ghm-10ka_20160331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-K/A

(Amendment No. 1)

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2016

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ___________.

Commission File Number 1-8462

GRAHAM CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

16-1194720

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

20 Florence Avenue, Batavia, New York

14020

(Address of principal executive offices)

(Zip Code)

 

Registrant's telephone number, including area code 585-343-2216

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Name of each exchange on which registered

Common Stock (Par Value $.10)

NYSE

 

Securities registered pursuant to Section 12(g) of the Act:

Title of Class

Preferred Stock Purchase Rights

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes    No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes    No 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No 

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, 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    No 

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

 

Smaller reporting company

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes    No 

The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 30, 2015, the last business day of the registrant's most recently completed second fiscal quarter, was $168,783,420.  The market value calculation was determined using the closing price of the registrant’s common stock on September 30, 2015, as reported on the NYSE (the exchange on which the registrant’s common stock is listed).  For purposes of the foregoing calculation only, all directors, officers and the Employee Stock Ownership Plan of the registrant have been deemed affiliates.

As of May 23, 2016, the registrant had outstanding 9,646,981shares of common stock, $.10 par value.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement, to be filed in connection with the registrant's 2016 Annual Meeting of Stockholders to be held on July 28, 2016, are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this filing.

 

 

 


EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (the “Amendment”) amends the Annual Report on Form 10-K for the year ended March 31, 2016 of Graham Corporation (the “Company”), as originally filed with the U.S. Securities and Exchange Commission on June 1, 2016 (the “Original Filing”).  The Company is filing the Amendment solely to amend: (i) Part II-Item 8 “Financial Statements and Supplementary Data” and (ii) Part IV-Item 15 “Exhibits and Financial Statement Schedules”, in each case to correct typographical errors relating to references to the dates of the audit reports (the “Reports”) of Deloitte & Touche LLP, the Company’s Independent Registered Public Accounting Firm.  The correct reference to the date of the Reports is June 1, 2016.  

This Amendment is limited in scope to the portions of the Original Filing discussed above and does not amend, update or change any other items or disclosures contained in the Original Filing. This Amendment continues to speak as of the date of the Original Filing and we have not updated the disclosures contained therein to reflect any events that occurred at any subsequent date.

 

 

 


Table of Contents

GRAHAM CORPORATION

Annual Report on Form 10-K

Year Ended March 31, 2016

 

 

 

 

PART II

 

 

 

 

 

Item 8

Financial Statements and Supplementary Data

5

 

 

 

PART IV

 

 

 

 

 

Item 15

Exhibits, Financial Statement Schedules

35

 

3


 

 

 

 

 

PART II

4


 

Item 8.Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

 

Consolidated Financial Statements:

Page

 

Consolidated Statements of Operations for the years ended March 31, 2016, 2015 and 2014

6

 

Consolidated Statements of Comprehensive Income for the years ended March 31, 2016, 2015, and 2014

7

 

Consolidated Balance Sheets as of March 31, 2016 and 2015

8

 

Consolidated Statements of Cash Flows for the years ended March 31, 2016, 2015 and 2014

9

 

Consolidated Statements of Changes in Stockholders’ Equity for the years ended March 31, 2016, 2015 and 2014

10

 

Notes to Consolidated Financial Statements

11

 

Reports of Independent Registered Public Accounting Firm

33

 

5


CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Year Ended March 31,

 

 

 

2016

 

 

2015

 

 

2014

 

 

 

(Amounts in thousands, except per share data)

 

Net sales

 

$

90,039

 

 

$

135,169

 

 

$

102,218

 

Cost of products sold

 

 

66,784

 

 

 

93,365

 

 

 

70,406

 

Gross profit

 

 

23,255

 

 

 

41,804

 

 

 

31,812

 

Other expenses and income:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

16,331

 

 

 

18,283

 

 

 

16,973

 

Selling, general and administrative - amortization

 

 

234

 

