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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

As of ~~January 30, 2018,~~July 31, 2022, there were outstanding ~~9,768,026~~10,621,947 shares of the registrant’s common stock, par value ~~$.10~~$0.10 per share.

As of ~~December 31, 2017~~June 30, 2022 and March 31, ~~2017~~2022 and for the ~~Three~~three months ended June 30, 2022 and ~~Nine-Month Periods Ended December 31, 2017 and 2016~~2021


	Three Months Ended						Nine Months Ended						Three Months Ended
	December 31,						December 31,						June 30,
	2017			2016			2017			2016			2022			2021
	(Amounts in thousands, except per share data)						(Amounts in thousands, except per share data)						(Amounts in thousands, except per share data)
Net sales	$	17,281		$	22,654		$	55,356		$	66,145		$	36,075		$	20,157
Cost of products sold		13,696			16,353			43,075			50,723			29,331			19,243
Gross profit		3,585			6,301			12,281			15,422			6,744			914
Other expenses and income:
Selling, general and administrative		4,007			3,746			11,270			10,462			5,485			4,832
Selling, general and administrative – amortization		59			58			177			175			274			91
Impairment of goodwill and intangible assets		14,816			—			14,816			—
Restructuring charge		—			—			316			630
Operating income (loss)														985			(4,009	)
Other income, net														(63	)		(160	)
Interest income		(142	)		(100	)		(455	)		(272	)		(8	)		(17	)
Interest expense		3			3			8			7			165			39
Total other expenses and income		18,743			3,707			26,132			11,002
(Loss) income before provision for income taxes		(15,158	)		2,594			(13,851	)		4,420
(Benefit) provision for income taxes		(3,536	)		754			(3,174	)		1,198
Net (loss) income		(11,622	)		1,840			(10,677	)		3,222
Retained earnings at beginning of period		109,731			108,655			110,544			109,013
Dividends		(880	)		(876	)		(2,638	)		(2,616	)
Retained earnings at end of period	$	97,229		$	109,619		$	97,229		$	109,619
Income (loss) before provision (benefit) for income taxes														891			(3,871	)
Provision (benefit) for income taxes														215			(745	)
Net income (loss)													$	676		$	(3,126	)
Per share data
Basic:
Net (loss) income	$	(1.19	)	$	0.19		$	(1.09	)	$	0.33
Net income (loss)													$	0.06		$	(0.31	)
Diluted:
Net (loss) income	$	(1.19	)	$	0.19		$	(1.09	)	$	0.33
Net income (loss)													$	0.06		$	(0.31	)
Weighted average common shares outstanding:
Basic		9,768			9,727			9,762			9,709			10,610			10,199
Diluted		9,768			9,733			9,762			9,714			10,630			10,199
Dividends declared per share	$	0.09		$	0.09		$	0.27		$	0.27		$	0		$	0.11

NOTE 2 – ACQUISITION:

On June 1, 2021, the Company acquired Barber-Nichols, LLC ("BN"), a designer and manufacturer of turbomachinery products located in Arvada, Colorado that serves the defense and aerospace industry as well as the energy and cryogenic markets. The Company believes this acquisition furthers its growth strategy through market and product diversification, broadens its offerings and strengthens its presence in the defense industry, builds on its presence in the energy markets, and adds capabilities in the space industry.

This transaction was accounted for as a business combination which requires that assets acquired and liabilities assumed be recognized at their fair value as of the acquisition date. The purchase price of $72,014 was comprised of 610 shares of the Company's common stock, representing a value of $8,964 at a price of $14.69 per share, and cash consideration of $61,150, subject to certain potential adjustments, including a customary working capital adjustment. The cash consideration was funded through cash on-hand and debt proceeds. The purchase agreement included a contingent earn-out dependent upon certain financial measures of BN post-acquisition, in which the sellers were eligible to receive up to $14,000 in additional cash consideration. At June 30, 2021, a liability of $1,900 was recorded for the contingent earn-out. Subsequent to the acquisition, the earn out agreement was terminated and the contingent liability was reversed into Other operating income, net, on the Company’s Condensed Statement of Operations. Prior to the acquisition, BN and Ascent Properties Group, LLC, a related party, entered into a nine year operating lease agreement for an office and manufacturing building in Arvada, Colorado. This lease was acquired as part of the Company's acquisition of BN and has a monthly payment in the amount of $40 with a 3% yearly escalation. Also prior to the acquisition, BN and Ascent Properties Group, LLC entered into a seven-year equipment lease agreement to lease various machinery and equipment. This equipment lease was also acquired as part of the Company's acquisition of BN and has a monthly payment of $16. Acquisition related costs of $169 were expensed in the first quarter of fiscal 2022 and are included in Selling, general and administrative expenses in the Condensed Consolidated Statement of Operations.

The cost of the acquisition was allocated to the assets acquired and liabilities assumed based upon its estimated fair value at the date of the acquisition. The following table summarizes the final purchase price allocation, after adjustments were recorded in the measurement period, of the assets acquired and liabilities assumed:


	June 1
	2021
Assets acquired:
Cash and cash equivalents	$	868
Accounts receivable, net of allowances		8,074
Unbilled revenue		7,068
Inventories		3,549
Prepaid expenses and other current assets		476
Property, plant & equipment, net		8,037
Operating lease assets		9,026
Goodwill		23,523
Customer relationships		11,800
Technology and technical know-how		10,100
Other intangibles, net		10,600
Total assets acquired		93,121
Liabilities assumed:
Accounts payable		1,842
Accrued compensation		1,341
Accrued expenses and other current liabilities		707
Customer deposits		6,048
Operating lease liabilities		9,066
Other long-term liabilities		2,103
Total liabilities assumed		21,107
Purchase price	$	72,014

The fair value of acquisition-related intangible assets includes customer relationships, technology and technical know-how, backlog and trade name. Backlog and trade name are included in the line item "Other intangible assets, net" in the Condensed Consolidated Balance Sheet. The fair value of customer relationships were calculated using an income approach, specifically the Multi Period Excess Earnings method, which incorporates assumptions regarding retention rate, new customer growth and customer related costs. The fair value of trade name and technology and technical know-how were both calculated using a Relief from Royalty method, which develops a market based royalty rate used to reflect the after tax royalty savings attributable to owning the intangible asset. The fair value of backlog was determined using a net realizable value methodology, and was computed as the present value of the expected sales attributable to backlog less the remaining costs to fulfill the backlog.

The purchase price was allocated to specific intangible assets as follows:


	Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
At June 30, 2022
Intangibles subject to amortization:
Customer relationships	20 years	$	11,800	$	639	$	11,161
Technology and technical know-how	20 years		10,100	547			9,553
Backlog	4 years		3,900		1,955		1,945
		$	25,800	$	3,141	$	22,659

Intangibles not subject to amortization:
Tradename	Indefinite	$	6,700	$	—	$	6,700
		$	6,700	$	—	$	6,700

Technology and technical know-how and customer relationships are amortized in selling, general and administrative expense on a straight line basis over their estimated useful lives. Backlog is amortized in cost of products sold over the projected conversion period based on management estimates at time of purchase. Intangible asset amortization was $619 and $225 for the three months ended June 30, 2022 and 2021, respectively. The estimated annual amortization expense is as follows:


	Annual Amortization
Remainder of 2023	$	1,857
2024		1,782
2025		1,318
2026		1,095
2027		1,095
2028 and thereafter		15,512
Total intangible amortization	$	22,659

The Condensed Consolidated Statement of Operations for the three months ended June 30, 2021 included net sales from BN of $3,471. The following unaudited pro forma information presents the consolidated results of operations of the Company as if the BN acquisition had occurred at the beginning of the fiscal period presented:


	Three Months Ended
	June 30, 2021
Net sales	$	35,633
Net (loss) income		(2,025	)
(Loss) earnings per share
Basic	$	(0.19	)
Diluted	$	(0.19	)

The unaudited pro forma information presents the combined operating results of Graham Corporation and BN, with the results prior to the acquisition date adjusted to include the pro forma impact of the adjustment of depreciation of fixed assets based on the preliminary purchase price allocation, the adjustment to interest income reflecting the cash paid in connection with the acquisition, including acquisition-related expenses, at the Company’s weighted average interest income rate, interest expense and loan origination fees at the Company’s current interest rate, amortization expense related to the fair value adjustments for intangible assets, non-recurring acquisition-related costs and the impact of income taxes on the pro forma adjustments utilizing the applicable statutory tax rate.

The unaudited pro forma results are presented for illustrative purposes only. These pro forma results do not purport to be indicative of the results that would have actually been obtained if the acquisition occurred as of the beginning of each of the periods presented, nor does the pro forma data intend to be a projection of results that may be obtained in the future.

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

NOTE 5 – ~~INTANGIBLE ASSETS:~~EQUITY-BASED COMPENSATION:

~~Intangible assets are comprised of the following:~~

Gross
Carrying
Amount

Accumulated
Amortization

Impairment
Loss

Net
Carrying
Amount

At December 31, 2017

Intangibles subject to amortization:

Customer relationships

$
2,700

$
1,267

$
—

$
1,433

Intangibles not subject to amortization:

Permits

$
10,300

$
—

$
8,600

$
1,700

Tradename

2,500

—

500

2,000

$
12,800

$
—

$
9,100

$
3,700

At March 31, 2017

Intangibles subject to amortization:

Customer relationships

$
2,700

$
1,132

$
—

$
1,568

Intangibles not subject to amortization:

Permits

$
10,300

$
—

$
—

$
10,300

Tradename

2,500

—

—

2,500

$
12,800

$
—

$
—

$
12,800

Finite-lived intangible assets are amortized on a straight-line basis over the estimated useful lives. Intangible amortization expense for each of the three-month periods ended December 31, 2017 and 2016 was $45. Intangible amortization expense for each of the nine-month periods ended December 31, 2017 and 2016 was $135. As of December 31, 2017, amortization expense is estimated to be $45 for the remainder of fiscal 2018 and $180 in each of the fiscal years ending March 31, 2019,The 2020 ~~2021 and 2022.~~

During the third quarter of fiscal 2018, the Company performed its annual goodwill and intangible asset impairment review. The Company assesses impairment by comparing the fair value of its reporting units and intangible assets to their related carrying value. Accounting Standards Update No. 2015-07, “Fair Value Measurement (Topic 820), establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1 – Valuations based on quoted prices in active markets for identical assets of liabilities that the Company has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Level 2 – Valuations determined from quoted prices for similar assets of liabilities in active markets, quoted prices for identical instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

The Company estimated the fair value of intangible assets and goodwill of its commercial nuclear power business related to the December 2010 acquisition of Energy Steel & Supply Co. (“Energy Steel”) using the income approach. Under the income approach, the fair value of the business is calculated based on the present value of estimated future cash flows. Cash flow projections are based on management’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected cash flows. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy outlined above. The impairment review indicated that the fair value of the permits, tradename and goodwill of the business were substantially lower than the carrying value due to reduced investment from the U.S. nuclear power market, the strength of the Energy Steel brand relative to larger more vertically integrated suppliers, and the bankruptcy of Westinghouse Electric Company which resulted in the stoppage of work at the Summer, SC nuclear facility. As a result, in the third quarter of fiscal 2018 the Company recorded impairment losses of $8,600, $500, and $5,716 for permits, tradename and goodwill, respectively.

