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).

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,~~October 22, 2021, there were outstanding ~~9,768,026~~10,638,041 shares of the registrant’s common stock, par value ~~$.10~~$0.10 per share.

As of ~~December 31, 2017~~September 30, 2021 and March 31, ~~2017~~2021 and for the ~~Three~~three and ~~Nine-Month Periods Ended December 31, 2017~~six months ended September 30, 2021 and ~~2016~~2020

	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	December 31,						December 31,						September 30,						September 30,
	2017			2016			2017			2016			2021			2020			2021			2020
	(Amounts in thousands, except per share data)						(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		$	34,146		$	27,954		$	54,303		$	44,664
Cost of products sold		13,696			16,353			43,075			50,723			30,703			20,261			49,946			35,403
Gross profit		3,585			6,301			12,281			15,422			3,443			7,693			4,357			9,261
Other expenses and income:
Selling, general and administrative		4,007			3,746			11,270			10,462			4,973			4,253			9,805			8,155
Selling, general and administrative – amortization		59			58			177			175			274			—			365			—
Impairment of goodwill and intangible assets		14,816			—			14,816			—
Restructuring charge		—			—			316			630
Other operating income, net														(1,102	)		—			(1,102	)		—
Operating (loss) income														(702	)		3,440			(4,711	)		1,106
Other income														(145	)		(54	)		(305	)		(109	)
Interest income		(142	)		(100	)		(455	)		(272	)		(14	)		(26	)		(31	)		(120	)
Interest expense		3			3			8			7			129			3			168			8
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
(Loss) income before benefit for income taxes														(672	)		3,517			(4,543	)		1,327
(Benefit) expense for income taxes														(180	)		773			(925	)		401
Net (loss) income		(11,622	)		1,840			(10,677	)		3,222		$	(492	)	$	2,744		$	(3,618	)	$	926
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
Per share data
Basic:
Net (loss) income	$	(1.19	)	$	0.19		$	(1.09	)	$	0.33		$	(0.05	)	$	0.27		$	(0.35	)	$	0.09
Diluted:
Net (loss) income	$	(1.19	)	$	0.19		$	(1.09	)	$	0.33		$	(0.05	)	$	0.27		$	(0.35	)	$	0.09
Weighted average common shares outstanding:
Basic		9,768			9,727			9,762			9,709			10,681			9,977			10,442			9,936
Diluted		9,768			9,733			9,762			9,714			10,681			9,977			10,442			9,936
Dividends declared per share	$	0.09		$	0.09		$	0.27		$	0.27		$	0.11		$	0.11		$	0.22		$	0.22

	Three Months Ended						Nine Months Ended						Three Months Ended					Six Months Ended
	December 31,						December 31,						September 30,					September 30,
	2017			2016			2017			2016			2021			2020		2021			2020
	(Amounts in thousands)						(Amounts in thousands)						(Amounts in thousands)					(Amounts in thousands)
Net (loss) income	$	(11,622	)	$	1,840		$	(10,677	)	$	3,222		$	(492	)	$	2,744	$	(3,618	)	$	926
Other comprehensive income:
Foreign currency translation adjustment		76			(135	)		216			(283	)		(35	)		146		93			155
Defined benefit pension and other postretirement plans net of income tax expense (benefit) of $(17) and $123, for the three months ended December 31, 2017 and 2016, respectively, and $169 and $369 for the nine months ended December 31, 2017 and 2016, respectively		279			225			619			674
Defined benefit pension and other postretirement plans net of income tax expense of $72 and $63 for the three months ended September 30, 2021 and 2020, respectively, and $121 and $124 for the six months ended September 30, 2021 and 2020, respectively														251			204		421			409
Total other comprehensive income		355			90			835			391			216			350		514			564
Total comprehensive (loss) income	$	(11,267	)	$	1,930		$	(9,842	)	$	3,613		$	(276	)	$	3,094	$	(3,104	)	$	1,490

	September 30, 2021			March 31, 2021
	(Amounts in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents	$	16,463		$	59,532
Investments		—			5,500
Trade accounts receivable, net of allowances ($62 and $29 at September 30 and March 31, 2021, respectively)		27,878			17,378
Unbilled revenue		29,035			19,994
Inventories		17,722			17,332
Prepaid expenses and other current assets		2,193			512
Income taxes receivable		2,149			—
Total current assets		95,440			120,248
Property, plant and equipment, net		25,336			17,618
Prepaid pension asset		6,819			6,216
Operating lease assets		9,016			95
Goodwill		22,823			—
Customer relationships		11,603			—
Technology and technical know how		9,932			—
Other intangible assets, net		10,656			—
Other assets		211			103
Total assets	$	191,836		$	144,280
Liabilities and stockholders’ equity
Current liabilities:
Short-term debt obligations	$	4,000		$	—
Current portion of long-term debt		2,000			—
Current portion of finance lease obligations		22			21
Accounts payable		16,139			17,972
Accrued compensation		8,156			6,106
Accrued expenses and other current liabilities		5,511			4,628
Customer deposits		21,941			14,059
Operating lease liabilities		1,131			46
Income taxes payable		—			741
Total current liabilities		58,900			43,573
Long-term debt		17,500			—
Finance lease obligations		23			34
Operating lease liabilities		7,958			37
Deferred income tax liability		1,455			635
Accrued pension and postretirement benefit liabilities		1,945			2,072
Other long-term liabilities		2,203			—
Total liabilities		89,984			46,351
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $1.00 par value, 500 shares authorized		—			—
Common stock, $0.10 par value, 25,500 shares authorized, 10,810 and 10,748 shares issued and 10,638 and 9,959 shares outstanding at September 30 and March 31, 2021, respectively		1,081			1,075
Capital in excess of par value		27,339			27,272
Retained earnings		83,400			89,372
Accumulated other comprehensive loss		(6,883	)		(7,397	)
Treasury stock (172 and 790 shares at September 30 and March 31, 2021, respectively)		(3,085	)		(12,393	)
Total stockholders’ equity		101,852			97,929
Total liabilities and stockholders’ equity	$	191,836		$	144,280

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

	Six Months Ended
	September 30,
	2021			2020
Operating activities:	(Dollar amounts in thousands)
Net (loss) income	$	(3,618	)	$	926
Adjustments to reconcile net (loss) income to net cash used by operating activities:
Depreciation		1,399			972
Amortization		1,009			—
Amortization of actuarial losses		455			533
Equity-based compensation expense		330			494
Gain on disposal or sale of property, plant and equipment		13			3
Change in fair value of contingent consideration		(1,900	)		—
Deferred income taxes		693			191
(Increase) decrease in operating assets:
Accounts receivable		(2,289	)		(3,820	)
Unbilled revenue		(1,944	)		901
Inventories		3,278			1,808
Prepaid expenses and other current and non-current assets		(1,233	)		(456	)
Income taxes receivable		(2,894	)		163
Operating lease assets		432			75
Prepaid pension asset		(603	)		(421	)
Increase (decrease) in operating liabilities:
Accounts payable		(4,477	)		(2,544	)
Accrued compensation, accrued expenses and other current and non-current liabilities		779			1,214
Customer deposits		1,835			(2,285	)
Operating lease liabilities		(387	)		(75	)
Long-term portion of accrued compensation, accrued pension liability and accrued postretirement benefits		420			63
Net cash used by operating activities		(8,702	)		(2,258	)
Investing activities:
Purchase of property, plant and equipment		(1,227	)		(797	)
Proceeds from disposal of property, plant and equipment		—			6
Purchase of investments		—			(31,603	)
Redemption of investments at maturity		5,500			66,151
Acquisition of Barber-Nichols, LLC		(59,563	)		—
Net cash (used) provided by investing activities		(55,290	)		33,757
Financing activities:
Increase in short-term debt obligations		4,000			—
Principal repayments on long-term debt		(500	)		(4,599	)
Proceeds from the issuance of long-term debt		20,000			4,599
Principal repayments on finance lease obligations		(10	)		(24	)
Repayments on lease financing obligations		(91	)		—
Payment of debt issuance costs		(150	)		—
Dividends paid		(2,353	)		(2,195	)
Purchase of treasury stock		(41	)		(23	)
Net cash provided (used) by financing activities		20,855			(2,242	)
Effect of exchange rate changes on cash		68			144
Net (decrease) increase in cash and cash equivalents		(43,069	)		29,401
Cash and cash equivalents at beginning of period		59,532			32,955
Cash and cash equivalents at end of period	$	16,463		$	62,356

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN STOCKHOLDERS’ EQUITY

Nine Months Ended

December 31,

2017

2016

Operating activities:

(Dollar amounts in thousands)

Net (loss) income

$
(10,677
)

$
3,222

Adjustments to reconcile net income to net cash provided by operating
activities:

Depreciation

1,490

1,571

Amortization

177

175

Amortization of unrecognized prior service cost and actuarial losses

788

1,043

Impairment of goodwill and purchased intangible assets

14,816

—

Stock-based compensation expense

362

433

Loss on disposal or sale of property, plant and equipment

1

1

Deferred income taxes

(3,498
)

10

(Increase) decrease in operating assets:

Accounts receivable

(5,029
)

1,126

Unbilled revenue

5,170

(2,651
)
Inventories

352

1,697

Prepaid expenses and other current and non-current assets

(591
)

(489
)
Income taxes receivable

(1,605
)

1,109

Prepaid pension asset

(770
)

—

Increase (decrease) in operating liabilities:

Accounts payable

(1,005
)

(2,173
)
Accrued compensation, accrued expenses and other current and non-current liabilities

(1,593
)

(558
)
Customer deposits

5,400

6,699

Long-term portion of accrued compensation, accrued pension liability
and accrued postretirement benefits

86

(508
)
Net cash provided by operating activities

3,874

10,707

Investing activities:

Purchase of property, plant and equipment

(543
)

(241
)
Proceeds from disposal of property, plant and equipment

1

—

Purchase of investments

(34,023
)

