NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except per share data)
NOTE 1 – BASIS OF PRESENTATION:
Graham Corporation's (the "Company's") Condensed Consolidated Financial Statements include its wholly-owned foreign subsidiaries located in Suzhou, China and Ahmedabad, India. The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP") for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X, each as promulgated by the U.S. Securities and Exchange Commission. The Company's Condensed Consolidated Financial Statements do not include all information and notes required by GAAP for complete financial statements. The unaudited Condensed Consolidated Balance Sheet as of March 31, 2020 presented herein was derived from the Company’s audited Consolidated Balance Sheet as of March 31, 2020. For additional information, please refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2020 ("fiscal 2020"). In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair presentation, have been included in the Company's Condensed Consolidated Financial Statements.
The Company's results of operations and cash flows for the three and nine months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the current fiscal year, which ends March 31, 2021 ("fiscal 2021").
NOTE 2 – REVENUE RECOGNITION:
The Company recognizes revenue on contracts when or as it satisfies a performance obligation by transferring control of the product to the customer. For contracts in which revenue is recognized upon shipment, control is generally transferred when products are shipped, title is transferred, significant risks of ownership have transferred, the Company has rights to payment, and rewards of ownership pass to the customer. For contracts in which revenue is recognized over time, control is generally transferred as the Company creates an asset that does not have an alternative use to the Company and the Company has an enforceable right to payment for the performance completed to date.
The following table presents the Company’s revenue disaggregated by product line and geographic area:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Product Line
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Heat transfer equipment
|
|
$
|
8,165
|
|
|
$
|
7,062
|
|
|
$
|
32,145
|
|
|
$
|
21,394
|
|
Vacuum equipment
|
|
|
14,969
|
|
|
|
12,969
|
|
|
|
26,901
|
|
|
|
27,232
|
|
All other
|
|
|
4,020
|
|
|
|
5,255
|
|
|
|
12,772
|
|
|
|
18,896
|
|
Net sales
|
|
$
|
27,154
|
|
|
$
|
25,286
|
|
|
$
|
71,818
|
|
|
$
|
67,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
$
|
11,211
|
|
|
$
|
723
|
|
|
$
|
20,903
|
|
|
$
|
4,960
|
|
Canada
|
|
|
1,874
|
|
|
|
2,666
|
|
|
|
4,804
|
|
|
|
5,910
|
|
Middle East
|
|
|
806
|
|
|
|
7,498
|
|
|
|
2,243
|
|
|
|
8,783
|
|
South America
|
|
|
2,426
|
|
|
|
808
|
|
|
|
5,238
|
|
|
|
3,284
|
|
U.S.
|
|
|
10,716
|
|
|
|
13,409
|
|
|
|
37,406
|
|
|
|
43,589
|
|
All other
|
|
|
121
|
|
|
|
182
|
|
|
|
1,224
|
|
|
|
996
|
|
Net sales
|
|
$
|
27,154
|
|
|
$
|
25,286
|
|
|
$
|
71,818
|
|
|
$
|
67,522
|
|
A performance obligation represents a promise in a contract to provide a distinct good or service to a customer. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Transaction price reflects the amount of consideration to which the Company expects to be entitled in exchange for transferred products. A contract’s transaction
10
price is allocated to each distinct performance obligation and revenue is recognized as the performance obligation is satisfied. In certain cases, the Company may separate a contract into more than one performance obligation, while in other cases, several products may be part of a fully integrated solution and are bundled into a single performance obligation. If a contract is separated into more than one performance obligation, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods underlying each performance obligation. The Company has made an accounting policy election to exclude from the measurement of the contract price all taxes assessed by government authorities that are collected by the Company from its customers. The Company does not adjust the contract price for the effects of a financing component if the Company expects, at contract inception, that the period between when a product is transferred to a customer and when the customer pays for the product will be one year or less. Shipping and handling fees billed to the customer are recorded in revenue and the related costs incurred for shipping and handling are included in cost of products sold.
