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 June 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 (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 August 8, 1997, there were outstanding 1,631,182 shares
of common stock, $.10 par value.
<PAGE>2
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1997
PART I - FINANCIAL INFORMATION
Unaudited consolidated financial statements of Graham
Corporation (the company) and its subsidiaries as of June 30, 1997
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 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 June 30, 1997 and its
results of operations for the three month period then ended.
<PAGE>3
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
<S> <C> <C>
Assets
Current Assets:
Cash and equivalents . . . . . . . . . . . $ 14,000 $ 854,000
Marketable securities. . . . . . . . . . . 548,000 548,000
Trade accounts receivable. . . . . . . . . 9,674,000 10,388,000
Inventories. . . . . . . . . . . . . . . . 5,986,000 6,609,000
Deferred tax asset . . . . . . . . . . . . 841,000 841,000
Prepaid expenses and other
current assets . . . . . . . . . . . . . 488,000 507,000
----------- -----------
17,551,000 19,747,000
----------- -----------
Property, plant and equipment, net. . . . . . 9,463,000 9,490,000
----------- -----------
Deferred tax asset 1,894,000 1,894,000
Other assets 57,000 65,000
----------- -----------
$28,965,000 $31,196,000
=========== ===========
</TABLE>
<PAGE>4
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (concluded)
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt. . . . . $ 435,000 $ 479,000
Accounts payable . . . . . . . . . . . . . 2,684,000 3,887,000
Accrued compensation . . . . . . . . . . . 2,708,000 3,100,000
Accrued expenses and other
liabilities . . . . . . . . . . . . . . . 851,000 1,056,000
Customer deposits. . . . . . . . . . . . . 741,000 509,000
Domestic and foreign income taxes
payable . . . . . . . . . . . . . . . . . 402,000 212,000
Estimated liabilities of
discontinued operations . . . . . . . . . 168,000 232,000
----------- -----------
7,989,000 9,475,000
Long-term debt. . . . . . . . . . . . . . . . 1,226,000 2,764,000
Deferred compensation . . . . . . . . . . . . 1,218,000 1,170,000
Deferred tax liability. . . . . . . . . . . . 31,000 31,000
Other long-term liabilities . . . . . . . . . 260,000 302,000
Deferred pension liability. . . . . . . . . . 1,848,000 1,765,000
Accrued postretirement benefits . . . . . . . 3,192,000 3,179,000
----------- -----------
Total liabilities 15,764,000 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 1,604,355 shares on June 30,
1997 and 1,587,655 on March 31,
1997 . . . . . . . . . . . . . . . . . . 160,000 159,000
Capital in excess of par value . . . . . . 3,355,000 3,226,000
Cumulative foreign currency
translation adjustment. . . . . . . . . . (1,793,000) (1,812,000)
Retained earnings. . . . . . . . . . . . . 12,060,000 11,568,000
----------- -----------
13,782,000 13,141,000
Less:
Treasury Stock. . . . . . . . . . . . . . (6,000) (6,000)
Employee Stock Ownership Plan
Loan Payable . . . . . . . . . . . . . . (575,000) (625,000)
----------- -----------
Total shareholders' equity 13,201,000 12,510,000
----------- -----------
$28,965,000 $31,196,000
=========== ===========
</TABLE>
<PAGE>5
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS
ended June 30,
1997 1996
---- ----
<S> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . $12,073,000 $13,409,000
----------- -----------
Cost and expenses:
Cost of products sold. . . . . . . . . . . 8,300,000 9,572,000
Selling, general and administrative. . . . 2,936,000 2,938,000
Interest expense . . . . . . . . . . . . . 79,000 113,000
----------- -----------
11,315,000 12,623,000
----------- -----------
Income before income taxes. . . . . . . . . . 758,000 786,000
Provision for income taxes. . . . . . . . . . 266,000 314,000
----------- -----------
Net income. . . . . . . . . . . . . . . . . . 492,000 472,000
Retained earnings at beginning of
period . . . . . . . . . . . . . . . . . . 11,568,000 8,218,000
----------- -----------
Retained earnings at end of
period $12,060,000 $ 8,690,000
=========== ===========
Per Share Data:
Net income. . . . . . . . . . . . . . . . . . $.30 $.29
==== ====
Average number of shares
outstanding. . . . . . . . . . . . . . . . 1,654,000 1,609,000
========= =========
</TABLE>
<PAGE>6
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . $ 492,000 $ 472,000
---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . 258,000 227,000
(Gain) Loss on sale of property, plant and
equipment . . . . . . . . . . . . . . . . . . . (22,000) 1,000
(Increase) Decrease in operating assets:
Accounts receivable . . . . . . . . . . . . . . 729,000 1,503,000
Inventory, net of customer deposits . . . . . . 865,000 233,000
Prepaid expenses and other current and
non-current assets . . . . . . . . . . . . . . 20,000 (116,000)
Increase (Decrease) in operating liabilities:
Accounts payable, accrued compensation,