 

 

229

 

 

 

222

 

Restructuring charge

 

 

 

 

 

1,718

 

 

 

 

Other income

 

 

(1,789

)

 

 

 

 

 

 

Interest income

 

 

(261

)

 

 

(189

)

 

 

(94

)

Interest expense

 

 

10

 

 

 

11

 

 

 

1

 

Total other expenses and income

 

 

14,525

 

 

 

20,052

 

 

 

17,102

 

Income before provision for income taxes

 

 

8,730

 

 

 

21,752

 

 

 

14,710

 

Provision for income taxes

 

 

2,599

 

 

 

7,017

 

 

 

4,565

 

Net income

 

$

6,131

 

 

$

14,735

 

 

$

10,145

 

Per share data

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

0.61

 

 

$

1.46

 

 

$

1.01

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

0.61

 

 

$

1.45

 

 

$

1.00

 

Average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

9,976

 

 

 

10,123

 

 

 

10,070

 

Diluted

 

 

9,983

 

 

 

10,143

 

 

 

10,104

 

Dividends declared per share

 

$

.33

 

 

$

.20

 

 

$

.13

 

 

See Notes to Consolidated Financial Statements.

 

 

6


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

Year Ended March 31,

 

 

 

2016

 

 

2015

 

 

2014

 

 

 

(Amounts in thousands)

 

Net income

 

$

6,131

 

 

$

14,735

 

 

$

10,145

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(150

)

 

 

3

 

 

 

(7

)

Defined benefit pension and other postretirement plans, net of income tax

   (benefit) provision, of $(804), $(1,802), and $1,244 for the years ended

   March 31, 2016, 2015 and 2014, respectively

 

 

(1,470

)

 

 

(3,294

)

 

 

2,275

 

Total other comprehensive income

 

 

(1,620

)

 

 

(3,291

)

 

 

2,268

 

Total comprehensive income

 

$

4,511

 

 

$

11,444

 

 

$

12,413

 

 

See Notes to Consolidated Financial Statements.

 

 

7


CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

 

 

(Amounts in thousands, except per share data)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

24,072

 

 

$

27,271

 

Investments

 

 

41,000

 

 

 

33,000

 

Trade accounts receivable, net of allowances ($91 and $62 at March 31, 2016 and

   2015, respectively)

 

 

12,730

 

 

 

17,249

 

Unbilled revenue

 

 

11,852

 

 

 

18,665

 

Inventories

 

 

10,811

 

 

 

13,994

 

Prepaid expenses and other current assets

 

 

613

 

 

 

529

 

Income taxes receivable

 

 

1,652

 

 

 

339

 

Total current assets

 

 

102,730

 

 

 

111,047

 

Property, plant and equipment, net

 

 

18,747

 

 

 

19,812

 

Prepaid pension asset

 

 

 

 

 

1,332

 

Goodwill

 

 

6,938

 

 

 

6,938

 

Permits

 

 

10,300

 

 

 

10,300

 

Other intangible assets, net

 

 

4,248

 

 

 

4,428

 

Other assets

 

 

168

 

 

 

146

 

Total assets

 

$

143,131

 

 

$

154,003

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of capital lease obligations

 

$

55

 

 

$

60

 

Accounts payable

 

 

10,325

 

 

 

13,334

 

Accrued compensation

 

 

5,317

 

 

 

9,343

 

Accrued expenses and other current liabilities

 

 

3,826

 

 

 

3,247

 

Customer deposits

 

 

8,400

 

 

 

4,179

 

Total current liabilities

 

 

27,923

 

 

 

30,163

 

Capital lease obligations

 

 

157

 

 

 

98

 

Accrued compensation

 

 

 

 

 

124

 

Deferred income tax liability

 

 

3,546

 

 

 

5,876

 

Accrued pension liability

 

 

1,338

 

 

 

315

 

Accrued postretirement benefits

 

 

787

 

