<PAGE>2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 $250.00
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
COMMISSION FILE NO. 1-8462
GRAHAM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 16-1194720
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
20 Florence Avenue, Batavia, New York 14020
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code
716-343-2216
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK (Par Value $.10) American Stock Exchange
Title of Class Name of each exchange
on which registered
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK PURCHASE RIGHTS
Title of Class
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Act") during the preceding 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
<PAGE>3
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-
affiliates of the Registrant as of March 11, 1996 was $16,115,010.
As of March 11, 1996, there were outstanding 1,056,772 shares of
common stock, $.10 par value. As of March 11, 1996, there were
outstanding 1,056,772 common stock purchase rights.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Notice of Meeting and Proxy Statement for the 1996 Annual
Meeting of Stockholders is incorporated by reference into
Part III of this filing.
An Exhibit Index is located at page 56 of this filing under the
sequential numbering system prescribed by Rule 0-3(b) of the Act.
A cross reference sheet appears as the final page of this filing
setting forth item numbers and captions of Form 10-K and the pages
of the Registrant's Proxy Statement for 1996 Annual Meeting of
Stockholders where the corresponding information appears.
<PAGE>4
PART I
Item 1. Business
(a) General Development of Business
Registrant was organized in 1983 as a Delaware holding
company and is the successor to Graham Manufacturing Co., Inc., now
a wholly owned subsidiary of the Registrant. Graham Manufacturing
Co., Inc. was organized in 1936 under the laws of the State of New
York. The Registrant manages the activities of various
subsidiaries that are located in the United States and the United
Kingdom. It employs 11 people, which includes the Research and
Development Group that serves each of the Registrant's
subsidiaries.
UNITED STATES OPERATIONS:
During 1995 the Registrant's U.S. operations consisted of
one independent subsidiary, namely, Graham Manufacturing Co., Inc.
(GMC).
Graham Manufacturing Co., Inc. -- Batavia, New York
Graham Manufacturing Co., Inc. (GMC) in Batavia, New York
is a well recognized supplier of steam jet ejector vacuum systems,
surface condensers for steam turbines, liquid ring vacuum pumps and
compressors, and various types of heat exchangers such as Heliflow,
plate and frame, and special types of nuclear shell and tube heat
exchangers. GMC possesses expertise in combining these various
products into packaged systems for sale to its customers in a
variety of industrial markets, including oil refining, chemical,
petrochemical, power, pulp and paper, and shipbuilding.
1995 sales for Graham Manufacturing Co., Inc. (GMC) were
$45.4 million, about 5% more than forecasted, and 7% above the
business plan for 1995. Throughout the year, new orders improved,
which provided an opportunity to increase shipments in the second
half of the year. A union attempt to organize GMC production
workers had a negative impact on the first half. A majority of the
Company's production workers ultimately voted against the union.
New orders for the year were $48.3 million, the highest
in the Company's history, and reflected increased activity in the
Company's export markets. For the first time in the Company's
history, more than half of GMC's new business came from export
sources. Countries in Asia accounted for over half of the export
business the Company received, with the remaining half from the
Middle East, Canada and South America. New orders from western
Europe represented a 100% increase as compared to the previous
year. This was partly due to the sale of Graham Manufacturing
Limited in the U.K., which gave GMC an opportunity to compete more
freely in the western European countries.
GMC's backlog on December 31, 1995 was $21.1 million,
which compares to $18.1 million at the same time in 1994. The
increased backlog should result in an improvement in shipments for
the first half of 1996, as compared to the same period in 1995.
<PAGE>5
Major achievements for 1995 included:
- exceeding the business plan for the year;
- reducing debt to the lowest level in over five years; and
- bringing new orders for export to more than half of all
new orders, the highest level of export orders in GMC's
history.
Since October of 1995, the rate of new orders has dropped
to an annualized rate of $42 million. However, there is reason to
believe that new orders should improve as 1996 progresses.
Petrochemical and fertilizers are two of the most
promising markets served by GMC, in view of activity related to new
ethylene, ammonia and urea plant projects currently in the planning
stages. Although ethylene prices have softened, China's emerging
role in the market could bring a renewed demand for the product,
with as many as 25 new plants expected to be built in the next two
years.
New ammonia plants are now in the planning stage, and
there continues to be a demand for urea production capacity that
will continue well into 1996. Refinery work is not expected to be
as active as it was in 1995. While oil companies are boosting
capital expenditures for 1996, the emphasis is on exploration and
crude oil production, which is not an area of the oil industry that
offers business potential to GMC. Ultimately, as oil production
increases, there is likely to be an increase in demand for more
refinery capacity in the future, bringing increased demand for
process condensers and vacuum systems of the type manufactured by
Graham. The Company's reputation for experience, quality and
efficiency are excellent in this area.
Graham sales to power plants in the U.S. are probably not
going to improve during the year, but overseas the power industry
should offer some opportunity for new business. GMC's export
markets are expected to continue to be an important part of the
Company's business in 1996.
Employment at GMC as of December 31, 1995 was 312, of
which 9 were temporary or part time employees.
UNITED KINGDOM OPERATIONS:
During 1995, Graham Corporation owned one manufacturing
subsidiary in the United Kingdom, Graham Precision Pumps Limited
(GPPL) in Congleton, Cheshire. Ownership was through its U.K.
holding company, Graham Vacuum & Heat Transfer Limited (GVHT), which
has no employees.
Graham Precision Pumps Limited - Congleton, Cheshire
GPPL manufactures liquid ring vacuum pumps, rotary piston
pumps, oil sealed rotary vane pumps, atmospheric air operated
ejectors and complete vacuum pump systems that are factory
assembled with self-supporting structure.
<PAGE>6
GPPL's 1995 sales of $5,494,000 were lower than the
previous year, as overall the markets were less buoyant and GPPL
was unable to maintain the order intake rate achieved in 1994.
As in 1994, competitive pricing and delivery continued to
be the key to achieving most of GPPL's orders, which in turn
demanded a high level of flexibility in manufacturing. Overall, in
spite of the lower total value, the sales achieved by GPPL
represented a favorable mix and produced a contribution level which
with lower overheads resulted in a small profit.
In 1996, the U.K. and European markets remain uncertain
in spite of favorable forecasts in some countries. GPPL's 1996
business plan forecasts an improvement in specific market sectors
to give limited growth over 1995 by means of further market
development efforts.
A restructured plan for the U.S.A. market is in the
process of development, and is timed to provide an increase in
sales in 1996.
As of December 31, 1995 employment stood at 74.
Capital Expenditures
The Registrant's capital expenditures for 1995 amounted
to $204,000. Of this amount, $159,000 was for GMC and $45,000 was
in the U.K.
(b) Financial Information About Industry Segments
(1) Industry Segments and (2) Information as to Lines of
Business
(The information called for under this Item is set forth in
statements contained in Notes 1 and 3 to Consolidated Financial
Statements, on pages 24-26 and 27-28 of this Annual Report on Form 10-
K).
(c) Narrative Description of Business
(1) Business Done and Intended to be Done
(i) Principal Products and Markets
The Registrant designs and manufactures vacuum and heat transfer
equipment, primarily custom built. The principal markets for this
equipment are the chemical, petrochemical, petroleum refining, and
electric power generating industries. The Registrant's equipment
is sold by a combination of direct company sales engineers and
independent sales representatives located in over 40 major cities
in the United States and abroad.
(ii) Status of Publicly Announced New Products or
Segments
The Registrant has no plans for new products or for entry into new
industry segments that would require the investment of a material
<PAGE>7
amount of the Registrant's assets or that otherwise is material.
(iii) Sources and Availability of Raw Materials
Registrant experienced no serious material shortages in 1995.
(iv) Material Patents, Trademarks
Registrant holds no material patents, trademarks, licenses,
franchises or concessions the loss of which would have a materially
adverse effect upon the business of the Registrant.
(v) Seasonal Variations
No material part of the Registrant's business is seasonal.
(vi) Working Capital Practices (Not Applicable)
(vii) Principal Customers
Registrant's principal customers include the large chemical,
petroleum and power companies, which are end users of Registrant's
equipment in their manufacturing and refining processes, as well as
large engineering contractors who build installations for such
companies and others.
No material part of Registrant's business is dependent upon a
single customer or on a few customers, the loss of any one or more
of whom would have a materially adverse effect on Registrant's
business.
No customer of Registrant or group of related customers regularly
accounts for as much as 10% of Registrant's consolidated annual
revenue.
(viii) Order Backlog
Backlog of unfilled orders at December 31, 1995 was $21,837,000,
compared to $18,997,000 in 1994 and $17,070,000 in 1993.
(ix) Government Contracts (Not Applicable)
(x) Competition
Registrant's business is highly competitive and a substantial
number of companies having greater financial resources are engaged
in manufacturing similar products. Registrant is a relatively
small factor in the product areas in which it is engaged with the
exception of steam jet ejectors. Registrant believes it is one of
the leading manufacturers of steam jet ejectors.
(xi) Research Activities
During the fiscal years ended December 31, 1993, 1994, and 1995.
Registrant spent approximately $304,000, $298,000 and $277,000
respectively, on research activities relating to the development of
new products or the improvement of existing products.
(xii) Environmental Matters
<PAGE>8
Registrant does not anticipate that compliance with federal, state
and local provisions, which have been enacted or adopted regulating
the discharge of material in the environment or otherwise
pertaining to the protection of the environment, will have a
material effect upon the capital expenditures, earnings and
competitive position of the Registrant and its subsidiaries.
(xiii) Number of Persons Employed
On December 31, 1995, Registrant and its subsidiaries employed 397
persons.
(d) Financial Information About Foreign and Domestic Operations
and Export Sales
(The information called for under this Item is set forth in Note 3
to Consolidated Financial Statements, on pages 27-28 of this Annual
Report on Form 10-K.)
Item 2. Properties
United States: Registrant's corporate headquarters is located at
20 Florence Avenue, Batavia, New York.
Registrant's subsidiary, Graham Manufacturing Co., Inc., operates
a plant on approximately thirty-three acres in Batavia consisting
of about 204,000 square feet in several connected buildings built
over a period of time to meet increased space requirements,
including 162,000 square feet in manufacturing facilities, 48,000
square feet for warehousing and a 6,000 square-foot building for
product research and development. A 14,000 square foot extension
to the Heavy Fabrication Building was completed in 1991.
Graham Manufacturing Co., Inc.'s principal offices are in a 45,000
square-foot building located in Batavia adjacent to its
manufacturing facilities.
Graham Manufacturing Co., Inc. maintains U.S. sales offices in
Clifton, New Jersey, Los Angeles and Houston.
England: Registrant's subsidiary, Graham Precision Pumps Limited,
has a 41,000 square-foot manufacturing facility located on 15 acres
owned by that company in Congleton, Cheshire, England.
Assets of the Registrant with a book value of $22,741,000 have been
pledged to secure certain domestic long-term borrowings. Short and
long-term borrowings of Registrant's United Kingdom subsidiary are
secured by assets of the subsidiary, which have a book value of
$589,000.
Item 3. Legal Proceedings
(Not Applicable)
Item 4. Submission of Matters to a Vote of Security Holders
(Not applicable)
Item 4.1. Executive Officers of the Registrant
<PAGE>9
The following information is given with respect to Registrant's
executive officers, as defined by Rule 3b-7 of the Act.
Total
<F1>1 Prior Years <F2>2
Name Age Office Office Served
Frederick D. Berkeley 67 Chairman, Chairman and 45
President, President of
and Chief Graham Manu-
Executive facturing Co.,
Officer Inc.
J. Ronald Hansen 48 Vice President Chief Finan- 3
Finance & cial Officer
Administration and Vice
and Chief President-
Financial Finance of
Officer Al-Tech Specialty
Steel Corp.
Alvaro Cadena 52 President & Executive 26
Chief Vice
Operating President,
Officer, Graham
Graham Manufacturing
Manufacturing Co., Inc.
Co., Inc.;
Vice President
of Registrant
Joseph P. Gorman 52 Vice President- 26
Sales of Graham
Manufacturing
Co., Inc.
Stephen P. Northrup 44 Vice President- Vice Presi- 22
Engineering of dent-Opera-
Graham Manu- tions
facturing Co.,
Inc.
_____________________________
<F1>1 The term of office with Registrant for Mr. Berkeley began
on August 1, 1983, the effective date of the reorganization of the
Registrant and its predecessor, Graham Manufacturing Co., Inc..
The term of office of each executive officer extends to the first
Meeting of Registrant's Board of Directors following the 1994
Annual Meeting of Shareholders or until his successor is chosen and
shall have qualified. Mr. Hansen assumed his duties as Vice
President-Finance & Chief Financial Officer in June 1993. Prior to
his employment at Graham, Mr. Hansen was Chief Financial Officer
and Vice President of Al Tech Specialty Steel Corp. Mr. Cadena was
elected President of Graham Manufacturing Co., Inc. on March 11,
1991. Prior to his election to that office he served as Executive
Vice President of Graham Manufacturing Co., Inc.
<F2>2 Includes the number of years served with the Registrant,
Registrant's predecessor company, Graham Manufacturing Co., Inc.,
and any of the Registrant's subsidiaries.
<PAGE>10
PART II
Item 5. Market for Registrant's Common Stock and Related Security
Holder Matters
(a) The information called for under this Item is set
forth under Item 8, "Financial Statements and
Supplementary Data", in the Statement of Quarterly
Financial Data appearing on page 41 of this Annual Report
on Form 10-K.
(b) On March 11, 1996, there were approximately 325
holders of the Registrant's common stock. This figure
includes stockholders of record and individual
participants in security position listings who have not
objected to the disclosure of their names; it does not,
however, include individual participants in security
position listings who have objected to disclosure of
their names. On March 11, 1996, the closing price of the
Registrant's common stock on the American Stock Exchange
was $15.25 per share.
(c) The Registrant has not paid a dividend since January
4, 1993, when it paid a dividend of $.07 per share.
Restrictions on dividends are described in Note 7 to the
Consolidated Financial Statements, to be found on pages
30 to 31 of this Report.
<PAGE>11
Item 6. Selected Financial Data
GRAHAM CORPORATION - TEN YEAR REVIEW
<TABLE>
<CAPTION>
Operations: 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $49,480,000 $47,351,000 $45,180,000 $46,542,000
Gross Profit 12,979,000 12,345,000 11,945,000 8,864,000
Selling, General & Administrative 9,993,000 10,098,000 10,918,000 11,823,000
Interest Expense 616,000 525,000 537,000 572,000
Unusual Items 276,000 1,502,000 (397,000)
Income (Loss) From Continuing
Operations Before Taxes 2,094,000 220,000 887,000 (3,531,000)
Income Taxes 778,000 208,000 215,000 (1,100,000)
Income (Loss) From Continuing
Operations 1,316,000 12,000 672,000 (2,431,000)
Income (Loss) From Discontinued
Operations (2,232,000) (264,000) 3,732,000
Loss From Disposal of
Discontinued Operations (182,000) (6,189,000)
Cumulative Effect of Changes in
Accounting Principles (6,000) 161,000
Net Income (Loss) 1,134,000 (8,415,000) 408,000 1,462,000
Dividends 293,000
Common Stock:
- ------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Continuing
Operations 1.25 .01 .64 (2.32)
Income (Loss) From Discontinued
Operations (2.12) (.25) 3.56
Loss From Disposal of
Discontinued Operations (.17) (5.89)
Cumulative Effect of Changes in
Accounting Principles (.01) .16
Net Income (Loss) Per Share 1.08 (8.01) .39 1.40
Dividends Per Share .28
Shareholders' Equity Per Share 7.98 6.72 14.16 13.76
Market Price Per Share 9-16 9 5/8-14 7/8 10 1/8-16 7/8 12 1/2-27 3/4
Shares Outstanding (End of Year) 1,053,999 1,051,499 1,046,137 1,046,137
Financial Data:
- ------------------------------------------------------------------------------------------------------------------------------
New Orders 52,319,000 49,527,000 40,156,000 49,893,000
Order Backlog 21,837,000 18,997,000 17,070,000 23,259,000
Working Capital 7,074,000 6,845,000 7,098,000 9,433,000
Current Ratio 1.60:1 1.59:1 1.52:1 1.65:1
Capital Expenditures 204,000 412,000 513,000 9,213,000
Depreciation 927,000 1,027,000 1,349,000 1,385,000
Property, Plant & Equipment, Net 8,918,000 9,663,000 18,539,000 19,325,000
Total Assets 29,480,000 29,953,000 41,411,000 45,405,000
Long-Term Liabilities 9,217,000 11,290,000 13,006,000 16,487,000
Shareholders' Equity 8,407,000 7,071,000 14,816,000 14,396,000
Number of Employees (End of Year) 397 408 615 636
</TABLE>
<PAGE>12
GRAHAM CORPORATION - TEN YEAR REVIEW (CONCLUDED)
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$70,698,000 $68,053,000 $62,340,000 $62,350,000 $54,288,000 $50,658,000
18,967,000 16,749,000 16,664,000 16,769,000 12,965,000 11,626,000
14,543,000 13,899,000 12,005,000 12,961,000 11,261,000 10,153,000
950,000 959,000 1,074,000 1,485,000 1,366,000 1,613,000
(757,000) (1,140,000)
3,474,000 1,891,000 4,342,000 2,323,000 338,000 1,000,000
943,000 690,000 356,000 481,000 101,000 81,000
2,531,000 1,201,000 3,986,000 1,842,000 237,000 919,000
(645,000) 74,000 218,000 (854,000) (1,272,000) (2,105,000)
(1,067,000) (469,000)
347,000
819,000 1,275,000 4,204,000 866,000 (1,035,000) (1,186,000)
289,000 283,000 97,000
- ------------------------------------------------------------------------------------------------------------------------------
2.44 1.18 4.06 1.88 .24 .94
(.62) .07 .22 (.88) (1.30) (2.15)
(1.03) (.48)
.36
.79 1.25 4.28 .88 (1.06) (1.21)
.28 .28 .10
14.43 13.94 13.19 9.55 8.91 8.53
10 5/8-23 10 3/8-34 3/8 7-41 5 1/4-8 3/8 4 3/8-10 3/4 5 1/4-12 3/4
1,040,737 1,026,987 980,010 978,573 978,573 978,573
- ------------------------------------------------------------------------------------------------------------------------------
68,426,000 65,217,000 72,144,000 65,075,000 55,583,000 52,275,000
27,997,000 31,901,000 33,585,000 27,414,000 23,790,000 21,829,000
12,330,000 9,531,000 8,482,000 5,866,000 6,539,000 7,528,000
1.82:1 1.53:1 1.49:1 1.32:1 1.35:1 1.34:1
2,553,000 2,702,000 2,622,000 1,749,000 1,045,000 982,000
1,317,000 1,175,000 1,003,000 982,000 1,018,000 1,008,000
14,485,000 13,408,000 11,200,000 10,764,000 11,607,000 10,507,000
42,133,000 41,731,000 37,534,000 35,523,000 37,717,000 40,952,000
12,096,000 9,272,000 7,444,000 8,080,000 10,339,000 10,479,000
15,015,000 14,317,000 12,930,000 9,343,000 8,724,000 8,344,000
683 720 634 670 863 852
</TABLE>
<PAGE>13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Management's discussion and analysis reviews the company's
financial operating results for each of the three years in the
period ended December 31, 1995 and its financial condition at
December 31, 1995. The focus of this review is on the underlying
business reasons for significant changes and trends affecting
sales, net earnings, and financial condition. This review should
be read in conjunction with the consolidated financial statements,
the related Notes to Consolidated Financial Statements, the Ten-
Year Review and Form 10-K.