~~NOTE 6 – STOCK-BASED COMPENSATION:~~

~~The Amended and Restated 2000~~ Graham Corporation Equity Incentive Plan ~~to Increase Shareholder Value,~~(the "2020 Plan"), as approved by the Company’s stockholders at the Annual Meeting on ~~July 28, 2016,~~August 11, 2020, provides for the issuance of ~~up to 1,375~~422 shares of common stock in connection with grants of incentive stock options, non-qualified stock options, restricted stock ~~awards~~units and ~~performance~~stock awards to officers, key employees and outside ~~directors: provided, however,~~directors, including 112 shares that ~~no more than 467~~became available under the 2020 Plan from the Company’s prior plan, the Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value (the "2000 Plan"). As of August 11, 2020, the effective date of the 2020 Plan, 0 further awards will be granted under the 2000 Plan. However, 19 shares of common stock may be used for awards other than stock options. Stock options may be granted at prices not less than the fair market value at the date of grant and expire no later than ten years after the date of grant.

Nounvested restricted stock ~~awards~~under the 2000 Plan remain subject to the terms of such plan until the time such shares of restricted stock vest or are forfeited.

223 restricted stock units were granted in the three-month ~~periods~~period ended ~~December 31, 2017 and 2016. Restricted~~June 30, 2022. 112 restricted stock ~~awards granted in the nine-month periods ended December 31, 2017 and 2016 were 59 and 82, respectively. Restricted shares of 30 and 43~~units, granted to officers, ~~in fiscal 2018 and fiscal 2017, respectively,~~ vest ~~100%~~100% on the third anniversary of the grant date subject to the satisfaction of the performance metrics for the applicable

three-year period. ~~Restricted~~56 restricted stock units, granted to officers, vest 33⅓% per year over a three-year term. 18 restricted stock units, granted to an officer, vest 100% on the third anniversary of the grant date. 37 restricted stock units, granted to directors, vest 100% on the first year anniversary of the grant date. NaN restricted stock units were granted in the three-month period ended June 30, 2021.

NaN restricted stock awards were granted in the three-month period ended June 30, 2022. 135 restricted stock awards were granted in the three month period ended June 30, 2021. 70 restricted shares were granted to officers in the first quarter of ~~22 and 31~~fiscal 2022, that vest 100% on the third anniversary of the grant date subject to the satisfaction of the performance metrics for the applicable three-year period. 45 restricted shares granted to officers and key employees in the first quarter of fiscal ~~2018 and fiscal 2017, respectively,~~2022, vest 33⅓% per year over a three-year term. ~~Restricted~~20 restricted shares ~~of 7 and 8~~ granted to directors in the first quarter of fiscal ~~2018 and fiscal 2017, respectively,~~2022, vest ~~100%~~100% on the first year anniversary of the grant date. NoNaN stock option awards were granted in the three-month ~~or nine-month~~ periods ended ~~December 31, 2017~~June 30, 2022 and ~~2016 December 31, 2017 and 2016.~~2021.

During the three months ended ~~December 31, 2017~~June 30, 2022 and ~~2016,~~2021, the Company recognized ~~stock-based~~equity-based compensation costs related to ~~stock option and~~ restricted stock awards of ~~$213~~$105 and ~~$200,~~$337, respectively. The income tax benefit recognized related to ~~stock-based~~equity-based compensation was ~~$24~~$23 and ~~$70~~$75 for the three months ended ~~December 31, 2017~~June 30, 2022 and ~~2016,~~2021, respectively. During the nine months ended December 31, 2017 and 2016, the Company recognized stock-based compensation costs related to stock option and restricted stock awards of $362 and $427, respectively. The income tax benefit recognized related to stock-based compensation was $77 and $151 for the nine months ended December 31, 2017 and 2016, respectively.

The Company has an Employee Stock Purchase Plan, as amended (the "ESPP"), which allows eligible employees to purchase shares of the Company's common stock at a discount of up to ~~15%~~15% of its fair market value on the ~~(i)~~(1) last, ~~(ii)~~(2) first or ~~(iii)~~(3) lower of the last or first day of the six-month offering period. AAs of June 30, 2022, a total of 200 shares of common stock may be purchased under the ESPP. ~~In each of~~During the three months ended ~~December 31, 2017~~June 30, 2022 and ~~2016,~~2021, the Company recognized ~~stock-based~~equity-based compensation costs of ~~$0 related to the ESPP~~$9 and ~~$0 of related tax benefits. During the nine months ended December 31, 2017 and 2016, the Company recognized stock-based compensation costs of $0 and $6,~~$16, respectively, related to the ESPP and $0$2 and ~~$2,~~$4, respectively, of related tax benefits.

None of the options to purchase shares of common stock which totaled 69 were included in the computation of diluted loss per share for the three and nine months ended December 31, 2017 as the effect would be anti-dilutive due to the net loss in the periods. Options to purchase a total of 16 shares of common stock were outstanding at December 31, 2016 but were not included in the above computation of diluted income per share in the three and nine-month periods ended December 31, 2016 given their exercise prices as they would not be dilutive upon issuance.

Income of ~~$59~~$16 for product warranties in the ~~nine months ended December 31, 2017 and the income of $81 in the~~ three months ended ~~December 31, 2016~~June 30, 2021 resulted from the reversal of provisions made that were no longer required due to lower claims experience.

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

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act, which is effective on January 1, 2018, significantly revises the U.S. tax code by, among other changes, lowering the corporate income tax rate from 35% to 21%, requiring a one-time transition tax on accumulated foreign earnings of certain foreign subsidiaries that were previously tax deferred and creating new taxes on certain foreign sourced earnings. At December 31, 2017, the Company has not completed its accounting for the tax effects of the Tax Act; however, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax.

The Company remeasured certain U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%, and provisionally recorded an income tax benefit of $1,575 related to such remeasurement in the third quarter of fiscal 2018. The Company is still analyzing certain aspects of the Tax Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.

The one-time transition tax is based on the total post-1986 earnings and profits (“E&P”) of our foreign subsidiary that has previously been deferred from U.S. income taxes. The Company recorded a provisional amount for its one-time transition liability of its foreign subsidiary resulting in additional income tax expense of $137 in the third quarter of fiscal 2018. The Company has not yet completed its calculation of the total post-1986 foreign E&P for the foreign subsidiary. The transition tax is based in part on the amount of those earnings held in cash and other specified assets. The amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets.

NOTE 1312 – CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS:

The changes in accumulated other comprehensive loss by component for the ~~nine~~three months ended ~~December 31, 2017~~June 30, 2022 and ~~2016~~2021 are as follows:

Pension and
Other
Postretirement
Benefit Items

Foreign
Currency
Items

Total

Balance at April 1, 2017

$
(8,439
)

$
5

$
(8,434
)
Other comprehensive income before reclassifications

—

216

216

Amounts reclassified from accumulated other comprehensive
loss

619

—

619

Net current-period other comprehensive income

619

216

835

Balance at December 31, 2017

$
(7,820
)

$
221

$
(7,599
)

	Pension and Other Postretirement Benefit Items			Foreign Currency Items			Total
Balance at April 1, 2016	$	(10,932	)	$	256		$	(10,676	)
										Pension and Other Postretirement Benefit Items			Foreign Currency Items			Total
Balance at April 1, 2022										$	(6,970	)	$	499		$	(6,471	)
Other comprehensive income before reclassifications		—			(283	)		(283	)		0			(343	)		(343	)
Amounts reclassified from accumulated other comprehensive loss		674			—			674			131			0			131
Net current-period other comprehensive income		674			(283	)		391			131			(343	)	$	(212	)
Balance at December 31, 2016	$	(10,258	)	$	(27	)	$	(10,285	)
Balance at June 30, 2022										$	(6,839	)	$	156		$	(6,683	)


	Pension and Other Postretirement Benefit Items			Foreign Currency Items		Total
Balance at April 1, 2021	$	(7,698	)	$	301	$	(7,397	)
Other comprehensive income before reclassifications		0			128		128
Amounts reclassified from accumulated other comprehensive loss		170			0		170
Net current-period other comprehensive income		170			128		298
Balance at June 30, 2021	$	(7,528	)	$	429	$	(7,099	)

The reclassifications out of accumulated other comprehensive loss by component for the three ~~and nine~~ months ended ~~December 31, 2017~~June 30, 2022 and ~~2016~~2021 are as follows:

Details about Accumulated Other
Comprehensive Loss Components

Amount Reclassified from
Accumulated Other
Comprehensive Loss

Affected Line Item in the Condensed
Consolidated Statements of Income and
Retained Earnings

Three Months Ended

December 31,

2017

2016

Pension and other postretirement benefit items:

Amortization of actuarial loss

$
(262
)
⁽¹⁾

$
(348
)
⁽¹⁾

Income before provision for income taxes

17

(123
)

Provision for income taxes

$
(279
)

$
(225
)

Net income


Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss							Affected Line Item in the Condensed Consolidated Statements of Income
	Three Months Ended
	June 30,
	2022			2021
Pension and other postretirement benefit items:
Amortization of actuarial income (loss)	$	168	(1)	$	(219	)	(1)	Income (loss) before benefit for income taxes
		37			(49	)		Benefit for income taxes
	$	131		$	(170	)		Net income (loss)

(1)

These accumulated other comprehensive loss components are included within the computation of pension and other postretirement benefit costs. See Note 9.

Details about Accumulated Other
Comprehensive Loss Components

Amount Reclassified from
Accumulated Other
Comprehensive Loss

Affected Line Item in the Condensed
Consolidated Statements of Income and
Retained Earnings

Nine Months Ended

December 31,

2017

2016

Pension and other postretirement benefit items:

Amortization of actuarial loss

$
(788
)
⁽¹⁾

$
(1,043
)
⁽¹⁾

Income before provision for income taxes

(169
)

(369
)

Provision for income taxes

$
(619
)

$
(674
)

Net income

⁽¹⁾	~~These accumulated other comprehensive loss components are included within the computation of pension and other postretirement benefit costs. See Note 10.~~

NOTE 13 – LEASES:

~~NOTE 14 – RESTRUCTURING CHARGE:~~

~~In each~~The Company leases certain manufacturing facilities, office space, machinery and office equipment. An arrangement is considered to contain a lease if it conveys the right to use and control an identified asset for a period of time in exchange for consideration. If it is determined that an arrangement contains a lease, then a classification of a lease as operating or finance is determined by evaluating the five criteria outlined in the lease accounting guidance at inception. Leases generally have remaining terms of one year to five years, whereas leases with an initial term of twelve months or less are not recorded on the Condensed Consolidated Balance Sheets. The depreciable life of leased assets related to finance leases is limited by the expected term of the ~~second quarter~~lease, unless there is a transfer of ~~fiscal 2018~~title or purchase option that the Company believes is reasonably certain of exercise. Certain leases include options to renew or terminate. Renewal options are exercisable per the discretion of the Company and vary based on the nature of each lease. The term of the lease includes renewal periods only if the Company is reasonably certain that it will exercise the renewal option. When determining if a renewal option is reasonably certain of being exercised, the Company considers several factors, including but not limited to, the cost of moving to another location, the cost of disrupting operations, whether the purpose or location of the leased asset is unique and the ~~first half~~contractual terms associated with extending the lease. The Company’s lease agreements do not contain any residual value guarantees or any material restrictive covenants and the Company does not sublease to any third parties. As of ~~fiscal 2017,~~June 30, 2022, the Company did not have any material leases that have been signed but not commenced.

