NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data)
Note 1 The Company and Its Accounting Policies:
Graham Corporation (the Company), and its operating subsidiaries, 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 Companys significant accounting policies are set forth below.
The Companys fiscal years ended March 31, 2014, 2013 and 2012 are referred to as fiscal 2014, fiscal 2013 and
fiscal 2012, 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 Companys 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 Companys 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 Companys 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 managements estimate of the total labor to be incurred on each contract.
Contracts in progress are reviewed monthly, and sales and earnings are adjusted in current accounting periods based on revisions in the contract value and estimated costs at completion. Losses on
contracts are recognized immediately when evident to management. 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.
40
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 Companys contracts (as opposed to revenue) have a planned manufacturing process of less than four weeks and the results reported under this method do not vary materially from the percentage-of-completion
method. The Company recognizes revenue and all related costs on these contracts upon substantial completion or shipment to the customer. Substantial completion is consistently defined as at least 95% complete with regard to direct labor hours.
Customer acceptance is generally required throughout the construction process and the Company has no further obligations under the contract after the revenue is recognized.
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 and fixed-income debt securities issued by the U.S. Treasury. 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, 2014 are scheduled to mature on or before October 3, 2014.
Inventories
Inventories are stated at the lower of cost or market, using the average cost method. For contracts accounted for on the completed contract method, progress payments received are netted against inventory
to the extent the payment is less than the inventory balance relating to the applicable contract. Progress payments that are in excess of the corresponding inventory balance are presented as customer deposits in the Consolidated Balance Sheets.
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, 2014 and 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Costs incurred since inception on contracts in progress
|
|
$
|
42,019
|
|
|
$
|
37,632
|
|
Estimated earnings since inception on contracts in progress
|
|
|
10,208
|
|
|
|
12,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,227
|
|
|
|
49,943
|
|
Less billings to date
|
|
|
57,489
|
|
|
|
49,485
|
|
|
|
|
|
|
|
|
|
|
Net (over) under billings
|
|
$
|
(5,262
|
)
|
|
$
|
458
|
|
|
|
|
|
|
|
|
|
|
41
The above activity is included in the accompanying Consolidated Balance
Sheets under the following captions at March 31, 2014 and 2013 or Notes to Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Unbilled revenue
|
|
$
|
7,830
|
|
|
$
|
13,113
|
|
Progress payments reducing inventory (Note 3)
|
|
|
(5,080
|
)
|
|
|
(5,736
|
)
|
Customer deposits
|
|
|
(8,012
|
)
|
|
|
(6,919
|
)
|
|
|
|
|
|
|
|
|
|
Net (over) under billings
|
|
$
|
(5,262
|
)
|
|
$
|
458
|
|
|
|
|
|
|
|
|
|
|
Property, plant, equipment and depreciation
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 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, tradenames and backlog. The Company amortizes its definite-lived intangible assets on a straight-line basis over
their estimated useful lives. Estimated useful lives are six months for backlog and 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 groups 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.
42
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 and market multiples. 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 6.
Research and development
Research and development costs are expensed as incurred. The Company incurred research and development costs of $3,436,
$3,579 and $3,197 in fiscal 2014, fiscal 2013 and fiscal 2012, respectively. Research and development costs are included in the line item Cost of goods sold in the Consolidated Statements of Operations.
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 Companys 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 Companys 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 Companys policy to
recognize any interest related to uncertain tax positions in interest expense and any penalties related to uncertain tax positions in selling, general and administrative expense.
The Company 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 Companys 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 Companys 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.
43
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,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,145
|
|
|
$
|
11,148
|
|
|
$
|
10,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted common shares outstanding
|
|
|
10,056
|
|
|
|
9,984
|
|
|
|
9,913
|
|
Share equivalent units (SEUs) outstanding
|
|
|
14
|
|
|
|
43
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and SEUs outstanding
|
|
|
10,070
|
|
|
|
10,027
|
|
|
|
9,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
1.01
|
|
|
$
|
1.11
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,145
|
|
|
$
|
11,148
|
|
|
$
|
10,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and SEUs outstanding
|
|
|
10,070
|
|
|
|
10,027
|
|
|
|
9,963
|
|
Stock options outstanding
|
|
|
34
|
|
|
|
24
|
|
|
|
34
|
|
Contingently issuable SEUs
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and potential common shares outstanding
|
|
|
10,104
|
|
|
|
10,051
|
|
|
|
9,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share
|
|
$
|
1.00
|
|
|
$
|
1.11
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were 2, 14 and 14 options to purchase shares of common stock at various exercise
prices in fiscal 2014, fiscal 2013 and fiscal 2012, 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 $12 in fiscal 2014, $59 in fiscal 2013, and $100 in fiscal 2012. In addition, income taxes paid were $3,302 in fiscal 2014, $4,064 in fiscal 2013, and $8,111 in fiscal 2012.
In fiscal 2014, fiscal 2013, and fiscal 2012, non-cash activities included pension and other postretirement benefit
adjustments, net of income tax, of $(2,275), $(92) and $3,223 respectively. Also, in fiscal 2014, fiscal 2013 and fiscal 2012, non-cash activities included the issuance of treasury stock valued at $317, $297 and $330, respectively, to the
Companys Employee Stock Purchase Plan (See Note 12).
At March 31, 2014, 2013, and 2012, there were
$40, $142, and $13, 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 2014,
fiscal 2013 and fiscal 2012, capital expenditures totaling $90, $11 and $205, respectively, were financed through the issuance of capital leases.
44
Accumulated other comprehensive income (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.
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 standards 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 Companys 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
Valuation is 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 more judgment. In certain cases, the
inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined
based on the lowest level input that is significant to the fair value measurement in its entirety.
Fair value
is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, assumptions are required to reflect those that market
participants would use in pricing the asset or liability at the measurement date.
Use of Estimates
The preparation of financial statements in conformity with 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 and reported amounts of sales and expenses during the reporting period. Actual results could differ
materially from those estimates.
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 (SEC), the Emerging Issues Task Force, the American Institute of Certified Public Accountants or any other authoritative accounting body to determine
the potential impact they may have on the Companys consolidated financial statements.
45
In July 2012, the FASB amended its guidance related to periodic testing of
indefinite-lived intangible assets for impairment. The amended guidance provided an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should
perform a quantitative impairment test. The guidance also enhanced the consistency of impairment testing among long-lived asset categories by permitting an entity to assess qualitative factors to determine whether it is necessary to calculate the
assets fair value when testing an indefinite-lived intangible asset for impairment, which is equivalent to the impairment testing requirements for other long-lived assets. In accordance with the guidance, an entity has an option not to
calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more-likely-than-not that the asset is impaired. The provisions of the amended guidance were effective for annual and interim
impairment tests performed for fiscal years beginning after September 15, 2012. The Company did not elect the option to perform a qualitative assessment for impairment testing. Therefore, the adoption of the amended guidance did not have an
impact on the Companys consolidated financial statements.
