UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
|
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2017September 30, 2023
|
|
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________
Commission File Number 1-8462001-08462
GRAHAM CORPORATION
(Exact name of registrant as specified in its charter)
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) |
585-343-2216585-343-2216
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, Par Value $0.10 Per Share | GHM | NYSE |
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 ☐
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes ☒ No ☐
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitionthe definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |
Non-accelerated filer | ☐ |
| Smaller reporting company |
|
Emerging growth company | ☐ |
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).
Yes ☐ No ☒
As of January 30, 2018,November 3, 2023, there were outstanding 9,768,02610,702,731 shares of the registrant’s common stock, par value $.10$0.10 per share.
Graham Corporation and Subsidiaries
Index to Form 10-Q
As of December 31, 2017September 30, 2023 and March 31, 20172023 and for the Threethree and Nine-Month Periods Ended December 31, 2017six months ended September 30, 2023 and 20162022
Page | ||
Part I. | ||
Item 1. |
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Item 2. |
| 17 |
Item 3. |
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Item 4. |
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Part II. | ||
Item |
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Item 6. | 29 | |
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2
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
DECEMBER 31, 2017SEPTEMBER 30, 2023
PART I – FINANCIAL INFORMATION
3Item 1. Unaudited Condensed Consolidated Financial Statements
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)(Dollar amounts in thousands, except per share data)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (Amounts in thousands, except per share data) |
|
| (Amounts in thousands, except per share data) |
| ||||||||||
Net sales |
| $ | 17,281 |
|
| $ | 22,654 |
|
| $ | 55,356 |
|
| $ | 66,145 |
|
Cost of products sold |
|
| 13,696 |
|
|
| 16,353 |
|
|
| 43,075 |
|
|
| 50,723 |
|
Gross profit |
|
| 3,585 |
|
|
| 6,301 |
|
|
| 12,281 |
|
|
| 15,422 |
|
Other expenses and income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
| 4,007 |
|
|
| 3,746 |
|
|
| 11,270 |
|
|
| 10,462 |
|
Selling, general and administrative – amortization |
|
| 59 |
|
|
| 58 |
|
|
| 177 |
|
|
| 175 |
|
Impairment of goodwill and intangible assets |
|
| 14,816 |
|
|
| — |
|
|
| 14,816 |
|
|
| — |
|
Restructuring charge |
|
| — |
|
|
| — |
|
|
| 316 |
|
|
| 630 |
|
Interest income |
|
| (142 | ) |
|
| (100 | ) |
|
| (455 | ) |
|
| (272 | ) |
Interest expense |
|
| 3 |
|
|
| 3 |
|
|
| 8 |
|
|
| 7 |
|
Total other expenses and income |
|
| 18,743 |
|
|
| 3,707 |
|
|
| 26,132 |
|
|
| 11,002 |
|
(Loss) income before provision for income taxes |
|
| (15,158 | ) |
|
| 2,594 |
|
|
| (13,851 | ) |
|
| 4,420 |
|
(Benefit) provision for income taxes |
|
| (3,536 | ) |
|
| 754 |
|
|
| (3,174 | ) |
|
| 1,198 |
|
Net (loss) income |
|
| (11,622 | ) |
|
| 1,840 |
|
|
| (10,677 | ) |
|
| 3,222 |
|
Retained earnings at beginning of period |
|
| 109,731 |
|
|
| 108,655 |
|
|
| 110,544 |
|
|
| 109,013 |
|
Dividends |
|
| (880 | ) |
|
| (876 | ) |
|
| (2,638 | ) |
|
| (2,616 | ) |
Retained earnings at end of period |
| $ | 97,229 |
|
| $ | 109,619 |
|
| $ | 97,229 |
|
| $ | 109,619 |
|
Per share data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (1.19 | ) |
| $ | 0.19 |
|
| $ | (1.09 | ) |
| $ | 0.33 |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (1.19 | ) |
| $ | 0.19 |
|
| $ | (1.09 | ) |
| $ | 0.33 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 9,768 |
|
|
| 9,727 |
|
|
| 9,762 |
|
|
| 9,709 |
|
Diluted |
|
| 9,768 |
|
|
| 9,733 |
|
|
| 9,762 |
|
|
| 9,714 |
|
Dividends declared per share |
| $ | 0.09 |
|
| $ | 0.09 |
|
| $ | 0.27 |
|
| $ | 0.27 |
|
(Unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net sales |
| $ | 45,076 |
|
| $ | 38,143 |
|
| $ | 92,645 |
|
| $ | 74,218 |
|
Cost of products sold |
|
| 37,885 |
|
|
| 32,863 |
|
|
| 74,477 |
|
|
| 62,194 |
|
Gross profit |
|
| 7,191 |
|
|
| 5,280 |
|
|
| 18,168 |
|
|
| 12,024 |
|
Other expenses and income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Selling, general and administrative |
|
| 6,115 |
|
|
| 5,059 |
|
|
| 13,134 |
|
|
| 10,544 |
|
Selling, general and administrative – amortization |
|
| 273 |
|
|
| 273 |
|
|
| 547 |
|
|
| 547 |
|
Operating income (loss) |
|
| 803 |
|
|
| (52 | ) |
|
| 4,487 |
|
|
| 933 |
|
Other expense (income), net |
|
| 94 |
|
|
| (62 | ) |
|
| 187 |
|
|
| (125 | ) |
Interest expense, net |
|
| 55 |
|
|
| 246 |
|
|
| 240 |
|
|
| 403 |
|
Income (loss) before provision (benefit) for income taxes |
|
| 654 |
|
|
| (236 | ) |
|
| 4,060 |
|
|
| 655 |
|
Provision (benefit) for income taxes |
|
| 243 |
|
|
| (40 | ) |
|
| 1,009 |
|
|
| 175 |
|
Net income (loss) |
| $ | 411 |
|
| $ | (196 | ) |
| $ | 3,051 |
|
| $ | 480 |
|
Per share data |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | 0.04 |
|
| $ | (0.02 | ) |
| $ | 0.29 |
|
| $ | 0.05 |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | 0.04 |
|
| $ | (0.02 | ) |
| $ | 0.28 |
|
| $ | 0.05 |
|
Weighted average common shares |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 10,699 |
|
|
| 10,617 |
|
|
| 10,675 |
|
|
| 10,614 |
|
Diluted |
|
| 10,810 |
|
|
| 10,617 |
|
|
| 10,761 |
|
|
| 10,618 |
|
See Notes to Condensed Consolidated Financial Statements.
43
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) INCOME
(Unaudited)(Dollar amounts in thousands)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| (Amounts in thousands) |
|
| (Amounts in thousands) |
| ||||||||||
Net (loss) income |
| $ | (11,622 | ) |
| $ | 1,840 |
|
| $ | (10,677 | ) |
| $ | 3,222 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| 76 |
|
|
| (135 | ) |
|
| 216 |
|
|
| (283 | ) |
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 |
|
Total other comprehensive income |
|
| 355 |
|
|
| 90 |
|
|
| 835 |
|
|
| 391 |
|
Total comprehensive (loss) income |
| $ | (11,267 | ) |
| $ | 1,930 |
|
| $ | (9,842 | ) |
| $ | 3,613 |
|
(Unaudited)
|
| Three Months Ended |
| Six Months Ended |
| |||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net income (loss) |
| $ | 411 |
|
| $ | (196 | ) |
| $ | 3,051 |
|
| $ | 480 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustment |
|
| (58 | ) |
|
| (337 | ) |
|
| (310 | ) |
|
| (680 | ) |
Defined benefit pension and other postretirement plans net |
|
| 164 |
|
|
| 131 |
|
|
| 328 |
|
|
| 262 |
|
Total other comprehensive income (loss) |
|
| 106 |
|
|
| (206 | ) |
|
| 18 |
|
|
| (418 | ) |
Total comprehensive income (loss) |
| $ | 517 |
|
| $ | (402 | ) |
| $ | 3,069 |
|
| $ | 62 |
|
See Notes to Condensed Consolidated Financial Statements.
54
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)(Dollar amounts in thousands, except per share data)
(Unaudited)
|
| December 31, |
|
| March 31, |
| ||||||||||
|
| 2017 |
|
| 2017 |
| ||||||||||
|
| (Amounts in thousands, except per share data) |
|
| September 30, 2023 |
|
| March 31, 2023 |
| |||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 36,159 |
|
| $ | 39,474 |
|
| $ | 25,800 |
|
| $ | 18,257 |
|
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 |
| ||||||||
Trade accounts receivable, net of allowances ($1,887 and $1,841 at September 30 and |
|
| 28,710 |
|
|
| 24,000 |
| ||||||||
Unbilled revenue |
|
| 10,709 |
|
|
| 15,842 |
|
|
| 34,975 |
|
|
| 39,684 |
|
Inventories |
|
| 8,899 |
|
|
| 9,246 |
|
|
| 27,009 |
|
|
| 26,293 |
|
Prepaid expenses and other current assets |
|
| 1,181 |
|
|
| 681 |
|
|
| 2,850 |
|
|
| 1,534 |
|
Income taxes receivable |
|
| 1,288 |
|
|
| — |
|
|
| 774 |
|
|
| 302 |
|
Total current assets |
|
| 112,814 |
|
|
| 110,726 |
|
|
| 120,118 |
|
|
| 110,070 |
|
Property, plant and equipment, net |
|
| 16,098 |
|
|
| 17,021 |
|
|
| 27,122 |
|
|
| 25,523 |
|
Prepaid pension asset |
|
| 3,110 |
|
|
| 2,340 |
|
|
| 6,251 |
|
|
| 6,107 |
|
Operating lease assets |
|
| 7,775 |
|
|
| 8,237 |
| ||||||||
Goodwill |
|
| 1,222 |
|
|
| 6,938 |
|
|
| 23,523 |
|
|
| 23,523 |
|
Permits |
|
| 1,700 |
|
|
| 10,300 |
| ||||||||
Customer relationships, net |
|
| 10,423 |
|
|
| 10,718 |
| ||||||||
Technology and technical know-how, net |
|
| 8,922 |
|
|
| 9,174 |
| ||||||||
Other intangible assets, net |
|
| 3,433 |
|
|
| 4,068 |
|
|
| 7,266 |
|
|
| 7,610 |
|
Deferred income tax asset |
|
| 1,489 |
|
|
| 2,798 |
| ||||||||
Other assets |
|
| 246 |
|
|
| 177 |
|
|
| 239 |
|
|
| 158 |
|
Total assets |
| $ | 138,623 |
|
| $ | 151,570 |
|
| $ | 213,128 |
|
| $ | 203,918 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Current portion of capital lease obligations |
| $ | 105 |
|
| $ | 107 |
| ||||||||
Current portion of long-term debt |
| $ | 2,000 |
|
| $ | 2,000 |
| ||||||||
Current portion of finance lease obligations |
|
| 19 |
|
|
| 29 |
| ||||||||
Accounts payable |
|
| 9,386 |
|
|
| 10,295 |
|
|
| 13,554 |
|
|
| 20,222 |
|
Accrued compensation |
|
| 4,418 |
|
|
| 5,189 |
|
|
| 11,357 |
|
|
| 10,401 |
|
Accrued expenses and other current liabilities |
|
| 2,722 |
|
|
| 3,723 |
|
|
| 6,262 |
|
|
| 6,434 |
|
Customer deposits |
|
| 17,814 |
|
|
| 12,407 |
|
|
| 59,526 |
|
|
| 46,042 |
|
Operating lease liabilities |
|
| 1,125 |
|
|
| 1,022 |
| ||||||||
Income taxes payable |
|
| — |
|
|
| 317 |
|
|
| — |
|
|
| 16 |
|
Total current liabilities |
|
| 34,445 |
|
|
| 32,038 |
|
|
| 93,843 |
|
|
| 86,166 |
|
Capital lease obligations |
|
| 67 |
|
|
| 143 |
| ||||||||
Long-term debt |
|
| 8,863 |
|
|
| 9,744 |
| ||||||||
Finance lease obligations |
|
| 76 |
|
|
| 85 |
| ||||||||
Operating lease liabilities |
|
| 6,993 |
|
|
| 7,498 |
| ||||||||
Deferred income tax liability |
|
| 736 |
|
|
| 4,051 |
|
|
| 48 |
|
|
| 108 |
|
Accrued pension liability |
|
| 534 |
|
|
| 467 |
| ||||||||
Accrued postretirement benefits |
|
| 780 |
|
|
| 761 |
| ||||||||
Accrued pension and postretirement benefit liabilities |
|
| 1,341 |
|
|
| 1,342 |
| ||||||||
Other long-term liabilities |
|
| 126 |
|
|
| — |
|
|
| 1,169 |
|
|
| 2,042 |
|
Total liabilities |
|
| 36,688 |
|
|
| 37,460 |
|
|
| 112,333 |
|
|
| 106,985 |
|
Commitments and contingencies (Note 11) |
|
|
|
|
|
|
|
| ||||||||
Commitments and contingencies (Note 9) |
|
|
|
|
|
| ||||||||||
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 |
| ||||||||
Preferred stock, $1.00 par value, 500 shares authorized |
|
| — |
|
|
| — |
| ||||||||
Common stock, $0.10 par value, 25,500 shares authorized, 10,846 and 10,774 shares |
|
| 1,084 |
|
|
| 1,075 |
| ||||||||
Capital in excess of par value |
|
| 23,573 |
|
|
| 23,176 |
|
|
| 29,196 |
|
|
| 28,061 |
|
Retained earnings |
|
| 97,229 |
|
|
| 110,544 |
|
|
| 80,494 |
|
|
| 77,443 |
|
Accumulated other comprehensive loss |
|
| (7,599 | ) |
|
| (8,434 | ) |
|
| (7,445 | ) |
|
| (7,463 | ) |
Treasury stock (811 and 808 shares at December 31 and March 31, 2017, respectively) |
|
| (12,326 | ) |
|
| (12,231 | ) | ||||||||
Treasury stock (143 and 138 shares at September 30 and March 31, 2023, respectively) |
|
| (2,534 | ) |
|
| (2,183 | ) | ||||||||
Total stockholders’ equity |
|
| 101,935 |
|
|
| 114,110 |
|
|
| 100,795 |
|
|
| 96,933 |
|
Total liabilities and stockholders’ equity |
| $ | 138,623 |
|
| $ | 151,570 |
|
| $ | 213,128 |
|
| $ | 203,918 |
|
See Notes to Condensed Consolidated Financial Statements.