Except for the historical information contained herein, the
matters discussed in this annual report are forward-looking
statements which involve risks and uncertainties, including but not
limited to economic, competitive, governmental and technological
factors affecting the company's operations, markets, products,
services and prices, and other factors discussed in the company's
filings with Securities and Exchange Commission.
Results of Operations
Consolidated net income from continuing operations was
$1,316,000 in 1995 as compared to $12,000 for 1994 and $672,000 in
1993. After Loss From Discontinued Operations and Loss From
Disposal of Discontinued Operations, net income in 1995 was
$1,134,000 or $1.08 per share as compared to a loss for 1994 of
$8,415,000 or $8.01 per share and a net income of $408,000 or $0.39
for 1993.
The consolidated results from continuing operations
consolidates the results of Graham Manufacturing Co., Inc. in
Batavia, New York and Graham Precision Pumps Limited in Congleton,
England. Operating profits discussed below include the results of
intercompany transactions.
Operating profits from Graham Manufacturing Co., Inc. for 1995
were about 127% greater than 1994 and about 10% greater than 1993.
The 1994 operations included litigation expense of $1,502,000.
Improved 1995 results as compared to 1993 were due to greater sales
and reduced selling, general and administrative expenses.
Graham Precision Pumps Limited's operating profit for the
current year was about 59% less than 1994 and 157% greater than
1993. The company enjoyed an unusually strong operating
performance in 1994.
In January 1995 the stock of Graham Manufacturing Limited was
sold for the assumption of debt. The net write off of $8,475,000
was recognized in the Consolidated Statement of Operations under
Loss From Discontinued Operations and Loss From Disposal of
Discontinued Operations in 1994.
In December 1994 the real estate of L&A Engineering and
Equipment Inc. was sold for $880,000. A $31,000 after tax gain on
the sale was recognized as income under Loss From Disposal of
Discontinued Operations in 1994. L&A Engineering and Equipment
Inc. was reported as a discontinued operation in 1991.
<PAGE>14
Net Sales
Consolidated sales for 1995 of $49,480,000 represents a 4.5%
increase over 1994 and a 9.5% increase over 1993.
U.S. 1995 operations recorded increased sales of about 8% more
than 1994. Virtually every major product category saw increased
sales in 1995 with the exception of surface condensers. Sales by
major market sector were proportionately increased over 1994 except
for a small increase in the chemical sector and a decrease in the
refinery sector. Sales in 1994 exceeded 1993 sales by about 3%.
This increase resulted from improved surface condenser sales.
Sales by market breakdown showed a decrease in activity in the
power sector, but large increases in the chemical and refinery
markets.
U.K. sales in 1995 decreased almost 17% from 1994. Sales for
1994 were about 20% greater than 1993. As noted elsewhere, sales
were down in 1995 due to the lack of major project work and
offshore demand. Sales were up in 1994 over 1993 due to stronger
offshore demand, particularly in the China Sea.
Gross Profit
Consolidated gross profit margins for 1995, 1994 and 1993 were
about 26%. Gross profit margins from the U.S. operation for 1995,
1994, and 1993 were about 25%, 24% and 26%, respectively. Graham
Precision Pumps gross profit margins for 1995 decreased to about
28% from about 36% in 1994 as a result of fewer sales and less
favorable product mix. Gross profit margins in 1993 were about
26%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses continued the
downward trend initiated in 1993. This three year trend is
expected to reverse in 1996 as the company's strategic plan calls
for a pro-active niche marketing effort and increased research and
development programs in potentially expanding market areas.
Interest Expense
Interest expense for the current year increased about 17% over
1994 even though interest bearing debt decreased significantly from
December 31, 1994. The company's borrowings to finance 1994 fourth
quarter shipments resulted in greater interest expense the first
part of 1995. Interest expense in 1994 was down slightly from
1993. This was due to management's efforts in reducing debt and
working capital requirements.
Provision for Income Taxes
The effective income tax rates for 1995, 1994 and 1993 related
to continuing operations were 37%, 95% and 24%. The current year's
consolidated effective tax rate differs from the statutory rate
mainly due to a reduction in state deferred tax assets recognized
under Statement of Financial Accounting Standard No. 109. The
unusually large effective tax rate recognized in 1994 resulted from
the disallowance of capital losses incurred with the disposal of
<PAGE>15
Graham Manufacturing Limited. The 1993 tax provision was reduced
as a result of the favorable reversal of a tax reserve established
in a previous year. For an in depth analysis of the tax provision,
see Note 9 in the accompanying Notes to Consolidated Financial
Statements.
Working Capital
Working capital available to finance current operations at
December 31, 1995 was $7,074,000. This compares to $6,845,000 at
December 31, 1994. Current assets as of December 31, 1995 were
about 3% greater than 1994. The accounts receivable balance was
down almost 11% as a result of improved cash collections.
Inventory on hand at December 31, 1995 increased about 46% or
$2,074,000 over 1994. This increase is attributed to increased
inventory in selected standard products stocked to shorten delivery
times and the status of specific jobs in work-in-process as of
December 31, 1995. Deferred tax assets decreased about 37% from
1994 as a result of the current deductibility of litigation charges
incurred in 1994 but paid in 1995.
Current liabilities increased about 2% over December 31, 1994
balances. The two significant increases came in accrued
compensation (up almost 34% from 1994) and customer deposits (up
about 258% from last year). Accrued compensation represents a
timing difference between compensation earned and paid. Customer
deposits represent cash collected from customers in advance of
shipments and in excess of the carrying value of related inventory.
The largest decrease in 1994 current liabilities was due to the
payment of the accrued litigation reserve of $1,247,000 in 1995.
Long Term Assets
Long term assets consist of Deferred Income Taxes and Property,
Plant and Equipment. Capital spending in 1995 and 1994 equalled
about 22% and 40% of depreciation expense for the comparable
respective years. Capital spending in 1996 is projected to equal
or slightly exceed 1996 depreciation expense.
Noncurrent Liabilities
Noncurrent liabilities as set forth in the Consolidated Balance
Sheets includes the long term portion of bank debt. Because the
markets served by Graham are cyclical, the company has established
a strategic goal to reduce the amount of interest bearing debt in
relation to shareholders' equity.
Shareholders' Equity
Shareholders' Equity increased about 19% in 1995 over 1994.
Most of this increase was due to earnings. Shareholders' Equity
decreased about 52% in 1994 from 1993 due to the disposal of Graham
Manufacturing Limited and an adverse jury verdict.
Liquidity
Net cash provided from operating activities in 1995 was
$1,644,000 as compared to a deficit in 1994 of $906,000 and a
surplus in 1993 of $2,085,000. The positive 1995 position was
<PAGE>16
achieved due to a strong operating profit together with maintaining
working capital levels approximating 1994. The 1994 cash operating
deficit was largely due to the disposal of Graham Manufacturing
Limited. The 1993 positive cash flow from operating activities was
due to operating profit, inventory reduction programs, and income
tax refunds.
Management believes that 1996 cash needs will be substantially
provided from normal operations.
At December 31, 1995 the U.S. operation had an unused line of
credit available to support its business of $8,727,000. The U.K.
operation had an unused line of credit available of $181,000.
New Orders
New orders in 1995 were $52,319,000 compared to $49,527,000 in
1994 and $40,156,000 in 1993. In 1995, U.S. bookings were
$48,358,000, up from $43,991,000 in 1994 and $35,571,000 in 1993.
New orders from export from the U.S. operation equalled about 54%
of the total new orders. This compares to about 46% of the orders
received in 1994 and about 40% in 1993. Orders received in the
U.K. operation in 1995 were $3,961,000. This compares to
$5,536,000 in 1994 and $4,585,000 in 1993. Bookings in 1995 were
down compared to 1994 due to the lack of major project work and
weaker activity in the U.K. offshore pump product line.
Backlog
The consolidated backlog as of December 31, 1995 was
$21,837,000, up about 15% over 1994 and about 28% over 1993. The
backlog as of December 31, 1994 was $18,997,000 and $17,070,000 on
December 31, 1993. Graham Manufacturing Co., Inc.'s backlog
equalled $21,136,000 for the current period as compared to
$18,127,000 and $16,324,000 for 1994 and 1993, respectively.
Graham Precision Pumps Limited's backlog was $701,000 as of
December 31, 1995 and $870,000 in 1994 and $746,000 in 1993.
Backlog figures exclude intercompany sales. Graham Manufacturing
is a major customer of Graham Precision Pumps.
The backlog at December 31, 1995 will be shipped in 1996 and
represents orders from traditional markets in Graham's established
product lines.
Change In Accounting Principles
The company adopted Statement of Financial Accounting Standard
No. 107, Disclosure About Fair Value of Financial Instruments in
1995. See Notes to Consolidated Financial Statements No. 8 for
additional information including Graham's use of derivatives.
Effective January 1, 1994 the company adopted Statement of
Financial Accounting Standard No. 112, Employer's Accounting for
Postemployment Benefits.
Inflation
Increases in material costs have been offset by cost cutting
measures and price increases absorbed in the marketplace. Graham
<PAGE>17
will continue to monitor the impact of inflation in order to
minimize its effects in future years through pricing and product
mix strategies, productivity improvements, and cost reductions.
Forward Looking
On balance 1995 was an excellent year. In the first half of
the year the company settled a major lawsuit and sold its
subsidiary located in Gloucester, England. The expenses relating
to these events were anticipated and substantially accounted for in
1994. In the second half of the year the company returned to
profitability, posting one of its finest operating profits in
several years.
The company enters 1996 with a consolidated backlog well in
excess of recent past history. No one can predict with certainty,
demand for Graham's products into the future, however, with guarded
optimism the company does see opportunities in selected market
niches in 1996. To what extent these potentially bright spots can
offset other weakening market sectors and fierce global competition
is difficult to comfortably predict.