In February 2013, the FASB issued guidance
related to the disclosure of amounts reclassified out of accumulated other comprehensive income (AOCI). This guidance added new disclosure requirements either in a single note or parenthetically on the face of the financial statements,
the effect of significant amounts reclassified from each component of AOCI based on its source and the income statement line items affected by the reclassification. This guidance gave companies the flexibility to present the information either in
the notes or parenthetically on the face of the financial statements provided that all of the required information is presented in a single location. This guidance was effective prospectively for annual and interim reporting periods beginning after
December 15, 2012. The adoption of this guidance did not have a material impact on the Companys consolidated financial statements as it only changed the disclosures surrounding AOCI. (See Note 13).
Management does not expect any other recently issued accounting pronouncements, which have not already been adopted, to
have a material impact on the Companys consolidated financial statements.
Note 2 Acquisition:
On December 14, 2010, the Company acquired Energy Steel, a nuclear code accredited fabrication and
specialty machining company located in Lapeer, Michigan dedicated primarily to the nuclear power industry.
This transaction was accounted for under the acquisition method of accounting. Accordingly, the results of Energy Steel
were included in the Companys Consolidated Financial Statements from the date of acquisition. The purchase price was $17,899 in cash, subject to the adjustments described below. Acquisition-related costs of $676 were expensed in fiscal 2011
and were included in selling, general and administrative expenses in the Consolidated Statement of Operations. During fiscal 2012, the Company received $384 from the seller due to a reduction in purchase price based upon the final determination of
the working capital acquired in accordance with the purchase agreement.
The purchase agreement also included a
contingent earn-out, which ranged from $0 to $2,000, dependent upon Energy Steels earnings performance in calendar years 2011 and 2012. In fiscal 2012, $1,000 of the earn-out was paid. Energy Steel did not achieve the earnings performance
requirements in calendar year 2012. Therefore, the liability recorded for the remaining contingent earn-out of $975 was reversed. The Consolidated Statements of Operations for fiscal 2013 and fiscal 2012 include $(975) and $230 in selling, general
and administrative expense and $44 and $204 in interest expense, respectively, for adjustments related to the contingent earn-out liability.
Also on December 14, 2010, the Company and Energy Steel entered into a five-year lease agreement with ESSC Investments, LLC for Energy Steels manufacturing and office facilities located in
Lapeer, Michigan, which lease includes an option to renew for an additional five year term. ESSC Investments, LLC is partly owned by the former sole shareholder of Energy Steel.
46
Note 3 Inventories:
Major classifications of inventories are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Raw materials and supplies
|
|
$
|
3,185
|
|
|
$
|
2,865
|
|
Work in process
|
|
|
17,767
|
|
|
|
13,470
|
|
Finished products
|
|
|
646
|
|
|
|
572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,598
|
|
|
|
16,907
|
|
Less progress payments
|
|
|
5,080
|
|
|
|
5,736
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,518
|
|
|
$
|
11,171
|
|
|
|
|
|
|
|
|
|
|
Note 4 Property, Plant and Equipment:
Major classifications of property, plant and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Land
|
|
$
|
210
|
|
|
$
|
210
|
|
Buildings and leasehold improvements
|
|
|
13,249
|
|
|
|
13,179
|
|
Machinery and equipment
|
|
|
24,904
|
|
|
|
23,474
|
|
Construction in progress
|
|
|
3,025
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,388
|
|
|
|
36,877
|
|
Less accumulated depreciation and amortization
|
|
|
24,939
|
|
|
|
23,589
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,449
|
|
|
$
|
13,288
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense in fiscal 2014, fiscal 2013, and fiscal 2012 was $1,977, $1,851, and
$1,685, respectively.
47
Note 5 Intangible Assets:
Intangible assets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
At March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
$
|
170
|
|
|
$
|
170
|
|
|
$
|
|
|
Customer relationships
|
|
|
2,700
|
|
|
|
592
|
|
|
|
2,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,870
|
|
|
$
|
762
|
|
|
$
|
2,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Permits
|
|
$
|
10,300
|
|
|
$
|
|
|
|
$
|
10,300
|
|
Tradename
|
|
|
2,500
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,800
|
|
|
$
|
|
|
|
$
|
12,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
$
|
170
|
|
|
$
|
170
|
|
|
$
|
|
|
Customer relationships
|
|
|
2,700
|
|
|
|
412
|
|
|
|
2,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,870
|
|
|
$
|
582
|
|
|
$
|
2,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Permits
|
|
$
|
10,300
|
|
|
$
|
|
|
|
$
|
10,300
|
|
Tradename
|
|
|
2,500
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,800
|
|
|
$
|
|
|
|
$
|
12,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets are amortized on a straight line basis over their estimated useful
lives. Intangible amortization expense was $180, $180 and $250 in fiscal 2014, fiscal 2013 and fiscal 2012, respectively. As of March 31, 2014, amortization expense is estimated to be $180 in each of the fiscal years ending March 31, 2015,
2016, 2017, 2018 and 2019.
There was no change in goodwill during fiscal 2014 or fiscal 2013. Goodwill was
$6,938 at March 31, 2014 and 2013.
Note 6 Product Warranty Liability:
The reconciliation of the changes in the product warranty liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Balance at beginning of year
|
|
$
|
408
|
|
|
$
|
215
|
|
Expense for product warranties
|
|
|
125
|
|
|
|
360
|
|
Product warranty claims paid
|
|
|
(225
|
)
|
|
|
(167
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
308
|
|
|
$
|
408
|
|
|
|
|
|
|
|
|
|
|
The product warranty liability is included in the line item Accrued expenses and
other current liabilities in the Consolidated Balance Sheets.
48
Note 7 Leases:
The Company leases equipment and office space under various operating leases. Lease expense applicable
to operating leases was $563, $513 and $478 in fiscal 2014, fiscal 2013, and fiscal 2012, respectively.
Property, plant and equipment include the following amounts for leases which have been capitalized:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Machinery and equipment
|
|
$
|
457
|
|
|
$
|
429
|
|
Less accumulated amortization
|
|
|
240
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
217
|
|
|
$
|
210
|
|
|
|
|
|
|
|
|
|
|
Amortization of machinery and equipment under capital leases amounted to $72, $84 and $82
in fiscal 2014, fiscal 2013, and fiscal 2012, respectively, and is included in depreciation expense.
As of
March 31, 2014, future minimum payments required under non-cancelable leases are:
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
|
Capital
Leases
|
|
2015
|
|
$
|
588
|
|
|
$
|
90
|
|
2016
|
|
|
366
|
|
|
|
63
|
|
2017
|
|
|
118
|
|
|
|
34
|
|
2018
|
|
|
52
|
|
|
|
29
|
|
2019
|
|
|
15
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
1,139
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
|
|
|
$
|
216
|
|
|
|
|
|
|
|
|
|
|
Note 8 Debt:
Short-Term Debt Due to Banks
The Company and its subsidiaries had no short-term borrowings outstanding at March 31, 2014 and 2013.
