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 December 31, 2002June 30, 2003
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 - 585-343-2216
(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.
YESYes __X__ NONo _____
Indicate by check mark whether the registrant is an
accelerated filer (as defined by Rule 12b-2 of the Act).
Yes __ __ No __X__
As of February 7,July 25, 2003, there were outstanding 1,648,2491,626,756 shares
of common stock, $.10 per share.
2
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
DECEMBER 31, 2002JUNE 30, 2003
PART I - FINANCIAL INFORMATION
Unaudited consolidated financial statements of Graham
Corporation (the Company) and its subsidiaries as of December 31,
2002June 30,
2003 and for the three month periods ended June 30, 2003 and nine month periods then ended2002
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. The March 31, 20022003 Consolidated
Balance Sheet was derived from the Company's audited financial
statements for the year ended March 31, 2002.2003.
This part also includes management's discussion and analysis
of the Company's financial condition as of December 31, 2002June 30, 2003 and its
results of operations for the three and nine month periodsperiod then ended.
3
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,June 30, March 31,
2002 20022003 2003
---- ----
Assets
Current Assets:
Cash and equivalents $ 267,000318,000 $ 2,901,000217,000
Investments 6,514,000 2,496,0004,467,000 6,446,000
Trade accounts receivable, 7,686,000 17,053,000net 5,977,000 7,295,000
Inventories 8,349,000 8,342,0009,818,000 10,341,000
Domestic and foreign income taxes
receivable 786,000199,000 259,000
Deferred income tax asset 1,020,000 1,218,0002,199,000 1,846,000
Prepaid expenses and other current assets 559,000 377,000
----------- -----------
25,181,000 32,387,000676,000 367,000
---------- ----------
23,654,000 26,771,000
Property, plant and equipment, net 9,774,000 9,726,0009,676,000 9,808,000
Deferred income tax asset 2,410,000 1,585,0001,413,000 1,610,000
Other assets 53,000 6,00085,000 91,000
----------- -----------
$37,418,000 $43,704,000
=========== ===========$ 34,828,000 $ 38,280,000
============ ============
4
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Concluded)
December 31,June 30, March 31,
2002 20022003 2003
---- ----
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $ 1,489,0001,814,000 $ 1,050,0001,524,000
Current portion of long-term debt 86,000 85,00066,000 80,000
Accounts payable 2,528,000 4,333,0002,416,000 4,629,000
Accrued compensation 3,104,000 4,444,0002,788,000 3,283,000
Accrued expenses and other liabilities 1,749,000 1,100,0002,132,000 2,344,000
Customer deposits 4,405,000 6,704,000
Domestic and foreign income taxes payable 859,000
----------- -----------
13,361,000 18,575,0002,227,000 2,132,000
---------- ----------
11,443,000 13,992,000
Long-term debt 476,000 150,000127,000 127,000
Accrued compensation 650,000 680,000243,000 244,000
Deferred income tax liability 46,000 41,00051,000 49,000
Other long-term liabilities 12,000 11,00060,000 76,000
Accrued pension liability 1,678,000 1,398,0001,976,000 1,761,000
Accrued postretirement benefits 3,321,000 3,213,000
----------- -----------2,689,000 3,238,000
---------- ----------
Total liabilities 19,544,000 24,068,000
----------- -----------16,589,000 19,487,000
---------- ----------
Shareholders' equity:
Preferred Stock,stock, $1 par value -
Authorized, 500,000 shares
Common stock, $.10 par value -
Authorized, 6,000,000 shares
Issued, 1,724,079 shares at
June 30, 2003 and 1,716,572
shares on December 31,
2002 andat March 31, 2002 172,0002003 173,000 172,000
Capital in excess of par value 4,757,0004,813,000 4,757,000
Retained earnings 17,730,000 18,888,00018,027,000 18,767,000
Accumulated other comprehensive loss (2,841,000) (2,178,000)
----------- -----------
19,818,000 21,639,000(2,855,000) (2,990,000)
---------- ----------
20,158,000 20,706,000
Less:
Treasury Stock (68,323stock (99,123 shares on
December 31, 2002June 30, 2003 and 68,323 shares on
March 31, 2002) (1,161,000)2003) (1,385,000) (1,161,000)
Notes receivable from officers and
directors (783,000) (842,000)
----------- -----------(534,000) (752,000)
Total shareholders' equity 17,874,000 19,636,00018,239,000 18,793,000
----------- -----------
$37,418,000 $43,704,000$34,828,000 $38,280,000
=========== ===========
5
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Three Months
Nine Months
ended December 31, ended December 31,June 30,
2003 2002 2001 2002 2001
---- ----
---- ----
Net Sales $13,703,000 $11,810,000 $35,308,000 $35,473,000
----------- -----------$ 8,435,000 $10,168,000
----------- -----------
Cost and expenses:
Cost of products sold 11,135,000 8,669,000 28,711,000 27,647,0007,440,000 8,374,000
Selling, general and administrative 2,814,000 2,594,000 8,019,000 7,571,0002,407,000 2,468,000
Interest expense 31,000 30,000 68,000 135,000
----------- ----------- ----------- -----------
13,980,000 11,293,000 36,798,000 35,353,000
----------- ----------- ----------- -----------
Income (Loss)37,000 17,000
Other income (522,000)
9,362,000 10,859,000
--------- ----------
Loss before income taxes (277,000) 517,000 (1,490,000) 120,000
Provision (Benefit)(927,000) (691,000)
Benefit for income taxes (99,000) 163,000 (503,000) 26,000
----------- ----------- ----------- -----------(269,000) (235,000)
--------- ----------
Net income (loss) (178,000) 354,000 (987,000) 94,000loss (658,000) (456,000)
Retained earnings at beginning of
