FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For Quarterly Period Ended March 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-8462
GRAHAM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 16-1194720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 FLORENCE AVENUE, BATAVIA, NEW YORK 14020
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including Area Code - 716-343-2216
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
As of May 5, 1995, there were outstanding 1,051,499 shares
of common stock, $.10 par value.
2
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 1995
PART I - FINANCIAL INFORMATION
Unaudited consolidated financial statements of Graham
Corporation (the company) and its subsidiaries as of March 31,
1995 and for the three month period then ended are presented on
the following pages. The financial statements have been
prepared in accordance with the company's usual accounting
policies, are based in part on approximations and reflect all
adjustments which are, in the opinion of management, necessary
to a fair statement of the results of the interim periods.
This part also includes management's discussion and
analysis of the company's financial condition as of March 31,
1995 and its results of operations for the three month period
then ended.
3
GRAHAM CORPORATION AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
March 31, December 31,
1995 1994
---- ----
Assets
Current Assets:
Cash and equivalents $ 83,000 $ 454,000
Trade accounts receivable 9,238,000 11,883,000
Inventories 6,453,000 4,547,000
Deferred tax asset 1,114,000 1,114,000
Prepaid expenses and other
current assets 241,000 439,000
----------- -----------
17,129,000 18,437,000
----------- -----------
Property, plant and equipment, net 9,512,000 9,663,000
----------- -----------
Deferred tax asset 1,791,000 1,791,000
Other assets 56,000 62,000
----------- -----------
$28,488,000 $29,953,000
=========== ===========
4
GRAHAM CORPORATAION AND SUBSIDIARIES
------------------------------------
CONSOLIDATED BALANCE SHEETS (concluded)
---------------------------
March 31, December 31,
1995 1994
---- ----
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt due banks $ 222,000 $ 196,000
Current portion of long-term debt 234,000 235,000
Accounts payable 2,954,000 4,275,000
Accrued compensation 3,314,000 3,220,000
Accrued expenses and other liabilities 1,200,000 1,488,000
Litigation reserve 1,161,000 1,247,000
Customer deposits 519,000 270,000
Domestic and foreign income taxes
payable 44,000 260,000
Estimated liabilities of discontinued
operations 422,000 401,000
----------- -----------
10,070,000 11,592,000
Long-term debt 5,446,000 5,161,000
Deferred compensation 977,000 993,000
Deferred tax liability 142,000 138,000
Other long-term liabilities 324,000 496,000
Deferred pension liability 1,302,000 1,369,000
Accrued postretirement benefits 3,051,000 3,133,000
----------- -----------
Total liabilities 21,312,000 22,882,000
----------- -----------
Shareholders' equity:
Common stock, $.10 par value -
Authorized, 6,000,000 shares
Issued and outstanding, 1,051,499
shares in 1995 and 1994 105,000 105,000
Capital in excess of par value 3,197,000 3,197,000
Cumulative foreign currency
translation adjustment (1,840,000) (1,876,000)
Retained earnings 6,739,000 6,720,000
----------- -----------
8,201,000 8,146,000
Less:
----
Employee Stock Ownership Plan
Loan Payable (1,025,000) (1,075,000)
----------- -----------
Total shareholders' equity 7,176,000 7,071,000
----------- -----------
$28,488,000 $29,953,000
=========== ===========
5
GRAHAM CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
-----------------------------------------------------------
THREE MONTHS
ended March 31,
1995 1994
---- ----
Net Sales $ 9,305,000 $ 9,904,000
----------- -----------
Cost and expenses:
Cost of products sold 6,805,000 7,157,000
Selling, general and administrative 2,306,000 2,400,000
Interest expense 167,000 116,000
Litigation provision 73,000
----------- -----------
9,278,000 9,746,000
----------- -----------
Income from continuing operations
before income taxes 27,000 158,000
Provision for income taxes 8,000 54,000
----------- -----------
Income from continuing operations 19,000 104,000
Loss from discontinued operations (31,000)
Income before cumulative effect of
change in accounting principle 19,000 73,000
Cumulative effect of change in accounting
principle (6,000)
----------- -----------
Net income 19,000 67,000
Retained earnings at beginning of period 6,720,000 15,135,000
----------- -----------
Retained earnings at end of period $ 6,739,000 $15,202,000
=========== ===========
Per Share Data:
Income from continuing operations .02 .10
Loss from discontinued operations (.03)
Cumulative effect of change in
accounting principle (.01)
---- ----
Net income $.02 $.06
==== ====
Average number of shares outstanding 1,052,000 1,049,000
========= =========
6
CONSOLIDATED STATEMENTS OF CASHFLOWS
------------------------------------
Three Months Ended March 31,
1995 1994
---- ----
Operating activities:
Net income ...................................... $ 19,000 $ 67,000
---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ................... 241,000 336,000
Loss on sale of property, plant and equipment ... 4,000
Minority interest in net income .................. 4,000
(Increase) Decrease in operating assets:
Accounts receivable ............................ 2,677,000 (116,000)