<PAGE>18
Item 8. Financial Statements and Supplementary Data
(Financial Statements, Notes to Financial Statements, Quarterly
Financial Data)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . $49,480,000 $47,351,000 $45,180,000
----------- ----------- -----------
Costs and expenses:
Cost of products sold . . . . . . . . . . . . . . . . . . 36,501,000 35,006,000 33,235,000
Selling, general and administrative . . . . . . . . . . . 9,993,000 10,098,000 10,918,000
Interest expense. . . . . . . . . . . . . . . . . . . . . 616,000 525,000 537,000
Litigation provision. . . . . . . . . . . . . . . . . . . 276,000 1,502,000
Gain on disposal of property, plant
and equipment. . . . . . . . . . . . . . . . . . . . . (397,000)
----------- ----------- -----------
47,386,000 47,131,000 44,293,000
----------- ----------- -----------
Income from continuing operations
before income taxes . . . . . . . . . . . . . . . . . . . 2,094,000 220,000 887,000
Provision for income taxes . . . . . . . . . . . . . . . . . 778,000 208,000 215,000
----------- ----------- -----------
Income from continuing operations. . . . . . . . . . . . . . 1,316,000 12,000 672,000
Loss from discontinued operations. . . . . . . . . . . . . . (2,232,000) (264,000)
Loss from disposal of discontinued
operations. . . . . . . . . . . . . . . . . . . . . . . . (182,000) (6,189,000)
----------- ----------- -----------
Income(loss) before cumulative effect of
change in accounting principle. . . . . . . . . . . . . . 1,134,000 (8,409,000) 408,000
Cumulative effect of change in accounting
principle from continuing operations. . . . . . . . . . . (2,000)
Cumulative effect of change in accounting
principle from discontinued operations. . . . . . . . . . (4,000)
----------- ----------- -----------
Net income(loss) . . . . . . . . . . . . . . . . . . . . . . $ 1,134,000 $(8,415,000) $ 408,000
=========== =========== ===========
PER SHARE DATA:
Income from continuing operations . . . . . . . . . . . . $1.25 $ 0.01 $0.64
Loss from discontinued operations
and disposal of discontinued operations. . . . . . . . (.17) (8.01) (.25)
Cumulative effect of change in accounting
principle. . . . . . . . . . . . . . . . . . . . . . . (.01)
----------- ----------- -----------
Net income(loss) . . . . . . . . . . . . . . . . . . . . . . $1.08 $(8.01) $0.39
=========== =========== ===========
Average number of common and common
equivalent shares outstanding . . . . . . . . . . . . . . 1,053,000 1,051,000 1,047,000
=========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>19
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Assets
Current assets:
Cash and equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . $ 411,000 $ 454,000
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . 10,611,000 11,883,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,621,000 4,547,000
Deferred tax asset. . . . . . . . . . . . . . . . . . . . . . . . . . . 698,000 1,114,000
Prepaid expenses and other current assets . . . . . . . . . . . . . . . 589,000 439,000
----------- -----------
18,930,000 18,437,000
----------- -----------
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . 8,918,000 9,663,000
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,600,000 1,791,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000 62,000
----------- -----------
$29,480,000 $29,953,000
=========== ===========
</TABLE>
<PAGE>20
CONSOLIDATED BALANCE SHEETS (CONCLUDED)
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt due banks . . . . . . . . . . . . . . . . . . . . . . . $ 206,000 $ 196,000
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . 355,000 235,000
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,066,000 4,275,000
Accrued compensation. . . . . . . . . . . . . . . . . . . . . . . . . . 4,305,000 3,220,000
Accrued expenses and other liabilities. . . . . . . . . . . . . . . . . 1,367,000 1,488,000
Litigation reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,247,000
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 966,000 270,000
Domestic and foreign income taxes payable . . . . . . . . . . . . . . . 240,000 260,000
Estimated liabilities of discontinued operations. . . . . . . . . . . . 351,000 401,000
----------- -----------
11,856,000 11,592,000
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,303,000 5,161,000
Deferred compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,017,000 993,000
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . 111,000 138,000
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . 373,000 496,000
Deferred pension liability . . . . . . . . . . . . . . . . . . . . . . . . 1,252,000 1,369,000
Accrued postretirement benefits. . . . . . . . . . . . . . . . . . . . . . 3,161,000 3,133,000
----------- -----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,073,000 22,882,000
----------- -----------
Shareholders' equity:
Preferred stock, $1 par value -
Authorized, 500,000 shares
Common stock, $.10 par value -
Authorized, 6,000,000 shares
Issued and outstanding, 1,053,999 shares in 1995
and 1,051,499 shares in 1994. . . . . . . . . . . . . . . . . . 106,000 105,000
Capital in excess of par value. . . . . . . . . . . . . . . . . . . . . 3,219,000 3,197,000
Cumulative foreign currency translation adjustment. . . . . . . . . . . (1,891,000) (1,876,000)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,854,000 6,720,000
----------- -----------
9,288,000 8,146,000
Less:
Treasury Stock, 442 shares . . . . . . . . . . . . . . . . . . . . . (6,000)
Employee Stock Ownership Plan Loan Payable . . . . . . . . . . . . . (875,000) (1,075,000)
----------- -----------
Total shareholders' equity. . . . . . . . . . . . . . . . . . . . . . . 8,407,000 7,071,000
----------- -----------
$29,480,000 $29,953,000
=========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>21
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . $ 1,134,000 $(8,415,000) $ 408,000
Adjustments to reconcile net income (loss) to net ----------- ----------- ----------
cash (used) provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . 946,000 1,047,000 1,379,000
Gain on sale of property, plant and equipment. . . . . . . (24,000) (94,000) (397,000)
Minority interest in net income. . . . . . . . . . . . . . 24,000
Loss on disposal of discontinued operations. . . . . . . . 7,097,000
(Increase) Decrease in operating assets:
Accounts receivable . . . . . . . . . . . . . . . . . . 1,260,000 (4,973,000) 179,000
Inventory, net of customer deposits . . . . . . . . . . (1,395,000) 432,000 1,436,000
Prepaid expenses and other current and
non-current assets . . . . . . . . . . . . . . . . . (140,000) 56,000 (111,000)
Increase (Decrease) in operating liabilities:
Accounts payable, accrued compensation,
accrued expenses and other liabilities . . . . . . . 565,000 3,319,000 (1,318,000)
Litigation reserve. . . . . . . . . . . . . . . . . . . (1,247,000)
Estimated liabilities of discontinued
operations . . . . . . . . . . . . . . . . . . . . . (35,000) 313,000 (23,000)
Deferred compensation, deferred pension
liability and accrued postretirement benefits. . . . 134,000 (344,000) (226,000)
Domestic and foreign income taxes . . . . . . . . . . . (17,000) 380,000 550,000
Other long-term liabilities . . . . . . . . . . . . . . (119,000) 472,000 (8,000)
Deferred income taxes . . . . . . . . . . . . . . . . . 582,000 (196,000) 192,000
----------- ----------- ----------
Total adjustments. . . . . . . . . . . . . . . . . . 510,000 7,509,000 1,677,000
----------- ----------- ----------
Net cash provided (used) by operating actitivies . . . . . . 1,644,000 (906,000) 2,085,000
----------- ----------- ----------
Investing activities:
Purchase of property, plant and equipment. . . . . . . . . . (204,000) (412,000) (513,000)
Proceeds from sale of property, plant and
equipment. . . . . . . . . . . . . . . . . . . . . . . . . 33,000 8,000 440,000
Proceeds from sale of L&A Engineering & Equipment,
Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 880,000
----------- ----------- ----------
Net cash provided (used) by investing activities . . . . . . (171,000) 476,000 (73,000)
----------- ----------- ----------
</TABLE>
<PAGE>22
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Financing activities:
Increase (Decrease) in short-term debt . . . . . . . . . . . 14,000 (295,000) 1,459,000
Proceeds from issuance of long-term debt . . . . . . . . . . 11,888,000 2,744,000 469,000
Principal repayments on long-term debt . . . . . . . . . . . (13,418,000) (1,671,000) (4,391,000)
Issuance of common stock . . . . . . . . . . . . . . . . . . 11,000
Purchase of treasury stock . . . . . . . . . . . . . . . . . (6,000)
Capital contributions from minority interest . . . . . . . . 75,000
----------- ----------- ----------
Net cash provided (used) by financing activities . . . . . . (1,511,000) 778,000 (2,388,000)
----------- ----------- ----------
Effect of exchange rate on cash. . . . . . . . . . . . . . . (5,000) 7,000 (2,000)
----------- ----------- ----------
Net increase (decrease) in cash and equivalents. . . . . . . (43,000) 355,000 (378,000)
Cash and equivalents at beginning of year. . . . . . . . . . 454,000 99,000 477,000
----------- ----------- ----------
Cash and equivalents at end of year. . . . . . . . . . . . . $ 411,000 $ 454,000 $ 99,000
=========== =========== ==========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>23
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Cumulative
Foreign
Capital in Currency Employee Stock
Common Stock Excess of Translation Retained Treasury Ownership Plan Shareholders'
Shares Par Value Par Value Adjustment Earnings Stock Loan Payable Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 1,046,137 $105,000 $3,124,000 $(2,085,000) $14,727,000 $(1,475,000) $14,396,000
Foreign currency translation
adjustment. . . . . . . . . (188,000) (188,000)
Net income. . . . . . . . . . 408,000 408,000
Payments on Employee Stock
Ownership Plan Loan Payable 200,000 200,000
--------- -------- ---------- ----------- ----------- ------- ----------- -----------
Balance at December 31, 1993 1,046,137 105,000 3,124,000 (2,273,000) 15,135,000 (1,275,000) 14,816,000
Issuance of shares. . . . . . 5,362 73,000 73,000
Foreign currency translation
adjustment. . . . . . . . . 397,000 397,000
Net loss. . . . . . . . . . . (8,415,000) (8,415,000)
Payments on Employee Stock
Ownership Plan Loan Payable 200,000 200,000
--------- -------- ---------- ----------- ----------- ------- ----------- -----------
Balance at December 31, 1994 1,051,499 105,000 3,197,000 (1,876,000) 6,720,000 (1,075,000) 7,071,000
Issuance of shares. . . . . . 2,500 1,000 22,000 23,000
Foreign currency translation
adjustment. . . . . . . . . (15,000) (15,000)
Net income. . . . . . . . . . 1,134,000 1,134,000
Acquisition of treasury stock (6,000) (6,000)
Payments on Employee Stock
Ownership Plan Loan Payable 200,000 200,000
--------- -------- ---------- ----------- ----------- ------- ----------- -----------
Balance at December 31, 1995 1,053,999 $106,000 $3,219,000 $(1,891,000) $ 7,854,000 $(6,000) $ (875,000) $ 8,407,000
========= ======== ========== =========== =========== ======= =========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>24
Notes To Consolidated Financial Statements
Note 1 - The Company and Its Accounting Policies:
Graham Corporation and its subsidiaries are primarily engaged
in the design and manufacture of vacuum and heat transfer equipment
used in the chemical, petrochemical, petroleum refining, and
electric power generating industries and sells to customers
throughout the world. The company's significant accounting
policies follow.
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 majority-owned domestic and foreign
subsidiaries. All significant intercompany balances, transactions
and profits are eliminated in consolidation.
The preparation of financial statements in conformity with
generally accepted accounting principles 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 foreign subsidiaries 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. Gains
and losses resulting from translation of foreign subsidiary balance
sheets are reflected as a separate component of shareholders'
equity.
Revenue recognition-
Revenues and all related costs on short-term contracts are
accounted for on the completed contract method and included in
income upon substantial completion or shipment to the customer.
Inventories-
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method. Progress payments
for orders 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 Sheet.
Property and depreciation-
Property, plant and equipment are stated at cost. 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
under the straight line method. 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.
<PAGE>25
Income taxes-
The company recognizes deferred tax assets and liabilities for
the expected future tax consequences of events that have been
recognized in the company's financial statements or tax returns.
Deferred 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.
Employee benefit plans and deferred compensation-
The company has retirement plans covering substantially all
employees. Charges to income are based upon actuarially determined
costs. Pension liabilities are funded by periodic payments to the
various pension plan trusts.
The company has employment contracts with key employees which
provide for current and deferred bonuses based upon the results of
operations. The principal and interest earned on the deferred
balances are payable upon retirement.
Effective January 1, 1994, the company adopted Statement of
Financial Accounting Standards No. 112 (SFAS 112), "Employers'
Accounting for Postemployment Benefits." SFAS 112 requires that
projected future costs of providing postemployment benefits be
recognized as an expense as employees render service rather than
when the benefits are paid. The adjustment to adopt SFAS 112 of
$9,000, net of the related tax benefit of $3,000, or $.01 per
share, is presented in the Consolidated Statement of Operations as
the cumulative effect of changes in accounting principles from
continuing and discontinued operations. The incremental costs of
adopting this statement are insignificant on an ongoing basis.
The company provides certain health care benefits for eligible
retirees and eligible survivors of retirees. The company
recognizes the cost of postretirement health care benefits on the
accrual basis as employees render service to earn the benefits.
Per share data-
Earnings per share is computed by dividing net income by the
weighted average number of common shares and, when applicable,
common equivalent shares outstanding during the period.
Cash flow statement-
The company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
Actual interest paid was $631,000 in 1995, $500,000 in 1994,
and $815,000 in 1993. In addition, actual income taxes paid were
$246,000 in 1995, $39,000 in 1994, and $341,000 in 1993.
In 1994, bonus amounts payable to all officers of Graham
Corporation and its U.S. subsidiary were paid in Graham common
stock valued at $12,000 and $73,000 in 1995 and 1994.
Recently issued accounting standard -
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," which requires adoption
no later than fiscal years beginning after December 15, 1995. The
new standard defines a fair value method of accounting for stock
options and similar equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on
the fair value of the award and is recognized over the service
period, which is usually the vesting period.
<PAGE>26
Pursuant to the new standard, companies are encouraged, but not
required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue
to account for such transactions under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," but
would be required to disclose in a note to the financial statements
pro forma net income and, if presented, earnings per share as if
the company had applied the new method of accounting.
The accounting requirements of the new method are effective for
all employee awards granted after the beginning of the fiscal year
of adoption. The company has not yet determined if it will elect
to change to the fair value method, nor has it determined the
effect the new standard will have on net income and earnings per
share should it elect to make such a change. Adoption of the new
standard will have no effect on the company's cash flows.
Note 2 - Discontinued Operations:
In September 1994, the company approved a formal plan to
dispose of its subsidiary, Graham Manufacturing Limited (GML),
located in Gloucester, England, and subsequently sold the operation
on January 24, 1995. GML manufactured shell and tube heat
exchangers. In addition, GML manufactured air cooled exchangers
through a joint venture known as Graham Exchanger Services Limited
of which GML owned seventy-five percent of the issued and
outstanding shares. This joint venture was sold in November 1994.
The disposal of GML has been presented in the Consolidated
Statement of Operations as a discontinued operation and
accordingly, the results of operations for the prior years have
been restated to reflect GML's operations separately from
continuing operations.
Net sales for GML were $13,639,000 for the nine month operating
period in 1994 and $16,086,000 in 1993.
During 1995, the company incurred a loss of $182,000 for
additional expenses related to the disposal of GML. There were no
tax attributes associated with this loss. The 1994 loss from GML's
discontinued operations is presented net of related tax benefits of
$8,000. The 1994 loss from disposal, which includes operating
losses of $1,909,000 during the phase-out period, is presented net
of related tax benefits of $160,000. There were no tax attributes
associated with the 1993 loss of GML. The remaining accrued
liabilities for this disposal totalled $711,000 at December 31,
1995.
In December 1994, the company sold the property and plant of
L&A Engineering & Equipment, Inc. (L&A), which was previously
accounted for as a discontinued operation. A gain, net of related
expenses, of $51,000 was recognized from the sale of the L&A
property and plant. In addition, the remaining reserve for
estimated net liabilities of L&A totalling $38,000 was reversed to
income in 1994. The gain of $89,000, which is net of a $35,000
income tax provision, has been netted against the loss from
disposal of discontinued operations in the 1994 Consolidated
Statement of Operations.
<PAGE>27
Note 3 - Operations by Geographic Area:
The company has operations in the United States and the United
Kingdom.
Inter-geographic sales represent intercompany sales made based
upon a competitive pricing structure. All intercompany profits in
inventory are eliminated in the consolidated accounts and are
included in the eliminations caption below. In computing operating
profit, corporate and interest expense have been excluded.
Included in corporate expense are research and development costs of
$277,000, $298,000, and $304,000 in 1995, 1994 and 1993,
respectively.
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net sales including inter-geographic
sales:
United States
Customers. . . . . . . . . . . . . . . . . . . . $45,358,000 $41,892,000 $40,732,000
Inter-geographic . . . . . . . . . . . . . . . . 24,000 31,000 115,000
United Kingdom
Customers. . . . . . . . . . . . . . . . . . . . 4,122,000 5,459,000 4,448,000
Inter-geographic . . . . . . . . . . . . . . . . 1,372,000 1,152,000 1,040,000
Inter-geographic sales. . . . . . . . . . . . . . . (1,396,000) (1,183,000) (1,155,000)
----------- ----------- -----------
Net sales . . . . . . . . . . . . . . . . . . . . . $49,480,000 $47,351,000 $45,180,000
=========== =========== ===========
Operating profit:
United States. . . . . . . . . . . . . . . . . . $ 4,106,000 $ 1,950,000 $ 3,623,000
United Kingdom . . . . . . . . . . . . . . . . . 370,000 745,000 24,000
Eliminations . . . . . . . . . . . . . . . . . . 65,000 (70,000) 18,000
----------- ----------- -----------
Total operating profit. . . . . . . . . . . . . . . 4,541,000 2,625,000 3,665,000
Corporate expense . . . . . . . . . . . . . . . . . (1,831,000) (1,880,000) (2,241,000)
Interest expense. . . . . . . . . . . . . . . . . . (616,000) (525,000) (537,000)
----------- ----------- -----------
Income from continuing
operations before income taxes . . . . . . . . . $ 2,094,000 $ 220,000 $ 887,000
=========== =========== ===========
Identifiable assets
United States. . . . . . . . . . . . . . . . . . $25,414,000 $25,640,000 $21,281,000
United Kingdom . . . . . . . . . . . . . . . . . 3,870,000 4,214,000 19,245,000
Eliminations . . . . . . . . . . . . . . . . . . (391,000) (284,000) (321,000)
----------- ----------- -----------
28,893,000 29,570,000 40,205,000
Corporate assets. . . . . . . . . . . . . . . . . . 587,000 383,000 1,206,000
----------- ----------- -----------
Total assets. . . . . . . . . . . . . . . . . . . . $29,480,000 $29,953,000 $41,411,000
=========== =========== ===========
</TABLE>
<PAGE>28
The breakdown of total United States export sales by geographic area was:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Africa . . . . . . . . . . . . . . . . . . . . . $ 118,000 $ 489,000 $ 1,353,000
Asia . . . . . . . . . . . . . . . . . . . . . . 10,160,000 10,052,000 7,543,000
Canada . . . . . . . . . . . . . . . . . . . . . 2,401,000 2,649,000 2,051,000
Middle East. . . . . . . . . . . . . . . . . . . 1,992,000 253,000 236,000
South America. . . . . . . . . . . . . . . . . . 1,921,000 531,000 1,930,000
Mexico . . . . . . . . . . . . . . . . . . . . . 1,578,000 555,000 232,000
Western Europe . . . . . . . . . . . . . . . . . 592,000 822,000 523,000
Other. . . . . . . . . . . . . . . . . . . . . . 433,000 1,037,000 904,000
----------- ----------- -----------
Total domestic export sales . . . . . . . . . . . . $19,195,000 $16,388,000 $14,772,000
=========== =========== ===========
</TABLE>
Note 4 - Inventories:
Major classifications of inventories are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Raw materials and supplies. . . . . . . . . . . . . . . . . . . $ 2,579,000 $ 1,857,000
Work in process . . . . . . . . . . . . . . . . . . . . . . . . 3,286,000 2,507,000
Finished products . . . . . . . . . . . . . . . . . . . . . . . 1,100,000 953,000
----------- -----------
6,965,000 5,317,000
Less - progress payments. . . . . . . . . . . . . . . . . . . . 344,000 770,000
----------- -----------
$ 6,621,000 $ 4,547,000
=========== ===========
</TABLE>
Note 5 - Property, Plant and Equipment:
Major classifications of property, plant and equipment are as
follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 244,000 $ 245,000
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . 165,000 165,000
Buildings and improvements. . . . . . . . . . . . . . . . . . . . . 10,245,000 10,231,000
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . 12,748,000 12,929,000
Construction in progress. . . . . . . . . . . . . . . . . . . . . . 10,000 17,000
----------- -----------
23,412,000 23,587,000
Less - accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,494,000 13,924,000
----------- -----------
$ 8,918,000 $ 9,663,000
=========== ===========
</TABLE>
<PAGE>29
Note 6 - Leases:
The company leases equipment and office space under various
operating leases. Rent expense applicable to operating leases was
$184,000, $180,000 and $249,000 for years 1995, 1994 and 1993,
respectively.
Property, plant and equipment include the following amounts for
leases which have been capitalized.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . $ 779,000 $ 788,000
Less accumulated amortization . . . . . . . . . . . . . . . . . . . 494,000 405,000
---------- ----------
$ 285,000 $ 383,000
========== ==========
</TABLE>
Amortization of property, plant and equipment under capital
lease amounted to $98,000, $72,000 and $114,000 for years 1995,
1994 and 1993, respectively, and is included in depreciation
expense.
