ghm-10q_20190930.htm

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 definition 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 October 30, 2019, there were outstanding 9,883,017 shares of the registrant’s common stock, par value $.10 per share.

As of September 30, 2019 and March 31, 2019 and for the Three and Six-Month Periods Ended September 30, 2019 and 2018

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
	(Amounts in thousands, except per share data)						(Amounts in thousands, except per share data)
Net sales	$	21,643		$	21,441		$	42,236		$	50,992
Cost of products sold		16,695			15,214			32,574			37,623
Gross profit		4,948			6,227			9,662			13,369
Other expenses and income:
Selling, general and administrative		3,847			4,718			8,403			9,269
Selling, general and administrative – amortization		—			60			11			119
Other expense		—			—			523			—
Other income		(87	)		(206	)		(174	)		(412	)
Interest income		(363	)		(351	)		(762	)		(640	)
Interest expense		4			1			7			3
Total other expenses and income		3,401			4,222			8,008			8,339
Income before provision for income taxes		1,547			2,005			1,654			5,030
Provision for income taxes		342			178			367			880
Net income	$	1,205		$	1,827		$	1,287		$	4,150
Per share data
Basic:
Net income	$	0.12		$	0.19		$	0.13		$	0.42
Diluted:
Net income	$	0.12		$	0.19		$	0.13		$	0.42
Weighted average common shares outstanding:
Basic		9,883			9,832			9,869			9,810
Diluted		9,885			9,848			9,872			9,826
Dividends declared per share	$	0.11		$	0.10		$	0.21		$	0.19

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
	(Amounts in thousands)						(Amounts in thousands)
Net income	$	1,205		$	1,827		$	1,287		$	4,150
Other comprehensive income:
Foreign currency translation adjustment		(136	)		(134	)		(223	)		(333	)
Defined benefit pension and other postretirement plans net of income tax expense of $54 and $48, for the three months ended September 30, 2019 and 2018, respectively, and $109 and $97 for the six months ended September 30, 2019 and 2018, respectively		195			170			389			340
Total other comprehensive income		59			36			166			7
Total comprehensive income	$	1,264		$	1,863		$	1,453		$	4,157

	September 30,			March 31,
	2019			2019
	(Amounts in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents	$	11,882		$	15,021
Investments		61,914			62,732
Trade accounts receivable, net of allowances ($26 and $33 at September 30 and March 31, 2019, respectively)		12,120			17,582
Unbilled revenue		13,036			7,522
Inventories		23,597			24,670
Prepaid expenses and other current assets		1,165			1,333
Income taxes receivable		840			1,073
Assets held for sale		—			4,850
Total current assets		124,554			134,783
Property, plant and equipment, net		16,761			17,071
Prepaid pension asset		4,702			4,267
Operating lease assets		312			—
Other assets		135			149
Total assets	$	146,464		$	156,270
Liabilities and stockholders’ equity
Current liabilities:
Current portion of capital lease obligations	$	50		$	51
Accounts payable		7,617			12,405
Accrued compensation		5,273			5,126
Accrued expenses and other current liabilities		2,443			2,933
Customer deposits		29,609			30,847
Operating lease liabilities		148			—
Liabilities held for sale		—			3,525
Total current liabilities		45,140			54,887
Capital lease obligations		71			95
Operating lease liabilities		157			—
Deferred income tax liability		1,283			1,056
Accrued pension liability		704			662
Accrued postretirement benefits		614			604
Total liabilities		47,969			57,304
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $1.00 par value, 500 shares authorized		—			—
Common stock, $.10 par value, 25,500 shares authorized, 10,699 and 10,650 shares issued and 9,883 and 9,843 shares outstanding at September 30 and March 31, 2019, respectively		1,070			1,065
Capital in excess of par value		25,714			25,277
Retained earnings		92,979			93,847
Accumulated other comprehensive loss		(8,667	)		(8,833	)
Treasury stock (816 and 807 shares at September 30 and March 31, 2019, respectively)		(12,601	)		(12,390	)
Total stockholders’ equity		98,495			98,966
Total liabilities and stockholders’ equity	$	146,464		$	156,270

