PART I. FINANCIAL INFORMATION This section presents Graham Corporation's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Unaudited Condensed Consolidated Financial Statements This section presents Graham Corporation's unaudited condensed consolidated financial statements, including statements of income, comprehensive income, balance sheets, cash flows, and changes in stockholders' equity, along with detailed notes explaining accounting policies, revenue recognition, investments, and other financial disclosures for the periods ended December 31, 2020 - The financial statements are prepared in accordance with GAAP for interim financial information and SEC rules, and do not include all information required for complete annual statements25 - Results for the three and nine months ended December 31, 2020, are not necessarily indicative of the full fiscal year ending March 31, 202126 - Management does not expect any recently issued accounting pronouncements, not yet adopted, to have a material impact on the consolidated financial statements66 Condensed Consolidated Statements of Income This statement provides a summary of the company's revenues, costs, and net income over specific interim periods Condensed Consolidated Statements of Income (in thousands) | Metric | 3 Months Ended Dec 31, 2020 (in thousands) | 3 Months Ended Dec 31, 2019 (in thousands) | 9 Months Ended Dec 31, 2020 (in thousands) | 9 Months Ended Dec 31, 2019 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net sales | $27,154 | $25,286 | $71,818 | $67,522 | | Cost of products sold | $20,927 | $21,242 | $56,330 | $53,816 | | Gross profit | $6,227 | $4,044 | $15,488 | $13,706 | | Income before provision for income taxes | $1,368 | $6 | $2,695 | $1,660 | | Net income | $1,060 | $9 | $1,986 | $1,296 | | Basic Net income per share | $0.11 | $0.00 | $0.20 | $0.13 | | Diluted Net income per share | $0.11 | $0.00 | $0.20 | $0.13 | | Dividends declared per share | $0.11 | $0.11 | $0.33 | $0.32 | Condensed Consolidated Statements of Comprehensive Income This statement details the company's net income and other comprehensive income components, such as foreign currency adjustments and pension plan changes Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | 3 Months Ended Dec 31, 2020 (in thousands) | 3 Months Ended Dec 31, 2019 (in thousands) | 9 Months Ended Dec 31, 2020 (in thousands) | 9 Months Ended Dec 31, 2019 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income | $1,060 | $9 | $1,986 | $1,296 | | Foreign currency translation adjustment | $261 | $88 | $416 | $(135) | | Defined benefit pension and other postretirement plans net of income tax expense | $205 | $194 | $614 | $583 | | Total other comprehensive income | $466 | $282 | $1,030 | $448 | | Total comprehensive income | $1,526 | $291 | $3,016 | $1,744 | Condensed Consolidated Balance Sheets This statement presents a snapshot of the company's assets, liabilities, and stockholders' equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | Metric | Dec 31, 2020 (in thousands) | Mar 31, 2020 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $63,792 | $32,955 | | Investments | $5,500 | $40,048 | | Total current assets | $123,197 | $126,677 | | Total assets | $144,986 | $148,120 | | Total current liabilities | $44,502 | $49,234 | | Total liabilities | $47,653 | $51,396 | | Total stockholders' equity | $97,333 | $96,724 | | Total liabilities and stockholders' equity | $144,986 | $148,120 | Condensed Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities for interim periods Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | 9 Months Ended Dec 31, 2020 (in thousands) | 9 Months Ended Dec 31, 2019 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | | Net income | $1,986 | $1,296 | | Net cash provided (used) by operating activities | $670 | $(4,119) | | Net cash provided by investing activities | $33,092 | $2,947 | | Net cash used by financing activities | $(3,350) | $(3,407) | | Net increase (decrease) in cash and cash equivalents | $30,837 | $(4,170) | | Cash and cash equivalents at beginning of period | $32,955 | $15,021 | | Cash and cash equivalents at end of period | $63,792 | $10,851 | Condensed Consolidated Statements of Changes in Stockholders' Equity This statement outlines the changes in each component of stockholders' equity over the reported interim periods Stockholders' Equity (April 1, 2020 to Dec 31, 2020, in thousands) | Metric | Balance at April 1, 2020 (in thousands) | Balance at Dec 31, 2020 (in thousands) | | :----- | :------------------------------------ | :----------------------------------- | | Common Stock Par Value | $1,069 | $1,078 | | Capital in Excess of Par Value | $26,361 | $27,193 | | Retained Earnings | $91,389 | $90,083 | | Accumulated Other Comprehensive Loss | $(9,556) | $(8,526) | | Treasury Stock | $(12,539) | $(12,495) | | Total Stockholders' Equity | $96,724 | $97,333 | Stockholders' Equity (April 1, 2019 to Dec 31, 2019, in thousands) | Metric | Balance at April 1, 2019 (in thousands) | Balance at Dec 31, 2019 (in thousands) | | :----- | :------------------------------------ | :----------------------------------- | | Common Stock Par Value | $1,065 | $1,070 | | Capital in Excess of Par Value | $25,277 | $26,057 | | Retained Earnings | $93,847 | $91,900 | | Accumulated Other Comprehensive Loss | $(8,833) | $(8,385) | | Treasury Stock | $(12,390) | $(12,601) | | Total Stockholders' Equity | $98,966 | $98,041 | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed explanations and additional information supporting the condensed consolidated financial statements NOTE 1 – BASIS OF PRESENTATION This note describes the accounting principles and consolidation policies used in preparing the interim financial statements - The Company's Condensed Consolidated Financial Statements include its wholly-owned foreign subsidiaries in Suzhou, China, and Ahmedabad, India25 - The statements are prepared in accordance with GAAP for interim financial information and SEC rules, and do not include all information and notes required for complete financial statements25 NOTE 2 – REVENUE RECOGNITION This note details the company's policies for recognizing revenue from contracts with customers, including disaggregated sales data Net Sales by Product Line (in thousands) | Product Line | 3 Months Ended Dec 31, 2020 (in thousands) | 3 Months Ended Dec 31, 2019 (in thousands) | 9 Months Ended Dec 31, 2020 (in thousands) | 9 Months Ended Dec 31, 2019 (in thousands) | | :----------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | 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 | Net Sales by Geographic Region (in thousands) | Geographic Region | 3 Months Ended Dec 31, 2020 (in thousands) | 3 Months Ended Dec 31, 2019 (in thousands) | 9 Months Ended Dec 31, 2020 (in thousands) | 9 Months Ended Dec 31, 2019 (in thousands) | | :---------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | 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 | - Backlog (remaining unsatisfied performance obligations) was $149,736 thousand as of December 31, 202035 - Approximately 45% to 50% of the backlog is expected to be recognized as revenue within one year, 20% to 25% in one to two years, and the remainder beyond two years35 NOTE 3 – INVESTMENTS This note provides information on the company's short-term investments, including their nature and maturity dates - Investments are certificates of deposits with original maturities greater than three months and less than one year36 - All investments held at December 31, 2020, are scheduled to mature on or before March 25, 202136 NOTE 4 – INVENTORIES This note presents a breakdown of inventory classifications, including raw materials, work in process, and finished products Inventory Classification (in thousands) | Classification | Dec 31, 2020 (in thousands) | Mar 31, 2020 (in thousands) | | :------------- | :-------------------------- | :-------------------------- | | 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 This note describes the company's equity incentive plans and the related compensation costs recognized - The 2020 Graham Corporation Equity Incentive Plan was approved, authorizing 422 shares for various equity awards, replacing the 2000 Plan39 Equity-Based Compensation Costs (in thousands) | Metric | 3 Months Ended Dec 31, 2020 (in thousands) | 3 Months Ended Dec 31, 2019 (in thousands) | 9 Months Ended Dec 31, 2020 (in thousands) | 9 Months Ended Dec 31, 2019 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Restricted stock awards compensation costs | $312 | $308 | $783 | $709 | | ESPP compensation costs | $15 | $11 | $38 | $22 | NOTE 6 – INCOME PER SHARE This note provides the calculation of basic and diluted net income per share for the reported periods Income Per Share | Metric | 3 Months Ended Dec 31, 2020 | 3 Months Ended Dec 31, 2019 | 9 Months Ended Dec 31, 2020 | 9 Months Ended Dec 31, 2019 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (Numerator, in thousands) | $1,060 | $9 | $1,986 | $1,296 | | Basic weighted average common shares outstanding (in thousands) | 9,977 | 9,884 | 9,950 | 9,874 | | Basic income per share | $0.11 | $0.00 | $0.20 | $0.13 | | Diluted weighted average common shares outstanding (in thousands) | 9,977 | 9,888 | 9,950 | 9,877 | | Diluted income per share | $0.11 | $0.00 | $0.20 | $0.13 | NOTE 7 – PRODUCT WARRANTY LIABILITY This note details the changes in the company's product warranty liability, including expenses and claims paid Product Warranty Liability (in thousands) | Metric | 3 Months Ended Dec 31, 2020 (in thousands) | 3 Months Ended Dec 31, 2019 (in thousands) | 9 Months Ended Dec 31, 