Inventory, net of customer deposits ............ (1,613,000) 1,857,000
Prepaid expenses and other current and
non-current assets ........................... 202,000 20,000
Increase (Decrease) in operating liabilities:
Accounts payable, accrued compensation,
accrued expenses and other liabilities ....... (1,565,000) (1,226,000)
Litigation reserve ............................. (86,000)
Estimated liabilities of discontinued operations (175,000) (80,000)
Deferred compensation, deferred pension
liability, and accrued postretirement benefits (166,000) 187,000
Domestic and foreign income taxes .............. (216,000) 162,000
---------- ----------
Total adjustments ............................ (701,000) 1,148,000
---------- ----------
Net cash (used) provided by operating activities . (682,000) 1,215,000
---------- ----------
Investing activities:
Purchase of property, plant and equipment ........ (46,000) (96,000)
---------- ----------
Net cash used by investing activities ............ (46,000) (96,000)
---------- ----------
Financing activities:
Increase in short-term debt ...................... 20,000 293,000
Proceeds from issuance of long-term debt ......... 1,375,000 49,000
Principal repayments on long-term debt ........... (1,043,000) (809,000)
---------- ----------
Net cash provided (used) by financing activities . 352,000 (467,000)
---------- ----------
Effect of exchange rate on cash .................. 5,000
---------- ----------
Net increase (decrease) in cash and equivalents .. (371,000) 652,000
Cash and equivalents at beginning of period ...... 454,000 99,000
---------- ----------
Cash and equivalents at end of period ............ $ 83,000 $ 751,000
========== ==========
7
NOTES TO FINANCIAL STATEMENTS
-----------------------------
MARCH 31, 1995
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NOTE 1 - INVENTORIES:
- - --------------------
Major classifications of inventories are as follows:
3/31/95 12/31/94
------- --------
Raw materials and supplies $ 1,955,000 $ 1,857,000
Work in process 3,740,000 2,507,000
Finished products 992,000 953,000
----------- -----------
6,687,000 5,317,000
Less - progress payments 234,000 770,000
----------- -----------
$ 6,453,000 $ 4,547,000
=========== ===========
NOTE 2 - EARNINGS PER SHARE:
- - ---------------------------
Earnings per share is computed by dividing net income by the
weighted average number of common shares and, when applicable,
common equivalent shares outstanding during the period.
NOTE 3 - CASHFLOW STATEMENT:
- - ---------------------------
Actual interest paid was $217,000 and $176,000 for the three
months ended March 31, 1995 and 1994, respectively. In addition,
actual income taxes paid were $224,000 and $2,000 for the three
months ended March 31, 1995 and 1994, respectively.
NOTE 4 - CHANGE IN ACCOUNTING PRINCIPLE
- - ---------------------------------------
Effective January 1, 1994, the company adopted Statement of
Financial Accounting Standards No. 112 (SFAS 112), "Employers'
Accounting for Postemployment Benefits." SFAS 112 requires that
projected future costs of providing postemployment, benefits be
recognized as an expense as employees render service rather than
when the benefits are paid. The adjustment to adopt SFAS 112 of
$9,000, net of the related tax benefit of $3,000, or $.01 per
share, is presented in the Consolidated Statement of Operations
and Retained Earnings as the cumulative effect of change in
accounting principle. The amount of the after tax charge of
$6,000 relating to continuing operations was $2,000. The
incremental costs of adopting this statement are insignificant on
an ongoing basis.
8
GRAHAM CORPORATION
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
March 31, 1995
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Results of Operations
- - ---------------------
Sales decreased 6% in the first quarter 1995 compared to 1994.
Sales decreased 6% in the United States operations and decreased
7% in the United Kingdom. The decrease in sales in both the
United States and United Kingdom is due primarily to production
schedules as sales volume in the second quarter is expected to
exceed the first quarter sales levels.
Cost of products sold was 73% of sales for the first quarter
of 1995 compared to 72% for the same period in 1994. The
percentages reflect management's conserted effort to maintain
overhead costs at a relatively constant level after two years of
continual costs reductions. Cost of products sold in the United
States was 74% of sales compared to 73% in the first quarter of
1994. In the United Kingdom cost of products sold was 64% of
sales compared to 62% for the same period in 1994.
Selling, general and administrative expenses decreased 4% from
the first quarter of 1994. This decline is reflective of the
continual cost containment measures taken by the company.
Selling, general and administrative expenses represented 25% and
24% of sales for the three-month periods ended March 31, 1995 and
1994, respectively.
Interest expense increased 44% from $116,000 for the first
quarter of 1994 to $167,000 for the current period. This
increase resulted solely from higher levels of borrowing on the
United States revolving credit facility. Total short-term and
long-term debt was $5,902,000 at March 31, 1995 which represents
an increase from $5,592,000 at year-end 1994.
The income tax provision for the first quarter of 1995 was 30%
of pretax income as compared to a 34% effective tax rate for the
same period in 1994.