accrued expenses and other liabilities . . . . (1,810,000) 105,000
Estimated liabilities of discontinued operations (66,000) (97,000)
Deferred compensation, deferred pension
liability, and accrued postemployment benefits 140,000 113,000
Domestic and foreign income taxes . . . . . . . 190,000 125,000
Other long-term liabilities . . . . . . . . . . (42,000)
---------- ----------
Total adjustments . . . . . . . . . . . . . . 262,000 2,094,000
---------- ----------
Net cash provided by operating activities . . . . . 754,000 2,566,000
---------- ----------
</TABLE>
<PAGE>7
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (concluded)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
<S> <C> <C>
Investing activities:
Purchase of property, plant and equipment. . . . . (179,000) (127,000)
Proceeds from sale of property, plant and
equipment. . . . . . . . . . . . . . . . . . . . 6,000
Purchase of marketable securities. . . . . . . . . (365,000)
Proceeds from maturity of marketable securities. . 365,000
---------- ----------
Net cash used by investing activities. . . . . . . (179,000) (121,000)
---------- ----------
Financing activities:
Increase in short-term debt. . . . . . . . . . . . 92,000
Proceeds from issuance of long-term debt . . . . . 5,090,000 200,000
Principal repayments on long-term debt . . . . . . (6,635,000) (1,416,000)
Issuance of common stock . . . . . . . . . . . . . 130,000 8,000
---------- ----------
Net cash used by financing activities. . . . . . . (1,415,000) (1,116,000)
---------- ----------
Effect of exchange rate on cash. . . . . . . . . . 6,000
---------- ----------
Net increase (decrease) in cash and equivalents. . (840,000) 1,335,000
Cash and equivalents at beginning of period. . . . 854,000 551,000
---------- ----------
Cash and equivalents at end of period. . . . . . . $ 14,000 $1,886,000
========== ==========
</TABLE>
<PAGE>8
GRAHAM CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION
JUNE 30, 1997
- -------------------------------------------------------------------------
NOTE 1 - INVENTORIES
- -----------------------------------------------------------------------------
Major classifications of inventories are as follows:
<TABLE>
<CAPTION>
6/30/97 3/31/97
------- -------
<S> <C> <C>
Raw materials and supplies. . . . . . . . . . . $ 2,451,000 $ 2,450,000
Work in process . . . . . . . . . . . . . . . . 4,163,000 3,985,000
Finished products . . . . . . . . . . . . . . . 1,147,000 1,163,000
----------- -----------
7,761,000 7,598,000
Less - progress payments. . . . . . . . . . . . 1,775,000 989,000
----------- -----------
$ 5,986,000 $ 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 $79,000 and $113,000 for the three
months ended June 30, 1997 and 1996, respectively. In addition,
actual income taxes paid were $76,000 and $190,000 for the three
months ended June 30, 1997 and 1996, respectively.
- ----------------------------------------------------------------------------
NOTE 4 - RECENTLY ISSUED ACCOUNTING STANDARD
- -----------------------------------------------------------------------------
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earning 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 basic 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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1997
Results of Operations
- ---------------------
Sales decreased 10% in the first quarter of fiscal year 1998
compared to the same period (April, May, June) in 1996. Sales for
the first quarter decreased 12% in the United States and increased
16% in the United Kingdom compared to 1996. The decrease in the
United States sales is due to the change in the fiscal year
effective April 1, 1997. From an operational perspective, all
Graham first quarters are similar in the sense that we go into each
of them with very few, if any, jobs that are anywhere near
completion. Each accounting year, an all-out effort is made to
complete and take revenue recognition for as much work-in-process
inventory as possible. We recognize sales under the completed
contract method, and Graham's product manufacturing time from
engineering to shipment on major jobs exceeds ninety days. So,
typically any Graham first quarter is less robust than any other
quarter of the year. Sales in the second quarter are expected to
exceed the sales levels attained in the first quarter. The
increase in the United Kingdom sales is attributable to increased
sales volume of certain standard products and spare parts.
Cost of sales as a percent of sales for the first quarter of
fiscal year 1998 was 69% compared to 71% a year ago. Cost of sales
as a percent of sales for the three month period was 69% for the
United States operations compared to 72% last year and 69% for the
United Kingdom operations compared to 70% last year. The favorable
percentage for the United States reflects direct material cost
savings while the decrease in the United Kingdom is attributable to
a reduction of overhead expenses.
