UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2010
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number
1-8462
(Exact name of registrant as specified in its charter)
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DELAWARE
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16-1194720
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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20 Florence Avenue, Batavia, New York
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14020
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(Address of principal executive offices)
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(Zip Code)
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585-343-2216
(Registrants telephone number, including area code)
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
þ
No
o
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 during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
þ
As of July 30, 2010, there were outstanding 9,883,565 shares of the registrants common stock,
par value $.10 per share.
Graham Corporation and Subsidiary
Index to Form 10-Q
As of June 30, 2010 and March 31, 2010 and for the Three-Month Periods
Ended June 30, 2010 and 2009
2
GRAHAM CORPORATION AND SUBSIDIARY
FORM 10-Q
JUNE 30, 2010
PART I FINANCIAL INFORMATION
3
Item 1. Condensed Consolidated Financial Statements
GRAHAM CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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June 30,
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March 31,
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2010
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2010
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(Amounts in thousands, except per share data)
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Assets
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Current assets:
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Cash and cash equivalents
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$
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6,597
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$
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4,530
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Investments
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64,562
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70,060
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Trade accounts receivable, net of allowances ($9 and $17 at June 30
and March 31, 2010, respectively)
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5,950
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7,294
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Unbilled revenue
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5,978
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3,039
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Inventories
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3,746
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6,098
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Income taxes receivable
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313
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Prepaid expenses and other current assets
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1,561
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651
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Total current assets
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88,707
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91,672
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Property, plant and equipment, net
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10,030
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9,769
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Prepaid pension asset
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7,529
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7,335
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Other assets
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193
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203
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Total assets
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$
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106,459
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$
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108,979
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Liabilities and Stockholders Equity
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Current liabilities:
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Current portion of capital lease obligations
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$
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61
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$
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66
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Accounts payable
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5,126
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6,623
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Accrued compensation
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2,178
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4,010
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Accrued expenses and other current liabilities
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1,955
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2,041
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Customer deposits
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21,840
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22,022
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Income taxes payable
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68
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Deferred income tax liability
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139
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138
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Total current liabilities
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31,299
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34,968
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Capital lease obligations
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132
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144
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Accrued compensation
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299
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292
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Deferred income tax liability
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3,152
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2,930
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Accrued pension liability
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243
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246
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Accrued postretirement benefits
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895
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880
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Other long-term liabilities
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483
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445
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Total liabilities
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36,503
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39,905
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Commitments and Contingencies (Note 11)
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Stockholders equity:
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Preferred stock, $1.00 par value
Authorized, 500 shares
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Common stock, $.10 par value
Authorized, 25,500 shares
Issued, 10,188 and 10,155 shares at June 30 and March 31, 2010,
respectively
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1,019
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1,016
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Capital in excess of par value
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15,602
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15,459
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Retained earnings
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60,219
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59,539
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Accumulated other comprehensive loss
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(4,330
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(4,386
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Treasury stock (305 shares at June 30 and March 31, 2010, respectively)
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(2,554
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(2,554
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Total stockholders equity
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69,956
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69,074
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Total liabilities and stockholders equity
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$
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106,459
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$
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108,979
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See Notes to Condensed Consolidated Financial Statements.
4
GRAHAM CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
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Three Months Ended
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June 30,
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2010
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2009
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(Amounts in thousands, except per share data)
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Net sales
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$
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13,351
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$
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20,138
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Cost of products sold
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9,501
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11,860
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Gross profit
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3,850
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8,278
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Other expenses and income:
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Selling, general and administrative
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2,567
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3,248
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Interest income
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(16
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(18
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Interest expense
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7
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1
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Total other expenses and income
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2,558
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3,231
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Income before income taxes
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1,292
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5,047
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Provision for income taxes
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414
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1,529
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Net income
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878
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3,518
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Retained earnings at beginning of period
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59,539
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53,966
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Dividends
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(198
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(197
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Retained earnings at end of period
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$
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60,219
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$
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57,287
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Per share data:
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Basic:
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Net income
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$
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.09
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$
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.36
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Diluted:
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Net income
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$
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.09
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$
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.35
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Weighted average common shares outstanding:
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Basic
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9,922
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9,885
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Diluted
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9,962
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9,915
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Dividends declared per share
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$
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.02
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$
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.02
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See Notes to Condensed Consolidated Financial Statements.
5
GRAHAM CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended
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June 30,
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2010
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2009
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(Amounts in thousands)
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Operating activities:
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Net income
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$
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878
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$
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3,518
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Adjustments to reconcile net income to net cash used by operating activities:
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Depreciation and amortization
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291
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250
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Amortization of unrecognized prior service cost and actuarial losses
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70
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170
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Discount accretion on investments
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(15
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)
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(17
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Stock-based compensation expense
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59
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78
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Gain on disposal or sale of property, plant and equipment
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(3
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Deferred income taxes
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23
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51
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(Increase) decrease in operating assets:
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Accounts receivable
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1,346
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(9,123
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)
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Unbilled revenue
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(2,933
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)
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5,368
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Inventories
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2,354
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518
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Income taxes receivable/payable
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(381
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)
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1,412
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Prepaid expenses and other current and non-current assets
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(726
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)
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(238
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Prepaid pension asset
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(194
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(61
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)
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Increase (decrease) in operating liabilities:
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Accounts payable
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(1,526
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)
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421
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Accrued compensation, accrued expenses and other current and
non-current liabilities
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(1,882
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)
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(1,985
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)
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Customer deposits
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(183
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)
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(890
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)
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Long-term portion of accrued compensation, accrued pension liability
and accrued postretirement benefits
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19
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13
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Net cash used by operating activities
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(2,800
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)
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(518
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)
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Investing activities:
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Purchase of property, plant and equipment
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(525
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(80
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)
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Proceeds from disposal of property, plant and equipment
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7
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Purchase of investments
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(50,837
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(36,558
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Redemption of investments at maturity
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56,350
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35,570
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Net cash provided (used) by investing activities
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4,988
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(1,061
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)
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Financing activities:
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Proceeds from issuance of long-term debt
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198
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Principal repayments on long-term debt
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(16
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)
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(204
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)
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Issuance of common stock
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66
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34
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Dividends paid
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(198
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)
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(197
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)
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Purchase of treasury stock
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(229
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)
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Excess tax deduction on stock awards
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22
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21
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Other
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2
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Net cash used by financing activities
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(126
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)
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(375
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)
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Effect of exchange rate changes on cash
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5
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1
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Net increase (decrease) in cash and cash equivalents
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2,067
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(1,953
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)
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Cash and cash equivalents at beginning of period
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4,530
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5,150
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Cash and cash equivalents at end of period
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$
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6,597
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$
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3,197
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See Notes to Condensed Consolidated Financial Statements.
6
GRAHAM CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 and 2009
(Unaudited)
(Amounts in thousands, except per share data)
NOTE 1 BASIS OF PRESENTATION:
Graham Corporations (the Companys) Condensed Consolidated Financial Statements include one
wholly-owned foreign subsidiary located in China, and have been prepared in accordance with
accounting principles generally accepted in the United States (GAAP) for interim financial
information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, each as promulgated
by the Securities and Exchange Commission. The Companys 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, 2010 presented
herein was derived from the Companys audited Consolidated Balance Sheet as of March 31, 2010. For
additional information, please refer to the consolidated financial statements and notes included in
the Companys Annual Report on Form 10-K for the fiscal year ended March 31, 2010 (fiscal 2010).
In the opinion of management, all adjustments, including normal recurring accruals considered
necessary for a fair presentation, have been included in the Companys Condensed Consolidated
Financial Statements.
The Companys results of operations and cash flows for the three months ended June 30, 2010
are not necessarily indicative of the results that may be expected for the fiscal year ending March
31, 2011 (fiscal 2011).
Certain reclassifications have been made to prior year amounts to conform with the current
year presentation. In the Condensed Consolidated Statements of Cash Flows, the line item
Amortization of unrecognized prior service cost and actuarial losses was reported separately from
the line item Depreciation and amortization for the three months ended June 30, 2009.
NOTE 2 REVENUE RECOGNITION:
The Company recognizes revenue on all contracts with a planned manufacturing process in excess
of four weeks (which approximates 575 direct labor hours) using the percentage-of-completion
method. The majority of the Companys revenue is recognized under this methodology. The
percentage-of-completion method is determined by comparing actual labor incurred to a specific date
to managements estimate of the total labor to be incurred on each contract. Contracts in progress
are reviewed monthly, and sales and earnings are adjusted in current accounting periods based on
revisions in the contract value and estimated costs at completion. Losses on contracts are
recognized immediately when evident to management.
7
Revenue on contracts not accounted for using the percentage-of-completion method is recognized
utilizing the completed contract method. The majority of the Companys contracts have a planned
manufacturing process of less than four weeks and the results reported under this method do not
vary materially from the percentage-of-completion method. The Company recognizes revenue and all
related costs on these contracts upon substantial completion or shipment to the customer.
Substantial completion is consistently defined as at least 95% complete with regard to direct labor
hours. Customer acceptance is generally required throughout the construction process and the
Company has no further obligations under the contract after the revenue is recognized.
At March 31, 2010, the Companys backlog included four orders with a value of $6,655 that were
placed on hold (suspended) pending further customer evaluation. During the three months ended June
30, 2010, one of the orders placed on hold valued at $1,588 was cancelled. Production had started
on this project prior to being put on hold. The customer requested shipment of the partly
completed project on an as is basis. At June 30, 2010, three orders included in backlog with a
value of $5,211 remained on hold (suspended).
NOTE 3 INVESTMENTS:
Investments consist solely of fixed-income debt securities issued by the United States
Treasury with original maturities of greater than three months and less than one year. All
investments are classified as held-to-maturity, as the Company has the intent and ability to hold
the securities to maturity. The investments are stated at amortized cost, which approximates fair
value. All investments held by the Company at June 30, 2010 are scheduled to mature between July 1
and September 30, 2010.
NOTE 4 INVENTORIES:
Inventories are stated at the lower of cost or market, using the average cost method. For
contracts accounted for on the completed contract method, progress payments received are netted
against inventory to the extent the payment is less than the inventory balance relating to the
applicable contract. Progress payments that are in excess of the corresponding inventory balance
are presented as customer deposits in the Condensed Consolidated Balance Sheets. Unbilled revenue
in the Condensed Consolidated Balance Sheets represents revenue recognized that has not been billed
to customers on contracts accounted for on the percentage-of-completion method. For contracts
accounted for on the percentage-of-completion method, progress payments are netted against unbilled
revenue to the extent the payment is less than the unbilled revenue for the applicable contract.
Progress payments exceeding unbilled revenue are netted against inventory to the extent the payment
is less than or equal to the inventory balance relating to the applicable contract, and the excess
is presented as customer deposits in the Condensed Consolidated Balance Sheets.
8
Major classifications of inventories are as follows:
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June 30,
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March 31,
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|
2010
|
|
|
2010
|
|
Raw materials and supplies
|
|
$
|
1,879
|
|
|
$
|
1,843
|
|
Work in process
|
|
|
5,356
|
|
|
|
5,365
|
|
Finished products
|
|
|
581
|
|
|
|
573
|
|
|
|
|
|
|
|
|
|
|
|
7,816
|
|
|
|
7,781
|
|
Less progress payments
|
|
|
4,070
|
|
|
|
1,683
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,746
|
|
|
$
|
6,098
|
|
|
|
|
|
|
|
|
NOTE 5 STOCK-BASED COMPENSATION:
The Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value
provides for the issuance of up to 1,375 shares of common stock in connection with grants of
incentive stock options, non-qualified stock options, stock awards and performance awards to
officers, key employees and outside directors; provided, however, that no more than 250 shares of
common stock may be used for awards other than stock options. Stock options may be granted at
prices not less than the fair market value at the date of grant and expire no later than ten years
after the date of grant.