(39,000
)
Redemption of investments at maturity

30,000

45,000

Net cash (used) provided by investing activities

(4,565
)

5,759

Financing activities:

Principal repayments on capital lease obligations

(78
)

(38
)
Issuance of common stock

—

79

Dividends paid

(2,638
)

(2,616
)
Purchase of treasury stock

(119
)

(29
)
Excess tax deficiency on stock awards

—

(26
)
Net cash used by financing activities

(2,835
)

(2,630
)
Effect of exchange rate changes on cash

211

(231
)
Net (decrease) increase in cash and cash equivalents

(3,315
)

13,605

Cash and cash equivalents at beginning of year

39,474

24,072

Cash and cash equivalents at end of period

$
36,159

$
37,677

	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, 2021		10,748		$	1,075		$	27,272		$	89,372		$	(7,397	)	$	(12,393	)	$	97,929
Comprehensive loss											(3,126	)		298						(2,828	)
Issuance of shares		135			13			(13	)											—
Forfeiture of shares		(9	)		(1	)		1												—
Dividends											(1,177	)								(1,177	)
Recognition of equity-based compensation expense								353												353
Issuance of treasury stock								(194	)								9,158			8,964
Purchase of treasury stock																	(41	)		(41	)
Balance at June 30, 2021		10,874			1,087			27,419			85,069			(7,099	)		(3,276	)		103,200
Comprehensive loss											(492	)		216						(276	)
Issuance of shares		27			3			(3	)											—
Forfeiture of shares		(91	)		(9	)		9
Dividends											(1,177	)								(1,177	)
Recognition of equity-based compensation expense								(23	)											(23	)
Issuance of treasury stock								(63	)								191			128
Balance at September 30, 2021		10,810		$	1,081		$	27,339		$	83,400		$	(6,883	)	$	(3,085	)	$	101,852

	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, 2020		10,689		$	1,069		$	26,361		$	91,389		$	(9,556	)	$	(12,539	)	$	96,724
Comprehensive income											(1,818	)		214						(1,604	)
Issuance of shares		113			11			(11	)											—
Forfeiture of shares		(22	)		(2	)		2												—
Dividends											(1,097	)								(1,097	)
Recognition of equity-based compensation expense								164												164
Purchase of treasury stock																	(23	)		(23	)
Balance at June 30, 2020		10,780			1,078			26,516			88,474			(9,342	)		(12,562	)		94,164
Comprehensive income											2,744			350						3,094
Issuance of shares		—						—												—
Dividends											(1,098	)								(1,098	)
Recognition of equity-based compensation expense								330												330
Issuance of treasury stock								20									67			87
Balance at September 30, 2020		10,780		$	1,078		$	26,866		$	90,120		$	(8,992	)	$	(12,495	)	$	96,577

Graham Corporation's (the "Company's") Condensed Consolidated Financial Statements include its ~~(i)~~ wholly-owned ~~foreign subsidiary~~subsidiaries located in Suzhou, China and ~~(ii)~~Ahmedabad, India at September 30, 2021 and March 31, 2021, and its recently acquired wholly-owned ~~domestic~~ subsidiary, Barber-Nichols, LLC ("BN"), located in ~~Lapeer, Michigan.~~Arvada, Colorado at September 30, 2021 and for the period June 1, 2021 through September 30, 2021 (See Note 2). The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP") for interim financial information and the instructions to Form 10-Q and Rule ~~10-01~~8-03 of Regulation S-X, each as promulgated by the U.S. Securities and Exchange Commission. The Company's Condensed Consolidated Financial Statements do not include all information and notes required by GAAP for complete financial statements. The unaudited Condensed Consolidated Balance Sheet as of March 31, ~~2017~~2021 presented herein was derived from the Company’s audited Consolidated Balance Sheet as of March 31, ~~2017.~~2021. For additional information, please refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, ~~2017~~2021 ("fiscal ~~2017"~~2021"). In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair presentation, have been included in the Company's Condensed Consolidated Financial Statements.

The Company's results of operations and cash flows for the three and ~~nine~~six months ended ~~December 31, 2017~~September 30, 2021 are not necessarily indicative of the results that may be expected for the current fiscal year, which ends March 31, ~~2018~~2022 ("fiscal ~~2018"~~2022"). The three-month period (“quarter”) ended September 30, 2021 is also referred to as “the second quarter”.

On June 1, 2021, the Company completed its acquisition of Barber-Nichols, LLC ("BN"), a privately-owned 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 (See Note 15). 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, Barber Nichols, Inc. 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 transaction and has a monthly payment in the amount of $40 with a 3% yearly escalation. Acquisition related costs of $93 and $262 were expensed in the three and six month periods ending September 30, 2021, and are included in Selling, general and administrative expenses in the Condensed Consolidated Statement of Operations.

The cost of the acquisition was preliminarily allocated to the assets acquired and liabilities assumed based upon its estimated fair values at the date of the acquisition and the amount exceeding the fair value of $22,923 was recorded as goodwill, which is not deductible for tax purposes. During the second quarter, the preliminary valuation of backlog was increased by $100, therefore goodwill was reduced to $22,823. As the values of certain assets and liabilities are preliminary in nature, they are subject to adjustment as additional information is obtained, including, but not limited to, the finalization of the valuation of intangible assets, the final reconciliation and confirmation of tangible assets. The valuation of acquisition-related intangible assets will be finalized within twelve months of the close of the acquisition. 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. Customer relationships were valued using an income approach, specifically the Multi Period Excess Earnings method, which incorporates assumptions regarding retention rate, new customer growth and customer related costs. Trade name and technology and technical know-how were both valued 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. Changes to the preliminary valuation may result in material adjustments to the fair value of assets and liabilities acquired.

The purchase price was allocated to specific intangible assets on a preliminary basis as follows:

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 amortization was $784 and $1,009 for the three and six months ended September 30, 2021. The estimated annual amortization expense is as follows:

The following table summarizes the preliminary allocation of the cost of the acquisition to the assets acquired and liabilities assumed as of the close of the acquisition:

The Condensed Consolidated Statement of Operations for the three and six months ended September 30, 2021 includes net sales of BN of $16,486 and $19,957, respectively. 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 each of the fiscal periods presented:

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.

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

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

	Three Months Ended				Six Months Ended
	September 30,				September 30,
Product Line	2021		2020		2021		2020
Heat transfer equipment	$	8,706	$	13,307	$	15,470	$	23,980
Vacuum equipment		4,315		9,381		8,534		11,932
Fluid systems		6,595		—		8,403		—
Power systems		9,890		—		11,553		—
All other		4,640		5,266		10,343		8,752
Net sales	$	34,146	$	27,954	$	54,303	$	44,664


Geographic Region
Asia	$	5,483	$	4,529	$	8,992	$	9,692
Canada		879		1,938		2,087		2,930
Middle East		963		988		1,575		1,437
South America		236		2,592		478		2,812
U.S.		26,201		17,252		40,095		26,690
All other		384		655		1,076		1,103
Net sales	$	34,146	$	27,954	$	54,303	$	44,664

A performance obligation represents a promise in a contract to provide a distinct good or service to a customer. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Transaction price reflects the amount of consideration to which the Company expects to be entitled in exchange for transferred products. A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized as the performance obligation is satisfied. In certain cases, the Company may separate a contract into more than one performance obligation, while in other cases, several products may be part of a fully integrated solution and are bundled into a single performance obligation. If a contract is separated into more than one performance obligation, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods underlying each performance obligation. The Company has made an accounting policy election to exclude from the measurement of the contract price all ~~contracts with~~taxes assessed by government authorities that are collected by the Company from its customers. The Company does not adjust the contract price for the effects of a ~~planned manufacturing process~~financing component if the Company expects, at contract inception, that the period between when a product is transferred to a customer and when the customer pays for the product will be one year or less. Shipping and handling fees billed to the customer are recorded in ~~excess~~revenue and the related costs incurred for shipping and handling are included in cost of ~~four weeks (which approximates 575 direct labor hours) using~~products sold.

Revenue on the ~~percentage-of-completion method. The~~ majority of the ~~Company's~~Company’s contracts, as measured by number of contracts, is recognized upon shipment to the customer. Revenue on larger contracts, which are fewer in number but represent the majority of revenue, is recognized ~~under this methodology.~~over time. Revenue from contracts that is recognized upon shipment accounted for approximately 20% and 40% of revenue for the three-month periods ended September 30, 2021 and 2020, respectively, and revenue from contracts that is recognized over time accounted for approximately 80% and 60% of revenue for the three-month periods ended September 30, 2021 and 2020, respectively. Revenue from contracts that is recognized upon shipment accounted for approximately 25% and 50% of revenue for the six-month periods ended September 30, 2021 and 2020, respectively, and revenue from contracts that is recognized over time accounted for approximately 75% and 50% of revenue for the six-month periods ended September 30, 2021 and 2020, respectively. The Company recognizes revenue over time when contract performance results in the creation of a product for which the Company does not have an alternative use and the contract includes an enforceable right to payment in an amount that corresponds directly with the value of the performance completed. To measure progress towards completion on performance obligations for which revenue is recognized over time the Company utilizes an input method based upon a ratio of direct labor hours incurred to date to management’s estimate of the total labor

hours to be incurred on each contract, an input method based upon a ratio of total contract costs incurred to date to management’s estimate of the total contract costs to be incurred or an output method based upon completion of operational milestones, depending upon the nature of the contract. The Company has established the systems and procedures essential to developing the estimates required to account for ~~contracts using the percentage-of-completion method. The percentage-of-completion method is determined~~performance obligations over time. These procedures include monthly review by ~~comparing actual labor~~management of costs incurred, ~~to a specific date to management's estimate~~progress towards completion, identified risks and opportunities, sourcing determinations, changes in estimates of ~~the total labor~~costs yet to be incurred, ~~on each contract or completion~~availability of ~~operational milestones assigned to each contract. Contracts in progress are reviewed monthly~~materials, and execution by ~~management, and sales~~subcontractors. Sales and earnings are adjusted in current accounting periods based on revisions in the contract value due to pricing changes and estimated costs at completion. Losses on contracts are recognized immediately when evident to management.