On December 3, 2010, the Company entered into a revolving credit facility agreement that provides a $25,000 line of
credit, including letters of credit and bank guarantees, expandable at the Companys option at any time up to a total of $50,000. There are no sublimits in the agreement with regard to borrowings, issuance of letters of credit or issuance of
bank guarantees for the Companys Chinese subsidiary. The agreement has a three year term, with two automatic one year extensions. The agreement was automatically extended for one year in December 2013.
At the Companys option, amounts outstanding under the agreement will bear interest at either: (i) a rate equal
to the banks prime rate; or (ii) a rate equal to LIBOR plus a margin. The margin is based upon the Companys funded debt to earnings before interest expense, income taxes, depreciation and amortization (EBITDA) and may
range from 2.00% to 1.00%. Amounts available for borrowing under the agreement are subject to an unused commitment fee of between 0.375% and 0.200%, depending on the above ratio. The banks prime rate was 3.25% at March 31, 2014 and 2013.
Outstanding letters of credit under the agreement are subject to a fee of between 1.25% and 0.75%, depending
on the Companys ratio of funded debt to EBITDA. The agreement allows the Company to reduce the fee on outstanding letters of credit to a fixed rate of .55% by securing outstanding letters of credit with cash and cash equivalents. At
March 31, 2014, all outstanding letters of credit were secured by cash and cash equivalents. Availability under the line of credit was $9,527 at March 31, 2014.
49
Under the Companys revolving credit facility, the Company covenants to
maintain a maximum funded debt to EBITDA ratio, as defined in such credit facility, of 3.5 to 1.0 and a minimum earnings before interest expense and income taxes (EBIT) to interest ratio, as defined in such credit facility, of 4.0 to
1.0. The agreement also provides that the Company is permitted to pay dividends without limitation if it maintains a 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 funded debt to EBITDA ratio of greater than 2.0 to 1.0. The Company was in compliance with all such provisions as of and for the year ended March 31, 2014. Assets with a book value of $104,451 have been pledged to
secure borrowings under the credit facility.
On March 24, 2014, the Company entered into a letter of
credit facility agreement to further support its international operations. The agreement provides a $5,000 line of credit to be used for the issuance of letters of credit. Under the agreement, the Company incurs an annual facility fee of 0.375% of
the maximum amount available under the facility and outstanding letters of credit are subject to a fee of between 1.25% and 0.75%, depending on the Companys ratio of funded debt to EBITDA, as defined in such credit facility. The facility
requires the Company to maintain a maximum funded debt to EBITDA ratio of 3.5 to 1.0 and a minimum EBIT to interest ratio, as defined in such credit facility, of 4.0 to 1.0. Availability under the letter of credit facility was $5,000 at
March 31, 2014.
Long-Term Debt
The Company and its subsidiaries had long-term capital lease obligations outstanding as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Capital lease obligations (Note 7)
|
|
$
|
216
|
|
|
$
|
214
|
|
Less: current amounts
|
|
|
80
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
136
|
|
|
$
|
127
|
|
|
|
|
|
|
|
|
|
|
With the exception of capital leases, there are no long-term debt payment requirements
over the next five years as of March 31, 2014.
Note 9 Financial Instruments and Derivative Financial Instruments:
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash,
cash equivalents, investments, and trade accounts receivable. The Company places its cash, cash equivalents, and investments with high credit quality financial institutions, and evaluates the credit worthiness of these financial institutions on a
regular basis. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers comprising the Companys customer base and their geographic dispersion. At March 31, 2014 and 2013, the
Company had no significant concentrations of credit risk.
At March 31, 2014, two customers comprised 13%
and 12% of backlog. At March 31, 2013, two customers comprised 21% and 12% of backlog.
Letters of Credit
The Company has entered into standby letter of credit agreements with financial institutions relating to
the guarantee of future performance on certain contracts. At March 31, 2014 and 2013, the Company was contingently liable on outstanding standby letters of credit aggregating $15,473 and $12,354, respectively. (See Note 8).
Foreign Exchange Risk Management
The Company, as a result of its global operating and financial activities, is exposed to market risks from changes in foreign exchange rates. In seeking to minimize the risks and/or costs associated with
such activities, the Company may utilize foreign exchange forward contracts with fixed dates of maturity and exchange rates.
50
The Company does not hold or issue financial instruments for trading or other speculative purposes and only holds contracts with high quality financial institutions. If the counter-parties to any
such exchange contracts do not fulfill their obligations to deliver the contracted foreign currencies, the Company could be at risk for fluctuations, if any, required to settle the obligation. At March 31, 2014 and 2013, there were no foreign
exchange forward contracts held by the Company.
Fair Value of Financial Instruments
The estimates of the fair value of financial instruments are summarized as follows:
Cash and cash equivalents
: The carrying amount of cash and cash equivalents approximates
fair value due to the short-term maturity of these instruments and are considered Level 1 assets in the fair value hierarchy.
Investments
: The fair value of investments at March 31, 2014 and 2013 approximated the carrying value and are considered Level 2 assets in the fair value hierarchy.
Note 10 Income Taxes:
An analysis of the components of income before income taxes is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
United States
|
|
$
|
14,127
|
|
|
$
|
14,597
|
|
|
$
|
16,708
|
|
China
|
|
|
583
|
|
|
|
980
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,710
|
|
|
$
|
15,577
|
|
|
$
|
16,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes related to income before income taxes consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
5,146
|
|
|
$
|
6,721
|
|
|
$
|
1,744
|
|
State
|
|
|
68
|
|
|
|
65
|
|
|
|
(19
|
)
|
Foreign
|
|
|
362
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,576
|
|
|
|
6,786
|
|
|
|
1,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(761
|
)
|
|
|
(2,538
|
)
|
|
|
4,521
|
|
State
|
|
|
(184
|
)
|
|
|
(223
|
)
|
|
|
(140
|
)
|
Foreign
|
|
|
(240
|
)
|
|
|
260
|
|
|
|
18
|
|
Changes in valuation allowance
|
|
|
174
|
|
|
|
144
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,011
|
)
|
|
|
(2,357
|
)
|
|
|
4,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
4,565
|
|
|
$
|
4,429
|
|
|
$
|
6,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