period 17,994,000 16,323,00018,767,000 18,888,000
16,583,000
Dividends (86,000) (171,000)
----------- -----------(82,000)
----------- -----------
Retained earnings at end of period $17,730,000 $16,677,000 $17,730,000 $16,677,000
=========== ===========$18,027,000 $18,432,000
=========== ===========
Per Share Data:
Basic:
Net income (loss) $(.11) $.21 $(.59) $.06loss $(.40) $(.27)
Diluted: ====== =====
====Net loss $(.40) $(.27)
===== ====
Diluted:
Net income (loss) $(.11) $.21 $(.59) $.06
===== ==== ===== ====
6
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NineThree Months
Ended December 31,June 30,
2003 2002 2001
---- ----
Operating activities:
Operating activities:
Net income (loss)loss $ (987,000)(658,000) $ 94,000(456,000)
----------- ---------------------
Adjustments to reconcile net income (loss)loss to net
cash provided (used) by operating
activities:
Depreciation and amortization 656,000 722,000
(Gain) Loss on sale of property, plant and
equipment 28,000 (4,000)
Loss on sale of investments 28,000240,000 218,000
(Increase) Decrease in operating assets:
Accounts receivable 9,582,000 985,0001,399,000 7,478,000
Inventory, net of customer deposits (2,084,000) 4,035,000737,000 171,000
Prepaid expenses and other current and non-
current assets (162,000) 77,000(293,000) (146,000)
Increase (Decrease) in operating
liabilities:
Accounts payable, accruedAccrued compensation, accrued expenses and other liabilities (2,471,000) (3,018,000)
Deferred compensation, deferred pension
liability, and accrued postemployment
benefits (1,492,000) 286,000(336,000) 101,000
Domestic and foreign income taxes (1,644,000) 459,00061,000 (1,210,000)
Deferred income taxes (38,000) 94,000(129,000) (6,000)
----------- ---------------------
Total adjustments 2,375,000 3,664,000(1,416,000) 3,903,000
----------- ---------------------
Net cash provided (used) by operating
activities 1,388,000 3,758,000(2,074,000) 3,447,000
----------- ---------------------
7
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
NineThree Months
Ended December 31,June 30,
2003 2002 2001
---- ----
Investing activities:
Purchase of property, plant and equipment (675,000) (496,000)
Proceeds from sale of property, plant and
equipment 4,000 143,000(58,000) (145,000)
Collection of notes receivable from
officers and directors 59,00014,000 19,000
Purchase of investments (19,220,000) (2,487,000)(1,500,000) (8,462,000)
Redemption of investments at maturity 15,300,000 4,877,0003,500,000 2,500,000
----------- ---------------------
Net cash provided (used) by investing 1,956,000 (6,088,000)
activities (4,532,000) 2,037,000
----------- ---------------------
Financing activities:
Increase (Decrease) in short-term debt 293,000 (3,456,000)209,000 (86,000)
Proceeds from issuance of long-term debt 4,195,000 4,785,0005,350,000
Principal repayments on long-term debt (3,895,000) (5,445,000)(5,376,000) (19,000)
Issuance of common stock 145,000
Dividends paid (86,000)57,000
Acquisition of treasury stock (20,000)
----------- ---------------------
Net cash provided (used) by financing 220,000 (105,000)
activities 507,000 (3,971,000)
----------- ---------------------
Effect of exchange rate changes on cash 3,000 5,000(1,000) 8,000
----------- ---------------------
Net increase (decrease) in cash and 101,000 (2,738,000)
equivalents (2,634,000) 1,829,000
Cash and equivalents at beginning of 217,000 2,901,000
period 2,901,000 226,000
----------- ---------------------
Cash and equivalents at end of period $ 267,000 $2,055,000318,000 $ 163,000
========== =========== ==========
8
GRAHAM CORPORATION AND SUBSIDIARIES
/ NOTES TO FINANCIAL INFORMATION
DECEMBER 31, 2002JUNE 30, 2003
NOTE 1 - INVENTORIES
- ----------------------------------------------------------------------------------------------------------------------------------------------
Major classifications of inventories are as follows:
12/31/02 3/31/02June 30, March 31,
2003 2003
-------- ----------------
Raw materials and supplies $ 1,869,0001,819,000 $ 2,257,0002,417,000
Work in process 14,887,000 13,322,00012,630,000 14,968,000
Finished products 2,744,000 1,724,0002,901,000 1,937,000
----------- -----------
19,500,000 17,303,00017,350,000 19,322,000
Less - progress payments 11,049,000 8,871,0007,444,000 8,907,000
- inventory reserve 102,000 90,00088,000 74,000
----------- -----------
$ 8,349,000 $ 8,342,0009,818,000 $10,341,000
=========== ===========
NOTE 2 - STOCK-BASED COMPENSATION
- ---------------------------------------------------------------------
In 2003, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 148, "Accounting for Stock-
Based Compensation - Transition and Disclosure". This standard
provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based
employee compensation. Additionally, the standard also requires
prominent disclosures in the Company's financial statements about
the method of accounting used for stock-based employee
compensation, and the effect of the method used when reporting
financial results.
The Company accounts for stock-based compensation in
accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation". As permitted by SFAS No. 123, the Company
continues to measure compensation for such plans using the
intrinsic value based method of accounting, prescribed by
Accounting Principles Board (APB), Opinion No. 25, "Accounting
for Stock Issued to Employees". Accordingly, compensation cost
for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of grant
over the amount an employee must pay to acquire the stock.