2020 (in thousands) | 9 Months Ended Dec 31, 2019 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | 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 | NOTE 8 – CASH FLOW STATEMENT This note provides supplemental disclosures for the cash flow statement, including non-cash activities and taxes paid - Interest paid was $9 thousand for both nine-month periods ended December 31, 2020 and 201946 - Income taxes paid for the nine months ended December 31, 2020 and 2019 were $51 thousand and $27 thousand, respectively46 - Non-cash activities included the issuance of treasury stock valued at $87 thousand (2020) and $49 thousand (2019) to the ESPP46 NOTE 9 – EMPLOYEE BENEFIT PLANS This note outlines the net costs associated with the company's pension and postretirement benefit plans Employee Benefit Plan Costs (in thousands) | Metric | 3 Months Ended Dec 31, 2020 (in thousands) | 3 Months Ended Dec 31, 2019 (in thousands) | 9 Months Ended Dec 31, 2020 (in thousands) | 9 Months Ended Dec 31, 2019 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net pension cost | $49 | $25 | $149 | $74 | | Net postretirement benefit cost | $11 | $12 | $33 | $37 | - The Company made no contributions to its defined benefit pension plan during the nine months ended December 31, 2020, and expects no contributions for the balance of fiscal 202148 NOTE 10 – COMMITMENTS AND CONTINGENCIES This note discusses potential future obligations and legal proceedings that could impact the company's financial position - The Company is a defendant in lawsuits alleging personal injury from asbestos exposure, which it intends to vigorously defend52 - Management believes the outcomes of current and potential legal proceedings will not have a material adverse effect on the Company's results of operations, financial position, or cash flows54 NOTE 11 – INCOME TAXES This note provides information on the company's income tax exposure, including examination periods and unrecognized tax benefits - The Company is subject to U.S. federal examination for tax years 2016-2019 and state tax jurisdictions for 2015-201955 - There was no liability for unrecognized tax benefits at December 31, 2020, or March 31, 202056 NOTE 12 – CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS This note details the changes in components of accumulated other comprehensive loss, such as pension and foreign currency items Accumulated Other Comprehensive Loss (April 1, 2020 to Dec 31, 2020, in thousands) | Component | Balance at April 1, 2020 (in thousands) | Net current-period other comprehensive income (in thousands) | Balance at Dec 31, 2020 (in thousands) | | :-------- | :------------------------------------ | :------------------------------------------------------- | :----------------------------------- | | Pension and Other Postretirement Benefit Items | $(9,472) | $614 | $(8,858) | | Foreign Currency Items | $(84) | $416 | $332 | | Total | $(9,556) | $1,030 | $(8,526) | Accumulated Other Comprehensive Loss (April 1, 2019 to Dec 31, 2019, in thousands) | Component | Balance at April 1, 2019 (in thousands) | Net current-period other comprehensive income (loss) (in thousands) | Balance at Dec 31, 2019 (in thousands) | | :-------- | :------------------------------------ | :---------------------------------------------------------------- | :----------------------------------- | | Pension and Other Postretirement Benefit Items | $(8,947) | $583 | $(8,364) | | Foreign Currency Items | $114 | $(135) | $(21) | | Total | $(8,833) | $448 | $(8,385) | NOTE 13 – DEBT This note describes the company's debt arrangements, including revolving credit facilities and compliance with covenants - On December 2, 2020, the Company entered a new $22 million revolving credit facility with JPMorgan Chase Bank, N.A., expandable to $37 million, replacing the previous facility59 - The Company amended its letter of credit facility with HSBC Bank USA, N.A. on October 28, 2020, increasing it from $14 million to $15 million62 - The Company was in compliance with all debt covenants as of December 31, 202061 NOTE 14 – OTHER EXPENSE This note explains the components of other expenses, including losses from asset sales, bad debt, and inventory write-downs - "Other expense" for the nine months ended December 31, 2019, included a $87 thousand loss on the sale of Energy Steel & Supply Co., a $98 thousand bad debt charge, and a $338 thousand inventory write-down64 NOTE 15 – ACCOUNTING AND REPORTING CHANGES This note discusses the evaluation of new accounting pronouncements and their expected impact on financial statements - Management evaluates new accounting pronouncements from FASB, SEC, and other bodies65 - No recently issued accounting pronouncements, not yet adopted, are expected to have a material impact on the Company's consolidated financial statements66 