The reconciliation of the provision calculated using the U.S. federal tax
rate with the provision for income taxes presented in the consolidated financial statements is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Provision for income taxes at federal rate
|
|
$
|
5,149
|
|
|
$
|
5,452
|
|
|
$
|
5,670
|
|
State taxes
|
|
|
(139
|
)
|
|
|
(173
|
)
|
|
|
(100
|
)
|
Charges not deductible for income tax purposes
|
|
|
59
|
|
|
|
78
|
|
|
|
281
|
|
Recognition of tax benefit generated by qualified production activities deduction
|
|
|
(403
|
)
|
|
|
(417
|
)
|
|
|
(77
|
)
|
Research and development tax credits
|
|
|
(80
|
)
|
|
|
(307
|
)
|
|
|
(134
|
)
|
Valuation allowance
|
|
|
174
|
|
|
|
144
|
|
|
|
14
|
|
Uncertain tax positions
|
|
|
(134
|
)
|
|
|
90
|
|
|
|
428
|
|
Contingent earn-out
|
|
|
|
|
|
|
(326
|
)
|
|
|
|
|
Other
|
|
|
(61
|
)
|
|
|
(112
|
)
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
4,565
|
|
|
$
|
4,429
|
|
|
$
|
6,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net deferred income tax liability recorded in the Consolidated Balance Sheets results
from differences between financial statement and tax reporting of income and deductions. A summary of the composition of the Companys net deferred income tax liability follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Depreciation
|
|
$
|
(2,207
|
)
|
|
$
|
(2,212
|
)
|
Accrued compensation
|
|
|
201
|
|
|
|
200
|
|
Prepaid pension asset
|
|
|
(2,026
|
)
|
|
|
(831
|
)
|
Accrued pension liability
|
|
|
105
|
|
|
|
90
|
|
Accrued postretirement benefits
|
|
|
336
|
|
|
|
364
|
|
Compensated absences
|
|
|
584
|
|
|
|
584
|
|
Inventories
|
|
|
(101
|
)
|
|
|
(968
|
)
|
Warranty liability
|
|
|
109
|
|
|
|
144
|
|
Accrued expenses
|
|
|
329
|
|
|
|
219
|
|
Stock-based compensation
|
|
|
419
|
|
|
|
459
|
|
Intangible assets
|
|
|
(5,294
|
)
|
|
|
(5,353
|
)
|
Net operating loss carryforwards
|
|
|
|
|
|
|
151
|
|
New York State investment tax credit
|
|
|
738
|
|
|
|
564
|
|
Other
|
|
|
24
|
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,783
|
)
|
|
|
(6,721
|
)
|
Less: Valuation allowance
|
|
|
(738
|
)
|
|
|
(564
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(7,521
|
)
|
|
$
|
(7,285
|
)
|
|
|
|
|
|
|
|
|
|
52
The net deferred income tax liability is presented in the Consolidated
Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Current deferred income tax asset
|
|
$
|
668
|
|
|
$
|
69
|
|
Long-term deferred income tax asset
|
|
|
8
|
|
|
|
150
|
|
Current deferred income tax liability
|
|
|
|
|
|
|
(373
|
)
|
Long-term deferred income tax liability
|
|
|
(8,197
|
)
|
|
|
(7,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,521
|
)
|
|
$
|
(7,285
|
)
|
|
|
|
|
|
|
|
|
|
Deferred income taxes include the impact of state investment tax credits of $298, which
expire from 2015 to 2028 and state investment tax credits of $440 with an unlimited carryforward period.
In
assessing the realizability of deferred tax assets, management considers, within each taxing jurisdiction, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the consideration of the weight of both positive and negative evidence, management determined that a
portion of the deferred tax assets as of March 31, 2014 and 2013 related to certain state investment tax credits would not be realized, and recorded a valuation allowance of $738 and $564, respectively.
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 examination in federal and state tax jurisdictions for tax year 2013 and tax years
2009 through 2013, respectively. The Company is subject to examination in the Peoples Republic of China for tax years 2011 through 2013. During fiscal 2014, the U.S. Internal Revenue Service (IRS) examination of tax years 2011 and
2012 was completed. Based upon the results of the IRS examination, the Company reduced its liability for unrecognized tax benefits by $134. The liability for unrecognized tax benefits was $0 and $134 on March 31, 2014 and 2013, respectively.
It is the Companys policy to recognize any interest related to uncertain tax positions in interest
expense and any penalties related to uncertain tax positions in selling, general and administrative expense. During fiscal 2014, the Company reversed provisions made in previous years for interest related to its uncertain tax positions of $11 based
upon the results of the IRS examination of tax years 2011 and 2012. During fiscal 2013, the Company reversed provisions that had been made in previous years for interest related to its uncertain tax positions due to lower assessments by the IRS than
expected. Including this reversal, the Company recorded ($320) in fiscal 2013 for interest related to its uncertain tax positions. Interest of $259 was recorded in fiscal 2012 related to the Companys uncertain tax positions. No penalties
related to uncertain tax positions were recorded in fiscal 2014, fiscal 2013 or fiscal 2012.
The following
table summarizes the changes to the unrecognized tax benefit:
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Balance at beginning of year
|
|
$
|
134
|
|
|
$
|
1,787
|
|
Deductions based upon tax positions taken during prior periods
|
|
|
(134
|
)
|
|
|
(893
|
)
|
Additions based upon tax positions taken during the current period
|
|
|
|
|
|
|
40
|
|
Settlements
|
|
|
|
|
|
|
(800
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
|
|
|
$
|
134
|
|
|
|
|
|
|
|
|
|
|
53
Note 11 Employee Benefit Plans:
Retirement Plans
The Company has a qualified defined benefit plan covering U.S. employees hired prior to January 1, 2003, which is non-contributory. Benefits are based on the employees years of service and
average earnings for the five highest consecutive calendar years of compensation in the ten-year period preceding retirement. The Companys funding policy for the plan is to contribute the amount required by the Employee Retirement Income
Security Act of 1974, as amended.
The components of pension cost are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Service cost during the period
|
|
$
|
576
|
|
|
$
|
544
|
|
|
$
|
459
|
|
Interest cost on projected benefit obligation
|
|
|
1,359
|
|
|
|
1,427
|
|
|
|
1,421
|
|
Expected return on assets
|
|
|
(2,728
|
)
|
|
|
(2,738
|
)
|
|
|
(2,713
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized prior service cost
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
Actuarial loss
|
|
|
1,002
|
|
|
|
1,011
|
|
|
|
517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension cost (benefit)
|
|
$
|
213
|
|
|
$
|
248
|
|
|
$
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average actuarial assumptions used to determine net pension cost are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Discount rate
|
|
|
4.28
|
%
|
|
|
4.76
|
%
|
|
|
5.63
|
%
|
Rate of increase in compensation levels
|
|
|
3.00
|
%
|
|
|
3.50
|
%
|
|
|
3.50
|
%
|
Long-term rate of return on plan assets
|
|
|
8.00
|
%
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
The expected long-term rate of return is based on the mix of investments that comprise
plan assets and external forecasts of future long-term investment returns, historical returns, correlations and market volatilities.
The Company does not expect to make any contributions to the plan during fiscal 2015.
