of customer deposits 1,074,000 2,137,000
Prepaid expenses and other current and
non-current assets 67,000 (105,000)
Increase (Decrease) in operating liabilities:
Accounts payable, accrued compensation,
accrued expenses and other liabilities (1,635,000) (317,000)
Estimated liabilities of discontinued operations (119,000) 49,000
Deferred compensation, deferred pension
liability, and accrued postemployment benefits 280,000 205,000
Domestic and foreign income taxes 15,000 (43,000)
Other long-term liabilities (73,000) 83,000
---------- ----------
Total adjustments 1,673,000 3,839,000
---------- ----------
Net cash provided by operating activities 3,092,000 4,868,000
---------- ----------
</TABLE>
<PAGE>7
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (concluded)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Investing activities:
Purchase of property, plant and equipment (336,000) (316,000)
Proceeds from sale of property, plant and
equipment 7,000
Purchase of marketable securities (2,851,000) (2,170,000)
Proceeds from maturity of marketable securities 1,156,000 1,081,000
---------- ----------
Net cash used by investing activities (2,031,000) (1,398,000)
---------- ----------
Financing activities:
Increase in short-term debt 144,000 209,000
Proceeds from issuance of long-term debt 5,441,000 200,000
Principal repayments on long-term debt (7,066,000) (2,507,000)
Issuance of common stock 861,000 7,000
---------- ----------
Net cash used by financing activities (620,000) (2,091,000)
---------- ----------
Effect of exchange rate on cash 11,000
---------- ----------
Net increase (decrease) in cash and equivalents 441,000 1,390,000
Cash and equivalents at beginning of period 854,000 551,000
---------- ----------
Cash and equivalents at end of period $1,295,000 $1,941,000
========== ==========
</TABLE>
<PAGE>8
GRAHAM CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION
SEPTEMBER 30, 1997
- ----------------------------------------------------------------------------
NOTE 1 - INVENTORIES:
- ----------------------------------------------------------------------------
Major classifications of inventories are as follows:
<TABLE>
<CAPTION>
9/30/97 3/31/97
------- -------
<S> <C> <C>
Raw materials and supplies $ 2,694,000 $ 2,450,000
Work in process 2,670,000 3,985,000
Finished products 1,305,000 1,163,000
----------- -----------
6,669,000 7,598,000
Less - progress payments 1,196,000 989,000
----------- -----------
$ 5,473,000 $ 6,609,000
=========== ===========
</TABLE>
- ----------------------------------------------------------------------------
NOTE 2 - EARNINGS PER SHARE:
- ----------------------------------------------------------------------------
Earnings per share is computed by dividing net income by the
weighted number of common shares and, when applicable, common
equivalent shares outstanding during the period.
- ----------------------------------------------------------------------------
NOTE 3 - CASH FLOW STATEMENT:
- ----------------------------------------------------------------------------
Actual interest paid was $141,000 and $171,000 for the six
months ended September 30, 1997 and 1996, respectively. In
addition, actual income taxes paid were $709,000 for each of the
six months ended September 30, 1997 and 1996.
- ----------------------------------------------------------------------------
NOTE 4 - RECENTLY ISSUED ACCOUNTING STANDARDS
- ----------------------------------------------------------------------------
In March 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share," which is effective for financial
statements for both interim and annual periods ending after
December 15, 1997. This new standard requires dual presentation
of basic and diluted earnings per share (EPS) on the face of the
earnings statement and requires a reconciliation of the numerators
and denominators of basic and diluted EPS calculations. The
Company's current EPS calculation conforms to diluted EPS.
Diluted EPS will not be materially different from basic EPS since
potential common shares in the form of stock options are not
materially dilutive.
<PAGE>9
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 130
establishes standards for reporting and disclosure of
comprehensive income and its components in financial statement
format. Comprehensive income is defined as the change in equity
of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. SFAS No.
130 is effective for fiscal years beginning after December 31,
1997 and is not expected to have a material effect on the
Company's financial statements.
SFAS No. 131 establishes standards for reporting information
about operating segments by public companies in their financial
statements. It also establishes related disclosures about
products and services, geographic areas and major customers.
SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. The Company is currently evaluating what
impact this standard will have on its disclosures.
<PAGE>10
GRAHAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1997
Results of Operations
- ---------------------
Sales increased 15% in the second quarter 1997 compared to
1996. Sales for the second quarter increased 22% in the United
States and decreased 47% in the United Kingdom compared to 1996.
Sales for the six months ended September 30, 1997 exceeded sales
for the same period last year by 2%. Sales in the United States
increased 4% while sales in the United Kingdom declined 17% from
the same period last year. The increased sales in the United
States is attributable to production efficiencies which resulted
in certain projects being completed ahead of schedule. The
decrease in the United Kingdom sales is reflective of a decline
in orders during the first and second quarters due to the
strength of Pound Sterling.
Cost of sales as a percent of sales for the second quarter
1997 was 66% compared to 70% a year ago. Cost of sales as a
percent of sales for the three month period was 67% in the United
States compared to 71% last year and 45% in the United Kingdom
compared to 62% last year. For the six months, cost of sales as
a percent of sales was 67% compared to 71% a year ago. In the
United States, the cost of sales percentage was 68% compared to
71% last year and in the United Kingdom it was 61% compared to
66% for the same period last year. The favorable percentages for
the United States subsidiary is attributable to a reduction in
material costs. In the United Kingdom the improvement is due
primarilly to product mix and lower production overhead expenses.