As of December 31, 1995, future minimum payments required under
non-cancelable leases are:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
<S> <C> <C>
1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 135,000 $ 43,000
1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,000 33,000
1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,000 31,000
1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,000 17,000
2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,000 9,000
Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000
---------- ----------
Total minimum lease payments. . . . . . . . . . . . . . . . . . . . $ 340,000 $ 133,000
==========
Less - amount representing
interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,000
----------
Present value of net minimum
lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . $ 114,000
==========
</TABLE>
<PAGE>30
Note 7 - Debt:
Short-Term Debt Due Banks
The company and its subsidiaries had short-term borrowings
outstanding as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Borrowings of United Kingdom
Subsidiary under line of credit
at bank's rate plus 1 1/2% in 1995
and bank's rate plus 2 1/2% in 1994 $ 206,000 $ 196,000
========== ===========
</TABLE>
In 1995, the United Kingdom subsidiary entered into a new
revolving credit facility agreement which provides a line of credit
of 250,000 pounds sterling ($387,000 at the December 31, 1995
exchange rate). Under the new facility, the interest rate is the
bank's rate plus 1 1/2%. The bank's base rate was 6 1/2% and 3
3/4% at December 31, 1995 and 1994, respectively. The United
Kingdom operations had available unused lines of credit of $181,000
at December 31, 1995. The weighted average interest rate on short-
term borrowings at December 31, 1995 and 1994 was 8% and 6.25%,
respectively.
Long-term Debt
The company and its subsidiaries had long-term borrowings
outstanding as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Employee Stock Ownership Plan
Loan Payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 875,000 $ 1,075,000
United Kingdom term loan due in 2000. . . . . . . . . . . . . . . . 387,000
United States revolving credit facility
at prime plus 1/2% . . . . . . . . . . . . . . . . . . . . . . . 2,282,000 4,171,000
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . 114,000 150,000
---------- -----------
3,658,000 5,396,000
Less: current amounts, including amounts
for capital leases of $ 36,000 in 1995
and $35,000 in 1994. . . . . . . . . . . . . . . . . . . . . . . 355,000 235,000
---------- -----------
$3,303,000 $ 5,161,000
========== ===========
</TABLE>
The United States revolving credit facility agreement provides
a line of credit of up to $13,000,000, including letters of credit,
through October 31, 1996. During 1995 and 1994, the company
borrowed at a rate of prime plus 1/2%. In June 1994, the company
used proceeds of the revolving line of credit to refinance
Industrial Development Revenue Bonds.
<PAGE>31
The agreement allows the company at any time to convert
balances outstanding not less than $2,000,000 and up to $9,000,000
into a two-year term loan. This conversion feature is available
through October 1996, at which time the company may convert the
principal outstanding on the revolving line of credit to a two-year
term loan. The company had $2,282,000 and $4,171,000 outstanding
on its revolving credit facility at December 31, 1995 and 1994,
respectively. As the company has the intent and ability to
maintain this balance on a long-term basis, the borrowings have
been classified as long-term debt at December 31, 1995 and 1994.
The bank's prime rate was 8.5% at December 31, 1995 and 1994. The
United States subsidiary had available unused lines of credit of
$8,727,000 at year end.
The Employee Stock Ownership Plan Loan Payable requires
quarterly payments of $50,000 through 2000. (See Note 10 for a
description of the Plan.)
In 1995, the United Kingdom subsidiary entered into a term loan
at a fixed rate of 9%. This term loan is due in 2000 and is
repayable in equal monthly installments commencing in 1996.
Long-term debt requirements over the next five years, excluding
capital leases, are: 1996 - $319,000, 1997 - $867,000, 1998 -
$1,913,000, 1999 - $297,000 and 2000 - $148,000.
The company is required to pay commitment fees of 1/2% on the
unused portion of the domestic revolving credit facility. No other
financing arrangements require compensating balances or commitment
fees. Assets with a book value of $22,741,000 have been pledged to
secure certain domestic long-term borrowings.
The United Kingdom short-term and long-term borrowings are
secured by assets of the United Kingdom subsidiary which have a
book value of $589,000.
Several of the loan agreements contain provisions pertaining to
the maintenance of minimum working capital balances, tangible net
worth, capital expenditures and financial ratios as well as
restrictions on the payment of cash dividends to the parent company
and shareholders and incurrence of additional long-term debt. The
most restrictive dividend provision limits the payment of dividends
to shareholders to the greater of $400,000 or 25% of consolidated
net income. In addition, the United States subsidiary cannot make
any loans or advances exceeding $150,000 to any affiliates without
prior consent of the bank. The United States subsidiary may pay
dividends to the parent company as long as the subsidiary remains
in compliance with all financial covenants after payment of the
dividends. Under the agreement, restricted net assets of the
subsidiary may not be reduced below $5,000,000 at December 31,
1995. Effective December 31, 1995, the United Kingdom subsidiary
obtained a waiver through the end of 1996 from its bank of certain
financial loan covenants.
<PAGE>32
Note 8 - 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 temporary cash
investments and trade receivables. The company places its
temporary cash investments with high credit quality financial
institutions and actively evaluates the credit worthiness of these
financial institutions. Concentrations of credit risk with respect
to trade receivables are limited due to the large number of
customers comprising the company's customer base and their
geographic dispersion. At December 31, 1995 and 1994, the company
had no significant concentrations of credit risk.
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 December 31, 1995 and
1994, the company was contingently liable on outstanding standby
letters of credit aggregating $2,127,000 and $2,256,000,
respectively.
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 utilizes foreign
exchange forward contracts with fixed dates of maturity and
exchange rates. The company does not hold or issue financial
instruments for trading or other speculative purposes and only
contracts with high quality financial institutions. If the
counterparties to the 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.
The table below summarizes the notional amounts of the foreign
exchange forward contracts held by the company. The "buy" amounts
represent the U.S. dollar equivalent of commitments to purchase
foreign currencies and the "sell" amounts represent the U.S. dollar
equivalent of commitments to sell foreign currencies.
<TABLE>
<CAPTION>
December 31, 1995 1994
Sell Buy
<S> <C> <C>
Canadian dollars $391,000
British pounds sterling $158,000
-------- --------
$391,000 $158,000
======== ========
Fair Value $398,000 $165,000
</TABLE>
<PAGE>33
The company entered into these foreign exchange forward
contracts to hedge a sales or purchase commitment denominated in
the currency of the sales contract or purchase order. The term of
the derivatives is less than one year.
At December 31, 1995 and 1994, the company had deferred
unrealized gains and (losses) of $(7,000) and $7,000, respectively,
which are recognized in income as part of the hedged transaction.
These amounts represent the gain or loss that would have been
recognized had these contracts been liquidated at market value in
their respective years. The fair values of the foreign exchange
forward contracts are estimated based on dealer quotes.
Fair Value of Financial Instruments:
The differences between the carrying amounts and estimated fair
values of the company's short- and long-term debt are
insignificant.
The methods and assumptions used to estimate the fair value of
such debt are summarized as follows:
Short-term debt due banks - The carrying value of short-term
debt approximates fair value due to the short-term maturity of
this instrument.
Long-term debt - The carrying value of long-term debt excludes
$114,000 and $150,000 of obligations under capital leases at
December 31, 1995 and 1994, respectively. The carrying values
of credit facilities with variable rates of interest
approximates fair values. The fair value of fixed rate debt
was estimated by discounting cash flows using rates currently
available for debt of similar terms and remaining maturities.
Note 9 - Income Taxes:
An analysis of the components of pre-tax income from continuing
operations is presented below:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
United States . . . . . . . . . . . . . . . . . . . . $ 1,890,000 $ 59,000 $ 821,000
United Kingdom. . . . . . . . . . . . . . . . . . . . 204,000 161,000 66,000
----------- ----------- -----------
$ 2,094,000 $ 220,000 $ 887,000
=========== =========== ===========
</TABLE>
<PAGE>34
The provision (benefit) for income
taxes on continuing operations
consists of:
<TABLE>
<S> <C> <C> <C>
Current -
Federal. . . . . . . . . . . . . . . . . . . . . . $ 97,000 $ 208,000 $ (4,000)
State. . . . . . . . . . . . . . . . . . . . . . . 16,000 56,000 27,000
United Kingdom . . . . . . . . . . . . . . . . . . 84,000
----------- ----------- -----------
197,000 264,000 23,000
----------- ----------- -----------
Deferred -
Federal. . . . . . . . . . . . . . . . . . . . . . 489,000 (161,000) 111,000
State. . . . . . . . . . . . . . . . . . . . . . . 236,000 (22,000) (51,000)
United Kingdom . . . . . . . . . . . . . . . . . . (1,000) 228,000 (2,000)
Change in valuation allowance. . . . . . . . . . . (143,000) (101,000) 134,000
----------- ----------- -----------
581,000 (56,000) 192,000
----------- ----------- -----------
Total provision for income taxes $ 778,000 $ 208,000 $ 215,000
=========== =========== ===========
</TABLE>
The reconciliation of the provision calculated using the United States
Federal tax rate with the provision for income taxes presented in the financial
statements, excluding discontinued operations, is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Provision for income taxes at
Federal rate . . . . . . . . . . . . . . . . . . . $ 712,000 $ 75,000 $ 302,000
Recognition of tax benefit of prior
year losses. . . . . . . . . . . . . . . . . . . . (40,000)
Difference between foreign and U.S.
tax rates. . . . . . . . . . . . . . . . . . . . . (2,000) (2,000) (1,000)
State taxes . . . . . . . . . . . . . . . . . . . . . 247,000 15,000 (33,000)
Charges not deductible for
income tax purposes. . . . . . . . . . . . . . . . 61,000 131,000 11,000
Recognition of tax benefit generated
by foreign sales corporation . . . . . . . . . . . (67,000) (46,000) (47,000)
Tax credits . . . . . . . . . . . . . . . . . . . . . (18,000)
Net operating losses for which no
tax benefit was provided . . . . . . . . . . . . . 92,000
Change in valuation allowance . . . . . . . . . . . . (143,000) (101,000) 134,000
Reversal of tax reserve . . . . . . . . . . . . . . . (100,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . (12,000) 44,000 (11,000)
----------- ----------- -----------
Provision for income taxes $ 778,000 $ 208,000 $ 215,000
=========== =========== ===========
</TABLE>
<PAGE>35
The deferred income tax asset (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
deferred income tax asset (liability) follows:
<TABLE>
<CAPTION>
1995 1994
United United United United
States Kingdom States Kingdom
<S> <C> <C> <C> <C>
Depreciation. . . . . . . . . . . . . . . . $ (435,000) $ (118,000) $ (455,000) $(145,000)
Deferred compensation . . . . . . . . . . . 425,000 430,000
Deferred pension
liability. . . . . . . . . . . . . . . . 379,000 650,000
Accrued postretirement
benefits . . . . . . . . . . . . . . . . 1,281,000 1,284,000
Compensated absences. . . . . . . . . . . . 519,000 465,000
Inventories . . . . . . . . . . . . . . . . 85,000 36,000
Warranty liability. . . . . . . . . . . . . 98,000 89,000
State and foreign loss
carryforwards. . . . . . . . . . . . . . 46,000 144,000 109,000 147,000
New York State
investment tax credit. . . . . . . . . . 195,000 292,000
Alternative minimum tax
credit . . . . . . . . . . . . . . . . . 120,000 103,000
Litigation reserve. . . . . . . . . . . . . 17,000 486,000
Other . . . . . . . . . . . . . . . . . . . 127,000 (84,000) 93,000 (62,000)
---------- ---------- ---------- ---------
2,857,000 (58,000) 3,582,000 (60,000)
Less: Valuation
allowance. . . . . . . . . . . . . . . . 559,000 53,000 677,000 78,000
---------- ---------- ---------- ---------
Deferred tax
asset (liability) $2,298,000 $ (111,000) $2,905,000 $ (138,000)
========== ========== ========== ===========
</TABLE>
Deferred income taxes include the impact of state and foreign net
operating loss carryforwards and investment tax credits which expire from
1996 to 2008. In accordance with the provisions of SFAS 109, a valuation
allowance of $612,000 at December 31, 1995 is deemed adequate to reserve for
these and other items which are not considered probable of realization.
The company does not provide for additional U.S. income taxes on
undistributed earnings considered permanently invested in its United Kingdom
subsidiary. At December 31, 1995, such undistributed earnings totaled
$950,000. It is not practicable to determine the amount of income taxes that
would be payable upon the remittance of assets that represent those earnings.
<PAGE>36
Note 10 - Employee Benefit Plans:
Retirement Plans
The company has defined benefit plans covering substantially all
employees. The company's plan covering employees in the United States is
non-contributory. Benefits are based on the employee's years of service and
average earnings for the five highest consecutive calendar years of
compensation for the ten year period preceding retirement. The plan for
employees in the United Kingdom is contributory with the employer's share
being actuarially determined. Benefits are based on the employee's years of
service and average earnings for the three highest years for the ten year
period preceding retirement. The company's funding policy for the United
States plan is to contribute the amount required by the Employee Retirement
Income Security Act of 1974. The pension obligations to employees covered by
the company's former domestic plan, terminated in 1986, were settled through
the purchase of annuity contracts for each participant which guaranteed these
future benefit payments.
The components of pension cost are:
<TABLE>
<CAPTION>
1995 1994 1993
U. S. PLAN U. K. PLAN U. S. PLAN U. K. PLAN U. S. PLAN U. K. PLAN
<S> <C> <C> <C> <C>
Service cost-benefits earned
during the period. . . . . . . . $ 261,000 $ 175,000 $ 350,000 $ 524,000 $ 330,000 $ 318,000
Interest cost on projected
benefit obligation . . . . . . . 475,000 295,000 505,000 453,000 473,000 315,000
Actual return on assets . . . . . . (1,600,000) (501,000) (38,000) (345,000) (116,000) (1,155,000)
Net amortization and deferral . . . 1,168,000 109,000 (338,000) (196,000) (196,000) 599,000
---------- ---------- ---------- ---------- ---------- ----------
Net pension cost. . . . . . . . . . $ 304,000 $ 78,000 $ 479,000 $ 436,000 $ 491,000 $ 77,000
========== ========== ========== ========== ========== ==========
</TABLE>
The service cost for 1995, 1994 and 1993 is net of employee contributions to
the United Kingdom plan of $49,000, $22,000 and $51,000, respectively.
The actuarial assumptions are:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Discount rate used to determine
projected benefit obligation . . . . 7% 9% 8 3/4% 9 1/2% 7 3/4% 7 3/4%
Rate of increase in compensation
levels . . . . . . . . . . . . . . . 3% 5 1/2% 4% 5 1/2% 4% 4%
Expected rate of return on plan
assets . . . . . . . . . . . . . . . 8% 10% 8% 10% 8% 10%
</TABLE>
<PAGE>37
The funded status of the pension plans is presented below:
<TABLE>
<CAPTION>
1995 1994
U. S. PLAN U. K. PLAN U. S. PLAN U. K. PLAN
<S> <C> <C> <C> <C>
Vested benefit obligation . . . . . . . . . . . $ 4,262,000 $ 831,000 $ 2,739,000 $ 743,000
=========== ========== =========== ==========
Accumulated benefit obligation. . . . . . . . . $ 4,636,000 $ 831,000 $ 2,968,000 $ 743,000
=========== ========== =========== ==========
Plan assets at fair value . . . . . . . . . . . $ 6,258,000 $3,709,000 $ 4,544,000 $3,561,000
Projected benefit obligation for
services rendered to date. . . . . . . . . . 7,539,000 3,461,000 5,908,000 3,093,000
----------- ---------- ----------- ----------
Projected benefit obligation (in excess
of) or less than plan assets . . . . . . . . (1,281,000) 248,000 (1,364,000) 468,000
Unrecognized net gain loss from past
experience different from that assumed
and effect of changes in assumptions . . . . (528,000) (752,000) (327,000) (972,000)
Unrecognized prior service cost . . . . . . . . (3,000) 265,000 (3,000) 289,000
Unrecognized net asset at
transition . . . . . . . . . . . . . . . . . (379,000) (38,000) (423,000) (46,000)
----------- ---------- ----------- ----------
Pension liability . . . . . . . . . . . . . . . $(2,191,000) $ (277,000) $(2,117,000) $ (261,000)
=========== ========== =========== ==========
</TABLE>
The current portion of the pension liability is included in the caption
"Accrued Compensation" and the long-term portion is separately presented in the
Consolidated Balance Sheets.
Assets of the United States plan consist primarily of equity securities
including 70,425 shares of the company's common stock at December 31, 1995 and
1994. Assets of the United Kingdom plan consist of an investment contract with
an insurance company which is primarily invested in equity securities. The
vested benefit obligation of the United Kingdom plan is the actuarial present
value of the vested benefits to which the employee is currently entitled but
based on the employee's expected date of separation or retirement. The
unrecognized net asset at transition is being amortized over the remaining
service lives of the participants which approximates 19 years for the domestic
plan and 13 years for the United Kingdom plan.
The company has a defined contribution plan covering substantially all
domestic employees. Company contributions to this plan are based on the
profitability of the company and amounted to $320,000, $0 and $326,000 in 1995,
1994 and 1993, respectively. The company also maintains a supplemental defined
contribution plan which covers selected employees in the United Kingdom. The
expense associated with this plan was $4,000, $13,000 and $23,000 for the years
ended December 31, 1995, 1994 and 1993, respectively.