Stock option awards granted in the three months ended June 30, 2010 and 2009 were 20 and 24,
respectively. The stock option awards vest 33⅓% per year over a three-year term. All options have
a term of ten years from their grant date.
Restricted stock awards granted in the three months ended June 30, 2010 and 2009 were 24 and
15, respectively. Performance-vested restricted stock awards granted to officers in the three
months ended June 30, 2010 vest 100% on the third anniversary of the grant date, subject to the
satisfaction of the performance metrics established for the applicable three-year period.
Time-vested restricted stock awards granted to officers in the three-month period ended June 30,
2009 vest 50% on the second anniversary of the grant date and 50% on the fourth anniversary of the
grant date. Time-vested restricted stock awards granted to directors for the three months end June
30, 2010 and 2009 vest 100% on the first anniversary of the grant date.
During the three months ended June 30, 2010 and 2009, the Company recognized stock-based
compensation costs of $59 and $78, respectively. The income tax benefit recognized related to
stock-based compensation was $20 and $27 for the three months ended June 30, 2010 and 2009,
respectively.
9
NOTE 6 INCOME PER SHARE:
Basic income per share is computed by dividing net income by the weighted average number of
common shares outstanding for the period. Common shares outstanding include share equivalent
units, which are contingently issuable shares. Diluted income per share is calculated by dividing
net income by the weighted average number of common shares outstanding and, when applicable,
potential common shares outstanding during the period. A reconciliation of the numerators and
denominators of basic and diluted income per share is presented below:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Basic income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
878
|
|
|
$
|
3,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted common shares outstanding
|
|
|
9,864
|
|
|
|
9,831
|
|
Share equivalent units (SEUs)
|
|
|
58
|
|
|
|
54
|
|
|
|
|
|
|
|
|
Weighted average common shares and SEUs
|
|
|
9,922
|
|
|
|
9,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
.09
|
|
|
$
|
.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
878
|
|
|
$
|
3,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares and SEUs outstanding
|
|
|
9,922
|
|
|
|
9,885
|
|
Stock options outstanding
|
|
|
40
|
|
|
|
30
|
|
|
|
|
|
|
|
|
Weighted average common and potential
common shares outstanding
|
|
|
9,962
|
|
|
|
9,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share
|
|
$
|
.09
|
|
|
$
|
.35
|
|
|
|
|
|
|
|
|
Options to purchase a total of 17 and 41 shares of common stock were outstanding at June
30, 2010 and 2009, respectively, but were not included in the above computation of diluted income
per share given their exercise prices as they would be anti-dilutive upon issuance.
10
NOTE 7 PRODUCT WARRANTY LIABILITY:
The reconciliation of the changes in the product warranty liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Balance at beginning of period
|
|
$
|
369
|
|
|
$
|
366
|
|
Expense (income) for product warranties
|
|
|
30
|
|
|
|
(52
|
)
|
Product warranty claims (paid) refunded
|
|
|
(64
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
335
|
|
|
$
|
318
|
|
|
|
|
|
|
|
|
The product warranty liability is included in the line item Accrued expense and other
current liabilities in the Condensed Consolidated Balance Sheets.
NOTE 8 CASH FLOW STATEMENT:
Interest paid was $1 for each of the three-month periods ended June 30, 2010 and 2009. In
addition, income taxes paid were $715 and $29 for the three months ended June 30, 2010 and 2009,
respectively.
During the three months ended June 30, 2010 and 2009, stock option awards were exercised and
the related income tax benefit realized exceeded the tax benefit that had been recorded pertaining
to the compensation cost recognized. This excess tax deduction has been separately reported under
Financing activities in the Condensed Consolidated Statement of Cash Flows.
At June 30, 2010 and 2009, there were $23 and $1 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 9 COMPREHENSIVE INCOME:
Total comprehensive income was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Net income
|
|
$
|
878
|
|
|
$
|
3,518
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
10
|
|
|
|
1
|
|
Defined benefit pension and other
postretirement plans
|
|
|
46
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
934
|
|
|
$
|
3,627
|
|
|
|
|
|
|
|
|
11
Defined benefit pension and other postretirement plans reflect the amortization of prior
service costs and recognized gains and losses related to such plans during the periods.
NOTE 10 EMPLOYEE BENEFIT PLANS:
The components of pension (benefit) cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Service cost
|
|
$
|
96
|
|
|
$
|
79
|
|
Interest cost
|
|
|
335
|
|
|
|
324
|
|
Expected return on assets
|
|
|
(625
|
)
|
|
|
(465
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
1
|
|
|
|
1
|
|
Actuarial loss
|
|
|
105
|
|
|
|
205
|
|
|
|
|
|
|
|
|
Net pension (benefit) cost
|
|
$
|
(88
|
)
|
|
$
|
144
|
|
|
|
|
|
|
|
|
The Company made no contributions to its defined benefit pension plan during the three
months ended June 30, 2010 and does not expect to make any contributions to the plan for the
balance of fiscal 2011.
The components of the postretirement benefit income are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
Interest cost
|
|
|
15
|
|
|
|
15
|
|
Amortization of prior service cost
|
|
|
(41
|
)
|
|
|
(41
|
)
|
Amortization of actuarial loss
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
Net postretirement benefit income
|
|
$
|
(21
|
)
|
|
$
|
(21
|
)
|
|
|
|
|
|
|
|
The Company paid benefits of $1 related to its postretirement benefit plan during the
three months ended June 30, 2010. The Company expects to pay benefits of approximately $121 for
the balance of fiscal 2011.
NOTE 11 COMMITMENTS AND CONTINGENCIES:
The Company has been named as a defendant in certain lawsuits alleging personal injury from
exposure to asbestos contained in products made by the Company. The Company is a co-defendant with
numerous other defendants in these lawsuits and intends to vigorously defend itself against these
claims. The claims are similar to previous asbestos suits that named the Company as defendant,
which either were dismissed when it was shown that the Company had not supplied products to the
plaintiffs places of work or were settled for amounts below the expected defense costs. The
outcome of these lawsuits cannot be determined at this time.
12
From time to time in the ordinary course of business, the Company is subject to legal proceedings
and potential claims. At June 30, 2010, other than noted above, management was unaware of any
material litigation matters.
NOTE 12 INCOME TAXES:
The Company files federal and state income tax returns in several domestic and foreign
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 currently
under examination by the United States Internal Revenue Service (the IRS) for tax year 2009. The
IRS has completed its examination for tax years 2006 through 2008. In June 2010, the IRS proposed
an adjustment, plus interest, to disallow substantially all of the research and development tax
credit claimed by the Company in tax years 2006 through 2008. The Company filed a protest to
appeal the adjustment in July 2010. The Company believes its tax position is correct and will
continue to take appropriate actions to vigorously defend its position.
The cumulative tax benefit related to the research and development tax credit for the tax
years ended March 31, 1999 through March 31, 2010 was $2,218. The liability for unrecognized tax
benefits related to this tax position was $445 at June 30 and March 31, 2010, which represents
managements estimate of the potential resolution of this issue. During the first quarter of
fiscal 2011, there was no change in the balance of the unrecognized tax benefit. Any additional
impact on the Companys income tax liability cannot be determined at this time. The tax benefit
and liability for unrecognized tax benefits were recorded in the Companys Consolidated Statement
of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Total
|
|
Tax benefit of research and development tax credit
|
|
$
|
1,653
|
|
|
$
|
218
|
|
|
$
|
238
|
|
|
$
|
109
|
|
|
$
|
2,218
|
|
Unrecognized tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(445
|
)
|
|
|
(445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tax benefit of research and development tax credit
|
|
$
|
1,653
|
|
|
$
|
218
|
|
|
$
|
238
|
|
|
$
|
(336
|
)
|
|
$
|
1,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is subject to examination in state and international tax jurisdictions for
tax years 2006 through 2009 and tax year 2009, respectively. It is the Companys policy to
recognize any interest related to uncertain tax positions in interest expense and any penalties
related to uncertain tax positions in selling, general and administrative expense. The Company had
no other unrecognized tax benefits as of June 30, 2010. During the three months ended June 30,
2010 and 2009, the Company recorded $6 and $0, respectively, for interest and $0 for penalties
related to its uncertain tax position in each of the three month periods ended June 30, 2010 and
2009.
13
|
|
|
Item 2.
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
(Dollar amounts in thousands, except per share data)
Overview
We are a global designer and manufacturer of custom-engineered ejectors, vacuum systems,
condensers, liquid ring pump packages and heat exchangers. Our equipment is used in critical
applications in the petrochemical, oil refinery and electric power generation industries, including
cogeneration and geothermal plants. Our equipment can also be found in alternative energy
applications, including ethanol, biodiesel and coal and gas-to-liquids and other applications, and
other diverse applications, such as metal refining, pulp and paper processing, shipbuilding, water
heating, refrigeration, desalination, soap manufacturing, food processing, pharmaceuticals,
heating, ventilating and air conditioning.
Our corporate offices and production facilities are located in Batavia, New York. We also
have a wholly-owned foreign subsidiary located in Suzhou, China which supports sales orders from
China and provides engineering support and supervision of subcontracted fabrication.
Highlights
Highlights for the three months ended June 30, 2010 (the first quarter of the fiscal year
ending March 31, 2011 is referred to as fiscal 2011) include:
|
|
|
Net sales for the first quarter of fiscal 2011 were $13,351, down 34% compared
with $20,138 for the first quarter of fiscal 2010.
|
|
|
|
|
Net income and income per diluted share for the first quarter of fiscal 2011,
were $878 and $0.09, compared with net income of $3,518 and income per diluted
share of $0.35 for the first quarter of the fiscal year ended March 31, 2010,
referred to as fiscal 2010.
|
|
|
|
|
Orders booked in the first quarter of fiscal 2011 were $8,124, down 8% compared
with the first quarter of fiscal 2010, when orders were $8,838.
|
|
|
|
|
Backlog decreased to $89,115 at June 30, 2010, representing a 5% decrease
compared with March 31, 2010, when our backlog was a record $94,255.
|
|
|
|
|
Gross profit margin and operating margin for the first quarter of fiscal 2011
were 29% and 10% compared with 41% and 25%, respectively, for the first quarter of
fiscal 2010.
|
|
|
|
|
Cash and short-term investments at June 30, 2010 were $71,159 compared with
$74,590 at March 31, 2010.
|
Forward-Looking Statements
This report and other documents we file with the Securities and Exchange Commission include
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These statements involve known and unknown risks, uncertainties and other factors that may
cause actual results to be materially different from any future results implied by the
forward-looking statements. Such factors include, but are not limited to, the risks and
uncertainties
identified by us under the heading Risk Factors in Item 1A of our Annual Report on Form 10-K
for fiscal 2010.
14
Forward-looking statements may also include, but are not limited to, statements about:
|
|
|
current and future economic environments affecting us and the markets we serve;
|
|
|
|
|
sources of revenue and anticipated revenue, including the contribution from the
growth of new products, services and markets;
|
|
|
|
|
plans for future products and services and for enhancements to existing products
and services;
|
|
|
|
|
operations in foreign countries;
|
|
|
|
|
estimates regarding liquidity and capital requirements;
|
|
|
|
|
timing of conversion of backlog to sales;
|
|
|
|
|
our ability to achieve expected profitability levels;
|
|
|
|
|
our ability to attract or retain customers;
|
|
|
|
|
the outcome of any existing or future litigation;
|
|
|
|
|
our acquisition strategy; and
|
|
|
|
|
our ability to increase our productivity and capacity.
|
Forward-looking statements are usually accompanied by words such as anticipate, believe,
estimate, may, intend, expect and similar expressions. Actual results could differ
materially from historical results or those implied by the forward-looking statements contained in
this report.