~~Revenue~~The timing of revenue recognition, invoicing and cash collections affect trade accounts receivable, unbilled revenue (contract assets) and customer deposits (contract liabilities) on the Condensed Consolidated Balance Sheets. Unbilled revenue represents revenue on contracts ~~not accounted for using the percentage-of-completion method~~that is recognized ~~utilizing~~over time and exceeds the completed contract method. The majority of the Company's contracts (as opposed to revenue) have a planned manufacturing process of less than four weeks and the results reported under this method do not vary materially from the percentage-of-completion method. The Company recognizes revenue and all related costs on these contracts upon substantial completion or shipmentamount that has been billed to the customer. ~~Substantial completion~~Unbilled revenue is ~~consistently defined~~separately presented in the Condensed Consolidated Balance Sheets. The Company may have an unconditional right to payment upon billing and prior to satisfying the performance obligations. The Company will then record a contract liability and an offsetting asset of equal amount until the deposit is collected and the performance obligations are satisfied. Customer deposits are separately presented in the Condensed Consolidated Balance Sheets. Customer deposits are not considered a significant financing component as they are generally received less than one year before the product is completed or used to procure specific material on a contract, as well as related overhead costs incurred during design and construction.

Contract liabilities at ~~least 95% complete with regard to direct labor hours. Customer acceptance is generally required throughout the construction process~~September 30, and March 31, 2021 include $2,902 and $1,603, respectively, of customer deposits for which the Company has ~~no further material obligations under its contracts after~~an unconditional right to collect payment. Trade accounts receivable, as presented on the Condensed Consolidated Balance Sheets, includes corresponding balances at September 30, and March 31, 2021, respectively. Revenue recognized in the three and six months ended September 30, 2021 that was included in the contract liability balance at March 31, 2021 was $13,293. Changes in the net contract liability balance during the six months ended September 30, 2020 were impacted by a $9,041 increase in contract assets, of which $19,828 was due to contract progress and the acquisition of BN’s contract assets of $7,068 offset by invoicing to customers of $17,855. In addition, contract liabilities increased $7,882 driven by revenue ~~is recognized.~~recognized in the current period that was included in the contract liability balance at March 31, 2021 offset by new customer deposits of $15,127 and the acquisition of BN’s contract liabilities of $6,048.

Receivables billed but not paid under retainage provisions in the Company’s customer contracts were ~~$1,141~~$3,364 and ~~$971~~$3,747 at ~~December 31, 2017~~September 30, and March 31, ~~2017,~~2021, respectively.

Incremental costs to obtain a contract consist of sales employee and agent commissions. Commissions paid to employees and sales agents are capitalized when paid and amortized to selling, general and administrative expense when the related revenue is recognized. Capitalized costs, net of amortization, to obtain a contract were $79 and $39 at September 30, and March 31, 2021, respectively, and are included in the line item "Prepaid expenses and other current assets" in the Condensed Consolidated Balance Sheets. The related amortization expense was $24 and $89 in the three months ended September 30, 2021 and 2020, respectively, and $34 and $251 in the six months ended September 30, 2021 and 2020

The Company’s remaining unsatisfied performance obligations represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. The Company also refers to this measure as backlog. As of September 30, 2021, the Company had remaining unsatisfied performance obligations of $233,247. The Company expects to recognize revenue on approximately 45% to 50% of the remaining performance obligations within one year, 25% to 35% in one to two years and the remaining beyond two years.

NaN investments were held by the Company at September 30, 2021. Investments, if any, consist of certificates of deposits with financial institutions. All investments have original maturities of greater than three months and less than one year and are classified as

held-to-maturity, as the Company believes it has the intent and ability to hold the securities to maturity. Investments are stated at amortized cost which approximates fair value. ~~All investments held by the Company at December 31, 2017 are scheduled to mature on or before May 31, 2018.~~

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.

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

	September 30,		March 31,
	2021		2021
Raw materials and supplies	$	4,156	$	3,490
Work in process		11,454		12,196
Finished products		2,112		1,646
Total	$	17,722	$	17,332

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, 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.

The ~~Amended and Restated 2000~~2020 Graham Corporation Equity Incentive Plan ~~to Increase Shareholder Value,~~(the (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, that no more than 467~~directors. The shares available for issuance include 112 remaining available shares under 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, 33 stock options and 53 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 under the 2000 Plan remains subject to the terms of such plan until the time it is no longer outstanding.

Restricted stock awards of 27 were granted in the three-month ~~periods~~period ended ~~December 31, 2017~~September 30, 2021, 18 shares of which vest 100% on the third anniversary of the grant date subject to the satisfaction of the performance metrics for the applicable three-year period and ~~2016.~~9 shares that vest 33⅓% per year over a three-year term. Restricted stock awards granted in the ~~nine-month~~six-month periods ended ~~December 31, 2017~~September 30, 2021 and ~~2016~~2020 were 59162 and ~~82,~~113, respectively. Restricted shares of 3088 and 4354 granted to officers in fiscal ~~2018~~2022 and fiscal ~~2017,~~2021, respectively, vest 100% on the third anniversary of the grant date subject to the satisfaction of the performance metrics for the applicable three-year period. Restricted shares of 2254 and 3138 granted to officers and key employees in fiscal ~~2018~~2022 and fiscal ~~2017,~~2021, respectively, vest 33⅓% per year over a three-year term. Restricted shares of 720 and 821 granted to directors in fiscal ~~2018~~2022 and fiscal ~~2017,~~2021, respectively, vest 100% on the first year anniversary of the grant date. NoNaN stock option awards were granted in the three-month or ~~nine-month~~six-month periods ended ~~December 31, 2017~~September 30, 2021 and ~~2016 December 31, 2017 and 2016.~~2020.

During the three months ended ~~December 31, 2017~~September 30, 2021 and ~~2016,~~2020, the Company recognized ~~stock-based~~equity-based compensation costs related to ~~stock option and~~ restricted stock awards of ~~$213~~($22) and ~~$200,~~$316, respectively. The income tax benefit recognized related to ~~stock-based~~equity-based compensation was ~~$24~~($6) and ~~$70~~$73 for the three months ended ~~December 31, 2017~~September 30, 2021 and ~~2016,~~2020, respectively. During the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2021 and ~~2016,~~2020, the Company recognized ~~stock-based~~equity-based compensation costs related to ~~stock option and~~ restricted stock awards of ~~$362~~$315 and ~~$427,~~$471, respectively. The income tax benefit recognized related to ~~stock-based~~equity-based compensation was ~~$77~~$69 and ~~$151~~$111 for the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2021 and ~~2016,~~2020, respectively.

The Company has an Employee Stock Purchase Plan (the "ESPP"), which allows eligible employees to purchase shares of the Company's common stock at a discount of up to 15% of its fair market value on the ~~(i)~~(1) last, ~~(ii)~~(2) first or ~~(iii)~~(3) lower of the last or first day of the six-month offering period. A total of 200 shares of common stock may be purchased under the ESPP. ~~In each of~~During the three months ended ~~December 31, 2017~~September 30, 2021 and ~~2016,~~2020, the Company recognized ~~stock-based~~equity-based compensation costs of ~~$0 related to the ESPP~~$(1) 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,~~$14, respectively, related to the ESPP and $0 and ~~$2,~~$3, respectively, of related tax benefits. During the six-months ended September 30, 2021 and 2020, the Company recognized equity-based compensation costs of $15 and $23, respectively, related to the ESPP and $4 and $5, respectively, of related tax benefits.

Basic (loss) income per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding for the period. Diluted (loss) income per share is calculated by dividing net (loss) income by the weighted average number

of common shares outstanding and, when applicable, potential common shares outstanding during the period. A reconciliation of the numerators and denominators of basic and diluted (loss) income per share is presented below:

	Three Months Ended					Nine Months Ended					Three Months Ended					Six Months Ended
	December 31,					December 31,					September 30,					September 30,
	2017			2016		2017			2016		2021			2020		2021			2020
Basic (loss) income per share
Numerator:
Net (loss) income	$	(11,622	)	$	1,840	$	(10,677	)	$	3,222	$	(492	)	$	2,744	$	(3,618	)	$	926
Denominator:
Weighted average common shares outstanding		9,768			9,727		9,762			9,709		10,681			9,977		10,442			9,936
Basic (loss) income per share	$	(1.19	)	$	.19	$	(1.09	)	$	.33	$	(0.05	)	$	0.27	$	(0.35	)	$	0.09
Diluted income per share

Diluted (loss) income per share
Numerator:
Net (loss) income	$	(11,622	)	$	1,840	$	(10,677	)	$	3,222	$	(492	)	$	2,744	$	(3,618	)	$	926
Denominator:
Weighted average common shares outstanding		9,768			9,727		9,762			9,709		10,681			9,977		10,442			9,936
Stock options outstanding		—			6		—			5		—			—		—			—
Weighted average common and potential common shares outstanding		9,768			9,733		9,762			9,714		10,681			9,977		10,442			9,936
Diluted (loss) income per share	$	(1.19	)	$	.19	$	(1.09	)	$	.33
Diluted loss per share											$	(0.05	)	$	0.27	$	(0.35	)	$	0.09

None of the options to purchase 33 shares of common stock ~~which totaled 69~~at September 30, 2021 were included in the computation of diluted ~~loss~~income per share ~~for the three and nine months ended December 31, 2017~~ as the ~~effect~~affect would be anti-dilutive due to the net ~~loss~~losses in the ~~periods. Options~~quarters. None of the options to purchase ~~a total of 16~~37 shares of common stock ~~were outstanding~~ at ~~December 31, 2016 but~~September 30, 2020 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.