65
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)(Dollar amounts in thousands)
(Unaudited)
|
| Nine Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| December 31, |
|
| September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2023 |
|
| 2022 |
| ||||
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: |
|
|
|
|
|
|
|
| ||||||||
Net income |
| $ | 3,051 |
|
| $ | 480 |
| ||||||||
Adjustments to reconcile net income to net cash provided (used) by operating |
|
|
|
|
|
| ||||||||||
Depreciation |
|
| 1,490 |
|
|
| 1,571 |
|
|
| 1,549 |
|
|
| 1,724 |
|
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 |
| ||||||||
Amortization of intangible assets |
|
| 891 |
|
|
| 1,238 |
| ||||||||
Amortization of actuarial losses |
|
| 421 |
|
|
| 336 |
| ||||||||
Amortization of debt issuance costs |
|
| 119 |
|
|
| 93 |
| ||||||||
Equity-based compensation expense |
|
| 625 |
|
|
| 312 |
| ||||||||
Deferred income taxes |
|
| (3,498 | ) |
|
| 10 |
|
|
| 1,162 |
|
|
| 174 |
|
(Increase) decrease in operating assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Accounts receivable |
|
| (5,029 | ) |
|
| 1,126 |
|
|
| (4,947 | ) |
|
| 38 |
|
Unbilled revenue |
|
| 5,170 |
|
|
| (2,651 | ) |
|
| 4,620 |
|
|
| (5,283 | ) |
Inventories |
|
| 352 |
|
|
| 1,697 |
|
|
| (734 | ) |
|
| (2,560 | ) |
Prepaid expenses and other current and non-current assets |
|
| (591 | ) |
|
| (489 | ) |
|
| (1,343 | ) |
|
| (782 | ) |
Income taxes receivable |
|
| (1,605 | ) |
|
| 1,109 |
|
|
| (489 | ) |
|
| (136 | ) |
Operating lease assets |
|
| 589 |
|
|
| 901 |
| ||||||||
Prepaid pension asset |
|
| (770 | ) |
|
| — |
|
|
| (144 | ) |
|
| (325 | ) |
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Accounts payable |
|
| (1,005 | ) |
|
| (2,173 | ) |
|
| (6,451 | ) |
|
| 3,730 |
|
Accrued compensation, accrued expenses and other current and non-current liabilities |
|
| (1,593 | ) |
|
| (558 | ) |
|
| 5 |
|
|
| 553 |
|
Customer deposits |
|
| 5,400 |
|
|
| 6,699 |
|
|
| 13,503 |
|
|
| 544 |
|
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 |
| ||||||||
Operating lease liabilities |
|
| (529 | ) |
|
| (840 | ) | ||||||||
Long-term portion of accrued compensation, accrued pension and |
|
| — |
|
|
| (595 | ) | ||||||||
Net cash provided (used) by operating activities |
|
| 11,898 |
|
|
| (398 | ) | ||||||||
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Purchase of property, plant and equipment |
|
| (543 | ) |
|
| (241 | ) |
|
| (3,312 | ) |
|
| (1,176 | ) |
Proceeds from disposal of property, plant and equipment |
|
| 1 |
|
|
| — |
|
|
| 38 |
|
|
| — |
|
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 |
| ||||||||
Net cash used by investing activities |
|
| (3,274 | ) |
|
| (1,176 | ) | ||||||||
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Principal repayments on capital lease obligations |
|
| (78 | ) |
|
| (38 | ) | ||||||||
Principal repayments on debt |
|
| (1,020 | ) |
|
| (3,511 | ) | ||||||||
Proceeds from the issuance of debt |
|
| — |
|
|
| 5,000 |
| ||||||||
Repayments on financing lease obligations |
|
| (147 | ) |
|
| (136 | ) | ||||||||
Payment of debt issuance costs |
|
| — |
|
|
| (122 | ) | ||||||||
Issuance of common stock |
|
| — |
|
|
| 79 |
|
|
| 225 |
|
|
| — |
|
Dividends paid |
|
| (2,638 | ) |
|
| (2,616 | ) | ||||||||
Purchase of treasury stock |
|
| (119 | ) |
|
| (29 | ) |
|
| (57 | ) |
|
| (22 | ) |
Excess tax deficiency on stock awards |
|
| — |
|
|
| (26 | ) | ||||||||
Net cash used by financing activities |
|
| (2,835 | ) |
|
| (2,630 | ) | ||||||||
Net cash (used) provided by financing activities |
|
| (999 | ) |
|
| 1,209 |
| ||||||||
Effect of exchange rate changes on cash |
|
| 211 |
|
|
| (231 | ) |
|
| (82 | ) |
|
| (254 | ) |
Net (decrease) increase in cash and cash equivalents |
|
| (3,315 | ) |
|
| 13,605 |
| ||||||||
Cash and cash equivalents at beginning of year |
|
| 39,474 |
|
|
| 24,072 |
| ||||||||
Net increase (decrease) in cash and cash equivalents |
|
| 7,543 |
|
|
| (619 | ) | ||||||||
Cash and cash equivalents at beginning of period |
|
| 18,257 |
|
|
| 14,741 |
| ||||||||
Cash and cash equivalents at end of period |
| $ | 36,159 |
|
| $ | 37,677 |
|
| $ | 25,800 |
|
| $ | 14,122 |
|
See Notes to Condensed Consolidated Financial Statements.
76
GRAHAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollar amounts in thousands)
(Unaudited)
|
| Common Stock |
|
| Capital in |
|
|
|
|
| Accumulated |
|
|
|
|
| Total |
| ||||||||||
|
|
|
|
| Par |
|
| Excess of |
|
| Retained |
|
| Comprehensive |
|
| Treasury |
|
| Stockholders' |
| |||||||
|
| Shares |
|
| Value |
|
| Par Value |
|
| Earnings |
|
| Loss |
|
| Stock |
|
| Equity |
| |||||||
Balance at April 1, 2023 |
|
| 10,774 |
|
| $ | 1,075 |
|
| $ | 28,061 |
|
| $ | 77,443 |
|
| $ | (7,463 | ) |
| $ | (2,183 | ) |
| $ | 96,933 |
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
| 2,640 |
|
|
| (88 | ) |
|
|
|
|
| 2,552 |
| ||||
Issuance of shares |
|
| 53 |
|
|
| 8 |
|
|
| (8 | ) |
|
|
|
|
|
|
|
|
|
|
| — |
| |||
Forfeiture of shares |
|
| (9 | ) |
|
| (1 | ) |
|
| 1 |
|
|
|
|
|
|
|
|
|
|
|
| — |
| |||
Recognition of equity-based |
|
|
|
|
|
|
|
| 293 |
|
|
|
|
|
|
|
|
|
|
|
| 293 |
| |||||
Issuance of treasury stock |
|
|
|
|
|
|
|
| 294 |
|
|
|
|
|
|
|
|
| (294 | ) |
|
| — |
| ||||
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (57 | ) |
|
| (57 | ) | |||||
Balance at June 30, 2023 |
|
| 10,818 |
|
|
| 1,082 |
|
|
| 28,641 |
|
|
| 80,083 |
|
|
| (7,551 | ) |
|
| (2,534 | ) |
|
| 99,721 |
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
| 411 |
|
|
| 106 |
|
|
|
|
|
| 517 |
| ||||
Issuance of shares |
|
| 28 |
|
|
| 2 |
|
|
| 223 |
|
|
|
|
|
|
|
|
|
|
|
| 225 |
| |||
Recognition of equity-based |
|
|
|
|
|
|
|
| 332 |
|
|
|
|
|
|
|
|
|
|
|
| 332 |
| |||||
Balance at September 30, 2023 |
|
| 10,846 |
|
| $ | 1,084 |
|
| $ | 29,196 |
|
| $ | 80,494 |
|
| $ | (7,445 | ) |
| $ | (2,534 | ) |
| $ | 100,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
| Capital in |
|
|
|
|
| Accumulated |
|
|
|
|
| Total |
| ||||||||||
|
|
|
|
| Par |
|
| Excess of |
|
| Retained |
|
| Comprehensive |
|
| Treasury |
|
| Stockholders' |
| |||||||
|
| Shares |
|
| Value |
|
| Par Value |
|
| Earnings |
|
| Loss |
|
| Stock |
|
| Equity |
| |||||||
Balance at April 1, 2022 |
|
| 10,801 |
|
| $ | 1,080 |
|
| $ | 27,770 |
|
| $ | 77,076 |
|
| $ | (6,471 | ) |
| $ | (2,961 | ) |
| $ | 96,494 |
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
| 676 |
|
|
| (212 | ) |
|
|
|
|
| 464 |
| ||||
Forfeiture of shares |
|
| (32 | ) |
|
| (3 | ) |
|
| 3 |
|
|
|
|
|
|
|
|
|
|
|
| — |
| |||
Recognition of equity-based |
|
|
|
|
|
|
|
| 114 |
|
|
|
|
|
|
|
|
|
|
|
| 114 |
| |||||
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (21 | ) |
|
| (21 | ) | |||||
Balance at June 30, 2022 |
|
| 10,769 |
|
|
| 1,077 |
|
|
| 27,887 |
|
|
| 77,752 |
|
|
| (6,683 | ) |
|
| (2,982 | ) |
|
| 97,051 |
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
| (196 | ) |
|
| (206 | ) |
|
|
|
|
| (402 | ) | ||||
Forfeiture of shares |
|
| (11 | ) |
|
| (1 | ) |
|
| 1 |
|
|
|
|
|
|
|
|
|
|
|
| — |
| |||
Recognition of equity-based |
|
|
|
|
|
|
|
| 198 |
|
|
|
|
|
|
|
|
|
|
|
| 198 |
| |||||
Issuance of treasury stock |
|
|
|
|
|
|
|
| (237 | ) |
|
|
|
|
|
|
|
| 356 |
|
|
| 119 |
| ||||
Balance at September 30, 2022 |
|
| 10,758 |
|
| $ | 1,076 |
|
| $ | 27,849 |
|
| $ | 77,556 |
|
| $ | (6,889 | ) |
| $ | (2,626 | ) |
| $ | 96,966 |
|
See Notes to Condensed Consolidated Financial Statements.
7
GRAHAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except per share data)
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION:
Graham Corporation's (the "Company's") Condensed Consolidated Financial Statements include its (i) wholly-owned foreign subsidiarysubsidiaries located in Arvada, Colorado, Suzhou, China and (ii) wholly-owned domestic subsidiary located in Lapeer, Michigan.Ahmedabad, India at September 30 and March 31, 2023. 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 10-018-03 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, 20172023 presented herein was derived from the Company’s audited Consolidated Balance Sheet as of March 31, 2017.2023. 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, 20172023 ("fiscal 2017"2023"). 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 ninesix months ended December 31, 2017September 30, 2023 are not necessarily indicative of the results that may be expected for the current fiscal year, which ends March 31, 20182024 ("fiscal 2018"2024").
NOTE 2 – REVENUE RECOGNITION:
The Company recognizes revenue on all contracts withwhen or as it satisfies a planned manufacturing process in excess of four weeks (which approximates 575 direct labor hours) using the percentage-of-completion method. The majorityperformance obligation by transferring control of the Company'sproduct to the customer. For contracts in which revenue is recognized under this methodology.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, |
| ||||||||||
Market |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Refining |
| $ | 7,289 |
|
| $ | 7,568 |
|
| $ | 14,156 |
|
| $ | 15,443 |
|
Chemical/Petrochemical |
|
| 4,365 |
|
|
| 5,804 |
|
|
| 10,406 |
|
|
| 11,679 |
|
Defense |
|
| 25,118 |
|
|
| 14,855 |
|
|
| 47,935 |
|
|
| 24,655 |
|
Space |
|
| 2,775 |
|
|
| 4,306 |
|
|
| 7,597 |
|
|
| 10,768 |
|
Other Commercial |
|
| 5,529 |
|
|
| 5,610 |
|
|
| 12,551 |
|
|
| 11,673 |
|
Net sales |
| $ | 45,076 |
|
| $ | 38,143 |
|
| $ | 92,645 |
|
| $ | 74,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Geographic Area |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Asia |
| $ | 2,980 |
|
| $ | 4,255 |
|
| $ | 8,882 |
|
| $ | 8,503 |
|
Canada |
|
| 1,092 |
|
|
| 1,707 |
|
|
| 1,991 |
|
|
| 2,704 |
|
Middle East |
|
| 669 |
|
|
| 686 |
|
|
| 1,718 |
|
|
| 1,145 |
|
South America |
|
| 172 |
|
|
| 399 |
|
|
| 199 |
|
|
| 1,860 |
|
U.S. |
|
| 38,604 |
|
|
| 30,325 |
|
|
| 76,745 |
|
|
| 58,494 |
|
All other |
|
| 1,559 |
|
|
| 771 |
|
|
| 3,110 |
|
|
| 1,512 |
|
Net sales |
| $ | 45,076 |
|
| $ | 38,143 |
|
| $ | 92,645 |
|
| $ | 74,218 |
|
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
8
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 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 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 revenue and the related costs incurred for shipping and handling are included in Cost of products sold.
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 determinedperformance obligations over time. These procedures include monthly review by comparing actual labormanagement of costs incurred, to a specific date to management's estimateprogress towards completion, identified risks and opportunities, sourcing determinations, changes in estimates of the total laborcosts yet to be incurred, on each contract or completionavailability of operational milestones assigned to each contract. Contracts in progress are reviewed monthlymaterials, and execution by management, and salessubcontractors. 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 on contracts not accounted for using the percentage-of-completion method is recognized utilizing the completed contract method. The majority of the Company's contracts, (as opposed to revenue) have a planned manufacturing processas measured by number 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, is recognized upon substantial completion or shipment to the customer. Substantial completionRevenue on larger contracts, which are fewer in number but represent the majority of revenue, is consistently definedrecognized over time. The following table presents the Company's revenue percentages disaggregated by revenue recognized over time or upon shipment:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue recognized over time |
|
| 75 | % |
|
| 75 | % |
|
| 78 | % |
|
| 70 | % |
Revenue recognized at shipment |
|
| 25 | % |
|
| 25 | % |
|
| 22 | % |
|
| 30 | % |
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 that is recognized over time and exceeds the amount that has been billed to the customer. Unbilled revenue is 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.
Net contract assets (liabilities) consisted of the following:
|
| September 30, 2023 |
|
| March 31, 2023 |
|
| Change |
|
| Change due to revenue recognized |
|
| Change due to invoicing customers/ |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Unbilled revenue (contract assets) |
| $ | 34,975 |
|
| $ | 39,684 |
|
| $ | (4,709 | ) |
| $ | 54,904 |
|
| $ | (59,613 | ) |
Customer deposits (contract liabilities) |
|
| (59,526 | ) |
|
| (46,042 | ) |
|
| (13,484 | ) |
|
| 11,797 |
|
|
| (25,281 | ) |
Net contract (liabilities) assets |
| $ | (24,551 | ) |
| $ | (6,358 | ) |
| $ | (18,193 | ) |
|
|
|
|
|
|
9
Contract liabilities at least 95% complete with regard to direct labor hours. Customer acceptance is generally required throughout the construction processSeptember 30 and March 31, 2023 include $7,954 and $6,092, respectively, of customer deposits for which the Company has no further material obligations under its contracts afteran unconditional right to collect payment. Trade accounts receivable, as presented on the revenue is recognized.Condensed Consolidated Balance Sheets, includes corresponding balances at September 30, and March 31, 2023, respectively.