Undue reliance should not be placed on our forward-looking statements. Except as required by
law, we undertake no obligation to update or announce any revisions to forward-looking statements
contained in this report, whether as a result of new information, future events or otherwise.
Fiscal 2011 and the Near-Term Market Conditions
The downturn in the global economy which commenced in the fall of 2007 led to reduced demand
for petroleum-based products, which in turn resulted in our customers deferring investment in major
capital projects. We believe that we are beginning to see some positive signs that international
customers are once again examining investments in major capital projects.
In addition, we believe that the significant increase in construction costs, including raw
material costs, which had occurred over the four-to-five-year period prior to the downturn, which
began in the fall of 2007, also led to delays in new commitments by our customers. The increase in
costs resulted in the economics of projects becoming less feasible, which we believe caused our
customers to choose to wait until costs declined, as they have recently.
Currently, near-term demand trends that we believe are affecting our customers investments
include the following:
|
|
|
As the global economy recovers slowly from the global recession, many emerging
economies continue to have relatively strong economic growth. This expansion is
driving growing energy requirements and the need for more refined petroleum
products. Although uncertainty in the capital markets continues, there has been
some improved access to capital, which has resulted in certain previously stalled
projects being released for production.
|
15
|
|
|
The expansion of the Middle Eastern economies and the continued growth in demand
for oil and refined products has renewed investment activity in that area. We
believe that such renewed activity is exemplified by the re-starting of projects in
both the petrochemical and refining industries, such as the Jubail and Yanbu export
refinery projects in Saudi Arabia. Construction costs for these projects have
reportedly been reduced by 20%.
|
|
|
|
|
Asia, specifically China, has been experiencing renewed demand for refined
petroleum products such as gasoline in calendar year 2009 and thus far in 2010,
following reductions in demand during calendar year 2008 as economic uncertainty
stymied growth. This renewed demand is driving increased investment in
petrochemical and refining projects.
|
|
|
|
|
South America, specifically Brazil, Venezuela and Colombia, is seeing increased
refining and petrochemical investments that are driven by expanding economies and increased local demand for gasoline and other products that
are made from oil as the feedstock.
|
|
|
|
|
The U.S. refining market has declined and refinery utilization has fallen as
demand declined from conservation efforts, economic weakness, and uncertainty
around U.S. energy policy and its potential impact on production costs. As a
result, there have been fewer investment dollars in capital projects for refineries
in the U.S. This is expected to continue for the next few years.
|
|
|
|
|
Investments in North American oil sands have been delayed as a result of
construction costs and uncertainty around U.S. energy policy and the potential
impact that changes to the energy policy may have on production costs which could
impact project economics and risk. Recently however, there have been investments
in extraction projects in Alberta and foreign investment in Alberta. Historically,
downstream investments that involve our equipment occur two to three years after
extraction projects.
|
|
|
|
|
Weaknesses in European end markets, which have been impacted by debt concerns in
certain Euro-denominated markets, threaten local and global recovery.
This may continue to impact both local demand as well as those regions which export to Europe.
|
We expect that the consequences of these near-term trends will be more pressure on our gross
margin, as the U.S. refining market has historically provided higher margins than certain
international markets. Because of continued global economic uncertainty and the risk associated
with growth in emerging economies, we also expect that we will have continued volatility in our
order pattern. For the next several quarters, we expect to see smaller value projects than what we
had seen during the last expansion cycle. As a result, for us to achieve similar revenue levels,
we will have to win a greater number of orders.
16
We continue to expect our new order levels to remain volatile, resulting in both strong and
weak quarters. For example, sequentially the past five quarters had new order levels of $8,838,
$29,567, $51,644, $18,268, and $8,124 in the first, second, third and fourth quarters of fiscal
2010 and the first quarter of fiscal 2011, respectively. We believe that looking at our order
level in any one quarter does not provide an accurate indication of our future expectations or
performance. Rather, we believe that looking at our orders and backlog over a rolling four-quarter
time period provides a better measure of our business.
Shift to International Growth Expected to Drive Next Industry Cycle
Over the long-term, we expect our customers markets to regain their strength and, while
remaining cyclical, continue to grow. We believe the long-term trends remain strong and that the
drivers of future growth include:
Demand Trends
|
|
|
Global consumption of crude oil is estimated to expand significantly over the
next two decades, primarily in emerging markets. This is expected to offset
estimated flat to slightly declining demand in North America and Europe.
|
|
|
|
|
Increased demand is expected for power, refinery and petrochemical products,
stimulated by an expanding middle class in Asia, in particular China and India.
|
|
|
|
|
Increased development of geothermal electrical power plants in certain regions
is expected to meet projected growth in demand for electrical power.
|
|
|
|
|
Increased global regulations over the refining and petrochemical industries are
expected to continue to drive requirements for capital investments.
|
|
|
|
|
Increased demand is expected from the nuclear power generation industry and
government contractors.
|
Impact of Demand Trends
|
|
|
Construction of new petrochemical plants in the Middle East, where natural gas
is plentiful and less expensive, is expected to continue.
|
|
|
|
|
Increased investments in new power projects are expected in Asia and South
America to meet projected consumer demand increases.
|
|
|
|
|
Global oil refining capacity is projected to increase, and is expected to be
addressed through new facilities, refinery upgrades, revamps and expansions.
|
|
|
|
|
Long-term growth potential is believed to exist in alternative energy markets,
such as coal-to-liquids, gas-to-liquids and other emerging technologies, such as
biodiesel, ethanol and waste-to-energy.
|
We believe that all of the above factors offer us long-term growth opportunity to meet our
customers expected capital project needs. In addition, we believe we can continue to grow our
less cyclical smaller product lines and aftermarket businesses.
Emerging markets require petroleum-based products. These markets are expected to continue to
grow at rates faster than the U.S. Therefore, we expect international opportunities will be more
plentiful relative to domestic projects. Our domestic sales as a percentage of aggregate product
sales, which had increased from 50% in fiscal 2007 to 54% in fiscal
2008 to 63% in fiscal 2009, decreased to 45% in fiscal 2010. In the first quarter of fiscal 2011, domestic sales were
41%. The economic recovery, which we believe has partly begun in the
17
international markets, we expect will provide greater opportunities in international markets than
in the domestic market in the near term. Our order rates for fiscal 2010 were 50% domestic and 50%
international. However, the domestic order level was heavily impacted by a large order (in excess
of $25,000) from Northrop Grumman to supply surface condensers for the U.S. Navy. If we exclude
this project, the international order percentage in fiscal 2010 would have exceeded 65%. In the
first quarter of fiscal 2011, international orders were only 47% of total orders. However, as we
look at the remainder of fiscal 2011 and beyond, we believe international sales and orders will surpass domestic sales.
Results of Operations
For an understanding of the significant factors that influenced our performance, the following
discussion should be read in conjunction with our condensed consolidated financial statements and
the notes to our condensed consolidated financial statements included in Part I, Item 1 of this
Quarterly Report on Form 10-Q.
The following table summarizes our results of operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Net sales
|
|
$
|
13,351
|
|
|
$
|
20,138
|
|
Net income
|
|
$
|
878
|
|
|
$
|
3,518
|
|
Diluted income per share
|
|
$
|
0.09
|
|
|
$
|
0.35
|
|
Total assets
|
|
$
|
106,459
|
|
|
$
|
87,857
|
|
The First Quarter of Fiscal 2011 Compared With the First Quarter of Fiscal 2010
Sales for the first quarter of fiscal 2011 were $13,351, a 34% decrease as compared with sales
of $20,138 for the first quarter of fiscal 2010. The decrease in the current quarters sales was
due to lower sales in all product lines except for heat exchangers. International sales accounted
for 59% and 49% of total sales for the first quarter of fiscal 2011 and fiscal 2010, respectively.
International sales year-over-year decreased $2,067, or 21%, driven by a $3,662, or 45%, decrease
in Asia, offset by increases across most other international regions. Domestic sales decreased
$4,720, or 46%, in the first quarter of fiscal 2011 compared with the first quarter of fiscal 2010.
Fluctuations in sales among products and geographic locations can vary measurably from
quarter-to-quarter based on timing and magnitude of projects. We do believe this shift back toward
a higher international sales mix will continue in fiscal 2011. Sales in the three months ended
June 30, 2010 were 25% to the refining industry, 40% to the chemical and petrochemical industries
and 35% to other commercial and industrial applications. Sales in the three months ended June 30,
2009 were 46% to the refining industry, 23% to the chemical and petrochemical industries and 31% to
other commercial and industrial applications. For additional information on future sales and our
markets, see Orders and Backlog below.
Our gross profit percentage for the first quarter of fiscal 2011 was 29% compared with 41% for
the first quarter of fiscal 2010. Gross profit dollars for the first quarter of fiscal 2011
decreased 53% compared with fiscal 2010. Gross profit percentage and dollars decreased primarily
due to non-repeatable raw material purchasing benefits achieved in the first quarter of fiscal 2010
and the 34% decrease in sales volume experienced during the first quarter of fiscal 2011.
18
Selling, general and administrative (SG&A) expenses as a percent of sales for the
three-month periods ended June 30, 2010 and 2009 were 19% and 16%, respectively. Actual costs in
fiscal 2011 were $2,567, a decrease of $681, or 21%, compared with the first quarter of fiscal
2010. SG&A expenses decreased due to the restructuring which occurred in the third quarter of
fiscal 2010, timing of expenses, which we expect will increase in subsequent quarters, lower
pension expense as well as lower variable costs (e.g., sales commissions, variable compensation)
related to lower sales and income.
Interest income for the three month-periods ended June 30, 2010 and 2009 was $16 and $18,
respectively. Low levels of interest income resulted from the continuing low level of interest
rates on short term U.S. government securities.
Interest expense was $7 for the quarter ended June 30, 2010, up slightly from $1 for the
quarter ended June 30, 2009.
Our effective tax rate in fiscal 2011 is projected to be between 30% and 33%, which represents
the tax rate used to reflect income tax expense in the current quarter (32%). The actual effective
tax rate for fiscal 2010 was 37%. The decrease compared with fiscal 2010 was due to tax adjustments
recorded in fiscal 2010 for unrecognized tax benefits related to research and development tax
credits and a valuation allowance against certain deferred tax assets. See Note 12 to the
Condensed Consolidated Financial Statements.
Net income for the first three months of fiscal 2011 compared with the first three months of
fiscal 2010 was $878 and $3,518, respectively. Income per diluted share was $0.09 and $0.35 for
the respective periods.
Liquidity and Capital Resources
The following discussion should be read in conjunction with our Condensed Consolidated
Statements of Cash Flows:
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|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2010
|
|
Cash and investments
|
|
$
|
71,159
|
|
|
$
|
74,590
|
|
Working capital
|
|
|
57,408
|
|
|
|
56,704
|
|
Working capital ratio
(1)
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|
|
2.8
|
|
|
|
2.6
|
|
Long-term liabilities/capitalization
(2)
|
|
|
7.4
|
%
|
|
|
7.1
|
%
|
|
|
|
1)
|
|
Working capital ratio equals current assets divided by current liabilities.
|
|
2)
|
|
Long-term liabilities/capitalization equals total liabilities minus current liabilities
divided by stockholders equity plus long-term debt.
|
Net cash used by operating activities for the first quarter of fiscal 2011 was $2,800,
compared with $518 used by operating activities for the first quarter of fiscal 2010. The increase
in cash used was due to lower net income, timing of payments for
accounts payable, accrued
compensation and income taxes payable, offset by improvements in accounts receivable (net of
unbilled revenue) and inventory. Inventory levels in the first quarter of fiscal 2011 increased by
$2,352. We expect the inventory to increase during the remainder of fiscal 2011 as sales levels
increase.