Compensation cost for share equivalent units is recorded based on
the quoted market price of the Company's stock at the end of the
period.
9
Under the intrinsic value method, no compensation expense
has been recognized for the Company's stock option plans. Had
compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for awards
under those plans in accordance with the optional methodology
prescribed under SFAS No. 123, the Company's net loss and net
loss per share would have been the pro forma amounts indicated
below:
Three months
ended June 30,
2003 2002
---- ----
Net loss as reported $(658,000) $(456,000)
Stock-based employee
compensation cost
net of related tax
benefits (11,000) (1,000)
--------- ---------
Pro forma net loss $(669,000) $(457,000)
========= =========
Basic loss per
share As reported $(.40) $(.27)
Pro forma $(.41) $(.28)
Diluted loss per
share As reported $(.40) $(.27)
Pro forma $(.41) $(.28)
For purposes of the disclosure above, the fair value of each
option grant is estimated on the date of the grant using the
Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 2003 and 2002:
2003 2002
---- ----
Expected life 5 years 5 years
Volatility 50.06% 50.00%
Risk-free interest rate 2.25% 2.81%
Dividend yield 2.40% 2.35%
NOTE 3 - EARNINGS (LOSS) PER SHARE:
- ----------------------------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share is computed by dividing net
income (loss) by the weighted average number of common shares
outstanding for the period. Common shares outstanding includes
share equivalent units which are contingently issuable shares.
Diluted earnings (loss) per share is calculated by dividing net
income (loss) 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
10
basic and diluted earnings (loss) per share is presented below:
Three months
Nine months
ended December 31, ended December 31,June 30,
2003 2002 2001 2002 2001
---- ----
---- ----
Basic earnings (loss)loss per share
Numerator:
Net income (loss)loss $ (178,000)(658,000) $ 354,000 $ (987,000) $ 94,000(456,000)
---------- ---------- ---------- ---------
Denominator:
Weighted common shares outstanding 1,619,000 1,648,000 1,644,000 1,648,000 1,637,000
Share equivalent units (SEU) outstanding
16,000 11,000
14,000 11,000
---------- ---------- ---------- ---------
Weighted average shares and SEU's outstanding 1,664,000 1,655,000 1,662,000 1,648,000
---------- ----------
outstanding 1,635,000 1,659,000
---------- -------------------
Basic earnings (loss)loss per share $(.11) $.21 $(.59) $.06$(.40) $(.27)
===== ==== =====
====
9
Three months Nine months
ended December 31, ended December 31,
2002 2001 2002 2001
---- ---- ---- ----
Diluted earnings (loss)loss per share
Numerator:
Net income (loss)loss $ (178,000)(658,000) $ 354,000 $ (987,000) $ 94,000(456,000)
---------- ----------
---------- ---------
Denominator:
Weighted average shares
and SEU's outstanding 1,664,000 1,655,000 1,662,000 1,648,000
Stock options
outstanding 23,000 21,000
---------- ---------- ---------- ---------
Weighted average common and potential
common shares outstanding
1,664,000 1,678,000 1,662,000 1,669,0001,635,000 1,659,000
---------- ----------
---------- ---------
Diluted earnings (loss)loss per share $(.11) $.21 $(.59) $.06$(.40) $(.27)
===== ==== ===== ====
All options to purchase shares of common stock at various
exercise prices were excluded from the computation of diluted
loss per share for the three and nine month periods ended December 31,
2002 as the effect would be antidilutive due to the net
losses forloss.
NOTE 4 - PRODUCT WARRANTY LIABILITY
- ---------------------------------------------------------------------
The reconciliation of the periods.
Options to purchase shares of common stock which totaled 88,600
for the three and nine months ended December 31, 2001 were not
includedchanges in the computation of diluted earnings per shareproduct warranty
liability is as the
effect would be antidilutive due to the options' exercise price
being greater than the average market price of the common shares.follows:
Three months
ended June 30,
2003 2002
---- ----
Balance at beginning of period $ 592,000 $182,000
Expense for product warranties 75,000 200,000
Product warranty claims paid (281,000) (22,000)
--------- --------
Balance at end of period $ 386,000 $360,000
========= ========
11
NOTE 35 - CASH FLOW STATEMENT
- -------------------------------------------------------------------------
Actual interest---------------------------------------------------------------------
Interest paid was $68,000$31,000 and $147,000$17,000 for the ninethree months
ended December 31,June 30, 2003 and 2002, and 2001, respectively. In addition, actual income
taxes paid (refunded) were $1,180,000$(202,000) and $(527,000)$981,000 for the ninethree
months ended December 31,June 30, 2003 and 2002, and 2001, respectively.
Non-cash activities during the ninethree months ended December 31,
2002 and 2001June 30,
2003 included capital expenditures totaling $22,000 and
$70,000, respectively,$11,000 which were
financed through the issuance of capital leases. In addition, a minimum pension liability
adjustment, netleases and dividends of
a $533,000 tax benefit, totaling $990,000 was
recognized in$82,000 which were recorded but not paid. There were no non-cash
activities during the third quarter of fiscal year 2003.
10three months ended June 30, 2002.