Right-of-use ("ROU") lease assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. ROU assets represent the Company’s ~~workforce was aligned with market conditions by reducing~~right to use an underlying asset for the ~~number~~lease term and lease liabilities represent the Company’s obligation to make payments in exchange for that right of ~~management, office~~use. Finance lease ROU assets and manufacturing positions. As a result, restructuring charges of $316 and $630 were recognized in the nine months ended December 31, 2017 and 2016, respectively. The restructuring charges included severance and related employee benefit costs. The chargesoperating lease ROU assets are included in the ~~caption “Restructuring Charge” in the Condensed Consolidated Statements of Income~~line items "Property, plant and ~~Retained Earnings. The reconciliation of the changes in the restructuring reserve is as follows:~~

Nine Months Ended

Nine Months Ended

December 31,

December 31,

2017

2016

Balance at beginning of period

$
120

$
74

Expense for restructuring

316

630

Amounts paid for restructuring

(336
)

(549
)
Balance at end of period

$
100

$
155

~~The liability of $100~~equipment, net" and ~~$120 at December 31, 2017 and March 31, 2017~~"Operating lease assets", respectively, ~~is included in the caption “Accrued Compensation”~~ in the Condensed Consolidated Balance Sheets. The current portion and non-current portion of finance and operating lease liabilities are all presented separately in the Condensed Consolidated Balance Sheets.

The discount rate implicit within the Company’s leases is generally not readily determinable, and therefore, the Company uses an incremental borrowing rate in determining the present value of lease payments based on rates available at commencement.

The weighted average remaining lease term and discount rate for finance and operating leases are as follows:


	June 30,			June 30,
	2022			2021
Finance Leases
Weighted-average remaining lease term in years		1.17			2.16
Weighted-average discount rate		10.67	%		10.71	%

Operating Leases
Weighted-average remaining lease term in years		7.35			8.24
Weighted-average discount rate		3.27	%		3.29	%

The components of lease expense are as follows:


	Three Months Ended
	June 30,
	2022		2021
Finance lease cost:
Amortization of right-of-use assets	$	5	$	5
Interest on lease liabilities		1		1
Operating lease cost		384		156
Short-term lease cost		4		5
Total lease cost	$	394	$	167

Operating lease costs during the three-month periods ended June 30, 2022 and 2021 were included within cost of sales and selling, general and administrative expenses.

As of June 30, 2022, future minimum payments required under non-cancelable leases were:


	Operating Leases		Finance Leases
Remainder of 2023	$	961	$	19
2024		1,200		11
2025		1,183		0
2026		1,189		0
2027		1,225		0
2028 and thereafter		3,709		0
Total lease payments		9,467		30

Less – amount representing interest		1,104		2
Present value of net minimum lease payments	$	8,363	$	28

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

We are a global ~~business that designs, manufactures~~leader in the design and ~~sells~~manufacture of mission critical ~~equipment~~fluid, power, heat transfer and vacuum technologies for the defense, space, energy ~~defense~~ and ~~chemical/petrochemical~~process industries. ~~Our energy markets include oil refining, cogeneration, nuclear and alternative power.~~ For the defense industry, our equipment is used in nuclear and non-nuclear propulsion, power, fluid transfer, and thermal management systems. For the space industry our equipment is used in propulsion, power and energy management systems and for ~~the U.S. Navy.~~life support systems. Our energy and new energy markets include oil refining, cogeneration, and multiple alternative and clean power applications including hydrogen. For the chemical and petrochemical industries, our equipment is used in fertilizer, ethylene, methanol and downstream chemical facilities.

~~Graham’s global brand is~~Our brands are built upon ~~world-renowned~~ engineering expertise ~~in vacuum~~ and ~~heat transfer technology, responsive~~close customer collaboration to design, develop, and ~~flexible~~produce mission critical equipment and systems that enable our customers to meet their economic and operational objectives. Continual improvement of our processes and systems to ensure qualified and compliant equipment are hallmarks of our brand. Our early engagement with customers and support until the end of service ~~and high quality standards. We design and manufacture custom-engineered ejectors, vacuum pumping systems, surface condensers and vacuum systems. We~~life are also a leading nuclear code accredited fabrication and specialty machining company. We supply components used inside reactor vessels and outside containment vessels of nuclear power facilities. Our equipment can also be found in other diverse applications such as metal refining, pulp and paper processing, water heating, refrigeration, desalination, food processing, pharmaceutical, and heating, ventilating and air conditioning.values upon which our brands are built.

Our corporate headquarters ~~are~~is located in Batavia, New York. We have production facilities co-located with our headquarters in ~~Batavia and also at our~~Batavia. Our wholly-owned subsidiary, ~~Energy Steel & Supply Co.~~Barber-Nichols, LLC ("~~Energy Steel"~~BN"), ~~located~~based in ~~Lapeer, Michigan.~~Arvada, Colorado, designs, develops, manufactures and sells specialty turbomachinery products for the aerospace, cryogenic, defense and energy markets (see "Acquisition" below). We also have a wholly-owned foreign ~~subsidiary,~~subsidiaries, Graham Vacuum and Heat Transfer Technology ~~(Suzhou)~~ Co., Ltd. ("GVHTT"), located in Suzhou, ~~China.~~China and Graham India Private Limited ("GIPL"), located in Ahmedabad, India. GVHTT provides sales and engineering support for us in the ~~People’s~~People's Republic of China and management oversight throughout Southeast Asia. GIPL serves as a sales and market development office focusing on the refining, petrochemical and fertilizer markets in India.

Our current fiscal year (which we refer to as ~~“fiscal 2018”~~"fiscal 2023") ends March 31, ~~2018.~~2023.

We completed the acquisition of BN on June 1, 2021. Founded as a specialty turbomachinery engineering company in 1966, BN grew rapidly from programs that involve complex production and systems integration. By integrating knowledge in rotating equipment, power generation cycles, and electrical management systems, BN has successfully won the design and development of different power, fluid transfer, and propulsion systems used in underwater vehicles among many other accomplishments.

The acquisition of BN changed the ~~three and nine months ended December 31, 2017 include:~~

~~Net sales for~~composition of our end market mix. For the ~~third~~first quarter of fiscal ~~2018~~2023, sales to the defense and space industries were ~~$17,281, down 24%~~45% of our business compared with ~~$22,654~~approximately 25% of sales prior to the acquisition. The remaining 55% of our first quarter fiscal 2023 sales came from the refining, chemical/petrochemical and other commercial markets. These markets represented approximately 75% of our sales prior to the acquisition. BN has outperformed expectations since being acquired.

The BN transaction was accounted for as a business combination, which requires that assets acquired and liabilities assumed be recognized at their fair value as of the acquisition date. The purchase price of $72,014 was comprised of 610 shares of common stock, representing a value of $8,964 at $14.69 per share, and cash consideration of $61,150. The cash consideration was funded through cash on-hand and debt proceeds (See Note 2 to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q). The purchase agreement also included a contingent earn-out dependent upon certain financial measures of BN post-acquisition, pursuant to which the sellers were eligible to receive up to $14,000 in additional cash consideration. At June 30, 2021, a liability of $1,900 was recorded for the ~~third~~contingent earn-out. In the second quarter of the fiscal year ended March 31, ~~2017 (we~~2022 (which we refer to as "fiscal 2022"), the earn-out agreement was terminated and the contingent liability was reversed into other operating income, net, on our Condensed Consolidated Statement of Operations. In connection with the termination of this earn-out agreement, we entered into a Performance Bonus Agreement (the "Bonus Agreement") to provide certain employees of BN with performance-based awards considering the BN business results on a stand-alone basis. The purpose of the bonus arrangement is to align a broader number of the BN leadership team with the achievement of BN performance objectives. The Bonus Agreement provides for payments to be made for certain performance-based results of BN for fiscal ~~year ended~~years ending March 31, ~~2017 as "fiscal 2017").~~ 2024, 2025, and 2026 and can range between $2,000 to $4,000 per year.

Summary

Highlights for the three months ended June 30, 2022 include:

•

Net sales for the first ~~nine months~~quarter of fiscal ~~2018~~2023 were ~~$55,356, down 16%~~$36,075, up $15,918 or 79% compared with ~~net sales of $66,145~~$20,157 for the first ~~nine~~quarter of the fiscal 2022. Approximately $8,900 of this increase was due to having three months of ~~fiscal 2017.~~

~~Net (loss) and (loss) per diluted share for~~BN results in the ~~third~~first quarter of fiscal ~~2018~~2023 compared to one month in fiscal 2022. Additionally, our sales continued to benefit from our diversified

revenue base including strong growth in our energy and chemical/petrochemical aftermarket ("commercial aftermarket") and space market. These increases were ($11,622) and ($1.19), respectively. Excluding the non-cash impairment and other charges related to the commercial nuclear power business as well as the impact of the Tax Cuts and Jobs Act (P.L. 115-97) (the “Tax Act”), net income and income per diluted share were ($1) and $0.00, respectively, compared with $1,840 and $0.19, respectively, for the third quarter of fiscal 2017. Net (loss) and (loss) per diluted share for the first nine months of fiscal 2018 were ($10,677) and ($1.09), respectively. Excluding the impairment and other charges related to our commercial nuclear power business, the impact of the Tax Act change, as well as restructuring chargespartially offset by continued supply chain constraints, which caused a delay in ~~each year, net~~material receipts.

•

Net income and income per diluted share for the first ~~nine months~~quarter of fiscal ~~2018~~2023 were ~~$1,168~~$676 and ~~$0.12,~~$0.06 per share, respectively, compared with a loss of $3,126 and $0.31 per share, respectively, for the first quarter of fiscal 2022. Adjusted net income ~~of $3,222~~ and adjusted net income per diluted share ~~of $0.33~~ for the first ~~nine months of fiscal 2017.~~

~~Orders booked in the third~~ quarter of fiscal ~~2018~~2023 were ~~$40,528, up 129%~~$1,329 and $0.12 per share, respectively, compared with a loss of $2,807 and $0.28 per share, respectively, for the ~~third~~first quarter of fiscal ~~2017 when orders were $17,699.~~ 2022. In the first quarter of fiscal 2023, we completed two first article U.S. Navy projects and are on schedule to complete the remaining first article projects throughout fiscal 2023. See "Non-GAAP Measures" below for a reconciliation of adjusted net income (loss) and adjusted net income (loss) per diluted share to the comparable GAAP amount.

•

Orders booked in the first ~~nine months~~quarter of fiscal ~~2018~~2023 were ~~$68,679, up 20%~~$40,300, compared with $20,900 in the first ~~nine months~~quarter of fiscal ~~2017, when~~2022. This increase included $13,700 of additional orders from BN, whose results were ~~$57,123.~~

only included for one month in the fiscal 2022 first quarter and strong orders from the space industry in the first quarter of fiscal 2023. The remaining $5,700 increase was attributable to the Graham Batavia operations which saw strong demand from its commercial aftermarket and international refinery markets.

•

Backlog was ~~$96,246~~$260,678 at ~~December 31, 2017,~~June 30, 2022, compared with ~~$72,981 at September 30, 2017 and $82,590~~$256,536 at March 31, ~~2017.~~

2022. This increase was primarily driven by continued growth in our space, commercial aftermarket, and international refinery markets. For more information on this performance indicator see "Orders and Backlog" below.

•

~~Gross profit margin~~Cash and cash equivalents at June 30, 2022 were $12,905, compared with $14,741 at March 31, 2022. This decrease was primarily due to cash used in operating ~~margin~~activities, primarily for working capital, of $689 and debt payments of $500 in the ~~third~~first quarter of fiscal ~~2018 were 21% and (89%) respectively, compared with 28% and 11%, respectively, for~~2023.

•

In the ~~third~~first quarter of fiscal ~~2017. Gross profit margin and operating margin for~~2022, $1,177 was returned to shareholders as dividends compared with $0 in the first ~~nine months~~quarter of fiscal ~~2018 were 22% and (26%) compared with 23% and 6%, respectively, for~~2023. In the ~~first nine months~~fourth quarter of fiscal ~~2017. Excluding~~2022, we suspended our dividend in accordance with the ~~impairment~~terms of our credit agreement with Bank of America. There can be no guarantee that we will pay dividends in the future, which will depend on a variety of factors, including our future financial performance, organic growth and acquisition opportunities, general economic conditions and other ~~charges related~~factors, many of which are beyond our control.