There were no shares repurchased in the first quarter of fiscal 2011 compared with $229 which
was used to repurchase 26 shares of stock in the first quarter of fiscal 2010. The Board of
Directors implemented a stock repurchase program which was announced in January 2009. The
19
stock repurchase program is effective through July 30, 2011. No shares have been repurchased since
the first quarter of fiscal 2010.
Dividend payments and capital expenditures in the first quarter of fiscal 2011 were $198 and
$525, respectively, compared with $197 and $80, respectively, for the first quarter of fiscal 2010.
Capital expenditures for fiscal 2011 are expected to be between $2,800 and $3,300, of which
$1,500 will be used to support the Northrop Grumman project for the U.S. Navy.
Our cash, cash equivalents, and investments on June 30, 2010 were $71,159. Most of this
amount is invested in short term United States government instruments. Investments on June 30,
2010 were $64,562 compared with $70,060 on March 31, 2010. Investments are United States
government instruments, generally with maturity periods of 91 to 120 days.
Our current cash, cash equivalents, and investments position was bolstered by a dramatic
increase in customer deposits, which occurred in the fourth quarter of fiscal 2010. A small number
of major customers provided upfront negotiated cash payments to
assist in lowering our cost to complete their projects. This cash will be utilized to procure materials for these
customers projects in the fiscal years ended March 31, 2011 and 2012. We often obtain progress
payments for large projects from our customers throughout the procurement and manufacturing
process. In recent quarters, more cash was provided for certain orders shortly after the order was
secured. During the rest of fiscal 2011, we expect operating cash flow may be negative at times,
as the customer deposits balance is utilized to procure materials to support production.
Our revolving credit facility with Bank of America, N.A. provides us with a line of credit of
$30,000, including letters of credit and bank guarantees. Borrowings under our credit facility are
secured by all of our assets. Letters of credit outstanding under our credit facility on June 30,
2010 and March 31, 2010 were $13,113 and $9,584, respectively. Other utilization of our credit
facility limits at June 30, 2010 and March 31, 2010 were $0. Our borrowing rate as of June 30,
2010 was Bank of Americas prime rate minus 125 basis points, or 2.00%. We believe that cash
generated from operations, combined with our investments and available financing capacity under our
credit facility, will be adequate to meet our cash needs for the immediate future.
Orders and Backlog
Orders for the three-month periods ended June 30, 2010 and 2009 were $8,124 and $8,838,
respectively, down 8%. Orders represent communications received from customers requesting us to
supply products and services. During the first quarter of fiscal 2011 compared with the first
quarter of fiscal 2010, we experienced a 23% decrease in refining orders and a 30% decline in
chemical and petrochemical orders. There was a 34% increase in other industrial and commercial
applications.
Domestic orders were 53% of total orders, or $4,266, and international orders were 47% of
total orders, or $3,858, in the current quarter compared with the first quarter of fiscal 2010,
when domestic orders were 45%, or $3,955, of total orders, and export orders were 55%, or $4,883,
of total orders. Although the first quarter of fiscal 2011 did not represent the trend seen in
fiscal 2010, where international orders exceeded domestic orders, we believe during the remainder
of fiscal 2011 we will see higher international orders than domestic orders. For all of fiscal
2010, excluding the, Northrop Grumman order for the U.S. Navy, international orders exceeded 65% of
all orders.
20
Backlog was $89,115 at June 30, 2010, compared with record $94,255 backlog at March 31, 2010,
a 5% decrease. The backlog, four quarters ago, on June 30, 2009 was $37,045. Backlog is defined
as the total dollar value of orders received for which revenue has not yet been recognized. All
orders in backlog represent orders from our traditional markets in established product lines.
Approximately 50%-60% of orders currently in backlog are expected to be converted to sales within
the next twelve months. This is significantly different from our normal conversion, which is
approximately 85%-90% over an upcoming 12-month period. The difference in our current backlog is
that a small number of large projects (especially the Northrop Grumman project for the U.S. Navy),
have extended conversion periods. At June 30, 2010, 38% of our backlog was attributable to
equipment for refinery project work, 13% to chemical and petrochemical projects, and 49% for other
industrial or commercial applications (including the Northrop Grumman order for the U.S. Navy). At
June 30, 2009, 36% of our backlog was attributed to equipment for refinery project work, 49% to
chemical and petrochemical projects, and 15% for other industrial or commercial applications.
At March 31, 2010, the Companys backlog included four orders with a value of $6,655 that were
placed on hold (suspended) pending further customer evaluation. During the three months ended June
30, 2010, one of the orders placed on hold valued at $1,588 was cancelled. Production had started
on this project prior to being put on hold. The customer requested shipment of the partly
completed project on an as is basis. At June 30, 2010, three orders included in backlog with a
value of $5,211 remained on hold (suspended).
Outlook
We believe that we are currently experiencing the bottom of the cycle associated with our
sales to the refinery and petrochemical markets since we have historically tended to lag the
general economic cycle by twelve to eighteen months. The third and fourth quarters of fiscal 2010
and the first and second quarters of fiscal 2011 are expected to represent the trough in sales for
our business in this down cycle. Sales were $12,166 and $13,777 in the third and fourth quarters
of fiscal 2010, respectively, and $13,351 in the first quarter of fiscal 2011. We expect the
second quarter of fiscal 2011 to be in a similar range with some potential for upside improvement
late in the quarter. We anticipate that sales in the third and fourth quarters of fiscal 2011 will
see growth compared with the first and second quarters of fiscal 2011. We expect the gross profit
margin percentage to be in the mid-to-upper 20s range for the second quarter of fiscal 2011
(comparable to the 29% achieved in the first quarter) as we continue to have under-utilized
capacity. Moreover, orders won six to twelve months ago that are now planned for revenue in the (first
and) second quarter have depressed margins due to the competitive environment at that time.
Our order activity was strong in fiscal 2010 and our backlog on March 31, 2010 was a record
$94,255. Orders in the first quarter of fiscal 2011 were light, at $8,124 and backlog decreased 5%
to $89,115. We expect fiscal 2011 order levels to continue to be variable by quarter. We do not
believe that our markets have begun to fully recover, and while we have seen some improvements in the
Middle East, Asia and recently, South America, it is not clear that the recovery has fully taken
hold. We also believe the domestic market will be relatively weak for fiscal 2011 and beyond.
Normally, we convert 85% to 90% of existing backlog to sales within a 12-month period.
However, we have a few large orders (e.g. the Northrop Grumman for the U.S. Navy project and a few
large Middle East refinery orders) that will extend our March 31, 2010 backlog well beyond this
normal level. We expect to convert approximately 50% to 60% of our March 31, 2010 backlog to sales
in fiscal 2011.
21
For fiscal 2011, we continue to expect sales to increase by 5% to 15% to between $65,000 and
$72,000, when compared with fiscal 2010. The lower end of this range, as well as potential
downside risk is tied to our customers releasing projects for production. The upper end of the
range, and any potential upside above the expected range, may be achieved by faster conversion of
backlog to sales if we commence production and customers are willing to accept earlier than
currently planned shipments combined with the receipt of new orders which can convert to sales
within the fiscal year.
We expect gross profit margin for fiscal 2011 to be in the 27% to 31% range. This margin
level is below fiscal 2010, which had strong margins in the first two quarters resulting from
purchasing advantages gained with raw material cost benefits. Our margins in fiscal 2011 will
likely be adversely affected by the following:
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|
|
A significantly enhanced competitive environment which has been evident through
recent orders during the contraction of the industry as competitors have been
aggressively pursuing fewer projects;
|
|
|
|
|
A shift toward international markets, where margins are generally lower when
compared with domestic projects; and
|
|
|
|
|
Continued expected underutilization of capacity, especially in the first two
quarters of fiscal 2011.
|
We believe to achieve the upper end of our margin projections and potential upside above the
range can occur with increased volume to minimize under utilization of capacity, continued
improvements in manufacturing productivity, and continued focus and success in error elimination
and rework.
Gross profit margins are expected to improve as volume increases throughout fiscal 2011 and
beyond. We believe the gross profit margin percentage at the peak of the next cycle will be in the
mid-to-upper 30s.
SG&A spending is expected to be between $12,500 and $13,000 for fiscal 2011. Our effective
tax rate during fiscal 2011 is expected to be between 30% and 33% absent one time adjustments.
Cash flow in fiscal 2011 is expected to be negative due to the drawdown of customer deposits
which grew in the fourth quarter of fiscal 2010 from $5,461 at December 31, 2009 to $22,022 at
March 31, 2010 (and were at nearly the same level, $21,840, on June 30, 2010). The increase in
customer deposits was due to a number of major customers who provided upfront negotiated cash
payments to assist in lowering our cost to complete their projects. This cash will be
utilized to procure materials for these customers projects from fiscal 2011 through fiscal 2013.
We also expect to spend $2,800 to $3,300 in capital spending, above our normal $1,500 to $2,000
range, due to a $1,500 capital project required for the Northrop Grumman project for the U.S. Navy.
Contingencies and Commitments
We have been named as a defendant in certain lawsuits alleging personal injury from exposure
to asbestos contained in our products. We are a co-defendant with numerous other defendants in
these lawsuits and intend to vigorously defend against these claims. The claims are similar to
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
22
places of
work or were settled by us for amounts below expected defense costs. Neither the outcome of these
lawsuits nor the potential for liability can be determined at this time.
From time to time in the ordinary course of business, we are subject to legal proceedings and
potential claims. As of June 30, 2010, other than noted above, we were unaware of any material
litigation matters.
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 used to recognize revenue under the percentage-of-completion method, accounting for
contingencies, under which we accrue a loss when it is probable that a liability has been incurred
and the amount can be reasonably estimated, and accounting for pensions and other postretirement
benefits. For further information, refer to Item 7 Managements 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, 2010.
Off Balance Sheet Arrangements
We did not have any off balance sheet arrangements as of June 30, 2010 or March 31, 2010,
other than operating leases.
23
|
|
|
Item 3.
|
|
Quantitative and Qualitative Disclosures About Market Risk
|
The principal market risks (i.e., the risk of loss arising from changes in the market) to
which we are exposed are foreign currency exchange rates, price risk and project cancellation risk.
The assumptions applied in preparing the following qualitative and quantitative disclosures
regarding foreign currency exchange rate, price risk and project cancellation risk are based upon
volatility ranges experienced by us in relevant historical periods, our current knowledge of the
marketplace, and our judgment of the probability of future volatility based upon the historical
trends and economic conditions of the markets in which we operate.
Foreign Currency
International consolidated sales for the first quarter of fiscal 2011 were 59% of total sales
compared with 49% for the same period of fiscal 2010. 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
the first quarter of each of fiscal 2011 and fiscal 2010, all sales by the Company and its
wholly-owned subsidiary, for which we were paid, were denominated in the local currency (U.S.
dollars or Chinese RMB). At certain times, we may enter into forward foreign currency exchange
agreements to hedge our exposure against potential unfavorable changes in foreign currency values
on significant sales contracts negotiated in foreign currencies.
We have limited exposure to foreign currency purchases. In the first quarter of fiscal 2011
and 2010, our purchases in foreign currencies represented 2% and 1%, respectively, of the cost of
products sold. At certain times, we may utilize forward foreign currency exchange contracts to
limit currency exposure. 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 June 30, 2010 and March 31, 2010,
we held no forward foreign currency contracts.
Price Risk
Operating in a global marketplace requires us to compete with other global manufacturers
which, in some instances, benefit from lower production costs and more favorable economic
conditions. Although we believe that our customers differentiate our products on the basis of our
manufacturing quality and engineering experience and excellence, among other things, such lower
production costs and more favorable economic conditions mean that certain of our competitors are
able to offer products similar to ours at lower prices. Moreover, the cost of metals and other
materials used in our products have experienced significant volatility. Such factors, in addition
to the global effects of the recent volatility and disruption of the capital and credit markets,
have resulted in downward demand and pricing pressure on our products.