 

 

876

 

Total liabilities

 

 

33,751

 

 

 

37,452

 

Commitments and contingencies (Notes 6 and 17)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $1.00 par value, 500 shares authorized

 

 

 

 

 

 

 

 

Common stock, $.10 par value, 25,500 shares authorized 10,468 and 10,433 shares

   issued and 9,646 and 10,133 shares outstanding at March 31, 2016 and 2015,

   respectively

 

 

1,047

 

 

 

1,043

 

Capital in excess of par value

 

 

22,315

 

 

 

21,398

 

Retained earnings

 

 

109,013

 

 

 

106,178

 

Accumulated other comprehensive loss

 

 

(10,676

)

 

 

(9,056

)

Treasury stock (822 and 299 shares)

 

 

(12,319

)

 

 

(3,012

)

Total stockholders’ equity

 

 

109,380

 

 

 

116,551

 

Total liabilities and stockholders’ equity

 

$

143,131

 

 

$

154,003

 

 

See Notes to Consolidated Financial Statements.

 

 

8


CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Year Ended March 31,

 

 

 

2016

 

 

2015

 

 

2014

 

 

 

(Dollar amounts in thousands)

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

6,131

 

 

$

14,735

 

 

$

10,145

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

2,201

 

 

 

2,079

 

 

 

1,977

 

Amortization

 

 

234

 

 

 

229

 

 

 

222

 

Amortization of unrecognized prior service cost and actuarial losses

 

 

1,214

 

 

 

514

 

 

 

886

 

Discount accretion on investments

 

 

 

 

 

 

 

 

(8

)

Stock-based compensation expense

 

 

697

 

 

 

653

 

 

 

639

 

Loss on disposal or sale of property, plant and equipment

 

 

4

 

 

 

14

 

 

 

223

 

Deferred income taxes

 

 

(1,522

)

 

 

157

 

 

 

(1,011

)

(Increase) decrease in operating assets:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

4,440

 

 

 

(6,910

)

 

 

(1,001

)

Unbilled revenue

 

 

6,783

 

 

 

(10,835

)

 

 

5,318

 

Inventories

 

 

3,175

 

 

 

2,525

 

 

 

(5,161

)

Income taxes receivable/payable

 

 

(1,309

)

 

 

158

 

 

 

2,137

 

Prepaid expenses and other current and non-current assets

 

 

(162

)

 

 

(152

)

 

 

185

 

Prepaid pension asset

 

 

(1,222

)

 

 

(1,108

)

 

 

(793

)

Increase (decrease) in operating liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

(2,836

)

 

 

3,115

 

 

 

595

 

Accrued compensation, accrued expenses and other current and

   non-current liabilities

 

 

(3,178

)

 

 

4,981

 

 

 

28

 

Customer deposits

 

 

4,227

 

 

 

(3,834

)

 

 

1,009

 

Long-term portion of accrued compensation, accrued pension

   liability and accrued postretirement benefits

 

 

(126

)

 

 

(42

)

 

 

(160

)

Net cash provided by operating activities

 

 

18,751

 

 

 

6,279

 

 

 

15,230

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(1,153

)

 

 

(5,300

)

 

 

(5,263

)

Proceeds from disposal of property, plant and equipment

 

 

3

 

 

 

1

 

 

 

32

 

Purchase of investments

 

 

(44,000

)

 

 

(50,000

)

 

 

(109,494

)

Redemption of investments at maturity

 

 

36,000

 

 

 

46,000

 

 

 

108,000

 

Net cash used by investing activities

 

 

(9,150

)

 

 

(9,299

)

 

 

(6,725

)

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Principal repayments on capital lease obligations

 

 

(59

)

 

 

(80

)

 

 

(88

)

Issuance of common stock

 

 

97

 

 

 

47

 

 

 

581

 

Dividends paid

 

 

(3,296

)

 

 

(2,026

)

 

 

(1,308

)

