FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For Quarterly Period Ended
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from January 1, 1997 to March 31, 1997
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 12, 1997, there were outstanding 1,595,405 shares of
common stock, $.10 par value.
<PAGE>2
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 1997
PART I - FINANCIAL INFORMATION
Unaudited consolidated financial statements of Graham
Corporation (the Company) and its subsidiaries as of March 31, 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 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, 1997 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,
1997 1996
<S> <C> <C>
Assets
Current Assets:
Cash and equivalents. . . . . . . . . . $ 854,000 $ 1,263,000
Marketable securities . . . . . . . . . 548,000 745,000
Trade accounts receivable . . . . . . . 10,388,000 9,235,000
Inventories . . . . . . . . . . . . . . 6,609,000 6,343,000
Deferred tax asset. . . . . . . . . . . 841,000 820,000
Prepaid expenses and other
current assets . . . . . . . . . . . . 507,000 530,000
----------- -----------
19,747,000 18,936,000
----------- -----------
Property, plant and equipment, net. . . . 9,490,000 9,572,000
----------- -----------
Deferred tax asset. . . . . . . . . . . . 1,894,000 1,852,000
Other assets. . . . . . . . . . . . . . . 65,000 74,000
----------- -----------
$31,196,000 $30,434,000
=========== ===========
</TABLE>
<PAGE>4
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (concluded)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt . . . $ 479,000 $ 487,000
Accounts payable. . . . . . . . . . . . 3,887,000 3,923,000
Accrued compensation. . . . . . . . . . 3,100,000 4,081,000
Accrued expenses and other
liabilities. . . . . . . . . . . . . . 1,056,000 1,091,000
Customer deposits . . . . . . . . . . . 509,000 382,000
Domestic and foreign income taxes
payable. . . . . . . . . . . . . . . . 212,000 468,000
Estimated liabilities of
discontinued operations. . . . . . . . 232,000 325,000
---------- -----------
9,475,000 10,757,000
Long-term debt. . . . . . . . . . . . . . 2,764,000 1,442,000
Deferred compensation . . . . . . . . . . 1,170,000 1,067,000
Deferred tax liability. . . . . . . . . . 31,000 33,000
Other long-term liabilities . . . . . . . 302,000 339,000
Deferred pension liability. . . . . . . . 1,765,000 1,729,000
Accrued postretirement benefits . . . . . 3,179,000 3,212,000
----------- -----------
Total liabilities 18,686,000 18,579,000
----------- -----------
Shareholders' equity:
Preferred Stock, $1 par value -
Authorized, 500,000 shares
Common stock, $.10 par value -
Authorized, 6,000,000 shares
Issued, 1,587,655 shares in
1997 and 1,586,155 shares in
1996 . . . . . . . . . . . . . . . . 159,000 159,000
Capital in excess of par value. . . . . 3,226,000 3,210,000
Cumulative foreign currency
translation adjustment . . . . . . . . (1,812,000) (1,748,000)
Retained earnings . . . . . . . . . . . 11,568,000 10,915,000
----------- -----------
13,141,000 12,536,000
Less:
Treasury Stock . . . . . . . . . . . (6,000) (6,000)
Employee Stock Ownership Plan
Loan Payable. . . . . . . . . . . . (625,000) (675,000)
----------- -----------
Total shareholders' equity 12,510,000 11,855,000
----------- -----------
$31,196,000 $30,434,000
=========== ===========
</TABLE>
<PAGE>5
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS
ended March 31,
1997 1996
---- ----
<S> <C> <C>
Net Sales . . . . . . . . . . . . . . . . $14,328,000 $11,671,000
----------- -----------
Cost and expenses:
Cost of products sold . . . . . . . . . 10,202,000 8,424,000
Selling, general and administrative . . 3,071,000 2,550,000
Interest expense. . . . . . . . . . . . 65,000 126,000
----------- -----------
13,338,000 11,100,000
----------- -----------
Income before income taxes. . . . . . . . 990,000 571,000
Provision for income taxes. . . . . . . . 337,000 207,000
----------- -----------
Net income. . . . . . . . . . . . . . . . 653,000 364,000
Retained earnings at beginning of
period. . . . . . . . . . . . . . . . . 10,915,000 7,854,000
----------- -----------
Retained earnings at end of
period $11,568,000 $ 8,218,000
=========== ===========
Per Share Data:
Net income. . . . . . . . . . . . . . . . $.40 $.23
==== ====
Average number of shares
outstanding . . . . . . . . . . . . . . 1,619,000 1,606,000
========= =========
</TABLE>
<PAGE>6
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . . . . $ 653,000 $ 364,000
---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . 253,000 226,000
Gain on sale of property, plant and equipment (7,000) (4,000)
(Increase) Decrease in operating assets:
Accounts receivable. . . . . . . . . . . . . (1,197,000) 1,399,000
Inventory, net of customer deposits. . . . . (197,000) (146,000)