Receivables billed but not paid under retainage provisions in the Company’s customer contracts were $1,141$2,681 and $971$2,542 at December 31, 2017September 30, and March 31, 2017,2023, respectively.
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, 2023, the Company had remaining unsatisfied performance obligations of $313,343. The Company expects to recognize revenue on approximately 50% of the remaining performance obligations within one year, 25% to 30% in one to two years and the remaining beyond two years.
NOTE 3 – INVESTMENTS:INVENTORIES:
Investments 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.
NOTE 4 – INVENTORIES:
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.
Major classifications of inventories are as follows:
|
| September 30, |
|
| March 31, |
| ||
|
| 2023 |
|
| 2023 |
| ||
Raw materials and supplies |
| $ | 3,573 |
|
| $ | 4,344 |
|
Work in process |
|
| 21,152 |
|
|
| 20,554 |
|
Finished products |
|
| 2,284 |
|
|
| 1,395 |
|
Total |
| $ | 27,009 |
|
| $ | 26,293 |
|
|
| December 31, |
|
| March 31, |
| ||
|
| 2017 |
|
| 2017 |
| ||
Raw materials and supplies |
| $ | 3,034 |
|
| $ | 3,016 |
|
Work in process |
|
| 9,334 |
|
|
| 12,573 |
|
Finished products |
|
| 935 |
|
|
| 891 |
|
|
|
| 13,303 |
|
|
| 16,480 |
|
Less - progress payments |
|
| 4,404 |
|
|
| 7,234 |
|
Total |
| $ | 8,899 |
|
| $ | 9,246 |
|
NOTE 54 – INTANGIBLE ASSETS:
Intangible assets are comprised of the following:
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Impairment Loss |
|
| Net Carrying Amount |
| ||||
At December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
| $ | 2,700 |
|
| $ | 1,267 |
|
| $ | — |
|
| $ | 1,433 |
|
Intangibles not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permits |
| $ | 10,300 |
|
| $ | — |
|
| $ | 8,600 |
|
| $ | 1,700 |
|
Tradename |
|
| 2,500 |
|
|
| — |
|
|
| 500 |
|
|
| 2,000 |
|
|
| $ | 12,800 |
|
| $ | — |
|
| $ | 9,100 |
|
| $ | 3,700 |
|
At March 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
| $ | 2,700 |
|
| $ | 1,132 |
|
| $ | — |
|
| $ | 1,568 |
|
Intangibles not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permits |
| $ | 10,300 |
|
| $ | — |
|
| $ | — |
|
| $ | 10,300 |
|
Tradename |
|
| 2,500 |
|
|
| — |
|
|
| — |
|
|
| 2,500 |
|
|
| $ | 12,800 |
|
| $ | — |
|
| $ | — |
|
| $ | 12,800 |
|
| Weighted Average Amortization Period |
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| |||
At September 30, 2023 |
|
|
|
|
|
|
|
|
|
| |||
Intangibles subject to amortization: |
|
|
|
|
|
|
|
|
|
| |||
Customer relationships | 20 years |
| $ | 11,800 |
|
| $ | 1,377 |
|
| $ | 10,423 |
|
Technology and technical know-how | 20 years |
|
| 10,100 |
|
|
| 1,178 |
|
|
| 8,922 |
|
Backlog | 4 years |
|
| 3,900 |
|
|
| 3,334 |
|
|
| 566 |
|
|
|
| $ | 25,800 |
|
| $ | 5,889 |
|
| $ | 19,911 |
|
|
|
|
|
|
|
|
|
|
|
| |||
Intangibles not subject to amortization: |
|
|
|
|
|
|
|
|
|
| |||
Tradename | Indefinite |
| $ | 6,700 |
|
| $ | — |
|
| $ | 6,700 |
|
|
|
| $ | 6,700 |
|
| $ | — |
|
| $ | 6,700 |
|
Finite-lived intangible assetsTechnology and technical know-how and Customer relationships are amortized in Selling, general and administrative expense on a straight-linestraight line basis over thetheir 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 expensewas $445 and $619 for each of the three-month periodsthree months ended December 31, 2017September 30, 2023 and 2016 was $45. Intangible2022, respectively, and $891 and $1,238 for the six months ended September 30, 2023 and 2022, respectively. The estimated annual amortization expense for each of the nine-month periods ended December 31, 2017 and 2016 was $135. As of December 31, 2017, amortization expenseby fiscal year 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:
10
|
| Annual Amortization |
| |
Remainder of 2024 |
| $ | 890 |
|
2025 |
|
| 1,318 |
|
2026 |
|
| 1,095 |
|
2027 |
|
| 1,095 |
|
2028 |
|
| 1,095 |
|
2029 and thereafter |
|
| 14,418 |
|
Total intangible amortization |
| $ | 19,911 |
|
|
|
|
|
NOTE 5 – EQUITY-BASED COMPENSATION:
Level 1 – Valuations based on quoted prices in active markets for identical assets of liabilities that the Company has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2 – Valuations determined from quoted prices for similar assets of liabilities in active markets, quoted prices for identical instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The Company estimated the fair value of intangible assets and goodwill of its commercial nuclear power business related to the December 2010 acquisition of Energy Steel & Supply Co. (“Energy Steel”) using the income approach. Under the income approach, the fair value of the business is calculated based on the present value of estimated future cash flows. Cash flow projections are based on management’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected cash flows. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy outlined above. The impairment review indicated that the fair value of the permits, tradename and goodwill of the business were substantially lower than the carrying value due to reduced investment from the U.S. nuclear power market, the strength of the Energy Steel brand relative to larger more vertically integrated suppliers, and the bankruptcy of Westinghouse Electric Company which resulted in the stoppage of work at the Summer, SC nuclear facility. As a result, in the third quarter of fiscal 2018 the Company recorded impairment losses of $8,600, $500, and $5,716 for permits, tradename and goodwill, respectively.
NOTE 6 – STOCK-BASED COMPENSATION:
The Amended and Restated 20002020 Graham Corporation Equity Incentive Plan, to Increase Shareholder Value, as approved by the Company’s stockholders at the Annual Meeting on July 28, 2016,amended (the "2020 Plan"), provides for the issuance of up to 1,375722 shares of common stock in connection with grants of incentive stock options, non-qualified stock options, restricted stock awardsunits and performancestock awards to officers, key employees and outside directors: provided, however,directors, including 112 shares that no more than 467 sharesbecame available under the 2020 Plan from the Company’s prior plan, the Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value (the "2000 Plan"). As of common stock may be used forAugust 11, 2020, the effective date of the 2020 Plan, no further awards other than stock options. Stock options maywill be granted at prices not less thanunder the fair market value at the date of grant and expire no later than ten years after the date of grant.2000 Plan.
No time vesting restricted stock awardsunits ("RSUs") or performance based restricted stock units ("PSUs") were granted in the three-month periodsthree months ended December 31, 2017September 30, 2023 and 2016. Restricted2022. The following restricted stock awards granted in the nine-month periods ended December 31, 2017 and 2016 were 59 and 82, respectively. Restricted shares of 30 and 43 granted to officers in fiscal 2018 and fiscal 2017, 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 22 and 31 granted to officers and key employees in fiscal 2018 and fiscal 2017, respectively, vest 33⅓% per year over a three-year term. Restricted shares of 7 and 8 granted to directors in fiscal 2018 and fiscal 2017, respectively, vest 100% on the first year anniversary of the grant date. No stock option awardsunits were granted in the three-month or nine-month periods ended December 31, 2017 and 2016 December 31, 2017 and 2016.
During the threesix months ended December 31, 2017September 30, 2023 and 2016,2022:
|
| Vest 100% on First |
|
| Vest One-Third Per Year |
|
| Vest 100% on Third |
|
|
| |||
|
| Anniversary (1) |
|
| Over Three-Year Term (1) |
|
| Anniversary (1) |
|
|
| |||
|
|
|
|
| Officers and |
|
| Officers and |
|
| Total Shares | |||
Six months ended September 30, |
| Directors |
|
| Key Employees |
|
| Key Employees |
|
| Awarded | |||
2023 |
|
|
|
|
|
|
|
|
|
|
| |||
Time Vesting RSUs |
| 38 |
|
| 40 |
|
|
| — |
|
| 78 | ||
Performance Vesting PSUs |
|
| — |
|
|
| — |
|
| 79 |
|
| 79 | |
2022 |
|
|
|
|
|
|
|
|
|
|
| |||
Time Vesting RSUs |
| 37 |
|
| 56 |
|
| 18 |
|
| 111 | |||
Performance Vesting PSUs |
|
| — |
|
|
| — |
|
| 112 |
|
| 112 |
(1)Subject to the Company recognized stock-based compensation costs related to stock option and restricted stock awardsterms of $213 and $200, respectively. The income tax benefit recognized related to stock-based compensation was $24 and $70 for the three months ended December 31, 2017 and 2016, respectively. During the nine months ended December 31, 2017 and 2016, the Company recognized stock-based compensation costs related to stock option and restricted stock awards of $362 and $427, respectively. The income tax benefit recognized related to stock-based compensation was $77 and $151 for the nine months ended December 31, 2017 and 2016, respectively.applicable award.
The Company has an Employee Stock Purchase Plan, as amended (the "ESPP"), which allows eligible employees to purchase shares of the Company's common stock at a discount of up to 15%15% of its fair market value on the (i) last, (ii) first or (iii) lower of the last or first day of the six-month offering period. AAs of September 30, 2023, a total of 200400 shares of common stock may be purchased under the ESPP. In each of the three months ended December 31, 2017 and 2016, the
The Company has recognized stock-basedequity-based compensation costs of $0 related to the ESPP 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, respectively, related to the ESPP and $0 and $2, respectively, of related tax benefits.as follows:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Restricted stock awards |
| $ | 77 |
|
| $ | 201 |
|
| $ | 164 |
|
| $ | 306 |
|
Restricted stock units |
|
| 249 |
|
|
| — |
|
|
| 445 |
|
|
| — |
|
Employee stock purchase plan |
|
| 6 |
|
|
| (3 | ) |
|
| 16 |
|
|
| 6 |
|
|
| $ | 332 |
|
| $ | 198 |
|
| $ | 625 |
|
| $ | 312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income tax benefit recognized |
| $ | 74 |
|
| $ | 43 |
|
| $ | 139 |
|
| $ | 68 |
|
10
NOTE 76 – INCOME (LOSS) INCOME PER SHARE:
Basic income (loss) income per share is computed by dividing net income (loss) income by the weighted average number of common shares outstanding for the period. Diluted income (loss) income per share is calculated by dividing net income (loss) income by the weighted average number
11
of common shares outstanding and, when applicable, potential common shares outstanding during the period. A reconciliation of the numerators and denominators of basic and diluted income (loss) income per share is presented below:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Basic (loss) income per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (11,622 | ) |
| $ | 1,840 |
|
| $ | (10,677 | ) |
| $ | 3,222 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
| 9,768 |
|
|
| 9,727 |
|
|
| 9,762 |
|
|
| 9,709 |
|
Basic (loss) income per share |
| $ | (1.19 | ) |
| $ | .19 |
|
| $ | (1.09 | ) |
| $ | .33 |
|
Diluted income per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (11,622 | ) |
| $ | 1,840 |
|
| $ | (10,677 | ) |
| $ | 3,222 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
| 9,768 |
|
|
| 9,727 |
|
|
| 9,762 |
|
|
| 9,709 |
|
Stock options outstanding |
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 5 |
|
Weighted average common and potential common shares outstanding |
|
| 9,768 |
|
|
| 9,733 |
|
|
| 9,762 |
|
|
| 9,714 |
|
Diluted (loss) income per share |
| $ | (1.19 | ) |
| $ | .19 |
|
| $ | (1.09 | ) |
| $ | .33 |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Basic income (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | 411 |
|
| $ | (196 | ) |
| $ | 3,051 |
|
| $ | 480 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares |
|
| 10,699 |
|
|
| 10,617 |
|
|
| 10,675 |
|
|
| 10,614 |
|
Basic income (loss) per share |
| $ | 0.04 |
|
| $ | (0.02 | ) |
| $ | 0.29 |
|
| $ | 0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted income (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | 411 |
|
| $ | (196 | ) |
| $ | 3,051 |
|
| $ | 480 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares |
|
| 10,699 |
|
|
| 10,617 |
|
|
| 10,675 |
|
|
| 10,614 |
|
Restricted stock units outstanding |
|
| 111 |
|
|
| — |
|
|
| 86 |
|
|
| 4 |
|
Weighted average common and |
|
| 10,810 |
|
|
| 10,617 |
|
|
| 10,761 |
|
|
| 10,618 |
|
Diluted income (loss) per share |
| $ | 0.04 |
|
| $ | (0.02 | ) |
| $ | 0.28 |
|
| $ | 0.05 |
|
None of the options to purchase shares of common stock which totaled 69 were included in the computation of diluted loss per share for the three and nine months ended December 31, 2017 as the effect would be anti-dilutive due to the net loss in the periods. Options to purchase a total of 16 shares of common stock were outstanding at December 31, 2016 but were not included in the above computation of diluted income per share in the three and nine-month periods ended December 31, 2016 given their exercise prices as they would not be dilutive upon issuance.
NOTE 87 – PRODUCT WARRANTY LIABILITY:
The reconciliation of the changes in the product warranty liability is as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| December 31, |
|
| December 31, |
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Balance at beginning of period |
| $ | 301 |
|
| $ | 582 |
|
| $ | 538 |
|
| $ | 686 |
|
| $ | 616 |
|
| $ | 496 |
|
| $ | 578 |
|
| $ | 441 |
|
Expense (income) for product warranties |
|
| 22 |
|
|
| (81 | ) |
|
| (59 | ) |
|
| 31 |
| ||||||||||||||||
Expense for product warranties |
|
| 112 |
|
|
| 13 |
|
|
| 203 |
|
|
| 90 |
| ||||||||||||||||
Product warranty claims paid |
|
| (22 | ) |
|
| (4 | ) |
|
| (178 | ) |
|
| (220 | ) |
|
| (90 | ) |
|
| (22 | ) |
|
| (143 | ) |
|
| (44 | ) |
Balance at end of period |
| $ | 301 |
|
| $ | 497 |
|
| $ | 301 |
|
| $ | 497 |
|
| $ | 638 |
|
| $ | 487 |
|
| $ | 638 |
|
| $ | 487 |
|
Income of $59 for product warranties in the nine months ended December 31, 2017 and the income of $81 in the three months ended December 31, 2016 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 "AccruedAccrued expenses and other current liabilities"liabilities in the Condensed Consolidated Balance Sheets.