Revenue on the majority of the Company’s contracts, as measured by number of contracts, is recognized upon shipment to the customer. Revenue on larger contracts, which are fewer in number but represent the majority of revenue, is recognized over time. Revenue from contracts that is recognized upon shipment accounted for approximately 40% and 20% of revenue for the three-month periods ended December 31, 2020 and 2019, respectively, and revenue from contracts that is recognized over time accounted for approximately 60% and 80% of revenue for the three-month periods ended December 31, 2020 and 2019, respectively. Revenue from contracts that is recognized upon shipment accounted for approximately 50% and 30% of revenue for the nine-month periods ended December 31, 2020 and 2019, respectively, and revenue from contracts that is recognized over time accounted for approximately 50% and 70% of revenue for the nine-month periods ended December 31, 2020 and 2019, respectively. During the nine months ended December 31, 2020, revenue recognized over time as a percentage of total revenue was lower as compared with the prior year period due to limited production on large contracts during the first quarter of fiscal 2021 as a result of the COVID-19 pandemic, as well as the completion of two large projects in China which did not meet the criteria for recognizing revenue over time. The Company recognizes revenue over time when contract performance results in the creation of a product for which the Company does not have an alternative use and the contract includes an enforceable right to payment in an amount that corresponds directly with the value of the performance completed. To measure progress towards completion on performance obligations for which revenue is recognized over time the Company utilizes an input method based upon a ratio of direct labor hours incurred to date to management’s estimate of the total labor hours to be incurred on each contract or an output method based upon completion of operational milestones, depending upon the nature of the contract. The Company has established the systems and procedures essential to developing the estimates required to account for performance obligations over time. These procedures include monthly review by management of costs incurred, progress towards completion, identified risks and opportunities, sourcing determinations, changes in estimates of costs yet to be incurred, availability of materials, and execution by subcontractors. Sales and earnings are adjusted in current accounting periods based on revisions in the contract value due to pricing changes and estimated costs at completion. Losses on contracts are recognized immediately when evident to management.
The timing of revenue recognition, invoicing and cash collections affect trade accounts receivable, unbilled revenue (contract assets) and customer deposits (contract liabilities) on the Condensed Consolidated Balance Sheets. Unbilled revenue represents revenue on contracts that is recognized over time and exceeds the amount that has been billed to the customer. Unbilled revenue is separately presented in the Condensed Consolidated Balance Sheets. The Company may have an unconditional right to payment upon billing and prior to satisfying the performance obligations. The Company will then record a contract liability and an offsetting asset of equal amount until the deposit is collected and the performance obligations are satisfied. Customer deposits are separately presented in the Condensed Consolidated Balance Sheets. Customer deposits are not considered a significant financing component as they are generally received less than one year before the product is completed or used to procure specific material on a contract, as well as related overhead costs incurred during design and construction.
Net contract assets (liabilities) consisted of the following:
|
|
December 31, 2020
|
|
|
March 31, 2020
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unbilled revenue (contract assets)
|
|
$
|
14,950
|
|
|
$
|
14,592
|
|
|
$
|
358
|
|
Customer deposits (contract liabilities)
|
|
|
(19,115
|
)
|
|
|
(26,983
|
)
|
|
|
7,868
|
|
Net contract liabilities
|
|
$
|
(4,165
|
)
|
|
$
|
(12,391
|
)
|
|
$
|
8,226
|
|
Contract liabilities at December 31, 2020 and March 31, 2020 include $3,290 and $3,660, respectively, of customer deposits for which the Company has an unconditional right to collect payment. Trade accounts receivable, as presented on the Condensed Consolidated Balance Sheets, includes corresponding balances at December 31, 2020 and March 31, 2020, respectively. Revenue recognized in the three and nine months ended December 31, 2020 that was included in the contract liability balance at March 31, 2020 was $5,518 and $15,568, respectively. Changes in the net contract liability balance during the nine months ended December 31, 2020 were impacted by a $358 increase in contract assets, of which $27,109 was due to contract progress offset by invoicing to customers of $26,751. In addition, contract liabilities increased $7,868 driven by revenue recognized in the current period that was included in the contract liability balance at March 31, 2020 offset by new customer deposits of $7,700.
11
Receivables billed but not paid under retainage provisions in the Company’s customer contracts were $2,840 and $2,016 at December 31, 2020 and March 31, 2020, respectively.
Incremental costs to obtain a contract consist of sales employee and agent commissions. Commissions paid to employees and sales agents are capitalized when paid and amortized to selling, general and administrative expense when the related revenue is recognized. Capitalized costs, net of amortization, to obtain a contract were $60 and $45 at December 31, 2020 and March 31, 2020, respectively, and are included in the line item "Prepaid expenses and other current assets" in the Condensed Consolidated Balance Sheets. The related amortization expense was $309 and $53 in the three months ended December 31, 2020 and 2019, respectively, and $561 and $139 in the nine months ended December 31, 2020 and 2019, respectively.
