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, 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 November 9, 1995, there were outstanding 1,053,999
shares of common stock, $.10 par value.
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
SEPTEMBER 30, 1995
PART I - FINANCIAL INFORMATION
Unaudited consolidated financial statements of Graham
Corporation (the company) and its subsidiaries as of September 30,
1995 and for the three month and nine 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 September 30, 1995 and its
results of operations for the three month and nine month periods
then ended.
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1995 1994
---- ----
Assets
Current assets:
Cash and equivalents $ 111,000 $ 454,000
Trade accounts receivable 8,089,000 11,883,000
Inventories 6,477,000 4,547,000
Deferred tax asset 1,114,000 1,114,000
Prepaid expenses and other current assets 292,000 439,000
----------- -----------
16,083,000 18,437,000
----------- -----------
Property, plant and equipment, net 9,131,000 9,663,000
----------- -----------
Deferred income taxes 1,791,000 1,791,000
Other assets 45,000 62,000
----------- -----------
$27,050,000 $29,953,000
=========== ===========
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (concluded)
September 30, December 31,
1995 1994
---- ----
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt due banks $ 522,000 $ 196,000
Current portion of long-term debt 230,000 235,000
Accounts payable 2,848,000 4,275,000
Accrued compensation 3,567,000 3,220,000
Accrued expenses and other liabilities 1,251,000 1,488,000
Litigation reserve 1,247,000
Customer deposits 650,000 270,000
Domestic and foreign income taxes payable 114,000 260,000
Estimated liabilities of discontinued
operations 275,000 401,000
----------- -----------
9,457,000 11,592,000
Long-term debt 4,314,000 5,161,000
Deferred compensation 966,000 993,000
Deferred income taxes 138,000 138,000
Other long-term liabilities 485,000 496,000
Deferred pension liability 1,166,000 1,369,000
Accrued postretirement benefits 3,150,000 3,133,000
----------- -----------
Total liabilities 19,676,000 22,882,000
----------- -----------
Shareholders' equity:
Common stock, $.10 par value-
Authorized, 6,000,000 shares
Issued and outstanding, 1,053,249 shares
in 1995 and 1,051,499 shares in 1994 105,000 105,000
Capital in excess of par value 3,213,000 3,197,000
Accumulated translation adjustment (1,869,000) (1,876,000)
Retained earnings 6,856,000 6,720,000
----------- -----------
8,305,000 8,146,000
Less:
Treasury stock (6,000)
Employee Stock Ownership Plan
Loan Payable (925,000) (1,075,000)
----------- -----------
Total shareholders' equity 7,374,000 7,071,000
----------- -----------
$27,050,000 $29,953,000
=========== ===========
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
THREE MONTHS NINE MONTHS
ended September 30, ended September 30,
1995 1994 1995 1994
---- ---- ---- ----
Net Sales $10,651,000 $11,288,000 $31,962,000 $29,753,000
----------- ----------- ----------- -----------
Cost and expenses:
Cost of products sold 7,583,000 8,379,000 23,729,000 22,064,000
Selling, general and administrative 2,525,000 2,482,000 7,555,000 7,290,000
Interest expense 150,000 125,000 477,000 354,000
Litigation provision 145,000 397,000
----------- ----------- ----------- -----------
10,258,000 11,131,000 31,761,000 30,105,000
----------- ----------- ----------- -----------
Income(loss) from continuing
operations before income taxes 393,000 157,000 201,000 (352,000)
Provision(benefit) for income taxes 139,000 (34,000) 65,000 (212,000)
----------- ----------- ----------- -----------
Income(loss) from continuing
operations 254,000 191,000 136,000 (140,000)
Loss from discontinued operations (1,759,000) (2,211,000)
Loss from disposal of Graham
Manufacturing Ltd. (2,581,000) (2,581,000)
----------- ----------- ----------- -----------
Income(loss) before cumulative
effect of change in accounting
principle 254,000 (4,149,000) 136,000 (4,932,000)
Cumulative effect of change in
accounting principle (6,000)
----------- ----------- ----------- -----------
Net income(loss) 254,000 (4,149,000) 136,000 (4,938,000)
Retained earnings at beginning
of period 6,602,000 14,346,000 6,720,000 15,135,000
----------- ----------- ----------- -----------
Retained earnings at end of period $ 6,856,000 $10,197,000 $ 6,856,000 $10,197,000
=========== =========== =========== ===========
Per Share Data:
Income(loss) from continuing
operations $.24 $.18 $.13 ($.13)
Loss from discontinued
operations (1.67) (2.10)
Loss from disposal of Graham
Manufacturing Ltd. (2.46) (2.46)
Cumulative effect of change in
accounting principle (.01)
---- ------ ---- ------
Net income $.24 ($3.95) $.13 ($4.70)
==== ====== ==== ======
Average number of common and common
equivalent shares outstanding 1,053,000 1,051,000 1,052,000 1,050,000
========= ========= ========= =========
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
Nine Months Ended