11
NOTE 9 -8 – CASH FLOW STATEMENT:
Interest paid was $8 and $7 in the nine-month periods ended December 31, 2017 and 2016. Incomeincome taxes paid for the nine months ended December 31, 2017as well as non-cash investing and 2016 were $1,801 and $104, respectively.
In the nine months ended December 31, 2017 and 2016, non-cashfinancing 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 and 2016, respectively, there were $29 and $31 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.
NOTE 10 – EMPLOYEE BENEFIT PLANS:
The components of pension cost are as follows:
|
| For the Six Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Interest paid |
| $ | 507 |
|
| $ | 362 |
|
Income taxes paid |
|
| 337 |
|
|
| 151 |
|
Capital purchases recorded in accounts payable |
|
| 392 |
|
|
| 205 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Service cost |
| $ | 149 |
|
| $ | 151 |
|
| $ | 448 |
|
| $ | 451 |
|
Interest cost |
|
| 356 |
|
|
| 362 |
|
|
| 1,067 |
|
|
| 1,087 |
|
Expected return on assets |
|
| (743 | ) |
|
| (718 | ) |
|
| (2,232 | ) |
|
| (2,155 | ) |
Amortization of actuarial loss |
|
| 253 |
|
|
| 337 |
|
|
| 760 |
|
|
| 1,013 |
|
Net pension cost |
| $ | 15 |
|
| $ | 132 |
|
| $ | 43 |
|
| $ | 396 |
|
The Company made contributions to its defined benefit pension plan during the nine months ended December 31, 2017 of $52 and does not expect to make any contributions to the plan for the balance of fiscal 2018.
The components of the postretirement benefit cost are as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Interest cost |
| $ | 6 |
|
| $ | 5 |
|
| $ | 19 |
|
| $ | 19 |
|
Amortization of actuarial loss |
|
| 9 |
|
|
| 11 |
|
|
| 28 |
|
|
| 30 |
|
Net postretirement benefit cost |
| $ | 15 |
|
| $ | 16 |
|
| $ | 47 |
|
| $ | 49 |
|
The Company paid no benefits related to its postretirement benefit plan during the nine months ended December 31, 2017. The Company expects to pay benefits of approximately $83 for the balance of fiscal 2018.
The Company self-funds the medical insurance coverage it provides to its U.S. based employees. The Company maintains a stop loss insurance policy in order to limit its exposure to claims. The liability of $134 and $174 on December 31, 2017 and March 31, 2017, respectively, related to the self-insured medical plan is primarily based upon claim history and is included in the caption “Accrued compensation” as a current liability in the Condensed Consolidated Balance Sheets.
NOTE 119 – COMMITMENTS AND CONTINGENCIES:
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
12
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, 2023, 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.
12
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 previously entered into related party operating leases with Ascent Properties Group, LLC ("Ascent"), for two building lease agreements and two equipment lease agreements in Arvada, Colorado. In connection with such leases, the Company made fixed minimum lease payments to the lessor of $242 and $211 during the three months ended September 30, 2023 and 2022, respectively, and $466 and $422 during the six months ended September 30, 2023 and 2022, respectively. The Company is obligated to make payments of $486 during the remainder of fiscal 2024. Future fixed minimum lease payments under these leases as of September 30, 2023 are $6,271.
NOTE 1210 – INCOME TAXES:
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 20152019 through 20172022 and examination in state tax jurisdictions for the tax years 20132018 through 2017.2022. The Company is subject to examination in the People’s Republic of China for tax years 20142019 through 2016.2022 and in India for tax years 2019 through 2022.
There was no liability for unrecognized tax benefits at either December 31, 2017September 30, 2023 or March 31, 2017.2023.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act, which is effective on January 1, 2018, significantly revises the U.S. tax code by, among other changes, lowering the corporate income tax rate from 35% to 21%, requiring a one-time transition tax on accumulated foreign earnings of certain foreign subsidiaries that were previously tax deferred and creating new taxes on certain foreign sourced earnings. At December 31, 2017, the Company has not completed its accounting for the tax effects of the Tax Act; however, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax.
The Company remeasured certain U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%, and provisionally recorded an income tax benefit of $1,575 related to such remeasurement in the third quarter of fiscal 2018. The Company is still analyzing certain aspects of the Tax Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.
The one-time transition tax is based on the total post-1986 earnings and profits (“E&P”) of our foreign subsidiary that has previously been deferred from U.S. income taxes. The Company recorded a provisional amount for its one-time transition liability of its foreign subsidiary resulting in additional income tax expense of $137 in the third quarter of fiscal 2018. The Company has not yet completed its calculation of the total post-1986 foreign E&P for the foreign subsidiary. The transition tax is based in part on the amount of those earnings held in cash and other specified assets. The amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets.
NOTE 1311 – CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS:
The changes in accumulated other comprehensive loss by component for the ninesix months ended December 31, 2017September 30, 2023 and 20162022 are as follows:
|
| Pension and |
|
| Foreign |
|
| Total |
| |||
Balance at April 1, 2023 |
| $ | (7,470 | ) |
| $ | 7 |
|
| $ | (7,463 | ) |
Other comprehensive income before reclassifications |
|
| — |
|
|
| (310 | ) |
|
| (310 | ) |
Amounts reclassified from accumulated other comprehensive |
|
| 328 |
|
|
| — |
|
|
| 328 |
|
Net current-period other comprehensive income (loss) |
|
| 328 |
|
|
| (310 | ) |
|
| 18 |
|
Balance at September 30, 2023 |
| $ | (7,142 | ) |
| $ | (303 | ) |
| $ | (7,445 | ) |
|
| Pension and |
|
| Foreign |
|
| Total |
| |||
Balance at April 1, 2022 |
| $ | (6,970 | ) |
| $ | 499 |
|
| $ | (6,471 | ) |
Other comprehensive income before reclassifications |
|
| — |
|
|
| (680 | ) |
|
| (680 | ) |
Amounts reclassified from accumulated other comprehensive |
|
| 262 |
|
|
| — |
|
|
| 262 |
|
Net current-period other comprehensive income (loss) |
|
| 262 |
|
|
| (680 | ) |
| $ | (418 | ) |
Balance at September 30, 2022 |
| $ | (6,708 | ) |
| $ | (181 | ) |
| $ | (6,889 | ) |
13
|
| Pension and Other Postretirement Benefit Items |
|
| Foreign Currency Items |
|
| Total |
| |||
Balance at April 1, 2017 |
| $ | (8,439 | ) |
| $ | 5 |
|
| $ | (8,434 | ) |
Other comprehensive income before reclassifications |
|
| — |
|
|
| 216 |
|
|
| 216 |
|
Amounts reclassified from accumulated other comprehensive loss |
|
| 619 |
|
|
| — |
|
|
| 619 |
|
Net current-period other comprehensive income |
|
| 619 |
|
|
| 216 |
|
|
| 835 |
|
Balance at December 31, 2017 |
| $ | (7,820 | ) |
| $ | 221 |
|
| $ | (7,599 | ) |
|
| Pension and Other Postretirement Benefit Items |
|
| Foreign Currency Items |
|
| Total |
| |||
Balance at April 1, 2016 |
| $ | (10,932 | ) |
| $ | 256 |
|
| $ | (10,676 | ) |
Other comprehensive income before reclassifications |
|
| — |
|
|
| (283 | ) |
|
| (283 | ) |
Amounts reclassified from accumulated other comprehensive loss |
|
| 674 |
|
|
| — |
|
|
| 674 |
|
Net current-period other comprehensive income |
|
| 674 |
|
|
| (283 | ) |
|
| 391 |
|
Balance at December 31, 2016 |
| $ | (10,258 | ) |
| $ | (27 | ) |
| $ | (10,285 | ) |
The reclassifications out of accumulated other comprehensive loss by component for the three and ninesix months ended December 31, 2017September 30, 2023 and 20162022 are as follows:
Details about Accumulated Other |
| Amount Reclassified from |
|
|
| Affected Line Item in the Condensed | ||||||
|
| Three Months Ended |
|
|
|
| ||||||
|
| September 30, |
|
|
|
| ||||||
|
| 2023 |
|
|
| 2022 |
|
|
|
| ||
Pension and other postretirement benefit items: |
|
|
|
|
|
|
|
|
|
| ||
Amortization of actuarial loss |
| $ | 210 |
| (1) |
| $ | 168 |
| (1) |
| Income before benefit for income taxes |
Tax effect |
|
| 46 |
|
|
|
| 37 |
|
|
| Provision for income taxes |
|
| $ | 164 |
|
|
| $ | 131 |
|
|
| Net income |
Details about Accumulated Other |
| Amount Reclassified from |
|
|
| Affected Line Item in the Condensed | ||||||
|
| Six Months Ended |
|
|
|
| ||||||
|
| September 30, |
|
|
|
| ||||||
|
| 2023 |
|
|
| 2022 |
|
|
|
| ||
Pension and other postretirement benefit items: |
|
|
|
|
|
|
|
|
|
| ||
Amortization of actuarial loss |
| $ | 421 |
| (1) |
| $ | 336 |
| (1) |
| Income before benefit for income taxes |
Tax effect |
|
| 93 |
|
|
|
| 74 |
|
|
| Provision for income taxes |
|
| $ | 328 |
|
|
| $ | 262 |
|
|
| Net income |
Details about Accumulated Other Comprehensive Loss Components |
| Amount Reclassified from Accumulated Other Comprehensive Loss |
|
|
| Affected Line Item in the Condensed Consolidated Statements of Income and Retained Earnings | ||||||
|
| Three Months Ended |
|
|
|
| ||||||
|
| December 31, |
|
|
|
| ||||||
|
| 2017 |
|
|
| 2016 |
|
|
|
| ||
Pension and other postretirement benefit items: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss |
| $ | (262 | ) | (1) |
| $ | (348 | ) | (1) |
| Income before provision for income taxes |
|
|
| 17 |
|
|
|
| (123 | ) |
|
| Provision for income taxes |
|
| $ | (279 | ) |
|
| $ | (225 | ) |
|
| Net income |
NOTE 12 – DEBT:
On June 1, 2021, the Company entered into a $20,000five-year term loan with Bank of America (the "Term Loan"). The Term Loan required 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 was the applicable Bloomberg Short-Term Bank Yield Index ("BSBY"), plus 1.50%, subject to a 0.00% floor.
Details about Accumulated Other Comprehensive Loss Components |
| Amount Reclassified from Accumulated Other Comprehensive Loss |
|
|
| Affected Line Item in the Condensed Consolidated Statements of Income and Retained Earnings | ||||||
|
| Nine Months Ended |
|
|
|
| ||||||
|
| December 31, |
|
|
|
| ||||||
|
| 2017 |
|
|
| 2016 |
|
|
|
| ||
Pension and other postretirement benefit items: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss |
| $ | (788 | ) | (1) |
| $ | (1,043 | ) | (1) |
| Income before provision for income taxes |
|
|
| (169 | ) |
|
|
| (369 | ) |
|
| Provision for income taxes |
|
| $ | (619 | ) |
|
| $ | (674 | ) |
|
| Net income |
|
|
NOTE 14 – RESTRUCTURING CHARGE:
In eachAs of March 31, 2023 and September 30, 2023, long term debt was comprised of the second quarterfollowing:
|
| September 30, |
|
| March 31, |
| ||
|
| 2023 |
|
| 2023 |
| ||
Bank of America term loan |
| $ | 11,500 |
|
| $ | 12,500 |
|
Less: unamortized debt issuance costs |
|
| (637 | ) |
|
| (756 | ) |
|
|
| 10,863 |
|
|
| 11,744 |
|
Less: current portion |
|
| 2,000 |
|
|
| 2,000 |
|
Total |
| $ | 8,863 |
|
| $ | 9,744 |
|
As of fiscal 2018September 30, 2023, future minimum payments required were as follows:
Remainder of 2024 |
| $ | 1,000 |
|
2025 |
|
| 2,000 |
|
2026 |
|
| 2,000 |
|
2027 |
|
| 6,500 |
|
2028 and thereafter |
|
| — |
|
Total |
| $ | 11,500 |
|
On June 1, 2021, the Company entered into a five-year revolving credit facility with Bank of America (the "Revolving Credit Facility") that provided a $30,000 line of credit, including letters of credit and bank guarantees, expandable at the Company's option and the first halfbank's approval at any time up to $40,000. As of fiscal 2017, the Company’s workforce was aligned with market conditions by reducing the number of management, office 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 charges are included in the caption “Restructuring Charge” in the Condensed Consolidated Statements of Income and Retained Earnings. The reconciliation of the changes in the restructuring reserve is as follows:
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||
|
| December 31, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Balance at beginning of period |
| $ | 120 |
|
| $ | 74 |
|
Expense for restructuring |
|
| 316 |
|
|
| 630 |
|
Amounts paid for restructuring |
|
| (336 | ) |
|
| (549 | ) |
Balance at end of period |
| $ | 100 |
|
| $ | 155 |
|
14
The liability of $100 and $120 at December 31, 2017September 30, 2023 and March 31, 2017 respectively, is included2023, there was $0 outstanding on the Revolving Credit Facility. Amounts outstanding under the Revolving Credit Facility bore interest at a rate equal to BSBY plus 1.50%, subject to a 0.00% floor. As of September 30, 2023, the BSBY rate was 5.3718%. Outstanding letters of credit under this agreement
14
were subject to a fee of 1.50% per annum of the outstanding undrawn amount of each letter of credit not secured by cash and 0.60% of each letter of credit secured by cash. Amounts available for borrowing under the Revolving Credit Facility were subject to an unused commitment fee of 0.25%. As of September 30, 2023, there was $3,711 letters of credit outstanding with Bank of America.
Under the Term Loan and Revolving Credit Facility, as amended (the "Credit Facility"), the Company covenanted to maintain a maximum total leverage ratio, as defined in the caption “Accrued Compensation”Credit Facility, of 3.0 to 1.0, with an allowable increase to 3.25 to 1.0 following an acquisition for a period of twelve months following the closing of the acquisition. In addition, the Company covenanted to maintain a minimum fixed charge coverage ratio, as defined in the Condensed Consolidated Balance Sheets. Credit Facility, 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. The Company also covenanted to maintain liquidity, as defined in the Credit Facility, of at least $20,000. As of September 30, 2023, the Company was in compliance with the financial covenants of the Credit Facility. At September 30, 2023, the amount available under the Revolving Credit Facility was $27,613, subject to the above liquidity and leverage covenants.