•

At June 30, 2022, we had $0 outstanding on our line of credit. We believe availability under our line of credit, along with our cash balances, provide us adequate financial flexibility to the commercial nuclear power business, the operating margin in the third quarter was (1%). For the first nine months of fiscal 2018 and 2017, excluding the third quarter charges previously noted, as well as a restructuring charge in each year, the operating margin was 2% and 6%, respectively.

~~Cash and short-term investments at December 31, 2017 were $74,182, compared with $72,102 on September 30, 2017 and $73,474 at March 31, 2017.~~

meet our obligations.

Cautionary Note Regarding Forward-Looking Statements

This report and other documents we file with the Securities and Exchange Commission ("SEC") include ~~“forward-looking statements”~~forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as ~~amended.~~

amended (the "Exchange Act"). All statements other than statements of historical fact are forward-looking statements for purposes of this report. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results implied by the forward-looking statements. ~~Such~~Forward-looking statements are indicated by words such as "anticipate," "believe," "continue," "could," "estimate," "may," "intend," "expect," "predict," "project," "potential," "should," "will," and similar words and expressions.

Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors ~~include,~~that could cause our actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements including, but ~~are~~ not limited to, those described in the ~~risks and uncertainties identified by us under the heading~~ "Risk Factors" section in Item 1A of our Annual Report on Form 10-K for fiscal ~~2017.~~

~~Forward-looking statements may also include, but are not limited to, statements about:~~

~~the current~~2022 and ~~future economic environments affecting us and the markets we serve;~~

~~expectations regarding investments in new projects by our customers;~~

•~~sources of revenue and anticipated revenue, including the contribution from anticipated growth;~~

•~~expectations regarding achievement of revenue and profitability expectations;~~

•~~plans for future products and services and for enhancements to existing products and services;~~

~~our operations in foreign countries;~~

~~political instability in regions in which our customers are located;~~

~~our ability to implement our growth and acquisition strategy;~~

~~our ability to maintain existing nuclear power work or expand nuclear power work into new markets;~~

~~our ability to maintain or expand nuclear power work for the U.S. Navy;~~

~~our ability to successfully execute our existing contracts;~~

~~estimates regarding our liquidity and capital requirements;~~

~~timing of conversion of backlog to sales;~~

~~our ability to attract or retain customers;~~

~~the outcome of any existing or future litigation; and~~

~~our ability to increase our productivity and capacity.~~

Forward-looking statements are usually accompanied by words such as "anticipate," "believe," "estimate," "may," "might," "intend," "interest," "appear," "expect," "suggest," "plan," "encourage," "potential", "view" and similar expressions. Actual results could differ materially from historical results or those implied by the forward-looking statements containedelsewhere in this report.

Undue reliance should not be placed on our forward-looking statements. New risks and uncertainties arise from time to time and we cannot predict these events or how they may affect us and cause actual results to differ materially from those expressed or implied by our forward-looking statements. Therefore, you should not rely on our forward-looking statements as predictions of future events. When considering these risks, uncertainties and assumptions, you should keep in mind the cautionary statements contained in this report and any documents incorporated herein by reference. You should read this document and the documents that we reference in this Quarterly Report on Form 10-Q (the "Form 10-Q") completely and with the understanding that our actual future results may be materially different from what we expect. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

All forward-looking statements included in this Form 10-Q are made only as of the date indicated or as of the date of this Form 10-Q. Except as required by law, we undertake no obligation to update or announce any revisions to forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

Current Market Conditions

AsDemand for our equipment and systems for the defense industry is expected to remain strong and continue to expand, based on defense budget plans, the projected procurement of submarines, aircraft carriers and undersea propulsion and power systems and the solutions we provide. In addition to U.S. Navy applications, we also provide specialty pumps, turbines, compressors and controllers for various fluid and thermal management systems used in Department of Defense radar, laser, electronics and power systems. We have built a ~~result~~leading position, and in some instances, a sole source position, for certain systems and equipment for the defense industry.

Our traditional energy markets are undergoing significant transition. While we expect that fossil fuels will continue to be an important component in the global energy industry for many years to come, there are significant changes in the priorities for capital investments by our customers and the regions in which those investments are being made. We expect that the systemic changes in the energy markets, which are influenced by the increasing use by consumers of ~~volatility~~alternative fuels, will lead to demand growth for fossil-based fuels that is less than the global growth rate. We also anticipate that future investment by refiners in ~~crude~~renewable fuels (e.g., renewable diesel), in existing refineries (e.g., to expand feedstock processing flexibility and to improve conversion of oil to refined products) to gain greater throughput, or to build new capacity (e.g., integrated refineries with petrochemical products capabilities), will continue to drive demand for our products and ~~natural gas prices,~~services. The timing and catalyst for a recovery in these markets (crude oil refining and chemical/petrochemical) remains uncertain. Accordingly, we believe that in the near term ~~price uncertainty,~~the quantity of projects available for us to compete for will remain low and that new project pricing will remain challenging.

Of note, over the last year we have experienced an increase in our ~~global~~ energy ~~markets~~and chemical aftermarket orders, primarily from the domestic market. Aftermarket orders have historically been in a ~~contracted state for the past three years. In response to the market conditions,~~leading indicator of future capital investment by our customers in their facilities for upgrades and expansions. As such we believe there is the ~~downstream energy sector have sharply~~possibility of a cyclical upturn in the next twelve months following several years of reduced capital spending in ~~each~~a low oil price environment. We do not expect the next cycle to be as robust as years past due to the factors discussed above.

The alternative and clean energy opportunities for our heat transfer, power production and fluid transfer systems are expected to continue to grow. We assist in designing, developing and producing equipment for hydrogen production, distribution and fueling systems, concentrated solar power and storage, and small modular nuclear systems. We are positioning the Company to be a more significant contributor as these markets continue to develop.

We believe that chemical and petrochemical capital investment will continue to decouple from energy investment. Over the long term, we expect that population growth, an expanding global middle class and an increasing desire for improved quality of life and access to consumer products will drive increased demand for industrial goods within the plastics and resins value chain along with fertilizers or related products. As such, we expect investment in new global chemical and petrochemical capacity will improve and drive growth in demand for our products and services.

Our turbomachinery, pumps and cryogenic products and market access provide revenue and growth potential in the commercial space/aerospace markets. The commercial space market has grown and evolved rapidly, and we provide rocket engine turbo pump systems and components for many of the last three years. This impacted not only new capacity, but also revamping and turnaround for routine maintenance. Oil prices have risen over the past six months from $45 to over $60 per barrel. As a result, certain projects where our equipment is utilized have begun to proceed, however, it is not clear whether a sustained capital spending recovery in our markets has begun.

~~Capital spending~~launch providers. We expect that in the ~~nuclear~~long term extended space exploration will become more prevalent, and we anticipate that our thermal/fluid management and environmental control and life support system turbomachinery will play important roles. We are also participating in future aerospace power and propulsion system development through supply of fluid and thermal management systems components. Small power dense systems are imperative for these applications and we believe our technology and expertise will enable us to achieve sales growth in this market ~~for both new capacity and~~as well. For the first quarter of fiscal 2023, sales to ~~maintain existing facilities continues~~the space industry represented 18% of our sales compared to ~~trend downward. Capital spending~~4% in the nuclear market is down 25% to 35% compared with 3 to 4 years ago, according to a report from the Nuclear Energy Institute. Additionally, the March 2017 bankruptcy filing by Westinghouse Electric Company (“Westinghouse”) and the decision to cease building the two new reactors located in Summer, South Carolina has dramatically impacted the healthfirst quarter of ~~the~~fiscal 2022.

~~domestic nuclear market.~~

The ~~contracted capital spending within the commercial nuclear power market has had the effect of measurably reducing new orders and consequently reducing~~chart below illustrates our ~~sales.~~

Our long-term view for the refining and petrochemical markets is that fundamentals will drive increasing demand. These fundamentals include rising populations, strong emerging market economic growth, and overall global economic expansion, which we believe will result in capital investment necessary to satisfy increasing global energy demand.

Our naval nuclear propulsion market has demand tied to aircraft carrier and submarine vessel construction schedules of the primary shipyards who service the U.S. Navy. We expect growth in our naval nuclear propulsion business based on our strategic actionsstrategy to increase our participation in the defense and space markets. The defense market ~~share and expected demand. For more information, refer to the heading "Strategy and Outlook" within this Item 2 of this Quarterly Report on Form 10-Q.~~

~~In the near term, given the current market conditions, new order levels are expected to remain volatile from quarter to quarter.~~

~~The chart below shows the impact~~comprised 74% of our total backlog at June 30, 2022. We believe this diversification ~~strategy. Nearly 60% of~~is especially beneficial when our ~~backlog~~refining and process markets are weak, as ~~of December 31, 2017~~ is ~~from markets not served by us in~~presently the ~~Fiscal 2007-2009 time frame.~~case.

Backlog Mix Illustrating Impact of Diversification Strategies
Backlog ($ million) at FYE*

*Fiscal*Note: FYE refers to fiscal year ended March 31

Results of Operations

To better understand the significant factors that influenced our performance during the periods presented, the following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the notes to our Condensed Consolidated Financial Statements included in Part I, Item 1, of this ~~Quarterly Report on~~ Form 10-Q.

The following table summarizes our results of operations for the periods indicated:


	Three Months Ended
	June 30,
	2022			2021
Net sales	$	36,075		$	20,157
Gross profit	$	6,744		$	914
Gross profit margin		19	%		5	%
SG&A expenses (1)	$	5,759		$	4,923
SG&A as a percent of sales		16	%		24	%
Net income (loss)	$	676		$	(3,126	)
Diluted income (loss) per share	$	0.06		$	(0.31	)
Total assets	$	184,213		$	185,366
Total assets excluding cash and cash equivalents	$	171,308		$	166,223

(1)

Selling, general and administrative expenses are referred to as "SG&A".

Three Months Ended

Nine Months Ended

December 31,

December 31,

2017

2016

2017

2016

Net sales

$
17,281

$
22,654

$
55,356

$
66,145

Gross profit

$
3,585

$
6,301

$
12,281

$
15,422

Gross profit margin

21
%

28
%

22
%

23
%
SG&A expense ⁽¹⁾

$
4,066

$
3,804

$
11,447

$
10,637

SG&A as a percent of sales

24
%

17
%

21
%

16
%
Net (loss) income

$
(11,622
)

$
1,840

$
(10,677
)

$
3,222

Diluted (loss) income per share

$
(1.19
)

$
0.19

$
(1.09
)

$
0.33

Total assets

$
138,623

$
148,328

$
138,623

$
148,328

Total assets excluding cash, cash equivalents and investments

$
64,441

$
75,651

$
64,441

$
75,651

⁽¹⁾

~~Selling, general and administrative expense is referred to as~~ “~~SG&A~~”.