Changes in the Companys benefit obligation, plan assets and funded status for the pension plan are presented below:
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Change in the benefit obligation
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
32,278
|
|
|
$
|
30,430
|
|
Service cost
|
|
|
472
|
|
|
|
439
|
|
Interest cost
|
|
|
1,359
|
|
|
|
1,427
|
|
Actuarial (gain) loss
|
|
|
(226
|
)
|
|
|
1,561
|
|
Benefit payments
|
|
|
(1,094
|
)
|
|
|
(1,579
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
32,789
|
|
|
$
|
32,278
|
|
|
|
|
|
|
|
|
|
|
54
The weighted average actuarial assumptions used to determine the benefit
obligation are:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Discount rate
|
|
|
4.46
|
%
|
|
|
4.28
|
%
|
Rate of increase in compensation levels
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
|
|
|
Change in fair value of plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
34,627
|
|
|
$
|
32,668
|
|
Actual return on plan assets
|
|
|
5,015
|
|
|
|
3,538
|
|
Benefit and administrative expense payments
|
|
|
(1,094
|
)
|
|
|
(1,579
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
38,548
|
|
|
$
|
34,627
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
5,759
|
|
|
$
|
2,349
|
|
|
|
|
|
|
|
|
|
|
Amount recognized in the Consolidated Balance Sheets
|
|
$
|
5,759
|
|
|
$
|
2,349
|
|
|
|
|
|
|
|
|
|
|
The projected benefit obligation is the actuarial present value of benefits attributable
to employee service rendered to date, including the effects of estimated future pay increases. The accumulated benefit obligation reflects the actuarial present value of benefits attributable to employee service rendered to date, but does not
include the effects of estimated future pay increases. The accumulated benefit obligation as of March 31, 2014 and 2013 was $28,254 and $27,809, respectively. At March 31, 2014 and 2013, the pension plan was fully funded on an accumulated
benefit obligation basis.
Amounts recognized in accumulated other comprehensive loss, net of income tax,
consist of:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Net actuarial loss
|
|
$
|
5,939
|
|
|
$
|
8,278
|
|
Prior service cost
|
|
|
2
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,941
|
|
|
$
|
8,283
|
|
|
|
|
|
|
|
|
|
|
The decrease in accumulated other comprehensive loss (income), net of income tax, consists
of:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Net actuarial (gain) loss arising during the year
|
|
$
|
(1,692
|
)
|
|
$
|
424
|
|
Amortization of actuarial loss
|
|
|
(647
|
)
|
|
|
(653
|
)
|
Amortization of prior service cost
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,342
|
)
|
|
$
|
(232
|
)
|
|
|
|
|
|
|
|
|
|
The estimated net actuarial loss and prior service cost for the pension plan that will be
amortized from accumulated other comprehensive loss into net pension cost in fiscal 2015 are $580 and $4, respectively.
55
The following benefit payments, which reflect future service, are expected
to be paid:
|
|
|
|
|
2015
|
|
$
|
1,260
|
|
2016
|
|
|
1,253
|
|
2017
|
|
|
1,359
|
|
2018
|
|
|
1,447
|
|
2019
|
|
|
1,477
|
|
2020-2024
|
|
|
8,711
|
|
|
|
|
|
|
Total
|
|
$
|
15,507
|
|
|
|
|
|
|
The weighted average asset allocation of the plan assets by asset category is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
Allocation
|
|
|
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
50-70
|
%
|
|
|
66
|
%
|
|
|
68
|
%
|
Debt securities
|
|
|
20-50
|
%
|
|
|
34
|
%
|
|
|
32
|
%
|
Other, including cash
|
|
|
0-10
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The investment strategy of the plan is to generate a consistent total investment return
sufficient to pay present and future plan benefits to retirees, while minimizing the long-term cost to the Company. Target allocations for asset categories are used to earn a reasonable rate of return, provide required liquidity and minimize the
risk of large losses. Targets are adjusted when considered necessary to reflect trends and developments within the overall investment environment.
The fair values of the Companys pension plan assets at March 31, 2014 and 2013, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
Asset Category
|
|
At
March 31,
2014
|
|
|
Quoted prices in
active markets for
identical assets
(Level 1)
|
|
|
Significant other
observable inputs
(Level 2)
|
|
|
Significant
unobservable inputs
(Level 3)
|
|
Cash
|
|
$
|
122
|
|
|
$
|
122
|
|
|
$
|
|
|
|
$
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. companies
|
|
|
20,396
|
|
|
|
20,396
|
|
|
|
|
|
|
|
|
|
International companies
|
|
|
4,905
|
|
|
|
4,905
|
|
|
|
|
|
|
|
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bond funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermediate-term
|
|
|
10,507
|
|
|
|
10,507
|
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
2,618
|
|
|
|
2,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38,548
|
|
|
$
|
38,548
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
Asset Category
|
|
At
March 31,
2013
|
|
|
Quoted prices in
active markets for
identical assets
(Level 1)
|
|
|
Significant other
observable inputs
(Level 2)
|
|
|
Significant
unobservable inputs
(Level 3)
|
|
Cash
|
|
$
|
108
|
|
|
$
|
108
|
|
|
$
|
|
|
|
$
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. companies
|
|
|
19,209
|
|
|
|
19,209
|
|
|
|
|
|
|
|
|
|
International companies
|
|
|
4,284
|
|
|
|
4,284
|
|
|
|
|
|
|
|
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bond funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermediate-term
|
|
|
8,953
|
|
|
|
8,953
|
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
2,073
|
|
|
|
2,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,627
|
|
|
$
|
34,627
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of Level 1 pension assets are obtained by reference to the last quoted
price of the respective security on the market which it trades. See Note 1 to the Consolidated Financial Statements.
On February 4, 2003, the Company closed the defined benefit plan to all employees hired on or after January 1, 2003. In place of the defined benefit plan, these employees participate in the
Companys domestic defined contribution plan. The Company contributes a fixed percentage of employee compensation to this plan on an annual basis for these employees. The Company contribution to the defined contribution plan for these employees
in fiscal 2014, fiscal 2013 and fiscal 2012 was $257, $204 and $161, respectively.
The Company has a
Supplemental Executive Retirement Plan (SERP) which provides retirement benefits associated with wages in excess of the legislated qualified plan maximums. Pension expense recorded in fiscal 2014, fiscal 2013, and fiscal 2012 related to
this plan was $70, $24 and $21, respectively. At March 31, 2014 and 2013, the related liability was $298 and $254, respectively. The current portion of the related liability of $26 and $27 at March 31, 2014 and 2013, respectively, is
included in the caption Accrued Compensation and the long-term portion is separately presented in the Consolidated Balance Sheets.
The Company has a domestic defined contribution plan (401k) covering substantially all employees. Prior to January 1, 2012, company contributions to the plan were determined by a formula based
on profitability and were made at the discretion of the Compensation Committee of the Board of Directors. Effective January 1, 2012, company contributions were no longer based upon profitability. The Company provides matching contributions
equal to 100% of the first 3% of an employees salary deferral and 50% of the next 2% percent of an employees salary deferral. Company contributions are immediately vested. Contributions were $831 in fiscal 2014, $753 in fiscal 2013 and
$457 in fiscal 2012.
Other Postretirement Benefits
In addition to providing pension benefits, the Company has a plan in the U.S. that provides health care benefits for
eligible retirees and eligible survivors of retirees. The Companys share of the medical premium cost has been capped at $4 for family coverage and $2 for single coverage for early retirees, and $1 for both family and single coverage for
regular retirees.
On February 4, 2003, the Company terminated postretirement health care benefits for its
U.S. employees. Benefits payable to retirees of record on April 1, 2003 remained unchanged.
