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, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
| | |
(Mark one) |
þ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE |
| | SECURITIES EXCHANGE ACT OF 1934. |
| | |
For the Quarterly Period EndedJune 30, 2005 |
| | |
OR |
| | |
o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from ____________ to ____________
Commission File Number1-8462
GRAHAM CORPORATION
(Exact
(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
| | |
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
(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.
YES __X__þ NO _____o
Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).
Yes __ __o No __X__þ
As of
February 1,July 22, 2005, there were outstanding
1,668,6671,747,932 shares of common stock,
par value $.10 per share.
2
Graham Corporation and Subsidiaries
Index to Form 10-Q
As of and for the Three and Nine Month PeriodsThree-Month Period Ended December 31, 2004
June 30, 2005
2
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
DECEMBER 31, 2004
JUNE 30, 2005
PART I -— FINANCIAL INFORMATION
(Dollar
(Dollar amounts in thousands except per share data)
Unaudited condensed consolidated financial statements of
Graham Corporation (the Company) and its subsidiaries as of
December 31, 2004 and for the three month and nine month periods
ended December 31, 2004 and 2003 are presented on the following
pages.
3
Item 1.
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | | | | | | |
| | June 30, | | | March 31, | |
| | 2005 | | | 2005 | |
Assets | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 1,421 | | | $ | 724 | |
Investments | | | 5,472 | | | | 1,993 | |
Trade accounts receivable, net of allowances ($39 and $28 at June 30 and March 31, 2005, respectively) | | | 6,439 | | | | 10,026 | |
Unbilled revenue | | | 2,901 | | | | 3,620 | |
Inventories, net | | | 4,423 | | | | 4,823 | |
Domestic and foreign income taxes receivable | | | 47 | | | | 45 | |
Deferred income tax asset | | | 696 | | | | 719 | |
Prepaid expenses and other current assets | | | 348 | | | | 139 | |
| | | | | | |
Total current assets | | | 21,747 | | | | 22,089 | |
Property, plant and equipment, net | | | 7,568 | | | | 7,649 | |
Deferred income tax asset | | | 3,399 | | | | 3,747 | |
Other assets | | | 44 | | | | 44 | |
| | | | | | |
Total assets | | $ | 32,758 | | | $ | 33,529 | |
| | | | | | |
| | | | | | | | |
liabilities and Stockholders’ Equity | | | | | | | | |
Current liabilities: | | | | | | | | |
Short-term debt | | | — | | | | 1,872 | |
Current portion of long-term debt | | | 49 | | | | 48 | |
Accounts payable | | | 3,759 | | | | 3,374 | |
Accrued compensation | | | 2,932 | | | | 2,802 | |
Accrued expenses and other liabilities | | | 1,435 | | | | 1,494 | |
Customer deposits | | | 876 | | | | 1,295 | |
| | | | | | |
Total current liabilities | | | 9,051 | | | | 10,885 | |
| | | | | | | | |
Long-term debt | | | 63 | | | | 44 | |
Accrued compensation | | | 229 | | | | 213 | |
Other long-term liabilities | | | 316 | | | | 364 | |
Accrued pension liability | | | 3,217 | | | | 3,141 | |
Accrued postretirement benefits | | | 2,274 | | | | 2,304 | |
| | | | | | |
Total liabilities | | | 15,150 | | | | 16,951 | |
| | | | | | |
| | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Preferred stock, $1 par value - | | | | | | | | |
Authorized, 500,000 shares | | | | | | | | |
Common stock, $.10 par value - | | | | | | | | |
Authorized, 6,000,000 shares Issued, 1,840,055 and 1,796,740 shares at June 30 and March 31, 2005, respectively | | | 184 | | | | 180 | |
Capital in excess of par value | | | 5,958 | | | | 5,553 | |
Retained earnings | | | 14,699 | | | | 14,082 | |
Accumulated other comprehensive loss | | | | | | | | |
Minimum pension liability adjustment | | | (1,698 | ) | | | (1,698 | ) |
Cumulative foreign currency translation adjustment | | | (1 | ) | | | — | |
| | | | | | |
| | | | | | | | |
Less: | | | 19,142 | | | | 18,117 | |
Treasury stock (99,123 shares at June 30 and March 31, 2005) | | | (1,385 | ) | | | (1,385 | ) |
Notes receivable from officers and directors | | | (149 | ) | | | (154 | ) |
| | | | | | |
Total stockholders’ equity | | | 17,608 | | | | 16,578 | |
| | | | | | |
Total liabilities and stockholders’ equity | | $ | 32,758 | | | $ | 33,529 | |
| | | | | | |
See Notes to Condensed Consolidated Financial Statements.
4
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
(Dollar amounts in thousands except per share data)
| | | | | | | | |
| | Three Months Ended | |
| | June 30, | |
| | 2005 | | | 2004 | |
| | | | | | | | |
Net sales | | $ | 11,749 | | | $ | 8,281 | |
| | | | | | |
Cost and expenses: | | | | | | | | |
Cost of products sold | | | 8,411 | | | | 7,500 | |
Selling, general and administrative | | | 2,253 | | | | 1,961 | |
Interest expense | | | 5 | | | | 5 | |
| | | | | | |
Total costs and expenses | | | 10,669 | | | | 9,466 | |
| | | | | | |
Income (loss) from continuing operations before income taxes | | | 1,080 | | | | (1,185 | ) |
Provision (benefit) for income taxes | | | 377 | | | | (436 | ) |
| | | | | | |
Income (loss) from continuing operations | | | 703 | | | | (749 | ) |
Loss from discontinued operations (net of income tax benefit of $101) | | | — | | | | (228 | ) |
| | | | | | |
Net income (loss) | | | 703 | | | | (977 | ) |
Retained earnings at beginning of period | | | 14,082 | | | | 17,322 | |
Dividends | | | (86 | ) | | | (83 | ) |
| | | | | | |
Retained earnings at end of period | | $ | 14,699 | | | $ | 16,262 | |
| | | | | | |
| | | | | | | | |
Per Share Data: | | | | | | | | |
Basic: | | | | | | | | |
Income (loss) from continuing operations | | $ | .41 | | | $ | (.45 | ) |
| | | | | | |
Loss from discontinued operations | | $ | — | | | $ | (.14 | ) |
| | | | | | |
Net income (loss) | | $ | .41 | | | $ | (.58 | ) |
| | | | | | |
| | | | | | | | |
Diluted: | | | | | | | | |
Income (loss) from continuing operations | | $ | .39 | | | $ | (.45 | ) |
| | | | | | |
Loss from discontinued operations | | $ | — | | | $ | (.14 | ) |
| | | | | | |
Net income (loss) | | $ | .39 | | | $ | (.58 | ) |
| | | | | | |
| | | | | | | | |
Per Share Data – Pro Forma Post-Split Basis | | | | | | | | |
(Note 13): | | | | | | | | |
Basic: | | | | | | | | |
Income (loss) from continuing operations | | $ | .20 | | | $ | (.22 | ) |
| | | | | | |
Loss from discontinued operations | | $ | — | | | $ | (.07 | ) |
| | | | | | |
Net income (loss) | | $ | .20 | | | $ | (.29 | ) |
| | | | | | |
| | | | | | | | |
Diluted: | | | | | | | | |
Income (loss) from continuing operations | | $ | .20 | | | $ | (.22 | ) |
| | | | | | |
Loss from discontinued operations | | $ | — | | | $ | (.07 | ) |
| | | | | | |
Net income (loss) | | $ | .20 | | | $ | (.29 | ) |
| | | | | | |
See Notes to Condensed Consolidated Financial Statements.
5
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollar amounts in thousands except per share data)
| | | | | | | | |
| | Three Months Ended | |
| | June 30, | |
| | 2005 | | | 2004 | |
Operating activities: | | | | | | | | |
Income (loss) from continuing operations | | $ | 703 | | | $ | (749 | ) |
| | | | | | |
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities of continuing operations: | | | | | | | | |
Depreciation and amortization | | | 195 | | | | 195 | |
Discount accretion on investments | | | (20 | ) | | | (10 | ) |
Gain on disposal of property, plant and equipment | | | (3 | ) | | | — | |
Deferred income taxes | | | 371 | | | | (436 | ) |
(Increase) decrease in operating assets: | | | | | | | | |
Accounts receivable | | | 3,587 | | | | 2,483 | |
Unbilled revenue | | | 719 | | | | — | |
Inventories | | | 400 | | | | (49 | ) |
Domestic and foreign income taxes receivable/payable | | | (1 | ) | | | (3 | ) |
Prepaid expenses and other current and non-current assets | | | (212 | ) | | | (189 | ) |
Increase (decrease) in operating liabilities: | | | | | | | | |
Accounts payable | | | 385 | | | | (811 | ) |
Accrued compensation, accrued expenses and other current and non-current liabilities | | | 21 | | | | (258 | ) |
Customer deposits | | | (419 | ) | | | 229 | |
Long-term portion of accrued compensation, accrued pension liability and accrued postretirement benefits | | | 62 | | | | (126 | ) |
| | | | | | |
Total adjustments | | | 5,085 | | | | 1,025 | |
| | | | | | |
Net cash provided by continuing operations | | | 5,788 | | | | 276 | |
Net cash provided by discontinued operations | | | — | | | | 33 | |
| | | | | | |
Net cash provided by operating activities | | | 5,788 | | | | 309 | |
| | | | | | |
| | | | | | | | |
Investing activities: | | | | | | | | |
Purchase of property, plant and equipment | | | (81 | ) | | | (27 | ) |
Collection of notes receivable from officers and directors | | | 4 | | | | 8 | |
Purchase of investments | | | (5,459 | ) | | | (2,692 | ) |
Redemption of investments at maturity | | | 2,000 | | | | 3,503 | |
| | | | | | |
Net cash (used) provided by investing activities of continuing operations | | | (3,536 | ) | | | 792 | |
Net cash used by investing activities of discontinued operations | | | — | | | | (38 | ) |
| | | | | | |
Net cash (used) provided by investing activities | | | (3,536 | ) | | | 754 | |
| | | | | | |
| | | | | | | | |
Financing activities: | | | | | | | | |
Decrease in short-term debt, net | | | (1,872 | ) | | | — | |
Principal repayments on long-term debt | | | (8 | ) | | | (10 | ) |
Issuance of common stock | | | 410 | | | | — | |
Dividends paid | | | (84 | ) | | | (83 | ) |
| | | | | | |
Net cash used by financing activities of continuing operations | | | (1,554 | ) | | | (93 | ) |
Net cash used by financing activities of discontinued operations | | | — | | | | (327 | ) |
| | | | | | |
Net cash used by financing activities | | | (1,554 | ) | | | (420 | ) |
| | | | | | |
Effect of exchange rate on cash | | | (1 | ) | | | — | |
| | | | | | |
Net increase in cash and equivalents | | | 697 | | | | 643 | |
Cash and cash equivalents at beginning of period | | | 724 | | | | 467 | |
| | | | | | |
Cash and cash equivalents at end of period | | $ | 1,421 | | | $ | 1,110 | |
| | | | | | |
See Notes to Condensed Consolidated Financial Statements.