The Company’s remaining unsatisfied performance obligations represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. The Company also refers to this measure as backlog. As of December 31, 2020, the Company had remaining unsatisfied performance obligations of $149,736. The Company expects to recognize revenue on approximately 45% to 50% of the remaining performance obligations within one year, 20% to 25% in one to two years and the remaining beyond two years.
NOTE 3 – INVESTMENTS:
Investments consist of certificates of deposits with financial institutions. All investments have original maturities of greater than three months and less than one year and are classified as held-to-maturity, as the Company believes it has the intent and ability to hold the securities to maturity. Investments are stated at amortized cost which approximates fair value. All investments held by the Company at December 31, 2020 are scheduled to mature on or before March 25, 2021.
NOTE 4 – INVENTORIES:
Inventories are stated at the lower of cost or net realizable value, using the average cost method.
Major classifications of inventories are as follows:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2020
|
|
Raw materials and supplies
|
|
$
|
3,389
|
|
|
$
|
3,061
|
|
Work in process
|
|
|
12,386
|
|
|
|
18,018
|
|
Finished products
|
|
|
1,688
|
|
|
|
1,212
|
|
Total
|
|
$
|
17,463
|
|
|
$
|
22,291
|
|
NOTE 5 – EQUITY-BASED COMPENSATION:
The 2020 Graham Corporation Equity Incentive Plan (the "2020 Plan") was approved by the Company’s stockholders at the Annual Meeting on August 11, 2020 and provides for the issuance of 422 shares of common stock in connection with grants of incentive stock options, non-qualified stock options, restricted stock units and stock awards to officers, key employees and outside directors. The shares available for issuance include 112 remaining available shares under the Company’s prior plan, the Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value (the "2000 Plan"). As of August 11, 2020, the effective date of the 2020 Plan, no further awards will be granted under the 2000 Plan. However, any previously outstanding award granted under the 2000 Plan remains subject to the terms of such plan until the time it is no longer outstanding.
No restricted stock awards were granted in the three-month periods ended December 31, 2020 and 2019. Restricted stock awards granted in the nine-month periods ended December 31, 2020 and 2019 were 113 and 83, respectively. Restricted shares of 54 and 40 granted to officers in fiscal 2021 and fiscal 2020, respectively, vest 100% on the third anniversary of the grant date subject to the satisfaction of the performance metrics for the applicable three-year period. Restricted shares of 38 and 28 granted to officers and key employees in fiscal 2021 and fiscal 2020, respectively, vest 33⅓% per year over a three-year term. Restricted shares of 21 and 15 granted to directors in fiscal 2021 and fiscal 2020, respectively, vest 100% on the first year anniversary of the grant date. 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. No stock option awards were granted in the three-month or nine-month periods ended December 31, 2020 and 2019.
During the three months ended December 31, 2020 and 2019, the Company recognized equity-based compensation costs related to restricted stock awards of $312 and $308, respectively. The income tax benefit recognized related to equity-based compensation was $72 and $67 for the three months ended December 31, 2020 and 2019, respectively. During the nine months ended December 31, 2020 and 2019, the Company recognized equity-based compensation costs related to restricted stock awards of $783 and $709, respectively. The income tax benefit recognized related to equity-based compensation was $183 and $156 for the nine months ended December 31, 2020 and 2019, respectively.
12
The Company has an Employee Stock Purchase Plan (the "ESPP"), which allows eligible employees to purchase shares of the Company's common stock at a discount of up to 15% of its fair market value on the (1) last, (2) first or (3) lower of the last or first day of the six-month offering period. A total of 200 shares of common stock may be purchased under the ESPP. During the three months ended December 31, 2020 and 2019, the Company recognized equity-based compensation costs of $15 and $11, respectively, related to the ESPP and $4 and $3, respectively, of related tax benefits. During the nine months ended December 31, 2020 and 2019, the Company recognized equity-based compensation costs of $38 and $22, respectively, related to the ESPP and $9 and $5, respectively, of related tax benefits.
