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, 1995
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 4, 1995, there were outstanding 1,052,499 shares
of common stock, $.10 par value.
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1995
PART I - FINANCIAL INFORMATION
Unaudited consolidated financial statements of Graham
Corporation (the company) and its subsidiaries as of June 30, 1995
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
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 June 30, 1995 and its
results of operations for the three month and six month periods
then ended.
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1995 1994
---- ----
Assets
Current Assets:
Cash and equivalents $ 68,000 $ 454,000
Trade accounts receivable 8,628,000 11,883,000
Inventories 6,035,000 4,547,000
Deferred tax asset 1,114,000 1,114,000
Prepaid expenses and other
current assets 344,000 439,000
----------- -----------
16,189,000 18,437,000
----------- -----------
Property, plant and equipment, net 9,321,000 9,663,000
----------- -----------
Deferred tax assest 1,791,000 1,791,000
Other assets 51,000 62,000
----------- -----------
$27,352,000 $29,953,000
=========== ===========
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (concluded)
June 30, December 31,
1995 1994
---- ----
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt due banks $ 478,000 $ 196,000
Current portion of long-term debt 232,000 235,000
Accounts payable 3,636,000 4,275,000
Accrued compensation 2,494,000 3,220,000
Accrued expenses and other liabilities 1,251,000 1,488,000
Litigation reserve 1,247,000
Customer deposits 101,000 270,000
Domestic and foreign income taxes
payable 260,000
Estimated liabilities of discontinued
operations 308,000 401,000
----------- -----------
8,500,000 11,592,000
Long-term debt 5,059,000 5,161,000
Deferred compensation 971,000 993,000
Deferred tax liability 139,000 138,000
Other long-term liabilities 293,000 496,000
Deferred pension liability 2,196,000 1,369,000
Accrued postretirement benefits 3,127,000 3,133,000
----------- -----------
Total liabilities 20,285,000 22,882,000
----------- -----------
Shareholders' equity:
Common stock, $.10 par value-
Authorized, 6,000,000 shares
Issued and outstanding, 1,051,499
shares in 1995 and 1994 105,000 105,000
Capital in excess of par value 3,197,000 3,197,000
Cumulative foreign currency
translation adjustment (1,862,000) (1,876,000)
Retained earnings 6,602,000 6,720,000
----------- -----------
8,042,000 8,146,000
Less:
Employee Stock Ownership Plan
Loan Payable (975,000) (1,075,000)
----------- -----------
Total shareholders' equity 7,067,000 7,071,000
----------- -----------
$27,352,000 $29,953,000
=========== ===========
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
THREE MONTHS SIX MONTHS
ended June 30, ended June 30,
1995 1994 1995 1994
---- ---- ---- ----
Net Sales $12,007,000 $ 8,561,000 $21,312,000 $18,465,000
----------- ----------- ----------- -----------
Cost and expenses:
Cost of products sold 9,341,000 6,527,000 16,146,000 13,684,000
Selling, general and
administrative 2,725,000 2,408,000 5,030,000 4,808,000
Interest expense 160,000 114,000 327,000 230,000
Litigation provision 179,000 252,000
----------- ----------- ----------- -----------
12,226,000 9,228,000 21,503,000 18,974,000
----------- ----------- ----------- -----------
Loss from continuing operations
before income taxes (219,000) (667,000) (191,000) (509,000)
Benefit for income taxes (82,000) (233,000) (73,000) (179,000)
----------- ----------- ----------- -----------
Loss from continuing operations (137,000) (434,000) (118,000) (330,000)
Loss from discontinued operation (422,000) (453,000)
----------- ----------- ----------- -----------
Loss before cumulative effect of
change in accounting principle (137,000) (856,000) (118,000) (783,000)
Cumulative effect of change in
accounting principle (6,000)
----------- ----------- ----------- -----------
Net loss (137,000) (856,000) (118,000) (789,000)
Retained earnings at beginning of
period 6,739,000 15,202,000 6,720,000 15,135,000
----------- ----------- ----------- -----------
Retained earnings at end of period $ 6,602,000 $14,346,000 $ 6,602,000 $14,346,000
=========== =========== =========== ===========
Per Share Data:
Loss from continuing operatins $(.13) $(.41) $(.11) $(.31)
Loss from discontinued operation (.40) (.43)
Cumulative effect of change in
accounting principle (.01)
----- ----- ----- -----
Net loss $(.13) ($.81) $(.11) ($.75)
===== ===== ===== =====
Average number of common and common
equivalent shares outstanding 1,051,000 1,051,000 1,051,000 1,049,000
========= ========= ========= =========
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASHFLOWS
Six Months Ended June 30,
1995 1994
---- ----
Operating activities:
Net loss .................................. $ (118,000) $ (789,000)
---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................... 443,000 685,000
Loss on sale of property, plant and equipment .... 3,000 2,000
Minority interest in net income .................. (46,000)
(Increase) Decrease in operating assets:
Accounts receivable ............................. 3,269,000 3,084,000
Inventory, net of customer deposits.............. (1,640,000) 637,000
Prepaid expenses and other current and
non-current assets ............................. 118,000 (232,000)
Increase (Decrease) in operating liabilities:
Accounts payable, accrued compensation,
accrued expenses and other liabilities ......... (875,000) (707,000)
