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 September 30, 2016

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

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)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes     No  

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

 

Large accelerated filer

  

 

Accelerated filer

  

Non-accelerated filer

  

(Do not check if a smaller reporting company)

Smaller reporting company

  

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 October 31, 2016, there were outstanding 9,726,101 shares of the registrant’s common stock, par value $.10 per share.

 

 

 

 


Graham Corporation and Subsidiaries

Index to Form 10-Q

As of September 30, 2016 and March 31, 2016 and for the Three and Six-Month Periods Ended September 30, 2016 and 2015

 

 

 

Page

Part I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

4

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

 

 

 

Item 4.

Controls and Procedures

23

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

Item 6.

Exhibits

24

 

 

 

Signatures

25

 

 

 

Index to Exhibits

26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2


GRAHAM CORPORATION AND SUBSIDIARIES

FORM 10-Q

SEPTEMBER 30, 2016

PART I – FINANCIAL INFORMATION

3


Item 1.

Unaudited Condensed Consolidated Financial Statements

GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Amounts in thousands, except per share data)

 

 

(Amounts in thousands, except per share data)

 

Net sales

 

$

21,126

 

 

$

22,798

 

 

$

43,491

 

 

$

50,415

 

Cost of products sold

 

 

16,116

 

 

 

15,663

 

 

 

34,370

 

 

 

35,243

 

Gross profit

 

 

5,010

 

 

 

7,135

 

 

 

9,121

 

 

 

15,172

 

Other expenses and income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

3,118

 

 

 

4,187

 

 

 

6,716

 

 

 

8,767

 

Selling, general and administrative – amortization

 

 

59

 

 

 

59

 

 

 

117

 

 

 

117

 

Restructuring charge

 

 

75

 

 

 

 

 

 

630

 

 

 

 

Interest income

 

 

(85

)

 

 

(53

)

 

 

(172

)

 

 

(105

)

Interest expense

 

 

2

 

 

 

1

 

 

 

4

 

 

 

4

 

Total other expenses and income

 

 

3,169

 

 

 

4,194

 

 

 

7,295

 

 

 

8,783

 

Income before provision for income taxes

 

 

1,841

 

 

 

2,941

 

 

 

1,826

 

 

 

6,389

 

Provision for income taxes

 

 

544

 

 

 

965

 

 

 

444

 

 

 

2,052

 

Net income

 

 

1,297

 

 

 

1,976

 

 

 

1,382

 

 

 

4,337

 

Retained earnings at beginning of period

 

 

108,232

 

 

 

107,726

 

 

 

109,013

 

 

 

106,178

 

Dividends

 

 

(874

)

 

 

(807

)

 

 

(1,740

)

 

 

(1,620

)

Retained earnings at end of period

 

$

108,655

 

 

$

108,895

 

 

$

108,655

 

 

$

108,895

 

Per share data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

0.13

 

 

$

0.20

 

 

$

0.14

 

 

$

0.43

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

0.13

 

 

$

0.20

 

 

$

0.14

 

 

$

0.43

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

9,724

 

 

 

10,078

 

 

 

9,699

 

 

 

10,116

 

Diluted

 

 

9,728

 

 

 

10,083

 

 

 

9,704

 

 

 

10,125

 

Dividends declared per share

 

$

0.09

 

 

$

0.08

 

 

$

0.18

 

 

$

0.16

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

4


GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Amounts in thousands)

 

 

(Amounts in thousands)

 

Net income

 

$

1,297

 

 

$

1,976

 

 

$

1,382

 

 

$

4,337

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(10

)

 

 

(110

)

 

 

(148

)

 

 

(111

)

Defined benefit pension and other postretirement plans net

   of income tax of $123 and $108, for the three months

   ended September 30, 2016 and 2015, respectively,

   and $246 and $215 for the six months ended

   September 30, 2016 and 2015, respectively

 

 

224

 

 

 

196

 

 

 

449

 

 

 

392

 

Total other comprehensive income

 

 

214

 

 

 

86

 

 

 

301

 

 

 

281

 

Total comprehensive income

 

$

1,511

 

 

$

2,062

 

 

$

1,683

 

 

$

4,618

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

5


GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

September 30,

 

 

March 31,

 

 

 

2016

 

 

2016

 

 

 

(Amounts in thousands, except per share data)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

