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, 1998
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 14, 1998, there were outstanding 1,585,995 shares
of common stock, $.10 per share.
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1998
PART I - FINANCIAL INFORMATION
Unaudited consolidated financial statements of Graham
Corporation (the Company) and its subsidiaries of June 30, 1998 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, 1998 and its
results of operations for the three month period then ended.
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, March 31,
1998 1998
---- ----
Assets
Current Assets:
Cash and equivalents $ 1,064,000 $ 1,694,000
Marketable securities 4,675,000 4,801,000
Trade accounts receivable 8,614,000 6,791,000
Inventories 8,902,000 10,278,000
Deferred tax asset 894,000 881,000
Prepaid expenses and other
current assets 472,000 468,000
----------- -----------
24,621,000 24,913,000
Property, plant and equipment, net 9,971,000 10,026,000
Deferred tax asset 2,054,000 2,067,000
Other assets 15,000 24,000
----------- -----------
$36,661,000 $37,030,000
=========== ===========
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (concluded)
June 30, March 31,
1998 1998
---- ----
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt due banks $ 2,863,000 $ 40,000
Current portion of long-term debt 507,000 505,000
Accounts payable 2,597,000 4,195,000
Accrued compensation 3,332,000 4,940,000
Accrued expenses and other liabilities 1,316,000 1,039,000
Customer deposits 1,106,000 779,000
Domestic and foreign income taxes
payable 793,000 956,000
----------- -----------
12,514,000 12,454,000
Long-term debt 867,000 859,000
Deferred compensation 1,165,000 1,007,000
Other long-term liability 252,000 264,000
Deferred pension liability 1,548,000 1,464,000
Accrued postretirement benefits 3,225,000 3,207,000
----------- -----------
Total liabilities 19,571,000 19,255,000
----------- -----------
Shareholders' equity:
Preferred Stock, $1 par value -
Authorized, 500,000 shares
Common stock, $.10 par value -
Authorized, 6,000,000 shares
Issued 1,690,595 shares on June 30,
1998 and March 31, 1998 169,000 169,000
Capital in excess of par value 4,521,000 4,521,000
Cumulative foreign currency
translation adjustment (1,780,000) (1,781,000)
Retained earnings 16,326,000 15,362,000
----------- -----------
19,236,000 18,271,000
Less:
Treasury Stock (1,771,000) (71,000)
Employee Stock Ownership Plan Loan
Payable (375,000) (425,000)
----------- -----------
Total shareholders' equity 17,090,000 17,775,000
----------- -----------
$36,661,000 $37,030,000
=========== ===========
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Three Months
ended June 30,
1998 1997
---- ----
Net Sales
$15,156,000 $11,855,000
----------- -----------
Cost and expenses:
Cost of products sold 10,664,000 8,172,000
Selling, general and administrative 2,972,000 2,936,000
Interest expense 66,000 79,000
----------- -----------
13,702,000 11,187,000
----------- -----------
Income before income taxes 1,454,000 668,000
Provision for income taxes 490,000 235,000
----------- -----------
Net income 964,000 433,000
Retained earnings at beginning of
period 15,362,000 11,596,000
----------- -----------
Retained earnings at end of period $16,326,000 $12,029,000
=========== ===========
Per Share Data:
Basic:
Net income $.58 $.27
==== ====
Diluted:
Net income $.57 $.26
==== ====
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended June 30,
1998 1997
---- ----
Operating activities:
Net income $ 964,000 $ 433,000
----------- -----------
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 267,000 258,000
(Gain) Loss on sale of property, plant and
equipment 10,000 (22,000)
(Increase) Decrease in operating assets:
Accounts receivable (1,822,000) 729,000
Inventory, net of customer deposits 1,702,000 955,000
Prepaid expenses and other current and
non-current assets (4,000) 20,000
Increase (Decrease) in operating liabilities:
Accounts payable, accrued compensation,
accrued expenses and other liabilities (2,928,000) (1,810,000)
Estimated liabilities of discontinued
operations (66,000)
Deferred compensation, deferred pension
liability, and accrued postemployment
benefits 261,000 140,000
Domestic and foreign income taxes (163,000) 190,000
Deferred income taxes (31,000)
Other long-term liabilities (12,000) (42,000)
----------- -----------
Total adjustments (2,689,000) 321,000
----------- -----------
Net cash provided (used) by operating
activities (1,725,000) 754,000
----------- -----------
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (concluded)
Three Months Ended June 30,
1998 1997
---- ----
Investing activities:
Purchase of property, plant and equipment (203,000) (179,000)
Purchase of marketable securities (1,251,000) (365,000)
Proceeds from maturity of marketable
securities 1,366,000 365,000
----------- -----------
Net cash used by investing activities (88,000) (179,000)
----------- -----------
