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 1996 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.
1996 sales for GMC were $46.7 million, which was marginally over budget for the year.
New orders in 1996 were $50 million, up 3.4% from 1995, with a strong fourth quarter contributing to a year end backlog of $24.5 million up 16% from the backlog at December 31, 1995. Significant growth was seen in the condenser business, attributable to vitality in the petrochemical market. These gains were only somewhat offset by lower orders in 1996 for ejectors and plate heat exchangers. The chemical and refinery markets continued to be important, accounting for half of the revenue for 1996. U.S. domestic power industry sales declined and smaller markets such as fertilizer, HVAC and fibers maintained a level consistent with the experience of recent years.
Margins were uniformly favorable across all products lines.
GMC export sales reached 50% in 1996, a new record. Approximately half of these export sales went to Asia. Most of the growth in GMC's exports since 1995 has been attributable to a significant increase in shipments to South America and Asia. The Company expects exports to remain a significant part of its business in 1997.
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Employment at GMC as of December 31, 1996 was 307.
UNITED KINGDOM OPERATIONS:
During 1996, 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. Graham Vacuum and Heat Transfer Limited (GVHT) 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.
Sales for 1996 stood at $6,060,000, a result exceeding by 7% the business plan for the year. This performance represented an improvement over 1995. This reflected an improving order intake through the year resulting in new orders for the year at $6,482,000, 23% above 1995 with 42% to export markets. Sales growth was achieved in the domestic U.K. market with all major product lines.
Competitive pricing and delivery remained critical in 1996 to achieving most orders. In manufacturing, GPPL continued to maintain a flexible operation to support its customers' requirements.
The sales mix for 1996 resulted in an improved contribution which, together with a tight control of overheads, yielded an improved profit performance over 1995.
GPPL has forecasted some continued growth in selective markets which will be offset in part by the continuing uncertainty of the economies of specific countries. The Company will continue its marketing effort to further improve its position and increase its market share, primarily in the U.K. and the U.S. markets.
As of December 31, 1996 employment stood at 72.
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Capital Expenditures - --------------------
The Registrant's capital expenditures for 1996 amounted to $1,291,000. Of this amount, $604,000 was for GMC and $687,000 was for GPPL.
(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 21-23 and 25 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 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 1996.
(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
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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, 1996 was $25,578,000, compared to $21,837,000 in 1995 and $18,997,000 in 1994.
(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, 1994, 1995, and 1996, Registrant spent approximately $298,000, $277,000 and $375,000 respectively, on research activities relating to the development of new products or the improvement of existing products.
(xii) Environmental Matters ---------------------
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, 1996, Registrant and its subsidiaries employed 390 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 page 25 of this Annual Report on Form 10-K.)
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Item 2.
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.
UNITED KINGDOM: 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 $22,898,000 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 $637,000.
Item 3.
Item 3. Legal Proceedings - ------- -----------------
The United States Environmental Protection Agency has notified the Company's wholly-owned subsidiary, Graham Manufacturing Co., Inc. ("GMC"), that it is a Potentially Responsible Party pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, as amended, in connection with the Batavia Landfill Site in the Town of Batavia, New York. Total remediation expenses for the site are currently estimated at $10.4 million. Based on facts and circumstances currently known to GMC and the Company, GMC's contribution to the site of material deemed hazardous was minor. In 1996, the Company recorded a $260,000 provision for the estimated costs, including legal costs, in connection with this matter based on the currently available information and assuming a reasonable pro-rata allocation. The related liability at December 31, 1996 was $257,000 and is included in the caption "Other Long- Term Liabilities" in the Consolidated Balance Sheet.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders - ------- ---------------------------------------------------
(Not applicable)
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Item 4.1. Executive Officers of the Registrant - --------- ------------------------------------
The following information is given with respect to Registrant's executive officers, as defined by Rule 3b-7 of the Act.
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PART II
Item 5.
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 42 of this Annual Report on Form 10-K.