31,274

 

 

$

24,072

 

Investments

 

 

35,000

 

 

 

41,000

 

Trade accounts receivable, net of allowances ($32 and $91 at September 30 and

   March 31, 2016, respectively)

 

 

18,411

 

 

 

12,730

 

Unbilled revenue

 

 

10,099

 

 

 

11,852

 

Inventories

 

 

7,861

 

 

 

10,811

 

Prepaid expenses and other current assets

 

 

1,358

 

 

 

613

 

Income taxes receivable

 

 

1,255

 

 

 

1,652

 

Total current assets

 

 

105,258

 

 

 

102,730

 

Property, plant and equipment, net

 

 

17,813

 

 

 

18,747

 

Goodwill

 

 

6,938

 

 

 

6,938

 

Permits

 

 

10,300

 

 

 

10,300

 

Other intangible assets, net

 

 

4,158

 

 

 

4,248

 

Other assets

 

 

180

 

 

 

168

 

Total assets

 

$

144,647

 

 

$

143,131

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of capital lease obligations

 

$

54

 

 

$

55

 

Accounts payable

 

 

6,247

 

 

 

10,325

 

Accrued compensation

 

 

4,747

 

 

 

5,317

 

Accrued expenses and other current liabilities

 

 

4,450

 

 

 

3,826

 

Customer deposits

 

 

13,684

 

 

 

8,400

 

Total current liabilities

 

 

29,182

 

 

 

27,923

 

Capital lease obligations

 

 

138

 

 

 

157

 

Accrued compensation

 

 

46

 

 

 

 

Deferred income tax liability

 

 

3,850

 

 

 

3,546

 

Accrued pension liability

 

 

977

 

 

 

1,338

 

Accrued postretirement benefits

 

 

802

 

 

 

787

 

Total liabilities

 

 

34,995

 

 

 

33,751

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $1.00 par value, 500 shares authorized

 

 

 

 

 

 

 

 

Common stock, $.10 par value, 25,500 shares authorized

   10,542 and 10,468 shares issued and 9,726 and 9,646 shares

   outstanding at September 30 and March 31, respectively

 

 

1,054

 

 

 

1,047

 

Capital in excess of par value

 

 

22,608

 

 

 

22,315

 

Retained earnings

 

 

108,655

 

 

 

109,013

 

Accumulated other comprehensive loss

 

 

(10,375

)

 

 

(10,676

)

Treasury stock, (816 and 822 shares)

 

 

(12,290

)

 

 

(12,319

)

Total stockholders’ equity

 

 

109,652

 

 

 

109,380

 

Total liabilities and stockholders’ equity

 

$

144,647

 

 

$

143,131

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

6


GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

Operating activities:

 

(Dollar amounts in thousands)

 

Net income

 

$

1,382

 

 

$

4,337

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

1,048

 

 

 

1,126

 

Amortization

 

 

117

 

 

 

117

 

Amortization of unrecognized prior service cost and actuarial losses

 

 

695

 

 

 

607

 

Stock-based compensation expense

 

 

234

 

 

 

379

 

Loss on disposal or sale of property, plant and equipment

 

 

1

 

 

 

 

Deferred income taxes

 

 

21

 

 

 

632

 

(Increase) decrease in operating assets:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(5,754

)

 

 

(4,941

)

Unbilled revenue

 

 

1,752

 

 

 

10,084

 

Inventories

 

 

2,950

 

 

 

3,337

 

Prepaid expenses and other current and non-current assets

 

 

(751

)

 

 

(401

)

Income taxes payable/receivable

 

 

402

 

 

 

(2,013

)

Prepaid pension asset

 

 

 

 

 

(611

)

Increase (decrease) in operating liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

(4,003

)

 

 

(717

)

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

   liabilities

 

 

170

 

 

 

(2,831

)

Customer deposits

 

 

5,287

 

 

 

(1,319

)

Long-term portion of accrued compensation, accrued pension liability

   and accrued postretirement benefits

 

 

(300

)

 

 

(87

)

Net cash provided by operating activities

 

 

3,251

 

 

 

7,699

 

Investing activities:

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(159

)

 

 

(523

)

Proceeds from disposal of property, plant and equipment

 

 

 

 

 

3

 

Purchase of investments

 

 

(24,000

)

 

 

(18,000

)