Employee Stock Ownership Plan
In 1990, the company established a noncontributory Employee Stock
Ownership Plan (ESOP) that covers substantially all employees in the United
States. The company borrowed $2,000,000 under loan and pledge agreements.
The proceeds of the loans were used to purchase 87,454 shares of the
company's common stock. The purchased shares are pledged as security for the
payment of principal and interest as provided in the loan and pledge
agreements. It is anticipated that funds for servicing the debt payments
will essentially be provided from contributions paid by the company to the
<PAGE>37
ESOP, from earnings attributable to such contributions, and from cash
dividends paid to the ESOP on shares of the company stock which it owns.
During 1995, 1994, and 1993 the company recognized expense associated with
the ESOP using the shares allocated method. This method recognizes interest
expense as incurred on all outstanding debt of the ESOP and compensation
expense related to principal reductions based on shares allocated for the
period. Dividends received on unallocated shares that are used to service
the ESOP debt reduce the amount of expense recognized each period. The
compensation expense associated with the ESOP was $200,000 for each of the years
ended December 31, 1995, 1994 and 1993. The ESOP received no dividends on
unallocated shares in 1995, 1994 and 1993. Interest expense in the amount of
$97,000, $96,000, and $96,000 was incurred in 1995, 1994 and 1993, respectively.
Dividends paid on allocated shares accumulate for the benefit of the employees.
Other Postretirement Benefits
In addition to providing pension benefits, the company has a United
States plan which provides health care benefits for eligible retirees and
eligible survivors of retirees. Effective January 1, 1994, early retirees
who are eligible to receive benefits under the plan are required to share in
twenty percent of the medical premium cost. In addition, the company's share
of the premium costs has been capped.
The components of postretirement benefit cost are:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost - benefits earned during the period. . . . . . . . . . . . . . . $ 45,000 $ 56,000 $ 84,000
Interest cost on accumulated benefit obligation . . . . . . . . . . . . . . . 156,000 165,000 199,000
Amortization of prior service cost. . . . . . . . . . . . . . . . . . . . . . (87,000) (87,000) (25,000)
-------- -------- --------
Net postretirement benefit cost . . . . . . . . . . . . . . . . . . . . . . . $114,000 $134,000 $258,000
======== ======== ========
</TABLE>
The assumptions used to develop the accrued postretirement benefit
obligation were:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7% 8 3/4% 7 3/4%
Medical care cost trend rate. . . . . . . . . . . . . . . . . . . . . . . . . 9 1/2% 10% 10%
</TABLE>
The medical care cost trend rate used in the actuarial computation
ultimately reduces to 6% in 2002 and subsequent years. This was accomplished
using 1/2% decrements for the years 1996 through 2002.
<PAGE>38
The table of actuarially computed benefit obligations is presented
below:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,064,000 $ 850,000
Fully eligible active plan participants. . . . . . . . . . . . . . . . . . 486,000 414,000
Other active plan participants . . . . . . . . . . . . . . . . . . . . . . 988,000 686,000
----------- ----------
Unfunded accumulated postretirement
benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,538,000 1,950,000
Unrecognized net gain (loss) from past
experience different from that assumed
and effects of changes in assumptions. . . . . . . . . . . . . . . . . . . (403,000) 106,000
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . 1,151,000 1,238,000
---------- ----------
Accrued postretirement benefit obligation . . . . . . . . . . . . . . . . . . $3,286,000 $3,294,000
========== ==========
</TABLE>
The effect of a one percentage point increase in each future year's
assumed medical care cost trend rate, holding all other assumptions constant,
would not have a material effect on the net postretirement benefit cost or
the accrued postretirement benefit obligation.
The current portion of the postretirement benefit obligation is
included in the caption "Accrued Compensation" and the long-term portion is
separately presented in the Consolidated Balance Sheets.
Note 11 - Stock Options:
The 1989 Stock Option and Appreciation Rights Plan provides for
issuance of up to 125,800 shares of common stock in connection with
grants of non-qualified stock options and tandem stock appreciation
rights to officers, key employees and certain outside directors.
The 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.
The 1981 Common Stock Incentive Plan for officers and other key
employees provided for issuance of up to 80,000 shares of common
stock in connection with grants of incentive stock options and
tandem stock appreciation rights. Options can no longer be granted
under this plan and at December 31, 1995, all outstanding options
had been exercised.
<PAGE>39
Information on options and rights under the company's plans is
as follows:
<TABLE>
<CAPTION>
Option Shares
price range under option
<S> <C> <C>
Outstanding at December 31, 1992. . . . . . . . . . . . . . . . $7.50-19.75 83,500
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.50-12.625 24,600
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . $7.50-19.75 (13,000)
-------
Outstanding at December 31, 1993. . . . . . . . . . . . . . . . $7.50-19.75 95,100
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12.00 4,600
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . $19.75 (2,000)
-------
Outstanding at December 31, 1994. . . . . . . . . . . . . . . . $7.50-19.75 97,700
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . $7.50 (1,500)
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9.875-12.00 16,200
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.50-19.75 (4,800)
-------
Outstanding at December 31, 1995. . . . . . . . . . . . . . . . $9.875-19.75 107,600
=======
</TABLE>
There were 79,940 options exercisable at December 31, 1995.
The remaining options are exercisable at a rate of 20 percent per
year from the date of grant. The outstanding options expire
December 1999 to October 2005. The number of options available for
future grants were 12,800 at December 31, 1995 and 24,200 at
December 31, 1994.
In 1995, the Board of Directors adopted the 1995 Graham
Corporation Incentive Plan to Increase Shareholder Value and
approved the granting of non-qualified stock options to purchase
11,500 shares of the company's common stock at an exercise price of
$12.00 to officers and other key employees. If approved by the
shareholders, these options will be immediately exercisable and
will expire no later than October 2005. This plan provides for the
issuance of up to 128,000 shares of common stock in connection with
grants of incentive stock options and non-qualified stock options
to officers, key employees and outside directors. The 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.
Note 12 - Shareholder Rights Plan:
On February 23, 1990 the company adopted a Shareholder Rights
Plan. Under the Plan, as of March 7, 1990, one share Purchase
Right ("Right") is attached to each outstanding share of Common
Stock. When and if the Rights become exercisable, each Right would
entitle the holder of a share of Common Stock to purchase from the
company an additional share of Common Stock for $70.00 per share,
subject to adjustment. The Rights become exercisable upon certain
events: (i) if a person or group of persons acquires 20% or more of
the company's outstanding Common Stock; or (ii) if a person or
group commences a tender offer for 30% or more of the company's
outstanding Common Stock.
<PAGE>40
The company may redeem the Rights for $.01 per Right at any
time prior to the close of business on the date when the Rights
become exercisable.
After the Rights become exercisable, if the company is acquired
in a business combination transaction, or if at least half of the
company's assets or earning power are sold, then each Right would
entitle its holder to purchase stock of the acquirer (or Graham, if
it were the surviving company) at a discount of 50%. The number of
shares that each Right would entitle its holder to acquire at
discount would be the number of shares having a market value equal
to twice the exercise price of the Right.
Note 13 - Litigation Settlement:
A lawsuit was filed in November 1992 against the company's U.S.
subsidiary, Graham Manufacturing Co., Inc. Following an adverse
jury verdict, the company charged $1,502,000 to pre-tax income in
1994 for the judgment amount and related defense costs. Following
trial in 1995, the company reached a settlement with the plaintiff
and an additional $276,000 was expensed.
<PAGE>41
Quarterly Financial Data:
A capsule summary of the company's unaudited quarterly sales
and earnings per share data for 1995 and 1994 is presented below:
<TABLE>
<CAPTION>
First Second Third Fourth Total
1995 Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . $ 9,305,000 $12,007,000 $10,651,000 $17,517,000 $49,480,000
Gross Profit. . . . . . . . . . . . . . . 2,500,000 2,666,000 3,068,000 4,745,000 12,979,000
Income from continuing operations . . . . 19,000 (137,000) 254,000 1,180,000 1,316,000
Loss from discontinued operations . . . . (182,000) (182,000)
Net income (loss) . . . . . . . . . . . . 19,000 (137,000) 254,000 998,000 1,134,000
Per share:
Income from continuing
operations . . . . . . . . . . . . . .02 (.13) .24 1.12 1.25
Loss from discontinued
operations . . . . . . . . . . . . . (.17) (.17)
Net income (loss). . . . . . . . . . . .02 (.13) .24 .95 1.08
=========== =========== =========== =========== ===========
Market price range. . . . . . . . . . . . 9 1/4-11 3/8 9-11 7/8 10 1/8-13 7/8 11 1/2-16 9-16
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth Total
1994 Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . $ 9,904,000 $ 8,561,000 $11,288,000 $17,598,000 $47,351,000
Gross Profit. . . . . . . . . . . . . . . 2,747,000 2,034,000 2,909,000 4,655,000 12,345,000
Income from continuing operations . . . . 104,000 (434,000) 191,000 151,000 12,000
Loss from discontinued operations . . . . (31,000) (422,000) (4,340,000) (3,628,000) (8,421,000)
Cumulative effect of change in
accounting principle . . . . . . . . . (6,000) (6,000)
Net income (loss) . . . . . . . . . . . . 67,000 (856,000) (4,149,000) (3,477,000) (8,415,000)
Per share:
Income from continuing operations. . . .10 (.41) .18 .14 .01
Loss from discontinued operations. . . (.03) (.40) (4.13) (3.45) (8.01)
Cumulative effect of change in
accounting principle . . . . . . . . (.01) (.01)
Net income (loss). . . . . . . . . . . .06 (.81) (3.95) (3.31) (8.01)
=========== =========== =========== =========== ===========
Market price range. . . . . . . . . . . . 11-14 7/8 12-14 7/8 11 1/4-13 1/2 9 5/8-12 9 5/8-14 7/8
</TABLE>
<PAGE>42
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Graham Corporation
Batavia, New York
We have audited the accompanying consolidated balance sheets of
Graham Corporation and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Graham
Corporation and subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Rochester, New York
February 22, 1996
<PAGE>43
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Graham Corporation
Batavia, New York
We have audited the consolidated financial statements of Graham
Corporation and subsidiaries as of December 31, 1995 and 1994 and
for each of the three years in the period ended December 31, 1995,
and have issued our report thereon dated February 22, 1996; such
report is included elsewhere in this Annual Report on Form 10-K.
Our audits also included the consolidated financial statement
schedules of Graham Corporation and subsidiaries, listed in Item 14 (a) 2.
These financial statement schedules are the responsibility of the
Corporation's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
Rochester, New York
February 22, 1996
<PAGE>44
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
(Not Applicable)
PART III
Item 10. Directors and Executive Officers
(The information called for under this Item pursuant to
Item 401 of the Commission's Regulation S-K is set forth
in statements under "Election of Directors" on pages 3
to 5 of the Registrant's Proxy Statement for its 1996
Annual Meeting of Stockholders, which statements are
hereby incorporated herein by reference: except that the
information regarding executive officers called for
hereunder pursuant to Item 401(b) of Regulation S-K is
furnished under a separate item captioned Executive
Officers of the Registrant included in PART I of this
annual report on Form 10-K pursuant to Instruction 3 to
Item 401(b) of Regulation S-K and paragraph 3 of General
Instruction G of Form 10-K. The information called for
under this Item pursuant to Item 405 of the Commission's
Regulation S-K is set forth in the statement on page 7
of Registrant's Proxy Statement for its 1996 Annual
Meeting of Stockholders, which statement is hereby
incorporated herein by reference.)
Item 11. Executive Compensation
(The information called for under this Item is set forth
in statements under "Compensation of Executive Officers"
on pages 8 to 11 of Registrant's Proxy Statement for its
1996 Annual Meeting of Stockholders, which statements are
hereby incorporated herein by reference.)
Item 12. Security Ownership of Certain Beneficial Owners and
Management
(a) Security Ownership of Certain Beneficial Owners
(The information called for under this Item is set forth
in statements under "Principal Stockholders" on page 2
of Registrant's Proxy Statement for its 1996 Annual
Meeting of Stockholders, which statements are hereby
incorporated herein by reference.)
(b) Security Ownership of Management
(The information called for under this Item is set forth
in statements under "Principal Stockholders" on page 2,
"Election of Directors" on pages 3 to 5 and "Executive
Officers" on page 7 of Registrant's Proxy Statement for
its 1996 Annual Meeting of Stockholders, which statements
are hereby incorporated herein by reference.)
<PAGE>45
(c) Changes in Control (Not Applicable)
Item 13. Certain Relationships and Related Transactions
(The information called for under this Item is set forth
in statements under "Principal Stockholders" on page 2
and "Election of Directors" on pages 3 to 5 of
Registrant's Proxy Statement for its 1996 Annual Meeting
of Stockholders, which statements are hereby incorporated
herein by reference.)
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
(a) (1) The following are Financial Statements
and related information filed as part of
this Annual Report on Form 10-K:
Sequential
Page Number
(A) Consolidated Statements of Operations
for the Years ended December 31, 1995, 1994,
and 1993; 18
(B) Consolidated Balance Sheets as of
December 31, 1995 and 1994; 19-20
(C) Consolidated Statements of Cash Flows
for the Years Ended December 31, 1995,
1994 and 1993; 21-22
(D) Consolidated Statements of Changes
in Shareholders' Equity for the Years
ended December 31, 1995, 1994 and 1993; 23
(E) Notes to Consolidated Financial Statements;
and 24-40
(F) Report of Independent Auditors 42
(a) (2) The following are Financial
Statement Schedules and related
information required to be filed as
part of this Annual Report on Form
10-K by Items 8 and 14(d) of Form
10-K:
(A) The items set forth in Items 14(a)(1)(A)
through (E) above; and 18-40
(B) Independent Auditors' Report on Financial
Statement Schedules 43
<PAGE>46
Sequential
Page Number
Financial Statement schedules for the years
ended December 31, 1995, 1994 and 1993 as follows:
(i) Condensed Financial Information of
Registrant (Schedule I) 47-50
(ii) Valuation and Qualifying Accounts
(Schedule II) 51-52
Other financial statement schedules not included in this
Annual Report on Form 10-K have been omitted because they are not
applicable or because the required information is shown in the
financial statements or notes thereto.
<PAGE>47
GRAHAM CORPORATION AND SUBSIDIARIES*
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Costs and expenses:
General and administrative $1,423,000 $ 1,117,000 $2,006,000
Interest expense 98,000 97,000 251,000
---------- ----------- ----------
Parent company operating loss before
income tax benefit 1,521,000 1,214,000 2,257,000
Benefit for income taxes (580,000) (449,000) (418,000)
---------- ----------- ----------
Net parent company operating loss 941,000 765,000 1,839,000
---------- ----------- ----------
Equity in earnings of continuing subsidiaries 3,891,000 1,719,000 3,416,000
Less expenses directly allocable to
continuing subsidiaries:
Research and development 276,000 285,000 272,000
Provision for income taxes 1,358,000 657,000 633,000
---------- ----------- ----------
Equity in net earnings of subsidiaries 2,257,000 777,000 2,511,000
---------- ----------- ----------
Income from continuing operations 1,316,000 12,000 672,000
---------- ----------- ----------
Equity in losses of discontinued subsidiaries (182,000) (8,554,000) (264,000)
Less expenses directly allocable to discontinued subsidiaries:
Benefit for income taxes (133,000)
---------- ----------- ----------
Equity in net losses of discontinued subsidiaries (182,000) (8,421,000) (264,000)
---------- ----------- ----------
Income before cumulative effect of
change in accounting principle 1,134,000 (8,409,000) 408,000
Cumulative effect of change in
accounting principle for
continuing subsidiary (2,000)
Cumulative effect of change in
accounting principle for discontinued
subsidiaries (4,000)
---------- ----------- ----------
Net income (loss) $1,134,000 $(8,415,000) $ 408,000
========== =========== ==========
<FN>
The Notes to Consolidated Financial Statements in Part II are an
integral part of this schedule.
* Information is presented for the parent company only.
** Cash dividends paid to the parent company by consolidated
subsidiaries were $1,750,000, $1,968,000 and $3,735,000 in
1995, 1994 and 1993, respectively.
</TABLE>
<PAGE>48
GRAHAM CORPORATION AND SUBSIDIARIES*
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
ASSETS
Prepaid expenses $ 92,000 $ 91,000
Due from subsidiaries 188,000 150,000
Other current assets 18,000
----------- -----------
Total current assets 280,000 259,000
Property, plant & equipment, net 275,000 316,000
Investment in subsidiaries 9,142,000 8,017,000
Other assets 28,000 35,000
----------- -----------
$ 9,725,000 $ 8,627,000
=========== ===========
</TABLE>
<PAGE>49
CONDENSED BALANCE SHEETS (CONCLUDED)
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt $ 208,000 $ 208,000
Accounts payable 216,000 152,000
Other current liabilities 219,000 313,000
----------- -----------
Total current liabilities 643,000 673,000
Long-term debt 675,000 883,000
----------- -----------
1,318,000 1,556,000
----------- -----------
Shareholders' equity:
Preferred stock, $1 par value -
authorized, 500,000 shares
Common stock, $.10 par value -
authorized, 6,000,000 shares
issued and outstanding, 1,053,999 shares
in 1995 and 1,051,499 shares in 1994 106,000 105,000
Capital in excess of par value 3,219,000 3,197,000
Cumulative foreign currency translation
adjustment (1,891,000) (1,876,000)
Retained earnings 7,854,000 6,720,000
----------- -----------
9,288,000 8,146,000
Less:
Treasury stock (6,000)
Employee Stock Ownership Plan Loan Payable (875,000) (1,075,000)
----------- -----------
Total shareholders' equity 8,407,000 7,071,000
----------- -----------
$ 9,725,000 $ 8,627,000
=========== ===========
<FN>
The Notes to Consolidated Financial Statements in Part II are an
integral part of this Schedule.