The ~~Third~~First Quarter ~~and First Nine Months~~ of Fiscal ~~2018~~2023 Compared ~~With~~with the ~~Third~~First Quarter ~~and First Nine Months~~

of Fiscal ~~2017~~2022

Sales for the ~~third~~first quarter of fiscal ~~2018~~2023 were ~~$17,281, a 24% decrease as compared with~~$36,075, an increase of $15,918 or 79% from sales of ~~$22,654~~$20,157 for the ~~third~~first quarter of fiscal ~~2017. Our domestic~~2022. Approximately $8,900 of this increase was due to having three months of BN results in the first quarter of fiscal 2023 compared to one month in fiscal 2022. Additionally, our sales continued to benefit from our diversified revenue base including strong growth in commercial aftermarket and the space market. These increases were partially offset by continued supply chain constraints, which caused a delay in material receipts and related shipments. Domestic sales as a percentage of aggregate ~~product~~ sales were ~~65%~~78% in the ~~third~~first quarter of fiscal ~~2018~~2023 compared with ~~77%~~69% in the ~~third~~first quarter of fiscal ~~2017. Domestic sales year-over-year decreased $6,160, or 35%. International sales increased $787, or 15%,~~2022 reflecting the increase in ~~the third quarter of fiscal 2018 compared with the third quarter of fiscal 2017.~~our defense and space industry businesses which is all U.S. based. Sales in the three months ended ~~December 31, 2017~~June 30, 2022 were ~~31%~~22% to the refining industry, ~~24%~~16% to the chemical and petrochemical industries, ~~10%~~27% for the defense (U.S. Navy) industry, 18% to ~~the power industry, including the nuclear market,~~space, and ~~35%~~17% to other commercial and industrial ~~applications, including the U.S. Navy.~~applications. Sales in the three months ended ~~December 31, 2016~~June 30, 2021 were ~~28%~~23% to the refining industry, ~~19%~~23% to the chemical and petrochemical industries, ~~19%~~35% for the defense (U.S. Navy) industry, 4% to ~~the power industry, including the nuclear market,~~space, and ~~34%~~15% to other commercial and industrial ~~applications, including the U.S. Navy. Fluctuations~~applications. Fluctuation in sales among markets, products and geographic locations ~~can vary measurably~~varies, sometimes significantly, from quarter-to-quarter based on timing and magnitude of projects. See also "Current Market Conditions," above. For additional information on anticipated future sales and our markets, see "Orders and Backlog" below.

Sales for the first nine months of fiscal 2018 were $55,356, a decrease of $10,789, or 16% compared with sales of $66,145 for the first nine months of fiscal 2017. The decrease in fiscal 2018 year-to-date sales was due to weaker domestic sales. Our domestic sales, as a percentage of aggregate product sales, were 67% in the first nine months of fiscal 2018 compared with 74% in the same period in fiscal 2017. Domestic sales decreased $11,900, or 24%, while international sales increased by $1,111, or 7%. International sales accounted for 33% and 26% of total sales for the first nine months of fiscal 2018 and fiscal 2017, respectively. Sales in the first nine months of fiscal 2018 were 25% to the refining industry, 30% to the chemical and petrochemical industries, 14% to the power industry, including the nuclear market, and 31% to other commercial and industrial applications, including the U.S. Navy. Sales in the first nine months of fiscal 2017 were 31% to the refining industry, 22% to the chemical and petrochemical industries, 23% to the power industry, including the nuclear market, and 24% to other commercial and industrial applications, including the U.S. Navy.22

~~Our gross profit margin for the third quarter of fiscal 2018 was 21% compared with 28% for the third quarter of fiscal 2017.~~ Gross profit for the third quarter of fiscal 2018 decreased 43% compared with fiscal 2017, to $3,585 from $6,301. Gross profit was impacted by lower sales and margins were impacted by a weaker mix of projects and less cost absorption.

~~Our gross~~ profit margin for the first ~~nine months~~quarter of fiscal ~~2018~~2023 was ~~22%~~19%, compared with ~~23%~~5% for the first ~~nine months~~quarter of fiscal ~~2017.~~2022. Gross profit for the first ~~nine months~~quarter of fiscal ~~2018 decreased 20%~~2023 increased compared with fiscal ~~2017,~~2022, to ~~$12,281~~$6,744 from ~~$15,422. The decrease~~$914. These increases were primarily due to an improved mix of sales related to higher margin projects (space and commercial aftermarket) and improved execution on completed contracts, partially offset by higher incentive compensation. In the first quarter of fiscal 2023, we completed and shipped two first article U.S. Navy projects and are on schedule to complete the remaining first article projects throughout fiscal 2023. In addition to the above, first quarter fiscal 2023 includes three months of operations from BN compared to one month in ~~gross profit~~the first quarter of fiscal 2022.

SG&A expense including amortization for the first quarter of fiscal 2023 was $5,759, up 17%, or $836, compared with $4,923 for the first quarter of fiscal 2022. Approximately $1,400 of this increase was due to ~~lower volume.~~

~~SG&A expenses as a percent~~having three months of ~~sales for the three and nine-month periods ended December 31, 2017 were 24% and 21%, respectively. SG&A expenses~~BN results in the ~~third~~first quarter of fiscal ~~2018 were $4,066, an increase~~2023 compared to one month in fiscal 2022, partially offset by cost savings and deferral initiatives. These efforts included reducing the use of ~~$262, or 7%, compared with the third quarter of fiscal 2017~~outside sales agents and delayed hiring. As a result, SG&A ~~expenses of $3,804, due to bad debts in the commercial nuclear power market. Excluding the commercial nuclear power market bad debts, SG&A expenses were $3,832, or 22%~~expense as a percentage of sales in the ~~third~~first quarter of fiscal ~~2018. SG&A expenses~~2023 was 16% of sales compared with 24% of sales in the comparable period in fiscal 2022.

Net interest expense for the first quarter of fiscal 2023 was $157 compared to $22 in the first ~~nine months~~quarter of fiscal ~~2018 were $11,447, an increase~~2022 primarily due to increased borrowings related to the BN acquisition, as well as increased interest rates since the first quarter of ~~$810, or 8%~~2022.

Our effective tax rate in the first quarter of fiscal 2023 was 24%, compared with 19% in the first ~~nine months~~quarter of fiscal ~~2017 SG&A expenses of $10,637.~~2022. This increase was ~~principally~~primarily due to discrete tax expense recognized in the first quarter of fiscal 2023 related to the ~~benefit~~vesting of insurance proceeds of $759 received in the prior year and the $234 bad debt in the commercial nuclear power market in the current three-month period, as described below. Excluding these two items, SG&A expenses were $183, or 2%, lower.

During the third quarter of fiscal 2018, we performed our annual goodwill and intangible asset impairment review. We estimated the fair value of intangible assets and goodwill of our commercial nuclear power business related to the December 2010 acquisition of Energy Steel & Supply Co. (“Energy Steel”). The impairment review indicated that the fair value of the permits, tradename and goodwill of the business were substantially lower than the carrying value due to reduced investment from the U.S. nuclear power market, the strength of the Energy Steel brand relative to larger more vertically integrated suppliers, and the bankruptcy of Westinghouse which resulted in the stoppage of work at the Summer, SC nuclear facility. As a result, in the third quarter of fiscal 2018 we recorded impairment losses of $8,600, $500, and $5,716 for permits, tradename and goodwill, respectively. The total impairment charge was $14,816 before taxes and $12,852 after taxes. Additionally, we incurred a $46 revenue reversal, and a $234 bad debt charge, related to the bankruptcy of Westinghouse and the stoppage of work at the Summer, SC nuclear facility. The total before and after tax cost of these two charges was $280 and $208, respectively. Additionally, we recognized a gain of $1,416 related to the revaluation of deferred tax liabilities, which were impacted by the reduction in federal income tax rates from the Tax Act. The deferred tax gain of $1,438 included $2,034 for adjusting the rates on the deferred tax liability of the Energy Steel acquisition offset by a charge of $596 for other tax items.

Prior to the third quarter, in the first half of fiscal 2018, we incurred a pre-tax restructuring charge of $316 ($224 after tax) for severance costs related to certain headcount reductions. In the first half of fiscal 2017, we incurred a pre-tax restructuring charge of fiscal 2017 was $630 ($441 after tax) related to certain headcount reductions. The reduction in headcount in the first half of fiscal 2018 was approximately 6% of our global workforce. The annual savings from these reductions isrestricted stock awards. Our expected ~~to be $1,500. Approximately half of the savings should be realized in fiscal 2018.~~

Interest income for the three and nine-month periods ended December 31, 2017 was $142 and $455, respectively, compared with $100 and $272, respectively, for the same periods ended December 31, 2016. Interest expense for the three and nine-month periods ended December 31, 2017 was $3 and $8, respectively, compared with $3 and $7, respectively, for the same periods ended December 31, 2016.

~~The reduction in the year-to-date~~ effective tax rate ~~from 28% in~~for fiscal 2023 is 21% to 22% as the ~~second quarter to 23% in~~impact of these discrete tax items on our effective tax rate lessens over the ~~third quarter as well as in the first nine months~~course of fiscal ~~2018 was due primarily to adjustments related to the Tax Act. The effective tax rates for the comparable three and nine month periods of fiscal 2017 were 29% and 27%, respectively.~~2023.

Net (loss) income and (loss) income per diluted share for the third quarter of fiscal 2018 were ($11,622) and ($1.19), compared with $1,840 and $0.19, respectively, for the third quarter of fiscal 2017. Excluding impairment and other related charges for our commercial nuclear business as well as the gain from implementation of the Tax Act, net income and income per diluted share for the third quarter of fiscal 2018 were ($1) and $0.00, respectively, and were $1,840 and $0.19 in the third quarter of fiscal 2017. Net (loss) income and (loss) income per diluted share for the first nine months of fiscal 2018 were ($10,677) and ($1.09), respectively, compared with net income of $3,222 and income per diluted share of $0.33 for the first nine months of fiscal 2017. Excluding the items noted above as well as restructuring charges in each year, net income and income per diluted share for the first ~~nine months~~quarter of fiscal ~~2018~~2023 were ~~$1,168~~$676 and $0.06 per share, respectively, compared with a loss of $3,126 and $0.31 per share, respectively, for the first quarter of fiscal 2022. Adjusted net income and adjusted net income per diluted share for the first quarter of fiscal 2023 were $1,329 and $0.12 per share, respectively, compared with a loss of $2,807 and ~~were $3,663~~$0.28 per share, respectively, for the first quarter of fiscal 2022. See "Non-GAAP Measures" below for a reconciliation of adjusted net income (loss) and ~~$0.38~~adjusted net income (loss) per diluted share to the comparable GAAP amount.

Non-GAAP Measures

Adjusted earnings (loss) before net interest expense, income taxes, depreciation and amortization ("EBITDA"), adjusted net income (loss), and adjusted net income (loss) per diluted share are provided for information purposes only and are not measures of financial performance under accounting principles generally accepted in the ~~first nine months~~U.S. ("GAAP"). Management believes the presentation of these financial measures reflecting non-GAAP adjustments provides important supplemental information to investors and other users of our financial statements in evaluating the operating results of the Company. In particular, those charges and credits that are not directly related to operating performance, and that are not a helpful measure of the performance of our underlying business particularly in light of their unpredictable nature. These non-GAAP disclosures have limitations as analytical tools, should not be viewed as a substitute for net income (loss) or net income (loss) per diluted share determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. In addition, supplemental presentation should not be construed as an inference that our future results will be unaffected by similar adjustments to net income (loss) or net income (loss) per diluted share determined in accordance with GAAP. Adjusted EBITDA, adjusted net income (loss) and adjusted net income (loss) per diluted share are key metrics used by management and our board of directors to assess the Company’s financial and operating performance and adjusted EBITDA is a basis for a portion of management's performance-based compensation.

Adjusted EBITDA excludes charges for depreciation, amortization, interest expense, taxes, other acquisition related expenses, and other unusual/nonrecurring expenses. Adjusted net income (loss) and adjusted net income (loss) per diluted share excludes intangible amortization, other costs related to the acquisition, and other unusual/nonrecurring expenses.