Redemption of investments at maturity

 

 

30,000

 

 

 

18,000

 

Net cash provided (used) by investing activities

 

 

5,841

 

 

 

(520

)

Financing activities:

 

 

 

 

 

 

 

 

Principal repayments on capital lease obligations

 

 

(20

)

 

 

(27

)

Issuance of common stock

 

 

38

 

 

 

97

 

Dividends paid

 

 

(1,740

)

 

 

(1,620

)

Purchase of treasury stock

 

 

(30

)

 

 

(3,399

)

Excess tax (deficiency) benefit on stock awards

 

 

(20

)

 

 

5

 

Net cash used by financing activities

 

 

(1,772

)

 

 

(4,944

)

Effect of exchange rate changes on cash

 

 

(118

)

 

 

(90

)

Net increase in cash and cash equivalents

 

 

7,202

 

 

 

2,145

 

Cash and cash equivalents at beginning of year

 

 

24,072

 

 

 

27,271

 

Cash and cash equivalents at end of period

 

$

31,274

 

 

$

29,416

 

 

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 (i) wholly-owned foreign subsidiary located in Suzhou, China and (ii) wholly-owned domestic subsidiary located in Lapeer, Michigan.  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 10-01 of Regulation S-X, each as promulgated by the 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, 2016 presented herein was derived from the Company’s audited Consolidated Balance Sheet as of March 31, 2016.  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, 2016 ("fiscal 2016").  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 and six months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the current fiscal year, which ends March 31, 2017 ("fiscal 2017").

 

 

NOTE 2 – REVENUE RECOGNITION:

The Company recognizes revenue on all contracts with a planned manufacturing process in excess of four weeks (which approximates 575 direct labor hours) using the percentage-of-completion method.  The majority of the Company's revenue is recognized under this methodology.  The Company has established the systems and procedures essential to developing the estimates required to account for contracts using the percentage-of-completion method.  The percentage-of-completion method is determined by comparing actual labor incurred to a specific date to management's estimate of the total labor to be incurred on each contract or completion of operational milestones assigned to each contract.  Contracts in progress are reviewed monthly by management, and sales and earnings are adjusted in current accounting periods based on revisions in the contract value and estimated costs at completion.  Losses on contracts are recognized immediately when evident to management.

Revenue on contracts not accounted for using the percentage-of-completion method is recognized utilizing the completed contract method.  The majority of the Company's contracts (as opposed to revenue) have a planned manufacturing process of less than four weeks and the results reported under this method do not vary materially from the percentage-of-completion method.  The Company recognizes revenue and all related costs on these contracts upon substantial completion or shipment to the customer.  Substantial completion is consistently defined as at least 95% complete with regard to direct labor hours.  Customer acceptance is generally required throughout the construction process and the Company has no further material obligations under its contracts after the revenue is recognized.

Receivables billed but not paid under retainage provisions in the Company’s customer contracts were $1,817 and $2,071 at September 30, 2016 and March 31, 2016, respectively.

 

 

NOTE 3 – INVESTMENTS:

Investments consist of certificates of deposits with financial institutions.  All investments have original maturities of greater than three months and less than one year and are classified as held-to-maturity, as the Company believes it has the intent and ability to hold the securities to maturity.  Investments are stated at amortized cost which approximates fair value.  All investments held by the Company at September 30, 2016 are scheduled to mature on or before April 14, 2017.

 


8


 

NOTE 4 – INVENTORIES:

Inventories are stated at the lower of cost or market, using the average cost method.  Unbilled revenue in the Condensed Consolidated Balance Sheets represents revenue recognized that has not been billed to customers on contracts accounted for on the percentage-of-completion method.  For contracts accounted for on the percentage-of-completion method, progress payments are netted against unbilled revenue to the extent the payment is less than the unbilled revenue for the applicable contract.  Progress payments exceeding unbilled revenue are netted against inventory to the extent the payment is less than or equal to the inventory balance relating to the applicable contract, and the excess is presented as customer deposits in the Condensed Consolidated Balance Sheets.