Purchase of treasury stock

 

 

(9,441

)

 

 

 

 

 

 

Excess tax deduction on stock awards

 

 

6

 

 

 

200

 

 

 

271

 

Net cash used by financing activities

 

 

(12,693

)

 

 

(1,859

)

 

 

(544

)

Effect of exchange rate changes on cash

 

 

(107

)

 

 

4

 

 

 

(9

)

Net (decrease) increase in cash and cash equivalents

 

 

(3,199

)

 

 

(4,875

)

 

 

7,952

 

Cash and cash equivalents at beginning of year

 

 

27,271

 

 

 

32,146

 

 

 

24,194

 

Cash and cash equivalents at end of year

 

$

24,072

 

 

$

27,271

 

 

$

32,146

 

 

See Notes to Consolidated Financial Statements.

 

 

 

9


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Years Ended March 31, 2016, 2015 and 2014

(Dollar and share amounts in thousands)

 

 

 

Common Stock

 

 

Capital in

 

 

 

 

 

 

Accumulated

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Par

 

 

Excess of

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

Stockholders'

 

 

 

Shares

 

 

Value

 

 

Par Value

 

 

Earnings

 

 

Loss

 

 

Stock

 

 

Equity

 

Balance at April 1, 2013

 

 

10,331

 

 

$

1,033

 

 

$

18,596

 

 

$

84,632

 

 

$

(8,033

)

 

$

(3,233

)

 

$

92,995

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,145

 

 

 

2,268

 

 

 

 

 

 

 

12,413

 

Issuance of shares

 

 

78

 

 

 

8

 

 

 

573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

581

 

Stock award tax benefit

 

 

 

 

 

 

 

 

 

 

271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

271

 

Dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,308

)

 

 

 

 

 

 

 

 

 

 

(1,308

)

Recognition of equity-based compensation expense

 

 

 

 

 

 

 

 

 

 

639

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

639

 

Issuance of treasury stock

 

 

 

 

 

 

 

 

 

 

195

 

 

 

 

 

 

 

 

 

 

 

122

 

 

 

317

 

Balance at March 31, 2014

 

 

10,409

 

 

 

1,041

 

 

 

20,274

 

 

 

93,469

 

 

 

(5,765

)

 

 

(3,111

)

 

 

105,908

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,735

 

 

 

(3,291

)

 

 

 

 

 

 

11,444

 

Issuance of shares

 

 

24

 

 

 

2

 

 

 

45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

47

 

Stock award tax benefit

 

 

 

 

 

 

 

 

 

 

200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

200

 

Dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,026

)

 

 

 

 

 

 

 

 

 

 

(2,026

)

Recognition of equity-based compensation expense

 

 

 

 

 

 

 

 

 

 

653

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

653

 

Issuance of treasury stock

 

 

 

 

 

 

 

 

 

 

226

 

 

 

 

 

 

 

 

 

 

 

99

 

 

 

325

 

Balance at March 31, 2015

 

 

10,433

 

 

 

1,043

 

 

 

21,398

 

 

 

106,178

 

 

 

(9,056

)

 

 

(3,012

)

 

 

116,551

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,131

 

 

 

(1,620

)

 

 

 

 

 

 

4,511

 

Issuance of shares

 

 

35

 

 

 

4

 

 

 

93

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

97

 

Stock award tax benefit

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

Dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,296

)

 

 

 

 

 

 

 

 

 

 

(3,296

)

Recognition of equity-based compensation expense

 

 

 

 

 

 

 

 

 

 

697

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

697

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,441

)

 

 

(9,441

)

Issuance of treasury stock

 

 

 

 

 

 

 

 

 

 

121

 

 

 

 

 

 

 

 

 

 

 

134

 

 

 

255

 

Balance at March 31, 2016

 

 

10,468

 

 

$

1,047

 

 

$

22,315

 

 

$

109,013

 

 

$

(10,676

)

 

$

(12,319

)

 

$

109,380

 

 

See Notes to Consolidated Financial Statements.