(b) On March 20, 1997, there were approximately 330 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 20, 1997, the closing price of the Registrant's common stock on the American Stock Exchange was $14.75 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 29 to 30 of this Report.
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ITEM 6.
ITEM 6. Selected Financial Data
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ITEM 7.
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, 1996 and its financial condition at December 31, 1996. 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 all filings with the Securities and Exchange Commission.
Except for the historical information contained herein, the matters discussed in this annual report are forward-looking statements as defined in the Private Securities Litigation Reform Act (PSLRA) of 1995. The Company wishes to take advantage of the "safe harbor" provisions of the PSLRA by cautioning that numerous important factors 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 the Securities and Exchange Commission, in the future, could affect the Company's actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company.
ANALYSIS OF CONSOLIDATED OPERATIONS
Consolidated sales in 1996 were $51,394,000 as compared to $49,480,000 in 1995 and $47,351,000 in 1994. Graham Manufacturing 1996 sales were about 3% more than 1995 shipments and 11% greater than 1994. Sales for export constituted 50% of the U.S. operations in 1996 as compared to 41% in 1995 and 1994. Surface condenser sales in 1996 were up significantly over 1995. Offsetting the increase in surface condenser sales was a reduction in ejector sales. In 1995 as compared to 1994, ejector sales were up and condenser shipments were down. Graham Precision Pumps sales increased 10% over the prior year, but were down almost 9% from 1994. In 1996 the Company increased its revenue through increased sales of pump packages. In 1995 sales were down 17% below 1994 due to a lack of major project work. Oil exploration work was very active in 1994 which lead to an active offshore pump market.
Consolidated gross profit margins were 30% in 1996 as compared to 26% for 1995 and 1994. Gross profit margins from U.S. operations for 1996, 1995 and 1994 were 29%, 25% and 24%, respectively. Direct material and labor costs declined in 1996, as a percent of sales, by 4.8% compared to 1995 and 5.5% compared to 1994. The 1996 gross profit percent was improved approximately 1% for workers compensation insurance refunds expensed in prior years. Indirect production costs remained about 24% of sales over the past three years. Precision Pumps gross profit margins increased to 30% in 1996, up
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2% over 1995. Gross profit margins in 1994 were 36%. Direct costs decreased in 1996, as a percent of sales, by 2% compared to 1995 and approximately equalled 1994 costs. Indirect production costs, as a percent of sales, for 1996 were about the same as 1995 and were about 7% more than in 1994.
Selling, general and administrative expenses increased 11% over 1995. In 1995 SG&A expenses dropped 1% compared to 1994. The current year's increase was primarily attributed to incentive wage programs which vary subject to levels of profits. Included in SG&A expenses are Research & Development costs. Expenditures invested for product enhancements and new product development increased 46% in 1996 over 1995. In 1995, expenses were 7% less than the amount spent in 1994. SG&A U.K. expense represents 12%, 11% and 17% of consolidated costs for the respective years 1996, 1995 and 1994.
Interest expense in 1996 decreased 42% from 1995 as a result of lower bank debt and lower interest borrowing rates. Interest expense in 1995 increased 17% over 1994. Borrowings to finance unusually high fourth quarter 1994 work-in-process inventory and to settle an adverse litigation judgment increased debt through the second quarter of 1995. Bank debt as a percent of equity as of December 31, 1996, 1995 and 1994 was 9%, 45% and 77%, respectively.
The effective income tax rates for 1996, 1995 and 1994 were 22%, 37% and 95%, respectively. The current year's provision was less than the statutory rates due to fuller utilization of U.K. corporate expenses and a decrease in the valuation allowance required under SFAS 109. It is anticipated that future effective tax rates will approximate statutory rates. The tax rate recognized in 1995 differs from the statutory rate mainly due to a reduction in state deferred tax assets. The unusually high effective rate computed in 1994 resulted from the disallowance of capital losses incurred with the disposal of Graham Manufacturing Ltd.