Major classifications of inventories are as follows:

 

 

 

September 30,

 

 

March 31,

 

 

 

2016

 

 

2016

 

Raw materials and supplies

 

$

2,782

 

 

$

3,178

 

Work in process

 

 

11,388

 

 

 

11,615

 

Finished products

 

 

708

 

 

 

659

 

 

 

 

14,878

 

 

 

15,452

 

Less - progress payments

 

 

7,017

 

 

 

4,641

 

Total

 

$

7,861

 

 

$

10,811

 

 

 

NOTE 5 – INTANGIBLE ASSETS:

Intangible assets are comprised of the following:

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

At September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

2,700

 

 

$

1,042

 

 

$

1,658

 

Intangibles not subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

Permits

 

$

10,300

 

 

$

 

 

$

10,300

 

Tradename

 

 

2,500

 

 

 

 

 

 

2,500

 

 

 

$

12,800

 

 

$

 

 

$

12,800

 

At March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

2,700

 

 

$

952

 

 

$

1,748

 

Intangibles not subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

Permits

 

$

10,300

 

 

$

 

 

$

10,300

 

Tradename

 

 

2,500

 

 

 

 

 

 

2,500

 

 

 

$

12,800

 

 

$

 

 

$

12,800

 

 

Intangible assets are amortized on a straight line basis over the estimated useful lives.  Intangible amortization expense for each of the three months ended September 30, 2016 and 2015 was $45.  Intangible amortization expense for each of the six months ended September 30, 2016 and 2015 was $90.  As of September 30, 2016, amortization expense is estimated to be $90 for the remainder of fiscal 2017 and $180 in each of the fiscal years ending March 31, 2018, 2019, 2020 and 2021.

 

 

NOTE 6 – STOCK-BASED COMPENSATION:

The Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value, as approved by the Company’s stockholders at the Annual Meeting on July 28, 2016, provides for the issuance of up to 1,375 shares of common stock in connection with grants of incentive stock options, non-qualified stock options, stock awards and performance awards to officers, key employees and outside directors.  As of September 30, 2016, 309 shares remain available for future awards under the plan, 225 of which may be used for awards other than stock options.  Stock options may be granted at prices not less than the fair market value at the date of grant and expire no later than ten years after the date of grant.

No restricted stock awards were granted in the three-month periods ended September 30, 2016 and 2015.  Restricted stock awards granted in the six-month periods ended September 30, 2016 and 2015 were 82 and 34, respectively.  Restricted shares of 43 and 15 granted to officers in fiscal 2017 and fiscal 2016, respectively, vest 100% on the third anniversary of the grant date subject to the satisfaction of the performance metrics for the applicable three-year period.  Restricted shares of 31 and 12 granted to officers and

9


key employees in fiscal 2017 and fiscal 2016, respectively, vest 33⅓% per year over a three-year term.  Restricted shares of 8 and 7 granted to directors in fiscal 2017 and fiscal 2016, respectively, vest 100% on the first year anniversary of the grant date.  No stock option awards were granted in the three-month or six-month periods ended September 30, 2016 and 2015.

During the three months ended September 30, 2016 and 2015, the Company recognized stock-based compensation costs related to stock option and restricted stock awards of $199 and $151, respectively.  The income tax benefit recognized related to stock-based compensation was $71 and $53 for the three months ended September 30, 2016 and 2015, respectively.  During the six months ended September 30, 2016 and 2015, the Company recognized stock-based compensation costs related to stock option and restricted stock awards of $228 and $357, respectively.  The income tax benefit recognized related to stock-based compensation was $81 and $126 for the six months ended September 30, 2016 and 2015, respectively.

The Company has an Employee Stock Purchase Plan (the "ESPP"), which allows eligible employees to purchase shares of the Company's common stock at a discount of up to 15% of its fair market value on the (1) last, (2) first or (3) lower of the last or first day of the six-month offering period.  A total of 200 shares of common stock may be purchased under the ESPP.  During the three months ended September 30, 2016 and 2015, the Company recognized stock-based compensation (income) costs of $(7) and $8, respectively, related to the ESPP and $(3) and $3, respectively, of related tax (expense) benefits.  During the six months ended September 30, 2016 and 2015, the Company recognized stock-based compensation costs of $6 and $22, respectively, related to the ESPP and $2 and $8, respectively, of related tax benefits.