57
The components of postretirement benefit income are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Interest cost on accumulated benefit obligation
|
|
$
|
33
|
|
|
$
|
39
|
|
|
$
|
45
|
|
Amortization of prior service benefit
|
|
|
(166
|
)
|
|
|
(166
|
)
|
|
|
(166
|
)
|
Amortization of actuarial loss
|
|
|
46
|
|
|
|
44
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net postretirement benefit income
|
|
$
|
(87
|
)
|
|
$
|
(83
|
)
|
|
$
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average discount rate used to develop the net postretirement benefit cost
were 3.26%, 3.96% and 4.69% in fiscal 2014, fiscal 2013 and fiscal 2012, respectively.
Changes in the
Companys benefit obligation, plan assets and funded status for the plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Change in the benefit obligation
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
1,030
|
|
|
$
|
999
|
|
Interest cost
|
|
|
33
|
|
|
|
39
|
|
Actuarial (gain) loss
|
|
|
(16
|
)
|
|
|
95
|
|
Benefit payments
|
|
|
(96
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
951
|
|
|
$
|
1,030
|
|
|
|
|
|
|
|
|
|
|
The weighted average actuarial assumptions used to develop the accrued postretirement
benefit obligation were:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Discount rate
|
|
|
3.59
|
%
|
|
|
3.26
|
%
|
Medical care cost trend rate
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
The medical care cost trend rate used in the actuarial computation ultimately reduces to
5% in 2020 and subsequent years. This was accomplished using .5% decrements for the years ended March 31, 2014 through 2020.
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Change in fair value of plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
|
|
|
$
|
|
|
Employer contribution
|
|
|
96
|
|
|
|
103
|
|
Benefit payments
|
|
|
(96
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(951
|
)
|
|
$
|
(1,030
|
)
|
|
|
|
|
|
|
|
|
|
Amount recognized in the Consolidated Balance Sheets
|
|
$
|
(951
|
)
|
|
$
|
(1,030
|
)
|
|
|
|
|
|
|
|
|
|
58
The current portion of the accrued postretirement benefit obligation of $98
and $107, at March 31, 2014 and 2013, respectively, is included in the caption Accrued Compensation and the long-term portion is separately presented in the Consolidated Balance Sheets.
Amounts recognized in accumulated other comprehensive loss, net of income tax, consist of:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Net actuarial loss
|
|
$
|
295
|
|
|
$
|
336
|
|
Prior service cost
|
|
|
(68
|
)
|
|
|
(176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
227
|
|
|
$
|
160
|
|
|
|
|
|
|
|
|
|
|
The increase in accumulated other comprehensive loss, net of income tax, consists of:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Net actuarial (gain) loss arising during the year
|
|
$
|
(10
|
)
|
|
$
|
61
|
|
Amortization of actuarial loss
|
|
|
(30
|
)
|
|
|
(28
|
)
|
Amortization of prior service cost
|
|
|
107
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
67
|
|
|
$
|
140
|
|
|
|
|
|
|
|
|
|
|
The estimated net actuarial loss and prior service cost for the other postretirement
benefit plan that will be amortized from accumulated other comprehensive loss (income) into net postretirement benefit income in fiscal 2015 are $40 and $(106), respectively.
The following benefit payments are expected to be paid during the fiscal years ending March 31:
|
|
|
|
|
2015
|
|
$
|
98
|
|
2016
|
|
|
93
|
|
2017
|
|
|
88
|
|
2018
|
|
|
82
|
|
2019
|
|
|
77
|
|
2020-2024
|
|
|
309
|
|
|
|
|
|
|
Total
|
|
$
|
747
|
|
|
|
|
|
|
Assumed medical care cost trend rates could have a significant effect on the amounts
reported for the postretirement benefit plan. However, due to the caps imposed on the Companys share of the premium costs, a one percentage point change in assumed medical care cost trend rates would not have a significant effect on the total
service and interest cost components or the postretirement benefit obligation.
Employee Stock Ownership Plan
The Company has a noncontributory Employee Stock Ownership Plan (ESOP) that covers
substantially all employees in the U.S. There were 252 and 279 shares in the ESOP at March 31, 2014 and 2013, respectively. There were no Company contributions to the ESOP in fiscal 2014, fiscal 2013 or fiscal 2012. Dividends paid on allocated
shares accumulate for the benefit of the employees who participate in the ESOP.
Self-Insured Medical Plan
Effective January 1, 2014, the Company commenced self-funding the medical insurance coverage provided to its U.S.
based employees. The Company has obtained a stop loss insurance policy in an effort to limit its exposure to claims. The Company has specific stop loss coverage per employee for claims incurred during the
59
year exceeding $100 per employee with annual maximum aggregate stop loss coverage per employee of $1,000. The Company also has total plan annual maximum aggregate stop loss coverage of $3,707.
The liability of $221 on March 31, 2014 related to the self-insured medical plan is primarily based upon claim history and is included in the caption Accrued Compensation in the Consolidated Balance Sheet.
Note 12 Stock Compensation Plans:
The Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value provides
for the issuance of up to 1,375 shares of common stock in connection with grants of incentive stock options, non-qualified stock options, stock awards and performance awards to officers, key employees and outside directors; provided, however, that
no more than 250 shares of common stock may be used for awards other than stock options. Stock options may be granted at prices not less than the fair market value at the date of grant and expire no later than ten years after the date of grant.
During fiscal 2013 and fiscal 2012, 49 and 9 stock options, respectively, each with a
term of ten years from the date of grant were awarded to officers and key employees. No stock options were awarded in fiscal 2014. The stock option awards granted in fiscal 2013 and fiscal 2012 vest 33
1
/
3
% per year over a three-year term. The Company has elected to use the straight-line method to recognize compensation costs related to such awards.
In fiscal 2014, fiscal 2013 and fiscal 2012, 32, 26 and 32 shares, respectively, of restricted stock
were awarded. Restricted shares of 14, 18 and 16 granted to officers in fiscal 2014, fiscal 2013 and fiscal 2012, 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 12 granted to officers and key employees in fiscal 2014 vest 33
1
/
3
% per year over a three-year term. Restricted shares of 7 granted to officers in fiscal 2012 vest 50% on
the second anniversary of the grant date and 50% on the fourth anniversary of the grant date. The restricted shares granted to directors of 6, 8 and 9 in fiscal 2014, fiscal 2013 and fiscal 2012, respectively, vest 100% on the anniversary of the
grant date. The Company recognizes compensation cost over the period the shares vest.
During fiscal
2014, fiscal 2013, and fiscal 2012, the Company recognized $582, $524, and $556, respectively, of stock-based compensation cost related to stock option and restricted stock awards, and $205, $184 and $198, respectively, of related tax benefits.
The weighted average fair value of options granted during fiscal 2013 and fiscal 2012 was $4.97 and $9.51,
respectively, using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
Expected life
|
|
|
3 years
|
|
|
|
3 years
|
|
Volatility
|
|
|
43.17
|
%
|
|
|
75.86
|
%
|
Risk-free interest rate
|
|
|
.38
|
%
|
|
|
.83
|
%
|
Dividend yield
|
|
|
.38
|
%
|
|
|
.47
|
%
|
The expected life represents an estimate of the weighted average period of time that
options are expected to remain outstanding given consideration to vesting schedules and the Companys historical exercise patterns. Expected volatility is estimated based on the historical closing prices of the Companys common stock over
the expected life of the options. The risk free interest rate is estimated based on the U.S. Federal Reserves historical data for the maturity of nominal treasury instruments that corresponds to the expected term of the option. Expected
dividend yield is based on historical trends.