 

 

 

10


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended March 31, 2016, 2015 and 2014

(Amounts in thousands, except per share data)

 

 

Note 1 - The Company and Its Accounting Policies:

Graham Corporation, and its operating subsidiaries, (together, the “Company”), is a global designer, manufacturer and supplier of vacuum and heat transfer equipment used in the chemical, petrochemical, petroleum refining, and electric power generating industries.  Energy Steel & Supply Co. (“Energy Steel”), a wholly-owned subsidiary, is a nuclear code accredited fabrication and specialty machining company which provides products to the nuclear industry. The Company's significant accounting policies are set forth below.

The Company's fiscal years ended March 31, 2016, 2015 and 2014 are referred to as fiscal 2016, fiscal 2015 and fiscal 2014, respectively.

Principles of consolidation and use of estimates in the preparation of financial statements

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Energy Steel, located in Lapeer, Michigan, and Graham Vacuum and Heat Transfer Technology (Suzhou) Co., Ltd., located in China.  All intercompany balances, transactions and profits are eliminated in consolidation.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the related revenues and expenses during the reporting period.  Actual amounts could differ from those estimated.

Translation of foreign currencies

Assets and liabilities of the Company's foreign subsidiary are translated into U.S. dollars at currency exchange rates in effect at year-end and revenues and expenses are translated at average exchange rates in effect for the year.  Gains and losses resulting from foreign currency transactions are included in results of operations. The Company’s sales and purchases in foreign currencies are minimal.  Therefore, foreign currency transaction gains and losses are not significant.  Gains and losses resulting from translation of foreign subsidiary balance sheets are included in a separate component of stockholders' equity.  Translation adjustments are not adjusted for income taxes since they relate to an investment, which is permanent in nature.

Revenue recognition

Percentage-of-Completion Method

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 Company's revenue is recognized under this methodology.  The Company has established the systems and procedures essential to developing the estimates required to account for contracts using the percentage-of-completion method.  The percentage-of-completion method is determined by comparing actual labor incurred to a specific date to management's estimate of the total labor to be incurred on each contract or completion of operational milestones assigned to each contract.

Contracts in progress are reviewed monthly by management, 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.  Revenue recognized on contracts accounted for utilizing percentage-of-completion are presented in net sales in the Consolidated Statement of Operations and unbilled revenue in the Consolidated Balance Sheets to the extent that the revenue recognized exceeds the amounts billed to customers.  See "Inventories" below.

Receivables billed but not paid under retainage provisions in its customer contracts were $2,071 and $1,751 at March 31, 2016 and 2015, respectively.

Completed Contract Method

Revenue on contracts not accounted for using the percentage-of-completion method is recognized utilizing the completed contract method.  The majority of the Company's contracts (as opposed to revenue) have a planned manufacturing process of less than

11


 

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 material obligations under its contracts after the revenue is recognized.

Cash and cash equivalents

Cash and cash equivalents consist of cash and highly liquid, short-term investments with maturities at the time of purchase of three months or less.

Shipping and handling fees and costs

Shipping and handling fees billed to the customer are recorded in net sales and the related costs incurred for shipping and handling are included in cost of products sold.

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.  The investments are stated at amortized cost which approximates fair value.  All investments held by the Company at March 31, 2016 are scheduled to mature on or before February 3, 2017.

Inventories

Inventories are stated at the lower of cost or market, using the average cost method.  Unbilled revenue in the 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 Consolidated Balance Sheets.