In connection with the amendments to the Credit Facility, the Company was charged a back-end fee of $725 to Bank of America payable upon the earliest to occur of (i) any default or event of default, (ii) the last date of availability under the Revolving Credit Facility, and (iii) repayment in full of all principal, interest, fees and other obligations, which may be waived or cancelled if certain criteria are met.
NOTE 15 – ACCOUNTING AND REPORTING CHANGES:
InThe Company has a letter of credit facility agreement with HSBC Bank USA, N.A. of $7,500 (the "Letter of Credit Facility"). Under the normal courseLetter of business, management evaluates all new accounting pronouncements issuedCredit Facility, 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 at a rate of 3% plus the bank's prime rate. The Company's obligations under the Letter of Credit Facility are secured by cash held with the bank. As of September 30, 2023, there was $6,577 letters of credit outstanding with HSBC and availability under the Letter of Credit Facility was $923. The agreement is subject to an annual renewal by the Financial Accounting Standards Board (“FASB”)bank on July 31 of each year.
Total letters of credit outstanding as of September 30, and March 31, 2023 were $10,621 and $12,842, respectively.
SUBSEQUENT EVENT
On October 13, 2023, the SecuritiesCompany terminated the Revolving Credit Facility, repaid the Term Loan and Exchange Commission,entered into a new five-year revolving credit facility with Wells Fargo Bank, National Association ("Wells Fargo") that provides a $35,000 line of credit, including letters of credit and bank guarantees, expandable up to $50,000 upon the Emerging Issues Task Force,Company satisfying specified covenants (the "New Revolving Credit Facility"). The additional $15,000 will automatically be available upon (a) the American InstituteCompany achieving a minimum consolidated EBITDA, as defined in the agreement, of Certified Public Accountants or any other authoritative accounting bodies$15,000, computed on a trailing twelve month basis, for three consecutive quarters and (b) a minimum liquidity (consisting of cash and borrowing availability under the New Revolving Credit Facility) for the Company of at least $7,500. In addition to determine the potential impact they$25,000 letters of credit available to be issued pursuant to the New Revolving Credit Facility, the Company may have onrequest the Company's consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers." This guidance establishes principles for reporting information about the nature, amount, timing and uncertaintyissuance 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 transfersecured letters of promised goods or services to customerscredit in an aggregate amount that reflectsof up to $7,500.
The New Revolving Credit Facility contains customary terms and conditions, including representations and warranties and affirmative and negative covenants, as well as financial covenants for the considerationbenefit of Wells Fargo, which require the Company to which the company expectsmaintain (i) a consolidated total leverage ratio not to be entitledexceed 3.50:1.00 and (ii) a consolidated fixed charge coverage ratio of at least 1.20:1.00, in exchange for those goods and services. 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 presentedboth cases computed in accordance with the new standarddefinitions and (2)requirements specified in the New Revolving Credit Facility.
Borrowings under the New Revolving Credit Facility bear interest at a modified retrospective approach whererate equal to, at the guidance is appliedCompany’s option, either (i) a forward-looking term rate based on the secured overnight financing rate ("SOFR") for the applicable interest period, subject to a floor of 0.0% per annum or (ii) a base rate determined by reference to the most current period presentedhighest of (a) the rate of interest per annum publicly announced by the Lender as its prime rate, (b) the federal funds rate plus 0.50% per annum and (c) one-month term SOFR plus 1.00% per annum, subject to a floor of 1.00% per annum, plus, in each case, an applicable margin. The applicable margins range between (i) 1.25% per annum and 2.50% per annum in the financial statements. In August 2015,case of any term SOFR loan and (ii) 0.25% per annum and 1.50% per annum in the FASB issued ASU No 2015-14 "Revenue from Contracts with Customers: Deferralcase of any base rate loan, in each case based upon the Company’s then-current consolidated total leverage ratio; provided, however, for a period of one year following the closing date, the applicable margin shall be set at 1.25% per annum in the case of any term SOFR loan and 0.25% per annum in the case of any base rate loan.
The Company will incur a quarterly commitment fee on the unused portion of the Effective Date,"New Revolving Credit Facility during the applicable quarter at a per annum rate also determined by reference to the Company’s then-current consolidated total leverage ratio, which deferredfee ranges between 0.10% per annum and 0.20% per annum; provided, however, for a period of one year following the effectiveclosing date, the quarterly commitment fee will be set at 0.10% per annum. Any outstanding letters of ASU 2014-09credit that are cash secured will bear a fee equal to annual reporting periods beginning after December the daily amount available to be drawn under such letters of credit multiplied by 0.65% per annum. Any outstanding letters
15 2017,
of credit issued under the New Revolving Credit Facility will bear a fee equal to the daily amount drawn under such letters of credit multiplied by the applicable margin for term SOFR loans.
In connection 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 impacttermination of the guidance onRevolving Credit Facility, the Company repaid the $725 exit fee and recognized an extinguishment charge of approximately $650 from 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 interim periods within those fiscal years. 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 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.lending agreement amendments.
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.16
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.
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.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollar(Dollar and share amounts in thousands, except per share data)
Overview
We are a global business that designs, manufacturesleader in the design and sellsmanufacture of mission critical equipmentfluid, power, heat transfer and vacuum technologies for the defense, space, energy defense and chemical/petrochemicalprocess industries. Our energy markets include oil refining, cogeneration, nuclearWe design and alternative power.manufacture custom-engineered vacuum, heat transfer, pump and turbomachinery technologies. For the defense industry, our equipment is used in nuclear and non-nuclear propulsion, power, fluid transfer, and thermal management systems. For the space industry our equipment is used in propulsion, power and energy management systems and for the U.S. Navy.life support systems. We supply equipment for vacuum, heat transfer and fluid transfer applications used in energy and new energy markets including oil refining, cogeneration, and multiple alternative and clean power applications including hydrogen. For the chemical and petrochemical industries, our heat transfer equipment is used in fertilizer, ethylene, methanol and downstream chemical facilities.
Graham’s global brand isOur brands are built upon world-renowned engineering expertise and close customer collaboration to design, develop, and 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 life are values upon which our brands are built.
Our corporate headquarters is located with our production facilities in vacuum and heat transfer technology, responsive and flexible service and high quality standards. We design and manufacture custom-engineered ejectors, vacuum pumping systems,Batavia, New York, where surface condensers and vacuum systems. Weejectors are also a leading nuclear code accredited fabricationdesigned, engineered, and specialty machining company. We supply components used inside reactor vessels and outside containment vessels of nuclear power facilities.manufactured. 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.
Our corporate headquarters are located in Batavia, New York. We have production facilities co-located with our headquarters in Batavia and also at our wholly-owned subsidiary, Energy Steel & Supply Co.Barber-Nichols, LLC ("Energy Steel"BN"), locatedbased in Lapeer, Michigan.Arvada, Colorado, designs, develops, manufactures and sells specialty turbomachinery products for the space, aerospace, cryogenic, defense and energy markets. 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 Republic of China and management oversight throughout Southeast Asia. GIPL serves as a sales and market development office focusing on the refining, petrochemical, edible oils, and fertilizer markets in India and the Middle East.
Our currentWe refer to our fiscal year, (whichwhich ends March 31, 2024, as fiscal 2024. Likewise, we refer to as “fiscal 2018”) endsour fiscal year that ended March 31, 2018.2023 and March 31, 2022 as fiscal 2023 and fiscal 2022, respectively.
HighlightsSummary
Highlights for the three and nine months ended December 31, 2017September 30, 2023 include:
Net sales for the thirdsecond quarter of fiscal 20182024 were $17,281, down 24%$45,076, up $6,933, or 18% compared with $22,654$38,143 for the thirdsecond quarter of fiscal 2023. This increase over the fiscalprior year ended March 31, 2017 (we referwas primarily due to sales to the fiscaldefense industry, which increased $10,263 versus the prior year ended March 31, 2017 as "fiscal 2017").period primarily due to an improved mix of higher margin defense projects, increased direct labor, better execution, the timing of material receipts, and improved pricing. Net sales for the first nine months of fiscal 2018 were $55,356, down 16% compared with netquarter also benefited from continued growth in commercial aftermarket sales of $66,145 for the first nine months of fiscal 2017.
Net (loss) and (loss) per diluted share for the third quarter of fiscal 2018 were ($11,622) and ($1.19), respectively. Excluding the non-cash impairment and other charges relatedapproximately $4,500 in comparison to the commercial nuclear power businessprior year period, which is included in our refining and chemical/petrochemical markets. Partially offsetting this increase were a $1,439 decline in chemical/petrochemical and a $1,531 decline in space sales primarily due to the timing of projects, as well as the impactloss of Virgin Orbit Holdings, Inc. ("Virgin Orbit") as a customer in April 2023 due to its Chapter 11 bankruptcy.
In the second quarter of fiscal year 2024, we shipped the last of the first article units related to the Columbia Class submarine and Ford Class carrier programs. While we expect to continue to have first article programs in our backlog as we win new programs and applications, the amount as a percentage of total backlog should be reduced moving forward. During fiscal 2022, we chose to make significant investments to ensure we could deliver these and previous units on schedule and these investments were the main source of the losses incurred that year.
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Backlog was $96,246 at December 31, 2017, compared with $72,981$313,343 at September 30, 2017 and $82,5902023, compared with $301,734 at March 31, 2017.
Gross profit marginCash and cash equivalents at September 30, 2023 were $25,800, compared with $18,257 at March 31, 2023. This increase was primarily due to cash provided by operating margin foractivities of $11,898, partially offset by net repayment of debt of $1,020 and $3,312 of capital expenditures as we continue to invest in longer-term growth opportunities. Cash flow from operations was primarily driven by cash net income and an increase in customer deposits from major defense customers.
Cash and short-term investments at December 31, 2017 were $74,182, compared with $72,102 on September 30, 2017 and $73,474 at March 31, 2017.
Cautionary Note Regarding Forward-Looking Statements
This report on Form 10-Q (the "Form 10-Q") and other documents we file with the Securities and Exchange Commission ("SEC") include “forward-looking statements”forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements other than statements of historical fact are forward-looking statements for purposes of this Form 10-K. 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. SuchForward-looking statements are indicated by words such as "anticipate," "believe," "continue," "could," "estimate," "can," "may," "intend," "expect," "plan," "goal," "predict," "project," "outlook," "potential," "should," "will," and similar words and expressions.
Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors include,that could cause our actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements including, but are not limited to, those described in the risks and uncertainties identified by us under the heading "Risk Factors" section in Item 1A of our Annual Report on Form 10-K for fiscal 2017.
Forward-looking statements may also include, but are not limited to, statements about:
2023 and elsewhere in the current and future economic environments affecting us andreports we file with the markets we serve;
expectations regarding investments in new projects by our customers;
•sources of revenue and anticipated revenue, including the contribution from anticipated growth;
•expectations regarding achievement of revenue and profitability expectations;
•plans for future products and services and for enhancements to existing products and services;
our operations in foreign countries;
political instability in regions in which our customers are located;
our ability to implement our growth and acquisition strategy;
our ability to maintain existing nuclear power work or expand nuclear power work into new markets;
our ability to maintain or expand nuclear power work for the U.S. Navy;
our ability to successfully execute our existing contracts;
estimates regarding our liquidity and capital requirements;
timing of conversion of backlog to sales;
our ability to attract or retain customers;
the outcome of any existing or future litigation; and
our ability to increase our productivity and capacity.
Forward-looking statements are usually accompanied by words such as "anticipate," "believe," "estimate," "may," "might," "intend," "interest," "appear," "expect," "suggest," "plan," "encourage," "potential", "view" and similar expressions. Actual results could differ materially from historical results or those implied by the forward-looking statements contained in this report.
SEC. Undue reliance should not be placed on our forward-looking statements. New risks and uncertainties arise from time to time and we cannot predict these events or how they may affect us and cause actual results to differ materially from those expressed or implied by our forward-looking statements. Therefore, you should not rely on our forward-looking statements as predictions of future events. When considering these risks, uncertainties and assumptions, you should keep in mind the cautionary statements contained in this report and any documents incorporated herein by reference. You should read this document and the documents that we reference in this Quarterly Report on Form 10-Q (the "Form 10-Q") completely and with the understanding that our actual future results may be materially different from what we expect. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
All forward-looking statements included in this Form 10-Q are made only as of the date indicated or as of the date of this Form 10-Q. Except as required by law, we undertake no obligation to update or announce any revisions to forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.
Current Market Conditions
AsDemand for our equipment and systems for the defense industry is expected to remain strong and continue to expand, based on defense budget plans, accelerated ship build schedules due to geopolitical tensions, the projected build schedule of submarines, aircraft carriers and undersea propulsion and power systems and the solutions we provide. In addition to U.S. Navy applications, we also provide specialty pumps, turbines, compressors and controllers for various fluid and thermal management systems used in Department of Defense radar, laser, electronics and power systems. We have built a resultleading position, and in some instances, a sole source position, for certain systems and equipment for the defense industry.
Our traditional energy markets are undergoing significant transition. While we expect that fossil fuels will continue to be an important component in the global energy industry for many years to come, there are significant changes in the priorities for capital investments by our customers and the regions in which those investments are being made. We expect that the systemic changes in the energy markets, which are influenced by the increasing use by consumers of volatilityalternative fuels, will lead to demand growth for fossil-based fuels that is less than the global growth rate. The timing and catalyst for a recovery in crude oil and natural gas prices, andthis market remains uncertain. Accordingly,
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we believe that in the near term price uncertainty,the quantity of projects available for us to compete for will remain low and that new project pricing will remain challenging.
Of note, over the last few years we have experienced an increase in our global energy marketsand chemical aftermarket orders, primarily from the domestic market. Aftermarket orders have historically been in a contracted state for the past three years. In response to the market conditions,leading indicator of future capital investment by our customers in their facilities for upgrades and expansions. However, if a capital investment upturn were to occur, we do not expect the downstreamnext cycle to be as robust as years past due to the factors discussed above.
The alternative and clean energy sector have sharply reducedopportunities for our heat transfer, power production and fluid transfer systems are expected to continue to grow. We assist in designing, developing and producing equipment for hydrogen production, distribution and fueling systems, concentrated solar power and storage, small modular nuclear systems and geothermal power generation with lithium extraction. We are positioning the Company to be a more significant contributor as these markets continue to develop.
We believe that chemical and petrochemical capital spendinginvestment 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 and related products. As such, we expect investment in eachnew global chemical and petrochemical capacity will improve and drive growth in demand for our products and services.
