10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

As of July 31, 2022, there were outstanding 10,621,947 shares of the registrant’s common stock, par value $0.10 per share.

As of June 30, 2022 and March 31, 2022 and for the three months ended June 30, 2022 and 2021

NOTE 1 – BASIS OF PRESENTATION:

Graham Corporation's (the "Company's") Condensed Consolidated Financial Statements include its wholly-owned subsidiaries located in Suzhou, China and Ahmedabad, India at June 30 and March 31, 2022, and its recently acquired wholly-owned subsidiary, Barber-Nichols, LLC ("BN"), located in Arvada, Colorado at June 30, 2022 and for the period June 1, 2021 through March 31, 2022 (See Note 2). The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP") for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X, each as promulgated by the U.S. Securities and Exchange Commission. The Company's Condensed Consolidated Financial Statements do not include all information and notes required by GAAP for complete financial statements. The unaudited Condensed Consolidated Balance Sheet as of March 31, 2022 presented herein was derived from the Company’s audited Consolidated Balance Sheet as of March 31, 2022. For additional information, please refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022 ("fiscal 2022"). In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair presentation, have been included in the Company's Condensed Consolidated Financial Statements.

The Company's results of operations and cash flows for the three months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the current fiscal year, which ends March 31, 2023 ("fiscal 2023").

NOTE 2 – ACQUISITION:

On June 1, 2021, the Company acquired Barber-Nichols, LLC ("BN"), a designer and manufacturer of turbomachinery products located in Arvada, Colorado that serves the defense and aerospace industry as well as the energy and cryogenic markets. The Company believes this acquisition furthers its growth strategy through market and product diversification, broadens its offerings and strengthens its presence in the defense industry, builds on its presence in the energy markets, and adds capabilities in the space industry.

This transaction was accounted for as a business combination which requires that assets acquired and liabilities assumed be recognized at their fair value as of the acquisition date. The purchase price of $72,014 was comprised of 610 shares of the Company's common stock, representing a value of $8,964 at a price of $14.69 per share, and cash consideration of $61,150, subject to certain potential adjustments, including a customary working capital adjustment. The cash consideration was funded through cash on-hand and debt proceeds. The purchase agreement included a contingent earn-out dependent upon certain financial measures of BN post-acquisition, in which the sellers were eligible to receive up to $14,000 in additional cash consideration. At June 30, 2021, a liability of $1,900 was recorded for the contingent earn-out. Subsequent to the acquisition, the earn out agreement was terminated and the contingent liability was reversed into Other operating income, net, on the Company’s Condensed Statement of Operations. Prior to the acquisition, BN and Ascent Properties Group, LLC, a related party, entered into a nine year operating lease agreement for an office and manufacturing building in Arvada, Colorado. This lease was acquired as part of the Company's acquisition of BN and has a monthly payment in the amount of $40 with a 3% yearly escalation. Also prior to the acquisition, BN and Ascent Properties Group, LLC entered into a seven-year equipment lease agreement to lease various machinery and equipment. This equipment lease was also acquired as part of the Company's acquisition of BN and has a monthly payment of $16. Acquisition related costs of $169 were expensed in the first quarter of fiscal 2022 and are included in Selling, general and administrative expenses in the Condensed Consolidated Statement of Operations.

The cost of the acquisition was allocated to the assets acquired and liabilities assumed based upon its estimated fair value at the date of the acquisition. The following table summarizes the final purchase price allocation, after adjustments were recorded in the measurement period, of the assets acquired and liabilities assumed:


	June 1
	2021
Assets acquired:
Cash and cash equivalents	$	868
Accounts receivable, net of allowances		8,074
Unbilled revenue		7,068
Inventories


Delaware	16-1194720
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
20 Florence Avenue, Batavia, New York	14020
(Address of principal executive offices)	(Zip Code)