A reconciliation of adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per diluted share to net income (loss) in accordance with GAAP is as follows:


	Three Months Ended
	June 30,
	2022		2021
Net income (loss)	$	676	$	(3,126	)
Acquisition & integration costs		54		169
Debt amendment costs		153		-
Net interest expense		157		22
Income taxes		215		(745	)
Depreciation & amortization		1,475		820
Adjusted EBITDA	$	2,730	$	(2,860	)
Adjusted EBITDA margin %	7.6%			-14.2	%


	Three Months Ended
	June 30,
	2022			2021
Net income (loss)	$	676		$	(3,126	)
Acquisition & integration costs		54			169
Amortization of intangible assets		619			225
Debt amendment costs		153			-
Normalize tax rate(1)		(173	)		(75	)
Adjusted net income (loss)	$	1,329		$	(2,807	)
Adjusted diluted earnings (loss) per share	$	0.12		$	(0.28	)

(1) Applies a normalized tax rate to non-GAAP adjustments, which are pre-tax, based upon the full fiscal ~~2017.~~year expected effective tax rate.

Liquidity and Capital Resources

The following discussion should be read in conjunction with our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows:


	June 30,			March 31,
	2022			2022
Cash and cash equivalents	$	12,905		$	14,741
Working capital		28,508			27,796
Working capital ratio(1)		1.5			1.5
Working capital excluding cash and cash equivalents		15,603			13,055
Working capital excluding cash and cash equivalents as a percent of net sales(2)		11.2	%		10.6	%

(1)

Working capital ratio equals current assets divided by current liabilities.

(2)

Working capital excluding cash and cash equivalents as a percent of net sales is based upon trailing twelve month sales, including BN pre-acquisition sales.

December 31,

March 31,

2017

2017

Cash and investments

$
74,182

$
73,474

Working capital

78,369

78,688

Working capital ratio⁽¹⁾

3.3

3.5

Working capital excluding cash and investments

4,187

5,214

⁽¹⁾

~~Working capital ratio equals current assets divided by current liabilities.~~

Net cash ~~generated~~used by operating activities for the first ~~nine months~~quarter of fiscal ~~2018~~2023 was ~~$3,874,~~$689 compared with ~~$10,707~~$7,076 of cash used for the first ~~nine months~~quarter of fiscal ~~2017.~~2022. The ~~decrease in~~ cash ~~generation~~used by operations during the first quarter of fiscal 2023 was lower than the comparable prior year ~~over year~~period primarily as a result of higher cash net income. Cash usage during the first quarter of fiscal 2023 was ~~attributable~~due to ~~lower earnings,~~ an increase in ~~accounts receivable, an increase~~working capital to fund growth, in ~~income taxes receivable and~~particular, the investments in inventory in a ~~smaller decrease in inventories, partly offset by higher unbilled revenue.~~supply constrained environment.

Dividend payments and capital expenditures in the first ~~nine months~~quarter of fiscal ~~2018~~2023 were ~~$2,638~~$0 and ~~$543,~~$284, respectively, compared with ~~$2,616~~$1,177 and ~~$241,~~$446, respectively, for the first ~~nine months~~quarter of fiscal ~~2017.~~ 2022. In the fourth quarter of fiscal 2022, we suspended our dividend in accordance with the terms of our credit agreement with Bank of America. There can be no guarantee that we will pay dividends in the future and will depend on a variety of factors, including our future financial performance, organic growth and acquisition opportunities, general economic conditions and other factors, many of which are beyond our control.

Capital expenditures for fiscal ~~2018~~2023 are expected to be ~~between~~ approximately $1,500 and $2,500. We have a capital project for approximately $1,500 which will be completed in the next few months, however, it is not clear whether the payments will occur in this fiscal year or early in next fiscal year.$4,500 to $5,500. Approximately ~~80%~~35% of our fiscal ~~2018~~2023 capital expenditures are expected to be for ~~productivity-enhancing~~ machinery and equipment, 50% for buildings and leasehold improvements to fund our growth initiatives and with the remaining amounts expected to be used for ~~information technology upgrades and~~ other items. The majority of our planned capital expenditures are discretionary.

Cash and ~~investments~~cash equivalents were ~~$74,182 on December 31, 2017~~$12,905 at June 30, 2022 compared with ~~$73,474 on~~$14,741 at March 31, ~~2017, up $708.~~

~~We invest net~~2022, down $1,836 primarily due to cash ~~generated from~~used in operations, in excess of cash held for near-term needs in short-term, less than 365 days, certificates of deposit, money market accounts or U.S. government instruments, generally with maturity periods of up to 180 days. Our money market account is used to securitize our outstanding letters of credit, which reduces our cost on those letters of credit. Approximately 95%capital expenditures, and debt repayments. At June 30, 2022, approximately $7,500 of our cash and ~~investments are~~cash equivalents is used to secure our letters of credit and $2,206 of our cash is held ~~in the U.S. The remaining 5% is invested in~~by our China and India operations.

~~Our~~On June 1, 2021, we entered into a $20,000 five-year loan with Bank of America. The term loan requires monthly principal payments of $167 through June 1, 2026, with the remaining principal amount plus all interest due on the maturity date. The interest rate on the term loan is the applicable Bloomberg Short-Term Bank Yield Index ("BSBY"), plus 1.50%, subject to a 0.00% floor.

On June 1, 2021, we entered into a five-year revolving credit facility with ~~JP Morgan Chase provides us with~~Bank of America that provided a $30,000 line of credit, ~~of $25,000,~~ including letters of credit and bank ~~guarantees.~~guarantees, expandable at our option and the bank's approval at any time up to $40,000. As of June 30, 2022, there was no amount outstanding on the line of credit. Amounts outstanding under the facility agreement bear interest at a rate equal to BSBY plus 1.50%, subject to a 0.00% floor. As of June 30, 2022, the BSBY rate was 0.881430%. Outstanding letters of credit under this agreement are subject to a fee of 1.50% per annum of the outstanding undrawn amount of each letter of credit that is not secured by cash and 0.60% of each letter of credit that is secured by cash. Amounts available for borrowing under the revolving credit facility are subject to an unused commitment fee of 0.25%. As of June 30, 2022, there was $5,079 letters of credit outstanding with Bank of America.

Under the original term loan agreement and revolving credit facility, we covenanted to maintain a maximum total leverage ratio, as defined in such agreements, of 3.0 to 1.0, with an allowable increase to 3.25 to 1.0 following an acquisition for a period of twelve months following the closing of the acquisition. In addition, we covenanted to maintain a minimum fixed charge coverage ratio, as defined in such agreements, of 1.2 to 1.0 and minimum margined assets, as defined in such agreements, of 100% of total amounts outstanding on the revolving credit facility, including letters of credit. At December 31, 2021, we were out of compliance with our ~~JP Morgan Chase~~bank agreement ~~allows us~~covenants and were granted a waiver for noncompliance by Bank of America.

On March 31, 2022 and June 7, 2022, we entered into amendment agreements with Bank of America. Under the amended agreements, we are not required to ~~increase~~comply with the maximum total leverage ratio and the minimum fixed charge coverage ratio covenants contained in the original term loan agreement for the periods ending December 31, 2021 and March 31, June 30 and September 30, 2022. The principal balance outstanding on the line of credit may not exceed $15,000, unless letters of credit exceed $11,500, in which case the limit is $17,000, until the compliance date. The compliance date is defined as the date on which Bank of America has received all required financial information with respect to us for the fiscal year ending March 31, 2023 and no event of default exists. In addition, on or before September 1, 2022 and at ~~our discretion, up to another $25,000, for total availability of $50,000. Borrowings under this credit facility are secured by~~all times thereafter, all of our ~~assets.~~deposit accounts, except certain foreign subsidiary accounts, will be either subject to a deposit account control agreement or maintained with Bank of America. We ~~also have~~covenant to maintain EBITDA, as defined in such amendment, of at least ($700) for the twelve-month period ending June 30, 2022 and $1,800 for the twelve-month period ending September 30, 2022; maintain a ~~$5,000 unsecured line~~total maximum leverage ratio of ~~credit with HSBC, N.A. Letters of credit outstanding on~~4.0 to 1.0 for the twelve-month period ending December 31, ~~2017~~2022 and 3.0 to 1.0 for the period ending March 31, ~~2017~~2023; and maintain liquidity, as defined in such amendment, of at least $10,000 prior to the occurrence of the compliance date and $20,000 from and after the occurrence of the compliance date. As of June 30, 2022, we were ~~$7,401~~in compliance with the amended financial covenants of our loan agreement. At June 30, 2022, the amount available under the revolving credit facility was $10,840.

In connection with the waiver and ~~$8,372, respectively. The outstanding~~amendments discussed above, we are required to pay a back-end fee of $725 to Bank of America payable upon the earliest to occur of (i) any default or event of default, (ii) the last date of availability under the revolving credit facility, and (iii) repayment in full of all principal, interest, fees and other obligations, which may be waived or cancelled if certain criteria are met.

We did not have any off-balance sheet arrangements as of June 30, 2022 and 2021, other than letters of credit asincurred in the ordinary course of December 31, 2017 were issued by JP Morgan Chase, HSBC, as well as Bank of America (under our previous credit facility). There were no other amounts outstanding on our credit facilities at December 31, 2017 and March 31, 2017. The borrowing rate under our JP Morgan Chase facility as of December 31, 2017 was the bank’s prime rate, or 4.50%. Availability under the JP Morgan Chase and HSBC lines of credit was $25,168 and $25,761 at December 31, 2017 and March 31, 2017, respectively. business.

We believe that cash generated from operations, combined with ~~our investments and~~the liquidity provided by available financing capacity under our credit facility, will be adequate ~~both~~ to meet our cash needs for the immediate ~~future and to support our growth strategies.~~future.

O~~rders~~Orders and Backlog

Management uses orders and backlog as measures of our current and future business and financial performance. Orders for the three-month period ended ~~December 31, 2017~~June 30, 2022 were ~~$40,528~~$40,300 compared with ~~$17,699~~$20,900 for the same period ~~in the prior~~last year, an increase of ~~129%.~~ $19,400. This increase included $13,700 of additional orders from BN, whose results were only included for one month in the fiscal 2022 first quarter and strong orders from the space industry in the first quarter of fiscal 2023. The remaining $5,700 increase is attributable to the Graham Batavia operations which saw strong demand from its commercial aftermarket and international refinery markets.

The composition of our order book is broad-based and includes noteworthy orders across our Graham Batavia business and Barber-Nichols. Within the $40.3 million of total orders are the following:

•

$10.0 million for commercial aftermarket

•

$7.3 million of combined pump/turbo pump orders to multiple customers in the space industry

•

$7.0 million for vacuum distillation system for a refinery in India

•

$5.6 million of combined orders for critical U.S. Navy submarine and carrier programs

Orders represent written communications received from customers requesting us to supply products and/or services. Domestic orders were ~~47%~~73% of total orders, or ~~$19,144, and international orders were 53% of total orders, or $21,384, in the current quarter~~$29,300 compared with the ~~third~~first quarter of fiscal ~~2017,~~2022 when domestic orders were ~~59%~~74%, or ~~$10,396, of total orders, and international orders were 41%, or $7,303,~~$15,400, of total orders. ~~Over 80% of the international orders in the third quarter of fiscal 2018 were from Canada.~~

~~During the first nine months of fiscal 2018, orders were $68,679,~~

Backlog was $260,678 at June 30, 2022, compared with ~~$57,123 for the same period of fiscal 2017, an~~$256,536 at March 31, 2022, a 2% increase ~~of $11,556,~~ or 20%. For the first nine months of fiscal 2018, refining orders increased by $19,121, power orders increased $812, chemical and petrochemical decreased by $6,167 and other commercial and industrial applications, including the U.S. Navy, decreased by $2,210. See “Current Market Conditions” above for additional information.