Financing activities:
Increase in short-term debt 2,823,000
Proceeds from issuance of long-term debt 5,110,000 5,090,000
Principal repayments on long-term debt (5,050,000) (6,635,000)
Issuance of common stock 130,000
Purchase of treasury stock (1,700,000)
----------- -----------
Net cash provided (used) by financing
activities 1,183,000 (1,415,000)
----------- -----------
Effect of exchange rate on cash
----------- -----------
Net decrease in cash and equivalents (630,000) (840,000)
Cash and equivalents at beginning of period 1,694,000 854,000
----------- -----------
Cash and equivalents at end of period $ 1,064,000 $ 14,000
=========== ===========
GRAHAM CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION
JUNE 30, 1998
- -------------------------------------------------------------------
NOTE 1 - INVENTORIES
- -------------------------------------------------------------------
Major classifications of inventories are as follows:
6/30/98 3/31/98
------- -------
Raw materials and supplies $ 2,543,000 $ 2,707,000
Work in process 8,088,000 12,081,000
Finished products 1,171,000 1,131,000
----------- -----------
11,802,000 15,919,000
Less - progress payments 2,900,000 5,641,000
----------- -----------
$ 8,902,000 $10,278,000
=========== ===========
- -------------------------------------------------------------------
NOTE 2 - EARNINGS PER SHARE:
- -------------------------------------------------------------------
Basic earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding for the
period. Diluted earnings per share is calculated by dividing net
income by the weighted average number of common and, when
applicable, potential common shares outstanding during the period.
A reconciliation of the numerators and denominators of basic and
diluted earnings per share is presented below:
Three months
ended June 30,
1998 1997
---- ----
Basic earnings per share
Numerator:
Net income $ 964,000 $ 433,000
---------- ----------
Denominator:
Weighted common shares
outstanding 1,650,000 1,596,000
Share equivalent units (SEU)
outstanding 3,000 3,000
---------- ----------
Weighted average shares and
SEU's outstanding 1,653,000 1,599,000
---------- ----------
Basic earnings per share $.58 $.27
==== ====
Three months
ended June 30,
1998 1997
---- ----
Diluted earnings per share
Numerator:
Net income $ 964,000 $ 433,000
---------- ----------
Denominator:
Weighted average shares and
SEU's outstanding 1,653,000 1,599,000
Stock options outstanding 27,000 55,000
Contingently issuable SEU's 6,000 1,000
---------- ----------
Weighted average common and
potential common shares
outstanding 1,686,000 1,655,000
---------- ----------
Diluted earnings per share $.57 $.26
==== ====
Options to purchase 55,200 shares of common stock at $21.44 per
share and 11,250 shares at $21.25 were not included in the
computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the
common shares.
- -------------------------------------------------------------------
NOTE 3 - CASH FLOW STATEMENT
- -------------------------------------------------------------------
Actual interest paid was $66,000 and $79,000 for the three
months ended June 30, 1998 and 1997, respectively. In addition,
actual income taxes paid were $653,000 and $76,000 for the three
months ended June 30, 1998 and 1997, respectively.
- -------------------------------------------------------------------
NOTE 4 - COMPREHENSIVE INCOME
- -------------------------------------------------------------------
Effective April 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." This statement requires 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. The Company has
determined that at March 31, 1999 it will display comprehensive
income in a separate statement of comprehensive income. The
Company's comprehensive earnings were as follows:
- -------------------------------------------------------------------
NOTE 4 - COMPREHENSIVE INCOME (concluded)
- -------------------------------------------------------------------
Three months
ended June 30,
1998 1997
---- ----
Net income $ 964,000 $ 433,000
Other comprehensive income, net of tax
Foreign currency translation
adjustment 1,000 19,000
--------- ---------
Comprehensive income $ 965,000 $ 452,000
========= =========
The foreign currency translation adjustment is not currently
adjusted for income taxes since it relates to an investment which
is permanent in nature.
GRAHAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1998
Results of Operations
- ---------------------
Sales increased 28% in the first quarter of fiscal year 1999
compared to the same period last year. Sales for the first quarter
increased 33% in the United States and decreased 10% in the United
Kingdom compared to fiscal year 1998. The increase in the United
States sales is attributable to a substantial increase in surface
condenser sales. The decline in the United Kingdom sales is due to
the strength of the pound sterling as compared to other foreign
currencies.