September 30,
1995 1994
Operating activities:
Net income (loss)................................... $ 136,000 $(4,938,000)
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization...................... 722,000 1,026,000
Loss(Gain) on sale of property, plant and equipment (5,000) 2,000
Minority interest in net income.................... (38,000)
(Increase) Decrease in operating assets:
Accounts receivable.............................. 3,801,000 458,000
Inventory, net of customer deposits.............. (1,543,000) (1,967,000)
Prepaid expenses and other current and
non-current assets............................. 151,000 (11,000)
Increase (Decrease) in operating liabilities:
Accounts payable, accrued compensation,
accrued expenses and other liabilities......... (1,533,000) 2,959,000
Litigation reserve............................... (1,247,000)
Estimated liabilities of discontinued operations. (133,000) 2,536,000
Deferred compensation, deferred pension liability
and accured postretirement benefits............ (13,000) (656,000)
Domestic and foreign income taxes................ (146,000)
Other long-term liabilities...................... 1,000
Deferred income taxes............................ (148,000)
----------- -----------
Total adjustments.............................. 54,000 4,162,000
----------- -----------
Net cash provided(used) by operating activities..... 190,000 (776,000)
----------- -----------
Investing activities:
Purchase of property, plant and equipment........... (171,000) (317,000)
Proceeds from sale of property, plant and equipment. 9,000 3,000
----------- -----------
Net cash used by investing activities............... (162,000) (314,000)
----------- -----------
Financing activities:
Increase in short-term debt......................... 327,000 780,000
Proceeds from issuance of long-term debt............ 8,252,000 1,046,000
Principal repayments on long-term debt.............. (8,955,000) (835,000)
Issuance of common stock............................ 6,000
Purchase of treasury stock.......................... (6,000)
----------- -----------
Net cash (used)provided by financing activities..... (376,000) 991,000
----------- -----------
Effect of exchange rate on cash..................... 5,000
----------- -----------
Net decrease in cash and equivalents................ (343,000) (99,000)
Cash and equivalents at beginning of period......... 454,000 99,000
----------- -----------
Cash and equivalents at end of period............... $ 111,000 $
=========== ===========
GRAHAM CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION
SEPTEMBER 30, 1995
- ------------------------------------------------------------------------------
NOTE 1 - INVENTORIES:
- ------------------------------------------------------------------------------
Major classifications of inventories are as follows:
9/30/95 12/31/94
------- --------
Raw materials and supplies $ 2,721,000 $ 1,857,000
Work in process 4,507,000 2,507,000
Finished products 1,028,000 953,000
----------- -----------
8,256,000 5,317,000
Less - progress payments 1,779,000 770,000
----------- -----------
$ 6,477,000 $ 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 $521,000 and $551,000 for the nine
months ended September 30, 1995 and 1994, respectively. In
addition, actual income taxes paid were $244,000 and $33,000 for
the nine months ended September 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.
- -----------------------------------------------------------------------------
NOTE 5 - 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 to
account for such transactions under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," 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 not yet determined if it will elect the change
to the fair value method, nor has it determined the effect the new
standard will have on net income and earnings per share should it elect
to make such a change. Adoption of the new standard will have no effect
on the company's cash flows.
GRAHAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1995
Results of Operations
- ---------------------
Sales decreased 6% in the third quarter 1995 compared to 1994.
Sales for the quarter decreased 3% in the United States and 26% in
the United Kingdom compared to the third quarter 1994. The
decrease in the United States is due primarily to shipment
schedules, however, management anticipates strong fourth quarter
sales levels.
Sales for the nine months ended September 30, 1995 exceeded
sales for the same period last year by 7%. Sales in the United
States increased 11% and the United Kingdom sales decreased 16%
from the same period last year. The increased sales in the United
States is reflective of the strong order levels experienced. The
decline in United Kingdom sales for the quarter and the nine month
period is attributable to European plant shutdowns during the
summer months and lack of project work. An improvement in sales is
expected in the fourth quarter.