		Page
Part I.	FINANCIAL INFORMATION

Item 1.	Unaudited Condensed Consolidated Financial Statements	3

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	28

Part II.	OTHER INFORMATION

Item 1A.	Risk Factors	29

Item 6.	Exhibits	30

Signatures		31


	Three Months Ended
	June 30,
	2022			2021
	(Amounts in thousands, except per share data)
Net sales	$	36,075		$	20,157
Cost of products sold		29,331			19,243
Gross profit		6,744			914
Other expenses and income:
Selling, general and administrative		5,485			4,832
Selling, general and administrative – amortization		274			91
Operating income (loss)		985			(4,009	)
Other income, net		(63	)		(160	)
Interest income		(8	)		(17	)
Interest expense		165			39
Income (loss) before provision (benefit) for income taxes		891			(3,871	)
Provision (benefit) for income taxes		215			(745	)
Net income (loss)	$	676		$	(3,126	)
Per share data
Basic:
Net income (loss)	$	0.06		$	(0.31	)
Diluted:
Net income (loss)	$	0.06		$	(0.31	)
Weighted average common shares outstanding:
Basic		10,610			10,199
Diluted		10,630			10,199
Dividends declared per share	$	—		$	0.11


	Three Months Ended
	June 30,
	2022			2021
	(Amounts in thousands)
Net income (loss)	$	676		$	(3,126	)
Other comprehensive (loss) income:
Foreign currency translation adjustment		(343	)		128
Defined benefit pension and other postretirement plans net of income tax expense of $37 and $49 for the three months ended June 30, 2022 and 2021, respectively		131			170
Total other comprehensive (loss) income		(212	)		298
Total comprehensive income (loss)	$	464		$	(2,828	)


	June 30, 2022			March 31, 2022
	(Amounts in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents	$	12,905		$	14,741
Trade accounts receivable, net of allowances ($98 and $87 at June 30 and March 31, 2022, respectively)		27,420			27,645
Unbilled revenue		28,091			25,570
Inventories		18,260			17,414
Prepaid expenses and other current assets		2,215			1,391
Income taxes receivable		434			459
Total current assets		89,325			87,220
Property, plant and equipment, net		24,225			24,884
Prepaid pension asset		7,221			7,058
Operating lease assets		8,201			8,394
Goodwill		23,523			23,523
Customer relationships, net		11,161			11,308
Technology and technical know-how, net		9,553			9,679
Other intangible assets, net		8,645			8,990
Deferred income tax asset		2,175			2,441
Other assets		184			194
Total assets	$	184,213		$	183,691
Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt	$	2,000		$	2,000
Current portion of finance lease obligations		24			23
Accounts payable		19,473			16,662
Accrued compensation		8,846			7,991
Accrued expenses and other current liabilities		4,388			6,047
Customer deposits		25,064			25,644
Operating lease liabilities		1,021			1,057
Income taxes payable		1			—
Total current liabilities		60,817			59,424
Long-term debt		15,065			16,378
Finance lease obligations		4			11
Operating lease liabilities		7,342			7,460
Deferred income tax liability		11			62
Accrued pension and postretirement benefit liabilities		1,665			1,666
Other long-term liabilities		2,258			2,196
Total liabilities		87,162			87,197
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $1.00 par value, 500 shares authorized		—			—
Common stock, $0.10 par value, 25,500 shares authorized, 10,769 and 10,801 shares issued and 10,602 and 10,636 shares outstanding at June 30 and March 31, 2022, respectively		1,077			1,080
Capital in excess of par value		27,887			27,770
Retained earnings		77,752			77,076
Accumulated other comprehensive loss		(6,683	)		(6,471	)
Treasury stock (167 and 164 shares at June 30 and March 31, 2022, respectively)		(2,982	)		(2,961	)
Total stockholders’ equity		97,051			96,494
Total liabilities and stockholders’ equity	$	184,213		$	183,691


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐


	Common Stock						Capital in				Accumulated Other						Total
				Par			Excess of		Retained		Comprehensive			Treasury			Stockholders'
	Shares			Value			Par Value		Earnings		Loss			Stock			Equity
Balance at April 1, 2022		10,801		$	1,080		$	27,770	$	77,076	$	(6,471	)	$	(2,961	)	$	96,494
Comprehensive income (loss)										676		(212	)					464
Forfeiture of shares		(32	)		(3	)		3										—
Recognition of equity-based compensation expense								114										114
Purchase of treasury stock															(21	)		(21	)
Balance at June 30, 2022		10,769		$	1,077		$	27,887	$	77,752	$	(6,683	)	$	(2,982	)	$	97,051