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

Income of ~~$59~~$5 for product warranties in the ~~nine months ended December 31, 2017 and the income of $81 in the~~ three months ended ~~December 31, 2016~~September30, 2021 and income of $21 and $5 for product warranties in the six months ended September 30, 2021 and 2020, respectively, 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.

Interest paid was $8$135 and $7$8 in the ~~nine-month~~six-month periods ended ~~December 31, 2017~~September 30, 2021 and ~~2016.~~2020, respectively. Income taxes paid (refunded) for the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2021 and ~~2016~~2020 were ~~$1,801~~$1,318 and ~~$104,~~$(93), respectively.

~~In the nine months ended December 31, 2017 and 2016, non-cash activities included the issuance of treasury stock valued at $63 and $107, respectively, to the Company’s Employee Stock Purchase Plan.~~

At ~~December 31 2017~~September 30, 2021 and ~~2016, respectively,~~2020, there were ~~$29~~$39 and ~~$31~~$86, respectively, of capital purchases that were recorded in accounts payable and are not included in the caption "Purchase of property, plant and equipment" in the Condensed Consolidated Statements of Cash Flows.

The cash utilized for the acquisition of BN of $59,563 included the cash consideration of $61,150, net of cash acquired of $1,587. In the six months ended September 30, 2021, non-cash activities included the issuance of 610 treasury shares valued at $8,964, included as part of the consideration for the acquisition of BN.

In the second quarter, non-cash activities included pension adjustments, net of income tax, of $68.

The Company made 0 contributions to its defined benefit pension plan during the ~~nine~~six months ended ~~December 31, 2017 of $52~~September 30, 2021 and does ~~not~~0t expect to make any contributions to the plan for the balance of fiscal ~~2018.~~2022.

During the second quarter ended September 30, 2021, the Company remeasured the projected benefit obligation to the supplemental executive retirement plan due to the retirement of the Company’s chief executive officer, who was the only active participant in the plan. Recognition of an actuarial gain, net of tax, of $68 was included in other comprehensive (loss) income.

The Company paid no0 benefits related to its postretirement benefit plan during the ~~nine~~six months ended ~~December 31, 2017.~~September 30, 2021. The Company expects to pay benefits of approximately ~~$83~~$72 for the balance of fiscal ~~2018.~~2022.

The components of net periodic benefit cost other than service cost are included in the line item "Other income" in the Condensed Consolidated Statements of Operations.

The Company self-funds the medical insurance coverage it provides to its U.S. based ~~employees.~~employees in certain locations. The Company maintains a stop loss insurance policy in order to limit its exposure to claims. The liability of ~~$134~~$164 and ~~$174~~$184 on ~~December 31, 2017~~September 30, 2021 and March 31, ~~2017,~~2021, respectively, related to the self-insured medical plan is primarily based upon claim history and is included in the caption ~~“Accrued compensation”~~"Accrued compensation" as a current liability in the Condensed Consolidated Balance Sheets.

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

As of ~~December 31, 2017,~~September 30, 2021, the Company was subject to the claims noted above, as well as other legal proceedings and potential claims that have arisen in the ordinary course of business.

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

The Company files federal and state income tax returns in several domestic and international jurisdictions. In most tax jurisdictions, returns are subject to examination by the relevant tax authorities for a number of years after the returns have been filed. The Company is subject to U.S. federal examination for the tax years ~~2015~~2017 through ~~2017~~2020 and examination in state tax jurisdictions for the tax years ~~2013~~2016 through ~~2017.~~2020. The Company is subject to examination in the People’s Republic of China for tax years ~~2014~~2017 through ~~2016.~~2020 and in India for tax year 2019 through 2020.

There was no0 liability for unrecognized tax benefits at either ~~December 31, 2017~~September 30, 2021 or March 31, ~~2017.~~

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.

The changes in accumulated other comprehensive loss by component for the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2021 and ~~2016~~2020 are as follows:

The reclassifications out of accumulated other comprehensive loss by component for the three and ~~nine~~six months ended ~~December 31, 2017~~September 30, 2021 and ~~2016~~2020 are as follows:

~~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,~~September 30, 2021, 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:~~

~~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:

Operating lease costs during the six months ended September 30, 2021 and 2020 were included within cost of sales and selling, general and administrative expenses.

As of September 30, 2021, future minimum payments required under non-cancelable leases are:

On June 1, 2021, the Company entered into a $20,000 five-year term 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. In addition, on June 1, 2021, the Company terminated its revolving credit facility agreement with JPMorgan Chase Bank, N.A. and entered into a revolving credit facility with Bank of America that provides a $30,000 line of credit, including letters of credit and bank guarantees, expandable at the Company’s option and the bank’s approval at any time up to $40,000. As of September 30, 2021, the Company had $4,000 outstanding on the line of credit. The agreement has a five-year term. 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 September 30, 2021, the BSBY rate was 0.0558%. Outstanding letters of credit under the 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 0.6% of each letter of credit that is secured by cash. The upfront fee for both the term loan and revolving credit facility was 0.20% of the committed facilities and amounts available for borrowing under the revolving credit facility are subject to an unused commitment fee of 0.25%. Under the term loan agreement and revolving credit facility, the Company covenants to maintain a maximum total leverage ratio, as defined in such agreements, of 3.0 to 1.0, which may be increased to 3.25 to 1.0 following an acquisition for a period of twelve months following the closing of the acquisition. In addition, the Company covenants 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.

On June, 1, 2021, the Company entered into an agreement to amend its letter of credit facility agreement with HSBC Bank USA, N.A. and decreased the Company’s line of credit from $15,000 to $7,500. Under the amended agreement, the Company incurs an annual facility fee of $5 and outstanding letters of credit are subject to a fee of between 0.75% and 0.85%, depending on the term of the letter of credit. Interest is payable on the principal amounts of unreimbursed letter of credit draws under the facility at a rate of 3% plus the bank’s prime rate. The agreement is subject to an annual renewal by the bank on July 31 of each year.

Letters of credit outstanding as of September 30, 2021 and March 31, 2021 were $8,133 and $11,567, respectively.

In the normal course of business, management evaluates all new accounting pronouncements issued by the Financial Accounting Standards Board ~~(“FASB”~~("FASB"), the Securities and Exchange Commission, the Emerging Issues Task Force, the American Institute of Certified Public Accountants or any other authoritative accounting ~~bodies~~body to determine the potential impact they may have on the Company's consolidated financial statements.

In ~~May 2014,~~December 2019, the FASB issued Accounting Standards Update ("ASU") ~~2014-09, "Revenue from Contracts with Customers." This~~No. 2019-12, “Simplifying the Accounting for Income Taxes.” The amended guidance ~~establishes~~simplifies the accounting for income taxes, eliminating certain exceptions to the general income tax principles, for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a company’s contracts with customers. The guidance requires companies to apply a five-step model when recognizing revenue to depict the transfer of promised goods or services to customers in an ~~amount that reflects~~effort to reduce the ~~consideration to which the company expects to be entitled in exchange for those goods~~cost and ~~services.~~complexity of application. The guidance also includes a comprehensive set of disclosure requirements regarding revenue recognition. The guidance allows two methods of adoption: (1) a full retrospective approach where historical financial information is presented in accordance with the new standard and (2) a modified retrospective approach where theamended guidance is applied to the most current period presented in the financial statements. In August 2015, the FASB issued ASU No 2015-14 "Revenue from Contracts with Customers: Deferral of the Effective Date," which deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, with earlier application permitted as of annual reporting periods beginning after December 15, 2016. In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)," to clarify the implementation guidance on principal versus agent. In April 2016, the FASB issued ASU No. 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing," which clarifies the identifying performance obligations and licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients," which clarifies the implementation guidance related to collectability, presentation of sales tax, noncash consideration, contract modifications and completed contracts at transition. The Company plans to adopt these standards using the modified retrospective approach in the first quarter of its fiscal year ending March 31, 2019. The Company has developed a project plan and is currently reviewing its contracts and evaluating the impact of the guidance on its revenue. The Company currently believes that the most significant impact of adopting the guidance will be the timing of revenue recognition. The Company believes that revenue on the majority of its contracts will continue to be recognized upon shipment while revenue on its larger contracts are expected to be recognized over time as these contracts meet specific criteria established in the new standards. The Company is in the process of implementing changes to its business processes, systems and controls to support the recognition and disclosure requirements under the new guidance. See Note 2 for a description of the Company’s current revenue recognition policy.

In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory," which simplifies the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective for public business entities for fiscal years beginning after December 15, ~~2016, and~~2020, including interim periods within those fiscal years. The guidance requires application on either a prospective, retrospective or modified retrospective basis, contingent on the income tax exception being applied. The Company adopted the new guidance, ~~in the first quarter of fiscal 2018.~~on a prospective basis, on April 1, 2021. The adoption of this ASU did not have a material impact on the Company’s ~~Consolidated Financial Statements.~~

~~In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)", which requires companies to recognize all leases as assets and liabilities on the~~ consolidated balance sheet. This ASU retains a distinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting guidance. As a result, the effect of leases on the consolidated statement of comprehensive income and the consolidated statement of cash flows is largely unchanged from previous generally accepted accounting principles. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. The Company believes the adoption of this ASU may have a material impact on its assets and liabilities due to the addition of right-of-use assets and lease liabilities to its Consolidated Balance Sheet, however, it does not expect the guidance to have a material impact on its Consolidated Statement of Income or Consolidated Statement of Cash Flows.

In March 2016, the FASB issued ASU 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods. The Company adopted the new guidance in the first quarter of fiscal 2018. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230)", which clarifies the presentation and classification of eight specific issues on the cash flow statement. This ASU is effective for public businesses for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not expect the adoption of this ASU will have a material effect on its Consolidated Financial Statements.

In March 2017, the FASB issued ASU No. 2017-07, "Compensation-Retirement Benefits (Topic 715)", which amended its guidance related to the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amended guidance requires the service cost component be disaggregated from the other components of net benefit cost. The service cost component of expense is required to be reported in the income statement in the same line item as other compensation costs within income from operations. The other components of net benefit cost are required to be presented separately from the service cost component outside of income from operations. This ASU is effective for public businesses for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of this ASU will have on its Consolidated Financial Statements.financial statements.