NOTE 46 - COMPREHENSIVE INCOME
- ----------------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (loss)loss was $(1,094,000)$523,000 and $339,000$271,000 for the
three months ended December 31,June 30, 2003 and 2002, and 2001, respectively. Other
comprehensive loss for the three months ended
December 31, 2002income included a foreign currency translation
adjustmentadjustments of $74,000$135,000 and a minimum pension liability adjustment,
net of tax, of $(990,000). Other comprehensive income$185,000 for the three monthsquarters ended December 31, 2001June
30, 2003 and 2002, respectively.
NOTE 7 - OTHER INCOME
- ---------------------------------------------------------------------
On February 4, 2003, the Employee Benefits Committee of the
Board of Directors irrevocably terminated postretirement health
care benefits for current U.S. employees, however, benefits
payable to retirees of record on April 1, 2003 remained
unchanged. As a result of the plan change, a curtailment gain of
$522,000 was recognized. This gain is included a foreign currency
translation adjustmentin the caption
"Other Income" in the Consolidated Statement of $(15,000).
Total comprehensive income (loss) for the nine months ended
December 31, 2002Operations and
2001 was $(1,650,000) and $158,000,
respectively. Other comprehensive loss for the nine months ended
December 31, 2002 included a foreign currency translation
adjustment of $327,000 and a minimum pension liability adjustment,
net of tax, of $(990,000). Other comprehensive income for the nine
months ended December 31, 2001 included a foreign currency
translation adjustment of 64,000.Retained Earnings.
12
NOTE 58 - SEGMENT INFORMATION
- ----------------------------------------------------------------------------------------------------------------------------------------------
The Company's business consists of two operating segments
based upon geographic area. The United States segment designs
and manufactures heat transfer and vacuum equipment and the
operating segment located in the United Kingdom manufactures
vacuum equipment. Operating segment information is presented
below:
Three Months Ended Nine Months Ended
December 31, December 31,months
ended June 30,
2003 2002 2001 2002 2001
---- ----
---- ----
Sales to external customers
U.S. $12,168,000 $10,476,000 $31,641,000 $31,105,000$7,611,000 $ 8,995,000
U.K. 1,535,000 1,334,000 3,667,000 4,368,000
----------- ----------- -----------824,000 1,173,000
---------- -----------
Total $13,703,000 $11,810,000 $35,308,000 $35,473,000
=========== =========== ===========$8,435,000 $10,168,000
========== ===========
Intersegment sales
U.S. $ 2,00028,000 $ 27,000 $ 31,000 $ 27,00020,000
U.K. 453,000 256,000 1,065,000 772,000
----------- ----------- -----------341,000 419,000
---------- -----------
Total $ 455,000369,000 $ 283,000 $ 1,096,000 $ 799,000
=========== =========== ===========439,000
========== ===========
Segment net income
(loss)loss
U.S. $ (218,000)(512,000) $ 264,000(566,000)
U.K. (298,000) (13,000)
---------- -----------
Total $ (983,000)(810,000) $ (163,000)
U.K. 71,000 121,000 (87,000) 230,000
----------- ----------- ----------- -----------(579,000)
========== ===========
The segment net loss above is reconciled to the consolidated
totals as follows:
Total segment net income (loss) (147,000) 385,000 (1,070,000) 67,000loss $ (810,000) $ (579,000)
Eliminations (31,000) (31,000) 83,000 27,000
----------- ----------- -----------152,000 123,000
---------- -----------
Net income (loss)loss $ (178,000)(658,000) $ 354,000 $ (987,000) $ 94,000
=========== =========== ===========(456,000)
========== ===========
1113
NOTE 69 - STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 144, 146 & 148RELATED PARTY TRANSACTION
- -------------------------------------------------------------------------
During the first quarter of fiscal year---------------------------------------------------------------------
On April 1, 2003, the Company adopted Statementacquired 30,800 shares of
Financial Accounting Standards ("SFAS") No.
144, "Accountingcommon stock previously issued under the Long-Term Stock
Ownership Plan from two former officers. This transaction was
accounted for as a purchase. The shares were redeemed at the
Impairment or Disposaloriginal issue price of Long Lived
Assets." There was no effect$7.25, as compared to a market price at
the time of the closing of $7.55. This transaction resulted in a
$224,000 increase to treasury stock, a $204,000 reduction in
notes receivable from officers and directors and cash payments to
former officers. The cash payments approximate amounts
previously paid on the Company's consolidated
financial position, results of operations or cash flows resulting
from the adoption of SFAS No. 144 at December 31, 2002.
In June 2002, the Financial Accounting Standards Board (FASB)
issued SFAS No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities." This Statement is effective for exit
or disposal activities initiated after December 31, 2002. The
Company does not believe the adoption of this Standard will
have a material effect on the Company's consolidated
financial position, results of operations or cash flows.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure." This
Statement amends SFAS No. 123, "Accounting for Stock-Based
Compensation" to provide alternative methods of transition for an
entity that changes to the fair value based method of accounting
for stock-based employee compensation and changes the disclosure
requirements. This Statement is effective for financial statements
for fiscal years ending after December 15, 2002, and therefore, is
currently under review by the Company.
NOTE 7 - PRODUCT WARRANTIES
- ------------------------------------------------------------------------
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This Interpretation elaborates
on the existing disclosure requirements for most guarantees in interim
and annual financial statements and changes the accounting for obligations
undertaken in issuing guarantees. The disclosure requirements, which
are applicable to the Company with regard to product warranties, are
effective for financial statements of interim or annual periods ending
after December 15, 2002.
The Company provides a liability for product warranty claims which is
determined primarily on the basis of past claims experience and ongoing
evaluations of any specific probable claims from customers. A reconciliation
of the changes in the product warranty liability is presented below.