A summary of costs and estimated earnings on contracts in progress at March 31, 2016 and 2015 is as follows:

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Costs incurred since inception on contracts in progress

 

$

35,893

 

 

$

64,912

 

Estimated earnings since inception on contracts in progress

 

 

1,185

 

 

 

16,067

 

 

 

 

37,078

 

 

 

80,979

 

Less billings to date

 

 

38,267

 

 

 

69,636

 

Net under (over) billings

 

$

(1,189

)

 

$

11,343

 

 

The above activity is included in the accompanying Consolidated Balance Sheets under the following captions at March 31, 2016 and 2015 or Notes to Consolidated Financial Statements:

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Unbilled revenue

 

$

11,852

 

 

$

18,665

 

Progress payments reducing inventory (Note 2)

 

 

(4,641

)

 

 

(3,143

)

Customer deposits

 

 

(8,400

)

 

 

(4,179

)

Net under (over) billings

 

$

(1,189

)

 

$

11,343

 

 

Property, plant, equipment, depreciation and amortization

Property, plant and equipment are stated at cost net of accumulated depreciation and amortization.  Major additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred.  Depreciation and amortization are provided based upon the estimated useful lives, or lease term if shorter, under the straight line method.  Estimated useful lives range from approximately five to eight years for office equipment, eight to 25 years for manufacturing equipment and 40 years for buildings

12


 

and improvements.  Upon sale or retirement of assets, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations.

Business combinations

The Company records its business combinations under the acquisition method of accounting.  Under the acquisition method of accounting, the Company allocates the purchase price of each acquisition to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition.  The fair value of identifiable intangible assets is based upon detailed valuations that use various assumptions made by management.  Any excess of the purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill.  Direct acquisition-related costs are expensed as incurred.

Intangible assets

Acquired intangible assets other than goodwill consist of permits, customer relationships, and tradenames.  The Company amortizes its definite-lived intangible assets on a straight-line basis over their estimated useful lives.  The estimated useful life is fifteen years for customer relationships.  All other intangibles have indefinite lives and are not amortized.

Impairment of long-lived assets

The Company assesses the impairment of definite-lived long-lived assets or asset groups when events or changes in circumstances indicate that the carrying value may not be recoverable.  Factors that are considered in deciding when to perform an impairment review include: a significant decrease in the market price of the asset or asset group; a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction; a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; or a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.  The term more likely than not refers to a level of likelihood that is more than 50%.

Recoverability potential is measured by comparing the carrying amount of the asset or asset group to its related total future undiscounted cash flows.  If the carrying value is not recoverable through related cash flows, the asset or asset group is considered to be impaired.  Impairment is measured by comparing the asset or asset group's carrying amount to its fair value.  When it is determined that useful lives of assets are shorter than originally estimated, and no impairment is present, the rate of depreciation is accelerated in order to fully depreciate the assets over their new shorter useful lives.

Goodwill and intangible assets with indefinite lives are tested annually for impairment.  The Company assesses goodwill for impairment by comparing the fair value of its reporting units to their carrying amounts.  If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill within the reporting unit is less than its carrying value.  Fair values for reporting units are determined based on discounted cash flows.  Indefinite lived intangible assets are assessed for impairment by comparing the fair value of the asset to its carrying value.

Product warranties

The Company estimates the costs that may be incurred under its product warranties and records a liability in the amount of such costs at the time revenue is recognized.  The reserve for product warranties is based upon past claims experience and ongoing evaluations of any specific probable claims from customers.  A reconciliation of the changes in the product warranty liability is presented in Note 5.

Research and development

Research and development costs are expensed as incurred.  The Company incurred research and development costs of $3,746, $3,585 and $3,436 in fiscal 2016, fiscal 2015 and fiscal 2014, respectively.  Research and development costs are included in the line item “Cost of products sold” in the Consolidated Statements of Operations.

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Income taxes

The Company recognizes deferred income tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns.  Deferred income tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using currently enacted tax rates.  The Company evaluates the available evidence about future taxable income and other possible sources of realization of deferred income tax assets and records a valuation allowance to reduce deferred income tax assets to an amount that represents the Company's best estimate of the amount of such deferred income tax assets that more likely than not will be realized.