The Company received cash proceeds from the exercise of stock
options of $581, $83 and $386 in fiscal 2014, fiscal 2013 and fiscal 2012, respectively. In fiscal 2014, fiscal 2013 and fiscal 2012, the Company recognized a $268, $41 and $244, respectively, increase in capital in excess of par value for the
income tax benefit realized upon exercise of stock options and vesting of restricted shares in excess of the tax benefit amount recognized pertaining to the fair value of stock awards treated as compensation expense.
60
The following table summarizes information about the Companys stock
option awards during fiscal 2014, fiscal 2013 and fiscal 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Under
Option
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at April 1, 2011
|
|
|
159
|
|
|
$
|
11.87
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
9
|
|
|
|
21.19
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(50
|
)
|
|
|
7.72
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(3
|
)
|
|
|
30.88
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1
|
)
|
|
|
18.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2012
|
|
|
114
|
|
|
|
13.90
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
49
|
|
|
|
18.65
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(13
|
)
|
|
|
6.35
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(4
|
)
|
|
|
18.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2013
|
|
|
146
|
|
|
|
16.04
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(52
|
)
|
|
|
11.31
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1
|
)
|
|
|
19.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2014
|
|
|
93
|
|
|
|
18.60
|
|
|
|
6.35 years
|
|
|
$
|
1,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at March 31, 2014
|
|
|
90
|
|
|
|
18.58
|
|
|
|
6.29 years
|
|
|
|
1,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2014
|
|
|
62
|
|
|
|
19.00
|
|
|
|
5.47 years
|
|
|
|
852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options outstanding at
March 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
Options Outstanding
at
March 31, 2014
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual Life (in years)
|
|
$ 6.90-7.98
|
|
|
9
|
|
|
$
|
6.96
|
|
|
|
3.11
|
|
12.52-15.25
|
|
|
24
|
|
|
|
14.68
|
|
|
|
5.22
|
|
18.65-21.19
|
|
|
48
|
|
|
|
18.99
|
|
|
|
8.04
|
|
30.88-44.50
|
|
|
12
|
|
|
|
33.04
|
|
|
|
4.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.90-44.50
|
|
|
93
|
|
|
|
18.60
|
|
|
|
6.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of the stock options exercised during fiscal 2014, fiscal 2013
and fiscal 2012 was $1,221, $203 and $776, respectively. As of March 31, 2014, there was $1,000 of total unrecognized stock-based compensation expense related to non-vested stock options and restricted stock. The Company expects to recognize
this expense over a weighted average period of 1.47 years.
The outstanding options expire between June 2016
and May 2022. Options, stock awards and performance awards available for future grants were 423 at March 31, 2014.
61
The following table summarizes information about the Companys
restricted stock awards during fiscal 2014, fiscal 2013 and fiscal 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock
|
|
|
Weighted Average
Grant
Date Fair Value
|
|
|
Aggregate
Intrinsic Value
|
|
Non-vested at March 31, 2011
|
|
|
32
|
|
|
$
|
15.77
|
|
|
|
|
|
Granted
|
|
|
32
|
|
|
|
20.91
|
|
|
|
|
|
Vested
|
|
|
(15
|
)
|
|
|
15.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at March 31, 2012
|
|
|
49
|
|
|
|
19.11
|
|
|
|
|
|
Granted
|
|
|
26
|
|
|
|
18.65
|
|
|
|
|
|
Vested
|
|
|
(8
|
)
|
|
|
22.02
|
|
|
|
|
|
Forfeited
|
|
|
(6
|
)
|
|
|
19.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at March 31, 2013
|
|
|
61
|
|
|
|
18.51
|
|
|
|
|
|
Granted
|
|
|
32
|
|
|
|
24.00
|
|
|
|
|
|
Vested
|
|
|
(24
|
)
|
|
|
17.20
|
|
|
|
|
|
Forfeited
|
|
|
(5
|
)
|
|
|
15.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at March 31, 2014
|
|
|
64
|
|
|
|
21.93
|
|
|
$
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2014, the Company terminated its Long-Term Incentive Plan, which provided
for awards of share equivalent units for outside directors based upon the Companys performance. Upon termination, the final value of the share equivalent units was determined and the related share equivalent units were cancelled. The liability
of $315 at March 31, 2014 will be paid to the participating directors in two equal installments in fiscal 2015 and fiscal 2016. Previously, under the provisions of the Long Term Incentive Plan, each unit was equivalent to one share of the
Companys common stock. Share equivalent units were credited to each outside directors account for each of the first five full fiscal years of the directors service when consolidated net income was at least 100% of the approved
budgeted net income for the year. The share equivalent units were payable in cash or stock upon retirement. Compensation cost for share equivalent units was recorded based on the higher of the quoted market price of the Companys stock at the
end of the period up to $3.20 per unit or the stock price at date of grant. The cost of share equivalent units earned and charged to pre-tax income under this Plan was $0 in fiscal 2014, $10 in fiscal 2013 and $20 in fiscal 2012. At March 31,
2013, there were 43 share equivalent units in the Plan and the related liability recorded was $310. The expense (income) to mark to market the share equivalent units was $6, $2 and $(2) in fiscal 2014, fiscal 2013 and fiscal 2012, respectively.
The Company has an Employee Stock Purchase Plan (the ESPP), which allows eligible employees to
purchase shares of the Companys common stock on the last day of a six-month offering period at a purchase price equal to the lesser of 85% of the fair market value of the common stock on either the first day or the last day of the offering
period. A total of 200 shares of common stock may be purchased under the ESPP. In fiscal 2014, fiscal 2013 and fiscal 2012, 16, 19 and 19 shares, respectively, were issued from treasury stock to the ESPP for the offering periods in each of the
fiscal years. During fiscal 2014, fiscal 2013 and fiscal 2012, the Company recognized stock-based compensation cost of $57, $52 and $55, respectively, related to the ESPP and $20, $19 and $19, respectively, of related tax benefits. The Company
recognized a $3, $2 and $3 increase in capital in excess of par value for the income tax benefit realized from disqualifying dispositions in excess of the tax benefit amount recognized pertaining to the compensation expense recorded in fiscal 2014,
fiscal 2013 and fiscal 2012, respectively.