~~Backlog was $96,246 at December 31, 2017, compared with $72,981 at September 30, 2017, a 32% increase.~~$4,142. Backlog is defined as the total dollar value of orders received for which revenue has not yet been recognized. Approximately ~~55%~~40% to ~~60%~~50% of orders currently in our backlog are expected to be converted to sales within one ~~year, 5% to 10% are expected to ship between 12 and 24 months, and 25% to 35% beyond two years.~~year. The majority of the orders that are expected to convert beyond twelve months are for the defense industry, specifically the U.S. Navy. At ~~December 31, 2017, 35%~~June 30, 2022, 74% of our backlog was attributable to ~~equipment~~U.S. Navy projects, 11% for refinery project work, 4%5% for chemical and petrochemical projects, 6% for ~~power projects, including nuclear, 51% for U.S. Navy~~space projects and 4% for other industrial applications. At ~~December~~March 31, ~~2016, 17%~~2022, 76% of our backlog was ~~attributed~~attributable to ~~equipment~~U.S. Navy projects, 10% for refinery project work, ~~14%~~5% for chemical and petrochemical projects, 9%4% for ~~power projects, 57% for U.S. Navy~~space projects and 3%5% for other industrial applications. ~~At December 31, 2017,~~

Outlook

Our objective is to leverage our engineering knowhow and depth of application experience to identify more opportunities for our products and technologies in our targeted markets.

Our expectations for sales and profitability assume that we ~~had no projects on hold.~~

~~Strategy~~will be able to operate our production facilities at planned capacity, have access to our global supply chain including our subcontractors, and ~~Outlook~~

~~Prolonged weakness in the global energy markets has continued~~do not experience significant COVID-19-related disruptions or any other unforeseen events. We project that approximately 40% to ~~negatively impact our business in fiscal 2018. Our oil refining and chemical market customer spending has started~~50% of backlog will convert to ~~improve compared with last year, but this will have no effect on our fiscal 2018 sales. We anticipate that the nuclear power market will continue to be weak and unpredictable during~~sales over the next ~~few years, and this determination led~~12 months. We expect the remaining backlog will convert beyond fiscal 2023, which includes a combination of U.S. Navy orders that have a long conversion cycle (up to ~~the impairment of our goodwill and intangible assets which we recognized in the third quarter.~~

Despite the current downturn, we continue to believe in the long-term potential of the energy markets we serve. We intend to expand our participation and market share. We believe this anticipated long-term strength will support our strategy to significantly grow our business when the energy markets begin to recover. We have invested in capacity to serve our commercial, refining and chemical/petrochemical customers,six years) as well as certain commercial orders, the conversion of which has been extended by our customers. We expect 45% to ~~expand~~50% of our sales in fiscal 2023 to be from the ~~work we do~~defense market. Defense spending, specifically for the U.S. ~~Navy. In addition~~Navy, is expected to ~~these organic growth~~remain steady over the foreseeable future.

~~opportunities, we continue~~Sales in fiscal 2023 are expected to look for acquisitions or other business combinations that we believe will allow us to expand our presence in both our existing and ancillary markets. We are focused on growing our business, reducing earnings volatility, and further diversifying our business and product lines.

~~The prolonged contraction~~be in the ~~energy markets we serve continues~~range of $135,000 to ~~cause near-term uncertainty, affecting our outlook for fiscal 2018. We expect revenue in fiscal 2018 to be approximately $75,000.~~

$150,000. We expect gross profit ~~margin in fiscal 2018~~margins for the year to be ~~in the 21%~~approximately 16% to ~~22% range. We are experiencing the impact~~17% of ~~lower pricing from orders received over the past year~~sales and ~~the under-utilization~~SG&A expenses to be 15% to 16% of our production facilities in fiscal 2018. We believe that production overhead absorption will be weak, which we expect in turn will put continued pressure on gross profit margins in our fourth quarter.

~~SG&A during fiscal 2018~~sales. Adjusted EBITDA is expected to be ~~between $15,000~~$6,500 to $9,500 for fiscal 2023. We do believe our second quarter of fiscal 2023 will not benefit as well as the first quarter on mix and ~~$15,500. Our effective tax rate during fiscal 2018, excluding~~deferred expenses, but the ~~tax effect~~second half should normalize to achieve our guidance. We have not reconciled non-GAAP forward-looking Adjusted EBITDA to its most directly comparable GAAP measure, as permitted by Item 10(e)(1)(i)(B) of ~~the impairment loss~~Regulation S-K. Such reconciliation would require unreasonable efforts to estimate and ~~the one-time impact~~quantify various necessary GAAP components largely because forecasting or predicting our future operating results is subject to many factors out of the new Tax Act recorded in the third quarter, is expected to be between 24% and 26%, which we have lowered due to the reduced federal corporate income tax rate. Fiscal 2018 will benefit from the fiscal fourth quarter being taxed at a lower rate. our control or not readily predictable.

~~We continue to expect operating cash flow in fiscal 2018 will be lower than fiscal 2017. Fiscal 2017 cash flow benefited from the build-up of customer deposits.~~

Contingencies and Commitments

We have been named as a defendant in lawsuits alleging personal injury from exposure to asbestos allegedly contained in or accompanying our products. We are a co-defendant with numerous other defendants in these lawsuits and intend to vigorously defend ourselves against these claims. The claims in our current lawsuits are similar to those made in previous asbestos lawsuits that named us as a defendant. Such previous lawsuits either were dismissed when it was shown that we had not supplied products to the plaintiffs’ places of work, or were settled by us for immaterial amounts.

As of ~~December 31, 2017,~~June 30, 2022, we are subject to the claims noted above, as well as other legal proceedings and potential claims that have arisen in the ordinary course of business. Although the outcome of the lawsuits, legal proceedings or potential claims to which we are or may become a party cannot be determined and an estimate of the reasonably possible loss or range of loss cannot be made for the majority of the claims, we do not believe that the outcomes, either individually or in the aggregate, will have a material adverse effect on our results of operations, financial position or cash flows.

Critical Accounting Policies, Estimates, and Judgments

Our unaudited condensed consolidated financial statements are based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make significant assumptions.We believe that the most critical accounting estimates used in the preparation of our condensed consolidated financial statements relate to labor hour estimates, total cost, and establishment of operational milestones which are used to recognize revenue ~~under the percentage-of-completion method, fair value estimates of identifiable tangible and intangible assets acquired in business combinations,~~over time, accounting for contingencies, under which we accrue a loss when it is probable that a liability has been incurred and the amount can be reasonably estimated, accounting for business combinations and intangible assets, and accounting for pensions and other postretirement benefits. For further information, refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8 "Financial Statements and Supplementary Data" included in our Annual Report on Form 10-K for the year ended March 31, ~~2017.~~ 2022.

~~Off Balance Sheet Arrangements~~

~~We did not have any off balance sheet arrangements as of December 31, 2017 or March 31, 2017, other than operating leases and letters of credit.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The principal market risks (i.e., the risk of loss arising from market changes) to which we are exposed are foreign currency exchange rates, price risk, and ~~project cancellation~~interest rate risk.

The assumptions applied in preparing the following qualitative and quantitative disclosures regarding foreign currency exchange rate, price risk and ~~project cancellation~~interest rate risk are based upon volatility ranges experienced by us in relevant historical periods, our current knowledge of the marketplace, and our judgment of the probability of future volatility based upon the historical trends and economic conditions of the markets in which we operate.

Foreign Currency

~~International~~As a result of the BN acquisition, international consolidated sales for the first three months ~~and nine months ended December 31, 2017~~of fiscal 2023 were ~~35% and 33%, respectively,~~22% of total sales compared with ~~23% and 26%, respectively,~~31% for the same ~~periods~~period of fiscal ~~2017.~~2022. Operating in markets throughout the world exposes us to movements in currency exchange rates. Currency movements can affect sales in several ways, the foremost being our ability to compete for orders against foreign competitors that base their prices on relatively weaker currencies. Business lost due to competition for orders against competitors using a relatively weaker currency cannot be quantified. In addition, cash can be adversely impacted by the conversion of sales made by us in a foreign currency to U.S. dollars. In each of the first three ~~and nine~~ months of ~~each of~~ fiscal ~~2018~~2023 and fiscal ~~2017,~~2022, substantially all sales by us and our wholly-owned subsidiaries, for which we were paid, were denominated in the local currency of the respective subsidiary (U.S. dollars, Chinese RMB or ~~Chinese RMB)~~India INR).

We have limited exposure to foreign currency purchases. In ~~each of~~ the first three ~~and nine~~ months of fiscal ~~2018,~~2023, our purchases in foreign currencies represented 1%approximately 7% of the cost of products sold. ~~In the first three and nine months of 2017, our purchases in foreign currencies represented 2% and 3% of cost of products sold, respectively.~~ At certain times, we may enter into forward foreign currency exchange agreements to hedge our exposure against potential unfavorable changes in foreign currency values on significant sales and purchase contracts negotiated in foreign currencies. Forward foreign currency exchange contracts were not used in the periods being reported on in this ~~Quarterly Report on~~ Form 10-Q and as of ~~December 31, 2017~~June 30, 2022 and March 31, ~~2017,~~2022, we held no forward foreign currency contracts.

Price Risk

Operating in a global marketplace requires us to compete with other global manufacturers which, in some instances, benefit from lower production costs and more favorable economic conditions. Although we believe that our customers differentiate our products on the basis of our manufacturing quality and engineering experience and excellence, among other things, such lower production costs and more favorable economic conditions mean that ~~certain of~~ our competitors are able to offer products similar to ours at lower prices. In extreme market downturns, such as we recently experienced, we typically ~~experience~~see depressed price levels. Moreover, the cost of metals and other

materials used in our products have experienced significant volatility. Such factors, in addition to the global effects of the ~~ongoing~~recent volatility and disruption of the capital and credit markets, have resulted in downward demand and pricing pressure on our products.

~~Project Cancellation~~Interest Rate Risk

In connection with the BN acquisition, we entered into a $20,000 five-year term loan and ~~Project Continuation Risk~~

~~Open orders~~a five-year revolving credit facility with Bank of America. The term loan and revolving credit facility bear interest rates that are ~~reviewed continuously through communications with customers. If it becomes evident~~tied to ~~us that~~BSBY, plus 1.50%, subject to a ~~project is delayed well beyond its original shipment date,~~0.00% floor. As part of our risk management ~~will move~~activities, we evaluate the ~~project into "placed on hold" (i.e., suspended) category. Furthermore, if a project is cancelled by~~use of interest rate derivatives to add stability to interest expense and to manage our customer, it is removed from our backlog. We attempt to mitigate the risk of cancellation by structuring contracts with our customers to maximize the likelihood that progress payments made to us for individual projects cover the costs we have incurred. As a result, we do not believe we have a significant cash exposure to ~~projects which may be cancelled. At December 31, 2017,~~interest rate movements. As of June 30, 2022, we had $18,000 outstanding on our term loan, $0 outstanding on our revolving credit facility and no ~~projects~~interest rate derivatives outstanding. See ''Debt'' in Note 14 to the Unaudited Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on ~~hold.~~ Form 10-Q for additional information about our outstanding debt. A hypothetical one percentage point (100 basis points) change in the BSBY rate on the $18,000 of variable rate debt outstanding at June 30, 2022 would have an impact of approximately $180 on our interest expense for fiscal 2023.