As reported in the company's 1994 annual report and Form 10-K,
the company approved a formal plan to dispose of its subsidiary,
Graham Manufacturing Limited (GML), in September 1994 and subsequently
sold the operation in January 1995. Accordingly, the results of
operations for the 1994 quarters have been restated to reflect GML's
operations as discontinued operations.
9
Financial Condition
- - -------------------
There were no significant changes in the financial condition
of the company during the first quarter of 1995.
Working capital of $7,059,000 at March 31, 1995 compares to
$6,845,000 at December 31, 1994. The working capital increase
reflects a decrease in current assets of $1,308,000 and a
decrease in current liabilities of $1,522,000 which related
primarily to accounts payable. The decrease in current assets
related mainly to a decline in accounts receivable which was
offset by an increases in inventories. The decrease in accounts
receivable was attributable to collections from customers on the
significant sales in the fourth quarter of 1994 as well as first
quarter sales being substantially lower than 1994 fourth quarter
sales. Inventory levels have steadily climbed due to the
increased sales volume anticipated in the second quarter of 1995.
The working capital ratio was 1.70 at March 31, 1995 and 1.59 at
December 31, 1994.
Short-term debt increased slightly from $196,000 at year-end
to $222,000 at March 31, 1995 and represents solely borrowings by
the United Kingdom operation for working capital requirements.
Total long-term debt increased $285,000 due to additional
borrowings on the U.S. revolving credit facility used to finance
the working capital increase. The long-term debt to equity ratio
is 79% compared to 76% at year-end 1994 and the total liabilities
to assets ratio is 75% compared to 76% at year-end 1994.
Capital expenditures for the three month period were $46,000
compared to $96,000 for the same period in 1994. There were no
major commitments for capital expenditures as of March 31, 1995.
In 1995, the company expects to spend approximately $450,000 in
capital additions primarily for upgrade of machinery and
equipment.
Management expects that the cash flow from operations and
lines of credit will be sufficient to fund the 1995 cash
requirements.
New Orders and Backlog
- - ----------------------
New orders were $13,167,000 compared to $13,679,000 in the first
quarter of 1994 and backlog of unfilled orders of $22,887,000
currently compares to $18,997,000 at December 31, 1994. New
orders in the United States were $12,189,000 as compared to
$12,140,000 in the first quarter 1994. New orders in the United
Kingdom were $978,000 compared to $1,539,000 in the first quarter
1994. Backlog at March 31, 1995 in the United States is
$21,956,000 compared to $18,127,000 at year-end 1994. Backlog at
March 31, 1995 in the United Kingdom is $931,000 compared to
$870,000 at year end 1994. The current backlog is scheduled to
be shipped during the next twelve months and represents orders
from traditional markets in the company's established product
lines.
10
GRAHAM CORPORAITON
FORM 10-Q
MARCH 31, 1995
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- - -------
a. See index to exhibits.
b. No reports on Form 8-K were filed during the quarter ended
March 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Graham Corporation
s\ J. R. Hansen
J. R. Hansen
Chief Financial Officer &
Vice President Finance
Date 05/05/95
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11
INDEX TO EXHIBITS
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession.
Not applicable.
(4) Instruments defining the rights of security holders,
including indentures.
(a) Equity securities
The instruments defining the rights of the holders of
Registrant's equity securities are as follows:
Certificate of Incorporation, as amended of
Registrant (filed as Exhibit 3(a) to the
Registrant's annual report on Form 10-K for
the fiscal year ended December 31, 1989,
and incorporated herein by reference.)
By-laws of registrant (filed as Exhibit C
to the Proxy Statement of Graham
Manufacturing Co., Inc. for that
company's annual meeting of shareholders
held on May 4, 1983, which Proxy
Statement constitutes the prospectus
included as part of the Registrant's
Registration Statement No. 2-82275 on
Form S-14 and is incorporated herein by
reference.)
Shareholder Rights Plan of Graham
Corporation (filed as Exhibit (4) to
Registrant's current report filed on Form
8-K on February 26, 1991, as amended by
Registrant's Amendment No. 1 on Form 8
dated June 8, 1991, and incorporated
herein by reference.)
(b) Debt securities
Not applicable.
(10) Material Contracts
1989 Stock Option and Appreciation Rights Plan of Graham
Corporation (filed on the Registrant's Proxy Statement for
its 1991 Annual Meeting of Shareholders and incorporated
herein by reference.)
(11) Statement re-computation of per share earnings
See attached.
(15) Letter re-unaudited interim financial informaiton.
Not applicable.
12
(18) Letter re-change in accounting principles.
Not applicable.
(19) Report furnished to security holders.
None
(22) Published report regarding matters submitted to vote of
security holders.
None
(23) Consents of experts and counsel.
Not applicable.
(24) Power of Attorney
Not applicable.
(27) Financial Data Schedule
See attached.
(99) Additional exhibits.
None