Project Cancellation and Project Continuation Risk
Recent economic conditions have led to a higher likelihood of project cancellation by our
customers. As described in Note 2 to the Condensed Consolidated Financial Statements included
in Item 1 of this report, we had one project for $1,588 cancelled in the first quarter of
24
fiscal 2011. In the first quarter of fiscal 2010, one project was cancelled, totaling $519. We
attempt to mitigate the risk of cancellation by structuring contracts with our customers to
maximize the likelihood that progress payments made to us for individual projects cover the costs
we have incurred. As a result, we do not believe we have a significant cash exposure to projects
which may be cancelled.
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.
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Item 4.
|
|
Controls and Procedures
|
Conclusion regarding the effectiveness of disclosure controls and procedures
Our President and Chief Executive Officer (principal executive officer) and Vice
President-Finance & Administration and Chief Financial Officer (principal financial officer) each
have evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on
Form 10-Q. Based on such evaluation, and as of such date, our President and Chief Executive
Officer and Vice President-Finance & Administration 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.
25
GRAHAM CORPORATION AND SUBSIDIARIES
FORM 10-Q
June 30, 2010
PART II OTHER INFORMATION
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|
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Item 5.
|
|
Other Information
|
On July 28, 2010, the Compensation Committee of our Board of Directors approved an Amended and
Restated Employment Agreement (the Amended Agreement) for Jeffrey Glajch, our Vice President,
Finance & Administration and Chief Financial Officer. The Amended Agreement contains such terms as
are described in our definitive Proxy Statement filed with the Securities and Exchange Commission
on June 14, 2010 under the heading Compensation of Named Executive Officers and Directors -
Compensation Discussion and Analysis Employment Agreements Jeffrey Glajch, which description
is incorporated herein by reference. In addition, the Amended Agreement provides that, upon the
occurrence of a triggering event that would be deemed an event of termination within two years
after a change in control of the Company, as such terms are defined in the Amended Agreement, Mr.
Glajch would be entitled to certain payments, including, among other things, a lump sum payment
equal to one dollar less than three times his annualized tax-includable compensation (including
bonus) for the five most recent taxable years ending before the date of such change in control. In
addition, upon a change of control, all of Mr. Glajchs unvested stock options would become
immediately vested and exercisable and any unvested shares of restricted stock would become
immediately vested. We would also be required to pay to Mr. Glajch within six months of the
triggering event a lump sum payment amount equal to the excess, if any, of: (i) the present value
of the aggregate benefits to which he would be entitled under any and all qualified and
non-qualified defined contribution pension plans maintained by us as if he were 100% vested under
such plans, over (ii) the present value of the benefits to which he is actually entitled under such
defined contribution pension plans as of the date of his termination. The Amended Agreement also
contains certain limitations for these payments that relate to our ability to deduct such payments
for federal income tax purposes as well as other terms and conditions customarily found in similar
agreements. The information included in this Part II Item 5 is contained herein in satisfaction of
the Companys Current Report on Form 8-K reporting obligation
under Item 5.02.
A copy of the Amended Agreement is attached as Exhibit 10.2 to this Quarterly Report on Form
10-Q and the above description is qualified in its entirety by reference to such Amended Agreement.
See index to exhibits on page 28 of this report.
26
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.
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GRAHAM CORPORATION
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|
|
By:
|
/s/
Jeffrey Glajch
|
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|
Jeffrey Glajch
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|
Vice President-Finance & Administration and Chief Financial Officer
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|
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Date: August 3, 2010
27
INDEX OF EXHIBITS
|
|
|
(10)
|
|
Material Contracts
|
|
|
|
*
|
|
10.1 Form of Employee Performance-Vested Restricted Stock Agreement
|
|
|
|
*
|
|
10.2 Amended and Restated Employment Agreement between Graham
Corporation and Jeffrey F. Glajch executed and effective on
July 29, 2010.
|
|
|
|
(31)
|
|
Rule 13a-14(a)/15d-14(a) Certifications
|
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*
|
|
31.1 Certification of Principal Executive Officer
|
|
|
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*
|
|
31.2 Certification of Principal Financial Officer
|
|
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|
(32)
|
|
Section 1350 Certifications
|
|
|
|
*
|
|
32.1 Section 1350 Certifications
|
|
|
|
*
|
|
Exhibits filed with this report.
|
28
EXHIBIT 10.1
RESTRICTED STOCK AGREEMENT
(
Employee Performance Vesting
)
This RESTRICTED STOCK AGREEMENT (this Agreement) is made and entered into as of the ___ day
of ___, 201___ (the Grant Date), by and between Graham Corporation, a corporation organized and
existing under the laws of the State of Delaware and having an office at 20 Florence Avenue,
Batavia, New York 14020 (the Company) and
(the RSA Holder).
W
I
T
N
E
S
S
E
T
H
:
WHEREAS, by action of its Board of Directors (the Board), the Company has adopted the 2000
Graham Corporation Incentive Plan to Increase Shareholder Value, as amended and restated (the
Plan), pursuant to which Restricted Stock Awards (RSAs) with respect to shares of common stock
of the Company (Shares) may be granted to the Companys eligible officers and employees; and
WHEREAS, pursuant to Article III of the Plan, a Compensation Committee (the Committee) has
been appointed to select the individuals to whom RSAs shall be granted and to prescribe the terms
and conditions of such grants; and
WHEREAS, the Committee has determined that the RSA Holder is eligible to be granted an RSA and
desires to grant an RSA to the RSA Holder, and the RSA Holder desires to accept such grant, on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, the Company and the RSA Holder hereby agree as follows:
Section 1.
Grant of RSA
. As of the date set forth above, the Company hereby grants,
and the RSA Holder hereby accepts the Companys grant of, an RSA of ___ Shares (the Restricted
Shares), on the terms and conditions hereinafter set forth.
Section 2.
Restrictions and Vesting
.
(a) Subject to the terms set forth in this Agreement, provided that the RSA Holder is still a
full-time employee of the Company at that time, the Payout Percentage of the number of Restricted
Shares will vest on the last day of the Companys 2013 fiscal year (the Vesting Date). The
Payout Percentage shall be the sum of the EBIT Percentage and the Net Income Percentage.
(b) The EBIT Percentage shall be based on the Companys EBIT margin for the Companys 2013
fiscal year compared to the EBIT margin of the Baird Industrial Company Composite for calendar year
2012 as follows:
|
|
|
|
|
EBIT Margin
|
|
Performance Share Payout
|
|
EBIT Percentage
|
[Insert Table For Individual Awards]
If the EBIT Margin is equal to or greater than the level to have some EBIT Percentage, but less
than or equal to the maximum level, and the EBIT Margin actually attained is not represented in the
table set forth above, then the EBIT Percentage shall be determined by straight-line interpolation
from the amounts specified in such table immediately less than and greater than the EBIT Margin
actually attained.
(c) The Net Income Percentage shall be based on the Companys net income for the Companys
2013 fiscal year as follows:
|
|
|
|
|
FY13 Net Income
|
|
Performance Share Payout
|
|
Net Income Percentage
|
[Insert Table For Individual Awards]
If the FY13 Net Income is equal to or greater than the level to have some Net Income Percentage,
but less than or equal to the maximum level, and the FY13 Net Income actually attained is not
represented in the table set forth above, then the Net Income Percentage shall be determined by
straight-line interpolation from the amounts specified in such table immediately less than and
greater than the FY13 Net Income actually attained.
(d) (i) Upon the date that the RSA Holder becomes eligible for Retirement, a portion of the
outstanding Restricted Shares under this Agreement shall immediately vest in full. Such portion
shall be the number of shares with a Fair Market Value on such date equal to the minimum tax
required to be withheld by the Company on the Fair Market Value of the Restricted Shares that would
vest upon the Retirement of the RSA Holder on such date pursuant to Section 2(d)(ii). The Company
shall deduct and apply the shares that so vest to cover the tax withholding. For purposes of this
Agreement, Retirement shall mean a voluntary separation from service by the RSA Holder when he or
she is at least age 60 and has been employed by the Company on a full-time basis for ten or more
years.
(ii) Upon the death, Disability or Retirement of the RSA Holder:
(A) the EBIT Margin shall be deemed to have met performance at the Target level, and the EBIT
Percentage shall be 25%;
(B) the FY13 Net Income shall be deemed to have met performance at the Target level, and the
Net Income Percentage shall be 25%; and
(C) the number of Restricted Shares that vest shall be equal to the number of outstanding
Restricted Shares under this Agreement, multiplied by the Payout Percentage, multiplied by a
fraction, the numerator of which shall be the number of days from the Grant Date through the date
of the RSA Holders death, Disability or Retirement, over the number of days from the Grant Date
through the last day of the Companys 2013 fiscal year.
(c) Except as otherwise provided by Section 2(b), or unless the Committee determines
otherwise, if the RSA Holders employment terminates before the Vesting Date for any reason, the
unvested Restricted Shares as of such date shall be forfeited and cancelled immediately.
Section 3.
Rights as a Stockholder
. The RSA Holder will have the rights of a
stockholder with respect to the Restricted Shares, including, but not limited to, the right to
receive such cash dividends, if any, as may be declared on such Shares from time to time and the
right to vote (in person or by proxy) such Restricted Shares at any meeting of stockholders of the
Company.
Section 4.
Restrictions on Transfer of Restricted Shares
. The Restricted Shares, and
the right to vote the Restricted Shares and to receive dividends thereon, may not, except as
otherwise provided in the Plan, be sold, assigned, transferred, pledged or encumbered in any way
prior to the Vesting Date, whether by operation of law or otherwise, except by will or the laws of
descent and distribution. The RSA Holder agrees that until the Vesting Date, any certificate
representing the Restricted Shares (or any portion thereof) will be held by the Companys stock
transfer agent or other representative of the Company (the RSA Agent) until the applicable
performance is satisfied and the Companys provides written authorization to such RSA Agent.
Section 5.
Registration and Delivery of Restricted Shares
. The Companys obligation
to deliver Shares under this Agreement and/or authorize the RSA Agent to release Restricted Shares
shall, if the Committee so requests, be conditioned upon the receipt of a representation as to the
investment intention of the RSA Holder to whom such Shares are to be delivered, in such form as the
Committee shall determine to be reasonably necessary or advisable to comply with the provisions of
applicable federal, state or local law. It may be provided that any such representation shall
become inoperative upon a registration of the Shares or upon the occurrence of any other event
eliminating the necessity of such representation. The Company shall not be required to deliver any
Shares under this Agreement prior to (a) the admission of such Shares to listing on any stock
exchange on which Shares may then be listed, or (b) the completion of such registration or other
qualification under any state or federal law, rule or regulations as the Committee shall determine
to be necessary or advisable.
Section 6.
Adjustments in the Event of Reorganization
. In the event of any merger,
consolidation, or other business reorganization in which the Company is the surviving entity, and
in the event of any stock split, stock dividend or other event generally affecting the number of
Shares held by each person who is then a shareholder of record, the number of Restricted Shares
shall be adjusted to account for such event. Such adjustment shall be effected by multiplying such
number of Restricted Shares by an amount equal to the number of Shares that would be owned after
such event by a person who, immediately prior to such event, was the holder of record of one Share.
Section 7.
No Right to Continued Employment
. Nothing in this Agreement nor any
action of the Board or Committee with respect to this Agreement shall be held or construed to
confer upon the RSA Holder any right to a continuation of employment by the Company or any of its
affiliates which employ the RSA Holder. The RSA Holder may be dismissed or otherwise dealt with as
though this Agreement had not been entered into.
Section 8.