Management does not expect any other recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company's consolidated financial statements.

On August 9, 2021, the Company and James R. Lines entered into a Severance and Transition Agreement (the “Transaction Agreement”) pursuant to which Mr. Lines resigned from his position as the Company’s Chief Executive Officer and as a member of the Board of Directors, and from positions he holds with all Company subsidiaries and affiliates, effective as of the close of business on August 31, 2021. The Transition Agreement provides that for a period of 18 months following the separation date, Mr. Lines is paid his base salary as well as health care premiums. As a result, a liability was recorded in the amount of $798 in Accrued Compensation on the Company’s Condensed Consolidated Balance Sheets and recognized against Other operating income, net on the Condensed Consolidated Statements of Operations.

During the second quarter ended September 30, 2021, the Company terminated the earn out agreement related to the acquisition of BN (see Note 2), therefore the Company recognized a change in fair value of the contingent liability in the amount of $1,900, which was included in Other operating income, net on the Company’s Condensed Consolidated Statement of Operations.

On October 26, 2021, the Company 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 new 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 years ending March 31, 2024, 2025 and 2026.

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

We are a global business that designs, manufactures and sells critical equipment for the defense/space, energy/new energy ~~defense~~ and chemical/petrochemical industries. ~~Our energy markets include oil refining, cogeneration, nuclear and alternative power.~~ For the defense and space industry, our equipment is used in nuclear propulsion power systems, for ~~the U.S. Navy.~~undersea and space propulsion, power and energy management systems and for life support systems in space. Our energy and new energy markets include oil refining, cogeneration, and alternative power to produce hydrogen. For the chemical and petrochemical industries, our equipment is used in fertilizer, ethylene, methanol and downstream chemical facilities.

~~Graham’s~~Our global brand is 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 brand is built.

Our corporate headquarters are located in Batavia, New York. We have production facilities co-located with our headquarters in ~~Batavia and also at our~~Batavia. We have a wholly-owned subsidiary, ~~Energy Steel & Supply Co.~~Barber-Nichols, LLC ("~~Energy Steel"~~BN"), ~~located~~based in ~~Lapeer, Michigan.~~Arvada, Colorado, that 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 2022") ends March 31, ~~2018.~~2022.

We completed the acquisition of BN on June 1, 2021. BN was founded as a specialty turbomachinery engineering company in 1966. BN has grown rapidly from programs that involve complex production and systems integration. BN uses a combination of knowledge in rotating equipment, power generation cycles, and electrical management systems and has participated in the design and development of different power and propulsion systems used in underwater vehicles.

The acquisition of BN is expected to change the composition of the Company’s future end market mix. We expect approximately 45%-50% of our business for the last ten months of fiscal 2022, after the acquisition, to provide equipment to the U.S. Navy. We expect the energy market to be 35%-40% of sales and the aerospace and other markets to be 10%-15% of sales.

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 the Company’s common stock, representing a value of $8,964 at $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 (See Note 15 to the Condensed Consolidated Financial Statements included in Item 1 in this Quarterly Report on Form 10-Q). The purchase agreement with respect to the acquisition 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. Subsequent to the acquisition, the earn out agreement was terminated. Acquisition related costs of $262 were expensed in the first half of fiscal 2022 and are included in Selling, general and administrative expenses for the six months ended September 30, 2021 in the Condensed Consolidated Statement of Operations.

Highlights for the three ~~and nine~~ months ended ~~December 31, 2017~~September 30, 2021 include:

This report and other documents we file with the Securities and Exchange Commission 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.

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 factors include, but are not limited to, the risks and uncertainties identified by us under the heading "Risk Factors" in Item 1A of our Annual Report on Form 10-K for fiscal ~~2017.~~

2021 and included under Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q.

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

•~~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;~~

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

Undue reliance should not be placed on our forward-looking statements. 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.

Demand for our equipment and systems for the defense industry is expected to remain strong and continue to expand based on the planned procurement of submarines, aircraft carriers and undersea propulsion and power systems. Submarines, both Virginia and Columbia classes, and aircraft carriers are considered critical to national defense. We anticipate demand for our equipment and systems will continue to increase in the coming years. With the addition of revenue from the BN acquisition, consolidated revenue for sales to the U.S. Navy is projected to be $60 million to $70 million in fiscal 2022. 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 DoD radar, laser, electronics and power systems. We have built a leading position, and in some instances, sole source position, for certain systems and equipment.

The energy and petrochemical markets have been impacted by demand disruption caused by the COVID-19 global pandemic. Western energy markets are further impacted by alternative energy growth with reduced reliance of fossil-based fuels. This, we believe, has caused our crude oil refining customers to reduce sustaining or MRO spending and dramatically scale back strategic growth investment. Our western energy and crude oil refining customers are not expected to return to previous levels of investment in the near term, though we are seeing some improvements compared with the second half of last year. Within our emerging or developing markets, we anticipate new capacity investment will occur over the next several years. These markets are expected to require additional local refining capacity to meet local demand for petroleum products.

We also believe that systemic changes in the energy markets are occurring and that such changes are being driven, in part, by the increasing use by consumers of alternative fuels in lieu of fossil fuels. As a result, ~~of volatility in~~we anticipate demand growth for fossil-based fuels will be less than the global GDP growth rate. Accordingly, we expect that crude oil refiners will focus new investments toward the installed base, and ~~natural gas prices,~~that inefficient refineries will close and ~~near term price uncertainty, our global energy markets have been~~new refining capacity will be co-located where fuels and petrochemicals are produced. We also anticipate that future investment by refiners in ~~a contracted state for the past three years. In response~~renewable fuels (e.g., renewable diesel), in existing refineries (e.g., to ~~the market conditions, our customers in the downstream energy sector have sharply reduced capital spending in each~~expand feedstock processing flexibility and to improve conversion of ~~the last three years. This impacted not only~~oil to refined products), to gain greater throughput, or to build new capacity ~~but also revamping~~(e.g., integrated refineries with petrochemical products capabilities) will continue to drive demand for our products and ~~turnaround~~services.

We expect Asian investment in chemical/petrochemical new capacity will return during the next 12-18 months while our Western integrated energy companies with petrochemical production assets will continue to limit capital investment. The timing and catalyst 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 commercial markets ~~has begun.~~

Capital spending in the nuclear market for both new capacity and to maintain existing facilities continues to trend downward. Capital spending 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 health of the

~~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 our sales.~~

~~Our long-term view for the~~(crude oil refining and chemical/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~~markets) remains uncertain. Accordingly, we believe ~~will result~~that 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 actions to increase our 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~~quantity of projects available for us to compete for will be fewer and that the pricing environment will remain challenging.

The alternative and clean energy opportunities for our heat transfer, power production and fluid transfer systems are expected to ~~remain volatile from quarter~~continue to ~~quarter.~~ 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 believe that we are positioning the Company to be a more significant contributor as these markets continue to develop.

We believe in the near and medium-term 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. Consequently, when global economies return to stable growth, we expect investment in new global chemical and petrochemical capacity will resume and that such investments will in turn drive growth in demand for our products and services.

BN 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 BN has provided rocket engine turbo pump systems and components for

many of the launch providers. We expect that in the 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. BN is 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 in this market as well.

The chart below shows the ~~impact~~successful strategy to transform the Company toward the defense market. The defense market comprised 78% of our total backlog at September 30, 2021. We believe this diversification ~~strategy. Nearly 60% of~~is especially beneficial when our ~~backlog~~commercial 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*

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						Nine Months Ended						Three Months Ended						Six Months Ended
	December 31,						December 31,						September 30,						September 30,
	2017			2016			2017			2016			2021			2020			2021			2020
Net sales	$	17,281		$	22,654		$	55,356		$	66,145		$	34,146		$	27,954		$	54,303		$	44,664
Gross profit	$	3,585		$	6,301		$	12,281		$	15,422		$	3,443		$	7,693		$	4,357		$	9,261
Gross profit margin		21	%		28	%		22	%		23	%		10	%		28	%		8	%		21	%
SG&A expense ⁽¹⁾	$	4,066		$	3,804		$	11,447		$	10,637
SG&A expenses ⁽¹⁾													$	5,247		$	4,253		$	10,170		$	8,155
SG&A as a percent of sales		24	%		17	%		21	%		16	%		15	%		15	%		19	%		18	%
Net (loss) income	$	(11,622	)	$	1,840		$	(10,677	)	$	3,222
Diluted (loss) income per share	$	(1.19	)	$	0.19		$	(1.09	)	$	0.33
Net loss													$	(492	)	$	2,744		$	(3,618	)	$	926
Diluted loss per share													$	(0.05	)	$	0.27		$	(0.35	)	$	0.09
Total assets	$	138,623		$	148,328		$	138,623		$	148,328		$	191,836		$	144,622		$	191,836		$	144,622
Total assets excluding cash, cash equivalents and investments	$	64,441		$	75,651		$	64,441		$	75,651		$	175,373		$	76,766		$	175,373		$	76,766

The ~~Third~~Second Quarter and First ~~Nine~~Six Months of Fiscal ~~2018~~2022 Compared With the ~~Third~~Second Quarter and First ~~Nine~~Six Months