6
GRAHAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
(Dollar amounts in thousands except per share data)
NOTE 1 – BASIS OF PRESENTATION
The financial statements have been prepared in accordance with the Company's usualCompany’s accounting policies, are based in part on estimates 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, 20042005 Condensed Consolidated Balance Sheet was derived from the Company'sCompany’s audited Consolidated Balance Sheet for the year endedas of March 31, 2004.
This part also includes management's discussion and analysis
of the Company's financial condition as of December 31, 2004 and
its2005.
The results of operations for the three
months ended June 30, 2005 and
nine monthcash flows for the three months ended June 30, 2005 are not necessarily indicative of the results to be expected for other interim periods
ended Decemberor for the year ending March 31,
2004.
4
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, March 31,
2004 2004
---- ----
Assets
Current Assets:
Cash and cash equivalents $ 825 $ 467
Investments 1,896 5,296
Trade accounts receivable, net of
allowances ($97 and $75 at December 31
and March 31, respectively) 6,977 8,950
Inventories, net 10,571 6,984
Domestic and foreign income taxes receivable 62 972
Deferred income tax asset 1,813 1,521
Prepaid expenses and other current assets 328 217
------- -------
Total current assets 22,472 24,407
Property, plant and equipment, net 8,652 9,227
Deferred income tax asset 2,169 2,048
Other assets 52 58
------- -------
Total assets $33,345 $35,740
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $ 1,867 $ 1,925
Current portion of long-term debt 47 44
Accounts payable 2,771 3,230
Accrued compensation 2,733 3,866
Accrued expenses and other liabilities 1,403 1,562
Customer deposits 1,190 2,128
------- -------
Total current liabilities 10,011 12,755
Long-term debt 58 93
Accrued compensation 216 239
Deferred income tax liability 81 77
Other long-term liabilities 365 61
Accrued pension liability 2,700 1,873
Accrued postretirement benefits 2,457 2,540
------- -------
Total liabilities 15,888 17,638
------- -------
5
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (concluded)
(Unaudited)
December 31, March 31,
2004 2004
---- ----
Shareholders' equity:
Preferred Stock, $1 par value -
Authorized, 500,000 shares
Common stock, $.10 par value -
Authorized, 6,000,000 shares
Issued, 1,767,790 shares at December 31
and 1,757,450 shares at March 31 177 176
Capital in excess of par value 5,180 5,097
Retained earnings 16,458 17,322
Accumulated other comprehensive loss
Minimum pension liability adjustment (1,456) (1,456)
Cumulative foreign currency translation
adjustment (1,338) (1,452)
------- -------
19,021 19,687
Less:
Treasury Stock (99,123 shares at December
31, and March 31) (1,385) (1,385)
Notes receivable from officers and directors (179) (200)
------- -------
Total shareholders' equity 17,457 18,102
------- -------
Total liabilities and shareholders' equity $33,345 $35,740
See Notes to Consolidated Financial Statements.
6
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
2004 2003 2004 2003
---- ---- ---- ----
Net sales $12,937 $10,224 $33,781 $31,348
------- ------- ------- -------
Cost and expenses:
Cost of products sold 9,715 8,732 28,130 26,088
Selling, general and
administrative 2,559 2,528 7,450 7,450
Interest expense 34 35 84 93
Other income (1,592) (522)
Other expense 648 648
------- ------- ------- -------
Total costs and expenses 12,956 11,295 34,720 33,109
------- ------- ------- -------
Loss before income taxes (19) (1,071) (939) (1,761)
Provision (benefit) for
income taxes 2 (322) (324) (516)
------- ------- ------- -------
Net loss (21) (749) (615) (1,245)
Retained earnings at
beginning of period 16,562 18,152 17,322 18,810
Dividends (83) (81) (249) (243)
------- ------- ------- -------
Retained earnings at
end of period $16,458 $17,322 $16,458 $17,322
======= ======= ======= =======
Per Share Data:
Basic:
Net loss $(.01) $(.46) $(.37) $(.76)
===== ===== ===== =====
Diluted:
Net loss $(.01) $(.46) $(.37) $(.76)
===== ===== ===== =====
See Notes to Consolidated Financial Statements.
7
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
December 31,
2004 2003
---- ----
Operating activities:
Net loss $ (615) $(1,245)
------- -------
Adjustments to reconcile net loss to net
cash used by operating activities:
Non cash other (income) expense (761) (522)
Depreciation and amortization 751 784
Discount accretion on investments (27) (42)
Loss on sale of property, plant and equipment 2 2
(Increase) decrease in operating assets:
Accounts receivable 2,049 (98)
Inventory, net of customer deposits (3,022) 2,268
Prepaid expenses and other current and non-
current assets (110) (142)
Increase (decrease) in operating liabilities:
Accounts payable, accrued compensation,
accrued expenses and other current and
non-current liabilities (1,199) (3,445)
Non-current accrued compensation, accrued
pension liability and accrued
postemployment benefits (230) (469)
Domestic and foreign income taxes 910 (225)
Deferred income taxes (377) (98)
------- -------
Total adjustments (2,014) (1,049)
------- -------
Net cash used by operating activities (2,629) (2,294)
------- -------
Investing activities:
Purchase of property, plant and equipment (128) (172)
Collection of notes receivable from
officers and directors 22 48
Purchase of investments (6,475) (7,919)
Redemption of investments at maturity 9,903 10,905
------- -------
Net cash provided by investing activities 3,322 2,862
------- -------
Financing activities:
Decrease in short-term debt (137) (263)
Proceeds from issuance of long-term debt 9,195
Principal repayments on long-term debt (31) (9,260)
Issuance of common stock 83 94
Dividends paid (249) (326)
8
GRAHAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (concluded)
(Unaudited)
Nine Months Ended
December 31,
2004 2003
---- ----
Acquisition of treasury stock (20)
------- -------
Net cash used by financing activities (334) (580)
------- -------
Effect of exchange rate changes on cash (1) (3)
------- -------
Net increase (decrease)in cash and cash
equivalents 358 (15)
Cash and cash equivalents at beginning of
period 467 217
------- -------
Cash and cash equivalents at end of
period $ 825 $ 202
======= =======
See Notes to Consolidated Financial Statements.
9
GRAHAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
2006. NOTE 1 -2 – CHANGE IN ACCOUNTING FOR REVENUE RECOGNITION
During the second quarter of fiscal year 2005, the Company changed its method of recognizing revenue for certain contracts from the completed contract to the percentage-of-completion method. Formerly, only contracts with a planned manufacturing process in excess of three months and with revenue of at least $1,000 and 500 pounds sterling, in the USAU.S. and UKU.K. operating segments, respectively, were accounted for under the percentage-
of-completionpercentage-of-completion method. NowWith the change, all contracts with a planned manufacturing process of four weeks or more (which approximates 575 direct labor hours) and without a dollar threshold are accounted for using the percentage-of-completion method. The Company believes this is a preferable accounting method for these contracts because it measures revenue, costs of products sold and related income on construction type contracts based on progress on the contracts, thus providing a better measure of the earnings process on a more timely basis. The Company extended its scope of contracts accounted for using the percentage-of-completion method at thisthat time because management believesbelieved that the effects on the financial statements of applying the completed contract method on these contracts could begin to vary materially from the effects of applying the percentage-of-completion method. The majority of the Company'sCompany’s contracts have a planned manufacturing process of less than four weeks, and are accounted for using the completed contract method. Prior periodThe financial results for the three months ended June 30, 2004 have been restated to reflect this
7
change. The impact of the change on net sales, cost of products sold, provisionbenefit for income taxes, loss from continuing operations, net loss, loss from continuing operations per share and net incomeloss per share for the prior periodsperiod presented is as follows:
| | | | | | | | | | | | |
| | Three Months Ended | |
| | June 30, 2004 | |
| | Amounts Reported Using | |
| | Percentage of | | | Completed Contract | | | | |
| | Completion Method | | | Method | | | Difference | |
Net sales | | $ | 8,281 | | | $ | 7,761 | | | $ | 520 | |
Cost of products sold | | $ | 7,500 | | | $ | 7,124 | | | $ | 376 | |
Benefit for income taxes | | $ | (436 | ) | | $ | (458 | ) | | $ | 22 | |
Loss from continuing operations | | $ | (749 | ) | | $ | (870 | ) | | $ | 121 | |
Net loss | | $ | (977 | ) | | $ | (1,098 | ) | | $ | 121 | |
Loss from continuing operations per share | | | | | | | | | | | | |
Basic | | $ | (.45 | ) | | $ | (.52 | ) | | $ | .07 | |
Diluted | | $ | (.45 | ) | | $ | (.52 | ) | | $ | .07 | |
Net loss per share | | | | | | | | | | | | |
Basic | | $ | (.58 | ) | | $ | (.66 | ) | | $ | .08 | |
Diluted | | $ | (.58 | ) | | $ | (.66 | ) | | $ | .08 | |
NOTE 3 — INVENTORIES
Inventories are stated at the lower of cost or market, using the average cost method. For contracts accounted for on the completed contract method, progress payments received are netted against inventory to the extent the payment is less than the inventory balance relating to the applicable contract. Progress payments that are in excess of the corresponding inventory balance are presented as customer deposits in the Condensed Consolidated Balance Sheets. 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
nine
months ended December 31, 2004excess is
presented as
follows:
Three Months Ended
December 31, 2003
Amounts Reported Using
----------------------
Percentage
of Completed
Completion Contract
Method Method Difference
---------- --------- ----------
Net sales $10,224 $10,027 $197
Cost of products sold $ 8,732 $ 8,590 $142
(Benefit) provision for income taxes $ (322) $ (339) $ 17
Net income (loss) $ (749) $ (787) $ 38
Net income (loss) per share
Basic $(.46) $(.48) $.02
Diluted $(.46) $(.48) $.02
10
Nine Months Ended
December 31,
-----------------
2003
----
Amounts Reported Using
----------------------
Percentage
of Completed
Completion Contract
Method Method Difference
---------- --------- ----------
Net Sales $31,348 $30,919 $429
Cost of products sold $26,088 $25,727 $361
(Benefit) for income taxes $ (516) $ (540) $ 24
Net income (loss) $(1,245) $(1,289) $ 44
Net income (loss) per share
Basic $(.76) $(.78) $.02
Diluted $(.76) $(.78) $.02
Nine Months Ended
December 31,
-----------------
2004
----
Amounts Reported Using
----------------------
Percentage
of Completed
Completion Contract
Method Method Difference
---------- --------- ----------
Net Sales $33,781 $32,626 $1,155
Cost of products sold $28,130 $27,193 $ 937
(Benefit) for income taxes $ (324) $ (380) $ 56
Net income (loss) $ (615) $ (807) $ 192
Net income (loss) per share
Basic $(.37) $(.48) $.11
Diluted $(.37) $(.48) $.11
11
The effect ofcustomer deposits in the change on retained earnings is as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
2003 2003
---- ----
Balance at beginning of period as
previously reported $18,103 $18,767
Add adjustment for the cumulative
effect on prior periods of
applying retroactively the
change in accounting method 49 43
------- -------
Balance at beginning of period,
as adjusted 18,152 18,810
Net loss (749) (1,245)
Dividends (81) (243)
------- -------
Balance at end of period $17,322 $17,322
======= =======
NOTE 2 - INVENTORIESCondensed Consolidated Balance Sheets. Major classifications of inventories are as follows:
December 31, March 31,
2004 2004
---- ----
Raw materials and supplies $ 2,245 $ 1,745
Work in process 10,135 6,169
Finished products 2,613 2,500
------- -------
14,993 10,414
Less - progress payments 4,261 3,309
- inventory reserve 161 121
------- -------
$10,571 $ 6,984
======= =======
12
| | | | | | | | |
| | June 30, | | | March 31, | |
| | 2005 | | | 2005 | |
Raw materials and supplies | | $ | 1,801 | | | $ | 2,098 | |
Work in process | | | 1,797 | | | | 1,421 | |
Finished products | | | 1,343 | | | | 1,566 | |
| | | | | | |
| | | 4,941 | | | | 5,085 | |
Less — progress payments | | | 518 | | | | 262 | |
| | | | | | |
| | $ | 4,423 | | | $ | 4,823 | |
| | | | | | |
8
NOTE 3 -4 – STOCK-BASED COMPENSATION:
The Company accounts for stock-based compensation in accordance with SFASStatement of Financial Accounting Standards (SFAS) No. 123, "Accounting“Accounting for Stock-Based Compensation"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“Accounting for Stock Issued to Employees"Employees”. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company'sCompany’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 higher of the quoted market price of the Company'sCompany’s stock at the end of the period.period up to $16 per unit or the stock price at the date of grant in accordance with the terms of the Long-Term Incentive Plan.