Three Months Ended Nine Months Ended
December 31, December 31,
2002 2001 2002 2001
---- ---- ---- ----
Balance at beginning
of period $471,000 $134,000 $182,000 $137,000
Accruals for product
warranties 50,000 50,000 544,000 150,000
Product warranty claims 130,000 36,000 335,000 139,000
-------- -------- -------- --------
Balance at end of
period $391,000 $148,000 $391,000 $148,000
======== ======== ======== ========
notes.
1214
GRAHAM CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
December 31, 2002June 30, 2003
Graham Corporation consists of two operating segments as
determined by geographic areas (USA: Graham Corporation, UK:
Graham Vacuum and Heat Transfer, Limited and its wholly-owned
subsidiary, Graham Precision Pumps, Ltd.).
Certain statements contained in this document, including
within this Management's Discussion and Analysis of Financial
Condition and Results of Operations, that are not historical
facts, constitute "Forward-Looking Statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-
looking statements, in general, predict, forecast, indicate or
imply future results, performance or achievements and generally
use words so indicative. The Company wishes to caution the
reader that numerous important factors which involve risks and
uncertainties, including but not limited to economic,
competitive, governmental and technological factors affecting the
Company's operations, markets, products, services and prices, and
other factors discussed in the Company's filings with the
Securities and Exchange Commission, in the future, could affect
the Company's actual results and could cause its actual
consolidated results to differ materially from those expressed in
any forward-looking statement made by, or on behalf of, the
Company.
Results of Operations
- ---------------------
Sales increased 16%Consolidated sales decreased 17% in the thirdfirst quarter of
fiscal year 2003ending (FYE) March 31, 2004 compared to the same
three month period one year ago. Sales from USA and UK
operations for the current quarter (including intersegment sales)
decreased 15% and 27%, respectively. The decreases are
attributable to fewer shippable goods and, in addition, in the
previous year. SalesUSA, fewer workable contracts qualifying for the
third quarter increased 16% in the United States and 25% in the
United Kingdom compared to fiscal year 2002. Sales for the nine
months ended December 31, 2002 were at the same level as sales for
the same period last year. Sales in the United States increased 2%
while sales in the United Kingdom declined 8% from the same period
last year. The increase in sales in the United States in the third
quarter is a reflection of uneven production load as year-to-date
sales are in line with the prior year. In the United Kingdom therepercentage-of-
completion revenue recognition. Consolidated backlog on April 1,
2003 was a substantial improvement in sales levels of offshore and dry
pumps in the third quarter compared to the prior year, however,
year-to-date sales are26% less than last yearthe backlog at April 1, 2002 due to the declinefewer
new orders booked in the economy and customer capital spending.FYE 2003.
Cost of sales as a percent of sales for the thirdfirst quarter was
81%88% compared to 73%82% a year ago. CostCosts of sales as a percent of
sales for the three month periodUSA operating segment for the current quarter was
84% in the United States91% compared to 76% last year and in88% for the United Kingdom it increased
from 55% to 65%.quarter ended June 30, 2002. For the
nine months,UK operating segment, cost of sales as a percent of sales
was 81% comparedincreased to 78% last year. In the United States,
the92% from 69% a year ago. UK cost of sales percentage was 84% compared to 81% in the prior
year period and in the United Kingdom itas a
percent of sales increased to 68% from 62%
for the same period last year. The unfavorable percentages in the
United States arelargely due to higher labora decrease in sales
dollars greater than a proportionate decrease in manufacturing
costs. USA manufacturing costs as a percent of sales increased
due to lower sales, product specification complexities and less
overhead costs while
sales have remained flat. Product mix has also impacted the
percentages as the prior year sales included revenue earned for
engineering services which contributed significantlycost absorbed into inventory due to gross
profit. The higher percentage in the United Kingdom also reflects
product mix as well as rising manufacturing overhead costs while
year-to-date sales have fallen.lower plant
activity.
Selling, general and administrative (SG&A) expenses for the
quarter were 8% higher2% less than SG&A expenses and for the quarter ended
June 30, 2002.
15
Results of Operations (concluded)
- ---------------------
The elimination of postretirement medical benefits in FYE
2003 for all employees and former employees not retired and
receiving medical benefits as of April 1, 2003 resulted in a
curtailment gain of $522,000. This gain is reported as Other
Income for the third quarter compared tocurrent quarter. Other Income for the samethree
months ended June 30, 2002 was zero.
Interest expense increased from $17,000 for the three month
period in fiscal year 2002 but represented 21%to $37,000 in the current period.
This increase is attributable to higher levels of sales compared to 22% last yearborrowings in
both the USA and UK. Average borrowings during the first quarter
of FYE 2004 and 2003 were $2,673,000 and $1,433,000,
respectively. Borrowings in the USA were greater due to fewer
advanced progress payments on new orders. Borrowings in the 16% increase in sales. For the nine month period, selling, general
and administrative expensesUK
increased 6% as compared to fiscal year
2002 and were 23% of sales compared to 21% last year. The higher
selling, general and administrative expenses are attributable to
increased employee and related benefit costs, additions to the
sales force and a monetary commitment to a community capital
project.
Interest expense for the third quarter of fiscal year 2003 was
3% greater than interest expense for the comparable three month
period of 2002. For the nine month period, interest expense
decreased 50% as compared to 2002. This significant decrease is due to minimal borrowing in the United States during the current
fiscal year.
13
Results of Operations (concluded)
- ---------------------------------financing working capital needs.