Sales for the ~~third~~second quarter of fiscal ~~2018~~2022 were ~~$17,281,~~$34,146, a ~~24% decrease as compared with~~22% increase from sales of ~~$22,654~~$27,954 for the ~~third~~second quarter of fiscal ~~2017.~~2021. Sales from the acquisition in the quarter were $16,486. Our domestic sales, as a percentage of aggregate ~~product~~ sales, were ~~65%~~77% in the ~~third~~second quarter of fiscal ~~2018~~2022 compared with ~~77%~~62% in the ~~third~~second quarter of fiscal ~~2017.~~2021. Domestic sales increased $8,950 in the second quarter of fiscal 2022, or 52% year-over-year, ~~decreased $6,160, or 35%.~~due to the acquisition of BN, which helped to offset lower international refining sales. International sales ~~increased $787,~~decreased $2,758, or ~~15%~~26%, in the ~~third~~second quarter of fiscal ~~2018~~2022 compared with the ~~third~~second quarter of fiscal ~~2017.~~2021. Sales in the three months ended ~~December 31, 2017~~September 30, 2021 were ~~31%~~58% for the defense (U.S. Navy) industry, 18% to the refining industry, ~~24%~~10% to the chemical and petrochemical industries, ~~10%~~4% to ~~the power industry, including the nuclear market,~~space, and ~~35%~~10% to other commercial and industrial ~~applications, including the U.S. Navy.~~applications. Sales in the three months ended ~~December 31, 2016~~September 30, 2020 were ~~28%~~34% for the defense (U.S. Navy) industry 37% to the refining industry, 19% to the chemical and petrochemical industries, ~~19% to the power industry, including the nuclear market,~~ and ~~34%~~10% 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~~six months of fiscal ~~2018~~2022 were ~~$55,356, a decrease~~$54,303, an increase of ~~$10,789,~~$9,639, or ~~16%~~22% compared with ~~sales of $66,145~~$44,664 for the first ~~nine~~six months of fiscal ~~2017. The decrease~~2021. Sales from the acquisition in the six months of fiscal ~~2018 year-to-date sales was due to weaker domestic sales.~~2022 were $19,957. Our domestic sales, as a percentage of aggregate product sales, were ~~67%~~74% in the first ~~nine~~six months of fiscal ~~2018~~2022 compared with ~~74%~~60% in the same period in fiscal ~~2017.~~2021. Domestic sales ~~decreased $11,900,~~increased $13,406, or ~~24%~~50%, while international sales ~~increased~~decreased by ~~$1,111,~~$3,767, or ~~7%.~~21%, each as compared with the same prior year period. International sales accounted for ~~33%~~26% and ~~26%~~40% of total sales for the first ~~nine~~six months of fiscal ~~2018~~2022 and fiscal ~~2017,~~2021, respectively. Sales in the ~~first nine~~six months ~~of fiscal 2018~~ended September 30, 2021 were ~~25%~~49% for the defense industry (U.S. Navy), 20% to the refining industry, 15% to the chemical and petrochemical industries, 4% to space and 12% to other commercial and industrial applications. Sales in the six months ended September 30, 2020 were 29% for the defense (U.S. Navy) industry, 29% to the refining industry, 30% to the chemical and petrochemical industries, ~~14% to the power industry, including the nuclear market,~~ and ~~31%~~12% 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~~

Gross profit margin 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.~~

~~Our gross profit~~operating margin for the ~~third~~second quarter of fiscal ~~2018 was 21%~~2022 were 10% and (2%), respectively, compared with 28% and 0%, respectively, for the ~~third~~second quarter of fiscal ~~2017.~~2021. Gross profit for the ~~third~~second quarter of fiscal ~~2018~~2022 decreased ~~43%~~ compared with fiscal ~~2017,~~2021, to ~~$3,585~~$3,443 from ~~$6,301. Gross~~$7,693. The gross profit margin reflected a fabrication order whose material content and related profit was ~~impacted by lower sales and margins were impacted by~~recognized in previous periods. The prior-year period had benefitted from a ~~weaker mix of projects and less cost absorption.~~large, one-time, material only order with a defense customer.

~~Our gross~~Gross profit margin for the first ~~nine~~six months of fiscal ~~2018~~2022 was ~~22%~~8% compared with ~~23%~~21% for the first ~~nine~~six months of fiscal ~~2017.~~2021. Gross profit for the first ~~nine~~six months of fiscal ~~2018 decreased 20%~~2022 compared with the first six months of fiscal ~~2017,~~2021, decreased to ~~$12,281~~$4,357 from ~~$15,422.~~$9,261. Gross profit and margin were down compared with the prior-year period due to the same factors which impacted the quarter. The ~~decrease in~~flow of lower margin defense projects through the Batavia operations was more heavily weighted to the first half of fiscal 2022 and are expected to be completed by the end of the fiscal year. As a result, we expect that gross profit ~~was due to lower volume.~~margin in the second half of fiscal 2022 will be significantly higher than the first half of the year.

SG&A expenses as a percent of sales for both the ~~three and nine-month~~three-month periods ended ~~December 31, 2017 were 24%~~September 30, 2021 and ~~21%, respectively.~~2020 was 15%. SG&A expenses in the ~~third~~second quarter of fiscal ~~2018~~2022 were ~~$4,066,~~$5,247, an increase of ~~$262, or 7%,~~$994 compared with the ~~third~~second quarter of fiscal ~~2017~~2021 SG&A expenses of ~~$3,804,~~ $4,253. The impact of intangible amortization, accounted for $274 or 27% of the increase. The remaining increase was

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%~~addition of ~~sales in the third quarter of fiscal 2018.~~BN and organizational development costs. SG&A expenses in the first ~~nine~~six months of fiscal ~~2018~~2022 were ~~$11,447,~~$10,170, an increase of ~~$810, or 8%,~~$2,015, compared with SG&A expenses of $8,155 in the first ~~nine~~six months of fiscal ~~2017 SG&A expenses of $10,637. This~~2021. The increase was ~~principally~~due to the addition of the BN business, including $365 of purchase accounting amortization.

Subsequent to the acquisition, we terminated the contingent earn out agreement included in the purchase agreement for the acquisition of BN. On October 26, 2021 the Company 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 new bonus arrangement is to align a broader number of the BN leadership team with the achievement of BN performance objectives. This agreement will allow us to better retain key employees of BN through fiscal 2026. The bonus Agreement provides for payments to be made for certain performance-based results of BN for fiscal years ending March 31, 2024, 2025 and 2026. Since the earn out was terminated, the value of the earn out has been reduced to $0, from the $1,900 original value. This $1,900 gain was recorded in the second quarter of fiscal 2022 in Other operating income, net, on the Company’s Condensed Consolidated Statement of Operations. Additionally, we incurred $798 of costs related to the ~~benefit~~resignation 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~~Severance and Transition Agreement with 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 is expected to be $1,500. Approximately half of the savings should be realized in fiscal 2018.

Interest income for the ~~three~~three-month period and ~~nine-month periods~~six-month period ended ~~December 31, 2017 was $142~~September 30, 2021 were $14 and ~~$455,~~$31, respectively, compared with ~~$100~~$26 and ~~$272,~~$120, respectively, for the same periods ended ~~December 31, 2016.~~ September 30, 2020. The decrease in interest income was due to less cash and investments after the BN acquisition.

Interest expense for the three and ~~nine-month~~six-month periods ended ~~December 31, 2017~~September 30, 2021 was $3$129 and ~~$8,~~$168, respectively, compared with $3 and ~~$7,~~$8, respectively, for the same periods ended ~~December 31, 2016.~~September 30, 2020. The increase was due to the interest on the term and revolver debt which was entered into in conjunction with the BN acquisition.

~~The reduction in the year-to-date~~Our effective tax rate ~~from 28% in~~for each of the ~~second quarter to 23% in the third quarter as well as in the first nine months of fiscal 2018~~three and six-month periods ended September 30, 2021 was ~~due primarily to adjustments related to the Tax Act.~~27% and 20%, respectively. The effective tax ~~rates~~rate for the ~~comparable~~ three and ~~nine month~~six-month periods ~~of fiscal 2017 were 29%~~ended September 30, 2020 was 22% and ~~27%~~30%, respectively.

Net ~~(loss) income~~loss and ~~(loss) income~~loss per diluted share for the ~~third~~second quarter of fiscal ~~2018~~2022 were ~~($11,622)~~$492 and ~~($1.19),~~$0.05, respectively, 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~~of $2,744 and $0.27, respectively, in the ~~third~~second quarter of fiscal ~~2018 were ($1)~~2021. Net loss and ~~$0.00, respectively, and were $1,840 and $0.19 in the third quarter of fiscal 2017. Net (loss) income and (loss) income~~loss per diluted share for the first ~~nine~~six months of fiscal ~~2018~~2022 were ~~($10,677)~~$3,618 and ~~($1.09),~~$0.35, respectively, compared with net income of ~~$3,222~~$926 and income per diluted share of ~~$0.33~~$0.09 for the first ~~nine~~six months of fiscal ~~2017. Excluding~~2021. Since we acquired the ~~items noted above as well as restructuring charges in each year, net income~~BN business, it has outperformed our revenue and ~~income per diluted share for the first nine months of fiscal 2018 were $1,168 and $0.12, respectively, and were $3,663 and $0.38 in the first nine months of fiscal 2017.~~

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

Net cash ~~generated~~used by operating activities for the first ~~nine~~six months of fiscal ~~2018~~2022 was ~~$3,874,~~$8,702 compared with ~~$10,707~~$2,258 of cash used for the first ~~nine~~six months of fiscal ~~2017.~~2021. The ~~decrease~~increase in cash ~~generation year over year~~used was ~~attributable~~primarily due to ~~lower~~operating earnings ~~an increase~~and changes in ~~accounts receivable, an increase in~~unbilled revenue, income taxes ~~receivable~~ and ~~a smaller decrease in inventories,~~accounts payable, partly offset by ~~higher unbilled revenue.~~a decrease in inventory and increased customer deposits.

Dividend payments and capital expenditures in the first ~~nine~~six months of fiscal ~~2018~~2022 were ~~$2,638~~$2,353 and ~~$543,~~$1,227, respectively, compared with ~~$2,616~~$2,195 and ~~$241,~~$797, respectively, for the first ~~nine~~six months of fiscal ~~2017.~~2021.

Capital expenditures for fiscal ~~2018~~2022 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. Approximately 80% of our fiscal 2018 capital expenditures are expected$3,000 to ~~be for productivity-enhancing machinery and equipment, with the remaining amounts expected to be used for information technology upgrades and other items.~~$3,500.