Under the intrinsic value method, no compensation expense has been recognized for the
Company'sCompany’s stock option plans.
Had
compensation costSince no options were granted and all options are fully vested, net income (loss) as reported and on a pro forma basis 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 fair value 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 Nine Months Ended
December 31, December 31,
2004 2003 2004 2003
---- ---- ---- ----
Net loss as reported $ (21) $(749) $(615) $(1,245)
Stock-based employee
compensation cost
net of related tax
benefits (118) (63) (118) (74)
----- ----- ----- -------
Pro forma net loss $(139) $(812) $(733) $(1,319)
===== ===== ===== =======
Basic loss per
share As reported $(.01) $(.46) $(.37) $(.76)
Pro forma $(.08) $(.49) $(.44) $(.80)
Diluted loss per
share As reported $(.01) $(.46) $(.37) $(.76)
Pro forma $(.08) $(.49) $(.44) $(.80)
13
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 fiscal yearsthree months ended June 30, 2005 and 2004:
2005 2004
---- ----
Expected life 5 years 5 years
Volatility 42.84% 47.13%
Risk-free interest rate 3.53% 3.01%
Dividend yield 1.65% 2.25%
2004 are the same.NOTE 4 -5 — INCOME (LOSS) PER SHARE:
Basic income (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 include share equivalent units, which are contingently issuable shares. Diluted income (loss) per share is calculated by dividing net income (loss) 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 (loss) per share is presented below:
Three Months Ended Nine Months Ended
December 31, December 31,
2004 2003 2004 2003
---- ---- ---- ----
Basic loss per share
Numerator:
Net loss $(21) $(749) $(615) $(1,245)
---- ----- ----- -------
Denominator:
Weighted common shares
outstanding 1,666,613 1,629,656 1,662,472 1,625,601
Share equivalent units
(SEU) outstanding 13,900 16,437 15,689 16,344
--------- --------- --------- ---------
Weighted average shares
and SEUs outstanding 1,680,513 1,646,093 1,678,161 1,641,945
--------- --------- --------- ---------
Basic loss per share $(.01) $(.46) $(.37) $(.76)
===== ===== ===== =====
14
Three Months Ended Nine Months Ended
December 31, December 31,
2004 2003 2004 2003
---- ---- ---- ----
Diluted loss per share
Numerator:
Net loss $(21) $(749) $(615) $(1,245)
Denominator:
Weighted average shares
and SEUs outstanding 1,680,513 1,646,093 1,678,161 1,641,945
--------- --------- --------- ---------
Diluted loss per share $(.01) $(.46) $(.37) $(.76)
===== ===== ===== =====
There are 219,9559
| | | | | | | | |
| | Three Months Ended | |
| | June 30, | |
| | 2005 | | | 2004 | |
Basic income (loss) per share | | | | | | | | |
Numerator: | | | | | | | | |
Income (loss) from continuing operations | | $ | 703 | | | $ | (749 | ) |
| | | | | | |
Denominator: | | | | | | | | |
Weighted common shares outstanding | | | 1,720,161 | | | | 1,658,327 | |
Share equivalent units (“SEUs”) | | | 13,113 | | | | 16,437 | |
| | | | | | |
Weighted average common shares and SEUs | | | 1,733,274 | | | | 1,674,764 | |
| | | | | | |
Basic income (loss) per share from continuing operations | | $ | .41 | | | $ | (.45 | ) |
| | | | | | |
| | | | | | | | |
Diluted income (loss) per share | | | | | | | | |
| | | | | | | | |
Numerator: | | | | | | | | |
Income (loss) from continuing operations | | $ | 703 | | | $ | (749 | ) |
| | | | | | |
| | | | | | | | |
Denominator: | | | | | | | | |
Weighted average shares and SEUs outstanding | | | 1,733,274 | | | | 1,674,764 | |
Stock options outstanding | | | 62,806 | | | | — | |
Contingently issuable SEUs | | | 24 | | | | — | |
| | | | | | |
Weighted average common and potential common shares outstanding | | | 1,796,104 | | | | 1,674,764 | |
| | | | | | |
| | | | | | | | |
Diluted income (loss) per share from continuing operations | | $ | .39 | | | $ | (.45 | ) |
| | | | | | |
Certain options to purchase shares of common stock, which totaled 23,850 and 191,295 at various exercise prices thatJune 30, 2005 and 2004, respectively, were excluded fromnot included in the above computation of diluted lossincome (loss) per share for the three and nine
month periods ended December 31, 2004 and 2003 as the effect would be antidilutive dueanti-dilutive.
A reconciliation of the numerators and denominators of basic and diluted income (loss) per share on a pro forma post-split basis (Note 13) is presented below:
| | | | | | | | |
| | Three Months Ended | |
| | June 30, | |
| | 2005 | | | 2004 | |
Basic income (loss) per share | | | | | | | | |
| | | | | | | | |
Numerator: | | | | | | | | |
Income (loss) from continuing operations | | $ | 703 | | | $ | (749 | ) |
| | | | | | |
| | | | | | | | |
Denominator: | | | | | | | | |
Weighted common shares outstanding | | | 3,440,322 | | | | 3,316,654 | |
Share equivalent units (“SEUs”) | | | 26,226 | | | | 32,874 | |
| | | | | | |
Weighted average common shares and SEUs | | | 3,466,548 | | | | 3,349,528 | |
| | | | | | |
| | | | | | | | |
Basic income (loss) per share from continuing operations | | $ | .20 | | | $ | (.22 | ) |
| | | | | | |
| | | | | | | | |
Diluted income (loss) per share | | | | | | | | |
| | | | | | | | |
Numerator: | | | | | | | | |
Income (loss) from continuing operations | | $ | 703 | | | $ | (749 | ) |
| | | | | | |
| | | | | | | | |
Denominator: | | | | | | | | |
Weighted average shares and SEUs outstanding | | | 3,466,548 | | | | 3,349,528 | |
Stock options outstanding | | | 125,612 | | | | — | |
Contingently issuable SEUs | | | 48 | | | | — | |
| | | | | | |
Weighted average common and potential common shares outstanding | | | 3,592,208 | | | | 3,349,528 | |
| | | | | | |
| | | | | | | | |
Diluted income (loss) per share from continuing operations | | $ | .20 | | | $ | (.22 | ) |
| | | | | | |
10
Certain options to purchase shares of common stock, which totaled 47,700 and 382,590 at June 30, 2005 and 2004, respectively, were not included in the net losses forabove computation of diluted income (loss) per share as the periods.
effect would be anti-dilutive.
NOTE 5 -6 – PRODUCT WARRANTY LIABILITY
The reconciliation of the changes in the product warranty liability is as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
2004 2003 2004 2003
---- ---- ---- ----
Balance at beginning
of period $225 $359 $242 $592
Expense (reversal) for
product warranties 18 (70) 74 50
Product warranty
claims paid (6) (31) (79) (384)
---- ---- ---- ----
Balance at end of
period $237 $258 $237 $258
==== ==== ==== ====
| | | | | | | | |
| | Three Months Ended | |
| | June 30, | |
| | 2005 | | | 2004 | |
Balance at beginning of period. | | $ | 255 | | | $ | 242 | |
Expense for product warranties | | | 126 | | | | 62 | |
Product warranty claims paid | | | (82 | ) | | | (38 | ) |
| | | | | | |
Balance at end of period | | $ | 299 | | | $ | 266 | |
| | | | | | |
NOTE 6 -7 — CASH FLOW STATEMENT
Interest paid from continuing operations was $84$11 and $95$5 for the ninethree months ended December 31,June 30, 2005 and 2004, and 2003, respectively. In addition, income taxes refunded from continuing operations were $886$5 and $193$10 for the ninethree months ended December 31,June 30, 2005 and 2004, respectively.
Non-cash activities during the three months ended June 30, 2005 and
2003, respectively.
15
Dividends2004 included dividends of $249$86 and $243$83, respectively, which were recorded for the respective
nine month periods ended December 31, 2004 and 2003, of which $83
and $0 werebut not paid during the respective periods.paid. In addition, duringin the nine months ended December 31, 2003,first quarter of fiscal year 2005, capital expenditures totaling $11$27 were financed through the issuance of capital leases. NOTE 7 -8 — COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) was $143 and $(536) for the
three months ended December 31, 2004 and 2003, respectively.