Net income for 1996 was $3,061,000 or $1.90 per share, as compared to $1,134,000 ($.72 per share) in 1995 and a loss of $8,415,000 in 1994. The 1994 loss was due to an unfavorable legal judgment, which together with legal costs, equalled $1,502,000, and the divestiture of a subsidiary which resulted in a 1994 charge of $8,421,000.
SHAREHOLDERS' EQUITY
Substantially due to earnings, shareholders' equity increased 41% in 1996 and 19% in 1995.
Signaling renewed confidence in its financial prospects in 1996 Graham declared a 3 for 2 stock split to increase liquidity of the stock. Earnings per share data for 1995 and 1994, reported in the accompanying financials have been restated to reflect the stock split.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operations in 1996 was $4,726,000 as compared to 1995 of $1,644,000. Cash generation was improved as a result of greater profits and a level quarterly sales pattern. Capital expenditures increased in 1996 over recent prior years. Expenditures were evenly divided between U.S. and U.K. operations. In addition, cash resources were used to retire U.S. long term debt and invest in short term bonds and commercial paper. In 1995, cash was used to finance higher amounts of inventory and to pay a legal judgment rendered against Graham. Inventories were selectively increased to support customer requests for shorter deliveries in certain "off the shelf" products. The net cash deficit created from operations in 1994 of $906,000 was due to a troubled subsidiary (now disposed of) and increased working capital needed because of significant shipments transacted late in the fourth quarter.
Working capital available to finance current operations increased 16% compared to 1995. Cash and marketable securities as of December 31, 1996 increased $1,597,000 over 1995. The time taken to collect sales decreased 16%. The prior year's current assets, net of current liabilities increased 3% compared to 1994.
In 1996, the United States subsidiary entered into a new revolving credit facility agreement which provides a line of credit up to $13,000,000, including letters of credit. The interest rate at which the Company can borrow ranges from prime to prime less 1.5 percent. The agreement allows the Company at anytime to convert borrowings greater than $2,000,000 and up to $9,000,000 into a two year term loan. In 1995, the United Kingdom operation entered into a new credit facility agreement which provides a line of credit of approximately $1,129,000 (pounds sterling exchange rate assumed, $1.71) for working capital, letters of credit and long term borrowing needs.
At December 31, 1996 the U.S. operation had an unused bank line of credit available of $10,955,000. The U.K. operation had an unused line of credit available of $686,000.
Management expects that cash flow from operations and lines of credit will provide sufficient resources to fund the 1996 cash requirements. Capital spending in 1997 is expected to be about 15% to 25% greater than 1996 with the majority of the investments being directed toward machinery and computers.
CONTINGENCIES
Increases in material and labor costs experienced in recent years have been offset by cost cutting measures and selling price increases. Obtaining price increases are largely a factor of supply and demand for Graham's products, whereas inflation factors can originate from influences outside of the Company's direct global competition. Graham will continue to monitor the impact of inflation in order to minimize its effects in future years through
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sales growth, pricing, product mix strategies, productivity improvements, and cost reductions.
Management's strategy for managing risks associated with interest rate fluctuations is to hold interest bearing debt to the absolute minimum and carefully assess the risks and rewards for incurring long term debt.
The Company enters into forward foreign exchange agreements to hedge its exposure against unfavorable changes in foreign currency values on applicable significant sales contracts. Graham uses derivatives for no other reason.
Decreased contribution margins, suffered as a result of U.S. and U.K. strengthening currencies as compared to other global competitors, is a potential threat. The Company will continue to explore the need for world sourcing of raw materials and, in limited and special circumstances, fabricating overseas.
The Company's U.S. operations are governed by federal environmental laws, principally the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), the Clean Air Act, and the Clean Water Act, as well as state counterparts ("Environmental Laws"). Environmental Laws require that certain parties fund remedial actions regardless of fault, legality or original disposal or ownership of the site. The Company is currently participating in an environmental assessment at one site under these laws. Future remediation expenses at this site are subject to a number of uncertainties, including the method and extent of remediation (dependent, in part, on existing laws and technology), the percentage and type of material attributable to the Company, the financial viability of site owners and the other parties, and the availability of state and federal funds. See Notes to Consolidated Financial Statements No. 13 for further information.