	Six Months Ended
	September 30,
	2019			2018
Operating activities:	(Dollar amounts in thousands)
Net income	$	1,287		$	4,150
Adjustments to reconcile net income to net cash (used) provided by operating activities:
Depreciation		980			980
Amortization		11			119
Amortization of unrecognized prior service cost and actuarial losses		498			437
Equity-based compensation expense		412			534
Loss on disposal or sale of property, plant and equipment		—			30
Loss on sale of Energy Steel & Supply Co.		87			—
Deferred income taxes		119			207
(Increase) decrease in operating assets:
Accounts receivable		5,287			2,656
Unbilled revenue		(5,514	)		(5,276	)
Inventories		990			3,652
Prepaid expenses and other current and non-current assets		109			(679	)
Income taxes receivable		233			(303	)
Operating lease assets		138			—
Prepaid pension asset		(435	)		(576	)
Increase (decrease) in operating liabilities:
Accounts payable		(4,721	)		(6,097	)
Accrued compensation, accrued expenses and other current and non-current liabilities		(268	)		1,086
Customer deposits		(1,116	)		4,096
Operating lease liabilities		(64	)		—
Long-term portion of accrued compensation, accrued pension liability and accrued postretirement benefits		52			59
Net cash (used) provided by operating activities		(1,915	)		5,075
Investing activities:
Purchase of property, plant and equipment		(679	)		(367	)
Proceeds from the sale of Energy Steel & Supply Co.		602			—
Purchase of investments		(82,414	)		(64,611	)
Redemption of investments at maturity		83,232			45,023
Net cash provided (used) by investing activities		741			(19,955	)
Financing activities:
Principal repayments on capital lease obligations		(25	)		(52	)
Issuance of common stock		—			171
Dividends paid		(2,075	)		(1,868	)
Purchase of treasury stock		(230	)		(146	)
Net cash used by financing activities		(2,330	)		(1,895	)
Effect of exchange rate changes on cash		(187	)		(303	)
Net decrease in cash and cash equivalents, including cash classified within current assets held for sale		(3,691	)		(17,078	)
Plus: Net decrease in cash classified within current assets held for sale		552			—
Net decrease in cash and cash equivalents		(3,139	)		(17,078	)
Cash and cash equivalents at beginning of period		15,021			40,456
Cash and cash equivalents at end of period	$	11,882		$	23,378

	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, 2019		10,650		$	1,065		$	25,277		$	93,847		$	(8,833	)	$	(12,390	)	$	98,966
Cumulative effect of change in accounting principle											(80	)								(80	)
Comprehensive income											82			107						189
Issuance of shares		83			8			(8	)											—
Forfeiture of shares		(34	)		(3	)		3												—
Dividends											(988	)								(988	)
Recognition of equity-based compensation expense								88												88
Purchase of treasury stock																	(230	)		(230	)
Balance at June 30, 2019		10,699			1,070			25,360			92,861			(8,726	)		(12,620	)		97,945
Comprehensive income											1,205			59						1,264
Dividends											(1,087	)								(1,087	)
Recognition of equity-based compensation expense								324												324
Issuance of treasury stock								30									19			49
Balance at September 30, 2019		10,699		$	1,070		$	25,714		$	92,979		$	(8,667	)	$	(12,601	)	$	98,495

	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, 2018		10,579	$	1,058	$	23,826	$	99,011		$	(8,250	)	$	(12,296	)	$	103,349
Cumulative effect of change in accounting principle								(1,022	)								(1,022	)
Comprehensive income								2,323			(29	)					2,294
Issuance of shares		59		6		96											102
Dividends								(885	)								(885	)
Recognition of equity-based compensation expense						260											260
Purchase of treasury stock														(146	)		(146	)
Balance at June 30, 2018		10,638		1,064		24,182		99,427			(8,279	)		(12,442	)		103,952
Comprehensive income								1,827			36						1,863
Issuance of shares		4				69											69
Dividends								(983	)								(983	)
Recognition of equity-based compensation expense						274											274
Issuance of treasury stock						47								32			79
Balance at September 30, 2018		10,642	$	1,064	$	24,572	$	100,271		$	(8,243	)	$	(12,410	)	$	105,254

Graham Corporation's (the "Company's") Condensed Consolidated Financial Statements include its wholly-owned foreign subsidiaries located in Suzhou, China and Ahmedabad, India. During the fiscal year ended March 31, 2019 ("fiscal 2019") the Company decided to divest of its wholly-owned domestic subsidiary, Energy Steel & Supply Co. ("Energy Steel"), located in Lapeer, Michigan. The sale of Energy Steel was completed in June 2019 and the accompanying Condensed Consolidated Financial Statements include the results of operations of Energy Steel for the period April 1, 2018 through June 23, 2019. 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 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, 2019 presented herein was derived from the Company’s audited Consolidated Balance Sheet as of March 31, 2019. 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, 2019 fiscal 2019. 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, 2019 are not necessarily indicative of the results that may be expected for the current fiscal year, which ends March 31, 2020 ("fiscal 2020").

The Company accounts for revenue in accordance with Accounting Standard Codification 606, “Revenue from Contracts with Customers” (“ASC 606”), which it adopted on April 1, 2018 using the modified retrospective approach.

The Company recognizes revenue on contracts when or as it satisfies a performance obligation by transferring control of the product to the customer. For contracts in which revenue is recognized upon shipment, control is generally transferred when products are shipped, title is transferred, significant risks of ownership have transferred, the Company has rights to payment, and rewards of ownership pass to the customer. For contracts in which revenue is recognized over time, control is generally transferred as the Company creates an asset that does not have an alternative use to the Company and the Company has an enforceable right to payment for the performance completed to date.

The following table presents the Company’s revenue disaggregated by product line and geographic area:

	Three Months Ended				Six Months Ended
	September 30,				September 30,
Product Line	2019		2018		2019		2018
Heat transfer equipment	$	6,479	$	6,173	$	14,331	$	10,331
Vacuum equipment		8,733		7,842		14,263		25,058
All other		6,431		7,426		13,642		15,603
Net sales	$	21,643	$	21,441	$	42,236	$	50,992


Geographic Region
Asia	$	1,018	$	1,876	$	4,237	$	4,625
Canada		1,896


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	4

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	27

Part II.	OTHER INFORMATION


Item 6.	EXHIBITS	28

Signatures		29

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