Other comprehensive income for the three months ended December
31, 2004 and 2003 included foreign currency translation
adjustments of $164 and $213, respectively. Total comprehensive
loss for the nine months ended December 31, 2004 and 2003 was
$501 and $899, respectively. Other comprehensive income for the
nine months ended December 31, 2004 and 2003 included foreign
currency translation adjustments of $114 and $346, respectively.
as follows:
| | | | | | | | |
| | Three Months Ended | |
| | June 30, | |
| | 2005 | | | 2004 | |
| | | | | | | | |
Net income (loss) | | $ | 703 | | | $ | (977 | ) |
| | | | | | | | |
Other comprehensive income: | | | | | | | | |
Foreign currency translation adjustment | | | (1 | ) | | | (34 | ) |
| | | | | | |
| | | | | | | | |
Total comprehensive income (loss) | | $ | 702 | | | $ | (1,011 | ) |
| | | | | | |
11
NOTE 8 -9 – EMPLOYEE BENEFIT PLANS
The components of pension cost are as follows:
Three Months Ended Nine Months Ended
December 31 December 31
2004 2003 2004 2003
---- ---- ---- ----
Service cost $118 $111 $354 $331
Interest cost 243 224 731 668
Expected return on assets (226) (183) (678) (546)
Amortization of:
Transition asset (3) (11) (11) (11)
Unrecognized prior
service cost 1 1 3 3
Actuarial loss 76 67 228 200
---- ---- ---- ----
Net pension cost $209 $209 $627 $625
==== ==== ==== ====
| | | | | | | | |
| | Three Months Ended | |
| | June 30, | |
| | 2005 | | | 2004 | |
| | | | | | | | |
Service cost | | $ | 108 | | | $ | 118 | |
Interest cost | | | 218 | | | | 244 | |
Expected return on assets | | | (189 | ) | | | (226 | ) |
Amortization of: | | | | | | | | |
Transition asset | | | | | | | (4 | ) |
Unrecognized prior service cost | | | 1 | | | | 1 | |
Actuarial loss | | | 75 | | | | 76 | |
| | | | | | |
Net pension cost | | $ | 213 | | | $ | 209 | |
| | | | | | |
The Company made contributions of
$201 and $773$144 to
theits defined benefit pension plan in the
three and nine months ended
December 31, 2004, respectively.first quarter of fiscal year 2006. The Company
does not expect to
make anyexpects its contributions to the plan for the balance of fiscal year
2005 due2006 to
a decrease in the minimum contribution requirement as
a result of the combination of the amortization bases as
permitted by the Internal Revenue Service Code Section 412(b)(4)
and the replacement of the 30-year Treasury bond interest rate
with a four-year weighted average long-term corporate bond
interest rate.
16be approximately $431. The components of the postretirement benefit income are as follows:
Three Months Ended Nine Months Ended
December 31 December 31
2004 2003 2004 2003
---- ---- ---- ----
Service cost $ 0 $ 4 $ 0 $ 10
Interest cost 19 14 55 47
Amortization of prior
service cost (41) (31) (124) (93)
Amortization of actuarial
loss 5 3 17 7
---- ---- ---- ----
Net postretirement benefit $(17) $(10) $(52) $(29)
==== ==== ==== ====
| | | | | | | | |
| | Three Months Ended | |
| | June 30, | |
| | 2005 | | | 2004 | |
| | | | | | | | |
Service cost | | $ | — | | | $ | — | |
Interest cost | | | 19 | | | | 18 | |
Amortization of prior service cost | | | (43 | ) | | | (41 | ) |
Amortization of actuarial loss | | | 4 | | | | 6 | |
| | | | | | |
Net postretirement benefit income | | $ | (20 | ) | | $ | (17 | ) |
| | | | | | |
The Company paid benefits of $3 and $31$10 related to its postretirement benefit plan in the three and nine months ended
December 31, 2004, respectively.first quarter of fiscal year 2006. The Company expects to pay benefits of approximately $125$143 for the balance of fiscal year 2005.
2006.
NOTE 9 - OTHER INCOME AND EXPENSE
In November 2004,10 – Discontinued Operations
On March 15, 2005, the Company entered into an Agreement and
General Release in connection with the retirementCompany’s Board of Directors approved a plan to dispose of its former
PresidentU.K. operations by making available for sale the Company’s wholly-owned subsidiary, Graham Vacuum and CEO. In accordance withHeat Transfer Limited (“GVHT”) and all its subsidiaries, including GVHT’s operating subsidiary Graham Precision Pumps Limited (“GPPL”) in Congleton, Cheshire, U.K. and to offer them for sale. On March 24, 2005, the agreement,principal creditor of the Company
will retainU.K. companies, National Westminster Bank, exercised its right to
12
appoint a receiver for GVHT and GPPL to sell the
former officer as an independent consultant for
the period January 1, 2005 to November 8, 2008 and provide
certain medical, dental and insurance benefits during the
consulting period.U.K. companies. The
agreement also containsappointment of a
non-compete
provision. The agreement has been accounted for as an individual
deferred compensation arrangement, and, therefore, an expense of
$648 was recognized and is includedreceiver resulted in the
caption "Other Expense"liquidation of the assets of the U.K. companies, which was completed in May 2005. GPPL manufactured liquid ring vacuum pumps and complete vacuum pump systems used in the
Consolidated Statementchemical, petrochemical, petroleum refining and power industries. The results of
Operations and Retained Earningsoperations for the three
and nine month periods ended December 31, 2004. The
current and long-term portions of the related liability at
December 31, 2004 were $243 and $319, respectively, and are
included in the captions "Accrued Expenses and Other Liabilities"
and "Other Long-Term Liabilities" in the Consolidated Balance
Sheet at December 31, 2004.
In September 2004, the Company settled a contract dispute
with a customer regarding cancellation charges. This settlement
agreement was executed prior to the end of the quarter, and the
unpaid settlement amount due of $183 was received on October 13,
2004. As a result of the settlement, other income of $1,592 was
recorded.
17
On February 4, 2003, the Company irrevocably terminated
postretirement health care benefits for current U.S. employees.
Benefits payable to retirees of record on April 1, 2003 remained
unchanged. As a result of the plan change, a curtailment gain of
$522 was recognized. This gain is included in the caption "Other
Income" in the Consolidated Statement of Operations and Retained
Earnings for the nine months ended December 31, 2003.
NOTE 10 - 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 andJune 30, 2004 have been restated to reflect 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,
2004 2003 2004 2003
---- ---- ---- ----
Sales to external customers
U.S. $10,783 $ 8,891 $28,135 $27,863
U.K. 2,154 1,333 5,646 3,485
------- ------- ------- -------
Total $12,937 $10,224 $33,781 $31,348
======= ======= ======= =======
Intersegment sales
U.S. $ 118 $ 38
U.K. $ 252 $ 1,025 610 2,091
------- ------- ------- -------
Total $ 252 $ 1,025 $ 728 $ 2,129
======= ======= ======= =======
Segment net income (loss)
U.S. $ (69) $ (701) $ (389) $ (914)
U.K. $ 22 (329) (276)
------- ------- ------- -------
Total segment net loss $ (47) $ (701) $ (718) $(1,190)
======= ======= ======= =======
The segment net loss above is reconciled to the consolidated totalsU.K. operations as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
2004 2003 2004 2003
---- ---- ---- ----
Total segment net loss $ (47) $(701) $(718) $(1,190)
Eliminations 26 (48) 103 (55)
----- ----- ----- =======
Net loss $ (21) $(749) $(615) $(1,245)
===== ===== ===== =======
18
a discontinued operation. NOTE 11 - RELATED PARTY TRANSACTION
On April 1, 2003, the Company acquired 30,800 shares of
common 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
original issue price of $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 of $20 approximate amounts
previously paid on the notes. (See Note 9 for additional
disclosure of related party transactions).
NOTE 12 -– CONTINGENCIES
The Company has been named as a defendant in certain lawsuits wherein the respective plaintiffs allege personal injury from exposure to asbestos contained in products made by the Company. The Company is a co-defendant with numerous other defendants in these suits. The Company has retained litigation
counselsuits and intends to vigorously defend itself against these claims. The claims are similar to previous asbestos suits naming the Company as defendant, which either were dismissed when it was shown that the Company had not supplied products to the plaintiffs'plaintiffs’ places of work or were settled for minimal amounts below the expected defense costs. TheNeither the outcome of these claims nor the potential for liability is not determinable.
In December 2004, the Company received a request for
payment from the Metal Goods & Manufacturers Trust Fund for $30
relating to a workers' compensation assessment asserted against
members in the Trust Fund during the period 1993 through 2001.
The Company
At June 30, 2005, management was
a memberunaware of
the Trust Fundany additional litigation matters. However, from
April 1994 until
May 1995. The Company is disputing this claim and has provided
for this contingent liability at December 31, 2004.
From time to time, the Company is subject to legal proceedings and potential claims arising from contractual agreements in the ordinary course of business. The Company believes there are no such matters pending against it that could have, individually or in the aggregate, a material adverse effect on its
business or financial
statements.
19
condition. NOTE 13 -12 – ACCOUNTING AND REPORTING CHANGES
In November 2004, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Statement of Financial Accounting Standards
("SFAS")SFAS No. 151, "Inventory“Inventory Costs."” This Statement amends Accounting Research Bulletin No. 43, Chapter 4, "Inventory
Pricing"“Inventory Pricing”, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. This Statement requires that those items be recognized as current period charges regardless of whether they meet the criterion of "abnormal"“abnormal”. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This Statement is effective for inventory costs incurred during the Company’s fiscal year 2007. The Company believes the adoption of this Statement will result in the acceleration of recognizing indirect manufacturing expenses during times of below normal utilization of plant capacity. In December 2004,Management has not determined the FASB issued SFAS No. 152, "Accounting
for Real Estate Time-Sharing Transactions" and SFAS No. 153,
"Exchanges of Nonmonetary Assets". Both Statements are effective
for fiscal years beginning after June 15, 2005. The Company does
not believe either of these Statements will have a material
effectimpact on the Company's consolidated financial position, resultsConsolidated Financial Statements of operations or cash flows.adopting this Statement.
13
The FASB also issued in December 2004, SFAS No. 123R, "Share-Based Payment"“Share-Based Payment”. This Statement revisesrequires all share-based payments to employees, including grants of employee stock options, to be recognized in the standards
establishedfinancial statements based on their fair values for the accounting of transactions in which an entity
exchanges its equity instruments for goods and services. It also
addresses transactions in which an entity incurs liabilities in
exchange for goods or services that are basedfiscal years beginning after June 15, 2005. In addition, SFAS No. 123(R) will cause unrecognized expense (based on the fair values determined for the pro forma footnote disclosure, adjusted for estimated forfeitures) related to options vesting after the date of initial adoption to be recognized as a charge to results of operations over the remaining vesting period. Under SFAS No. 123(R), the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition alternatives include the entity's equity instrumentsmodified prospective or thatthe modified retrospective adoption methods. Under the modified retrospective method, prior periods may be settled by the
issuance of those equity instruments. This Statement is
effectiverestated either as of the beginning of the year of adoption or for all periods presented. The modified prospective method requires that compensation expense be recorded for all unvested stock options and share awards at the beginning of the first interim reporting
period that begins after December 15, 2005 and applies to all
awards granted after the required effective date and to awards
modified, repurchased, or cancelled after that date. Thequarter of adoption of this Statement will haveSFAS No. 123(R), while the modified retrospective methods would record compensation expense for all unvested stock options and share awards beginning with the first period restated. The Company is evaluating the requirements of SFAS No. 123(R), but cannot yet estimate the effect of adopting SFAS No. 123(R) as it has not yet selected the method of adoption or an effect on the Company's
consolidated resultsoption-pricing model and has not yet finalized estimates of operations.its expected forfeitures. For additional information, see Note 4, “Stock-Based Compensation”, of the Notes to Condensed Consolidated Financial Statements.