* Information is presented for the parent company only.
</TABLE>
<PAGE>50
GRAHAM CORPORATION AND SUBSIDIARIES*
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Net cash provided by operating
activities $ 3,000 $ 19,000 $2,135,000
---------- ---------- ----------
Investing activities:
Purchase of property, plant and
equipment (13,000) (10,000)
---------- ---------- ----------
Net cash (used) by investing activities (13,000) (10,000)
---------- ---------- ----------
Financing activities:
Principal repayments of long-term
debt (8,000) (6,000) (2,200,000)
Issuance of common stock 11,000
Purchase of treasury stock (6,000)
Capital contributions from minority
interest 75,000
---------- ---------- ----------
Net cash used by financing activities (3,000) (6,000) (2,125,000)
Net increase in cash and equivalents 0 0 0
Cash and equivalents at beginning of
year 0 0 0
---------- ---------- ----------
Cash and equivalents at end of year $ 0 $ 0 $ 0
========== ========== ==========
<FN>
The Notes to Consolidated Financial Statements in Part II are an
integral part of this schedule.
* Information is presented for the parent company only.
</TABLE>
<PAGE>51
GRAHAM CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning costs and Charged to end of
Description of period expenses other accounts Deductions period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Reserves deducted from the asset
to which they apply:
Reserve for doubtful accounts $ 119,000 $ 42,000 $ (80,000) $ 81,000
Reserve for inventory
obsolescence 236,000 1,000 $ (3,000) (b) (12,000) 222,000
Reserves included in the
balance sheet caption Accrued
expenses and other liabilities:
Reserve for contingencies 1,247,000 101,000 (1,348,000)
Reserve for discontinued
operations 883,000 182,000 (9,000) (b) (345,000) (a) 711,000
---------- ---------- -------- ----------- ----------
$2,485,000 $ 326,000 $(12,000) $(1,785,000) $1,014,000
========== ========== ======== =========== ==========
Year ended December 31, 1994
Reserves deducted from the asset
to which they apply:
Reserve for doubtful accounts $ 80,000 $ 51,000 $ 2,000 (b) $ (14,000) $ 119,000
Reserve for inventory
obsolescence 38,000 192,000 6,000 (b) 236,000
Reserves included in the
balance sheet caption Accrued
expenses and other liabilities:
Reserve for penalties 223,000 (61,000) (62,000) (c) (100,000)
Reserve for contingencies 384,000 946,000 (83,000) 1,247,000
Reserve for discontinued
operations 80,000 847,000 16,000 (b) (60,000) (a) 883,000
---------- ---------- -------- ----------- ----------
$ 805,000 $1,975,000 $(38,000) $ (257,000) $2,485,000
========== ========== ======== =========== ==========
</TABLE>
<PAGE>52
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (CONCLUDED)
<TABLE>
<CAPTION>
Description Balance at Charged to Balance at
beginning costs and Charged to end of
of period expenses other accounts Deductions period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Reserves deducted from the asset
to which they apply:
Reserve for doubtful accounts $ 57,000 $ 26,000 $ (3,000) $ 80,000
Reserve for inventory
obsolescence 38,000 38,000
Reserves included in the
balance sheet caption Accrued
expenses and other liabilities:
Reserve for penalties 145,000 331,000 $ (2,000) (b) (251,000) 223,000
Reserve for contingencies 430,000 (46,000) 384,000
Reserve for discontinued
operations 103,000 (23,000) (a) 80,000
---------- ---------- -------- ----------- -----------
$ 735,000 $ 395,000 $ (2,000) $ (323,000) $ 805,000
========== ========== ======== =========== ===========
<FN>
Notes: (a) Represents costs charged against the reserve associated with the discontinued operation.
(b) Represents foreign currency translation adjustment.
(c) Represents a reversal of the reserve and a foreign currency translation adjustment.
</TABLE>
<PAGE>53
(a) (3) The following exhibits are required to be filed by Item 14(c)
of Form 10-K:
Exhibit No.
*3 (i) Articles of Incorporation of Graham
Corporation
3 (ii) By-laws of Graham Corporation
*4 (a) Certificate of Incorporation of Graham
Corporation (included as Exhibit 3.1)
**4 (b) Shareholder Rights Plan of Graham Corporation
***10 1989 Stock Option and Appreciation Rights Plan
of Graham Corporation
11 Statement regarding computation of per share
earnings
21 Subsidiaries of the registrant
23 Consent of Experts and Counsel
27 Financial Data Schedule
(b) The Registrant filed no reports on Form 8-K during the last
quarter of the fiscal year covered by this Annual Report on
Form 10-K.
___________________________
* Incorporated herein by reference from the Annual Report of
Registrant on Form 10-K for the year ended December 31, 1989.
** Incorporated herein by reference from the Registrant's Current
Report on Form 8-K dated February 26, 1991, as amended by
Registrant's Amendment No. 1 on Form 8 dated June 8, 1991.
*** Incorporated herein by reference from the Registrant's Proxy
Statement for its 1991 Annual Meeting of Shareholders.
Cross Reference Sheet for Annual Report on Form 10-K for the year ended
December 31, 1995, setting forth item numbers and captions of Form 10-K
(and related Items of Regulation S-K referred to therein) under which
information is incorporated by reference and the pages in the
Registrant's Proxy Statement for the 1996 Annual Meeting of Stockholders
where that information appears.
<PAGE>54
<TABLE>
<CAPTION>
FORM 10-K: PART No. Regulation S-K Proxy Statement for 1996
Item No. and Caption Item No. and Caption Annual Meeting of Stockholders
Caption: Page:
<S> <C> <C> <C>
Item 10. Directors Item 401. Directors and Election of Directors 3-5
and Executive Executive Officers
Officers of
Registrant Item 405. Directors and Disclosure Pursuant to
Executive Officers Item 405 of SEC
Regulation S-K 7
Item 11. Executive Item 402. Executive Compensation of
Compensation Compensation Executive Officers 8-11
Item 12. Security Item 403(a). Security Principal Stockholders 2
Ownership of Certain Ownership of Certain
Beneficial Owners Beneficial Owners
and Management
Item 403(b). Security Principal Stockholders 2
Ownership of Management Election of Directors 3-5
Executive Officers 7
Item 13. Certain Item 404(a). Transactions Principal Stockholders 2
Relationships and with Management and Election of Directors 3-5
Related Others
Transactions
Item 404(b). Certain Principal Stockholders 2
Business Relations Election of Directors 3-5
</TABLE>
<PAGE>55
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this annual report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GRAHAM CORPORATION
(Registrant)
DATE: March 27, 1996 By s\ J. Ronald Hansen
J. Ronald Hansen
Vice President-Finance &
Administration and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature
Chairman and Chief
s\ Frederick D. Berkeley Executive Officer;
Frederick D. Berkeley Director March 27, 1996
Vice President-Finance &
Administration and Chief
s\ J. Ronald Hansen Financial Officer
J. Ronald Hansen March 27, 1996
s\ Philip S. Hill
Philip S. Hill Director March 27, 1996
s\ Cornelius S. Van Rees
Cornelius S. Van Rees Director March 27, 1996
s\ Jerald D. Bidlack
Jerald D. Bidlack Director March 27, 1996
s\ Robert L. Tarnow
Robert L. Tarnow Director March 27, 1996
s\ A. Cadena
A. Cadena Director March 27, 1996
<PAGE>56
_________________________________________________________________
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
EXHIBITS
filed with
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
of
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
___________________________________
GRAHAM CORPORATION
_________________________________________________________________
_________________________________________________________________
<PAGE>57
GRAHAM CORPORATION
FORM 10-K
DECEMBER 31, 1995
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER OF DOCUMENT PAGE NUMBER
3 (ii) By-laws of Graham Corporation
11 Statement Regarding Computation
of Per-Share Earnings
21 Subsidiaries of the Registrant
23 Consent of Deloitte & Touche
27 Financial Data Schedule
BY-LAWS
OF
GRAHAM CORPORATION
(a Delaware Corporation)
ARTICLE 1
DEFINITIONS
As used in these By-Laws, unless the context otherwise
requires, the term:
1.1 "Board" means the board of directors of the Corporation.
1.2 "By-laws" means these by-laws of the Corporation, as
amended from time to time.
1.3 "Certificate of Incorporation" means the original
certificate of incorporation of the Corporation filed on March 7,
1983 to form the Corporation, as amended, supplemented or restated
by certificates of amendment, merger or consolidation or other
certificates or instruments filed or issued under any statute from
time to time after the aforesaid date of filing of such original
certificate.
1.4 "Corporation" means GRAHAM CORPORATION.
1.5 "Directors" means the directors of the Corporation.
1.6 "Principal Office of the Corporation" means the principal
office of the Corporation located at 20 Florence Avenue, Batavia,
New York 14020.
1.7 "Plurality Vote" means the greater number of votes cast
for one nominee for an office than the votes cast for any other
nominee for the same office.
1.8 "Shareholders" means the shareholders of the Corporation.
ARTICLE 2
OFFICES
2.1 Principal Office. In addition to the principal office,
the Corporation may have offices and places of business at such
other places, within or without the State of Delaware, as the Board
may from time to time determine.
<PAGE>2
ARTICLE 3
SHAREHOLDERS
3.1 Place of Meetings. Every meeting of the shareholders
shall be held at the principal office of the Corporation or at such
other place within or without the State of Delaware as may be fixed
from time to time, by the Board, which place shall be specified in
the notice or waiver of notice thereof.
3.2 Annual Meeting for Election of Directors. The annual
meeting of shareholders for the election of directors and the
transaction of other business shall be held on the first Wednesday
in May of each year at 12 o'clock noon (or at such other hour as
may be designated in the notice of meeting), or, if the foregoing
date falls on a legal holiday, on the first business day thereafter
which is not a Saturday, Sunday or legal holiday, unless a
different date and time be fixed, from time to time, by the Board.
3.3 Special Meetings. A special meeting of shareholders
unless otherwise prescribed by statute, may be called at any time
by the Chairman of the Board or the President or in the absence or
disability of the Chairman of the Board and the President a meeting
of shareholders may be called by the Secretary, and shall be called
by the Secretary on the written request of at least seventy-five
percent (75%) of the Directors, which written request shall state
the purpose or purposes of such meeting. At a special meeting of
shareholders, no business shall be transacted and no corporate
action shall be taken other than that stated in the notice of
meeting.
3.4 Fixing Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to
or dissent from any proposal without a meeting, or for the purpose
of determining shareholders entitled to receive payment of any
dividend or the allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board may
fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than
sixty (60) nor less than ten (10) days before the date of such
meeting nor more than sixty (60) days prior to any other action. If
no record date is fixed: (i) the record date for the determination
of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day
on which the meeting is held; (ii) the record date for determining
stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the board of
directors is necessary, shall be the day on which the first written
consent is expressed; and (iii) the record date for determining
shareholders for any purpose, other than those specified in clauses
(i) and (ii) hereof, shall be at the close of business on the day
on which the resolution of the Board relating thereto is adopted.
When a determination has been made of shareholders entitled to
notice of or to vote at a meeting of shareholders as herein
provided, such determination shall apply to any adjournment of such
<PAGE>3
meeting, unless the Board fixes a new record date for the adjourned
meeting.
3.5 Notice of Meetings of Shareholders. Whenever under any
provision of law or the Certificate of Incorporation or these
By-Laws, shareholders are required or permitted to take any action
at a meeting, the notice of that meeting shall state the place,
date and hour of the meeting and unless it is the annual meeting,
indicate that it is being issued by or at the direction of the
person or persons calling the meeting. Notice of a special meeting
shall also state the purpose or purposes for which the meeting is
called. Notice of any annual or special meeting of shareholders
shall be given, personally or by mail, not less than ten (10) nor
more than sixty (60) days before the date of such meeting to each
shareholder entitled to vote thereat. If mailed, such notices shall
be deemed to be given when deposited in the United States Mail,
with postage thereon prepaid, directed to the shareholder at his
address as it appears on the record of shareholders, or, if he
shall have filed with the Secretary of the Corporation a written
request that notice to him be mailed to some other address, then
directed to him at such other address. An affidavit of the
Secretary or of the transfer agent of the Corporation that the
notice required by this section has been given shall, in the
absence of fraud, be prima facie evidence of the facts therein
stated. When a meeting is adjourned to another time or place, it
shall not be necessary to give any notice of the adjourned meeting
if the time and place to which the meeting is adjourned is
announced at the meeting at which the adjournment is taken, and at
the adjourned meeting any business may be transacted that might
have been transacted on the original date of the meeting. However,
if the adjournment is for more than thirty (30) days or if, after
the adjournment, the Board fixes a new record date for the
adjourned meeting, a notice of the adjourned meeting shall be given
to each shareholder of record who is entitled to vote at the
meeting.
3.6 Waiver of Notice. Notice of meeting need not be given to
any shareholder who signs a waiver of notice, whether before or
after the meeting. The attendance of any shareholder at a meeting,
in person or by proxy, shall constitute a waiver of notice by him,
except when the person attends the meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction
of any business because the meeting is not lawfully called or
convened.
3.7 List of Shareholders at Meetings. The officer who has
charge of the stock ledger of the corporation shall prepare and
make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting,
arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to
the meeting, either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is
to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be
<PAGE>4
inspected by any stockholder who is present.
3.8 Quorum of Shareholders. Except as otherwise provided in
these By-Laws or in the Certificate of Incorporation, the holders
of record of a majority of the shares entitled to vote thereat
shall constitute a quorum at a meeting of shareholders for the
transaction of any business, provided that when a specified item of
business is required to be voted on by a class or series, voting as
a class, the holders of a majority of the shares of such class or
series shall constitute a quorum for the transaction of such
specified item of business. When a quorum is once present to
organize a meeting, it is not broken by the subsequent withdrawal
of any shareholder. The shareholders present may adjourn the
meeting despite the absence of a quorum.
3.9 Organization. At every meeting of the shareholders, the
Chairman of the Board, or an individual appointed by him, who may
be, but does not have to be, an officer of the Corporation, shall
act as Chairman of the meeting. The Secretary of the Corporation,
or in his absence one of the Assistant Secretaries of the
Corporation, shall act as Secretary of the meeting.
3.10 Order of Business. The Chairman of the meeting shall
conduct all meetings of the shareholders in accordance with the
best interests of the Corporation. The order of business at all
such meetings shall be as determined by the Chairman of the
meeting. The Chairman of the meeting shall have the authority and
discretion to establish reasonable procedural rules for the conduct
of the meeting, including regulation of the manner of voting and
the conduct of discussion as he or she shall deem appropriate. The
Chairman of the meeting shall also have the authority to adjourn
the meeting from time to time and place to place as he or she may
deem necessary and in the best interests of the Corporation.
3.11 Inspectors of Election. The Board, in advance of any
shareholders' meeting, may appoint one or more inspectors to act at
the meeting or any adjournment thereof. If inspectors are not so
appointed, the person presiding at a shareholders' meeting may, and
on the request of any shareholder entitled to vote thereat shall,
appoint inspectors. If appointed on the request of one or more
shareholders, the holders of a majority of shares present and
entitled to vote thereat shall determine the number of inspectors
to be appointed. In case any person appointed fails to appear or
act, the vacancy may be filled by appointment made by the Board in
advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, before entering upon the discharge of his
duties shall take and sign an oath faithfully to execute the duties
of inspector at such meeting with strict impartiality and according
to the best of his ability. The inspectors shall determine the
number of shares outstanding, the number of shares represented at
the meeting, the existence of a quorum, the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with
the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all shareholders. On
request of the person presiding at the meeting or any shareholder
entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, question or matter determined by them and
<PAGE>5
execute a certificate of any fact found by them. Any report or
certificate made by them shall be prima facie evidence of the facts
stated and of the vote as certified by them.