Selling, general and administrative expenses increased 21%
from the second quarter of 1996, and represent 24% of sales as
compared to 23% in 1996. For the six months ended September 30,
1997, selling, general and administrative expenses are up 10% as
compared to the same period in 1996 and were 24% of sales
compared to 22% in 1996. These increases are primarily
attributable to the hiring of additional sales personnel and
higher selling expenses which are directly related to the
increase in sales.
Interest expense for the second quarter and six month period
decreased 10% and 23%, respectively, as compared to the same
periods in 1996. These decreases reflect lower interest rates
and minimal borrowing on the United States revolving credit
facility due to strong cash flow experienced throughout the year.
The effective income tax rate for the second quarter and six
month period in 1997 was 34% which is relatively consistent with
the 1996 effective tax rate of 39% for the same periods.
Financial Condition
- -------------------
The financial condition of the Company has improved during
fiscal year 1997. Working capital of $11,364,000 at September 30,
1997 compares to $10,272,000 at March 31, 1997. This working
capital increase reflects a decrease in current assets of
<PAGE>11
$653,000 and a decrease in current liabilities of $1,745,000.
The decrease in current assets related primarily to a decrease in
accounts receivable due to timing of collections from customers
and a decline in inventory due to the significant sales volume in
the second quarter. This decrease was offset by an increase in
cash and equivalents and marketable securities. The decrease in
current liabilities reflects the decline in accounts payable
which is attributable to timing of purchases. The current ratio
at September 30, 1997 is 2.47 compared to 2.08 at March 31, 1997.
Capital expenditures for the six month period were $336,000
compared to $316,000 for the same period in 1996. Commitments
for capital expenditures as of September 30, 1997 were
approximately $100,000.
Short term debt increased $143,000 from March 31, 1997 which
relates to borrowings by the United Kingdom for working capital
needs. Total long-term debt decreased $1,720,000 due to paydowns
on the United States revolving line of credit. The long-term
debt to equity ratio is 10% compared to 26% at March 31, 1997 and
the total liabilities to assets ratio is 51% compared to 60% at
March 31, 1997. These ratios reflect management's success in its
efforts to reduce debt.
Management expects that the cash flow from operations and
lines of credit will provide sufficient resources to fund the
fiscal year 1998 cash requirements.
New Orders and Backlog
- ----------------------
New orders for the second quarter were $16,472,000 compared to
$10,269,000 for the same period last year. New orders in the
United States were $15,792,000 compared to $9,282,000 for the
same period in 1996. New orders in the United Kingdom were
$680,000 compared to $987,000 for the same quarter last year.
For the first half of the fiscal year new orders were
$37,260,000 compared to $27,529,000 for the comparable six month
period of 1996. New orders in the United States were $35,438,000
for the six month period compared to $25,056,000 for the same
period last year and new orders in the United Kingdom were
$1,822,000 compared to $2,473,000 in 1996. The substantial
increase in new orders in the United States is mainly
attributable to large contracts for export while the decline in
the United Kingdom is due to the high value of the Pound
Sterling.
Backlog of unfilled orders at September 30, 1997 is
$31,489,000 compared to $23,026,000 at this time a year ago and
$22,348,000 at March 31, 1997. Current backlog in the United
States of $30,377,000 compares to $21,011,000 at March 31, 1997
and $22,066,000 at September 30, 1996. Current backlog in the
United Kingdom of $1,112,000 compares to $1,337,000 at March 31,
1997 and $960,000 at September 30, 1996. 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>12
GRAHAM CORPORATION
FORM 10-Q
SEPTEMBER 30, 1997
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 September 30, 1997.
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 &
Administration / CFO
Date 11/7/97
<PAGE>13
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>14
Index to Exhibits (cont.)
(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 Six months
ended September 30 ended September 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Calculation of common and
common equivalent shares:
Shares and share equivalent units
outstanding at beginning of
the period 1,607,000 1,586,000 1,590,000 1,585,000
Weighted average number of shares
issued during the period:
Issuance of shares 37,000 32,000 1,000
--------- --------- ---------- ----------
Weighted average shares
outstanding 1,644,000 1,586,000 1,622,000 1,586,000
Common equivalent shares if
stock options were exercised 51,000 27,000 53,000 25,000
Contingently issuable share
equivalent units 3,000 1,000
--------- --------- ---------- ----------
Average number of common and common
equivalent shares outstanding 1,698,000 1,613,000 1,676,000 1,611,000
========= ========= ========== ==========
Calculation of earnings per share:
Net income $927,000 $557,000 $1,419,000 $1,029,000
Average number of common and common
equivalent shares outstanding 1,698,000 1,613,000 1,676,000 1,611,000
--------- --------- ---------- ----------
Earnings per common and
common equivalent share $.55 $.35 $.85 $.64
==== ==== ==== ====
<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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 1,295
<SECURITIES> 2,246
<RECEIVABLES> 8,887
<ALLOWANCES> 85
<INVENTORY> 5,473
<CURRENT-ASSETS> 19,094
<PP&E> 25,028
<DEPRECIATION> 15,682
<TOTAL-ASSETS> 30,382
<CURRENT-LIABILITIES> 7,730
<BONDS> 1,126
0
0
<COMMON> 168
<OTHER-SE> 14,703
<TOTAL-LIABILITY-AND-EQUITY> 30,382
<SALES> 26,687
<TOTAL-REVENUES> 26,687
<CGS> 17,979
<TOTAL-COSTS> 17,979
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> 2,161
<INCOME-TAX> 742
<INCOME-CONTINUING> 1,419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,419
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.85
</TABLE>