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. 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
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Basic income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,060
|
|
|
$
|
9
|
|
|
$
|
1,986
|
|
|
$
|
1,296
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
9,977
|
|
|
|
9,884
|
|
|
|
9,950
|
|
|
|
9,874
|
|
Basic income per share
|
|
$
|
0.11
|
|
|
$
|
—
|
|
|
$
|
0.20
|
|
|
$
|
.13
|
|
Diluted income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,060
|
|
|
$
|
9
|
|
|
$
|
1,986
|
|
|
$
|
1,296
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
9,977
|
|
|
|
9,884
|
|
|
|
9,950
|
|
|
|
9,874
|
|
Stock options outstanding
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
3
|
|
Weighted average common and
potential common shares
outstanding
|
|
|
9,977
|
|
|
|
9,888
|
|
|
|
9,950
|
|
|
|
9,877
|
|
Diluted income per share
|
|
$
|
0.11
|
|
|
$
|
—
|
|
|
$
|
0.20
|
|
|
$
|
0.13
|
|
Options to purchase a total of 37 shares of common stock were outstanding at December 31, 2020 but were not included in the above computation of diluted income per share given their exercise prices as they would not be dilutive upon issuance.
NOTE 7 – PRODUCT WARRANTY LIABILITY:
The reconciliation of the changes in the product warranty liability is as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Balance at beginning of period
|
|
$
|
308
|
|
|
$
|
348
|
|
|
$
|
359
|
|
|
$
|
366
|
|
Expense for product warranties
|
|
|
28
|
|
|
|
67
|
|
|
|
23
|
|
|
|
96
|
|
Product warranty claims paid
|
|
|
(21
|
)
|
|
|
(3
|
)
|
|
|
(67
|
)
|
|
|
(50
|
)
|
Balance at end of period
|
|
$
|
315
|
|
|
$
|
412
|
|
|
$
|
315
|
|
|
$
|
412
|
|
13
The product warranty liability is included in the line item "Accrued expenses and other current liabilities" in the Condensed Consolidated Balance Sheets.
NOTE 8 – CASH FLOW STATEMENT:
Interest paid was $9 in each of the nine-month periods ended December 31, 2020 and 2019. Income taxes paid for the nine months ended December 31, 2020 and 2019 were $51 and $27, respectively.
In the nine months ended December 31, 2020 and 2019, non-cash activities included the issuance of treasury stock valued at $87 and $49, respectively, to the Company’s ESPP.
At December 31, 2020 and 2019, there were $37 and $10, respectively, of capital purchases that were recorded in accounts payable and are not included in the caption "Purchase of property, plant and equipment" in the Condensed Consolidated Statements of Cash Flows.
NOTE 9 – EMPLOYEE BENEFIT PLANS:
The components of pension cost are as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Service cost
|
|
$
|
115
|
|
|
$
|
124
|
|
|
$
|
346
|
|
|
$
|
372
|
|
Interest cost
|
|
|
303
|
|
|
|
322
|
|
|
|
909
|
|
|
|
968
|
|
Expected return on assets
|
|
|
(628
|
)
|
|
|
(663
|
)
|
|
|
(1,885
|
)
|
|
|
(1,992
|
)
|
Amortization of actuarial loss
|
|
|
259
|
|
|
|
242
|
|
|
|
779
|
|
|
|
726
|
|
Net pension cost
|
|
$
|
49
|
|
|
$
|
25
|
|
|
$
|
149
|
|
|
$
|
74
|
|
The Company made no contributions to its defined benefit pension plan during the nine months ended December 31, 2020 and does not expect to make any contributions to the plan for the balance of fiscal 2021.
The components of the postretirement benefit cost are as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Interest cost
|
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
13
|
|
|
$
|
16
|
|
Amortization of actuarial loss
|
|
|
7
|
|
|
|
7
|
|
|
|
20
|
|
|
|
21
|
|
Net postretirement benefit cost
|
|
$
|
11
|
|
|
$
|
12
|
|
|
$
|
33
|
|
|
$
|
37
|
|
The Company paid no benefits related to its postretirement benefit plan during the nine months ended December 31, 2020. The Company expects to pay benefits of approximately $77 for the balance of fiscal 2021.
The components of net periodic benefit cost other than service cost are included in the line item “Other income” in the Condensed Consolidated Statements of Income.