In March 2005, the FASB issued Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143”. FIN No. 47 clarifies the term conditional asset retirement obligation as used in SFAS No. 143, “Accounting for Asset Retirement Obligations”, and provides further guidance as to when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. This Interpretation is effective for the Company for the year ending March 31, 2006. The Company is currently evaluating the impact this Interpretation will have on the Company’s financial position, results of operation and cash flows.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” This Statement replaces APB Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to a newly adopted accounting principle. In addition, the Statement requires
14
restatement of previously issued financial statements when reporting the correction of an error. This Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.
NOTE 13 – SUBSEQUENT EVENTS
In July 2005, the Company entered into a new revolving credit facility agreement that provides a line of credit of up to $13,000, including a letter of credit limit of $8,000, through October 31, 2008. The agreement allows the Company to borrow at prime minus a variable percentage or LIBOR plus a variable percentage based upon the ratio of total liabilities to tangible net worth. The Company has the option of choosing an interest rate based on the prime rate or the LIBOR rate. The agreement allows the Company at any time to convert balances outstanding not less than $2,000 and up to $9,000 with a two-year term loan. This conversion feature is available though October 31, 2008.
On July 28, 2005, the Company’s Board of Directors declared a two-for-one stock split of the Company’s common shares. The two-for-one stock split will be effected as a stock dividend, and stockholders will receive one additional share of common stock for every share of common stock held on the record date of September 1, 2005. The Company expects that the new common shares will be distributed on or about October 3, 2005. Fractional shares will be paid in cash based upon the closing price of the Company’s common stock on September 1, 2005. Pro forma income (loss) per share amounts are disclosed in the Statement of Operations and Retained Earnings and Note 5 to the Condensed Consolidated Financial
Statements.
Certain reclassifications have been madeStatements to
prior financial
information to conformgive effect to the
current period presentation.
20
two-for-one split. 15
Item 2.
GRAHAM CORPORATION AND SUBSIDIARIES
MANAGEMENT'S
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (MD&A)
December 31, 2004
June 30, 2005
(Dollar amounts in thousands except per share data)
OVERVIEW
Graham Corporation consists(“Graham”, the “Corporation” or the “Company”) is located in Batavia, New York. Formerly, the Company had an operating subsidiary located in the United Kingdom that manufactured vacuum equipment. In March 2005, Graham’s Board of two operating segmentsDirectors approved a plan to dispose of the U.K. operations, which resulted in the disposition of the U.K. operations in May 2005. As a result of the disposition, the U.K. operations are presented as determined by geographic areas (USA: Graham Corporation, UK:
Graham Vacuuma discontinued operation in the Consolidated Statements Of Operations and Heat Transfer LimitedRetained Earnings and its wholly-owned
subsidiary, Graham Precision Pumps Limited).
Graham'sConsolidated Statements Of Cash Flows for the three months ended June 30, 2004.
Graham’s current fiscal financial reporting year commencescommenced April 1, 2005 and endswill end March 31.
In the quarter ended September 30, 2004, the31, 2006.
Graham Corporation
modified its methodis a global designer, manufacturer and supplier of
recognizing revenue for certain contracts
from the completed contract to the percentage-of-completion
method. Prior period financial results have been restated to
reflect this change.ejectors, pumps, condensers and heat exchangers. The
impact of the restatement on FYE 2004
information discussed in this MD&A is disclosed as parenthetical
information within the relevant discussion sections. The
restatement did not change previously reported UK financial
information. The impact of the change on net sales, cost of
products sold, provision for income taxes and net incomeprinciple markets for the
prior periods presented and the nine months ended December 31,
2004 isCompany’s equipment, which may be sold either as
follows:
Three Months Ended
December 31, 2003
Amounts Reported Using
----------------------
Percentage
of Completed
Completion Contract
Method Method Difference
---------- --------- ----------
Net sales $10,224 $10,027 $197
Cost of products sold $ 8,732 $ 8,590 $142
(Benefit) provision for income taxes $ (322) $ (339) $ 17
Net income (loss) $ (749) $ (787) $ 38
Net income (loss) per share
Basic $(.46) $(.48) $.02
Diluted $(.46) $(.48) $.02
21
Nine Months Ended
December 31,
-----------------
2003
----
Amounts Reported Using
----------------------
Percentage
of Completed
Completion Contract
Method Method Difference
---------- --------- ----------
Net Sales $31,348 $30,919 $429
Cost of products sold $26,088 $25,727 $361
(Benefit) for income taxes $ (516) $ (540) $ 24
Net income (loss) $(1,245) $(1,289) $ 44
Net income (loss) per share
Basic $(.76) $(.78) $.02
Diluted $(.76) $(.78) $.02
Nine Months Ended
December 31,
-----------------
2004
----
Amounts Reported Using
----------------------
Percentage
of Completed
Completion Contract
Method Method Difference
---------- --------- ----------
Net Sales $33,781 $32,626 $1,155
Cost of products sold $28,130 $27,193 $ 937
(Benefit) for income taxes $ (324) $ (380) $ 56
Net income (loss) $ (615) $ (807) $ 192
Net income (loss) per share
Basic $(.37) $(.48) $.11
Diluted $(.37) $(.48) $.11
The effect of the change on retained earnings is as follows:
22
Three Months Ended Nine Months Ended
December 31, December 31,
2003 2003
---- ----
Balance at beginning of period as
previously reported $18,103 $18,767
Add adjustment for the cumulative
effect on prior periods of
applying retroactively the
change in accounting method 49 43
------- -------
Balance at beginning of period,
as adjusted 18,152 18,810
Net loss (749) (1,245)
Dividends (81) (243)
------- -------
Balance at end of period $17,322 $17,322
======= =======
Graham Corporation designs and builds vacuum and heat
transfer equipment for the process industries throughout the
world. The Company is a leader in vacuum technology in the
principal markets it serves. The principal markets for our
equipmentcomponents or complete units, are the chemical, petrochemical, petroleum refiningoil refinery and electric power generatinggeneration industries, including cogeneration and geothermal plants. Other markets served includeGraham equipment can also be found in diverse applications, such as metal refining, pulp and paper processing, shipbuilding, water heating, refrigeration, desalination, food processing, drug manufacturing,drugs, heating, ventilating and air conditioning.
Ejectors, liquid ring Because Graham’s products are capital goods, industrial downturns can have a major impact on sales. The current level of inquiries for Graham’s products gives the Company reason to believe that it has entered an up cycle for capital spending, which it believes should continue to positively impact its business for the immediate future. Global growth and dry vacuum pumps, condensers, heat
exchangersexpansion in oil refineries, petrochemical plants and other products we sell, sold either as components
or as complete systems,power generation are used by our customers to produce
synthetic fibers, chemicals, petroleum products (including
gasoline), electric power, processed food (including canned,
frozen and dairy products), pharmaceutical products, paper,
steel, fertilizers and numerous other products used everyday by
people throughout the world.
driving current demand for Graham products.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document, including in this MD&A,Management’s Discussion and Analysis of Financial Condition and Results of Operations, that are not historical facts, constitute "Forward-
Looking Statements"“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
16
use words
so
indicative. The Company wishessuch as “anticipates,” “expects,” “believes,” “estimates,” “intends,” and similar expressions to
caution the reader that
numerousidentify such statements. Numerous important factors which involve risks and uncertainties, including but not limited to
economic, competitive, governmentalthe Company’s strategy to build its global sales representative channel, the effectiveness of automation in its operations, the ability to improve its cost competitiveness, customer preferences and
technological factors affectingchanges in market conditions in the
Company's operations,
markets, products, services and prices,industries in which the Company operates, and other factors discussed in the
Company'sCompany’s filings with the Securities and Exchange Commission, in the future, could affect the
Company'sCompany’s actual results and could cause its actual consolidated results to
23 differ materially from those expressed in any forward-looking statement made by or on behalf of, the Company.CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
The discussion and analysis of ourthe Company’s financial condition and results of operations are based upon ourthe Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").America.
Critical accounting policies are defined as those that are
reflective ofreflect significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. Management has discussed each of these critical accounting policies and estimates with the Audit Committee of the Board of Directors.
17
Revenue Recognition - – The Corporation 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 percentage-of-completion method is determined by relating actual labor incurred to-date to management'sa specific date to management’s estimate of total labor to be incurred on each contract. Contracts in progress are reviewed monthly, 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 known.
Revenue on other contracts (less than four weeks in duration, which approximates less than 575 direct labor hours) not accounted for using the percentage-of-completion method is accounted for onrecognized utilizing the completed contract method because
themethod. The majority of the Company'sCompany’s contracts have a planned manufacturing process of less than four weeks and the results reported under this method do not vary materially from the use of the percentage-of-completion method. The Company recognizes revenue and all related costs on the completed contract method upon substantial completion or shipment of products 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 the contract after the revenue is recognized.
Pension and Postretirement Benefits - – The
Company'sCompany’s defined benefit pension and other postretirement benefit costs and obligations are dependent on actuarial assumptions used in calculating such amounts. These assumptions
which are reviewed annually by the Company
and include the discount rate, long-term expected rate of return on plan assets, salary growth, healthcare cost trend rate and other economic and demographic factors. The Company bases the discount rate assumption for its plans on the AA-rated corporate long-term bond yield rate. The long-term expected rate of return on plan assets is based on the
plan'splan’s asset allocation, historical returns and
management'smanagement’s expectation as to future returns that are expected to be realized over the estimated remaining life of the plan liabilities that will be funded with the plan assets. The salary growth assumptions are determined based on the
Company'sCompany’s long-term actual experience and
24 future and near-term outlook. The healthcare cost trend rate assumptions are based on historical cost and payment data, the near-term outlook, and an assessment of the likely long-term trends. To the extent that actual results differ from ourthe Company’s assumptions, the differences are reflected as unrecognized gains and losses and are amortized to earnings over the estimated future service period of the plan participants to the extent such total net recognized gains and losses exceed 10% of the greater of the plan'splan’s projected benefit obligation or the market-related value of assets. Significant differences in actual experience or significant changes in future assumptions would affect the
Company's
18
Company’s pension and postretirement benefit costs and obligations.
Use of Estimates - The preparation of these financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets and liabilities, revenues and expenses
and related disclosure of contingent assets and liabilities at
the date of our financial statements. Actual results may differ
from these estimates under different assumptions or conditions.
Use of estimates include the recording of revenue, pension
obligations, and the underlying assumptions and valuation
reserves for uncollectible accounts, inventory obsolescence,
deferred taxes, warranty and liquidated damages.
Results of Operations
- ---------------------
RESULTS OF OPERATIONS
For an understanding of the significant factors that influenced the
Company'sCompany’s performance, the following discussion should be read in conjunction with the quarterly
condensed consolidated financial statements and the notes to
condensed consolidated financial
statements.