Our turbomachinery, pumps and cryogenic products and market access provide revenue and growth potential in the commercial space/aerospace markets. The commercial space market has grown and evolved rapidly, and we provide rocket engine turbo pump systems and components for many of the last three years. This impacted not only new capacity, butlaunch providers for satellites. 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. We are also revampingparticipating in future aerospace power and turnaroundpropulsion system development through supply of fluid and thermal management systems components. Small power dense systems are imperative for routine maintenance. Oil pricesthese applications and we believe our technology and expertise will enable us to achieve sales growth in this market as well. Sales and orders to the space industry are variable in nature and many of our customers, who are key players in the industry, have risenyet to achieve profitability and may be unable to continue operations without additional funding, similar to what occurred to Virgin Orbit. Thus, future revenue and growth in this market can be uncertain and may negatively impact our business.
As illustrated below, we have succeeded over the past six months from $45last several years with our strategy to over $60 per barrel. As a result, certain projects whereincrease our equipment is utilized have begun to proceed, however, it is not clear whether a sustained capital spending recoveryparticipation in the defense market as opportunities in our 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
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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 thelegacy refining and petrochemical markets is that fundamentals will drive increasing demand. These fundamentals include rising populations, strong emergingdiminished. The defense market economic growth, and overall global economic expansion, which we believe will result in capital investment necessary to satisfy increasing global energy demand.
Our naval nuclear propulsion market has demand tied to aircraft carrier and submarine vessel construction schedules of the primary shipyards who service the U.S. Navy. We expect growth in our naval nuclear propulsion business based on our strategic 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 are expected to remain volatile from quarter to quarter.
The chart below shows the impactcomprised 80% of our diversification strategy. Nearly 60% of ourtotal backlog as of December 31, 2017 is from markets not served by us in the Fiscal 2007-2009 time frame.at September 30, 2023.
Backlog Mix Illustrating Impact of Diversification Strategies
Backlog ($ million) at FYE*
*Fiscal*Note: "FYE" refers to fiscal year ended March 31
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Results of Operations
To better understand the significant factors that influenced our performance during the periods presented, the following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the notes to our Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.
The following table summarizes our results of operations for the periods indicated:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net sales |
| $ | 45,076 |
|
| $ | 38,143 |
|
| $ | 92,645 |
|
| $ | 74,218 |
|
Gross profit |
| $ | 7,191 |
|
| $ | 5,280 |
|
| $ | 18,168 |
|
| $ | 12,024 |
|
Gross profit margin |
|
| 16 | % |
|
| 14 | % |
|
| 20 | % |
|
| 16 | % |
SG&A expenses (1) |
| $ | 6,388 |
|
| $ | 5,332 |
|
| $ | 13,681 |
|
| $ | 11,091 |
|
SG&A as a percent of sales |
|
| 14 | % |
|
| 14 | % |
|
| 15 | % |
|
| 15 | % |
Net income (loss) |
| $ | 411 |
|
| $ | (196 | ) |
| $ | 3,051 |
|
| $ | 480 |
|
Income (loss) per diluted share |
| $ | 0.04 |
|
| $ | (0.02 | ) |
| $ | 0.28 |
|
| $ | 0.05 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net sales |
| $ | 17,281 |
|
| $ | 22,654 |
|
| $ | 55,356 |
|
| $ | 66,145 |
|
Gross profit |
| $ | 3,585 |
|
| $ | 6,301 |
|
| $ | 12,281 |
|
| $ | 15,422 |
|
Gross profit margin |
|
| 21 | % |
|
| 28 | % |
|
| 22 | % |
|
| 23 | % |
SG&A expense (1) |
| $ | 4,066 |
|
| $ | 3,804 |
|
| $ | 11,447 |
|
| $ | 10,637 |
|
SG&A as a percent of sales |
|
| 24 | % |
|
| 17 | % |
|
| 21 | % |
|
| 16 | % |
Net (loss) income |
| $ | (11,622 | ) |
| $ | 1,840 |
|
| $ | (10,677 | ) |
| $ | 3,222 |
|
Diluted (loss) income per share |
| $ | (1.19 | ) |
| $ | 0.19 |
|
| $ | (1.09 | ) |
| $ | 0.33 |
|
Total assets |
| $ | 138,623 |
|
| $ | 148,328 |
|
| $ | 138,623 |
|
| $ | 148,328 |
|
Total assets excluding cash, cash equivalents and investments |
| $ | 64,441 |
|
| $ | 75,651 |
|
| $ | 64,441 |
|
| $ | 75,651 |
|
|
|
The Thirdfollowing tables provide our net sales by product line and geographic region including the percentage of total and change in comparison to the prior year for each category and period presented:
The Second Quarter and First NineSix Months of Fiscal 20182024 Compared Withwith the ThirdSecond Quarter and First NineSix Months
of Fiscal 20172023
SalesNet sales for the thirdsecond quarter of fiscal 20182024 were $17,281, a 24% decrease as$45,076, up $6,933, or 18% compared with sales of $22,654$38,143 for the thirdsecond quarter of fiscal 2017. Our domestic2023. This increase over the prior year was primarily due to sales to the defense industry, which increased $10,263 versus the prior year period primarily due to an improved mix of higher margin defense projects, increased direct labor, better execution, the timing of material receipts, and improved pricing. Net sales for the quarter also benefited from continued growth in commercial aftermarket of approximately $4,500 in comparison to the prior year period, which is included in our refining and chemical/petrochemical markets. Partially offsetting this increase were a $1,439 decline in chemical/petrochemical sales and a $1,531 decline in space sales primarily due to the timing of projects, as well as the loss of Virgin Orbit as a customer in April 2023 due to its Chapter 11 bankruptcy.
Domestic sales as a percentage of aggregate product sales were 65%86% in the thirdsecond quarter of fiscal 20182024 compared with 77%80% in the thirdsecond quarter of fiscal 2017. Domestic sales year-over-year decreased $6,160, or 35%. International sales increased $787, or 15%,2023, reflecting the increase in the third quarter of fiscal 2018 compared with the third quarter of fiscal 2017.our defense industry businesses, which is U.S. based. Sales in the three months ended December 31, 2017September 30, 2023 were 31%56% to the refiningdefense industry 24%compared to 39% for the chemical and petrochemical industries, 10% to the power industry, including the nuclear market, and 35% to other commercial and industrial applications, including the U.S. Navy. Salescomparable quarter in the three months ended December 31, 2016 were 28% to the refining industry, 19% to the chemical and petrochemical industries, 19% to the power industry, including the nuclear market, and 34% to other commercial and industrial applications, including the U.S. Navy. Fluctuationsfiscal 2023. Fluctuation in sales among markets, products and geographic locations can vary measurablyvaries, sometimes significantly, from quarter-to-quarter based on timing and magnitude of projects.projects but overall reflects our strategic shift towards the defense industry.
Net sales for the first six months of fiscal 2024 were $92,645, an increase of $18,427 or 25% from the first six months of fiscal 2023 and were primarily in the defense market. Additionally, our sales continued to benefit from our diversified revenue base including strong growth of approximately $7,625 in commercial aftermarket sales which is included in our refining and chemical/petrochemical markets. Partially offsetting this increase was a $3,171 decline in space sales primarily due to the timing of projects, as well as the loss of Virgin Orbit as a customer in April 2023 due to its Chapter 11 bankruptcy. Sales in the six months ended September 30, 2023 were
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52% for the defense industry compared with 33% for the defense industry in the comparable period in fiscal 2023 and reflects our strategic shift towards the defense industry. See also "Current Market Conditions," above. For additional information on anticipated future sales and our markets, see "Orders and Backlog" below.
Sales for the first nine months of fiscal 2018 were $55,356, a decrease of $10,789, or 16% compared with sales of $66,145 for the first nine months of fiscal 2017. The decrease in fiscal 2018 year-to-date sales was due to weaker domestic sales. Our domestic sales, as a percentage of aggregate product sales, were 67% in the first nine months of fiscal 2018 compared with 74% in the same period in fiscal 2017. Domestic sales decreased $11,900, or 24%, while international sales increased by $1,111, or 7%. International sales accounted for 33% and 26% of total sales for the first nine months of fiscal 2018 and fiscal 2017, respectively. Sales in the first nine months of fiscal 2018 were 25% to the refining industry, 30% to the chemical and petrochemical industries, 14% to the power industry, including the nuclear market, and 31% to other commercial and industrial applications, including the U.S. Navy. Sales in the first nine months of fiscal 2017 were 31% to the refining industry, 22% to the chemical and petrochemical industries, 23% to the power industry, including the nuclear market, and 24% to other commercial and industrial applications, including the U.S. Navy.
Our grossGross profit margin for the thirdsecond quarter of fiscal 20182024 was 21%16%, compared with 28%14% for the thirdsecond quarter of fiscal 2017.2023. Gross profit for the thirdsecond quarter of fiscal 2018 decreased 43%2024 increased $1,911, or 36%, compared with fiscal 2017,2023, to $3,585 from $6,301. Gross profit was impacted by lower$7,191. These increases reflected the increase in sales and margins were impacted by a weakerdiscussed above as well as an improved mix of projectssales related to higher margin defense and less cost absorption.commercial aftermarket, as well as better execution and pricing on defense contracts, partially offset by higher incentive compensation in comparison with the prior year.
Our grossGross profit margin for the first ninesix months of fiscal 20182024 was 22%20%, compared with 23%16% for the first ninesix months of fiscal 2017.2023. Gross profit for the first ninesix months of fiscal 2018 decreased 20%2024 increased $6,144 compared with fiscal 2017,2023, to $12,281 from $15,422.$18,168. These increases reflected the increase in sales discussed above as well as an improved mix of sales related to higher margin defense and commercial aftermarket sales, as well as better execution and pricing on defense contracts, partially offset by higher incentive compensation in comparison with the prior year.
SG&A expense including amortization for the second quarter of fiscal 2024 was $6,388 compared to $5,332 for the second quarter of fiscal 2023. Approximately $800 of this increase was due to the BN Performance Bonus. The decreaseremainder of the increase in gross profitSG&A expense primarily relates to cost increases due to inflation, as well as increased professional services of approximately $200 due to increasing complexity in our business associated with growth and our international operations. As a percentage of net sales, SG&A expense in the second quarter of fiscal 2024 remained consistent at 14% compared with the same period of fiscal 2023.
SG&A expense including amortization for the first six months of fiscal 2024 was $13,681, up $2,590 compared with $11,091 for the first six months of fiscal 2023. Approximately $1,600 of this increase was due to the BN Performance Bonus. The remainder of the increase in SG&A expense primarily relates to cost increases due to inflation, as well as increased professional services of approximately $350 due to increasing complexity in our business associated with growth and our international operations. As a percentage of net sales, SG&A expense in the first six months of fiscal 2024 remained consistent at 15% compared with the same period of fiscal 2023.
Net interest expense for the second quarter of fiscal 2024 was $55 compared to $246 in the second quarter of fiscal 2023. This decrease was due to lower volume.
SG&A expenses as a percent of sales fornet debt levels, partially offset by an increase in interest rates since the three and nine-month periods ended December 31, 2017 were 24% and 21%, respectively. SG&A expenses in the thirdsecond quarter of fiscal 2018 were $4,066,2023.
Net interest expense for the first six months of fiscal 2024 was $240 compared to $403 in the first six months of fiscal 2023. This decrease was due to lower net debt levels, partially offset by an increase of $262, or 7%, compared within interest rates since the thirdsecond quarter of fiscal 2017 SG&A expenses of $3,804, due to bad debts in the commercial nuclear power market. Excluding the commercial nuclear power market bad debts, SG&A expenses were $3,832, or 22% of sales in the third quarter of fiscal 2018. SG&A expenses in the first nine months of fiscal 2018 were $11,447, an increase of $810, or 8%, compared with the first nine months of fiscal 2017 SG&A expenses of $10,637. This increase was principally related to the benefit 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.2023.
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During the third quarter of fiscal 2018, we performed our annual goodwill and intangible asset impairment review. We estimated the fair value of intangible assets and goodwill of our commercial nuclear power business related to the December 2010 acquisition of Energy Steel & Supply Co. (“Energy Steel”). The impairment review indicated that the fair value of the permits, tradename and goodwill of the business were substantially lower than the carrying value due to reduced investment from the U.S. nuclear power market, the strength of the Energy Steel brand relative to larger more vertically integrated suppliers, and the bankruptcy of Westinghouse which resulted in the stoppage of work at the Summer, SC nuclear facility. As a result, in the third quarter of fiscal 2018 we recorded impairment losses of $8,600, $500, and $5,716 for permits, tradename and goodwill, respectively. The total impairment charge was $14,816 before taxes and $12,852 after taxes. Additionally, we incurred a $46 revenue reversal, and a $234 bad debt charge, related to the bankruptcy of Westinghouse and the stoppage of work at the Summer, SC nuclear facility. The total before and after tax cost of these two charges was $280 and $208, respectively. Additionally, we recognized a gain of $1,416 related to the revaluation of deferred tax liabilities, which were impacted by the reduction in federal income tax rates from the Tax Act. The deferred tax gain of $1,438 included $2,034 for adjusting the rates on the deferred tax liability of the Energy Steel acquisition offset by a charge of $596 for other tax items.
Prior to the third quarter, in the first half of fiscal 2018, we incurred a pre-tax restructuring charge of $316 ($224 after tax) for severance costs related to certain headcount reductions. In the first half of fiscal 2017, we incurred a pre-tax restructuring charge of fiscal 2017 was $630 ($441 after tax) related to certain headcount reductions. The reduction in headcount in the first half of fiscal 2018 was approximately 6% of our global workforce. The annual savings from these reductions is expected to be $1,500. Approximately half of the savings should be realized in fiscal 2018.
Interest income for the three and nine-month periods ended December 31, 2017 was $142 and $455, respectively, compared with $100 and $272, respectively, for the same periods ended December 31, 2016. Interest expense for the three and nine-month periods ended December 31, 2017 was $3 and $8, respectively, compared with $3 and $7, respectively, for the same periods ended December 31, 2016.
The reduction in the year-to-dateOur effective tax rate from 28% in the second quarter to 23%of fiscal 2024 was 37%, compared with 17% in the thirdsecond quarter as well as inof fiscal 2023. Our effective tax rate for the first ninesix months of fiscal 20182024 was due primarily to adjustments related to the Tax Act. The effective tax rates for the comparable three and nine month periods of fiscal 2017 were 29% and 27%, respectively.
Net (loss) income and (loss) income per diluted share for the third quarter of fiscal 2018 were ($11,622) and ($1.19)25%, compared with $1,840 and $0.19, respectively,27% for the third quarterfirst six months of fiscal 2017. Excluding impairment and other related charges for2023. Our effective tax rate can vary significantly from period to period depending on the level of pre-tax income, the amount of income derived from our commercial nuclear businesshigher tax rate foreign subsidiaries, as well as the gain from implementationtiming of discrete tax items, primarily related to the vesting of restricted stock awards. For fiscal 2024 we expect our full year effective tax rate to be 22% to 23%.