NEW ORDERS AND BACKLOG
Consolidated new orders in 1996 were $55,041,000 compared to $52,319,000 in 1995 and $49,527,000 in 1994. In 1996, Graham Manufacturing's bookings were $50,008,000, up from $48,358,000 in 1995 and $43,991,000 in 1994. New orders for export from the U.S. operation equalled about 46% of the total new orders. This is compared to 50% of the orders received in 1995 and about 46% in 1994. The increase in new orders in 1996 over 1995 was largely realized in surface condensers while ejector orders decreased 10%. In 1995 surface condenser orders dropped 5% as compared to 1994 whereas ejector orders climbed 30%. Orders received in the U.K. operation in 1996 were $5,033,000. This is compared to $3,961,000 in 1995 and $5,536,000 in 1994. New orders in 1996 for United Kingdom customer pump packages accounted for the increase in new orders over 1995. New orders for exports fell, in part, due to the strengthening of the pound sterling relative to other world currencies. Orders in 1995 decreased relative to 1994 due to fewer orders for offshore pumps.
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The consolidated backlog as of December 31, 1996 was $25,578,000, up about 17% over 1995 and about 35% over 1994. The consolidated backlog as of December 31, 1995 was $21,837,000 and $18,997,000 on December 31, 1994. Graham Manufacturing Co., Inc.'s backlog equalled $24,514,000 for the current period as compared to $21,136,000 and $18,127,000 for 1995 and 1994, respectively. Graham Precision Pumps Limited's backlog was $1,064,000 as of December 31, 1996 and $701,000 in 1995 and $870,000 in 1994. The backlog at December 31, 1996 will be substantially shipped in 1997 and represents orders from traditional markets in Graham's established product lines.
ACCOUNTING CHANGES AND CHANGE IN FISCAL YEAR
The Company reviewed Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation and decided not to change its historical practice of accounting for stock options in accordance with APB No. 25. See Notes to Consolidated Financial Statements No. 11 for additional information. The essential assumption underlying probability-based models is that the price of the underlying stock behaves in such a way that possible future prices can be modeled by a probability distribution. Such assumptions do not wholly take into account changes in management, company culture, subsidiary structures, changing markets, products, or technology that impact future earnings and share values.
In 1995, the Company adopted Statement of Financial Accounting Standard No. 107, Disclosure About Fair Value of Financial Instruments. See Notes to Consolidated Financial Statements No. 8 for additional information.
Graham Corporation's accounting year will be April 1 to March 31, commencing April 1, 1997. The adoption of a natural business year will provide numerous operating advantages to Graham.
FORWARD LOOKING
The Company enters 1997 with a healthy consolidated backlog, a strong consolidated balance sheet and a low risk longer range growth strategy which concentrates on maximizing opportunities in its core businesses. Many of the industries Graham serves worldwide are in business segments which are strong and actively investing for their futures. Although the outlook could change as a result of unforeseen events, the outlook for 1997 and beyond appears bright, not withstanding periods of economic downturns along the way. It is anticipated that the year ending March 31, 1998 will be a successful one for the Corporation and the third consecutive year of growth in shareholders' value.
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ITEM 8.
ITEM 8. Financial Statements and Supplementary Data
(Financial Statements, Notes to Financial Statements, Quarterly Financial Data)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
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CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
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Consolidated Statements of Changes in Shareholders' Equity
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
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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.
Certain amounts in prior periods have been reclassified to conform to the current presentation.
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.
MARKETABLE SECURITIES
Marketable securities consist primarily of fixed-income debt
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securities with maturities of beyond three months and less than twelve months. All marketable securities are classified as held- to-maturity under the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115) as the Company has the positive intent and ability to hold the securities to maturity. In accordance with SFAS 115, the securities are stated at amortized cost.
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.
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.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," (SFAS 123) encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," (APB 25) and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. Compensation cost for share equivalent units is recorded based on the quoted market price of the Company's stock at the end of the period.