Selling, general and administrative expenses for the three
months ended June 30, 1997 were comparable to selling, general and
administrative expenses for the same period in 1996 and represented
24% of sales as compared to 22% in 1996. Selling, general and
administrative expenses remained flat despite increases in salaries
and employee levels due to management's concerted effort to contain
overhead costs.
Interest expense for the first quarter is down 30% from the
same period in 1996. The decrease resulted primarily from a
decline in interest rates and lower levels of borrowing on the
United States revolving credit facility due to strong cash flow.
The effective income tax rate for the first quarter was 35%
compared to 40% for the comparable three months of 1996.
Financial Condition
- -------------------
There were no significant changes in the financial condition of
the company for the first quarter of fiscal year 1998. Working
capital of $9,562,000 at June 30, 1997 compares to $10,272,000 at
March 31, 1997. The working capital decrease reflects a decrease
in current assets of $2,196,000 and a decrease in current
<PAGE>10
liabilities of $1,486,000. The decrease in current assets related
primarily to a significant decrease in cash due to paydown of debt
and a decrease in accounts receivable due to a decline in sales in
the first quarter as compared to the first three months of 1997.
The decrease in current liabilities reflects primarily a reduction
in accounts payable which is attributable to timing of purchases.
Capital expenditures for the three month period were $179,000
compared to $127,000 for the same period in 1996. There were no
major commitments for capital expenditures as of June 30, 1997.
Management anticipates spending approximately $1,000,000 in fiscal
year 1998 for capital additions to upgrade computer equipment and
machinery.
Total long-term debt decreased $1,582,000 from March 31, 1997
due to paydowns on the United States revolving credit line which is
classified as long-term in accordance with the terms of the loan
agreement. The long-term debt to equity ratio is 13% compared to
26% at March 31, 1997 and the total liabilities to assets ratio is
54% compared to 60% at March 31, 1997. These ratios are reflective
of management's continual effort 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 $20,788,000 compared to
$17,260,000 for the same period last year. New orders in the
United States were $19,646,000 compared to $15,774,000 for the same
period in 1996. New orders in the United Kingdom were $1,142,000
compared to $1,486,000 for the same quarter last year. New orders
in the United States are at an historically high level which is
attributable to three large export orders acquired during the
quarter and orders for the refinery industry. The decline in new
orders in the United Kingdom is related to the strength of the
Pound Sterling which has caused customers to request significant
price discounts.
Backlog of unfilled orders at June 30, 1997 is at an historic
high point at $31,076,000. This compares to $25,455,000 at this
time a year ago and $22,348,000 at March 31, 1997. Current backlog
in the United States of $29,928,000 compares to $21,011,000 at
March 31, 1997 and $24,191,000 at June 30, 1996. Current backlog
in the United Kingdom of $1,148,000 compares to $1,337,000 at March
31, 1997 and $1,264,000 at June 30, 1996. The current backlog is
reflective of the recent order activity. 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 AND SUBSIDIARIES
FORM 10-Q
JUNE 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
June 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 and
Administration / CFO
Date 08/08/97
<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
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 Three months
ended ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Calculation of common and
common equivalent shares:
Shares and share equivalent
units outstanding at
beginning of the period 1,590,000 1,585,000
Weighted average number of
shares issued during the
period:
Issuance of shares 9,000
--------- ---------
Weighted average shares
outstanding 1,599,000 1,585,000
Common equivalent shares if
stock options were exercised 55,000 24,000
--------- ---------
Average number of common and
common equivalent shares
outstanding 1,654,000 1,609,000
========= =========
Calculation of earnings per
share:
Net income $492,000 $472,000
Average number of common and
common equivalent shares
outstanding 1,654,000 1,609,000
--------- ---------
Net income per common and
common equivalent share $.30 $.29
==== ====
<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> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 14
<SECURITIES> 548
<RECEIVABLES> 9,682
<ALLOWANCES> 8
<INVENTORY> 5,986
<CURRENT-ASSETS> 17,551
<PP&E> 24,950
<DEPRECIATION> 15,487
<TOTAL-ASSETS> 28,965
<CURRENT-LIABILITIES> 7,989
<BONDS> 1,226
0
0
<COMMON> 160
<OTHER-SE> 13,041
<TOTAL-LIABILITY-AND-EQUITY> 28,965
<SALES> 12,073
<TOTAL-REVENUES> 12,073
<CGS> 8,300
<TOTAL-COSTS> 8,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79
<INCOME-PRETAX> 758
<INCOME-TAX> 266
<INCOME-CONTINUING> 492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 492
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.29
</TABLE>