The effective income tax ratesrate for the thirdfirst quarter and nine
month periodwas 29%
compared with the quarter ended June 30, 2002 of fiscal year34%. The lower
effective rate is due to the anticipated impact of the extra
territorial income exclusion benefit from foreign shipments.
The net loss for the quarter ended June 30, 2003 were 36% and 34%, respectively.
The effective tax rateswas $658,000
or $.40 per diluted share. This compared to a net loss of
$456,000 or $.27 per share for the three months ended June 30,
2002.
Liquidity and nineCapital Resources
- -------------------------------
Consolidated cash flow from operations was negative
$2,074,000 for the three months ended December 31, 2001 were 32% and 22%, respectively.June 30, 2003 as compared
to a positive cash flow from operations of $3,447,000 for the
quarter ended June 30, 2002. The lower tax
ratesswing of $5,521,000 is
substantially due to reduced cash collections of $6,079,000 in
the prior year were attributable to the recognition of tax
benefits associated with operating lossescurrent quarter. The unusually large cash collections in the
United States.
Financial Condition
- -------------------
Working capitalfirst quarter of $11,820,000 at December 31, 2002 compares to
working capital at March 31, 2002 of $13,812,000. The decline
reflects a decrease in current assets and current liabilities of
$7,206,000 and $5,214,000, respectively. The decrease in current
assets related to a decrease in cash and accounts receivable offset
by an increase in investments and income taxes receivable. The
decrease in current liabilities isFYE 2003 was due to a decreasesignificant project
cancellation fees invoiced in accounts
payable, accrued compensation and customer deposits. The decline
in accounts receivable is attributable to the collectionfourth quarter of cancellation charges on certain orders for the electric power
generating industry that were recorded at year end. The cash
received and cash on hand were invested in short-term government
securities. The income tax receivable resulted from the tax
benefit recorded on the current year operating loss. The decrease
in accounts payable and accrued compensation is due to timing of
payments while the decline in customer deposits is the result of
the reclassification of progress payments to offset inventory when
the related inventory is purchased. The current ratio at
December 31, 2002 is 1.9 compared to 1.7 at March 31, 2002.
Capital expenditures for the nine months ended December 31,
2002 were $675,000 compared to $496,000 for the same period last
year. There were no major commitments for capital expenditures as
of December 31,FYE 2002.
Management expects that the cash flow from operations,
investments, and lines of credit will provide sufficient
resources to fund the fiscal year 20032004 cash requirements.
The long-term debt to equity ratio was 3%remained constant at December 31,
2002 compared to 1% aton
June 30, 2003 and March 31, 2002.2003. The total liabilities to
assets ratio is currently 52%48% compared to 55%51% at March 31, 2002.2003. These
ratios reflectare reflective of the continued stability and strength of
the Company's balance sheet although it has incurred operating losses and an
erosion of equity of $1,762,000 or 9% of total equity in the
current year. Due to poor performance of the stock market, the
Company recorded a minimum pension liability adjustment, net of a
tax benefit, of $990,000 which accounted for 56% of the equity
erosion. This decrease in equity will be reduced if the equity
markets improve. The operating losses, net of a favorable foreign
currency translation adjustment, attributed to 37% of the decline
in equity.
14financial condition.
New Orders and Backlog
- ----------------------
New orders for the thirdfirst quarter were $8,790,000up 38% at $11,233,000
compared to $9,074,000$8,140,000 for the same period last year. Prior to
intercompany eliminations, new orders in the United States were
$6,833,000$10,353,000 compared to $7,629,000$7,105,000 for the same period in fiscal
year 2002.2003. New orders in the United Kingdom were $2,276,000$2,106,000
compared to $1,692,000$1,214,000 for the same quarter last year. For the nine month period, new orders were $28,224,000 compared
to $37,700,000 for the comparable nine month period of the prior
year. Prior to intercompany eliminations,The
increase in new orders in both the United
States were $23,850,000 compared to $34,105,000 for the same period
last yearUSA and new orders in the United Kingdom were $5,421,000
compared to $4,304,000 in 2002.
In the United States, the decline in new ordersUK is attributable
to over capacity in the petrochemical and chemical markets and
reduced capital spending by customers due to
uncertain market
conditions.improvement in foreign markets, such as China and India, in
16
New orders in the United Kingdom have increased due to
the success in obtaining orders for certain offshore projects. The
increase in the foreign currency exchange rate used to convert to
U.S. dollars has also positively impacted the new order values.Orders and Backlog (concluded)
- ----------------------
specific under-capacity processing industries.
Backlog of unfilled orders at December 31, 2002June 30, 2003 is $27,003,000$28,002,000
compared to $29,965,000 at this time a year ago and $33,871,000$25,069,000 at March 31, 2003 and $31,896,000 at June
30, 2002. Prior to intercompany eliminations, current backlog in
the United States of $25,305,000$27,268,000 compares to $33,054,000$24,475,000 at March
31, 20022003 and $27,721,000$31,144,000 at December 31, 2001.June 30, 2002. Current backlog in
the United Kingdom of $2,054,000$2,404,000 compares to $1,180,000$1,348,000 at
March 31, 20022003 and $2,613,000$869,000 at December 31, 2001. TheseJune 30, 2002. Included in the
USA backlog amounts reflect the cancellationis $5,286,000 of an orderorders for the electric power generating industry that was previously suspended.
The cancellation of this order, which was received in the first
quarter of fiscal year 2002, reduced the backlog by $2,659,000.