The Company self-funds the medical insurance coverage it provides to its U.S. based employees. The Company maintains a stop loss insurance policy in order to limit its exposure to claims. The liability of $138 and $124 on December 31, 2020 and March 31, 2020, respectively, related to the self-insured medical plan is primarily based upon claim history and is included in the caption “Accrued compensation” as a current liability in the Condensed Consolidated Balance Sheets.
NOTE 10 – COMMITMENTS AND CONTINGENCIES:
The Company has been named as a defendant in lawsuits alleging personal injury from exposure to asbestos allegedly contained in, or accompanying, products made by the Company. The Company is a co-defendant with numerous other defendants in these lawsuits and intends to vigorously defend itself against these claims. The claims in the Company’s current lawsuits are similar to those made in previous asbestos-related suits that named the Company as a defendant, which either were dismissed when it was shown that the Company had not supplied products to the plaintiffs’ places of work or were settled for immaterial amounts. The Company cannot provide any assurances that any pending or future matters will be resolved in the same manner as previous lawsuits.
14
As of December 31, 2020, the Company was subject to the claims noted above, as well as other legal proceedings and potential claims that have arisen in the ordinary course of business.
Although the outcome of the lawsuits, legal proceedings or potential claims to which the Company is, or may become, a party to cannot be determined and an estimate of the reasonably possible loss or range of loss cannot be made for the majority of the claims, management does not believe that the outcomes, either individually or in the aggregate, will have a material adverse effect on the Company’s results of operations, financial position or cash flows.
NOTE 11 – INCOME TAXES:
The Company files federal and state income tax returns in several domestic and international jurisdictions. In most tax jurisdictions, returns are subject to examination by the relevant tax authorities for a number of years after the returns have been filed. The Company is subject to U.S. federal examination for the tax years 2016 through 2019 and examination in state tax jurisdictions for the tax years 2015 through 2019. The Company is subject to examination in the People’s Republic of China for tax years 2016 through 2019 and in India for tax year 2019.
There was no liability for unrecognized tax benefits at either December 31, 2020 or March 31, 2020.
NOTE 12 – CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS:
The changes in accumulated other comprehensive loss by component for the nine months ended December 31, 2020 and 2019 are as follows:
|
|
Pension and
Other
Postretirement
Benefit Items
|
|
|
Foreign
Currency
Items
|
|
|
Total
|
|
Balance at April 1, 2020
|
|
$
|
(9,472
|
)
|
|
$
|
(84
|
)
|
|
$
|
(9,556
|
)
|
Other comprehensive income before reclassifications
|
|
|
—
|
|
|
|
416
|
|
|
|
416
|
|
Amounts reclassified from accumulated other comprehensive
loss
|
|
|
614
|
|
|
|
—
|
|
|
|
614
|
|
Net current-period other comprehensive income
|
|
|
614
|
|
|
|
416
|
|
|
|
1,030
|
|
Balance at December 31, 2020
|
|
$
|
(8,858
|
)
|
|
$
|
332
|
|
|
$
|
(8,526
|
)
|
|
|
Pension and
Other
Postretirement
Benefit Items
|
|
|
Foreign
Currency
Items
|
|
|
Total
|
|
Balance at April 1, 2019
|
|
$
|
(8,947
|
)
|
|
$
|
114
|
|
|
$
|
(8,833
|
)
|
Other comprehensive loss before reclassifications
|
|
|
—
|
|
|
|
(135
|
)
|
|
|
(135
|
)
|
Amounts reclassified from accumulated other comprehensive
loss
|
|
|
583
|
|
|
|
—
|
|
|
|
583
|
|
Net current-period other comprehensive income (loss)
|
|
|
583
|
|
|
|
(135
|
)
|
|
|
448
|
|
Balance at December 31, 2019
|
|
$
|
(8,364
|
)
|
|
$
|
(21
|
)
|
|
$
|
(8,385
|
)
|
The reclassifications out of accumulated other comprehensive loss by component for the three and nine months ended December 31, 2020 and 2019 are as follows:
Details about Accumulated Other
Comprehensive Loss Components
|
|
Amount Reclassified from
Accumulated Other
Comprehensive Loss
|
|
|
|
Affected Line Item in the Condensed
Consolidated Statements of Income
|
|
|
Three Months Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
Pension and other postretirement benefit items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss
|
|
$
|
(266
|
)
|
(1)
|
|
$
|
(249
|
)
|
(1)
|
|
Income before provision for income taxes
|
|
|
|
(61
|
)
|
|
|
|
(55
|
)
|
|
|
Provision for income taxes
|
|
|
$
|
(205
|
)
|
|
|
$
|
(194
|
)
|
|
|
Net income
|
15
Details about Accumulated Other
Comprehensive Loss Components
|
|
Amount Reclassified from
Accumulated Other
Comprehensive Loss
|
|
|
|
Affected Line Item in the Condensed
Consolidated Statements of Income
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
Pension and other postretirement benefit items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss
|
|
$
|
(799
|
)
|
(1)
|
|
$
|
(747
|
)
|
(1)
|
|
Income before provision for income taxes
|
|
|
|
(185
|
)
|
|
|
|
(164
|
)
|
|
|
Provision for income taxes
|
|
|
$
|
(614
|
)
|
|
|
$
|
(583
|
)
|
|
|
Net income
|
(1)
|
These accumulated other comprehensive loss components are included within the computation of pension and other postretirement benefit costs. See Note 9.