Three Months Ended
---------------------------------------
December 31, 2004 December 31, 2003
----------------- -----------------
USA UK USA UK
--- -- --- --statements contained in this report.(Dollar amounts in thousands except per share data)
| | | | | | | | |
| | Three Months Ended | |
| | June 30, | |
| | 2005 | | | 2004 | |
| | | | | | | | |
Net sales | | $ | 11,749 | | | $ | 8,281 | |
Income (loss) from continuing operations | | $ | 703 | | | $ | (749 | ) |
Diluted income (loss) per share from continuing operations | | $ | 0.39 | | | $ | (0.45 | ) |
Identifiable assets | | $ | 32,758 | | | $ | 33,529 | |
Sales $10,783 $ 2,406 $ 8,891 $ 2,358
Net Income (Loss) $ (69) $ 22 $ (701) $ 0
Diluted Income (Loss)Per Share $ (0.04) $ 0.01 $ (0.43) $ 0
Identifiable Assets $31,104 $ 6,046 $31,485 $ 6,176
25
Nine Months Ended
----------------------------------------
December 31, 2004 December 31, 2003
----------------- -----------------
USA UK USA UK
--- --- --- --
Sales $28,253 $ 6,256 $27,901 $ 5,576
Net Loss $ (389) $ (329) $ (914) $ (276)
Diluted Loss Per Share $ (0.23) $ (0.20) $ (0.56) $ (0.17)
Amounts above are inclusive of intercompany amounts.
Consolidated sales (net of intercompany sales) for the
quarter were $12,937, as compared to $10,224 for the quarter ended December 31, 2003.June 30, 2005 were $11,749, as compared to $8,281 for the quarter ended June 30, 2004. This represents a 27% increase in
consolidated sales. Sales in the USA were up 21% from one year
ago. Sales from UK operations were up 2%. The increase in USA
sales for the current quarter was due to selling price increases
initiated to mitigate rising material costs and greater surface
condenser sales. (Due to the restatement, FYE 2004 consolidated
and USA sales were increased by $197 for the quarter).
Consolidated sales (net of intercompany sales) for the nine
months were $33,781, as compared to $31,348 for the nine months
ended December 31, 2003. This represents an 8%42% increase in sales. The growth in sales came from increases in both domestic and export business, with export sales to Canada, Asia and the Middle East having the greatest improvement compared with the quarter ended June 30, 2004. Sales, by product, were up due to significantly greater demand for Graham’s condensers and replacement parts. Condenser sales increased about $3,597 or 527%. Capital spending in the USArefinery, power and chemical/petrochemical markets is driving this demand. The Company anticipates this trend to be sustained for at least the immediate future. Replacement part sales were up 1% from one year ago. Sales
from UK operations were up 12%$1,510 or about 91%. The FYE 2005 year-to-date (YTD)This increase in sales was due substantially to USA increasedone unusually large replacement order. Partially offsetting these increases were declines in ejector and vacuum pump sales, as compared with the quarter ended June 30, 2004. Vacuum pump sales were down due to the disposal of Graham’s U.K. pump manufacturing operation, which occurred in the currentfourth quarter of fiscal year 2005. Fewer ejector sales were a matter of timing of shipments. Both pump and increasedejector sales YTD in UK operations of offshore oil
extraction pumps. (Dueare expected to rebound as the restatement, FYE 2004 consolidated
and USA sales increased $429 for the nine months).year continues. The consolidated gross profit margin for the current quarter was 25%28%, as compared to 15%9% for the quarter ended December 31,
2003. By segment, USA operations' gross profit increased from
11% for the third quarter ended December 31, 2003 to 24% for the
current quarter. The UK's gross profit margin remained unchanged
at 25% for both the quarter ended December 31, 2004 and December
31, 2003.June 30, 2004. The improvement in the USA gross profit margin for the quarter was due to greater sales volume, selling price increases, which generatedand improved contribution margins across all product lines,mix.
Selling, general and
fewer sales of lower margin products. (Due to the
restatement, FYE 2004 consolidated and USA gross profit
percentages increased 1% for the quarter).
26
The consolidated gross profit margin was 17% for both the
nine months ended December 31, 2004 and 2003. USA operations'
gross profit margin of 15% for the nine months ended December 31,
2004 was unchanged, as compared to the nine months ended December
31, 2003. The UK's gross profit margin decreased to 20% for the
nine months ended December 31, 2004 from 22% for the nine months
ended December 31, 2003. The reduction in the UK gross profit
margin for the nine months was due to the shipment of a few
orders taken at very low selling prices. (The restatement did
not change gross profit percentages for the nine months ended
December 31, 2003).
Selling, General and Administrativeadministrative expenses (SG&A) were 20%19% of sales for the current quarter, as compared to 25%24% for the quarter ended December 31, 2003June 30, 2004. Selling, general and 22%administrative expenses were down as a percentage of sales due to greater sales. 19
Actual expenses for the nine
months ended December 31, 2004, as compared to 24% for the nine
month period ended one year earlier. Percentage variances in
SG&A expenses arecurrent quarter increased due to changes ingreater sales levels in bothactivity, Sarbanes-Oxley compliance costs and costs associated with the quarterly and nine-month comparative periods.reorganization along business unit lines.
Interest expense was
$34$5 for
the quarterboth quarters ended
December 31,
2004June 30, 2005 and
$35 for the quarter ended December 31, 2003. For the
nine-month periods ended December 31, 2004 and 2003, interest
expense was $84 and $93, respectively. Interest expense for the
current fiscal year to date decreased in the USA, which resulted
in a consolidated decrease of interest expense.
Other income for the nine months ended December 31, 2004 was
$1,592, as compared to $522 for the nine months ended December
31, 2003. Other income of $1,592 resulted from a settlement of a
contract dispute over cancellation charges. The settlement of
this matter ended a complaint filed in April 2004 in the United
States District Court for the Northern District of California
alleging breach of contract by a customer and a counterclaim
filed by the customer seeking specific performance of the
contract or money damages. Other income of $522 recognized for
the nine months ended December 31, 2003 represents a non-
recurring curtailment gain resulting from the discontinuation of
postretirement medical benefits.
Other expense recognized in the current quarter and nine
months ended December 31, 2004 of $648 was incurred in
conjunction with reaching an Agreement and General Release with
its former President and CEO. In accordance with the agreement,
the Company will retain the former officer as an independent
consultant for the period January 1, 2005 to November 8, 2008 and
provide certain medical, dental and insurance benefits during the
consulting period. Other expense for the nine months ended
December 31, 2003 was zero.
272004. The effective income tax rate for the quarter was (11)%, as
compared to 30% at December 31, 2003. The effective income tax
rate for the nine months ended December 31, 2004 was 35%, as compared to 29%37% at December 31, 2003. The lower effective income
tax rate for the nine-month period ended December 31, 2003, as
compared to 2004, was attributable to permanent items not
available to the Company in FYE 2005. The unusually low
effective income tax rateJune 30, 2004. Both quarterly rates approximate statutory rates.
Income for the current quarter resultedperiod from the need to revise the annualized projected effectivecontinuing operations and net income tax
rate and recognize the year-to-date provision adjustment in a
quarter when the income (loss) before income tax amount was
minimal. (The restatement did not change the income tax rates
for the three or nine months ended December 31, 2003).
Net loss for the quarter was $21$703 or $0.01$0.39 per diluted share. This compares to aLoss from continuing operations and the net loss offor the three months ended June 30, 2004 was $749 or $0.46 per diluted share
for the quarter ended December 31, 2003. Net losses for the nine-
month periods ended December 31, 2004 and 2003 were $615, or
$0.37$0.45 per diluted share, and $1,245$977 or $0.76$0.58 per diluted share, respectively. (ForThe loss for discontinued operations for the ninethree months ended December 31, 2003, the
restatement reduced the consolidated and USA net losses by $44June 30, 2004 of $228 or $0.02$.14 per diluted share. The restatement reducedshare represents the consolidated
and USA netoperating losses forof the quarter ended December 31, 2004 by $38
or $0.02U.K. subsidiary that was disposed of in March 2005. There was no loss from discontinued operations in the current quarter.
LIQUIDITY AND CAPITAL RESOURCES
(Dollar amounts in thousands except per
diluted share.)
Liquidity and Capital Resources
- -------------------------------
As of and for the Nine Months Ended
---------------------------------------
December 31, 2004 December 31, 2003
----------------- -----------------
USA UK USA UK
--- --- --- ---
Working Capital $10,830 $ 1,914 $ 9,720 $ 1,918
Cash Flow (Deficit) from Operations $(2,824) $ 195 $(2,612) $ 318
Cash and Investments $ 2,711 $ 10 $ 3,660 $ 44
Capital Expenditures $ 53 $ 74 $ 141 $ 31
Long-Term Bank Borrowings $ 0 $ 0 $ 0 $ 0
Capital Leases $ 105 $ 0 $ 154 $ 0
Working Capital Ratio(1) 2.6 1.6 2.2 1.6
Long-Term Debt/Equity(1) 0.6% 0% 0.6% 0%
(1)As of December 31
share data) | | | | | | | | |
| | Three Months Ended | |
| | June 30, | |
| | 2005 | | | 2004 | |
| | | | | | | | |
Working Capital | | $ | 12,696 | | | $ | 9,202 | |
Cash and Investments | | $ | 6,893 | | | $ | 5,577 | |
Capital Expenditures | | $ | 81 | | | $ | 27 | |
Long-Term Bank Borrowings | | $ | — | | | $ | — | |
Capital Leases | | $ | 112 | | | $ | 127 | |
Working Capital Ratio | | | 2.4 | | | | 2.1 | |
Debt/Capitalization | | | 0 | % | | | 0.5 | % |
Working Capital Ratio equals Current Assets divided by Current Liabilities
Long-Term Liabilities.
Debt/EquityCapitalization equals (Current Portion of Long-Term Debt and Long-
Term Debt)Bank Borrowings divided by Shareholders' Equity
ConsolidatedStockholders Equity.
Net cash
flow from operationsprovided by operating activities was
negative $2,629$5,788 for the
ninethree months ended
December 31, 2004June 30, 2005, as compared
to negativewith net cash
flowprovided from
continuing operations of
$2,294$276 for the
ninethree months ended
December 31, 2003.June 30, 2004. The Company believes that this significant increase is an indication of greatly improved business conditions. The increase in
negative cash
flowprovided by operations was due to
increased inventories. Inventories increasednet income of $703 for the current quarter, as compared to a loss from continuing operations of $749 for the three months ended June 30, 2004, and reduced working capital. For the quarter ended June 30, 2004, cash generated through reductions in
preparation for
significant FYE 2005 fourth quarter shipments, for stocking
standard productstrade accounts receivable was used to fund operating losses and
due to rising material costs.
28
The primary source of liquidity isreduce current liabilities, thus resulting in minimal net cash flowgenerated from operations. Net cash generated from operations in excess of cash held for near term needs was invested in marketable securities. Graham’s investments in marketable securities consist of U.S.
20
Government instruments with maturity periods of 91 to 120 days, in general. Investments increased $3,479 from March 31, 2005 and $977, as compared to June 30, 2004. Investments decreased $801 from March 31, 2004 to June 30, 2004.
In the first quarter, short-term treasury billsdebt of $1,872 was paid off. Excluding capital lease obligations of $112, all of the Company’s short-term and securedlong-term debt was retired as of June 30, 2005.