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.
STOCK SPLIT
On July 25, 1996, the Board of Directors authorized a three-for-two stock split distributed on August 23, 1996 to shareholders of record at the close of business on August 9, 1996. The Company distributed cash in lieu of fractional shares resulting from the stock split. The Company's par value of $.10 per share remained unchanged and as a result $53,000 was transferred from capital in excess of par value to common stock. All per share amounts have been restated to reflect the stock split.
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 $384,000 in 1996, $631,000 in 1995, and $500,000 in 1994. In addition, actual income taxes paid were $1,084,000 in 1996, $246,000 in 1995, and $39,000 in 1994.
During 1996, the Company recorded a liability for new capital lease agreements of $134,000. Bonus amounts payable to 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, respectively.
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Note 2 - Discontinued Operations:
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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.
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. The remaining accrued liabilities for this disposal totalled $392,000 at December 31, 1996.
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.
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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 $375,000, $277,000, and $298,000 in 1996, 1995 and 1994, respectively.
The breakdown of total United States export sales by geographic area was:
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Note 4 - Inventories:
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Major classifications of inventories are as follows:
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Note 5 - Property, Plant and Equipment:
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Major classifications of property, plant and equipment are as follows:
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Note 6 - Leases:
- --------------------------------------------------------------------------------
The Company leases equipment and office space under various operating leases. Rent expense applicable to operating leases was $148,000, $184,000 and $180,000 for years 1996, 1995 and 1994, respectively.
Property, plant and equipment include the following amounts for leases which have been capitalized.
Amortization of property, plant and equipment under capital lease amounted to $59,000, $98,000 and $72,000 for years 1996, 1995 and 1994, respectively, and is included in depreciation expense.
As of December 31, 1996, future minimum payments required under non-cancelable leases are:
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Note 7 - Debt:
- --------------------------------------------------------------------------------
Short-Term Debt Due Banks - -------------------------
The Company and its subsidiaries had short-term borrowings outstanding as follows:
The United Kingdom subsidiary has a revolving credit facility agreement which provides a line of credit of 660,000 pounds sterling ($1,129,000 at the December 31, 1996 exchange rate) including letters of credit and long-term borrowings. The interest rate is the bank's rate plus 1 1/2%. The bank's base rate was 6% and 6 1/2% at December 31, 1996 and 1995, respectively. The United Kingdom operations had available unused lines of credit of $686,000 at December 31, 1996. The weighted average interest rate on short-term borrowings at December 31, 1996 and 1995 was 0% and 8%, respectively.
Long-term Debt - --------------
The Company and its subsidiaries had long-term borrowings outstanding as follows:
In October 1996, the United States subsidiary entered into a new revolving credit facility agreement which provides a line of credit of up to $13,000,000, including letters of credit, through October 31, 1999. The agreement allows the Company to borrow at prime minus a variable percentage based upon certain financial ratios. At December 31, 1996 the Company was able to borrow at a rate of prime minus 75 basis points. Prior to the commencement of the new agreement, the Company was borrowing at prime plus 1% in 1996 and prime plus 1/2% in 1995.
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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 1999, 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 $0 and $2,282,000 outstanding on its revolving credit facility, excluding letters of credit, at December 31, 1996 and 1995, 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. The bank's prime rate was 8.25% and 8.5% at December 31, 1996 and 1995, respectively. The United States subsidiary had available unused lines of credit of $10,955,000 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.
Long-term debt requirements over the next five years, excluding capital leases, are: 1997 - $295,000, 1998 - $303,000, 1999 - $313,000, 2000 - $177,000 and 2001 - $0.
The Company is required to pay commitment fees of 1/4% 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 $22,898,000 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 $637,000.
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 $500,000 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, 1996.
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Note 8 - Financial Instruments and Derivative Financial Instruments:
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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, 1996 and 1995, 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, 1996 and 1995, the Company was contingently liable on outstanding standby letters of credit aggregating $2,076,000 and $2,127,000, 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.