62
Note 13 Changes in Accumulated Other Comprehensive Loss:
The changes in accumulated other comprehensive loss by component for fiscal 2014 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
and
Other
Postretirement
Benefit Items
|
|
|
Foreign
Currency
Items
|
|
|
Total
|
|
Balance at April 1, 2013
|
|
$
|
(8,443
|
)
|
|
$
|
410
|
|
|
$
|
(8,033
|
)
|
Other comprehensive income before reclassifications
|
|
|
1,702
|
|
|
|
(7
|
)
|
|
|
1,695
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
573
|
|
|
|
|
|
|
|
573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current year other comprehensive income
|
|
|
2,275
|
|
|
|
(7
|
)
|
|
|
2,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2014
|
|
$
|
(6,168
|
)
|
|
$
|
403
|
|
|
$
|
(5,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reclassifications out of accumulated other comprehensive loss by component for fiscal
2014 are as follows:
|
|
|
|
|
|
|
Details about Accumulated Other
Comprehensive Loss Components
|
|
Amounts
Reclassified
from
Accumulated Other
Comprehensive Loss
|
|
|
Affected Line Item in the
Consolidated Statements of
Operations
|
Pension and other postretirement benefit items:
|
|
|
|
|
|
|
Amortization of unrecognized prior service benefit
|
|
$
|
162
|
(1)
|
|
|
Amortization of actuarial loss
|
|
|
(1,048
|
)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
(886
|
)
|
|
Income before provision for income taxes
|
|
|
|
(313
|
)
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
$
|
(573
|
)
|
|
Net income
|
|
|
|
|
|
|
|
(1)
|
These accumulated other comprehensive loss components are included within the computation of net periodic pension and other postretirement benefit
costs. See Note 11.
|
Note 14 Segment Information:
The Company has one reporting segment as its operating segments meet the requirement for aggregation.
The Company and its operating subsidiaries design and manufacture heat transfer and vacuum equipment for the chemical, petrochemical, refining and electric power generating markets. Energy Steel supplies components and raw materials for the nuclear
power generating market. Heat transfer equipment includes surface condensers, Heliflows, water heaters and various types of heat exchangers. Vacuum equipment includes steam jet ejector vacuum systems and liquid ring vacuum pumps. These products are
sold individually or combined into package systems. The Company also services and sells spare parts for its equipment.
Net sales by product line for the following fiscal years are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Heat transfer equipment
|
|
$
|
37,086
|
|
|
$
|
43,764
|
|
|
$
|
27,927
|
|
Vacuum equipment
|
|
|
27,236
|
|
|
|
22,891
|
|
|
|
43,635
|
|
All other
|
|
|
37,896
|
|
|
|
38,318
|
|
|
|
31,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
102,218
|
|
|
$
|
104,973
|
|
|
$
|
103,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
The breakdown of net sales by geographic area for the following fiscal years
is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
$
|
152
|
|
|
$
|
235
|
|
|
$
|
371
|
|
Asia
|
|
|
11,486
|
|
|
|
17,048
|
|
|
|
17,339
|
|
Australia & New Zealand
|
|
|
307
|
|
|
|
29
|
|
|
|
2,840
|
|
Canada
|
|
|
11,419
|
|
|
|
7,084
|
|
|
|
4,626
|
|
Central America
|
|
|
3,210
|
|
|
|
4,633
|
|
|
|
224
|
|
Europe
|
|
|
2,091
|
|
|
|
2,027
|
|
|
|
571
|
|
Mexico
|
|
|
728
|
|
|
|
89
|
|
|
|
112
|
|
Middle East
|
|
|
4,350
|
|
|
|
14,834
|
|
|
|
16,264
|
|
South America
|
|
|
4,625
|
|
|
|
3,299
|
|
|
|
5,407
|
|
U.S.
|
|
|
63,850
|
|
|
|
55,695
|
|
|
|
55,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
102,218
|
|
|
$
|
104,973
|
|
|
$
|
103,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The final destination of products shipped is the basis used to determine net sales by
geographic area. No sales were made to the terrorist sponsoring nations of Sudan, Iran, Cuba, North Korea or Syria.
In fiscal 2012, total sales to one customer amounted to 14% of total net sales. There were no sales to a single customer that amounted to 10% or more of total consolidated sales in fiscal 2014 or fiscal
2013.
Note 15 Commitments and Contingencies:
The Company has been named as a defendant in certain lawsuits alleging personal injury from exposure to
asbestos allegedly contained in products made by the Company. The Company is a co-defendant with numerous other defendants in these lawsuits and intends to vigorously defend itself against these claims. The claims are similar to previous asbestos
suits that named the Company as defendant, which either were dismissed when it was shown that the Company had not supplied products to the plaintiffs places of work or were settled for immaterial amounts.
As of March 31, 2014, 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 to
which the Company is a party cannot be determined and an estimate of the reasonably possible loss or range of loss cannot be made, management does not believe that the outcomes, either individually or in the aggregate, will have a material effect on
the Companys results of operations, financial position or cash flows.
64
Note 16 Quarterly Financial Data (Unaudited):
A capsule summary of the Companys unaudited quarterly results for fiscal 2014 and fiscal 2013 is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2014
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Total
Year
|
|
Net sales
|
|
$
|
28,256
|
|
|
$
|
24,490
|
|
|
$
|
23,385
|
|
|
$
|
26,087
|
|
|
$
|
102,218
|
|
Gross profit
|
|
|
10,015
|
|
|
|
8,289
|
|
|
|
6,090
|
|
|
|
7,418
|
|
|
|
31,812
|
|
Net income
|
|
|
3,808
|
|
|
|
2,589
|
|
|
|
1,431
|
|
|
|
2,317
|
|
|
|
10,145
|
|
Per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.38
|
|
|
$
|
.26
|
|
|
$
|
.14
|
|
|
$
|
.23
|
|
|
$
|
1.01
|
|
Diluted
|
|
$
|
.38
|
|
|
$
|
.26
|
|
|
$
|
.14
|
|
|
$
|
.23
|
|
|
$
|
1.00
|
|
Market price range of common stock
|
|
$
|
22.36-31.41
|
|
|
$
|
30.26-38.96
|
|
|
$
|
32.95-41.94
|
|
|
$
|
30.23-37.23
|
|
|
$
|
22.36-41.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2013
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Total
Year
|
|
Net sales
|
|
$
|
22,533
|
|
|
$
|
25,902
|
|
|
$
|
25,633
|
|
|
$
|
30,905
|
|
|
$
|
104,973
|
|
Gross profit
|
|
|
6,236
|
|
|
|
7,913
|
|
|
|
7,128
|
|
|
|
10,545
|
|
|
|
31,822
|
|
Net income
|
|
|
1,390
|
|
|
|
2,615
|
|
|
|
3,047
|
|
|
|
4,096
|
|
|
|
11,148
|
|
Per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.14
|
|
|
$
|
.26
|
|
|
$
|
.30
|
|
|
$
|
.41
|
|
|
$
|
1.11
|
|
Diluted
|
|
$
|
.14
|
|
|
$
|
.26
|
|
|
$
|
.30
|
|
|
$
|
.41
|
|
|
$
|
1.11
|
|
Market price range of common stock
|
|
$
|
17.02-23.13
|
|
|
$
|
16.20-$20.00
|
|
|
$
|
16.45-21.22
|
|
|
$
|
19.60-24.80
|
|
|
$
|
16.20-24.80
|
|
65