The net result of the Tax Act,above is that net income and income per diluted share for the thirdsecond quarter of fiscal 20182024 were ($1)$411 and $0.00,$0.04, respectively, compared with a loss of $196 and were $1,840 and $0.19 in$0.02, respectively, for the thirdsecond quarter of fiscal 2017. Net (loss)2023. Adjusted net income and (loss)adjusted net income per diluted share for the first nine monthssecond quarter of fiscal 20182024 were ($10,677)$1,371 and ($1.09),$0.13, respectively, compared with net income of $3,222$325 and income per diluted share of $0.33$0.03, respectively, for the first nine monthssecond quarter of fiscal 2017. Excluding the items noted above as well as restructuring charges in each year, net2023.
Net income and income per diluted share for the first ninesix months of fiscal 20182024 were $1,168$3,051 and $0.12,$0.28, respectively, compared with net income of $480 and were $3,663 and $0.38 in$0.05, respectively, for the first ninesix months of fiscal 2017.2023. Adjusted net income and adjusted net income per diluted share for the first six months of fiscal 2024 were $4,945 and $0.46, respectively, compared with net income of $1,654 and $0.16, respectively, for the first six months of fiscal 2023. See "Non-GAAP Measures" below for a reconciliation of adjusted net income and adjusted net income per diluted share to the comparable GAAP amount.
Non-GAAP Measures
Adjusted earnings before net interest expense, income taxes, depreciation and amortization ("EBITDA"), adjusted net income, and adjusted net income per diluted share are provided for information purposes only and are not measures of financial performance under accounting principles generally accepted in the U.S. ("GAAP"). Management believes the presentation of these financial measures reflecting non-GAAP adjustments provides important supplemental information to investors and other users of our financial statements in evaluating the operating results of the Company. In particular, those charges and credits that are not directly related to operating performance, and that are not a helpful measure of the performance of our underlying business particularly in light of their unpredictable
21
nature. These non-GAAP disclosures have limitations as analytical tools, should not be viewed as a substitute for net income or net income per diluted share determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. In addition, supplemental presentation should not be construed as an inference that our future results will be unaffected by similar adjustments to net income or net income per diluted share determined in accordance with GAAP. Adjusted EBITDA, adjusted net income and adjusted net income per diluted share are key metrics used by management and our board of directors to assess the Company’s financial and operating performance and adjusted EBITDA is a basis for a portion of management's performance-based compensation.
Adjusted EBITDA excludes charges for depreciation, amortization, interest expense, taxes, other acquisition related expenses, the BN Performance Bonus, and other unusual/nonrecurring expenses. Adjusted net income and adjusted net income per diluted share excludes intangible amortization, the BN Performance Bonus, other costs related to the acquisition, and other unusual/nonrecurring expenses.
A reconciliation of adjusted EBITDA, adjusted net income and adjusted net income per diluted share to net income (loss) in accordance with GAAP is as follows:
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| September 30, |
|
| September 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net income (loss) | $ | 411 |
|
| $ | (196 | ) |
| $ | 3,051 |
|
| $ | 480 |
|
Acquisition & integration costs |
| - |
|
|
| - |
|
|
| - |
|
|
| 54 |
|
BN Performance Bonus |
| 802 |
|
|
| - |
|
|
| 1,569 |
|
|
| - |
|
Debt amendment costs |
| - |
|
|
| 41 |
|
|
| - |
|
|
| 194 |
|
Net interest expense |
| 55 |
|
|
| 246 |
|
|
| 240 |
|
|
| 403 |
|
Income taxes |
| 243 |
|
|
| (40 | ) |
|
| 1,009 |
|
|
| 175 |
|
Depreciation & amortization |
| 1,201 |
|
|
| 1,487 |
|
|
| 2,440 |
|
|
| 2,962 |
|
Adjusted EBITDA | $ | 2,712 |
|
| $ | 1,538 |
|
| $ | 8,309 |
|
| $ | 4,268 |
|
Adjusted EBITDA as a % of revenue |
| 6.0 | % |
|
| 4.0 | % |
|
| 9.0 | % |
|
| 5.8 | % |
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| September 30, |
|
| September 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net income (loss) | $ | 411 |
|
| $ | (196 | ) |
| $ | 3,051 |
|
| $ | 480 |
|
Acquisition & integration costs |
| - |
|
|
| - |
|
|
| - |
|
|
| 54 |
|
Amortization of intangible assets |
| 445 |
|
|
| 619 |
|
|
| 891 |
|
|
| 1,238 |
|
BN Performance Bonus |
| 802 |
|
|
| - |
|
|
| 1,569 |
|
|
| - |
|
Debt amendment costs |
| - |
|
|
| 41 |
|
|
| - |
|
|
| 194 |
|
Normalize tax rate(1) |
| (287 | ) |
|
| (139 | ) |
|
| (566 | ) |
|
| (312 | ) |
Adjusted net income | $ | 1,371 |
|
| $ | 325 |
|
| $ | 4,945 |
|
| $ | 1,654 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
GAAP net income (loss) per diluted share | $ | 0.04 |
|
| $ | (0.02 | ) |
| $ | 0.28 |
|
| $ | 0.05 |
|
Adjusted net income per diluted share | $ | 0.13 |
|
| $ | 0.03 |
|
| $ | 0.46 |
|
| $ | 0.16 |
|
Diluted weighted average common shares outstanding |
| 10,810 |
|
|
| 10,617 |
|
|
| 10,761 |
|
|
| 10,618 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(1) Applies a normalized tax rate to non-GAAP adjustments, which are pre-tax, based upon the statutory tax rate of 23%. |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
22
Liquidity and Capital Resources
The following discussion should be read in conjunction with our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows:
|
| September 30, |
|
| March 31, |
| ||
|
| 2023 |
|
| 2023 |
| ||
Cash and cash equivalents |
| $ | 25,800 |
|
| $ | 18,257 |
|
Working capital (1) |
|
| 26,275 |
|
|
| 23,904 |
|
Working capital ratio(1) |
|
| 1.3 |
|
|
| 1.3 |
|
|
| December 31, |
|
| March 31, |
| ||
|
| 2017 |
|
| 2017 |
| ||
Cash and investments |
| $ | 74,182 |
|
| $ | 73,474 |
|
Working capital |
|
| 78,369 |
|
|
| 78,688 |
|
Working capital ratio(1) |
|
| 3.3 |
|
|
| 3.5 |
|
Working capital excluding cash and investments |
|
| 4,187 |
|
|
| 5,214 |
|
|
|
Net cash generatedprovided by operating activities for the first ninesix months of fiscal 20182024 was $3,874,$11,898 compared with $10,707$398 of cash used for the first ninesix months of fiscal 2017.2023. The decrease in cash generation year over year was attributable to lower earnings, an increase in accounts receivable, an increase in income taxes receivable and a smaller decrease in inventories, partly offsetprovided by higher unbilled revenue.
Dividend payments and capital expenditures inoperations during the first ninesix months of fiscal 2018 were $2,6382024 was higher than the comparable prior year period primarily as a result of higher cash net income and $543, respectively, compared with $2,616a reduction in working capital as a result of the change in payment terms related to a large defense customer during the quarter and $241, respectively, for the first nine months of fiscal 2017. increased customer deposits.
21
Capital expenditures for fiscal 20182024 are expected to be between approximately $1,500$12,000 to $13,500 and $2,500. We have a capital project forinclude approximately $1,500$5,500 related to the expansion of production capabilities at our Batavia facility, 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%being funded by one of our fiscal 2018defense customers. Fiscal 2024 capital expenditures are expected to be primarily for productivity-enhancing machinery and equipment, with the remaining amounts expectedas well as for buildings and leasehold improvements to be used for information technology upgradesfund our growth and other items.productivity improvement initiatives. The majority of our planned capital expenditures are discretionary. We estimate that our maintenance capital spend is approximately $2,000 per year.
Cash and investmentscash equivalents were $74,182 on December 31, 2017$25,800 at September 30, 2023 compared with $73,474 on$18,257 at March 31, 2017,2023, up $708.
We invest net$7,543 primarily due to cash generated fromprovided by operations, in excess of cash held for near-term needs in short-term, less than 365 days, certificates of deposit, money market accounts or U.S. government instruments, generally with maturity periods of up to 180 days. Our money market account is used to securitize our outstanding letters of credit, which reduces our cost on those letters of credit. Approximately 95%offset by capital expenditures and debt repayments. At September 30, 2023, approximately $7,000 of our cash and investments arecash equivalents was used to secure our letters of credit and approximately $2,100 of our cash was held inby foreign subsidiaries.
On October 13, 2023, we terminated the U.S. The remaining 5% is invested inrevolving credit facility and repaid our China operations.
Ourterm loan with Bank of America, and entered into a new five-year revolving credit facility with JP Morgan ChaseWells Fargo that provides us with a $35,000 line of credit, of $25,000, including letters of credit and bank guarantees.guarantees, expandable up to $50,000 upon our satisfying specified covenants (the "New Revolving Credit Facility"). The additional $15,000 will automatically be available upon (i) our achieving a minimum consolidated EBITDA, as defined in the agreement, of $15,000, computed on a trailing twelve month basis, for three consecutive quarters and (ii) a minimum liquidity (consisting of cash and borrowing availability under the New Revolving Credit Facility) of at least $7,500. In addition our JP Morgan Chase agreement allowsto the $25,000 letters of credit available to be issued pursuant to the New Revolving Credit Facility, we may request the issuance of cash secured letters of credit in an aggregate amount of up to $7,500.
The New Revolving Credit Facility contains customary terms and conditions, including representations and warranties and affirmative and negative covenants, as well as financial covenants for the benefit of Wells Fargo, which require us to increasemaintain (i) a consolidated total leverage ratio not to exceed 3.50:1.00 and (ii) a consolidated fixed charge coverage ratio of at least 1.20:1.00, in both cases computed in accordance with the line of credit,definitions and requirements specified in the New Revolving Credit Facility.
Borrowings under the New Revolving Credit Facility bear interest at a rate equal to, at our discretion, upoption, either (i) a forward-looking term rate based on the secured overnight financing rate ("SOFR") for the applicable interest period, subject to another $25,000,a floor of 0.0% per annum or (ii) a base rate determined by reference to the highest of (a) the rate of interest per annum publicly announced by Wells Fargo as its prime rate, (b) the federal funds rate plus 0.50% per annum and (c) one-month term SOFR plus 1.00% per annum, subject to a floor of 1.00% per annum, plus, in each case, an applicable margin. The applicable margins range between (i) 1.25% per annum and 2.50% per annum in the case of any term SOFR loan and (ii) 0.25% per annum and 1.50% per annum in the case of any base rate loan, in each case based upon our then-current consolidated total leverage ratio; provided, however, for a period of one year following the closing date, the applicable margin shall be set at 1.25% per annum in the case of any term SOFR loan and 0.25% per annum in the case of any base rate loan.
We will incur a quarterly commitment fee on the unused portion of the New Revolving Credit Facility during the applicable quarter at a per annum rate also determined by reference to our then-current consolidated total availabilityleverage ratio, which fee ranges between 0.10% per annum and 0.20% per annum; provided, however, for a period of $50,000. Borrowings under this credit facility are secured by all of our assets. We also have a $5,000 unsecured line of credit with HSBC, N.A. Letters of credit outstanding on December 31, 2017 and March 31, 2017 were $7,401 and $8,372, respectively. Theone year following the closing date, the quarterly commitment fee will be set at 0.10% per annum. Any outstanding letters of credit that are cash secured will bear a fee equal to the daily amount available to be drawn under such letters of credit multiplied by 0.65% per annum. Any outstanding letters of credit issued under
23
the New Revolving Credit Facility will bear a fee equal to the daily amount drawn under such letters of credit multiplied by the applicable margin for term SOFR loans.
In connection with the termination of our prior revolving credit facility, we repaid the $725 exit fee and recognized an extinguishment charge of approximately $650 from our previous lending agreement amendments.
We did not have any off-balance sheet arrangements as of December 31, 2017 were issued by JP Morgan Chase, HSBC, as well as Bank of America (under our previous credit facility). There were noSeptember 30, 2023 and 2022, other amounts outstanding on our credit facilities at December 31, 2017 and March 31, 2017. The borrowing rate under our JP Morgan Chase facility as of December 31, 2017 was the bank’s prime rate, or 4.50%. Availability under the JP Morgan Chase and HSBC linesthan letters of credit was $25,168 and $25,761 at December 31, 2017 and March 31, 2017, respectively. incurred in the ordinary course of business.
We believe that cash generated from operations combined with the liquidity provided by our investments and available financing capacity under our credit facility,New Revolving Credit Facility will be adequate both to meet our cash needs forand fund our long-term strategic growth objectives.
Orders and Backlog
In addition to the immediatenon-GAAP measures discussed above, management uses the following key performance metrics to analyze and measure the Company's financial performance and results of operations: orders, backlog, and book-to-bill ratio. Management uses orders and backlog as measures of current and future business and to support our growth strategies.
Ordersfinancial performance and Backlog
Orders for the three-month period ended December 31, 2017 were $40,528 comparedthese may not be comparable with $17,699 for the same period in the prior year, an increase of 129%.measures provided by other companies. Orders represent written communications received from customers requesting us to supplyprovide products and/or services. Domestic orders were 47% of total orders, or $19,144, and international orders were 53% of total orders, or $21,384, in the current quarter compared with the third quarter of fiscal 2017, when domestic orders were 59%, or $10,396, of total orders, and international orders were 41%, or $7,303, of total orders. Over 80% of the international orders in the third quarter of fiscal 2018 were from Canada.
During the first nine months of fiscal 2018, orders were $68,679, compared with $57,123 for the same period of fiscal 2017, an increase of $11,556, or 20%. For the first nine months of fiscal 2018, refining orders increased by $19,121, power orders increased $812, chemical and petrochemical decreased by $6,167 and other commercial and industrial applications, including the U.S. Navy, decreased by $2,210. See “Current Market Conditions” above for additional information.
Backlog was $96,246 at December 31, 2017, compared with $72,981 at September 30, 2017, a 32% increase. Backlog is defined as the total dollar value of net orders received for which revenue has not yet been recognized. Approximately 55%Management believes tracking orders and backlog are useful as it often times is a leading indicator of future performance. In accordance with industry practice, contracts may include provisions for cancellation, termination, or suspension at the discretion of the customer.
The book-to-bill ratio is an operational measure that management uses to 60%track the growth prospects of the Company. The Company calculates the book-to-bill ratio for a given period as net orders divided by net sales.
Given that each of orders, currentlybacklog and book-to-bill ratio is an operational measure and that the Company's methodology for calculating these measures does not meet the definition of a non-GAAP measure, as that term is defined by the SEC, a quantitative reconciliation for each is not required or provided.