 

 

NOTE 7 – INCOME PER SHARE:

Basic income per share is computed by dividing net income by the weighted average number of common shares outstanding for the period.  Diluted income per share is calculated by dividing net income by the weighted average number of common shares outstanding and, when applicable, potential common shares outstanding during the period.  A reconciliation of the numerators and denominators of basic and diluted income per share is presented below:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Basic income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,297

 

 

$

1,976

 

 

$

1,382

 

 

$

4,337

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

9,724

 

 

 

10,078

 

 

 

9,699

 

 

 

10,116

 

Basic income per share

 

$

.13

 

 

$

.20

 

 

$

.14

 

 

$

.43

 

Diluted income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,297

 

 

$

1,976

 

 

$

1,382

 

 

$

4,337

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

9,724

 

 

 

10,078

 

 

 

9,699

 

 

 

10,116

 

Stock options outstanding

 

 

4

 

 

 

5

 

 

 

5

 

 

 

9

 

Weighted average common and potential common

   shares outstanding

 

 

9,728

 

 

 

10,083

 

 

 

9,704

 

 

 

10,125

 

Diluted income per share

 

$

.13

 

 

$

.20

 

 

$

.14

 

 

$

.43

 

 

 

Options to purchase a total of 16 and 54 shares of common stock were outstanding at September 30, 2016 and 2015, respectively, but were not included in the above computation of diluted income per share given their exercise prices as they would not be dilutive upon issuance.

 

 

10


NOTE 8 – PRODUCT WARRANTY LIABILITY:

The reconciliation of the changes in the product warranty liability is as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Balance at beginning of period

 

$

694

 

 

$

632

 

 

$

686

 

 

$

653

 

(Income) expense for product warranties

 

 

(54

)

 

 

22

 

 

 

111

 

 

 

113

 

Product warranty claims paid

 

 

(58

)

 

 

(150

)

 

 

(215

)

 

 

(262

)

Balance at end of period

 

$

582

 

 

$

504

 

 

$

582

 

 

$

504

 

 

Income of $54 for product warranties in the three months ended September 30, 2016 resulted from the reversal of provisions made that were no longer required due to lower claims experience.

 

The product warranty liability is included in the line item "Accrued expenses and other current liabilities" in the Condensed Consolidated Balance Sheets.

 

 

NOTE 9 - CASH FLOW STATEMENT:

Interest paid was $4 in each of the six-month periods ended September 30, 2016 and 2015.  Income taxes paid for the six months ended September 30, 2016 and 2015 were $41 and $3,428, respectively.

During the six months ended September 30, 2016 and 2015, respectively, stock option awards were exercised and restricted stock awards vested.  In connection with such stock option exercises and vesting, the related income tax benefit realized was (less) greater than the tax benefit that had been recorded pertaining to the compensation cost recognized by $(20) and $5, respectively, for such periods.  This excess tax (deficiency) benefit has been separately reported under "Financing activities" in the Condensed Consolidated Statements of Cash Flows.  Also, in the six months ended September 30, 2016 and 2015, non-cash activities included the issuance of treasury stock valued at $107 and $124, respectively, to the Company’s Employee Stock Purchase Plan.

At September 30, 2016 and 2015, respectively, there were $44 and $95 of capital purchases that were recorded in accounts payable and are not included in the caption "Purchase of property, plant and equipment" in the Condensed Consolidated Statements of Cash Flows.

 

 

NOTE 10 – EMPLOYEE BENEFIT PLANS:

The components of pension cost (benefit) are as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Service cost

 

$

150

 

 

$

130

 

 

$

300

 

 

$

261

 

Interest cost

 

 

363

 

 

 

359

 

 

 

725

 

 

 

718

 

Expected return on assets

 

 

(719

)

 

 

(795

)

 

 

(1,437

)

 

 

(1,590

)

Amortization of actuarial loss

 

 

338

 

 

 

294

 

 

 

676

 

 

 

587

 

Net pension cost (benefit)

 

$

132

 

 

$

(12

)

 

$

264

 

 

$

(24

)

 

The Company made no contributions to its defined benefit pension plan during the six months ended September 30, 2016 and does not expect to make any contributions to the plan for the balance of fiscal 2017.

The components of the postretirement benefit cost are as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Interest cost

 

$

8

 

 

$

6

 

 

$

14

 

 

$

13

 

Amortization of actuarial loss

 

 

9

 

 

 

10

 

 

 

19

 

 

 

20

 

Net postretirement benefit cost

 

$

17

 

 

$

16

 

 

$

33

 

 

$

33

 

 

11


The Company paid no benefits related to its postretirement benefit plan during the six months ended September 30, 2016.  The Company expects to pay benefits of approximately $88 for the balance of fiscal 2017.