Litigation reserve .............................. (1,247,000)
Estimated liabilities of discontinued operations. (307,000) (80,000)
Deferred compensation, deferred pension
liability, and accrued postemployment benefits . 48,000 (120,000)
Domestic and foreign income taxes ............... (279,000) (290,000)
Other long-term liabilities ..................... 2,000
---------- ----------
Total adjustments ............................. (467,000) 2,935,000
---------- ----------
Net cash (used) provided by operating activities .. (585,000) 2,146,000
---------- ----------
Investing activities:
Purchase of property, plant and equipment ......... (81,000) (206,000)
Proceeds from sale of property, plant and equipment 1,000 3,000
---------- ----------
Net cash used by investing activities ........... (80,000) (203,000)
---------- ----------
Financing activities:
Increase (decrease) in short-term debt ............ 280,000 (184,000)
Proceeds from issuance of long-term debt .......... 3,587,000 70,000
Principal repayments on long-term debt ............ (3,593,000) (824,000)
---------- ----------
Net cash provided (used) by financing activities .. 274,000 (938,000)
---------- ----------
Effect of exchange rate on cash 5,000
---------- ----------
Net increase (decrease) in cash and equivalents ... (386,000) 1,005,000
Cash and equivalents at beginning of period ....... 454,000 99,000
---------- ----------
Cash and equivalents at end of period ............. $ 68,000 $1,104,000
========== ==========
GRAHAM CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION
JUNE 30, 1995
- ----------------------------------------------------------------------
NOTE 1 - INVENTORIES
- ----------------------------------------------------------------------
Major classifications of inventories are as follows:
6/30/95 12/31/94
------- --------
Raw materials and supplies $ 2,078,000 $ 1,857,000
Work in process 3,559,000 2,507,000
Finished products 1,012,000 953,000
----------- -----------
6,649,000 5,317,000
Less - progress payments 614,000 770,000
----------- -----------
$ 6,035,000 $ 4,547,000
=========== ===========
- ----------------------------------------------------------------------
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. Net loss per
share is based on the weighted average number of shares outstanding
during the period.
- ----------------------------------------------------------------------
NOTE 3 - CASH FLOW STATEMENT
- ----------------------------------------------------------------------
Actual interest paid was $378,000 and $352,000 for the six
months ended June 30, 1995 and 1994, respectively. In addition,
actual income taxes paid were $238,000 and $28,000 for the six
months ended June 30, 1995 and 1994, respectively.
- ----------------------------------------------------------------------
NOTE 4 - CHANGE IN ACCOUNTING PRINCIPLE
- ----------------------------------------------------------------------
Effective January 1, 1994, the company adopted Statement of
Financial Accounting Standards No. 112 (SFAS 112), "Employers'
Accounting for Postemployment Benefits." SFAS 112 requires that
projected future costs of providing postemployment benefits be
recognized as an expense as employees render service rather than
when the benefits are paid. The adjustment to adopt SFAS 112 of
$9,000, net of the related tax benefit of $3,000, or $.01 per
share, is presented in the Consolidated Statement of Operations and
Retained Earnings as the cumulative effect of change in accounting
principle. The amount of the after tax charge of $6,000 relating
to continuing operations was $2,000. The incremental costs of
adopting this statement are insignificant on an ongoing basis.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1995
Results of Operations
- ---------------------
Sales increased 40% in the second quarter 1995 compared to 1994.
Sales for the second quarter increased 50% in the United States and
decreased 14% in the United Kingdom compared to 1994. Sales for
the six months ended June 30, 1995 increased 15% from the same
period last year. Sales in the United States increased 19% and the
United Kingdom sales decreased 11% from the same period last year.
The increase in the United States sales levels is due to a
relatively stable sales volume throughout 1995 as compared to 1994
when second quarter sales were substantially below sales in other
quarters during the year. The decrease in the United Kingdom sales
is attributable to order cancellations from a customer who is
experiencing financial difficulties. The United Kingdom operation
is focusing its efforts on further development of its market share
to overcome this loss of business.
Cost of sales as a percent of sales for the second quarter 1995
was 78% compared to 76% a year ago. Cost of sales as a percent of
sales for the three month period was 79% for the United States
operations compared to 78% last year and 62% for the United Kingdom
operations compared to 65% last year. For the six months, cost of
sales as a percent of sales was 76% compared to 74% a year ago. In
the United States cost of sales as a percent of sales was 77%
compared to 76% a year ago, and in the United Kingdom cost of sales
as a percent of sales remained unchanged at 63% compared to a year
ago. While the percentages have remained relatively stable in the
United Kingdom, percentages for the United States reflect a slight
decline in contribution margins as material costs were substantial
for various large projects in 1995.