The following tables provides our orders by market and geographic region including the percentage of total and change in comparison to the prior year for each category and period presented:
Orders booked for the three-month period ended September 30, 2023 were $36,464, a decrease of $55,047 over the comparable period of fiscal 2023. Orders booked for the six-month period ended September 30, 2023 were $104,397, a decrease of $27,422 over the comparable period of fiscal 2023. These decreases were primarily due to the timing of our large defense orders and orders to the refining market. For the six-month period ended September 30, 2023, our book-to-bill ratio was 1.1x. Orders during the first six months of 2024 included the following:
24
We believe the repeat U.S. Navy orders and strategic investment received validates the investments we made, our position as a key supplier to the defense industry and our customer's confidence in our backlogexecution. Additionally, we believe the strong aftermarket orders are significant because they historically have been a leading indicator of a cyclical upturn in capital project orders. However, we do not expect the next cycle to be as robust as years past due to the factors discussed above under "Current Market Conditions."
Orders to the U.S. represented 88% of total orders for the second quarter of fiscal 2024 compared to 93% in the second quarter of the prior year. These orders were primarily to the defense market which represented 57% of orders and are U.S. based.
Following the end of the second quarter of fiscal 2024, we announced that we received approximately $110 million in total orders in October 2023, which were primarily related to follow-on orders for critical U.S. Navy programs. These defense orders are expected to be convertedrecognized in revenue beginning in the fourth quarter of fiscal 2025 through early fiscal 2030.
The following table provides our backlog by market, including the percentage of total backlog, for each category and period presented:
|
| September 30, |
|
|
|
| September 30, |
|
|
| Change |
| |||||||||
Market |
| 2023 |
| % |
|
| 2022 |
| % |
| $ |
|
| % |
| ||||||
Refining |
| $ | 29,116 |
|
| 9 | % |
| $ | 28,502 |
|
| 9 | % | $ | 614 |
|
|
| 2 | % |
Chemical/Petrochemical |
|
| 13,705 |
|
| 5 | % |
|
| 12,549 |
|
| 5 | % |
| 1,156 |
|
|
| 9 | % |
Space |
|
| 7,263 |
|
| 2 | % |
|
| 13,210 |
|
| 4 | % |
| (5,947 | ) |
|
| -45 | % |
Defense |
|
| 250,732 |
|
| 80 | % |
|
| 248,672 |
|
| 79 | % |
| 2,060 |
|
|
| 1 | % |
Other |
|
| 12,527 |
|
| 4 | % |
|
| 10,407 |
|
| 3 | % |
| 2,120 |
|
|
| 20 | % |
Total backlog |
| $ | 313,343 |
|
| 100 | % |
| $ | 313,340 |
|
| 100 | % | $ | 3 |
|
|
| 0 | % |
Backlog was $313,343 at September 30, 2023, which is consistent with the prior year period. We expect to salesrecognize revenue on approximately 50% of the backlog within one year, 5% to 10% are expected to ship between 12 and 24 months, and 25% to 35%30% in one to two years and the remaining beyond two years. The majority of the orders that are expected to convert beyond twelvetwenty-four months are for the defense industry, specifically the U.S. Navy. At December 31, 2017, 35%Navy that have a long conversion cycle (generally up to six years). During the second quarter of fiscal 2024, we shipped the last of the first article units related to the Columbia Class submarine and Ford Class carrier programs. While we expect to continue to have first article programs in our backlog as we win new programs and applications, the amount as a percentage of total backlog should be reduced moving forward. During fiscal 2022, we chose to make significant investments to ensure we could deliver these and previous units on schedule and these investments were the main source of the losses incurred that year.
Outlook
We are providing the following fiscal 2024 outlook reflecting our current expectations:
Net Sales | $170 million to $180 million | |
Gross Profit | 18% to 19% of sales | |
SG&A Expenses(1) | 15% to 16% of sales | |
Tax Rate | 22% to 23% | |
Adjusted EBITDA(2) | $11.5 million to $13.5 million | |
(1) Includes approximately $2.5 million to $4 million of BN Performance Bonus and ERP conversion costs included in SG&A expense. | ||
(2) Excludes approximately $2.5 million to $4 million of BN Performance Bonus and ERP conversion costs included in SG&A expense and approximately $0.7 million of debt extinguishment charges. |
See "Cautionary Note Regarding Forward-Looking Statement" and "Non-GAAP Measures" above for additional information about forward-looking statements and non-GAAP measures. We have not reconciled non-GAAP forward-looking Adjusted EBITDA to its most directly comparable GAAP measure, as permitted by Item 10(e)(1)(i)(B) of Regulation S-K. Such reconciliation would require unreasonable efforts to estimate and quantify various necessary GAAP components largely because forecasting or predicting our future operating results is subject to many factors out of our backlog was attributablecontrol or not readily predictable.
25
We have made significant progress with the advancements in our business, which we believe puts us on schedule in achieving our fiscal 2027 goals of greater than $200,000 in revenue (8% to equipment for refinery project work, 4% for chemical10% average annualized revenue growth) and petrochemical projects, 6% for power projects, including nuclear, 51% for U.S. Navy projects and 4% for other industrial applications. At December 31, 2016, 17% of our backlog was attributed to equipment for refinery project work, 14% for chemical and petrochemical projects, 9% for power projects, 57% for U.S. Navy projects and 3% for other industrial applications. At December 31, 2017, we had no projects on hold.
Strategy and Outlook
Prolonged weaknessAdjusted EBITDA margins in the global energy markets has continuedlow to negatively impact our business in fiscal 2018. mid-teens.
Our oil refiningexpectations for sales 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 to the impairment of our goodwill and intangible assets which we recognized in the third quarter.
Despite the current downturn, we continue to believe in the long-term potential of the energy markets we serve. We intend to expand our participation and market share. We believe this anticipated long-term strength will support our strategy to significantly grow our business when the energy markets begin to recover. We have invested in capacity to serve our commercial, refining and chemical/petrochemical customers, as well as to expand the work we do for the U.S. Navy. In addition to these organic growth
22
opportunities, we continue to look for acquisitions or other business combinationsprofitability assume that we believe will allow usbe able 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 the energy markets we serve continues to cause near-term uncertainty, affecting our outlook for fiscal 2018. We expect revenue in fiscal 2018 to be approximately $75,000.
We expect gross profit margin in fiscal 2018 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 ofoperate our production facilities in fiscal 2018. We believe that production overhead absorption will be weak, which we expect in turn will put continued pressure on gross profit margins inat planned capacity, have access to our fourth quarter.global supply chain including our subcontractors, do not experience significant global health related disruptions, and assumes no further impact from Virgin Orbit or any other unforeseen events.
SG&A during fiscal 2018 is expected to be between $15,000 and $15,500. Our effective tax rate during fiscal 2018, excluding the tax effect of the impairment loss and the one-time impact of the new Tax Act recorded in the third quarter, is expected to be between 24% and 26%, which we have lowered due to the reduced federal corporate income tax rate. Fiscal 2018 will benefit from the fiscal fourth quarter being taxed at a lower rate.
We continue to expect operating cash flow in fiscal 2018 will be lower than fiscal 2017. Fiscal 2017 cash flow benefited from the build-up of customer deposits.
Contingencies and Commitments
We have been named as a defendant in lawsuits alleging personal injury from exposure to asbestos allegedly contained in or accompanying our products. We are a co-defendant with numerous other defendants in these lawsuits and intend to vigorously defend ourselves against these claims. The claims in our current lawsuits are similar to those made in previous asbestos lawsuits that named us as a defendant. Such previous lawsuits either were dismissed when it was shown that we had not supplied products to the plaintiffs’ places of work, or were settled by us for immaterial amounts.
As of December 31, 2017,September 30, 2023, we are subject to the claims noted above, as well as other legal proceedings and potential claims that have arisen in the ordinary course of business. Although the outcome of the lawsuits, legal proceedings or potential claims to which we are or may become a party cannot be determined and an estimate of the reasonably possible loss or range of loss cannot be made for the majority of the claims, we do not believe that the outcomes, either individually or in the aggregate, will have a material adverse effect on our results of operations, financial position or cash flows.
Critical Accounting Policies, Estimates, and Judgments
Our unaudited condensed consolidated financial statements are based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make significant assumptions. We believe that the most critical accounting estimates used in the preparation of our condensed consolidated financial statements relate to labor hour estimates, total cost, and establishment of operational milestones which are used to recognize revenue under the percentage-of-completion method, fair value estimates of identifiable tangible and intangible assets acquired in business combinations,over time, accounting for contingencies, under which we accrue a loss when it is probable that a liability has been incurred and the amount can be reasonably estimated, accounting for business combinations and intangible assets, and accounting for pensions and other postretirement benefits. For further information, refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8 "Financial Statements and Supplementary Data" included in our Annual Report on Form 10-K for the year ended March 31, 2017. 2023.
Off Balance Sheet Arrangements
We did not have any off balance sheet arrangements as of December 31, 2017 or March 31, 2017, other than operating leases and letters of credit.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The principal market risks (i.e., the risk of loss arising from market changes) to which we are exposed are foreign currency exchange rates, price risk, and project cancellationinterest rate risk.
The assumptions applied in preparing the following qualitative and quantitative disclosures regarding foreign currency exchange rate, price risk and project cancellationinterest rate risk are based upon volatility ranges experienced by us in relevant historical periods, our current knowledge of the marketplace, and our judgment of the probability of future volatility based upon the historical trends and economic conditions of the markets in which we operate.
Foreign Currency
International consolidated sales for the threefirst six months and nine months ended December 31, 2017of fiscal 2024 were 35% and 33%, respectively,17% of total sales compared with 23% and 26%, respectively,21% for the same periodsperiod of fiscal 2017.2023. 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 ninesix months of each of fiscal 20182024 and fiscal 2017,2023, substantially all sales by us and our wholly-owned subsidiaries, for which we were paid, were denominated in the local currency of the respective subsidiary (U.S. dollars, Chinese RMB or Chinese RMB)India INR). For the first six months of fiscal 2024, foreign currency exchange rate fluctuations reduced our cash balances by $82 primarily due to the strengthening of the U.S. dollar.
We have limited exposure to foreign currency purchases. In each of the first three and ninesix months of fiscal 2018,2024, our purchases in foreign currencies represented 1%approximately 3% 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
26
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, 2017September 30, 2023 and March 31, 2017,2023, we held no forward foreign currency contracts.
Price Risk
Operating in a global marketplace requires us to compete with other global manufacturers which, in some instances, benefit from lower production costs and more favorable economic conditions. Although we believe that our customers differentiate our products on the basis of our manufacturing quality, and engineering experience, and excellence,customer service, among other things, such lower production costs and more favorable economic conditions mean that certain of our competitors are able to offer products similar to ours at lower prices. In extreme market downturns, such as we recently experienced, we typically experiencesee depressed price levels. Moreover, theAdditionally, we have faced, and may continue to face, significant cost of metalsinflation, specifically in labor costs, raw materials, and other supply chain costs due to increased demand for raw materials used in our products have experienced significant volatility. Such factors, in addition toand resources caused by the global effects of the ongoing volatility andbroad disruption of the capitalglobal supply chain, including those associated with the impact of COVID-19. International conflicts or other geopolitical events, including the 2022 Russian invasion of Ukraine and creditthe Israel-Hamas war, may further contribute to increased supply chain costs due to shortages in raw materials, increased costs for transportation and energy, disruptions in supply chains, and heightened inflation. Further escalation of geopolitical tensions may also lead to changes to foreign exchange rates and financial markets, have resulted in downward demandany of which may adversely affect our business and pricing pressuresupply chain, and consequently our results of operation. While there could ultimately be a material impact on our products.operations and liquidity, at the time of this report, the impact could not be determined.
Project Cancellation and Project Continuation
Interest Rate Risk
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 of the BN acquisition and in order to fund our strategic growth objectives we do not believeborrow funds under our various credit agreements that bear interest at a variable rate. As part of our risk management activities, we have a significant cashevaluate the use of interest rate derivatives to add stability to interest expense and to manage our exposure to projects which may be cancelled. At December 31, 2017,interest rate movements. As of September 30, 2023, we had $11,500 of variable rate debt outstanding on our revolving credit facility and no projectsinterest rate derivatives outstanding. See ''Debt'' in Note 12 to the Unaudited Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on hold. Form 10-Q for additional information about our outstanding debt. A hypothetical one percentage point (100 basis points) change in the BSBY rate on the $11,500 of variable rate debt outstanding at September 30, 2023 would have an impact of approximately $115 on our interest expense for fiscal 2024.
Item 4.Controls Controls and Procedures
Conclusion regarding the effectiveness of disclosure controls and procedures
Our President and Chief Executive Officer (principal(our principal executive officer) and Vice President-Finance & AdministrationPresident - Finance and Chief Financial Officer (principal(our principal financial officer) each have evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, and as of such date, our President and Chief Executive Officer and Vice President-Finance & AdministrationPresident - Finance and Chief Financial Officer concluded that our disclosure controls and procedures were effective in all material respects.
Changes in internal control over financial reporting
There has been no change to our internal control over financial reporting during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting.
GRAHAM CORPORATION AND SUBSIDIARIES
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FORM 10-Q
DECEMBER 31, 2017
PART II - OTHER INFORMATION
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in Part 1 – Item 1A of the Company’s Form 10-K for the fiscal year ended March 31, 2023.
Item 2: Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
Dividend Policy
We do not currently pay a cash dividend on our common stock. Any future determination by our board of directors regarding dividends will depend on a variety of factors, including our compliance with the terms of the credit agreement, organic growth and acquisition opportunities, future financial performance, general economic conditions and financial, competitive, regulatory, and other factors, many of which are beyond our control. There can be no guarantee that we will pay dividends in the future.
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Item 6. Exhibits INDEX OF EXHIBITS |
(10) | Material Contracts | |||
| ||||
+# | 10.1 | |||
10.2 | ||||
# | 10.3 |
(31) | Rule 13a-14(a)/15d-14(a) Certifications | |||
+ | 31.1 | |||
+ | 31.2 | |||
(32) | Section 1350 Certification | |||
++ | 32.1 | |||
(101) | Interactive Data File | |||
+ | 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||
+ | 101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||
+ | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
+ | 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
+ | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | ||
+ | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
(104) | Cover Page Interactive Data File embedded within the Inline XBRL document | ||||
+ ++ # | Exhibit filed with this report | ||||
Exhibit furnished with this report | |||||
Management contract or compensation plan |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GRAHAM CORPORATION | |||
By: | /s/ | ||
| |||
Vice President-Finance | |||
Chief Financial Officer | |||
(On behalf of the Registrant and as Principal Financial Officer) |
Date: February 2, 2018November 6, 2023
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