Cost of sales as a percent of sales for the first quarter of
fiscal year 1999 was 70% compared to 69% a year ago. Cost of sales
as a percent of sales for the three month period was 71% for the
United States operations compared to 69% last year and 60% for the
United Kingdom operations compared to 69% last year. While cost of
sales as a percent of sales remained relatively consistent in the
United States, the significant improvement in the United Kingdom is
reflective of lower direct material costs and a reduction in
overhead expenses due to the downsizing of the work force which
occurred in the second quarter last year.
Selling, general and administrative expenses for the three
months ended June 30, 1998 were comparable to selling, general and
administrative expenses for the same period of fiscal year 1998 and
represented 20% of sales as compared to 25% in the first quarter
last year. The favorable variance in this percentage is due to
selling, general and administrative expenses remaining flat while
sales increased 28%.
Interest expense for the first quarter is down 16% from the
same period in fiscal year 1998. The decrease resulted primarily
from lower interest rates in the United States and reduced levels
of short and long term debt during the quarter in both the United
States and United Kingdom.
The effective income tax rate for the first quarter was 34%
compared to 35% for the comparable three months of last year.
Financial Condition
- -------------------
There were no significant changes in the financial condition of
the Company for the first quarter of fiscal year 1999. Working
capital of $12,107,000 at June 30, 1998 compares to $12,459,000 at
March 31, 1998. The working capital decrease reflects a decrease
in current assets of $292,000 and a slight increase in current
liabilities of $60,000. The decrease in current assets related
primarily to a significant decrease in inventories offset by an
increase in accounts receivable due to the shipment of several
large projects in the first quarter which were in process at year
end. Revenue on these contracts was recognized using the
percentage-of-completion method.
Capital expenditures for the three month period were $203,000
compared to $179,000 for the same period last year. There were no
major commitments for capital expenditures as of June 30, 1998.
Management anticipates spending approximately $2,000,000 in fiscal
year 1999 for capital additions to upgrade computer equipment and
machinery.
Total long-term debt at June 30, 1998 of $1,374,000 remained
consistent compared to borrowings at year end of $1,364,000. The
long-term debt to equity ratio remained unchanged from March 31,
1998 at 8%. The total liabilities to assets ratio is 53% compared
to 52% at March 31, 1998. These ratios are reflective of the
stability and strength of the Company's current financial
condition.
Management expects that the cash flow from operations and lines
of credit will provide sufficient resources to fund the fiscal year
1999 cash requirements.
New Orders and Backlog
- ----------------------
New orders for the first quarter were $11,162,000 compared to
$20,788,000 for the same period last year. New orders in the
United States were $9,879,000 compared to $19,646,000 for the same
period in fiscal year 1998. New orders in the United Kingdom were
$1,283,000 compared to $1,142,00 for the same quarter last year.
The significant decline in new orders, specifically in the United
States, is directly related to the softening of the condenser
market and the stiff competition that the Company has recently
encountered. New orders in the United Kingdom improved slightly
due to an increase in export orders for spare parts.
Although the Company has been impacted by the Asian crisis and
is entering a period of shrinking markets and aggressive
competition, efforts are being focused on maintaining order levels
in the ejector business and seeking out opportunities for new
business in Latin America.
Backlog of unfilled orders at June 30,1998 is $24,215,000
compared to $31,076,000 at this time a year ago and $28,199,000 at
March 31, 1998. Current backlog in the United States of
$23,240,000 compares to $27,292,000 at March 31, 1998 and
$29,928,000 at June 30, 1997. Current backlog in the United
Kingdom of $975,000 compares to $907,000 at March 31, 1998 and
$1,148,000 at June 30, 1997. 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.
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1998
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, 1998.
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 (Principal
Accounting Officer)
Date 08/14/98
INDEX OF EXHIBITS
(2) Plan of acquisition, reorganization, arrangement, liquidation
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
3.2(ii) to the Registrant's annual report on Form 10-K
for the fiscal year ended March 31, 1998, and is
incorporated herein by referenced.)
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.)
Graham Corporation Outside Directors' Long-Term Incentive Plan
(filed as Exhibit 10.3 to the Registrant's annual report on
Form 10-K for the fiscal year ended March 31, 1998, and is
incorporated herein by reference.)
Index to Exhibits (cont.)
- -------------------------
Employment Contracts between Graham Corporation and Named
Executive Officers (filed as Exhibit 10.4 to the Registrant's
annual report on Form 10-K for the fiscal year ended March 31,
1998, and is incorporated herein by reference.)
Senior Executive Severance Agreements with Named Executive
Officers (filed as Exhibit 10.5 to the Registrant's annual
report on Form 10-K for the fiscal year ended March 31, 1998,
and is incorporated herein by reference.)
(11) Statement re-computation of per share earnings
Computation of per share earnings is included in Note 2 of the
Notes to Financial Information.
(15) Letter re-unaudited interim financial information
Not applicable.
(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.