There were no foreign exchange forward contracts held by the Company at December 31, 1996. The table below summarizes the notional amounts of the foreign exchange forward contracts held by the Company at December 31, 1995. The amounts represent the U.S. dollar equivalent of commitments to sell foreign currencies.
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The Company entered into these foreign exchange forward contracts to hedge a sales commitment denominated in the currency of the sales contract. The term of the derivatives is less than one year.
At December 31, 1996 and 1995, the Company had deferred unrealized gains and (losses) of $0 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 marketable securities and short- and long-term debt are insignificant.
The methods and assumptions used to estimate the fair value of financial instruments are summarized as follows:
MARKETABLE SECURITIES - The fair value of investments in marketable securities is based on quoted market prices.
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 $842,000 and $114,000 of obligations under capital leases at December 31, 1996 and 1995, 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.
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Note 9 - Income Taxes:
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An analysis of the components of pre-tax income from continuing operations is presented below:
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:
Page 33 of 61 The deferred income tax asset (liability) recorded in the Consolidated Balance Sheet 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:
Deferred income taxes include the impact of foreign net operating loss carryforwards which may be carried forward indefinitely and investment tax credits which expire from 2000 to 2004. In accordance with the provisions of SFAS 109, a valuation allowance of $817,000 at December 31, 1996 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, 1996, such undistributed earnings totaled $1,301,000. It is not practicable to determine the amount of income taxes that would be payable upon the remittance of assets that represent those earnings.
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Note 10 - Employee Benefit Plans:
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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:
The service cost for 1996, 1995 and 1994 is net of employee contributions to the United Kingdom plan of $93,000, $49,000 and $22,000, respectively.
The actuarial assumptions are:
The funded status of the pension plans is presented below:
The current portion of the pension liability as of December 31, 1995 is included in the caption "Accrued Compensation" and the long-term portion is separately presented in the Consolidated Balance Sheets. As of December 31, 1996, the entire liability was long-term.
Assets of the United States plan consist primarily of equity securities at December 31, 1996 and 1995. At December 31, 1995, the plan assets included 70,425 shares of the Company's common stock. 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.
In 1996, the Company adopted a Supplemental Executive Retirement Plan for certain key executives. This unfunded plan provides retirement benefits associated with wages in excess of the legislated qualified plan maximums. Pension expense recorded in 1996 related to this plan was $39,000. At December 31, 1996, the related liability was $39,000 and is included in the caption "Deferred Pension Liability" in the Consolidated Balance Sheet.
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 $651,000, $320,000 and $0 in 1996, 1995 and 1994, 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 $0, $4,000 and $13,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
The Company has a deferred compensation plan that allows certain key employees to defer a portion of their compensation. The principal and interest earned on the deferred balances are payable upon retirement. The deferred compensation liability under this plan was $1,104,000 and $1,089,000 at December 31, 1996 and 1995, respectively.
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Employee Stock Ownership Plan - -----------------------------
The Company has 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 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 1996, 1995, and 1994 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, 1996, 1995 and 1994. The ESOP received no dividends on unallocated shares in 1996, 1995 and 1994. Interest expense in the amount of $72,000, $97,000, and $96,000 was incurred in 1996, 1995 and 1994, 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. The Company recognizes the cost of these benefits on the accrual basis as employees render service to earn the benefits. 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.
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The components of postretirement benefit cost are:
The assumptions used to develop the accrued postretirement benefit obligation were:
The medical care cost trend rate used in the actuarial computation ultimately reduces to 5% in 2004 and subsequent years. This was accomplished using 1/2% decrements for the years 1997 through 2004.
The table of actuarially computed benefit obligations is presented below:
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.
Postemployment Benefits - -----------------------
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.
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Note 11 - Stock Compensation Plans:
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The 1995 Graham Corporation Incentive Plan to Increase Shareholder Value provides for the issuance of up to 192,000 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.
The 1989 Stock Option and Appreciation Rights Plan provides for the issuance of up to 188,700 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.