3.12 Voting; Proxies. Each shareholder entitled to vote at
any meeting may vote either in person or by proxy. Unless
otherwise specified in the Certificate of Incorporation or in a
resolution, or resolutions, of the Board providing for the issuance
of preferred stock, each shareholder entitled to vote shall be
entitled to one vote for each share of capital stock registered in
his or her name on the transfer books or records of the
Corporation. Each shareholder entitled to vote may authorize
another person or persons to act for him or her by proxy. All
proxies shall be in writing, signed by the shareholder or by his or
her duly authorized attorney-in-fact, and shall be filed with the
Secretary before being voted. No proxy shall be valid after three
(3) years from the date of its execution unless otherwise provided
in the proxy. The attendance at any meeting by a shareholder who
shall have previously given a proxy applicable thereto shall not,
as such, have the effect of revoking the proxy. The Corporation
may treat any duly executed proxy as not revoked and in full force
and effect until it receives a duly executed instrument revoking
it, or a duly executed proxy bearing a later date. If ownership of
a share of voting stock of the Corporation stands in the name of
two or more persons, in the absence of written directions to the
Corporation to the contrary, any one or more of such shareholders
may cast all votes to which such ownership is entitled. If an
attempt is made to cast conflicting votes by the several persons in
whose names shares of stock stand, the vote or votes to which those
persons are entitled shall be cast as directed by a majority of
those holding such stock and present at such meeting. If such
conflicting votes are evenly split on any particular matter, each
faction may vote the securities in question proportionally, or any
person voting the shares, or a beneficiary, if any, may apply to
the Court of Chancery or such other court as may have jurisdiction
to appoint an additional person to act with the persons so voting
the shares, which shall then be voted as determined by a majority
of such persons and the person appointed by the Court. Except for
the election of directors or as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, at all meetings of
shareholders, all matters shall be determined by a vote of the
holders of a majority of the number of votes eligible to be cast by
the holders of the outstanding shares of capital stock of the
Corporation present and entitled to vote thereat. Directors shall,
except as otherwise required by law, these Bylaws or the
Certificate of Incorporation, be elected by a plurality of the
votes cast by each class of shares entitled to vote at a meeting of
shareholders, present and entitled to vote in the election.
3.13 Written Consent of Shareholders. Any action required to
be taken at any annual or special meeting of shareholders of the
corporation, or any action which may be taken at any annual or
special meeting of such shareholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the
<PAGE>6
corporate action without a meeting by less than unanimous written
consent shall be given to those shareholders who have not consented
in writing.
3.14 Procedure for Nominations. Subject to the provisions
hereof, the Nominating Committee of the Board shall select nominees
for election as directors. Except in the case of a nominee sub-
stituted as a result of the death, incapacity, withdrawal or other
inability to serve of a nominee, the Nominating Committee shall
deliver written nominations to the Secretary at least sixty (60)
days prior to the date of the annual meeting. Provided the
Nominating Committee makes such nominations, no nominations for
directors except those made by the Nominating Committee shall be
voted upon at the annual meeting of shareholders unless other
nominations by shareholders are made in accordance with the
provisions of this Section 3.14. Nominations of individuals for
election to the Board at an annual meeting of shareholders may be
made by any shareholder of record of the Corporation entitled to
vote for the election of directors at such meeting who provides
timely notice in writing to the Secretary as set forth in this
Section 3.14. To be timely, a shareholder's notice must be
delivered to or received by the Secretary not later than the
following dates: (i) with respect to an election of directors to
be held at an annual meeting of shareholders, sixty (60) days in
advance of such meeting if such meeting is to be held on a day
which is within thirty (30) days preceding the anniversary of the
previous year's annual meeting, or ninety (90) days in advance of
such meeting if such meeting is to be held on or after the
anniversary of the previous year's annual meeting; and (ii) with
respect to an election to be held at an annual meeting of
shareholders held at a time other than within the time periods set
forth in the immediately preceding clause (i), or at a special
meeting of shareholders for the election of directors, the close of
business on the tenth (10th) day following the date on which notice
of such meeting is first given to shareholders. For purposes of
this Section 3.14, notice shall be deemed to first be given to
shareholders when disclosure of such date of the meeting of
shareholders is first made in a press release reported to Dow Jones
News Services, Associated Press or comparable national news
service, or in a document publicly filed by the Corporation with
the Securities and Exchange Commission pursuant to Section 13, 14
or 15(d) of the Securities Exchange Act of 1934, as amended. Such
shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a
director, (i) the name, age, business address and residence address
of such person, (ii) the principal occupation or employment of such
person, (iii) such person's written consent to serve as a director,
if elected, and (iv) such other information regarding each nominee
proposed by such shareholder as would be required to be included in
a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission (whether or not the Corporation
is then subject to such rules); and (b) as to the shareholder
giving the notice (i) the name and address of such shareholder as
they appear on the books and records of the Corporation, (ii) the
class and number of shares of the Corporation which are owned of
record by such shareholder and the dates upon which he or she
acquired such shares, (iii) a description of all arrangements or
understandings between the shareholder and nominee and any other
person or persons (naming such person or persons) pursuant to which
<PAGE>7
the nominations are to be made by the shareholder, and (iv) the
identification of any person employed, retained, or to be
compensated by the shareholder submitting the nomination or by the
person nominated, or any person acting on his or her behalf to make
solicitations or recommendations to shareholders for the purpose of
assisting in the election of such director, and a brief description
of the terms of such employment, retainer or arrangement for
compensation. At the request of the Board, any person nominated by
the Board for election as a director shall furnish to the Secretary
that information required to be set forth in a shareholder's notice
of nomination which pertains to the nominee together with the
required written consent. No person shall be elected as a director
of the Corporation unless nominated in accordance with the pro-
cedures set forth in this Section 3.14.
The Chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not
properly brought before the meeting in accordance with the
provisions hereof and, if he should so determine, he shall declare
to the meeting that such nomination was not properly brought before
the meeting and shall not be considered.
3.15 Substitution of Nominees. In the event that a person is
validly designated as a nominee in accordance with Section 3.14 of
this Article III and shall thereafter become unwilling or unable to
stand for election to the Board, the Nominating Committee may
designate a substitute nominee upon delivery, not fewer than five
(5) days prior to the date of the meeting for the election of such
nominee, of a written notice to the Secretary setting forth such
information regarding such substitute nominee as would have been
required to be delivered to the Secretary pursuant to Section 3.14
of this Article III had such substitute nominee been initially pro-
posed as a nominee. Such notice shall include a signed consent to
serve as a director of the Corporation, if elected, of each such
substituted nominee.
3.16 New Business. Any new business to be taken up at the
annual meeting at the request of the Chairman of the Board, the
President or by resolution of at least three-fourths of the entire
Board shall be stated in writing and filed with the Secretary at
least fifteen (15) days before the date of the annual meeting, and
all business so stated, proposed and filed shall be considered at
the annual meeting, but, except as provided in this Section 3.16,
no other proposal shall be acted upon at the annual meeting. Any
proposal offered by any shareholder may be made at the annual
meeting and the same may be discussed and considered, but unless
properly brought before the meeting such proposal shall not be act-
ed upon at the meeting. For a proposal to be properly brought
before an annual meeting by a shareholder, the shareholder must be
a shareholder of record and have given timely notice thereof in
writing to the Secretary. To be timely, a shareholder's notice
must be delivered to or received by the Secretary not later than
the following dates: (i) with respect to an annual meeting of
shareholders, sixty (60) days in advance of such meeting if such
meeting is to be held on a day which is within thirty (30) days
preceding the anniversary of the previous year's annual meeting, or
ninety (90) days in advance of such meeting if such meeting is to
be held on or after the anniversary of the previous year's annual
meeting; and (ii) with respect to an annual meeting of shareholders
<PAGE>8
held at a time other than within the time periods set forth in the
immediately preceding clause (i), the close of business on the
tenth (10th) day following the date on which notice of such meeting
is first given to shareholders. For purposes of this Section 3.16,
notice shall be deemed to first be given to shareholders when
disclosure of such date of the meeting of shareholders is first
made in a press release reported to Dow Jones News Services,
Associated Press or comparable national news service, or in a
document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Securities Exchange Act of 1934, as amended. A shareholder's
notice to the Secretary shall set forth as to the matter the
shareholder proposes to bring before the annual meeting (a) a brief
description of the proposal desired to be brought before the annual
meeting; (b) the name and address of the shareholder proposing such
business as they appear on the books and records of the
Corporation; (c) the class and number of shares of the Corporation
which are owned of record by the shareholder and the dates upon
which he or she acquired such shares; (d) the identification of any
person employed, retained, or to be compensated by the shareholder
submitting the proposal, or any person acting on his or her behalf,
to make solicitations or recommendations to shareholders for the
purpose of assisting in the passage of such proposal, and a brief
description of the terms of such employment, retainer or arrange-
ment for compensation; (e) any material interest of the shareholder
in the business proposed; and (f) such other information regarding
such proposal as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and
Exchange Commission or required to be delivered to the Corporation
pursuant to the proxy rules of the Securities and Exchange
Commission (whether or not the Corporation is then subject to such
rules). This provision shall not prevent the consideration and
approval or disapproval at an annual meeting of reports of
officers, directors and committees of the Board or the management
of the Corporation, but in connection with such reports, no new
business shall be acted upon at such annual meeting unless stated
and filed as herein provided. This provision shall not constitute
a waiver of any right of the Corporation under the proxy rules of
the Securities and Exchange Commission or any other rule or regula-
tion to omit a shareholder's proposal from the Corporation's proxy
materials.
The Chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that any new business was not
properly brought before the meeting in accordance with the
provisions hereof and, if he should so determine, he shall declare
to the meeting that such new business was not properly brought
before the meeting and shall not be considered.
ARTICLE 4
DIRECTORS
4.1 General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of its
Board. The Board may adopt such rules and regulations, not
inconsistent with applicable laws or the Certificate of
<PAGE>9
Incorporation or these By-Laws as it may deem proper for the
conduct of its meetings and the management of the Corporation.
4.2 Number; Qualification; Terms of Office. The number of
directors constituting the entire Board shall not be less than
three (3) nor more than twelve (12). Within said limits the number
of directors shall be fixed from time to time by resolution adopted
by a majority of the entire Board of Directors. Each director shall
be at least 21 years of age.
Except as otherwise provided by law or by these By-Laws the
directors shall be elected at the annual meeting of the
shareholders in each year. The directors shall be divided into
three classes, as nearly equal in number as possible, with the term
of office of one class expiring each year; i.e., as to the
Corporation's First Board of Directors; at the 1983 annual meeting
of shareholders, for directors of the first class; at the 1984
annual meeting, for directors of the second class; and at the 1985
annual meeting, for directors of the third class.
At each annual meeting of the shareholders successors to the
directors whose terms shall then expire shall be elected to hold
office for a term expiring at the third succeeding annual meeting
of shareholders.
The foregoing notwithstanding, each director shall serve until
his successor has been elected and qualified, or until his earlier
resignation, disqualification or removal.
4.3 Election. Directors shall, except as otherwise provided
by applicable laws, be elected at the annual meeting of
shareholders by a plurality vote of the holders of shares entitled
to vote in the election.
4.4 Organization. Meetings of the Board shall be presided
over by the Chairman of the Board or such other director or officer
as the Chairman of the Board shall designate, and in the absence or
incapacity of the Chairman of the Board, the presiding officer
shall be the then senior member of the Board in terms of length of
service on the Board (which length of service shall include length
of service on the Board of Directors of Graham Manufacturing Co.,
Inc. and any predecessors thereto). The Secretary or, in his
absence, a person appointed by the Chairman of the Board (or other
presiding person), shall act as secretary of the meeting. The
Chairman of the Board (or other person presiding) shall conduct all
meetings of the Board in accordance with the best interests of the
Corporation and shall have the authority and discretion to estab-
lish reasonable procedural rules for the conduct of Board meetings.
At the discretion of the Chairman of the Board, any one or more di-
rectors may participate in a meeting of the Board or a committee of
the Board by means of a conference telephone or similar com-
munications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such
means shall constitute presence in person at any such meeting.
4.5 Place of Meeting, etc. The Board may hold its meetings
within or without the State of Delaware at such places as the Board
may from time to time by resolution determine or (unless contrary
to resolution of the Board) at such place as shall be specified in
<PAGE>10
the notice of the meeting.
4.6 Annual Meeting. After each annual election of directors,
the Board may meet, without notice of such meeting, for the
purposes of election of officers, and the transaction of other
business, on the day when and at the place where such annual
election is held, and as soon as practicable after such annual
election. Such annual meeting may be held at any other time and
place specified in a notice given as hereinafter provided for
special meetings of the Board or in a consent and waiver of notice
thereof.
4.7 Regular Meetings. Regular meetings of the Board may be
held at such times and places as may be fixed from time to time by
the Board; and, unless required by the Board, notice of any such
meeting need not be given. If any day fixed for a regular meeting
shall be a legal holiday at the place where the meeting is to be
held, then the meeting, which would otherwise be held on that day,
shall be held at the same hour at such place on the next succeeding
business day which is not a Saturday or Sunday.
4.8 Special Meetings. Special meetings of the Board may be
called for any purpose at any time by or at the request of the
Chairman of the Board or the President. Special meetings of the
Board shall also be called by the Secretary upon the written
request, stating the purpose or purposes of the meeting, of at
least seventy-five percent (75%) of the directors then in office.
The persons authorized to call special meetings of the Board shall
give notice of such meetings in the manner prescribed by these
Bylaws and may fix any place, within or without the Corporation's
regular business area, as the place for holding any special meeting
of the Board called by such persons. No business shall be con-
ducted at a special meeting other than that specified in the notice
of meeting.
4.9 Waivers of Notice of Meetings. Except as otherwise
provided in this Article IV, at least twenty-four (24) hours notice
of meetings shall be given to each director if given in person or
by telephone, telegraph, telex, facsimile or other electronic
transmission and at least five (5) days notice of meetings shall be
given if given in writing and delivered by courier or by postage
prepaid mail. The purpose of any special meeting shall be stated
in the notice. Such notice shall be deemed given when sent or
given to any mail or courier service or company providing
electronic transmission service. Any director may waive notice of
any meeting by submitting a signed waiver of notice with the
Secretary, whether before or after the meeting. The attendance of
a director at a meeting shall constitute a waiver of notice of such
meeting, except where a director attends a meeting for the express
purpose of objecting at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully
called or convened.
4.10 Telephonic Meetings. Any one or more members of the
Board or any Committee thereof may participate in a meeting of the
Board or such Committee by means of conference telephone or similar
communication equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such
means shall constitute presence in person at such meeting.
<PAGE>11
4.11 Quorum and Manner of Acting. A majority of the members of
the Board then in office shall constitute a quorum for the
transaction of business and the vote of a majority of the directors
present at the time of the vote, if a quorum is present at such
time, shall be the act of the Board in all transactions, except
those in which a greater vote is required by law, by the
Certificate of Incorporation, or by the By-laws, and in such
transactions the vote of such greater number of directors shall be
the act of the Board. ln the absence of a quorum a majority of the
directors present may adjourn any meeting from time to time,
without notice other than announcement at the meeting, until a
quorum is present.
4.12 Resignations. Any directors of the Corporation may resign
at any time by written notification addressed to the President or
the Secretary of the Corporation. Such resignation shall take
effect upon receipt, and, unless otherwise specified, the
acceptance of such resignation shall not be necessary to make it
effective.
4.13 Removal of Directors. Any or all of the directors may be
removed at any time but only for cause by the shareholders at any
meeting of shareholders, called for the purpose, by the affirmative
vote of 75% of the shares of the Corporation entitled to vote and,
if a corporation, person or other entity owns more than 50% of the
shares of the Corporation entitled to vote, by the affirmative vote
of the holders of a majority of the shares of the Corporation
entitled to vote and not owned by the majority shareholder.
4.14 Vacancies. To the extent not inconsistent with the
Certificate of Incorporation and subject to the limitations
prescribed by law and the rights of holders of Preferred Stock,
vacancies in the office of director, including vacancies created by
newly created directorships resulting from an increase in the
number of directors, shall be filled only by a vote of a majority
of the directors then holding office, whether or not a quorum, at
any regular or special meeting of the Board called for that
purpose. Subject to the rights of holders of Preferred Stock, no
person shall be so elected a director unless nominated by the
Nominating Committee. Subject to the rights of holders of
Preferred Stock, any director so elected shall serve for the
remainder of the full term of the class of directors in which the
new directorship was created or the vacancy occurred and until his
or her successor shall be elected and qualified.
4.15 Compensation. Each director, in consideration of his
serving as such, shall be entitled to receive from the Corporation
such reasonable amount per annum or such reasonable fees for
attendance at directors' meetings, or both, as the Board shall from
time to time determine, together with reimbursement for the
reasonable expenses incurred by him in connection with the
performance of his duties. Each director who shall serve as a
member of the Executive Committee, if any, or any other committee
of the Board, in consideration of his serving as such, shall be
entitled to such additional amount per annum or such fees for
attendance at committee meetings, or both, as the Board shall from
time to time determine. Nothing in this section contained shall
preclude any director from serving the Corporation or its
subsidiaries in any other capacity and receiving proper
<PAGE>12
compensation therefor.
4.16 Board Action Without a Meeting. Whenever any action is
required or permitted to be taken by the Board or any committee
thereof, such action may be taken without a meeting if all members
of the Board or the committee consent in writing to the adopting of
a resolution authorizing the action and the resolution and the
written consents thereto by the members of the Board or committee
are filed with the minutes of the proceedings of the Board or
committee.