Prepaid expenses and other current and
non-current assets . . . . . . . . . . . . 18,000 281,000
Increase (Decrease) in operating liabilities:
Accounts payable, accrued compensation,
accrued expenses and other liabilities . . (1,007,000) (2,019,000)
Estimated liabilities of discontinued
operations . . . . . . . . . . . . . . . . (79,000) (4,000)
Deferred compensation, deferred pension
liability, and accrued postretirement
benefits . . . . . . . . . . . . . . . . . 118,000 (140,000)
Domestic and foreign income taxes. . . . . . (251,000) 123,000
Other long-term liabilities. . . . . . . . . (35,000)
Deferred income taxes. . . . . . . . . . . . (65,000)
---------- ----------
Total adjustments. . . . . . . . . . . . . (2,449,000) (284,000)
---------- ----------
Net cash provided (used) by operating
activities. . . . . . . . . . . . . . . . . . (1,796,000) 80,000
---------- ----------
</TABLE>
<PAGE>7
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (concluded)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Investing activities:
Purchase of property, plant and equipment. . . (237,000) (109,000)
Proceeds from sale of property, plant and
equipment . . . . . . . . . . . . . . . . . . 8,000 15,000
Purchase of marketable securities. . . . . . . (1,171,000)
Proceeds from maturity of marketable
securities . . . . . . . . . . . . . . . . . 1,372,000
---------- ----------
Net cash used by investing activities. . . . . (28,000) (94,000)
---------- ----------
Financing activities:
Increase in short-term debt. . . . . . . . . . 138,000
Proceeds from issuance of long-term debt . . . 2,730,000 2,065,000
Principal repayments on long-term debt . . . . (1,321,000) (2,073,000)
Issuance of common stock . . . . . . . . . . . 12,000 30,000
---------- ----------
Net cash provided by financing activities. . . 1,421,000 160,000
---------- ----------
Effect of exchange rate on cash. . . . . . . . (6,000) (6,000)
---------- ----------
Net increase (decrease) in cash and equivalents (409,000) 140,000
Cash and equivalents at beginning of period. . 1,263,000 411,000
---------- ----------
Cash and equivalents at end of period. . . . . $ 854,000 $ 551,000
========== ==========
</TABLE>
<PAGE>8
GRAHAM CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
- ------------------------------------------------------------------------
NOTE 1 - INVENTORIES:
- ------------------------------------------------------------------------
Major classifications of inventories are as follows:
<TABLE>
<CAPTION>
3/31/97 12/31/96
------- --------
<S> <C> <C>
Raw materials and supplies. . . . . . . . . $ 2,450,000 $ 2,411,000
Work in process . . . . . . . . . . . . . . 3,985,000 4,538,000
Finished products . . . . . . . . . . . . . 1,163,000 1,168,000
----------- -----------
7,598,000 8,117,000
Less - progress payments. . . . . . . . . . 989,000 1,774,000
----------- -----------
$ 6,609,000 $ 6,343,000
=========== ===========
</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 $65,000 and $160,000 for the three
months ended March 31, 1997 and 1996, respectively. In addition,
actual income taxes paid were $627,000 and $84,000 for the three
months ended March 31, 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
GRAHAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1997
Results of Operations
- ---------------------
Sales increased 23% in the first quarter 1997 compared to 1996.
Sales increased 25% in the United States while sales in the United
Kingdom remained flat. The product lines that attributed
substantially to the sales increase were surface condensers,
ejectors and vacuum pumps.
Cost of products sold was 71% of sales for the first quarter of
1997 compared to 72% for the same period in 1996. The percentages
reflect a decline in direct costs as a percentage of selling prices
offset by a slight increase in production overheads due to
increased sales levels. Cost of products sold in the United States
was 73% of sales in both the first quarter of 1997 and 1996, and
cost of products sold in the United Kingdom also remained the same
for both periods at 60% of sales.
Selling, general and administrative expenses increased 20% from
the first quarter of 1996. This increase is due to salary
increases granted in 1997, incentive wage programs based on profit
levels, and the allocation of additional resources to the sales
force. Selling, general and administrative expenses represented
21% and 22% of sales for the three-month periods ended March 31,
1997 and 1996, respectively.
Interest expense decreased 48% from $126,000 for the first
quarter of 1996 to $65,000 for the current period. This decline
resulted from lower interest rates and 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 1997 was 34%
of pretax income as compared to a 36% effective tax rate for the
same period in 1996.