Taxes
. Where any person is entitled to receive Shares pursuant to the RSA
granted hereunder, the Employer shall have the right to require such person to pay to the Employer
the amount of any tax which the Employer is required to withhold with respect to such Shares, or,
in lieu thereof, to retain, or to sell without notice, a sufficient number of Shares to cover the
amount required to be withheld.
Section 9.
No Assignment
. The RSA granted hereunder shall not be subject in any
manner to anticipation, alienation or assignment, nor shall such RSA be liable for or subject to
debts, contracts, liabilities, engagements or torts, nor shall it be transferable by the RSA Holder
other than by will or by the laws of descent and distribution.
Section 10.
Notices
. Any communication required or permitted to be given under the
Plan, including any notice, direction, designation, comment, instruction, objection or waiver,
shall be in writing and shall be deemed to have been given at such time as it is delivered
personally or five (5)
days after mailing if mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below, or at such other address as one
such party may by written notice specify to the other party:
(a) If to the Committee:
Graham Corporation
20 Florence Avenue
Batavia, New York 14020
Attention: Chief Accounting Officer
(b) If to the RSA Holder, to the RSA Holders then current residential address as set forth in
the Companys personnel records.
Section 11.
Successors and Assigns
. This Agreement shall inure to the benefit of and
shall be binding upon the Company and the RSA Holder and their respective heirs, successors and
assigns.
Section 12.
Construction of Language
. Whenever appropriate in the Agreement, words
used in the singular may be read in the plural, words used in the plural may be read in the
singular, and words importing the masculine gender may be read as referring equally to the feminine
or the neuter. Any reference to a section shall be a reference to a section of this Agreement,
unless the context clearly indicates otherwise. Capitalized terms not specifically defined herein
shall have the meanings assigned to them under the Plan.
Section 13.
Governing Law
. This Agreement shall be construed, administered and
enforced according to the laws of the State of New York without giving effect to the conflict of
laws principles thereof, except to the extent that such laws are preempted by the federal law.
Section 14.
Amendment
. This Agreement may be amended, in whole or in part and in any
manner not inconsistent with the provisions of the Plan, at any time and from time to time by
written agreement between the Company and the RSA Holder.
Section 15.
Plan Provisions Control
. This Agreement and the rights and obligations
created hereunder shall be subject to all of the terms and conditions of the Plan. In the event of
any conflict between the provisions of the Plan and the provisions of this Agreement, the terms of
the Plan, which are incorporated herein by reference, shall control. By signing this Agreement,
the RSA Holder acknowledges receipt of a copy of the Plan.
Section 16.
Acceptance by RSA Holder
. By executing this Agreement and returning a
fully executed copy hereof to the Committee at the address specified in section 10, the RSA Holder
signifies his acceptance of the terms and conditions of this RSA. If a fully executed copy of this
Agreement is not received by the Committee within forty-five (45) days after the date when it is
presented to the RSA Holder, the Committee may revoke the RSA granted, and thereby avoid all
obligations, hereunder.
IN WITNESS WHEREOF, the RSA Holder has executed, and the Company has caused its duly
authorized representative to execute, this Agreement as of the date first above written.
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GRAHAM CORPORATION
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By:
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James R. Lines
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President and Chief Executive Officer
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ATTEST:
Assistant Secretary
Exhibit 10.2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this Agreement), is made and entered into as
of July 29, 2010, by and between Graham Corporation, a Delaware corporation with its principal
place of business at 20 Florence Avenue, Batavia, New York 14020 (the Company), and Jeffrey F.
Glajch, (the Executive).
WHEREAS, the Company and the Executive desire amend and restate that certain Employment
Agreement dated as of March 2, 2009 and enter into this Agreement to describe the employment
relationship and obligations of the parties.
NOW, THEREFORE, the parties hereto, intending to be legally bound and in consideration of the
mutual covenants herein contained, agree as follows:
1.
Employment
. The Company hereby agrees to continue to employ the Executive and the
Executive hereby agrees to continue employment as the Companys Vice President, Finance and
Administration and Chief Financial Officer, upon the terms and conditions hereinafter set
forth.
2.
Duties
.
(a) The Executive shall have authority and responsibility for all aspects of the Companys
financial reporting and analysis, accounting and control systems, information technology and human
resources and shall report directly to the Companys President and Chief Executive Officer. The
Executive shall perform such duties generally consistent with Executives title and as may from
time to time be required of the Executive by the President and Chief Executive Officer or by the
Board of Directors (the Board) of the Company. The Executives office shall be located at the
Companys principal place of business in Batavia, New York. The Executive agrees to travel to the
extent reasonably necessary for the performance of his duties. The Executive shall devote his full
time to the business and affairs of the Company and shall use his best efforts, skill and ability
in performing his duties on behalf of the Company.
(b) The Executive agrees that the Company, in its discretion, may apply for and procure in its
own name and for its own benefit, life insurance on the life of the Executive in any amount or
amounts considered advisable, and that he shall have no right, title or interest therein. The
Executive further agrees to submit to any medical or other examination and to execute and deliver
any application or other instrument in writing, reasonably necessary to effectuate such insurance,
provided such actions do not materially harm the Executives ability to otherwise obtain or retain
personal life insurance.
3.
Term
.
(a) Except as otherwise provided in this Agreement to the contrary, this Agreement shall be
and remain in effect during the period of employment (the Term) established under this Section 3.
(b) Except as provided in Section 3(c), beginning on the effective date of this Agreement, the
Term shall be for one year and shall be automatically extended each day that this Agreement is in
effect (such that while this Agreement is in effect the remaining Term shall never be less or
greater than one year), unless either the Company, or the Executive, respectively,
elects not to extend the Term further by giving written notice to the other party, in which case
the Term shall end on the first anniversary of the date on which such written notice is given;
provided, however, that in any event, the Term shall end on the last day of the month in which the
Executive attains the age of 65.
(c) Notwithstanding anything herein contained to the contrary, (i) this Agreement may be
terminated during the Term as provided for herein and (ii) nothing in this Agreement shall mandate
or prohibit a continuation of the Executives employment following the expiration of the Term upon
such terms and conditions as the Company and the Executive may mutually agree upon.
4.
Base Compensation
. As the base compensation for all services to be rendered by the
Executive to the Company, the Company agrees to pay to the Executive, and the Executive accept, a
salary at a rate of $216,300 per annum, payable in arrears in equal monthly installments of $18,025
each, subject to such deductions and withholdings as may be required by law. Periodically, the
Board will review the salary of the Executive, taking into consideration such factors as the
Executives performance and such other matters as it deems relevant and, in its discretion alone,
may increase the salary of the Executive to such rate as the Board deems proper; provided that the
Company shall in no event be required to grant any such increase.
5. Incentive Compensation.
(a)
Bonus
. The Executive shall be eligible to receive bonuses and awards under the Companys
bonus plans or arrangements as may be in effect from time to time, including the Companys Annual
Executive Cash Bonus Program, as may be from time to time determined by the Board or a committee
thereof.
(b)
Long-Term Incentive Compensation
. The Executive shall be eligible to participate in any
long-term incentive compensation plan generally made available to similarly situated executive
officers of the Company in accordance with and subject to the terms of such plans, including the
Companys Annual Stock-Based Incentive Award Plan for Senior Executives, as may from time to time
be determined by the Board of a committee thereof.
(c)
Other Compensation
. The Company may, upon recommendation of the Board or a committee
thereof, award to the Executive such other bonuses and compensation as it deems appropriate and
reasonable.
6.
Benefits
. During the term of this Agreement, the Company shall provide the
following benefits to the Executive:
(a)
Medical
. The Company will provide the Executive health coverage for himself and his family
in accordance with the Companys health and medical insurance plans, as the same may be in effect
from time to time. The Executive shall be responsible for paying the employee portion of the
premiums for such health and medical insurance plans.
(b)
Vacation
. Executive shall be entitled to vacation in accordance with the Companys general
vacation policies and practices as may be in effect from time to time. For vacation policy purposes
only, the Executive shall be credit with 15 years of service as of the date his employment with the
Company commenced.
(c)
General Benefits
. The Executive shall be entitled to participate in all employee benefit plans
and arrangements of the Company that may be in effect from time to time
and as may from time to time be made available to the other similarly situated executive officers
of the Company, subject to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements.
(d)
No Limitation of Companys Rights
. Nothing in this Section 6 shall be construed to limit
or restrict the complete discretion of the Company to amend, modify or terminate any employee
benefit plan or plans of the Company where such action generally affects plan participants or
employees, including the Executive.
(e)
Insurance
. The Company shall provide Executive with $2,500 per annum for the purpose of
Executive procuring a term insurance policy that names such person(s) of Executives choosing as
beneficiary(ies).
7.
Travel Expenses
. The Company shall pay or reimburse the Executive for all
reasonable and necessary travel and other expenses incurred or paid by the Executive in connection
with the performance of his duties under this Agreement upon presentation of expense statements or
vouchers and such other supporting information as the Company may from time to time reasonably
request. However, the amount available for such travel and other expenses may be fixed in advance
by the Company.
8.
Termination
. This Agreement shall terminate prior to the Term expiration date,
hereinabove set forth, in the event that the Executive shall die or the Board shall reasonably
determine that the Executive has become disabled, or if the Executives employment shall be
terminated for cause or without cause, as hereinafter provided.
(a)
Disability
. The Board may determine that the Executive has become disabled, for purposes
of this Agreement, in the event that the Executive shall fail, because of illness or incapacity, to
render for three successive months, or for shorter periods aggregating three months or more in any
period of twelve months, services of the character contemplated by this Agreement; and thereupon
this Agreement and all rights of the Executive hereunder shall be deemed to have been terminated as
of the end of the calendar month in which such determination is made.
(b)
For Cause
. The Board may dismiss the Executive for cause in the event that it determines
that there has been willful misconduct by the Executive in connection with the performance of his
duties hereunder, or any other conduct on the part of the Executive which has been materially
injurious to the Company; and thereupon this Agreement shall terminate effective upon the delivery
to the Executive of 30-day written notice that the Board has made such determination. For purposes
of this Agreement, cause shall be determined only by a good faith finding thereof by the Board,
which shall afford the Executive the opportunity to appear before it prior to finalizing any such
determination.
(c)
Without Cause
. The Executive may resign without cause at any time upon 30 days written
notice to the Company, in which event the Companys obligation to compensate him ceases on the
effective date of his termination except as to amounts due to him under Section 8(c)(i). In the
event that the Company dismisses the Executive other than for cause, or if the Executive resigns
because of a material breach of this Agreement by the Company (which Executive may do only if such
breach remains materially uncured after the Executive has provided 30 days prior written notice to
the Board), and the Executives dismissal or resignation qualifies as a separation from service
for purposes of Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations and other official guidance issued thereunder (collectively, Section 409A), then the
Company shall provide to the Executive:
(i) payment of the compensation due to him through the effective date of the termination of
the Executives employment, within ten business days following such effective date of the
termination of the Executives employment;
(ii) continuation of the Executives salary for twelve months following the effective date of
the termination of the Executives employment at the higher of the rate specified in Section 4 or
the highest salary rate in effect for the Executive during the one-year period preceding the
termination of his employment, which salary continuation shall be paid monthly in accordance with
the Companys regular payroll practices
(iii) payment of any Accrued Bonus (as defined below), to be paid as soon as administratively
practicable after the six-month anniversary of the effective date of the termination of the
Executives employment. Accrued Bonus shall mean any amount of bonus with respect to any year prior
to the year in which dismissal without cause occurs (Prior Bonus Year) calculable by applying the
formula prescribed by the Companys incentive compensation plan as it existed on December 31 of
such Prior Bonus Year and employing in the application of such formula the goals, ratios and
weighting percentages and other variable figures which the bonus plan calls for the Companys Board
or any committee thereof to determine annually (Bonus Plan Variables) which the Companys Board
of Directors or any committee thereof adopted for purposes of the bonus plan prior to December 31
of such Prior Bonus Year. Notwithstanding any other provision of this Section, no Accrued Bonus
shall be payable pursuant to this Section 8© for any Prior Bonus Year with respect to which a bonus
amount was paid to and accepted by the Executive.