In 1996 the Company adopted a Long-Term Incentive Plan which provides for awards of share equivalent units for outside directors based upon the Company's performance. Each unit is equivalent to one share of the Company's common stock. Share equivalent units are payable in cash or stock upon retirement. In 1996, $40,000 was charged to pre-tax income for the cost of performance units earned under this Plan.
The Company applies APB 25 and related Interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock option plans. Had compensation cost for the Company's two stock option plans been determined based on the fair value at the grant date for awards under those plans in accordance with the optional methodology prescribed under SFAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
The weighted average fair value of the options granted during 1996 and 1995 is estimated as $4.62, and $3.59, respectively, using the Black Scholes option pricing model with the following weighted average assumptions:
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Information on options and rights under the Company's plans is as follows:
At December 31, 1996, the options outstanding had a weighted average remaining contractual life of 5.97 years. There were 171,340 options exercisable at December 31, 1996 which had a weighted average exercise price of $10.60. 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 2006. The number of options available for future grants were 178,050 at December 31, 1996 and 184,950 at December 31, 1995.
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Note 12 - Shareholder Rights Plan:
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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 $46.67 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.
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.
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Note 13 - Contingencies:
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The United States Environmental Protection Agency has notified the Company's wholly-owned subsidiary, Graham Manufacturing Co., Inc. ("GMC"), that it is a Potentially Responsible Party pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, as amended, in connection with the Batavia Landfill Site in the Town of Batavia, New York. Total remediation expenses for the site are currently estimated at $10.4 million. Based on facts and circumstances currently known to GMC and the Company, GMC's contribution to the site of material deemed hazardous was minor. In 1996, the Company recorded a $260,000 provision for the estimated costs, including legal costs, in connection with this matter based on the currently available information and assuming a reasonable pro-rata allocation. The related liability at December 31, 1996 was $257,000 and is included in the caption "Other Long- Term Liabilities" in the Consolidated Balance Sheet.
Following an adverse jury verdict relating to a lawsuit filed against GMC in 1992, 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.
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Quarterly Financial Data:
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A capsule summary of the Company's unaudited quarterly sales and earnings per share data for 1996 and 1995 is presented below:
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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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP Rochester, New York February 24, 1997
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Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting ------- ----------------------------------------------------------- and Financial Disclosure ------------------------
(Not Applicable)
PART III --------
Item 10.
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 6 of the Registrant's Proxy Statement for its 1997 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.
Item 11.
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 1997 Annual Meeting of Stockholders, which statements are hereby incorporated herein by reference.)
Item 12.
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 1997 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 6 and "Executive Officers" on page 7 of Registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders, which statements are hereby incorporated herein by reference.)
(c) Changes in Control (Not Applicable) ------------------
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Item 13.
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 6 of Registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders, which statements are hereby incorporated herein by reference.)
PART IV -------
Item 14.
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:
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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.
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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, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, and have issued our report thereon dated February 24, 1997; 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 24, 1997
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GRAHAM CORPORATION AND SUBSIDIARIES*
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
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GRAHAM CORPORATION AND SUBSIDIARIES*
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
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GRAHAM CORPORATION AND SUBSIDIARIES*
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
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GRAHAM CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
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(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
****10 1995 Graham Corporation Incentive Plan to Increase Shareholder Value
11 Statement regarding computation of per share earnings
21 Subsidiaries of the registrant
23 Consent of Experts and Counsel
27 Financial Data Schedule
- ---------------------------
* 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.
**** Incorporated herein by reference from the Registrant's Proxy Statement for its 1996 Annual Meeting of Shareholders.
***** Incorporated herein by reference from the Annual Report of Registrant on Form 10-K for the year ended December 31, 1995.
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(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.
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Cross Reference Sheet for Annual Report on Form 10-K for the year ended December 31, 1996, 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 1997 Annual Meeting of Stockholders where that information appears.
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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, 1997 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.
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================================================================================
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, 1996
-----------------------------------
GRAHAM CORPORATION
================================================================================
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GRAHAM CORPORATION
FORM 10-K
DECEMBER 31, 1996
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