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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2022

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 001-08462

 

GRAHAM CORPORATION

(Exact name of registrant as specified in its charter)

 

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)

585-343-2216

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, Par Value $0.10 Per Share

 

GHM

 

NYSE

 

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.

 

Large accelerated filer

  ☐

 

Accelerated filer

  ☐

Non-accelerated filer

  ☒

 

Smaller reporting company

Emerging growth company

 

 

 

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).

Yes ☐ No

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

 

 


Graham Corporation and Subsidiaries

Index to Form 10-Q

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

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2


GRAHAM CORPORATION AND SUBSIDIARIES

FORM 10-Q

JUNE 30, 2022

PART I – FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

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

 

 

 

See Notes to Condensed Consolidated Financial Statements.

3


GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

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

)

 

 

See Notes to Condensed Consolidated Financial Statements.

 

4


GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

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

 

 

See Notes to Condensed Consolidated Financial Statements.

5


GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2022

 

 

2021

 

Operating activities:

 

(Dollar amounts in thousands)

 

Net income (loss)

 

$

676

 

 

$

(3,126

)

Adjustments to reconcile net income (loss) to net cash used by operating
   activities:

 

 

 

 

 

 

Depreciation

 

 

856

 

 

 

595

 

Amortization

 

 

619

 

 

 

225

 

Amortization of actuarial losses

 

 

168

 

 

 

219

 

Amortization of debt issuance costs

 

 

34

 

 

 

 

Equity-based compensation expense

 

 

114

 

 

 

353

 

Deferred income taxes

 

 

225

 

 

 

215

 

(Increase) decrease in operating assets:

 

 

 

 

 

 

Accounts receivable

 

 

(34

)

 

 

7,319

 

Unbilled revenue

 

 

(2,580

)

 

 

(1,426

)

Inventories

 

 

(930

)

 

 

1,857

 

Prepaid expenses and other current and non-current assets

 

 

(745

)

 

 

(603

)

Income taxes receivable

 

 

(6

)

 

 

(2,161

)

Operating lease assets

 

 

467

 

 

 

(25

)

Prepaid pension asset

 

 

(163

)

 

 

(302

)

Increase (decrease) in operating liabilities:

 

 

 

 

 

 

Accounts payable

 

 

3,016

 

 

 

(5,745

)

Accrued compensation, accrued expenses and other current and non-current
   liabilities

 

 

(878

)

 

 

(1,448

)

Customer deposits

 

 

(504

)

 

 

(3,074

)

Operating lease liabilities

 

 

(431

)

 

 

35

 

Long-term portion of accrued compensation, accrued pension liability
   and accrued postretirement benefits

 

 

(593

)

 

 

16

 

Net cash used by operating activities

 

 

(689

)

 

 

(7,076

)

Investing activities:

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(284

)

 

 

(446

)

Redemption of investments at maturity

 

 

 

 

 

5,500

 

Acquisition of Barber-Nichols, LLC

 

 

 

 

 

(59,563

)

Net cash used by investing activities

 

 

(284

)

 

 

(54,509

)

Financing activities:

 

 

 

 

 

 

Principal repayments on debt

 

 

(2,500

)

 

 

(4,500

)

Proceeds from the issuance of debt

 

 

2,000

 

 

 

27,000

 

Principal repayments on finance lease obligations

 

 

(6

)

 

 

(5

)

Repayments on lease financing obligations

 

 

(67

)

 

 

(26

)

Payment of debt issuance costs

 

 

(122

)

 

 

(150

)

Dividends paid

 

 

 

 

 

(1,177

)

Purchase of treasury stock

 

 

(22

)

 

 

(41

)

Net cash (used) provided by financing activities

 

 

(717

)

 

 

21,101

 

Effect of exchange rate changes on cash

 

 

(146

)

 

 

95

 

Net decrease in cash and cash equivalents

 

 

(1,836

)

 

 

(40,389

)

Cash and cash equivalents at beginning of period

 

 

14,741

 

 

 

59,532

 

Cash and cash equivalents at end of period

 

$

12,905

 

 

$

19,143

 

 

See Notes to Condensed Consolidated Financial Statements.

 

6


GRAHAM CORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

(Unaudited)

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2021

 

 

10,748

 

 

$

1,075

 

 

$

27,272

 

 

$

89,372

 

 

$

(7,397

)

 

$

(12,393

)

 

$

97,929

 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(3,126

)

 

 

298

 

 

 

 

 

 

(2,828

)

Issuance of shares

 

 

135

 

 

 

13

 

 

 

(13

)

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of shares

 

 

(9

)

 

 

(1

)

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

 

 

 

 

 

 

 

 

 

 

(1,177

)

 

 

 

 

 

 

 

 

(1,177

)

Recognition of equity-based
  compensation expense

 

 

 

 

 

 

 

 

353

 

 

 

 

 

 

 

 

 

 

 

 

353

 

Issuance of treasury stock

 

 

 

 

 

 

 

 

(194

)

 

 

 

 

 

 

 

 

9,158

 

 

 

8,964

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(41

)

 

 

(41

)

Balance at June 30, 2021

 

 

10,874

 

 

$

1,087

 

 

$

27,419

 

 

$

85,069

 

 

$

(7,099

)

 

$

(3,276

)

 

$

103,200

 

 

 

See Notes to Condensed Consolidated Financial Statements.

7


GRAHAM CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except per share data)

 

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:

 

 

8


 

 

June 1

 

 

 

2021

 

Assets acquired:

 

 

 

  Cash and cash equivalents

 

$

868

 

  Accounts receivable, net of allowances

 

 

8,074

 

  Unbilled revenue

 

 

7,068

 

  Inventories