New orders for fiscal year 2002 and backlog for fiscal years 2002
and 2003 have been restated to reflect this cancellation. Included
in backlog at December 31, 2002 and 2001 is $7,272,000 and
$6,847,000, respectively, of ordersplant
business that have been suspended and
are with customers operating directly or indirectly inby the financially pressured electric power generating business and/or
whose financial condition has eroded. A substantial portion of the
suspendedcustomer. These orders
are protected withby cancellation charges.fees. The current consolidated
backlog, with the exception of the suspended orders,about $7,186,000, is scheduled to
be shipped during the next twelve months and represents orders
from traditional markets in the Company's established product
lines.
Quantitative and Qualitative Disclosures about Market Risk
- ----------------------------------------------------------
The Company is exposed to changes in interest rates, foreign
currency exchange rates and equity prices which may adversely
impact its results of operations and financial position. The
assumptions applied in preparing quantitative disclosures
regarding interest rate, foreign exchange rate and equity price
risk are based upon volatility ranges experienced in relevant
historical periods, management's current knowledge of the
business and market 15
Quantitative and Qualitative Disclosures about Market Risk (continued)
- ----------------------------------------------------------------------
place, and management's judgment of the
probability of future volatility based upon the historical trends
and economic conditions of the business.
The Company is exposed to interest rate risk primarily
through its borrowing activities. Risk associated with interest
rate fluctuations on debt is managed by holding interest bearing
debt to the absolute minimum and carefully assessing the risks
and benefits for incurring long-term debt. Based upon variable
rate debt outstanding at December 31,June 30, 2003 and 2002, and 2001, a 1% change in
interest rates would impact annual interest expense by $19,000$18,000
and $7,000,$10,000, respectively.
Over the past three years, Graham's international
consolidated sales exposure approximates 36% of annual sales.
Operating in world markets involves exposure to movements in
currency exchange rates. Currency movements can affect sales in
several ways. Foremost is the ability to competitively compete
for orders against competition having a relatively weaker
currency. Business lost due to this cannot be quantified.
Secondly, cash can be adversely impacted by the conversion of
sales in foreign currency to local currency. The substantial
portion of Graham's sales areis collected in the local currencies.
ForIn the threefirst quarters of both 2004 and nine month periods
ended December 31, 2002,2003, sales in foreign
currencies were consistent with the prior year at 1% and 2% of total sales,
respectively.sales. At certain times, the Company
may enter into forward foreign exchange agreements to hedge its
exposure against unfavorable changes in foreign currency values
on significant sales contracts negotiated in foreign currencies.
17
Quantitative and Qualitative Disclosures about Market Risk (concluded)
- ----------------------------------------------------------
Graham has limited exposure to foreign currency purchases.
During the three month periods ended December 31,June 30, 2003 and 2002, and 2001,
purchases in foreign currencies were 5%7% and 7%8% of cost of goods
sold, respectively. For both the nine month periods ended
December 31, 2002 and 2001, purchases in foreign currencies were 5%
of cost of goods sold. At certain times, forward foreign exchange
contracts may be utilized to limit currency exposure.
Foreign operations produced a net income (loss)loss of $298,000 and
$13,000 in the thirdfirst quarter of 2003fiscal year 2004 and 2002 of $71,000 and $121,000, respectively, and
$(87,000) and $230,000 for the nine month periods ended December
31, 2002 and 2001,2003,
respectively. As currency exchange rates change, translations of
the income statements of our U.K. business into U.S. dollars
affects year-over-year comparability of operating results. The
Company does not hedge translation risks because cash flows from
U.K. operations are mostly reinvested in the U.K. A 10% change
in foreign exchange rates would have impacted the third
quarter resultsU.K. reported
net loss by approximately $7,000$30,000 and $12,000$1,000 in fiscal years
2003 and 2002, respectively, and year-to-date resultsthe first quarter
of fiscal yearsyear 2004 and 2003, and 2002 by approximately $9,000 and $23,000, respectively.
The Company has a Long-Term Incentive Plan which provides
for awards of share equivalent units (SEU) for outside directors
based upon the Company's performance. The outstanding SEU'sSEUs are
recorded at fair market value thereby exposing the Company to
equity price16
Quantitative and Qualitative Disclosures about Market Risk (concluded)
- ---------------------------------------------------------------------- risk. Gains and losses recognized due to market
price changes are included in the quarterly results of
operations. Based upon the SEU'sSEUs outstanding at December 31,June 30, 2003 and
2002 and 2001 and the respective quarter end market price per share, a 50%
to 75% change in the respective quarter end market price of the
Company's common stock would positively or negatively impact the
Company's thirdfirst quarter operating results by $71,000 to $106,000
for 2003FYE 2004 and $65,000$74,000 to $98,000$111,000 for 2002.FYE 2003. In the thirdfirst
quarters of FYE 2004 and FYE 2003, and 2002, the expense,impact on net of a tax benefit, recordedincome due
to the increasechange in the stock price was not significant. Assuming
required net income of $500,000 to award SEU'sSEUs is met and SEU'sSEUs are
granted to the seven outside directors in accordance with the
plan over the next five years, based upon the December 31, 2002June 30, 2003
market price of the Company's stock of $8.73$8.60 per share, a 50% to
75% change in the stock price would positively or negatively
impact the Company's operating results by $111,000$125,000 to $166,000 in 2004, $126,000 to
$188,000$250,000 in
2005, and $136,000$143,000 to $203,000$285,000 in 2006, $146,000$156,000 to $218,000$312,000 in 2007,
$170,000 to $339,000 in 2008 and $156,000$174,000 to $233,000$347,000 in 2008.2009.