ARTICLE 5
COMMITTEES
5.1 How Constituted and Powers. By resolution adopted by a
majority of the entire Board, the directors may designate from
their number three or more directors to constitute an Executive
Committee and other committees other than the Nominating Committee,
each of which, to the extent provided in the resolution designating
it, shall have the authority of the Board of Directors with the
exception of any authority the delegation of which is prohibited by
law.
5.2 Nominating Committee. By resolution adopted by at least
seventy-five percent (75%) of the entire Board, the directors shall
designate from their number at least three (3) but no more than
four (4) directors, none of whom shall be an officer or a salaried
employee of the Corporation or its subsidiaries, to constitute a
Nominating Committee. Notwithstanding the foregoing, no director
shall serve on the Nominating Committee in any capacity in any year
during which such director's term as a director is scheduled to
expire. The Nominating Committee shall review qualifications of
and interview candidates for the Board and shall make nominations
for election of board members in accordance with the provisions of
these Bylaws. A quorum shall consist of at least one-third of the
members of the Committee, and in no event less than two (2) members
of the Committee. The Board may remove a member of the Nominating
Committee from the Committee, with or without cause, only by a vote
of at least seventy-five per cent (75%) of the entire Board at any
regular or special meeting of the Board called for that purpose,
provided that no ex-officio member of the Committee may be removed
from the Committee as long as such member remains a director of the
Corporation.
ARTICLE 6
OFFICERS
6.1 Officers. The Board shall, as soon as practicable after
the annual meeting of shareholders in each year elect a Chairman of
the Board, a President, a Treasurer and a Secretary, each to have
such functions or duties as are provided in these By-laws or as the
Board may from time to time determine and each to hold office for
the term for which he is elected and until his successor shall have
been duly chosen and shall qualify, or until his death, or until he
shall resign or shall have been removed in the manner hereinafter
<PAGE>13
provided. No officer need be a director. The Board may, from time
to time, appoint other officers or assistant officers, each of whom
shall hold office for such period, have such authority, and perform
such duties as are provided in these By-laws or as the Board may
from time to time determine. Any two or more offices may be held by
the same person, except the offices of President and Secretary.
6.2 Removal of Officers. Except for the Chairman of the
Board, the Chief Executive Officer or the President, any officer
may be removed at any regular meeting of the Board with or without
cause by an affirmative vote of a majority of the entire Board.
The Board may remove the Chairman of the Board, the Chief Executive
Officer or the President at any time, with or without cause, only
by a vote of seventy-five percent (75%) of the non-officer di-
rectors then holding office at any regular or special meeting of
the Board called for that purpose. Removal of an officer, however
effected, shall be without prejudice to his contract rights, if
any. Appointment or election of an officer shall not of itself
create contract rights.
6.3 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause may be
filled for the unexpired portion of the term by the Board at any
regular or special meeting provided notice of such intent is given.
6.4 Compensation. Salaries or other compensation of the
officers may be fixed from time to time by the Board. No officer
shall be prevented from receiving a salary or other compensation by
reason of the fact that he is also a director of the Corporation.
6.5 Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the shareholders and at all meetings of
the Board and shall have such other powers and duties as may from
time to time be assigned to him by the Board.
6.6 President. The President shall have general supervision
over the business of the Corporation, subject, however, to the
control of the Board and of any duly authorized committee of
directors. He may, with the Treasurer or the Secretary or an
Assistant Treasurer or an Assistant Secretary, sign certificates
for shares of the Corporation. He may sign and execute in the name
of the Corporation deeds, mortgages, bonds, contracts and other
instruments, except in cases where the signing and execution
thereof shall be expressly delegated by the Board or by any duly
authorized committee of directors or by these By-laws to some other
officer or agent of the Corporation, or shall be required by law
otherwise to be signed or executed, and, in general, he shall
perform all duties incident to the office of President and such
other duties as from time to time may be assigned to him by the
Board or by any duly authorized committee of directors. The
President shall hire, appoint, discharge and fix the compensation
of all employees, agents and representatives of the Corporation,
other than the duly elected or appointed officers, subject to the
general supervision of the Board.
6.7 Vice Presidents. At the request of the President, or in
his absence or disability, at the request of the Board, the Vice
Presidents in the order determined by the Board shall perform all
the duties of the President and so acting shall have all the powers
<PAGE>14
of and be subject to all the restrictions upon the President. Any
Vice President may also, with the Treasurer or the Secretary or an
Assistant Treasurer or an Assistant Secretary, sign certificates
for shares of the Corporation; may sign and execute in the name of
the Corporation deeds, mortgages, bonds, contracts or other
instruments authorized by the Board or by any duly authorized
committee of directors, except in cases where the signing and
execution thereof shall be expressly delegated by the Board or by
any duly authorized committee of directors or by these By-laws to
some other officer or agent of the Corporation, or shall be
required by law otherwise to be signed or executed; and shall
perform such other duties as from time to time may be assigned to
him by the Board or by any duly authorized committee of directors
or by the President.
6.8 Treasurer. The Treasurer shall, if required, by the
Board, give a bond for the faithful discharge of his duties, in
such sum and with such sureties as the Board shall determine. He
shall have charge and custody of, and be responsible for, all
funds, securities and notes of the Corporation; receive and give
receipts for moneys due and payable to the Corporation from any
sources whatsoever; deposit all such moneys in the name of the
Corporation in such banks, trust companies or other depositaries as
shall be selected in accordance with these By-laws; against proper
vouchers cause such funds to be disbursed by checks or drafts on
the authorized depositaries of the Corporation signed in such
manner as shall be determined in accordance with any provision of
these By-laws, and be responsible for the accuracy of the amounts
of all money so disbursed; regularly enter or cause to be entered
in books to be kept by him or under his direction full and adequate
account of all moneys received or paid by him for the account of
the Corporation; have the right to require, from time to time,
reports or statements giving such information as he may desire with
respect to any and all financial transactions of the Corporation
from the officers or agents transacting the same; render to the
President, the Board or any duly authorized committee of directors,
whenever the President, the Board or any duly authorized committee
of directors, respectively, shall require him so to do, an account
of the financial condition of the Corporation and of all his
transactions as Treasurer; exhibit at all reasonable times his
books of account and other records to any of the directors of the
Corporation, upon application at the office of the Corporation
where such books and records are kept; and in general, perform all
the duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him by the Board or
by any duly authorized committee of directors or by the President;
and he may sign with the President or a Vice President certificates
for stock of the Corporation.
6.9 The Secretary. The Secretary shall have the duty to
record the proceedings of the meetings of the shareholders and
directors in a book to be kept for that purpose; he shall see that
all notices required to be given by the Corporation are duly given
and served; he may, with the President or any of the Vice
Presidents, sign certificates for shares of the Corporation; he
shall be custodian of the seal of the Corporation and shall affix
the seal or cause it to be affixed to all certificates for shares
of the Corporation and to all documents the execution of which on
behalf of the Corporation under its corporate seal is duly
<PAGE>15
authorized in accordance with the provisions of these By-laws; he
shall have charge of the stock ledger and also of the other books,
records and papers of the Corporation relating to its organization
and management as a Corporation, and shall see that the reports,
statements and other documents required by law are properly kept
and filed; and shall, in general, perform all the duties incident
to the office of Secretary and such other duties as from time to
time may be assigned to him by the Board or by any duly authorized
committee of directors or by the President.
6.10 Assistant Treasurers and Assistant Secretaries. The
Assistant Treasurers shall, respectively, if required by the Board,
give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board shall require. Assistant
Treasurers and Assistant Secretaries shall perform such duties as
shall be assigned to each of them by the Treasurer and by the
Secretary, respectively, or by the Board or by any duly authorized
committee of directors or by the President. Assistant Treasurers
and Assistant Secretaries may, with the President or a Vice
President, sign certificates for stock of the Corporation.
ARTICLE 7
CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
7.1 Checks, Drafts, Etc. All checks, drafts and other orders
for the payment of money out of the funds of the Corporation and
all notes or other evidences of indebtedness of the Corporation
shall be signed on behalf of the Corporation in such manner as
shall from time to time be determined by resolution of the Board or
of any duly authorized committee of directors.
7.2 Deposits. The funds of the Corporation not otherwise
employed shall be deposited from time to time to the order of the
Corporation in such banks, trust companies or other depositaries as
the Board or any duly authorized committee of directors may select
or as may be selected by an officer or officers, agent or agents,
of the Corporation to whom such power may from time to time be
delegated by the Board or any duly authorized committee of
directors.
ARTICLE 8
STOCK AND DIVIDENDS
8.1 Transfer Agent and Registrar. The Board shall have the
power to appoint one or more Transfer Agents and Registrars for the
transfer and registration of certificates of stock of any class,
and may require that stock certificates be countersigned and
registered by one or more of such Transfer Agents and Registrars.
8.2 Registration and Transfer of Shares. Subject to the
provisions of the Certificate of Incorporation of the Corporation,
the name of each person owning a share of the capital stock of the
Corporation shall be entered on the books of the Corporation to-
<PAGE>16
gether with the number of shares held by him or her, the numbers of
the certificates covering such shares and the dates of issue of
such certificates. Subject to the provisions of the Certificate of
Incorporation of the Corporation, the shares of stock of the
Corporation shall be transferable on the books of the Corporation
by the holders thereof in person, or by their duly authorized
attorneys or legal representatives, on surrender and cancellation
of certificates for a like number of shares, accompanied by an
assignment or power of transfer endorsed thereon or attached
thereto, duly executed, with such guarantee or proof of the authen-
ticity of the signature as the Corporation or its agents may rea-
sonably require and with proper evidence of payment of any
applicable transfer taxes. Subject to the provisions of the
Certificate of Incorporation of the Corporation, a record shall be
made of each transfer.
8.3 Lost, Destroyed, Stolen and Mutilated Certificates. The
Board may direct that a new certificate be issued in place of any
certificate theretofore issued claimed to have been lost or
destroyed, provided it has received proof satisfactory to it by
affidavit or otherwise of the facts surrounding the loss or
destruction of the certificate and the ownership thereof at the
time of such loss or destruction. As a condition precedent to the
issuance of a new certificate, the Board may also require the
alleged owner to advertise the fact of the loss or destruction in
a newspaper chosen by the Board and/or furnish to the Corporation
a surety bond in form and amount satisfactory to it indemnifying
the Corporation and its directors and officers from all claims and
expenses with respect to the certificate claimed to have been lost
or destroyed and the duplicate certificate issued in place thereof.
8.4 Dividends, Surplus, Etc. Subject to the provisions of
the Certificate of Incorporation and the law of the State of
Delaware, the Board (i) may declare dividends on the shares of the
Corporation in such amounts as, in its opinion, the condition of
the affairs of the Corporation shall render advisable, (ii) may use
and apply, in its discretion, any of the surplus of the Corporation
or the net profits arising from its business in purchasing or
acquiring any of the shares of stock of the Corporation or of
purchase warrants therefor in accordance with law, or any of its
bonds, debentures, notes, scrip or other securities or evidences of
indebtedness, and (iii) may set aside from time to time out of such
surplus or net profits such sum or sums as it in its absolute
discretion may think proper, as a reserve fund to meet
contingencies, or equalizing dividends, or for the purpose of
maintaining or increasing the property or business of the
Corporation, or for any other purpose it may think conducive to the
best interest of the Corporation.
8.5 Holder of Record. Subject to the provisions of the
Certificate of Incorporation of the Corporation, the Corporation
shall be entitled to treat the holder of record of any share or
shares of stock as the holder thereof in fact and shall not be
bound to recognize any equitable or other claim to or interest in
such shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise ex-
pressly provided by law.
<PAGE>17
ARTICLE 9
FORM OF RECORDS
Any records maintained by the Corporation in the regular
course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of,
punch cards, magnetic tape, photographs, micro-photographs, or any
other information storage device, provided that the records so kept
can be converted into clearly legible written form within a
reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
ARTICLE 10
SEAL
The Board shall provide a corporate seal which shall be in the
form of a circle and shall bear the full name of the Corporation
and the year of its incorporation, 1983.
ARTICLE 11
FISCAL YEAR
The Fiscal Year of the Corporation shall be the calendar year
unless otherwise determined by the Board of Directors.
ARTICLE 12
VOTING OF STOCK HELD
Unless otherwise provided by resolution of the Board, the
President may, from time to time, appoint an attorney or attorneys
or agent or agents of this Corporation, including himself, in the
name and on behalf of the Corporation to cast the votes which the
Corporation may be entitled to cast as a stockholder or otherwise
in any other corporation, any of whose stock or securities may be
held by the Corporation, at meetings of the holders of the stock or
other securities of such other corporation, or to consent in
writing to any action by any such other corporation, and may
instruct the person or persons so appointed as to the manner of
casting such votes or giving such consent, and may execute or cause
to be executed on behalf of the Corporation and under its corporate
seal, or otherwise, such written proxies, consents, waivers or
other instruments as he may deem necessary or proper in the
premises; or the President may himself attend any meeting of the
holders of stock or other securities of any such other corporation
and thereat vote or exercise any or all other powers of the
Corporation as the holder of such stock or other securities of such
other corporation.
<PAGE>18
ARTICLE 13
AMENDMENT
Except as otherwise provided by law or under the Corporation's
Certificate of Incorporation, the By-laws of the Corporation may
not be amended except (a) by resolution adopted by vote of seventy-
five percent of the entire Board of Directors, (b) by the
shareholders voting upon a proposal recommended by the affirmative
vote of 75% of the entire Board of Directors, or (c) by the
affirmative vote of (i) the holders of 75% of the shares of the
Corporation entitled to vote and (ii) if any corporation, person,
or other entity owns more than 50% of the shares of the Corporation
entitled to vote, the holders of a majority of the shares of the
Corporation entitled to vote and not owned by the majority
shareholder. Any amendment made by the Board of Directors and any
proposed amendment adopted by the Board of Directors for
recommendation to the Shareholders shall be adopted at a regular
meeting and may be adopted only if (a) a notice specifying the
change or amendment shall have been given at a previous regular
meeting and entered in the minutes of the Board; (b) a written
statement describing the change or amendment shall be made in a
notice mailed to the directors of the meeting at which the change
or amendment shall be acted upon. Notwithstanding the foregoing,
any provision of these Bylaws that contains a supermajority voting
requirement shall only be altered, amended, rescinded, or repealed
by the Board by a vote not less than the supermajority specified in
such provision.
GRAHAM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Calculation of common and common
equivalent shares:
Shares outstanding at beginning
of the year 1,051,499 1,046,137 1,046,137
Weighted average number of shares
issued during the year:
Issuance of shares 454 4,290
Exercise of stock options 425
----------- ----------- ----------
Weighted average shares outstanding 1,052,378 1,050,427 1,046,137
Common equivalent shares if stock
options were exercised 629 648
----------- ----------- ----------
Average number of common and common
equivalent shares outstanding 1,053,007 1,050,427 1,046,785
=========== =========== ==========
Calculation of earnings per share:
Net income (loss) $ 1,134,000 $(8,415,000) $ 408,000
Average number of common and common
equivalent shares outstanding 1,053,007 1,050,427 1,046,785
----------- ----------- ----------
Earnings (loss) per common and common
equivalent share $ 1.08 $(8.01) $ .39
=========== =========== ==========
<FN>
Fully diluted earnings per share is equivalent to primary
earnings per share as the year-end market price of common stock
does not result in greater dilution.
</TABLE>
SUBSIDIARIES OF THE REGISTRANT IN 1995
United States
Graham Manufacturing Co., Inc.
20 Florence Avenue
Batavia, New York 14020
United Kingdom
Graham Vacuum and Heat Transfer Limited
The Forge
Congleton, Cheshire SW12 4HQ, England
Graham Precision Pumps Limited
The Forge
Congleton, Cheshire SW12 4HQ, England
INDEPENDENT AUDITORS' CONSENT
Graham Corporation
We consent to the incorporation by reference in Registration
Statement No.'s 2-83432, 2-82275, and 33-82432 of Graham
Corporation and subsidiaries on Forms S-3 and S-8 of our reports
dated February 22, 1996, appearing in this Annual Report on Form
10-K of Graham Corporation and subsidiaries for the year ended
December 31, 1995.
Deloitte & Touche LLP
Rochester, New York
March 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Graham
Corporation consolidated balance sheet and consolidated statement of operations
and retained earnings and is qualified in its entirety by reference by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 411
<SECURITIES> 0
<RECEIVABLES> 10,611
<ALLOWANCES> 81
<INVENTORY> 6,621
<CURRENT-ASSETS> 18,930
<PP&E> 23,412
<DEPRECIATION> 14,494
<TOTAL-ASSETS> 29,480
<CURRENT-LIABILITIES> 11,856
<BONDS> 3,303
<COMMON> 106
0
0
<OTHER-SE> 8,301
<TOTAL-LIABILITY-AND-EQUITY> 29,480
<SALES> 49,480
<TOTAL-REVENUES> 49,480
<CGS> 36,501
<TOTAL-COSTS> 36,501
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 42
<INTEREST-EXPENSE> 616
<INCOME-PRETAX> 2,094
<INCOME-TAX> 778
<INCOME-CONTINUING> 1,316
<DISCONTINUED> (182)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,134
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
</TABLE>