The Company accounts for uncertain tax positions using a "more likely than not" recognition threshold.  The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective resolution of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position.  These tax positions are evaluated on a quarterly basis.  It is the Company's 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 files federal and state income tax returns in several U.S. and non-U.S. 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.

Stock-based compensation

The Company records compensation costs related to stock-based awards based on the estimated fair value of the award on the grant date.  Compensation cost is recognized in the Company's Consolidated Statements of Operations over the applicable vesting period.  The Company uses the Black-Scholes valuation model as the method for determining the fair value of its equity awards.  For restricted stock awards, the fair market value of the award is determined based upon the closing value of the Company's stock price on the grant date.  The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest.  The Company estimates the forfeiture rate at the grant date by analyzing historical data and revises the estimates in subsequent periods if the actual forfeiture rate differs from the estimates.

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Income per share data

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:

 

 

 

Year ended March 31,

 

 

 

2016

 

 

2015

 

 

2014

 

Basic income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

6,131

 

 

$

14,735

 

 

$

10,145

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted common shares outstanding

 

 

9,976

 

 

 

10,123

 

 

 

10,056

 

Share equivalent units ("SEUs") outstanding

 

 

 

 

 

 

 

 

14

 

Weighted average common shares and SEUs

   outstanding

 

 

9,976

 

 

 

10,123

 

 

 

10,070

 

Basic income per share

 

$

0.61

 

 

$

1.46

 

 

$

1.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

6,131

 

 

$

14,735

 

 

$

10,145

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares and SEUs

   outstanding

 

 

9,976

 

 

 

10,123

 

 

 

10,070

 

Stock options outstanding

 

 

7

 

 

 

20

 

 

 

34

 

Weighted average common and potential common

   shares outstanding

 

 

9,983

 

 

 

10,143

 

 

 

10,104

 

Diluted income per share

 

$

0.61

 

 

$

1.45

 

 

$

1.00

 

 

There were 54, 12 and 2 options to purchase shares of common stock at various exercise prices in fiscal 2016, fiscal 2015 and fiscal 2014, respectively, which were not included in the computation of diluted income per share as the effect would be anti-dilutive.

Cash flow statement

The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents.

Interest paid was $10 in fiscal 2016, $11 in fiscal 2015, and $12 in fiscal 2014.  In addition, income taxes paid were $5,423 in fiscal 2016, $6,491 in fiscal 2015, and $3,302 in fiscal 2014.

In fiscal 2016, fiscal 2015, and fiscal 2014, non-cash activities included pension and other postretirement benefit adjustments, net of income tax, of $1,470, $3,294 and $(2,275), respectively.  Also, in fiscal 2016, fiscal 2015 and fiscal 2014, non-cash activities included the issuance of treasury stock valued at $255, $325 and $317, respectively, to the Company’s Employee Stock Purchase Plan (See Note 11).

At March 31, 2016, 2015, and 2014, there were $53, $174, and $40, 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 Consolidated Statements of Cash Flows.  In fiscal 2016, fiscal 2015 and fiscal 2014, capital expenditures totaling $126, $22 and $90, respectively, were financed through the issuance of capital leases.

Accumulated other comprehensive loss

Comprehensive income is comprised of net income and other comprehensive income or loss items, which are accumulated as a separate component of stockholders’ equity.  For the Company, other comprehensive income or loss items include a foreign currency translation adjustment and pension and other postretirement benefit adjustments.

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Fair value measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the "exit price") in an orderly transaction between market participants at the measurement date.  The accounting standard for fair value establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company.  Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.  Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Level 2 – Valuations determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.

Level 3 –Valuations based on inputs that are unobservable and significant to the overall fair value measurement.  The degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

The availability of observable inputs can vary and is affected by a wide variety of factors, including, the type of asset/liability, whether the asset/liability is established in the marketplace, and other characteristics particular to the transaction.  To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires mor