Critical Accounting Policies
- ----------------------------
The following discussion addresses the most critical
accounting policies, which are those that are most important to
the portrayal of the financial condition and results, and that
require judgment.
Revenue Recognition
- -------------------
Percentage-of-Completion - The Company recognizes revenue
and all related costs on contracts with a duration in excess of
three months and with revenues of $1,000,000 and greater using
the percentage-of-completion method. The percentage-of-completionpercentage-of-
completion is determined by relating actual labor incurred to-dateto-
date to management's estimate of total labor to be incurred on
each contract. Contracts in progress are reviewed monthly, and18
Critical Accounting Policies (concluded)
- ----------------------------
sales and earnings are adjusted in current accounting periods
based on revisions in contract value and estimated costs at
completion.
Completed Contract - Contracts with values less than
$1,000,000 are accounted for on the completed contract 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 obligations under the
contract after the revenue is recognized.
Use of Estimates - We have made a number of estimates and
assumptions relating to the reporting of assets and liabilities,
the disclosure of contingent assets and liabilities, and reported
amounts of revenue and expenses in preparing our financial
statements in conformity with accounting principles generally
accepted in the United States of America. Actual results could
differ from these estimates.
17
Forward Looking
- ---------------
Certain statements contained inGraham is beginning to see early signs of a potential global
recovery for its core products. Assisting this document, that are not
historical facts, constitute "Forward-Looking Statements" withinrecovery is the
meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements, in general, predict, forecast,
indicate or imply future results, performance or achievements and
generally use words so indicative. The Company wishes to caution
the reader that numerous important factors which involve risks and
uncertainties, including but not limited to economic, competitive,
governmental and technological factors affecting the Company's
operations, markets, products, services and prices, and other
factors discussedweakness in the Company's filings withUS dollar and the Securities and
Exchange Commission,decrease in the future, could affectPound Sterling
compared to the Company's
actual results and could cause its actual consolidated results to
differ materially from those expressed in any forward-looking
statement made by, orEuro. Still, there are areas of difficulty
ahead. Competitive pricing pressures on behalf of, the Company.new orders remain
ferocious.
1819
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
DECEMBER 31, 2002JUNE 30, 2003
PART II - OTHER INFORMATION
Item 4. Controls and Procedures
a. Disclosure controls and procedures. Within 90 days
before filing this report, we evaluated the
effectiveness of the design and operation of our
disclosure controls and procedures. Our disclosure
controls and procedures are the controls and other
procedures that we designed to ensure that we
record, process, summarize and report in a timely
manner the information we must disclose in reports
that we file with or submit to the SEC. Alvaro
Cadena, our Chief Executive Officer, and J. Ronald
Hansen, our Chief Financial Officer, reviewed and
participated in this evaluation. Based on this
evaluation, Messrs. Cadena and Hansen concluded
that, as of the date of their evaluation, our
disclosure controls were effective.
b. Internal controls. Since the date of the
evaluation described above, there have not been any
significant changes in our internal accounting
controls or in other factors that could
significantly affect those controls.
Item 5. Other Information
a. The Company's chief executive officer and chief
financial officer have furnished to the SEC the
certification with respect to this Form 10-Q that
is required by Section 906 of the Sarbanes-
OxleySarbanes-Oxley
Act of 2002.
Item 6. Exhibits and Reports on Form 8-K.8-K
a. See index to exhibits.
b. No reports onA Form 8-K was filed on June 10, 2003 and included
Items 7 and 9. No financial statements were
required to be filed duringas part of the quarter
ended December 31, 2002.report.
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.Ronald Hansen
----------------------------------------------------------------------------
J. R.Ronald Hansen
Vice President Finance and
Administration / CFO (Principal
Accounting Officer)
Date 02/07/7/25/03
1920
INDEX OF EXHIBITS
(2) Plan of acquisition, reorganization, arrangement,
liquidation or 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.reference.)
Stockholder Rights Plan of Graham Corporation (filed
as Item 5 to Registrant's current report filed on Form
8-K on August 23, 2000 and Registrant's Form 8-A filed
on September 15, 2000, and incorporated herein by
reference.)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 1990 Annual Meeting of Stockholders 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 Stockholders and incorporated
herein by reference.)
2000 Graham Corporation Incentive Plan to Increase Shareholder
Value (filed on the Registrant's Proxy Statement for its 2001
Annual Meeting of Stockholders 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.)
2021
Index to Exhibits (concluded)
- -----------------------------(continued)
2000 Graham Corporation Incentive Plan to Increase
Shareholder Value (filed on the Registrant's Proxy Statement
for its 2001 Annual Meeting of Stockholders and incorporated
herein by reference).
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.)
Long-Term Stock Ownership Plan of Graham Corporation
(filed on the Registrant's Proxy Statement for its 2000
Annual Meeting of Stockholders and incorporated herein by
reference.)
(11) Statement re-computation of per share earnings
Computation of per share earnings is included in Note 23
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.
(31) Rule 13a-14(a)/15d-14a Certifications
(32) Section 1350 Certifications
(99) Additional exhibits
None.
21
CERTIFICATIONS
I, Alvaro Cadena, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Graham
Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
presents in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weakness in internal
controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
22
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material
weaknesses.
/s/A. Cadena
Date: 02/07/03 ________________________________
Alvaro Cadena
Chief Executive Officer
23
I, J. Ronald Hansen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Graham
Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
presents in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weakness in internal
controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
24
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material
weaknesses.
/s/J. R. Hansen
Date: 02/07/03 ________________________________
J. Ronald Hansen
Chief Financial Officer