Item 4.~~Control~~s Controls and Procedures

Conclusion regarding the effectiveness of disclosure controls and procedures

Our President and Chief Executive Officer ~~(principal~~(our principal executive officer) and Vice ~~President-Finance & Administration~~President - Finance and Chief Financial Officer ~~(principal~~(our principal financial officer) each have evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, and as of such date, our President and Chief Executive Officer and Vice ~~President-Finance & Administration~~President - Finance and Chief Financial Officer concluded that our disclosure controls and procedures were effective in all material respects.

Changes in internal control over financial reporting

~~There~~Other than the events discussed under the section entitled Barber-Nichols Acquisition below, there has been no change to our internal control over financial reporting during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting.

~~GRAHAM CORPORATION AND SUBSIDIARIES~~Barber-Nichols Acquisition

~~FORM~~On June 1, 2021, we acquired Barber-Nichols, LLC, a privately-owned designer and manufacturer of turbomachinery products for the aerospace, cryogenic, defense and energy markets, located in Arvada, Colorado. For additional information regarding the acquisition, refer to Note 2 to the Unaudited Condensed Consolidated Financial Statements included in Item 1 in this Quarterly Report on Form 10-Q and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 2 in this Quarterly Report on Form 10-Q. Based on the recent completion of this acquisition and, pursuant to the Securities and Exchange Commission’s guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment for a period not to exceed one year from the date of acquisition, the scope of our assessment of the effectiveness of internal control over financial reporting as of the year ended March 31, 2022 does not include Barber-Nichols, LLC. We will include Barber-Nichols, LLC in our annual assessment for the fiscal year ending March 31, 2023.

~~DECEMBER 31, 2017~~28

PART II - OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in Part 1 – Item 1A of the Company’s Form 10-K for the fiscal year ended March 31, 2022.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Purchase of Equity Securities by the Issuer

During the first quarter of fiscal 2023, we directly withheld shares for tax withholding purposes from restricted stock awarded to officers that vested during the period. Common stock repurchases in the quarter ended June 30, 2022 were as follows:


Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Number of Shares That May Yet Be Purchased Under the Program

4/01/2022-4/30/2022		—		—		—		—
5/01/2022-5/31/2022	1		$	7.32		—		—
6/01/2022-6/30/2022	2		$	8.22		—		—
	3		$	7.98		—		—

Dividend Policy

We do not currently pay a cash dividend on our common stock. Our credit facility with Bank of America contains certain provisions that restrict our payment of cash dividends. Any future determination by our Board of Directors regarding dividends will depend on a variety of factors, including our compliance with the terms of the credit agreement, organic growth and acquisition opportunities, future financial performance, general economic conditions and financial, competitive, regulatory, and other factors, many of which are beyond our control. There can be no guarantee that we will pay dividends in the future.

Item 6. Exhibits

INDEX OF EXHIBITS

~~Exhibits~~


(10)	Material Contracts
~~(31)~~
#	10.1	Graham Corporation Annual Stock-Based Long-Term Incentive Award Plan for Senior Executives in effect for the fiscal year ending March 31, 2023 is incorporated herein by reference from Exhibit 99.1 to the Company's Current Report on Form 8-K dated May 23, 2022.

#	10.2	Graham Corporation Annual Executive Cash Bonus Program in effect for Company's named executive officers for the fiscal year ending March 31, 2023 is incorporated herein by reference from Exhibit 99.1 to the Company's Current Report on Form 8-K dated June 2, 2022.

+#	10.3	Form of Director Restricted Stock Unit Agreement

+#	10.4	Form of Employee Performance Vesting Restricted Stock Unit Agreement

+#	10.5	Form of Employee Time Vesting Restricted Stock Unit Agreement


(31)	Rule 13a-14(a)/15d-14(a) Certifications

+	31.1	Certification of Principal Executive Officer

++	31.2	Certification of Principal Financial Officer

(32)	Section 1350 Certification

+	32.1	Section 1350 Certifications

(101)	Interactive Data File

+	101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

+	101.SCH	Inline XBRL Taxonomy Extension Schema Document

+	101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

+	101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

+	101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

+	101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document



(104)		Cover Page Interactive Data File embedded within the Inline XBRL document

	+ ++ #	Exhibit filed with this report
Exhibit furnished with this report
		Management contract or compensation plan

~~SIGNATURES~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			GRAHAM CORPORATION
By:			/s/ ~~Jeffrey Glajch~~CHRISTOPHER J. THOME
			~~Jeffrey Glajch~~Christopher J. Thome
			Vice President-Finance ~~& Administration~~ and
			Chief Financial Officer
			(On behalf of the Registrant and as Principal Financial Officer)

Date: ~~February 2, 2018~~August 1, 2022


Delaware	16-1194720
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
20 Florence Avenue, Batavia, New York	14020
~~20 Florence Avenue, Batavia, New York~~	~~14020~~
(Address of principal executive offices)	(Zip Code)


Large accelerated filer	☐		Accelerated filer	☒ ☐
Non-accelerated filer	☐ ☒	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐☒
Emerging growth company	☐


		Page
Part I.	FINANCIAL INFORMATION

Item 1.	Unaudited Condensed Consolidated Financial Statements	43

Item 2.	~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations	1719

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2327

Item 4.	Controls and Procedures	2428

Part II.	OTHER INFORMATION

Item 6.1A.	~~Exhibits~~Risk Factors	2529

Item 6.	Exhibits	30

Signatures		2631


	June 30, 2022			March 31, 2022
	(Amounts in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents	$	12,905		$	14,741
Trade accounts receivable, net of allowances ($98 and $87 at June 30 and March 31, 2022, respectively)		27,420			27,645
Unbilled revenue		28,091			25,570
Inventories		18,260			17,414
Prepaid expenses and other current assets		2,215			1,391
Income taxes receivable		434			459
Total current assets		89,325			87,220
Property, plant and equipment, net		24,225			24,884
Prepaid pension asset		7,221			7,058
Operating lease assets		8,201			8,394
Goodwill		23,523			23,523
Customer relationships, net		11,161			11,308
Technology and technical know-how, net		9,553			9,679
Other intangible assets, net		8,645			8,990
Deferred income tax asset		2,175			2,441
Other assets		184			194
Total assets	$	184,213		$	183,691
Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt	$	2,000		$	2,000
Current portion of finance lease obligations		24			23
Accounts payable		19,473			16,662
Accrued compensation		8,846			7,991
Accrued expenses and other current liabilities		4,388			6,047
Customer deposits		25,064			25,644
Operating lease liabilities		1,021			1,057
Income taxes payable		1			0
Total current liabilities		60,817			59,424
Long-term debt		15,065			16,378
Finance lease obligations		4			11
Operating lease liabilities		7,342			7,460
Deferred income tax liability		11			62
Accrued pension and postretirement benefit liabilities		1,665			1,666
Other long-term liabilities		2,258			2,196
Total liabilities		87,162			87,197
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $1.00 par value, 500 shares authorized		0			0
Common stock, $0.10 par value, 25,500 shares authorized, 10,769 and 10,801 shares issued and 10,602 and 10,636 shares outstanding at June 30 and March 31, 2022, respectively		1,077			1,080
Capital in excess of par value		27,887			27,770
Retained earnings		77,752			77,076
Accumulated other comprehensive loss		(6,683	)		(6,471	)
Treasury stock (167 and 164 shares at June 30 and March 31, 2022, respectively)		(2,982	)		(2,961	)
Total stockholders’ equity		97,051			96,494
Total liabilities and stockholders’ equity	$	184,213		$	183,691

	December 31,			March 31,
	2017			2017
	(Amounts in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents	$	36,159		$	39,474
Investments		38,023			34,000
Trade accounts receivable, net of allowances ($336 and $168 at December 31 and March 31, 2017, respectively)		16,555			11,483
Unbilled revenue		10,709			15,842
Inventories		8,899			9,246
Prepaid expenses and other current assets		1,181			681
Income taxes receivable		1,288			—
Total current assets		112,814			110,726
Property, plant and equipment, net		16,098			17,021
Prepaid pension asset		3,110			2,340
Goodwill		1,222			6,938
Permits		1,700			10,300
Other intangible assets, net		3,433			4,068
Other assets		246			177
Total assets	$	138,623		$	151,570
Liabilities and stockholders’ equity
Current liabilities:
Current portion of capital lease obligations	$	105		$	107
Accounts payable		9,386			10,295
Accrued compensation		4,418			5,189
Accrued expenses and other current liabilities		2,722			3,723
Customer deposits		17,814			12,407
Income taxes payable		—			317
Total current liabilities		34,445			32,038
Capital lease obligations		67			143
Deferred income tax liability		736			4,051
Accrued pension liability		534			467
Accrued postretirement benefits		780			761
Other long-term liabilities		126			—
Total liabilities		36,688			37,460
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $1.00 par value, 500 shares authorized
Common stock, $.10 par value, 25,500 shares authorized 10,579 and 10,548 shares issued and 9,768 and 9,740 shares outstanding at December 31 and March 31, 2017, respectively		1,058			1,055
Capital in excess of par value		23,573			23,176
Retained earnings		97,229			110,544
Accumulated other comprehensive loss		(7,599	)		(8,434	)
Treasury stock (811 and 808 shares at December 31 and March 31, 2017, respectively)		(12,326	)		(12,231	)
Total stockholders’ equity		101,935			114,110
Total liabilities and stockholders’ equity	$	138,623		$	151,570


	Common Stock						Capital in				Accumulated Other						Total
				Par			Excess of		Retained		Comprehensive			Treasury			Stockholders'
	Shares			Value			Par Value		Earnings		Loss			Stock			Equity
Balance at April 1, 2022		10,801		$	1,080		$	27,770	$	77,076	$	(6,471	)	$	(2,961	)	$	96,494
Comprehensive income (loss)										676		(212	)					464
Forfeiture of shares		(32	)		(3	)		3										—
Recognition of equity-based compensation expense								114										114
Purchase of treasury stock															(21	)		(21	)
Balance at June 30, 2022		10,769		$	1,077		$	27,887	$	77,752	$	(6,683	)	$	(2,982	)	$	97,051


	Three Months Ended
	June 30,
Product Line	2022		2021
Heat transfer equipment	$	10,211	$	6,764
Vacuum equipment		6,091		4,219
Fluid systems		9,112		1,808
Power systems		3,293		1,663
All other		7,368		5,703
Net sales	$	36,075	$	20,157


Geographic Region
Asia	$	4,248	$	3,509
Canada		997		1,208
Middle East		459		612
South America		1,461		242
U.S.		28,169		13,894
All other		741		692
Net sales	$	36,075	$	20,157


	June 30, 2022			March 31, 2022			Change

Unbilled revenue (contract assets)	$	28,091		$	25,570		$	2,521
Customer deposits (contract liabilities)		(25,064	)		(25,644	)		580
Net contract assets (liabilities)	$	3,027		$	(74	)	$	3,101

	Gross Carrying Amount		Accumulated Amortization		Impairment Loss		Net Carrying Amount
At December 31, 2017
Intangibles subject to amortization:
Customer relationships	$	2,700	$	1,267	$	—	$	1,433
Intangibles not subject to amortization:
Permits	$	10,300	$	—	$	8,600	$	1,700
Tradename		2,500		—		500		2,000
	$	12,800	$	—	$	9,100	$	3,700
At March 31, 2017
Intangibles subject to amortization:
Customer relationships	$	2,700	$	1,132	$	—	$	1,568
Intangibles not subject to amortization:
Permits	$	10,300	$	—	$	—	$	10,300
Tradename		2,500		—		—		2,500
	$	12,800	$	—	$	—	$	12,800


Remainder of 2023	$	1,500
2024		2,000
2025		2,000
2026		12,500
2027		0
2028 and thereafter		0
Total	$	18,000