Cost of sales as a percent of sales for the third quarter 1995
was 71% compared to 74% a year ago. Cost of sales as a percent of
sales for the three month period was 72% in the United States
compared to 76% last year and 67% in the United Kingdom compared to
58% last year. The improved third quarter cost to price
relationship experienced in the United States is attributed to
selling price increases. The decline in the United Kingdom is due
to product mix.
For the nine month period cost of sales as a percent of sales
remained unchanged at 74% compared to a year ago. In the United
States the cost of sales percentage was 75% compared to 76% last
year, and in the United Kingdom cost of sales was 64% compared to
61% a year ago. The improved percentages in the United States
reflects lower production overhead costs while the decline in the
United Kingdom is attributable to product sales mix.
Selling, general and administrative expenses increased 2% from
the third quarter of 1994, and represent 24% of sales which is
relatively consistent with the third quarter 1994. For the nine
months ended September 30, 1995, selling, general and
administrative expenses increased 4% as compared to the same period
in 1994 and were 24% of sales compared to 25% in 1994. In the
third quarter, the United States operation settled a vendor dispute
which attributed to the increase in administrative costs.
Interest expense for the third quarter and nine month period
increased 20% and 35%, respectively, as compared to the same
periods in 1994. These increases reflect higher levels of
borrowing to finance work-in-process in the United States and a
higher prime rate in 1995.
The effective income tax rates for the third quarter and nine
month period in 1995 were 35% and 32%, respectively, and are not
comparable to the 1994 effective tax rates due to the discontinued
operations presentation.
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 the September 1994 and
subsequently sold the operation in January 1995. Accordingly, the
results of operations reflect GML's operations and related disposal
costs as discontinued operations.
Financial Condition
- -------------------
Working capital of $6,626,000 at September 30, 1995 compares to
$6,845,000 at December 31, 1994. The working capital decrease from
year end reflects a decrease in current assets of $2,354,000 and a
decrease in current liabilities of $2,135,000. 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 and payment was made
early in 1995. The remainder of the decrease is attributable to
accounts payable. The current asset ratio at September 30, 1995 is
1.70 compared to 1.59 at year end 1994.
At September 30, 1995, short term debt was $522,000. This
represents a $326,000 increase over year end levels and is due to
working capital needs. Total long term debt decreased $852,000 due
to paydowns on the United States revolving line of credit, however,
it is anticipated that additional borrowings will be necessary in
the fourth quarter to fund the working capital required to meet
fourth quarter sales projections.
The long-term debt to equity ratio is 62% compared to 76% at
year-end 1994 and the total liabilities to assets ratio is 73%
compared to 76% at year-end 1994.
Capital expenditures for the nine month period were $171,000
compared to $317,000 for the same period in 1994. Major
commitments for capital expenditures as of September 30, 1995 were
approximately $100,000.
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 third quarter were $14,222,000 compared to
$10,829,000 for the same period last year. New orders in the
United States were $13,409,000 compared to $9,753,000 for the same
period in 1994. New orders in the United Kingdom were $813,000
compared to $1,076,000 for the same quarter last year.
For the nine month period new orders were $40,658,000 compared
to $37,968,000 for the nine month period of 1994. New orders in
the United States were $37,919,000 compared to $32,786,000 last
year and new orders in the United Kingdom were $2,739,000 compared
to $5,182,000 in 1994.
Backlog of unfilled orders at September 30, 1995 is $27,699,000
compared to $24,310,000 at this time a year ago and $18,997,000 at
year end 1994. Current backlog in the United States of $27,107,000
compares to $18,127,000 at December 31, 1994. Current backlog in
the United Kingdom of $592,000 compares to $870,000 at December 31,
1994. The increase in new orders and backlog reflects economic
strengthening in certain markets as well as our concentrated sales
efforts. The current backlog is scheduled to be shipped during the
next twelve months.
GRAHAM CORPORATION
FORM 10-Q
SEPTEMBER 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 September 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 11/9/95
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 reference.)
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.
Computation of per share earnings is included herein as
Exhibit 11 of this report.
(15) Letter re-unaudited interim financial information.
Not applicable.
(18) Letter re-change in accounting principles.
Not applicable.
Index of 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.
Financial Data Schedule is included herein as Exhibit 27 of
this report.
(99) Additional exhibits.
None.