In June 2005, the Company amended its credit agreements.facility to increase its letter of credit capacity from $4,000 to $8,000. In July 2005, the Company entered into a new three-year credit agreement with its bank, which credit facility replaced in its entirety, the Company’s prior facility. Both financing activities were conducted to meet the anticipated increase in orders. The Company’s new credit facility includes a credit capacity of $13,000, which includes a letter of credit limit of $8,000, with interest rates ranging from a maximum rate of prime less 0.25% to prime less 1% or a LIBOR-based rate of LIBOR plus 2% to LIBOR plus 1%. The range in borrowing rates is determined by the ratio of total liabilities to tangible net worth. The Company has the option of choosing an interest rate based on the prime rate or the LIBOR rate.
In addition to the possible need to increase working capital over fiscal year 2005 to finance increased business, other anticipated uses of cash include a capital expenditure program of up to $2,000 and paying quarterly dividends to stockholders. A significant portion of the capital expenditure budget is appropriated for information technology and software expenditures that the Company believes will enhance its engineering and design productivity. Capital expenditures for the first quarter of fiscal year 2006 were $81, as compared to $27 for continuing operations in the quarter ended June 30, 2004. The Company currently has entered into commitments to purchase approximately $1.0 million of capital expenditures. Graham continues to review its financing options with respect to its fiscal year 2006 capital expenditure program and strategic growth objectives.
Graham believes its cash from operations and available debt capacity will be adequate to meet its cash needs to carry out its strategic plans and operations, including planned capital spending, in fiscal year 2006.
Total cash provided from operating activities by discontinued operations in the quarter ended June 30, 2004 was $33. The discontinued operation invested $38 in capital expenditures and disbursed $327 for financing activities to reduce bank debt.
In the current quarter, Graham generated $410 from the issuance of common stock in conjunction with the exercising of stock options. No stock options were exercised in the quarter ended June 30, 2004.
21
ORDERS AND BACKLOG
Orders and Backlog
- ------------------
Consolidated orders for the current quarter were $16,195,$20,425, as compared to $9,965$13,487 for the quarter ended December 31, 2003,June 30, 2004, representing a 63%51% increase. Prior to intercompany elimination,
USAOrders represent requests received from customers for the supply of goods and/or services from the Company. The Company believes that customer orders were $13,954,can be a significant indicator of its future performance. Management believes the Company’s strong first quarter bookings reflect an increase in overall market activity.
Backlog was $31,145 at June 30, 2005, as compared to $8,301$18,776 at June 30, 2004, representing a 66% increase. Backlog represents the total dollar value of orders received for which revenue has not yet been recognized. Orders for surface condensers and ejectors in the current quarter increased 36% and 126%, respectively, over the quarter ended December 31, 2003. Orders inJune 30, 2004 due largely to the UK were $2,638, as
compared to $2,394 one year ago.
Consolidated orders for the nine months ended December 31,
2004 were $41,707, up 44%, as compared to $29,052 for the nine
months ended December 31, 2003. Prior to intercompany
elimination, USA orders for the nine months ended December 31,
2004 were $36,600, as compared to $23,624 for the nine months
ended December 31, 2003. UK orders were $5,985 and $7,504 for
the nine months ended December 31, 2004 and 2003, respectively.
Orders of surface condensers were up $10,013 over the nine
months ended December 31, 2003 due to increased demand in major project work in the chemical, energypetrochemical and refinery sectors. Improved business conditions are global. As compared to December
31, 2003, for USA products, exportExport orders arewere up 53%67% and domestic orders arewere up 57%.28% over the quarter ended June 30, 2004. Export orders for Mexico and the Middle East rose substantially over the quarter ended June 30, 2004. Profit margins on orders in backlog have also
improved.
Backlog was $24,722 at December 31, 2004, as compared to
$15,759 at December 31, 2003, representing a 57% increase. Prior
to intercompany eliminations, USA backlog was $22,145 and UK
backlog was $3,082 at December 31, 2004. At December 31, 2003,
USA and UK backlog amounts were $12,840 and $3,712, respectively.
The prior year backlog amounts have been restated to reflect
contract cancellations and the restatement of salesimproved due to the
change in the revenue recognition accounting method.price increases and improved product mix.
All orders in backlog represent orders from traditional markets in the Company'sCompany’s established product lines. Market Risk (QuantitativeApproximately 36% of the backlog can be attributed to equipment for refinery project work, 38% to petrochemical projects, and Qualitative Disclosures)
- ------------------------------------------------------18% to equipment sold to the power sector. Refinery project work is on the increase due to the need for more refinery capacity. This need is being driven by the shortages of refinery capacity resulting from rising oil demand from China and India, the need to upgrade existing refineries so that they can make use of lower grade, high sulfur crude, and the need to revamp refineries to meet environmental regulations pertaining to diesel fuel sulfur content requirements. Most refineries today can only process light, sweet (low sulfur) crude, which is in less supply and more expensive than the high sulfur crude variety. Orders from the petrochemical and power markets are mainly for overseas capacity expansion projects. These orders reflect the improved Asian economy. In recent years there has been minimal capital investments by these sectors.
CONTINGENCIES
The Company has been named as a defendant in certain lawsuits wherein the respective plaintiffs allege personal injury from exposure to asbestos contained in products made by the Company. The Company is a co-defendant with numerous other defendants in these suits and intends to vigorously defend itself against these claims. The claims are similar to previous asbestos suits naming 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 minimal amounts below the expected defense costs. Neither the
22
outcome of these claims nor the potential for liability is determinable.
At June 30, 2005, management was unaware of any additional litigation matters. However, from time to time, the Company is subject to legal proceedings and potential claims arising from contractual agreements in the ordinary course of business. The Company believes there are no such matters pending against it that could have, individually or in the aggregate, a material adverse effect on its business or financial condition.
NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs.” This Statement amends Accounting Research Bulletin No. 43, Chapter 4, “Inventory Pricing”, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. This Statement requires that those items be recognized as current period charges regardless of whether they meet the criterion of “abnormal”. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This Statement is effective for inventory costs incurred during the Company’s fiscal year 2007. The Company believes the adoption of this Statement will result in the acceleration of recognizing indirect manufacturing expenses during times of below normal utilization of plant capacity. Management has not determined the impact on the Consolidated Financial Statements of adopting this Statement.
The FASB also issued in December 2004, SFAS No. 123R, “Share-Based Payment”. This Statement requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values for fiscal years beginning after June 15, 2005. In addition, SFAS No. 123(R) will cause unrecognized expense (based on the fair values determined for the pro forma footnote disclosure, adjusted for estimated forfeitures) related to options vesting after the date of initial adoption to be recognized as a charge to results of operations over the remaining vesting period. Under SFAS No. 123(R), the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition alternatives include the modified prospective or the modified retrospective adoption methods. Under the modified retrospective method, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The modified prospective method requires that compensation expense be recorded for all unvested stock options and share awards at the beginning of the first quarter of adoption of SFAS No. 123(R), while the modified retrospective methods would record compensation expense for all unvested stock options and share awards beginning with the first period restated. The Company is evaluating the requirements of
23
SFAS No. 123(R), but cannot yet estimate the effect of adopting SFAS No. 123(R) as it has not yet selected the method of adoption or an option-pricing model and has not yet finalized estimates of its expected forfeitures. For additional information, see Note 4, “Stock-Based Compensation”, of the Notes to Condensed Consolidated Financial Statements.
In March 2005, the FASB issued Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143”. FIN No. 47 clarifies the term conditional asset retirement obligation as used in SFAS No. 143, “Accounting for Asset Retirement Obligations”, and provides further guidance as to when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. This Interpretation is effective for the Company for the year ending March 31, 2006. The Company is currently evaluating the impact this Interpretation will have on the Company’s financial position, results of operation and cash flows.
In May 2005, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 154, Accounting Changes and Error Corrections. This Statement is a replacement of APB Opinion No. 20 and FASB Statement No. 3. This Statement establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. Additionally, the pronouncement gives guidance in the reporting of a correction of an error by restating previously issued financial statements. The impact on previously issued financial statements can only be determined when specific events covered by this pronouncement are applicable. This Statement will be effective in fiscal years beginning after December 15, 2005.
OFF BALANCE SHEET ARRANGEMENTS
The Company did not have any off balance sheet arrangements as of June 30, 2005 and 2004.
SUBSEQUENT EVENTS
On July 28, 2005, the Company’s Board of Directors declared a two-for-one stock split of the Company’s common shares. The two-for-one stock split will be effected as a stock dividend, and stockholders will receive one additional share of common stock for every share of common stock held on the record date of September 1, 2005. The Company expects that the new common shares will be distributed on or about October 3, 2005. Fractional shares will be paid in cash based upon the closing price of the Company’s common stock on September 1, 2005. Pro forma earnings per share amounts are disclosed in the Statement of Operations and Retained Earnings and Note 5 to the Condensed Consolidated Financial Statements.
24
Item 3. MARKET RISK (QUANTITATIVE AND QUALITATIVE DISCLOSURES)
The principal market risks (i.e., the risk of loss arising from changes in market rates and prices) to which Graham is exposed are:
- - foreign currency exchange rates
- - equity price risk (related to its Long-Term Incentive Plan for Directors)
- -
| • | | foreign currency exchange rates |
|
| • | | equity price risk (related to its Long-Term Incentive Plan for Directors) |
|
| • | | material availability and price risk |
The assumptions applied in preparing
the following quantitative disclosures regarding foreign currency exchange rate and equity price risk are based upon volatility ranges experienced in relevant historical periods,
management'smanagement’s current knowledge of the business and market place, and
management'smanagement’s judgment of the probability of future volatility based upon the historical trends and economic conditions of the business.
29
Graham'sFOREIGN CURRENCY
Graham’s international consolidated sales for the past three years approximates 43%40% of total sales. Operating in world markets involves exposure to movements in currency exchange rates. Currency movements can affect sales in several ways, the foremost being the ability to compete for orders against competition having a relatively weaker currency. Business lost due to thiscompetition for orders against competitors having a relatively weaker currency cannot be quantified. Secondly, cash can be adversely impacted by the conversion of sales in foreign currency to U.S. dollars. The substantial portion of Graham's sales is
collected in the local currency (USA - dollars; UK - pounds
sterling). For both the quarters ended December 31,June 30, 2005 and June 30, 2004, and 2003,there were no sales in foreign currencies were 2% of sales. For the nine
months ended December 31, 2004 and 2003, sales in foreign
currencies were 3% and 2% of total sales, respectively.from continuing operations. At certain times, the Company may enter into forward foreign currency exchange agreements to hedge its exposure against unfavorable changes in foreign currency values on significant sales contracts negotiated in foreign currencies.
Graham has limited exposure to foreign currency purchases. For the three monththree-month periods ended December 31,June 30, 2005 and June 30, 2004, and 2003, purchases in foreign currencies by continuing operations were 5%1% and 9%5% of cost of goods sold, respectively. For the nine month periods ended December
31, 2004 and 2003, purchases in foreign currencies were 6% and
10% of cost of goods sold, respectively. In FYE 2004 and 2005,
USA operations recorded an unusually significant dollar volume of
orders utilizing UK subsidiary products in conjunction with USA
equipment. At certain times, forward foreign currency exchange contracts may be utilized to limit currency exposure.