(iv) Notwithstanding anything to the contrary, to the extent that any payments under Section
8(c) are subject to a six-month waiting period under Section 409A, any such payments that would be
payable before the expiration of six months following the Executives separation from service but
for the operation of this sentence shall be made during the seventh month following the Executives
separation from service
(d) In the event that the provisions of this Section 8(c) are triggered, the Executive shall
resign from all offices and directorships of the Company and of all subsidiaries and affiliates of
the Company, upon payment to the Executive of the amount referred to in Section 8(c)(i).
(e)
Release of Claims
. The Companys obligation to provide the payments under this Section 8
is conditioned upon the Executives execution of an enforceable release of all claims (and upon the
expiration of all applicable rescission periods contained in such release) and his compliance with
all provisions of this Agreement. If the Executive chooses not to execute such a release (or
rescinds such release) or fails to comply with these provisions, then the Companys obligation to
compensate him ceases on the effective date of his termination except as to amount due to him under
Section 8(c)(i).
(f)
Return of Confidential Documentation
. Upon termination of his employment for any reason
whatsoever, the Executive shall return to the Company all working papers, computer equipment,
notebooks, strategic plans and other confidential documents and information, in any form
whatsoever.
9.
Change in Control
.
(a)
Continuation by Executive of Employment Pending Change in Control
. In the event a person
begins a tender or exchange offer, circulates a proxy to stockholders, or takes other steps seeking
to effect a Change in Control (as hereinafter defined), the Executive agrees that he will not
voluntarily leave the employ of the Company, and will render the services contemplated in this
Agreement, until such person has either abandoned or terminated his or its efforts to effect a
Change in Control or until three months after a Change in Control has occurred.
(b)
Post-Change in Control Termination Benefits
. In addition to the benefits otherwise payable
to the Executive (other than Sections 8(c)(ii) and (iii)) pursuant to this Agreement, upon the
event of a Termination (as hereinafter defined) of the Executives employment with the Company
within two years after a Change in Control
(i) The Company will pay to the Executive as compensation for services rendered to the Company
a lump sum (subject to any applicable payroll or other taxes required to be withheld) in an amount
equal to (i) one dollar less than three times the Executives annualized tax-includable
compensation, including bonus compensation, for the five most recent taxable years ending before
the date of the Change in Control; or (ii) if the Executive was employed by the Company for less
than five years, one dollar less than three times the Executives annualized tax includable
compensation including bonus compensation for the period during which the individual was
continuously employed by the Company and ending on the date of the Change in Control of the
Company. The payment shall be made as soon as administratively practicable after the six-month
anniversary of the effective date of the termination of the Executives employment. In the event
the Executive dies prior to receiving the lump sum payment, but following the occurrence of any
event requiring the Company to make the payment required by this Section 9(b)(i), the payment
provided for by this Section 9(b)(i) shall be paid to the Executives estate as soon as
administratively practicable after the date of the Executives death. The payment under this
Section 9(b)(i) shall be made in lieu of the payments provided for by Sections 8(c)(ii) and (iii).
(ii) The Company shall accelerate and make immediately exercisable in full any unvested stock
options or shares of restricted stock that the Executive then holds. Accelerated stock options
shall be exercisable by the Executive in accordance with their terms.
(iii) The Company shall pay and provide to the Executive (or, in the event of his death, to
his estate) as soon as administratively practicable after the six-month anniversary of the
effective date of the termination of the Executives employment (or, in the event of his death, as
soon as administratively practicable after the date of his death), a lump sum payment in an amount
equal to the excess, if any, of:
(1) the value of the aggregate benefits to which he would be entitled under any and all
qualified and non-qualified defined contribution pension plans maintained by, or covering employees
of, the Company if he were 100 percent vested thereunder, such benefits to be determined as of the
date of termination of employment; or
(2) the value of the benefits to which he is actually entitled under such defined contribution
pension plans as of the date of his termination.
(iv) The Executive shall not be obligated to seek other employment in mitigation of the
amounts payable or arrangements made under any provision of this Agreement, nor shall any payments
under this Agreement be reduced on account of any compensation,
benefits or service credits for benefits from any employment that the Executive may obtain
following his Termination.
(v) The Companys obligation to provide the payments under this Section 9(b) is conditioned
upon the Executives execution of an enforceable release of all claims (and upon the expiration of
all applicable rescission periods contained in such release) and his compliance with all provisions
of this Agreement. If the Executive chooses not to execute such a release (or rescinds such
release) or fails to comply with these provisions, then the Companys obligation to compensate him
ceases on the effective date of his termination except as to amount due to him under Section
8(c)(i).
(c) Definitions.
(i) For the purposes of this Agreement, the term Change in Control shall mean:
(1) any person within the meaning of Section 14(d) of the Securities Exchange Act of 1934,
as amended (the Exchange Act), other than the Company, a subsidiary, or any employee benefit
plan(s) sponsored by the Company or any subsidiary, acquires (or has acquired during the 12-month
period ending on the date of the most recent acquisition by such person or persons) 30 percent or
more of the combined voting power of the outstanding securities of the Company ordinarily having
the right to vote at the election of directors;
(2) individuals who constitute the Board on the effective date of this Agreement (the
Incumbent Board) have ceased for any reason to constitute at least a majority thereof (or a
majority of the Board as then constituted), provided that any person becoming a director subsequent
to the effective date of this Agreement whose election, or nomination for election by the Companys
stockholders, was approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in
which such person is named as a nominee for director without objection to such nomination) shall
be, for purposes of this Plan, considered as though such person were a member of the Incumbent
Board;
(3) the closing of a reorganization, merger or consolidation of the Company, other than one
with respect to which all or substantially all of those persons who were the beneficial owners,
immediately prior to such reorganization, merger or consolidation, of outstanding securities of the
Company ordinarily having the right to vote in the election of directors own, immediately after
such transaction, more than three-quarters of the outstanding securities of the resulting
corporation ordinarily having the right to vote in the election of directors;
(4) the closing of a sale or other disposition of all or substantially all of the assets of
the Company, other than to a subsidiary; or
(5) the complete liquidation and dissolution of the Company.
(ii) For the purposes of this Section 9, the term Termination shall mean termination by the
Company of the employment of the Executive with the Company (including its subsidiaries) for any
reason other than death, disability or cause (as defined herein), or resignation of the Executive,
that qualifies as a separation from service for purposes of Section 409A, upon the occurrence of
either of the following events:
(1) A change in the nature or scope of the Executives authority from that prior to a Change
in Control, a reduction in the Executives total compensation (including all and any base
compensation, bonuses, incentive compensation and benefits of any kind or nature whatsoever) from
that prior to a Change in Control, or failure of the Company to make any increase in compensation
to which the Executive may be entitled under any employment agreement, or a change requiring the
Executive to perform services other than in Batavia, New York or in any location more than thirty
miles distant from Batavia, New York by road, except for required travel on the Companys business
to an extent substantially consistent with the Executives present business travel obligations; or
(2) A reasonable determination (as defined below) by the Executive that, as a result of a
Change in Control and a change in circumstances thereafter significantly affecting his position, he
is unable to exercise the authority, powers, function or duties attached to his position.
(iii) Termination of employment by the Executive in his reasonable determination shall mean
termination based on:
(1) subsequent to a Change in Control of the Company, and without the Executives express
written consent, the assignment to him of any duties inconsistent with his positions, duties,
responsibilities and status with the Company immediately prior to a Change in Control, or a change
in the Executives reporting responsibilities, titles, or offices as in effect immediately prior to
a Change in Control, or any removal of the Executive from or any failure to re-elect him to any of
such positions, except in connection with the termination of his employment for cause, disability
or retirement or as a result of his death or by the Executive other than in a reasonable
determination; or
(2) subsequent to a Change in Control of the Company, a reduction by the Company in the
Executives base salary as in effect on the date hereof or as the same may be increased from time
to time, or failure of the Company to make an increase in compensation to which the Executive may
be entitled under any employment agreement; or
(3) subsequent to a Change in Control of the Company, a failure by the Company to continue any
bonus plans in which the Executive is presently entitled to participate (the Bonus Plans) as the
same may be modified from time to time but substantially in the forms currently in effect, or a
failure by the Company to continue the Executive as a participant in the Bonus Plans on at least
the same basis as he presently participates in accordance with the Bonus Plans; or
(4) subsequent to a Change in Control of the Company, the failure by the Company to continue
in effect (subject to such changes as may be required by law from time to time) any benefit or
compensation plan, stock ownership plan, stock purchase plan, stock option plan, life insurance
plan, health-and-accident plan or disability plan in which the Executive is participating at the
time of Change in Control of the Company (or plans providing him with substantially similar
benefits), the taking of any action by the Company which would adversely affect the Executives
participation in or materially reduce his benefits under any of such plans or deprive him of any
material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by the
Company to provide him with the number of paid vacation days to which he is then entitled in
accordance with the Companys normal vacation policy in effect on the date hereof; or
(5) prior to a Change in Control of the Company, the failure by the Company to obtain the
assumption of the agreement to perform this Agreement by any successor as contemplated in Section
17.
(d) Golden Parachute Limitation.
(i) In the event that the independent auditors most recently selected by the Board (the
Auditors) determine that any payment by the Company under this Section 9(d) to or for the benefit
of the Executive would be nondeductible by the Company for federal income tax purposes because of
the provisions concerning excess parachute payments in Section 280G of the Code, then the total
amount of all payments under this Section 9(d) shall be reduced (but not below zero) to the Reduced
Amount. For purposes of this Section 9(d), the Reduced Amount shall be the amount that maximizes
the total amount of the payments without causing any payment to be nondeductible by the Company
because of Section 280G of the Code.
(ii) If the Auditors determine that any payment under this Section 9(d) would be nondeductible
by the Company because of Section 280G of the Code, then the Company shall promptly give the
Executive notice to that effect and a copy of the detailed calculation thereof and of the Reduced
Amount, and the Executive may then elect, in his sole discretion, which and how much of the
payments shall be eliminated or reduced (as long as after such election the aggregate present value
of the payments equals the Reduced Amount) and shall advise the Company in writing of his election
within ten days of receipt of notice. If no such election is made by the Executive within such
ten-day period, then the Company may elect which and how much of the payments under this Section
9(d) shall be eliminated or reduced (as long as after such election the aggregate present value of
the payments equals the Reduced Amount) and shall notify the Executive promptly of such election.
All determinations made by the Auditors under this Section 9(d) shall be binding upon the Company
and the Executive and shall be made within 60 days of the date when a payment becomes payable.
As a result of uncertainty in the application of Section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that payments will have been made by the
Company that should not have been made (an Overpayment) or that additional payments that will not
have been made by the Company could have been made (an Underpayment), consistent in each case
with the calculation of the Reduced Amount hereunder. In the event that the Auditors, based upon
the assertion of a deficiency by the Internal Revenue Service against the Company or the Executive
that the Auditors believe has a high probability of success, determine that an Overpayment has been
made, such Overpayment shall be treated for all purposes as a loan to the Executive which he or she
shall repay to the Company, together with interest at the applicable federal rate provided in
Section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Executive
to the Company if and to the extent that such payment would not reduce the amount subject to
taxation under Section 4999 of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Underpayment shall promptly be paid or transferred by the Company
to or for the benefit of the Executive, together with interest at the applicable federal rate
provided in Section 7872(f)(2) of the Code.