Cash and investments were ~~$74,182~~$16,463 on ~~December 31, 2017~~September 30, 2021 compared with ~~$73,474~~$19,143 on June 30, 2021, down $2,680, and $65,032, respectively, from March 31, ~~2017, up $708.~~2021.

We invest net cash generated from operations in excess of cash held for near-term needs in short-term, or 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%~~70% of our cash and investments are held in the U.S. The remaining 5%30% is ~~invested in~~held by our China operations.

~~Our~~On June 1, 2021, we entered into a $20,000 five-year term 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. The BSBY rate at September 30, 2021 was 0.0558%. In addition, on June 1, 2021, we terminated our revolving credit facility agreement with JPMorgan Chase Bank, N.A. and entered into a revolving credit facility with ~~JP Morgan Chase~~Bank of America that provides ~~us with~~ 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. The agreement has a five-year term. Amounts outstanding under the facility agreement bear interest at a rate equal to BSBY plus 1.50% per annum of the outstanding undrawn amount of each letter of credit that is not secured by cash and 0.6% of each commercial letter of credit that is secured by cash, subject to a 0.00% floor. Outstanding letters of credit under the agreement are subject to a fee of 1.50%. The upfront fee for both the term loan and revolving credit facility was 0.20% of the committed facilities and amounts available for borrowing under the revolving credit facility are subject to an unused commitment fee of 0.25%. Under the term loan agreement and revolving credit facility, we covenant to maintain a maximum total leverage ratio, as defined in such agreements, of 3.0 to 1.0, which may be increased to 3.25 to 1.0 following an acquisition for a period of twelve months following the close of the acquisition. In addition, we covenant 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.

On June, 1, 2021, we entered into an agreement to amend and restate our ~~JP Morgan Chase~~letter of credit facility agreement ~~allows us to increase the~~with HSBC Bank USA, N.A. and decreased our line of credit ~~at our discretion, up~~from $15,000 to ~~another $25,000, for total availability~~$7,500. Under the amended agreement, we incur an annual facility fee of ~~$50,000. Borrowings under this credit facility are secured by all of our assets. We also have a $5,000 unsecured line~~$5 and outstanding letters of credit ~~with HSBC, N.A.~~ are subject to a fee of between 0.75% and 0.85%, depending on the term of the letter of credit. Interest is payable on the principal amounts of unreimbursed letter of credit draws under the facility at a rate of 3% plus the bank’s prime rate.

Letters of credit outstanding on ~~December 31, 2017~~September 30, 2021 and March 31, ~~2017~~2021 were ~~$7,401~~$8,133 and ~~$8,372,~~$11,567, respectively. The outstanding letters of credit as of ~~December 31, 2017~~September 30, 2021 were issued by ~~JP Morgan Chase, HSBC, as well as~~ Bank of America, ~~(under~~HSBC and residual items from our ~~previous credit facility).~~prior agreement with JP Morgan. There ~~were no other amounts~~was $4,000 outstanding on our Bank of America revolving credit facilities at ~~December 31, 2017 and March 31, 2017. The borrowing rate under~~September 30, 2021. There was $2,500 outstanding on our ~~JP Morgan Chase facility as~~facilities on June 30, 2021, other than letters of ~~December 31, 2017 was the bank’s prime rate, or 4.50%.~~credit. Availability under the ~~JP Morgan Chase~~Bank of America and HSBC lines of credit on September 30, 2021 was ~~$25,168 and $25,761 at December 31, 2017 and March 31, 2017, respectively.~~$25,638. We believe that cash generated from operations, combined with our investments and 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.

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~~September 30, 2021 were ~~$40,528~~$31,386 compared with ~~$17,699~~$34,974 for the same period ~~in the prior year, an increase~~ of ~~129%.~~fiscal 2021, a decrease of $3,588. Orders represent written communications received from customers requesting us to supply products and/or services. Orders related to the acquisition were $15,844. Domestic orders were ~~47%~~80% of total orders, or ~~$19,144,~~$24,964, and international orders were ~~53%~~20% of total orders, or ~~$21,384,~~$6,422, in the ~~current~~second quarter of fiscal 2022 compared with the ~~third~~second quarter of fiscal ~~2017,~~2021 when domestic orders were ~~59%~~46%, or ~~$10,396,~~$16,117, of total orders, and international orders were ~~41%~~54%, or ~~$7,303,~~$18,857, of total orders. ~~Over 80% of the international orders in the third quarter of fiscal 2018 were from Canada.~~

During the first ~~nine~~six months of fiscal ~~2018,~~2022, orders were ~~$68,679,~~$52,253, compared with ~~$57,123~~$46,442 for the same period of fiscal ~~2017, an increase~~2021. Domestic orders were 77% of ~~$11,556,~~total orders, or ~~20%. For~~$40,367, and international orders were 23% of total orders, or $11,886, in the first ~~nine~~six months of fiscal ~~2018, refining~~2022 compared with the same period of fiscal 2021 when domestic orders ~~increased by $19,121, power~~were 42%, or $19,349, of total 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~~$233,247 at September 30, ~~2017,~~2021, compared with $235,938 at June 30, 2021, a ~~32% increase.~~1% decrease, and $137,567 at March 31, 2021. Backlog is defined as the total dollar value of orders received for which revenue has not yet been recognized. Approximately ~~55%~~45% 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%~~September 30, 2021, 78% of our backlog was attributable to ~~equipment~~U.S. Navy projects, 11% for refinery project work, 4% for chemical and petrochemical projects, 6%3% for ~~power projects, including nuclear, 51% for U.S. Navy~~space projects and 4% for other industrial applications. At ~~December 31, 2016, 17%~~June 30, 2021, 80% of our backlog was ~~attributed~~attributable to ~~equipment~~U.S. Navy projects, 12% was for refinery project work, ~~14%~~3% for chemical and petrochemical projects, 9%2% for ~~power projects, 57% for U.S. Navy~~space projects and 3% for other industrial applications. At ~~December 31, 2017,~~September 30, 2021, we had no projects on hold.

~~Prolonged weakness~~Our defense business continues to be strong. With the acquisition of BN, 78% of our $233,247 backlog is in defense. While much of the defense backlog includes projects with order to shipment of up to five years, we are expecting 45% to 50% of our sales in fiscal 2022 to be from the defense market.

Near term opportunities in the global energy and petrochemical markets ~~has continued to negatively impact our business in fiscal 2018. Our oil refining and chemical market customer spending has started 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 the next few years, and this determination led~~slowed significantly due to the ~~impairment~~combined impact of the COVID-19 pandemic and the supply and demand imbalance. Although we do not know when the COVID-19 pandemic will end or when the supply imbalance will subside, we expect our ~~goodwill and intangible assets which we recognized in the third quarter.~~energy markets to recover, however, not to historical levels.

~~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, as well as to expand the work we do for the U.S. Navy. In addition to these organic growth

~~opportunities, we~~ continue to look for organic growth opportunities as well as 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 in~~All of the ~~energy markets~~below expectations are inclusive of BN for the ten-month period we ~~serve continues to cause near-term uncertainty, affecting our outlook for~~will own it during the current fiscal ~~2018. We expect revenue in fiscal 2018 to be approximately $75,000.~~ year.

~~We expect gross profit margin in fiscal 2018~~Our expectations for sales and profitability assume that we are able to ~~be in the 21% to 22% range. We are experiencing the impact of lower pricing from orders received over the past year and the under-utilization of~~operate our production facilities in Batavia, New York and Arvada, Colorado at or near "normal" (pre-COVID-19 pandemic) capacity throughout fiscal ~~2018.~~2022. We ~~believe~~project that ~~production overhead absorption~~approximately 45% to 50% of backlog will ~~be weak,~~convert to sales over the next 12 months. We expect the remaining backlog will convert beyond fiscal 2022, which ~~we expect in turn will put continued pressure on gross profit margins in~~includes a combination of U.S. Navy orders that have a long conversion cycle (up to five years) as well as certain commercial orders, the conversion of which has been extended by our ~~fourth quarter.~~customers.

~~SG&A during~~Revenue in fiscal ~~2018~~2022 is expected to be ~~between $15,000~~$130,000 to $140,000, inclusive of $45,000 to $48,000 related to BN for the ten-month period we will own the business in the current fiscal year. We expect to have approximately $2,700 of acquisition related purchase price accounting costs to be recognized in fiscal 2022, which will primarily be amortization of intangible assets. Approximately $1,600 will be charged to cost of goods sold and ~~$15,500.~~the remaining $1,100 to SG&A. Inclusive of the purchase accounting costs, we expect gross profit margins to be 17% to 18% of sales and SG&A to be 15% to 16% of sales. Our ~~effective~~expected tax rate ~~during fiscal 2018, excluding~~is 24% to 25%. Adjusted earnings before net interest expense, income taxes, depreciation and amortization for the ~~tax effect of the impairment loss and the one-time impact of the new Tax Act recorded in the third quarter,~~combined business is expected to be ~~between 24% and 26%, which we have lowered due~~approximately $7,000 to ~~the reduced federal corporate income tax rate. Fiscal 2018 will benefit from the fiscal fourth quarter being taxed at a lower rate.~~ $8,000¹.

~~We continue to expect operating~~Although cash flow was negative in the first two quarters of fiscal ~~2018 will be lower than fiscal 2017. Fiscal 2017~~2022, we expect positive cash flow ~~benefited~~ from operations for the ~~build-up~~remaining six months of ~~customer deposits.~~

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,~~September 30, 2021, 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.

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 and total cost estimates 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,~~overtime recognition model, 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, and accounting for pensions and other postretirement benefits. For further information, refer to Item 7 ~~"Management's~~

"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.~~ 2021.

We did not have any off balance sheet arrangements as of ~~December 31, 2017~~September 30, 2021 or March 31, ~~2017,~~2021, other than ~~operating leases and~~ letters of credit.