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Graham Corporation's financial performance, condition, and operational results for the three and nine months ended December 31, 2020 Overview This section provides a general description of Graham Corporation's business, products, and global operations - Graham Corporation designs, manufactures, and sells critical equipment for the energy, defense, and chemical/petrochemical industries67 - The company's global brand is built on engineering expertise in vacuum and heat transfer technology, responsive service, and high-quality standards68 - Operations include headquarters and production in Batavia, NY, and wholly-owned foreign subsidiaries in Suzhou, China (GVHTT) and Ahmedabad, India (GIPL)69 Highlights This section summarizes key financial and operational achievements and challenges for the reported periods Financial Highlights | Metric | 3 Months Ended Dec 31, 2020 | 3 Months Ended Dec 31, 2019 | 9 Months Ended Dec 31, 2020 | 9 Months Ended Dec 31, 2019 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net sales | $27,154 | $25,286 | $71,818 | $67,522 | | Net income | $1,060 | $9 | $1,986 | $1,296 | | Diluted EPS | $0.11 | $0.00 | $0.20 | $0.13 | | Gross profit margin | 23% | 16% | 22% | 20% | | Operating margin | 5% | (2)% | 3% | 0% | - Orders booked in Q3 FY21 were $61,753 thousand, significantly up from $20,057 thousand in Q3 FY2071 - Backlog reached a record $149,736 thousand at December 31, 2020, up from $112,389 thousand at March 31, 202071 - COVID-19 pandemic impacted production in Q1 and Q3 FY21, leading to reduced staffing and adverse effects on sales and earnings71 Forward-Looking Statements This section cautions readers about the inherent uncertainties and risks associated with future-oriented statements in the report - The report contains forward-looking statements subject to known and unknown risks, uncertainties, and other factors73 - Undue reliance should not be placed on forward-looking statements, and the company undertakes no obligation to update them, except as required by law75 Current Market Conditions This section analyzes the external economic and industry factors influencing the company's commercial and defense markets - Commercial markets (energy and petrochemical) are experiencing a slowdown due to crude oil oversupply and reduced demand from the COVID-19 pandemic, leading to fewer projects and challenging pricing78 - The defense industry, specifically the U.S. Navy, has not been adversely affected by the COVID-19 pandemic and constitutes 70% of the total backlog at December 31, 20208182 - Long-term, the company expects population growth and increased demand for industrial goods to drive investment in new global chemical and petrochemical capacity79 Results of Operations This section provides a detailed analysis of the company's financial performance, including sales, gross profit, and net income Key Financial Metrics (in thousands) | Metric | 3 Months Ended Dec 31, 2020 (in thousands) | 3 Months Ended Dec 31, 2019 (in thousands) | 9 Months Ended Dec 31, 2020 (in thousands) | 9 Months Ended Dec 31, 2019 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net sales | $27,154 | $25,286 | $71,818 | $67,522 | | Gross profit | $6,227 | $4,044 | $15,488 | $13,706 | | Gross profit margin | 23% | 16% | 22% | 20% | | SG&A expense | $4,936 | $4,441 | $13,091 | $12,855 | | Net income | $1,060 | $9 | $1,986 | $1,296 | | Diluted income per share | $0.11 | $0.00 | $0.20 | $0.13 | Sales Performance This section analyzes the company's net sales, disaggregated by product line and geographic region, and factors affecting them - Net sales for Q3 FY21 increased 7% to $27,154 thousand, and for the first nine months of FY21 increased 6% to $71,818 thousand8688 - International sales increased by 38% in Q3 FY21 and 44% in the first nine months of FY21, while domestic sales decreased by 20% and 14% respectively8688 - Sales in Q3 FY21 were reduced by approximately $900 thousand due to COVID-19 related employee absences87 Gross Profit and SG&A This section discusses trends in gross profit margins and selling, general, and administrative expenses - Gross profit margin for Q3 FY21 was 23% (up from 16% in Q3 FY20), and for the first nine months of FY21 was 22% (up from 20% in FY20)8990 - The increase in gross profit was driven by a better mix of projects and increased outsourced production for two Asian projects8991 - SG&A expenses increased by $495 thousand in Q3 FY21 and $236 thousand in the first nine months of FY21, primarily due to higher commissions related to two Asian projects92 Interest Income/Expense & Tax Rate This section details the company's interest income and expense, along with the effective income tax rate for the periods Interest Income and Expense (in thousands) | Metric | 3 Months Ended Dec 31, 