|
NOTE 13 – DEBT:
On December 2, 2020, the Company entered into a new revolving credit facility agreement with JPMorgan Chase Bank, N.A. that provides a $22,000 line of credit, expandable at the Company’s option and upon the bank’s approval at any time up to $37,000, including a $7,000 commitment for letters of credit and bank guarantees. The agreement has a one year term. This facility replaced the previous facility with JPMorgan Chase Bank, N.A.
At the Company’s option, amounts outstanding under the agreement will bear interest at either: (i) a rate equal to the bank’s prime rate; or (ii) a rate equal to LIBOR plus 1.75%. Amounts available for borrowing under the agreement are subject to an unused commitment fee of 0.375%.
Outstanding letters of credit under the agreement are subject to a fee of 0.75%. The agreement requires the Company to secure outstanding letters of credit with cash and cash equivalents and investments.
Under the new revolving credit facility, the Company covenants to maintain a maximum funded debt to EBITDA (as defined in the agreement) ratio of 3.5 to 1.0 and a minimum earnings before interest expense and income taxes to interest ratio of 4.0 to 1.0. The agreement also provides that the Company is permitted to pay dividends without limitation if it maintains a maximum funded debt to EBITDA ratio equal to or less than 2.0 to 1.0 and permits the Company to pay dividends in an amount equal to 25% of net income if it maintains a maximum funded debt to EBITDA ratio of greater than 2.0 to 1.0. The Company was in compliance with all such provisions as of December 31, 2020.
On October 28, 2020, the Company entered into a letter agreement to amend the letter of credit facility agreement with HSBC Bank USA, N.A. The letter agreement increases the letter of credit facility from $14,000 to $15,000 and requires the Company to secure outstanding letters of credit with cash and cash equivalents and investments. Outstanding letters of credit under the agreement are subject to a fee of between 0.75% and 0.85%, depending on the term of the letter of credit.
Availability for borrowings and letters of credit was $15,000 and $4,900, respectively, under the JPMorgan Chase Bank, N.A. and HSBC Bank USA, N.A. facilities at December 31, 2020. At March 31, 2020 availability was $21,672 under the previous facilities.
NOTE 14 – OTHER EXPENSE:
On June 24, 2019, the Company completed the sale of its subsidiary, Energy Steel & Supply Co., to Hayward Tyler, a division of Avingtrans PLC, a global leader in performance-critical pumps and motors for the energy sector. Under the terms of the stock purchase agreement, the Company received proceeds of $602, subject to certain adjustments, including a customary working capital adjustment. The Company recognized a loss on the disposal of $87 in the first quarter of fiscal 2020. In addition, during the first quarter of fiscal 2020, the Company incurred a bad debt charge of $98 and an inventory write down of $338 related to the bankruptcy of Westinghouse Electric Company. All of these items are included in the line item “Other expense” in the Condensed Consolidated Statement of Income for the nine months ended December 31, 2019.
NOTE 15 – ACCOUNTING AND REPORTING CHANGES:
In the normal course of business, management evaluates all new accounting pronouncements issued by the Financial Accounting Standards Board ("FASB"), the Securities and Exchange Commission, the Emerging Issues Task Force, the American
16
Institute of Certified Public Accountants or any other authoritative accounting body to determine the potential impact they may have on the Company's consolidated financial statements.
Management does not expect any recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company's consolidated financial statements.
17