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 ~~risk.~~

The assumptions applied in preparing the following qualitative and quantitative disclosures regarding foreign currency exchange rate, price risk and project cancellation 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.

International consolidated sales for the ~~three~~second quarter and first six months of fiscal 2022 were 23% and ~~nine months ended December 31, 2017 were 35% and 33%, respectively,~~26% of total sales, respectively, compared with ~~23%~~38% and ~~26%, respectively,~~40% for the same periods of fiscal ~~2017.~~2021, respectively. 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~~six months of ~~each of~~ fiscal ~~2018~~2022 and fiscal ~~2017,~~2021, 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~~six months of fiscal ~~2018,~~2022 and fiscal 2021, our purchases in foreign currencies represented 1%approximately 2% 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~~September 30, 2021 and March 31, ~~2017,~~2021, we held no forward foreign currency contracts.

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, responsive and flexible service, 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 market downturns, we typically experience depressed price levels. Moreover, the~~The cost of metals and other materials used in our products ~~have experienced~~can experience significant ~~volatility. Such factors, in addition to the global effects of the ongoing~~ volatility, and ~~disruption of the capital and credit markets, have resulted~~as such, can impact our ability to reflect this volatility in ~~downward demand and pricing pressure on~~ our ~~products.~~

Open orders are reviewed continuously through communications with customers. If it becomes evident to us that a project is delayed well beyond its original shipment date, management will move the project into "placed on hold" (i.e., suspended) category. Furthermore, if a project is cancelled by 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,~~September 30, 2021, we had no projects on hold.

Our President and Chief Executive Officer (principal executive officer) and Vice ~~President-Finance~~President - Finance & Administration and Chief Financial Officer (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~~President - Finance & Administration and Chief Financial Officer concluded that our disclosure controls and procedures were effective in all material respects.

~~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.

~~GRAHAM CORPORATION AND SUBSIDIARIES~~ We have not experienced any material impact to our internal controls over financial reporting.

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 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 form the date of acquisition, the scope of our assessment of the effectiveness of internal control over financial reporting as of the end of the period covered by this report does not include Barber-Nichols, LLC.

~~DECEMBER~~ We are in the process of implementing our internal control structure over the Barber-Nichols, LLC acquisition and we expect that this effort will be completed during the fiscal year ending March 31, ~~2017~~2023.

Except as stated below, 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, 2021.

Potential government imposed COVID-19 vaccine mandates could adversely affect our ability to attract and retain employees which could have a material adverse impact on our business and results of operations.

On September 9, 2021, President Biden directed the Department of Labor’s Occupational Safety and Health Administration ("OSHA") to issue an Emergency Temporary Standard requiring that all employers with at least 100 employees ensure that their employees are fully vaccinated for COVID-19 or require employees to obtain a negative COVID-19 test at least once a week. OSHA is drafting an emergency regulation to carry out this mandate, which is expected to take effect in the coming weeks, although the timeline remains uncertain. It is unclear, among other things, if the vaccine mandate will apply to all employees and how compliance will be documented. As a company with more than 100 employees, we may be required to mandate COVID-19 vaccination of our workforce or have our unvaccinated employees undergo required weekly COVID-19 testing.

In addition, rules were adopted requiring all federal employees to be fully vaccinated by November 22, 2021. Further, federal agencies are expected to require vaccinations for any employees or other personnel working under an agreement with an agency not covered by the mandate. This is expected to apply to federal contractors and subcontractors, such as us.

Any requirement to mandate COVID-19 vaccination of our workforce or require our unvaccinated employees to be tested weekly could result in employee attrition and difficulty securing future labor needs, and may have an adverse effect on our future revenues, costs, and results of operations.

If we fail to successfully integrate the operations of Barber-Nichols, LLC, our financial condition and results of operations could be adversely affected.

On June 1, 2021, we acquired Barber-Nichols, LLC, which provides products to the aerospace, cryogenic and defense and energy markets. We cannot provide any assurances that we will be able to integrate the operations of Barber-Nichols, LLC without encountering difficulties, including unanticipated costs, difficulty in retaining customers and supplier or other relationships, failure to retain key employees, diversion of management’s attention, failure to integrate our information and accounting systems or establish and maintain proper internal control over financial reporting, any of which would harm our business and results of operations.

Furthermore, we may not realize the revenue and net income that we expect to achieve or that would justify our investment in Barber-Nichols, LLC, and we may incur costs in excess of what we anticipate. To effectively manage our expected future growth, we must continue to successfully manage our integration of Barber-Nichols, LLC and continue to improve our operational systems, internal procedures, accounts receivable and management, financial and operational controls. If we fail in any of these areas, our business and results of operations could be harmed.

Our acquisition of Barber-Nichols, LLC might subject us to unknown and unforeseen liabilities.

Barber-Nichols, LLC may have unknown and unforeseen liabilities, including, but not limited to, product liability, workers’ compensation liability, tax liability and liability for improper business practices. Although we are entitled to indemnification from the seller of Barber-Nichols, LLC for these and other matters, we could experience difficulty enforcing those obligations or we could incur material liabilities for the past activities of Barber-Nichols, LLC. Such liabilities and related legal or other costs could harm our business or results of operations.

In connection with the BN acquisition, the Company entered into an earn out agreement with the sellers which provided for 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. Pursuant to the Termination Agreement (the "Termination Agreement"), the earn out agreement was terminated and the contingent liability was reversed into Other operating income, net on the Company’s Condensed Consolidated Statement of Operations. The foregoing description of the Termination Agreement does not purport to be complete and is qualified in its entirety by reference to the Termination Agreement which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

As of October 26, 2021, the Company 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 new 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 years ending March 31, 2024, 2025 and 2026.

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.


Delaware	16-1194720
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

20 Florence Avenue, Batavia, New York	14020
(Address of principal executive offices)	(Zip Code)

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 Discussion and Analysis of Financial Condition and Results of Operations	1720

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2328

Item 4.	Controls and Procedures	2428

Part II.	OTHER INFORMATION

Item 1A.	Risk Factors	29

Item 6.	Exhibits	2531

Signatures		2632

	Fair Value Assigned		Weighted Average Amortization Period
At September 30, 2021
Intangibles subject to amortization:
Customer relationships	$	11,800	20 years
Technology and technical know how		10,100	20 years
Backlog		3,900	4 years
	$	25,800
Intangibles not subject to amortization:
Tradename		7,400	Indefinite
	$	7,400

	Annual Amortization
Remainder of 2022	$	1,497
2023		2,462
2024		1,775
2025		1,327
2026		1,123
2027 and thereafter		16,607
Total intangible amortization	$	24,791

	June 1,
	2021
Assets acquired:
Cash and cash equivalents	$	1,587
Accounts receivable		8,154
Unbilled revenue		7,068
Inventory		3,669
Other current assets		409
Property, plant & equipment		8,037
Operating lease asset		9,026
Goodwill		22,823
Backlog		3,900
Customer relationships		11,800
Technology and technical know how		10,100
Tradename		7,400
Total assets acquired		93,973
Liabilities assumed:
Accounts payable		2,736
Accrued compensation		1,341
Other current liabilities		665
Customer deposits		6,048
Operating lease liabilities		9,066
Other long term liabilities		2,103
Total liabilities assumed		21,959
Purchase price	$	72,014

	September 30, 2021			March 31, 2021			Change

Unbilled revenue (contract assets)	$	29,035		$	19,994		$	9,041
Customer deposits (contract liabilities)		(21,941	)		(14,059	)		(7,882	)
Net contract liabilities	$	7,094		$	5,935		$	1,159

	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

	Pension and Other Postretirement Benefit Items			Foreign Currency Items		Total			Pension and Other Postretirement Benefit Items			Foreign Currency Items		Total
Balance at April 1, 2017	$	(8,439	)	$	5	$	(8,434	)
Balance at April 1, 2021									$	(7,698	)	$	301	$	(7,397	)
Other comprehensive income before reclassifications		—			216		216			68			93		161
Amounts reclassified from accumulated other comprehensive loss		619			—		619			353			—		353
Net current-period other comprehensive income		619			216		835			421			93		514
Balance at December 31, 2017	$	(7,820	)	$	221	$	(7,599	)
Balance at September 30, 2021									$	(7,277	)	$	394	$	(6,883	)

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
	September 30,
	2021				2020
Pension and other postretirement benefit items:
Amortization of actuarial loss	$	(236	)	⁽¹⁾	$	(267	)	⁽¹⁾	Loss before benefit for income taxes
		(53	)			(63	)		Benefit for income taxes
	$	(183	)		$	(204	)		Net loss

	Operating Leases		Finance Leases
Remainder of 2022	$	688	$	13
2023		1,325		26
2024		1,183		11
2025		1,164		—
2026		1,169		—
2027 and thereafter		4,856		—
Total lease payments		10,385		50

Less – amount representing interest		1,296		5
Present value of net minimum lease payments	$	9,089	$	45


(10)	Material Contracts

+	10.1	Termination Agreement dated as of October 25, 2021 by and between Graham Acquisition I, LLC and BNI Holdco, LLC.

#	10.2	Severance and Transition Agreement dated as of August 9, 2021 between Graham Corporation and James R. Lines is incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 9, 2021.

#	10.3	Amended and Restated Employment Agreement dated as of August 31, 2021 between Graham Corporation and Daniel Thoren is incorporated herein by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated August 9, 2021.


(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

(99)	Additional Exhibits 99.1	Graham Corporation Annual Executive Cash Bonus Program in effect for the Company’s named executive officers for the fiscal year ending March 31, 2022 is incorporated herein by reference from Exhibit 99.1 to the Company’s Current Report on Form 8-K dated July 28, 2021.

(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

		Management contract or compensation plan


			GRAHAM CORPORATION
By:			/s/ Jeffrey Glajch
			Jeffrey Glajch
			Vice President-Finance & Administration and
			Chief Financial Officer
			(On behalf of the Registrant and as Principal Financial Officer)