2020 (in thousands) | 3 Months Ended Dec 31, 2019 (in thousands) | 9 Months Ended Dec 31, 2020 (in thousands) | 9 Months Ended Dec 31, 2019 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Interest income | $23 | $318 | $143 | $1,080 | | Interest expense | $1 | $2 | $9 | $9 | - The significant decrease in interest income is due to significantly lower market investment rates compared to the prior year93 - The effective tax rate for the nine months ended December 31, 2020, was 26%, compared to 22% for the same period in 201994 Net Income and EPS This section provides an analysis of the company's net income and earnings per share, including any significant contributing factors Net Income and Diluted EPS (in thousands) | Metric | 3 Months Ended Dec 31, 2020 (in thousands) | 3 Months Ended Dec 31, 2019 (in thousands) | 9 Months Ended Dec 31, 2020 (in thousands) | 9 Months Ended Dec 31, 2019 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income | $1,060 | $9 | $1,986 | $1,296 | | Diluted income per share | $0.11 | $0.00 | $0.20 | $0.13 | - Net income and diluted EPS for the first nine months of fiscal 2020 included a loss of $893 thousand and $0.09, respectively, from the divested commercial nuclear utility business95 Liquidity and Capital Resources This section assesses the company's ability to generate and manage cash, including working capital and financing capacity Liquidity Metrics (in thousands) | Metric | Dec 31, 2020 (in thousands) | Mar 31, 2020 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Cash and investments | $69,292 | $73,003 | | Working capital | $78,695 | $77,443 | | Working capital ratio | 2.8 | 2.6 | - Net cash provided by operating activities for the first nine months of fiscal 2021 was $670 thousand, a significant improvement from cash usage of $4,119 thousand in the prior year96 - The company believes that cash generated from operations, combined with investments and available financing capacity, will be adequate to meet cash needs and support growth strategies100 Orders and Backlog This section reports on new orders booked and the total backlog, indicating future revenue potential and market demand Orders Booked (in thousands) | Metric | 3 Months Ended Dec 31, 2020 (in thousands) | 3 Months Ended Dec 31, 2019 (in thousands) | 9 Months Ended Dec 31, 2020 (in thousands) | 9 Months Ended Dec 31, 2019 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Orders booked | $61,753 | $20,057 | $108,195 | $67,698 | - Backlog was a record $149,736 thousand at December 31, 2020, with 70% attributable to the defense industry (U.S. Navy)103 - Approximately 45% to 50% of the current backlog is expected to convert to sales within one year, with the majority of longer-term conversions for the defense industry103 Outlook This section provides the company's forward-looking projections for revenue, margins, and expenses, considering market conditions - Commercial markets are expected to remain challenged, particularly in North America, with a shift towards more opportunities in emerging markets104 - The defense industry (U.S. Navy) backlog increased significantly to $105,219 thousand at December 31, 2020, from $58,843 thousand at March 31, 2020, with a robust pipeline104 Fiscal Year 2021 Projection (in thousands) | Metric | Fiscal Year 2021 Projection (in thousands) | | :----- | :--------------------------------------- | | Revenue | $93,000 - $97,000 | | Gross profit margin | 21% - 22% | | SG&A expenses | $17,250 - $17,750 | | Effective tax rate | 22% - 24% | - The outlook assumes the Batavia production facility operates at or near normal capacity for the last quarter of fiscal 2021 without significant COVID-19 related reductions107 Contingencies and Commitments This section discusses potential future obligations and legal proceedings that could impact the company's financial position - The company is a defendant in asbestos-related lawsuits and other legal proceedings111112 - Management does not believe the outcomes of these claims will have a material adverse effect on the Company's results of operations, financial position, or cash flows112 Critical Accounting Policies, Estimates, and Judgments This section highlights the accounting policies that require significant management judgment and estimation - Critical accounting estimates include labor hour estimates and operational milestones for overtime revenue recognition, accounting for contingencies, and accounting for pensions and other postretirement benefits113 Off Balance Sheet Arrangements This section discloses any material off-balance sheet transactions or obligations that could affect the company's financial condition - The Company had no off-balance sheet arrangements as of December 31, 2020, or March 31, 2020, other than letters of credit114 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines Graham Corporation's exposure to various market risks, including foreign currency exchange rates, price risk, and project cancellation risk - Principal market risks include foreign currency exchange rates, price risk, project cancellation risk, and trade policy115 - Assumptions for market risk disclosures are based on historical volatility, current market knowledge, and judgment of future volatility116 Foreign Currency This section details the company's exposure to fluctuations in foreign currency exchange rates and its impact on international sales - International consolidated sales were 61% and 48% of total sales for the three and nine months ended December 31, 2020, respectively117 - The company has limited exposure to foreign currency purchases, representing 0-1% of cost of products sold in the reported periods118 - No forward foreign currency exchange agreements were used or held during the reported periods118 Price Risk This section discusses the risks associated with competitive pricing pressures and volatility in material costs - The company competes with global manufacturers who may benefit from lower production costs and more favorable economic conditions, leading to competitive pricing pressure119 - Volatility in the cost of metals and other materials can impact the company's ability to reflect these changes in its pricing119 Project Cancellation and Project Continuation Risk This section addresses the risks of project cancellations or delays and the company's strategies to mitigate these impacts - The company mitigates project cancellation risk by structuring contracts to maximize the likelihood that progress payments cover incurred costs120 - As of December 31, 2020, two projects totaling $562 thousand were on hold by customers120 Item 4. Controls and Procedures This section confirms the effectiveness of Graham Corporation's disclosure controls and procedures and reports no material changes to internal control over financial reporting, despite the operational adjustments due to the COVID-19 pandemic - The President and CEO and VP-Finance & Administration and CFO concluded that disclosure controls and procedures were effective in all material respects as of December 31, 2020121 - No material changes to internal control over financial reporting occurred during the quarter, despite most administrative employees working remotely due to COVID-19122 Conclusion regarding the effectiveness of disclosure controls and procedures This section states the management's assessment of the effectiveness of the company's disclosure controls and procedures - Disclosure controls and procedures were evaluated and deemed effective in all material respects by the principal executive and financial officers121 Changes in internal control over financial reporting This section reports on any material changes in the company's internal control over financial reporting during the period - There has been no material change to internal control over financial reporting during the quarter122 - The company is continually monitoring and assessing the COVID-19 pandemic's impact on internal controls to minimize effects on their design and operating effectiveness122 PART II. OTHER INFORMATION This section provides updates on risk factors, lists exhibits, and includes official signatures for the report Item 1A. Risk Factors This section updates the risk factors, primarily highlighting the adverse and ongoing impact of global public health pandemics, specifically COVID-19, on Graham Corporation's business operations, financial condition, and results - The COVID-19 pandemic has adversely affected and may continue to affect the company's business, financial condition, and results of operations125 - The pandemic led to reduced staffing, increased operating costs, project delays/cancellations, and challenges with the global supply chain125126 - The full financial impact of the pandemic is uncertain and depends on future developments regarding its severity and containment126 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including material contracts, certifications from principal officers, and interactive data files in XBRL format - Exhibits include Credit Agreement with JPMorgan Chase Bank, N.A., Letter Agreement with HSBC Bank USA, N.A., and various certifications (Rule 13a-14(a)/15d-14(a) and Section 1350)129 - Interactive Data Files (XBRL) are also included as exhibits129 Signatures This section contains the official signature block, confirming the filing of the report on behalf of Graham Corporation by its Vice President-Finance & Administration and Chief Financial Officer - The report was signed by Jeffrey Glajch, Vice President-Finance & Administration and Chief Financial Officer132 - The signing date of the report was February 1, 2021132
Graham(GHM) - 2021 Q3 - Quarterly Report