(e) Notwithstanding anything to the contrary, to the extent that any payments under Section 9
are subject to a six-month waiting period under Section 409A, any such payments that would be
payable before the expiration of six months following the Executives separation from service but
for the operation of this sentence shall be made during the seventh month following the Executives
separation from service
(10)
Covenants of Executive
. The Executive acknowledges that: (i) the business of the
Company and its affiliates, as currently conducted and as conducted from time to time throughout
the term of this Agreement (collectively, the Business), is conducted by and is proposed to be
conducted by the Company on a world-wide basis (the Companys Market); (ii) the Business involves
providing design, engineering and manufacture of certain vacuum and heat transfer equipment,
including but not limited to steam condensers, steam jet ejectors, shell and tube heat exchangers,
plate and frame heat exchangers, Heliflow heat exchangers, liquid ring vacuum pumps and rotary
piston pumps; (iii) the Company has developed trade secrets and confidential information concerning
the Business; and (iv) the agreements and covenants contained in this Section 10 are essential to
protect the Business. In order to induce the Company to enter into this Employment Agreement, the
Executive covenants and agrees that:
(a)
Agreement Not To Compete
. For a period of 18 months after the termination of Executives
employment with the Company for any reason (such period of time hereinafter referred to as the
Restricted Period), neither the Executive nor any entity of which 20 percent or more of the
beneficial ownership is held by the Executive or a person related to the Executive by blood or
marriage (Controlled Entity) will, anywhere in the Companys Market, directly or indirectly own,
manage, operate, control, invest or acquire an interest in, or otherwise engage or participate in,
whether as a proprietor, partner, stockholder, director, officer, member manager, employee or
otherwise any business which competes in the Companys Market with the Business, without the prior
written consent of the Company. Notwithstanding any other provisions of this Agreement, the
Executive may make a passive investment in any publicly-traded company or entity in an amount not
to exceed five percent of the voting stock of any such company or entity.
(b)
Agreement Not To Interfere in Business Relationships
.
(i) During the Restricted Period, neither the Executive nor any Controlled Entity will
directly or indirectly solicit, induce or influence any customer, or any other person which has a
business relationship with the Company or any affiliate, or which had on the date of this Agreement
such a relationship with the Company or any affiliate, to discontinue or reduce the extent of such
relationship with the Company or any affiliate in the Companys Market.
(ii) During the Restricted Period, neither the Executive nor any Controlled Entity will (1)
directly or indirectly recruit, solicit or otherwise induce or influence any stockholder or
employee of the Company or any of its affiliates to discontinue such employment or other
relationship with the Company or any affiliate, or (2) employ or seek to employ, or cause any
business which competes in the Companys Markets to employ or seek to employ for any reason, any
person who is then (or was at any time within six months prior to the date the Executive or such
business employs or seeks to employ such person) employed by the Company or any affiliate without
the prior written consent of the Company.
(c)
Confidentiality
. During the Restricted Period, neither the Executive nor any Controlled Entity
will directly or indirectly disclose to anyone, or use or otherwise exploit for the Executives or
any Controlled Entitys own benefit or for the benefit of anyone other than the Company, any
confidential information, including, without limitation, any confidential know-how, trade
secrets, customer lists, details of customer contracts, pricing policies, operational methods,
marketing plans or strategies, product development techniques or plans, business acquisition plans
and new personnel acquisition plans of the Company or any affiliate related to the Business or any
portion or phase of any scientific, engineering or technical information, design, process,
procedure, formula, improvement, discovery, invention, machinery or device of
the Company or any affiliate, whether or not in written or tangible form (all of the preceding is
hereinafter referred to as Confidential Information). The term Confidential Information does
not include, and there shall be no obligation hereunder with respect to, information that becomes
generally available to the public or the Companys competitors other than as a result of a
disclosure by the Executive or a Controlled Entity or any agent or other representative thereof.
Neither the Executive nor any Controlled Entity shall have any obligation hereunder to keep
confidential any Confidential Information to the extent disclosure is required by law, or
determined in good faith by the Executive to be necessary or appropriate to comply with any legal
or regulatory order, regulation or requirement; provided, however, that in the event disclosure is
required by law, the Executive or the Controlled Entity concerned shall provide the Company with
prompt advance written notice of such requirement so that the Company may seek an appropriate
protective order. It is understood that in any new employment, the Executive may use his ordinary
skill and non-confidential knowledge, even though said skill and non-confidential knowledge may
have been gained at the Company. The Executives obligations under this Section 10(c) shall be in
addition to, not in substitution for, any common law fiduciary duties the Executive has to the
Company regarding information acquired during the course of his employment.
(d)
Intellectual Property
. The Executive shall communicate to the Company full information
concerning all inventions, improvements, discoveries, formulas, processes, systems of organization,
management procedures, software or computer applications (hereinafter, collectively, Intellectual
Property) made or conceived by him either solely or jointly with others while in the employ of the
Company, whether or not perfected during his period of employment and which shall be within the
existing or contemplated scope of the Companys business during his employment. The Executive will
assist the Company and its nominees in every way at the Companys expense in obtaining patents for
such Intellectual Property as may be patentable in any and all countries and the Executive will
execute all papers the Company may desire and assignments thereof to the Company or its nominees
and said Intellectual Property shall be and remain the property of the Company and its nominees, if
any, whether patented or not or assigned or not.
(e)
Survival of Covenants
. In the event of a termination of this Agreement, the covenants and
agreements contained in this Section 10 and in Section 9 and Sections 12 through 20 shall survive,
shall continue thereafter, and shall not expire unless and except as expressly set forth in this
Section.
(f)
Remedies
. The parties to this Agreement agree that (i) if either the Executive or any
Controlled Entity breaches any provision of this Section 10, the damage to the Company and its
affiliates will be substantial, although difficult to ascertain, and money damages will not afford
an adequate remedy, and (ii) if either the Executive or any Controlled Entity is in breach of this
Agreement, or threatens a breach of this Agreement, the Company shall be entitled in its own right
and/or on behalf of one or more of its affiliates, in addition to all other rights and remedies as
may be available at law or in equity, to (1) injunctive and other equitable relief to prevent or
restrain a breach of this Agreement and (2) may require the breaching party to pay damages as the
result of any transactions constituting a breach hereof.
(11)
Indemnification of Executive
. In the event the Executive is terminated for any reason,
(a) the Company will hold harmless and indemnify the Executive for all third party claims, actions
or other proceedings against the Executive initiated either prior to the termination of employment
or thereafter which relate to duties performed in good faith by the Executive while employed by the
Company; and (b) the Company will retain the Executive as named insured under any directors and
officers insurance policies it may have, for acts of the
Executive during the time he served as an officer of the Company. Additionally, all reasonable
legal and other costs incurred by the Executive to defend himself will be paid by the Company, as
the Executive is billed for such costs, within ten days of periodic submission to the Company of
statements of charges of attorneys and statements of other expenses incurred by the Executive in
connection with such defense.
(12)
Effect of Waiver
. The waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent breach thereof.
(13)
Notice
. Any and all notices provided for herein shall be in writing and shall be
physically delivered or mailed by registered or certified mail, return receipt requested to the
parties at their respective addresses set forth hereinabove. Either party may from time to time
designate a different address for notices to be sent to such party by giving the other party due
notice of such different address.
(14)
Modification and Assignment
. This Agreement shall not be modified or amended
except by an instrument in writing signed by the parties hereto. This Agreement and all of its
terms and conditions shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, legal representatives, successors and assigns, including but not limited to
any corporation or other entity with or into which the Company is merged or consolidated or any
other successor of the Company. The Executive agrees that he will not and may not assign, transfer
or convey, pledge or encumber this Agreement or his right, title or interest therein, or his power
to execute the same or any monies due or to become due hereunder, this Agreement being intended to
secure the personal services of the Executive, and the Company shall not recognize any such
assignment, transfer, conveyance, pledge or encumbrance.
(15)
Applicable Law
. This Agreement and the rights and obligations of the parties
hereunder shall be construed and interpreted in accordance with the laws of the State of New York,
without giving effect to the conflict of laws provisions thereof. Any action or proceeding brought
by either party against the other arising out of or related to the Agreement shall be brought only
in a state court of competent jurisdiction located in the County of Monroe, State of New York or
the Federal District Court for the Western District of New York located in Monroe County, New York
and the parties hereby consent to the personal jurisdiction and venue of said courts.
(16)
Prior Agreements
. This Agreement shall supersede any prior employment agreement,
arrangement or understanding between the Company and the Executive, without limitation, and shall
be effective from the date specified hereinabove.
(17)
Business Combinations
. In the event of any sale, merger or any form of business
combination affecting the Company, including without limitation the purchase of assets or any other
form of business combination, the Company will obtain the express written assumption of this
Agreement by the acquiring or surviving entity from such combination, and failure of the Company to
obtain such an assumption will constitute a breach of this Agreement, entitling the Executive to
all payments and other benefits to be provided in the event of termination without cause provided
in Section 9(c).
(18)
Section 409A
. This Agreement is intended to comply with Section 409A to the extent its
provisions are subject to that law. The parties agree that they will negotiate in good faith
regarding amendments necessary to bring this Agreement into compliance with the terms of that
Section or an exemption therefrom as interpreted by guidance issued by the Internal Revenue
Service, taking into account any limitations on amendments imposed by Section 409A or Internal
Revenue Service guidance. The parties further agree that to the extent the terms of this Agreement
fail to qualify for exemption from or satisfy the requirements of Section 409A, this Agreement may
be operated in compliance with Section 409A pending amendment to the extent authorized by the
Internal Revenue Service. In such circumstances the Company and the Executive will administer the
Agreement in a manner which adheres as closely as possible to the existing terms and intent of the
Agreement while complying with Section 409A.
(19)
Headings
. The section headings of this Agreement are for convenience of reference
only and are not to be considered in the interpretation of the terms and conditions of this
Agreement.
(20)
Invalidity or Unenforceability
. If any term or provision of this Agreement is
held to be invalid or unenforceable, for any reason, such invalidity or unenforceability shall not
affect any other term or provision hereof and this Agreement shall continue in full force and
effect as if such invalid or unenforceable term or provision (to the extent of the invalidity or
unenforceability) had not been contained herein. If any court determines that any provision of
Section 10 hereof is unenforceable because of the duration or geographic scope of such provision,
such court shall have the power to reduce the scope or duration of such provision, as the case may
be, and, in its reduced form, such provision shall then be enforceable.
(21)
Counterparts
. This Agreement may be executed in any number of counterparts, each
of which for all purposes shall be deemed to be an original.
[Remainder of page intentionally left blank]
[Signature page to Jeffrey Glajch Employment Agreement]
IN WITNESS WHEREOF, the parties hereto have duly executed this agreement as of the day and
year first above written.
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GRAHAM CORPORATION
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By:
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Name:
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James R. Lines
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Title:
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President and Chief Financial Officer
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Jeffrey Glajch
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STATE OF NEW YORK
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)
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) ss.:
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COUNTY OF MONROE
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On this ___ day of July, 2010, before me personally came James R. Lines, to me known, who,
being by me duly sworn did depose and say that the above-named person resides in Lancaster, New
York, that said person is the President and the Chief Executive Officer of Graham Corporation, the
corporation described in and which executed the foregoing instrument; and that the above-named
person signed thereto by order of the Board of Directors of said corporation.
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Notary Public
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[Notary Stamped]
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STATE OF NEW YORK
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)
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) ss.:
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COUNTY OF MONROE
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On the ___ day of July, 2010, before me came Jeffrey Glajch, who, being by me duly sworn did
depose and say that the above-named person resides in
, New York, and such person
proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to
the above agreement and acknowledged to me that he executed the same in his individual.
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Notary Public
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[Notary Stamped]
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