The Company self-funds the medical insurance coverage it provides to its U.S. based employees.  The Company maintains a stop loss insurance policy in order to limit its exposure to claims.  The liability of $144 and $176 on September 30, 2016 and March 31, 2016, respectively, related to the self-insured medical plan is primarily based upon claim history and is included in the caption “Accrued compensation” as a current liability in the Condensed Consolidated Balance Sheets.

 

 

NOTE 11 – COMMITMENTS AND CONTINGENCIES:

The Company has been named as a defendant in lawsuits alleging personal injury from exposure to asbestos allegedly contained in, or accompanying, products made by the Company.  The Company is a co-defendant with numerous other defendants in these lawsuits and intends to vigorously defend itself against these claims.  The claims in the Company’s current lawsuits are similar to those made in previous asbestos-related suits that named the Company as defendant, which either were dismissed when it was shown that the Company had not supplied products to the plaintiffs’ places of work or were settled for immaterial amounts.

As of September 30, 2016, the Company was subject to the claims noted above, as well as other legal proceedings and potential claims that have arisen in the ordinary course of business.

Although the outcome of the lawsuits, legal proceedings or potential claims to which the Company is, or may become, a party to cannot be determined and an estimate of the reasonably possible loss or range of loss cannot be made, management does not believe that the outcomes, either individually or in the aggregate, will have a material effect on the Company’s results of operations, financial position or cash flows.

 

 

NOTE 12 – INCOME TAXES:

The Company files federal and state income tax returns in several domestic and international jurisdictions.  In most tax jurisdictions, returns are subject to examination by the relevant tax authorities for a number of years after the returns have been filed.  The Company is subject to U.S. federal examination for the tax years 2013 through 2015 and examination in state tax jurisdictions for the tax years 2011 through 2015.  The Company is subject to examination in the People’s Republic of China for tax years 2013 through 2015.

There was no liability for unrecognized tax benefits at each of September 30, 2016 and March 31, 2016.

 

 

NOTE 13 – CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS:

The changes in accumulated other comprehensive loss by component for the six months ended September 30, 2016 and 2015 are as follows:

 

 

 

Pension and

Other

Postretirement

Benefit Items

 

 

Foreign

Currency

Items

 

 

Total

 

Balance at April 1, 2016

 

$

(10,932

)

 

$

256

 

 

$

(10,676

)

Other comprehensive income before reclassifications

 

 

 

 

 

(148

)

 

 

(148

)

Amounts reclassified from accumulated other comprehensive

   loss

 

 

449

 

 

 

 

 

 

449

 

Net current-period other comprehensive income

 

 

449

 

 

 

(148

)

 

 

301

 

Balance at September 30, 2016

 

$

(10,483

)

 

$

108

 

 

$

(10,375

)

12


 

 

 

Pension and

Other

Postretirement

Benefit Items

 

 

Foreign

Currency

Items

 

 

Total

 

Balance at April 1, 2015

 

$

(9,462

)

 

$

406

 

 

$

(9,056

)

Other comprehensive income before reclassifications

 

 

 

 

 

(111

)

 

 

(111

)

Amounts reclassified from accumulated other comprehensive

   loss

 

 

392

 

 

 

 

 

 

392

 

Net current-period other comprehensive income

 

 

392

 

 

 

(111

)

 

 

281

 

Balance at September 30, 2015

 

$

(9,070

)

 

$

295

 

 

$

(8,775

)

 

The reclassifications out of accumulated other comprehensive loss by component for the three and six months ended September 30, 2016 and 2015 are as follows:

 

Details about Accumulated Other

Comprehensive  Loss Components

 

Amount Reclassified from

Accumulated Other

Comprehensive Loss

 

 

 

Affected Line Item in the Condensed

Consolidated Statements of Operations and

Retained Earnings

 

 

Three Months Ended

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

2016

 

 

 

2015

 

 

 

 

Pension and other postretirement benefit items:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of actuarial loss

 

$

(347

)

(1)

 

$

(304

)

(1)

 

Income before provision for income taxes

 

 

 

(123

)

 

 

 

(108

)

 

 

Provision for income taxes