UK operations experienced a current quarter net income of
$22, as compared to a quarterly net income (loss) of $0 for
December 31, 2003. For the nine months ended December 31,
At June 30, 2005 and 2004, and 2003, foreign operations produced net losses of $329 and
$276, respectively. As currency exchange rates change,
translations of the income statements of the UK business into US
dollars affect year-over-year comparability of operating results.
The increase in the foreign currency translation rate to convert
pounds sterling to US dollars increased all UK income statement
items and order amounts by 12% and all UK balance sheet and
backlog amounts by 7% for the nine months ended December 31, 2004
over 2003. The Company does not hedge translation risks because
cash flows from UK operations are mostly reinvested in the UK. A
10% change inthere were no forward foreign currency exchange rates would have impactedcontracts held by the UK reported net loss by approximately $3 and $0 for the three
months ended December 31, 2004 and 2003, and $33 and $28 for the
nine month periods, respectively.Company.
EQUITY PRICE RISK
The Company has a Long-Term Incentive Plan, which provides for awards of share equivalent units (SEUs) for outside directors based upon the Company'sCompany’s stock performance. The outstanding SEUs are recordedvalued at fair market value, thereby exposing the Company to equity price risk. Upward adjustment to market value is limited to (a) $16 per unit if at the valuation date the fair market value was less
25
than or equal to $16 per unit or (b) the fair market value at the valuation date if the fair market value on that date was greater than $16 per unit. Gains and losses recognized due to market price changes are included in the
Company'sCompany’s results of operations. Based upon the
plan provisions and SEUs outstanding at
December 31,June 30, 2005 and June 30, 2004 and
2003 and a
$12$16 per share price, a 50-75% change in the
respective year end market price of the
Company'sCompany’s common stock would positively or
negatively(negatively) impact the
Company's operating
30 (Continued)
results by $79 to $118 for the three and nine months ended
December 31, 2004 and $99 to $148 for the three and nine months
ended December 31, 2003.Company’s income before income taxes as follows: (Dollar amounts in thousands except per share data)
| | | | | | | | |
| | Thee months ended | |
| | June 30, | |
| | 2005 | | | 2004 | |
50% increase | | $ | (2 | ) | | $ | (135 | ) |
50% decrease | | $ | 137 | | | $ | 135 | |
75% increase | | $ | (2 | ) | | $ | (202 | ) |
75% decrease | | $ | 206 | | | $ | 202 | |
Assuming required net income of $500 istargets are met, certain awards would be provided, and based upon a market price of the Company'sCompany’s stock of $12$16 per share, a 50-75% change in the stock price would positively or
negatively(negatively) impact the Company's operating results by $122 to $183Company’s income before income taxes in 2006, $136 to $203future years as follows:
(Dollar amounts in 2007, $146 to $218 in 2008, $156 to $233
in 2009 and $158 to $237 in 2010.thousands except per share data)
| | | | | | | | | | | | | | | | | | | | |
March 31, | |
| | 2007 | | | 2008 | | | 2009 | | | 2010 | | | 2011 | |
50% increase | | $ | (2 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (2 | ) |
50% decrease | | $ | 154 | | | $ | 171 | | | $ | 183 | | | $ | 195 | | | $ | 197 | |
75% increase | | $ | (2 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (2 | ) |
75% decrease | | $ | 231 | | | $ | 256 | | | $ | 274 | | | $ | 293 | | | $ | 296 | |
MATERIAL AVAILABILITY
The risks associated with materials include availability and price increases. Material shortages have affected the Company'sCompany’s ability to meet delivery requirements for certain orders. The Company has identified alternative vendors in such cases and seeks to negotiate escalation provisions in its sales contracts in the event that costs of materials increase. Profit margins on sales would be reduced to the extent rising material costs could not be passed on to Graham'sGraham’s customers.
Contingencies
- -------------
Item 4. CONTROLS AND PROCEDURES
The
Company is a co-defendant with numerous other defendants
in matters of litigation alleging personal injury from exposure
to asbestos contained in some of the Company's products
previously manufactured. To date, it has been the Company's
experience that upon investigation the cases have been dismissed
or settled for minimal amounts. However, the magnitude of
potential damages on unsettled current claims is not
determinable.
In December 2004, the Company received a request for
payment from the Metal Goods & Manufacturers Trust Fund for $30
relating to a workers' compensation assessment asserted against
members in the Trust Fund during the period 1993 through 2001.
The Company was a member of the Trust Fund from April 1994 until
May 1995. The Company is disputing this claim. It is not
possible to predict the outcome of this dispute at this time,
however, management has provided for this contingent liability at
December 31, 2004.
From time to time, the Company is subject to legal
proceedings and potential claims arising from contractual
agreements in the ordinary course of business. The Company
believes there are no such matters pending against it that could
have, individually or in the aggregate, a material adverse effect
on its financial statements.
New Accounting Pronouncements
- -----------------------------
In November 2004, the Financial Accounting Standard Board
(FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 151, Inventory Costs. This Statement amends the guidance in
ARB No. 43, Chapter 4, "Inventory Pricing, "to clarify the
accounting for abnormal amounts of idle facility expense,
freight, handling costs and wasted materials. This Statement
requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "abnormal." In
addition, this Statement requires that allocation of fixed
31 (Continued)
production overheads to the costs of conversion be based on the
normal capacity of the production facilities. SFAS No. 151 will
be effective for inventory costs incurred on a prospective basis
during fiscal years beginning after June 15, 2005. The
pronouncement will have the effect of accelerating the
recognition of indirect manufacturing costs in times of below
normal manufacturing capacity utilization.
In December 2004, the FASB issued SFAS Nos. 152, Accounting
for Real Estate Time-Sharing Transactions and 153, Exchanges of
Nonmonetary Assets as Amendment of ARB Opinion No. 29. Both
statements are effective for fiscal years beginning after June
15, 2005. It is anticipated that neither pronouncement will have
a significant, if any, impact on Graham's financial reporting, if
any.
The FASB also issued in December 2004, SFAS No. 123R,
"Share-Based Payment". This Statement revises the standards
established for the accounting of transactions in which an entity
exchanges its equity instruments for goods and services. It also
addresses transactions in which an entity incurs liabilities in
exchange for goods or services that are based on the fair value
of the entity's equity instruments or that may be settled by the
issuance of those equity instruments. This Statement is
effective as of the beginning of the first interim reporting
period that begins after December 15, 2005 and applies to all
awards granted after the required effective date and to awards
modified, repurchased, or cancelled after that date. The
adoption of this Statement will have an effect on the Company's
consolidated results of operations. For additional information,
see Note 3 to the Condensed Consolidated Financial Statements.
Controls and Procedures
- -----------------------
The Company'sCompany’s President and Chief Executive Officer and its Vice President-FinancePresident Finance and Administration, Chief Financial Officer each have independently evaluated the Company'sCompany’s disclosure controls and procedures as(as defined in Exchange Act Rules 13a-14(c)13a-15(e) and 15d-
14(c)15d-15(e)) as of the end of the period covered by this quarterly report. Based on these reviews, each has determined such26
controls as effective as of the end of the period covered by this quarterly report on Form 10-Q and each regards such controls as effective.10-Q.
There have been no
significant changes to
any such
controlsthe internal control over financial reporting during the quarter covered by this report that have materially affected, or
in other factors that
could significantlyare reasonably likely to materially affect,
such
controls, subsequent to the
date of their evaluation by each of
the CEO and the CFO.
32
Company’s internal control over financial reporting.27
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
DECEMBER 31, 2004
June 30, 2005
PART II -— OTHER INFORMATION
Item 5. Other Information
The Company's Chief Executive Officer and Chief
Financial Officer have furnished to the SEC the certifications
with respect to this Form 10-Q that is required by Section 302 and
906 of the Sarbanes-Oxley Act of 2002. These certifications are
included in Exhibits 31 and 32 to this Form 10-Q.
Item 6. Exhibits
a. See index to exhibits.
| | |
Item 5. | | Other Information |
| | |
| | Not applicable. |
| | |
Item 6. | | Exhibits |
| | |
| | a. See index to exhibits. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GRAHAM CORPORATION
/s/ J. R. Hansen
----------------
J. R. Hansen
Vice President Finance and
Administration / CFO (Principal
| | | | |
| GRAHAM CORPORATION
| |
| /s/ J. Ronald Hansen | |
| J. Ronald Hansen | |
| Vice President Finance and Administration, Chief Financial Officer (Principal Accounting Officer) | |
|
August 2, 2005Date
2/1/05
33
28
INDEX OF EXHIBITS
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession
Not applicable.
(3)(i) Articles of Incorporation of Graham
Corporation (filed as Exhibit 3(b) to the Registrant's
annual report on Form 10-K for the year ended December
31, 1989, and incorporated herein by reference.)
(3)(ii) By-laws of registrant, as amended (filed as Exhibit
3(ii) to the Registrant's quarterly report on Form 10-Q
for the quarter ended June 30, 2004, and incorporated
herein by reference).
(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.)
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.)
(b) Debt securities
Not applicable.
(10) Material Contracts
(10.1) Indemnification Agreements with Named Directors
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.)
34
Index to Exhibits (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.)
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.)
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 Exhibit 10.2 to
Registrant's current report filed on Form 8-K on
December 2, 2004, and are 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.)
Agreement and Release of Claims dated November | | |
3.1 | | Articles of Incorporation of Graham Corporation (filed as Exhibit 3(b) to the Registrant’s annual report on Form 10-K for the year ended December 31, 1989, and incorporated herein by reference.) |
| | |
3.2 | | By-laws of registrant, as amended (filed as Exhibit 3(ii) to the Registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference). |
| | |
4.1 | | 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.) |
| | |
4.2 | | 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.) |
| | |
4.3 | | Amended and Restated Credit Facility Agreement (filed as Exhibit 4.1 to Registrant’s current report filed on Form 8-K on July 13, 2005 and is incorporated herein by reference.) |
| | |
31.1 | | Rule 13a-14(a)/15d-14(a) Certification of President and Chief Executive Officer |
| | |
31.2 | | Rule 13a-14(a)/15d-14(a) Certification of Vice President Finance and Administration, Chief Financial Officer |
| | |
32.1 | | Section 1350 Certifications |
29 2004
between Alvaro Cadena and Graham Corporation (filed as
Exhibit 10.1 to Registrant's current report filed on
Form 8-K on December 2, 2004 and is incorporated herein
by reference.)
Indemnification Agreement with Named Officer (filed as
Exhibit 10.1 to Registrant's current report filed on
Form 8-K on January 25, 2005 and is incorporated herein
by reference.)
(11) Statement re-computation of per share earnings
Computation of per share earnings is included in Note 4
of the Notes to Financial Information.
(14) Code of Ethics
The Company's code of ethics is available on the
Company's website at www.graham-mfg.com.
(15) Letter re-unaudited interim financial information
Not applicable.
35 (Continued)
(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-14(a) Certifications
(32) Section 1350 Certifications
(99) Additional exhibits
None.