Financial Condition
- -------------------
There were no significant changes in the financial condition
of the Company during the first quarter of 1997.
Working capital of $10,272,000 at March 31, 1997 compares to
$8,179,000 at December 31, 1996. The working capital increase
reflects an increase in current assets of $811,000 related mainly
to accounts receivable and a decrease in current liabilities of
$1,282,000 which related primarily to accrued compensation. The
increase in accounts receivable was attributable to the significant
sales in the first quarter of 1997 which exceeded 1996 fourth
quarter sales by 5%. The decrease in accrued compensation is due
to the timing of payment of certain benefits. The working capital
ratio was 2.08 at March 31, 1997 and 1.76 at December 31, 1996.
Total long-term debt increased $1,314,000 due substantially to
additional borrowings on the United States revolving credit
facility for working capital needs. This debt is classified as
<PAGE>10
long term as the agreement allows the Company to convert borrowings
greater than $2,000,000 and up to $9,000,000 into a two-year term
loan at any time. The long-term debt to equity ratio is 26%
compared to 16% at year-end 1996 and the total liabilities to
assets ratio is 60% compared to 61% at year-end 1996.
Capital expenditures for the three month period were $237,000
compared to $109,000 for the same period in 1996. There were no
major commitments for capital expenditures as of March 31, 1997.
In fiscal year 1998, the Company anticipates capital expenditures
of approximately $1,000,000 primarily for machinery and computer
equipment.
Management expects that the cash flow from operations and lines
of credit will be sufficient to fund the 1997 cash requirements.
New Orders and Backlog
- ----------------------
New orders were $11,150,000 compared to $11,431,000 in the
first quarter of 1996 and backlog of unfilled orders of $22,348,000
currently compares to $25,578,000 at December 31, 1996. New orders
in the United States were $9,739,000 as compared to $10,114,000 in
the first quarter 1996. New orders in the United Kingdom were
$1,411,000 compared to $1,317,000 in the first quarter 1996.
Backlog at March 31, 1997 in the United States is $21,011,000
compared to $24,514,000 at year-end 1996. Backlog at March 31,
1997 in the United Kingdom is $1,337,000 compared to $1,064,000 at
year end 1996. Although backlog and new orders are down in the
United States, prospects for new orders in the refinery, chemical
and fertilizer industries are good. Currently, contract
negotiations on a major order for a geothermal project are being
finalized. In the United Kingdom, maintaining order levels has
been difficult due to competition and the strength of the Pound
Sterling. However, a major order was received during the quarter
causing an increase in the backlog and growth is anticipated in the
package and standard pump product lines. 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.
Accounting Changes and Change in Fiscal Year
- --------------------------------------------
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share," which is effective for interim and annual
periods ending after December 15, 1997. Early adoption of the
statement is not permitted. SFAS No. 128 will require the Company
to restate all previously reported earnings per share information
to conform with the new pronouncement's requirements.
Effective April 1, 1997, the Company changed its year end from
December 31 to March 31. Management anticipates that this change
will be beneficial to the operations of the business.
<PAGE>11
GRAHAM CORPORATION
FORM 10-Q
MARCH 31, 1997
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. See index to exhibits.
b. A Form 8-K was filed on March 25, 1997 which reported
under Item 8 a change in the fiscal year.
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 05/12/97
<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
(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, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Calculation of common and
common equivalent shares:
Shares outstanding at beginning
of the period 1,585,000 1,581,000
Weighted average number of
shares issued during the
period:
Issuance of shares 1,000 2,000
--------- ---------
Weighted average shares
outstanding 1,586,000 1,583,000
Common equivalent shares if
stock options were exercised 33,000 23,000
--------- ---------
Average number of common and
common equivalent shares
outstanding 1,619,000 1,606,000
========= =========
Calculation of earnings per share:
Net income $653,000 $364,000
Average number of common and
common equivalent shares
outstanding 1,619,000 1,606,000
--------- ---------
Net income per common and common
equivalent share $.40 $.23
==== ====
<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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 854
<SECURITIES> 548
<RECEIVABLES> 10,388
<ALLOWANCES> 8
<INVENTORY> 6,609
<CURRENT-ASSETS> 19,747
<PP&E> 24,849
<DEPRECIATION> 15,359
<TOTAL-ASSETS> 31,196
<CURRENT-LIABILITIES> 9,475
<BONDS> 2,764
0
0
<COMMON> 159
<OTHER-SE> 12,351
<TOTAL-LIABILITY-AND-EQUITY> 31,196
<SALES> 14,328
<TOTAL-REVENUES> 14,328
<CGS> 10,202
<TOTAL-COSTS> 10,202
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> 990
<INCOME-TAX> 337
<INCOME-CONTINUING> 653
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 653
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