Selling, general and administrative expenses increased 13% from
the second quarter of 1994, and represent 23% of sales as compared
to 28% in 1994. For the six months ended June 30, 1995, selling,
general and administrative expenses are up 5% as compared to the
same period in 1994 and were 24% of sales compared to 26% in 1994.
The increase in selling, general and administrative expenses is
primarily attributable to additional expenses incurred by the
United States operation.
Interest expense for the second quarter is up 40% from the same
period in 1994. Interest expense for the six month period in 1995
is up 42% compared to the six month period in 1994. These
increases resulted from higher levels of borrowing on the United
States revolving credit facility and a higher prime rate in 1995.
The effective income tax rate for the second quarter and the
six-month period in 1995 remained relatively consistent at 37% and
38%, respectively, compared to 35% for the second quarter and
six-month period of 1994.
Results of Operations (cont.)
- -----------------------------
As reported in the company's 1994 annual report and Form 10-K,
the company approved a formal plan to dispose of its subsidiary,
Graham Manufacturing Limited (GML), in September 1994 and
subsequently sold the operation in January 1995. Accordingly, the
results of operations for the 1994 quarters have been restated to
reflect GML's operations as discontinued operations.
Financial Condition
- -------------------
There were no significant changes in the financial condition of
the company for the first half of 1995. Working capital of
$7,689,000 at June 30, 1995 compares to $6,845,000 at December 31,
1994. The working capital increase from year end reflects a
decrease in current assets of $2,248,000 and a decrease in current
liabilities of $3,092,000. The decrease in current assets related
primarily to a decrease in accounts receivable offset by an
increase in inventories. Due to the significant fourth quarter
sales volume, accounts receivable were unusually high and inventory
levels were low at December 31, 1994. The decrease in current
liabilities reflects the decline in the litigation reserve as the
lawsuit was settled in 1995 and payment was made during the second
quarter. The remainder of the decrease is attributable to accounts
payable and a reclass of the current portion of the pension
liability to long-term due to a revised contribution schedule.
Capital expenditures for the six month period were $81,000
compared to $206,000 for the same period in 1994. There were no
major commitments for capital expenditures as of June 30, 1995.
Management anticipates spending $450,000 in 1995 for capital
additions to upgrade machinery and equipment.
Short-term debt increased $282,000 from year end due to
additional borrowings for working capital needs of the United
Kingdom operation. Total long-term debt decreased $105,000 from
year end due to scheduled payments on the ESOP loan. The long-term
debt to equity ratio is 75% compared to 76% at year-end 1994 and
the total liabilities to assets ratio is 74% compared to 76% at
year-end 1994.
Management expects that the cash flow from operations and lines
of credit will provide sufficient resources to fund the 1995 cash
requirements.
New Orders and Backlog
- ----------------------
New orders for the second quarter were $13,269,000 compared to
$13,460,000 for the same period last year. New orders in the
United States were $12,321,000 compared to $10,893,000 for the same
period in 1994. New orders in the United Kingdom were $948,000
compared to $2,567,000 for the same quarter last year. For the
first six months new orders were $26,436,000 compared to
$27,139,000 in the first half of 1994. New orders in the United
States were $24,510,000 for the first half of 1995 compared to
$23,033,000 for the same period last year and new orders in the
United Kingdom were $1,926,000 compared to $4,106,000 for the first
six months of 1994.
New Orders and Backlog (cont.)
Backlog of unfilled orders at June 30, 1995 is $24,132,000
compared to $25,212,000 at this time a year ago and $18,997,000 at
year end 1994. Current backlog in the United States of $23,398,000
compares to $18,127,000 at year end 1994 and $22,934,000 at June
30, 1994. Current backlog in the United Kingdom of $734,000
compares to $870,000 at December 31, 1994 and $2,278,000 at June
30, 1994. 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.
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1995
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, 1995.
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
Chief Financial Officer &
Vice President Finance
Date 08/04/95
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 refererence.)
By-laws of registrant (filed as Exhibit C to the Proxy
Statement of Graham Manufacturing Co., Inc. for that
company's annual meeting of shareholders held on May
4, 1983, which Proxy Statement constitutes the
prospectus included as part of the Registrant's
Registration Statement No. 2-82275 on Form S-14 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.)
(11) Statement re-computation of per share earnings
See attached.
(15) Letter re-unaudited interim financial information.
Not applicable.
(18) Letter re-change in accounting principles.
Not applicable.
Index to Exhibits (cont.)
- -------------------------
(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.
See attached.
(99) Additional exhibits.
None