20 Florence Avenue
Graham recognizes the importance of engineering answers to users of our equipment. We are constantly striving to improve the manufacturing capabilities and engineering resources of our company to add value to and improve the efficiency of your customer's process.
Graham Corporation is a Batavia, New York-based, publicly traded, maker of vacuum and heat transfer equipment, with operations in both the United States and the United Kingdom. The U.S. segment designs and manufactures steam jet ejector vacuum systems, surface condensers for steam turbines, liquid ring vacuum pumps and compressors, dry pumps, and heat exchangers. Graham's engineers are able to package these components to create customized systems for customers in such industries as oil refining, chemical, petrochemical, metal refining, heating, ventilating, air conditioning, pharmaceuticals, power, processed food, pulp and paper, and shipbuilding. The company's wholly-owned U.K. subsidiary, Graham Vacuum & Heat Transfer Ltd., which in turn owns subsidiary Graham Precision Pumps Ltd., makes liquid ring vacuum pumps, rotary piston pumps, oil sealed rotary vane pumps, atmospheric air operated ejectors, condensers, seals, as well as complete vacuum pump systems. Applications include chemical, food, furnace, packaging, pharmaceutical, plastic and rubber, and printing and paper. Graham relies on company sales engineers and independent reps around the world to sell its products.
The foundation of Graham can be traced to 1936 when engineer Harold M. Graham created Graham Manufacturing Co., Inc. in New York State. In 1941, another engineer, Frederick D. Berkeley, joined forces with Graham. Both men had worked for Ross Heater Manufacturing Company and gained valuable experience in their area of expertise. Graham Manufacturing started out by designing steam ejector equipment and surface condensers and soon began manufacturing heaters in a plant located in Oswego, New York. In short order, new facilities were bought in Batavia, which became operational in 1942. As was the case for most American companies during this period, Graham played a part in the effort to fight World War II, concentrating almost exclusively on the manufacture of surface condensers and heat exchangers for shipboard applications. It was during the war that Harold Graham invented the Heliflow heat exchanger used for boiler sample cooling, a product still manufactured today and used in various applications.
After World War II ended in 1945, Graham was free to continue its efforts to develop commercial applications for its products and broaden its offerings. The company added a full range of shell and tube heat exchangers, surface condensers, barometric condensers, evaporators designed for power plants, vertical marine evaporators, deaerating feedwater heaters, steam jet ejectors, and steam vacuum refrigeration systems.
Harold Graham headed the company until his death in 1956, at which point Berkeley took over. Most notably, he expanded the company beyond its New York base, in 1957 forming a Canadian subsidiary to service, market, and later manufacture the company's products in Canada. However, Berkeley would only remain in charge until 1962, when he too passed away and was succeeded by his son, Frederick D. Berkeley III, who had joined the company in the early 1950s. He proved to be a strong and ambitious leader--while committed to keeping the company located in Batavia and remaining independent. He took the company public in 1968 but retained a controlling interest.
The younger Berkeley oversaw an extended period of expansion and diversification. In 1969 Graham established Gramex S.A., a Mexico City-based subsidiary to sell and service the company's products throughout Latin America. A year later, in September 1970, a United Kingdom subsidiary was formed, Graham Process Equipment Ltd. Moreover, in early 1972 Graham Export, Inc. was created to handle export sales from U.S. operations. Berkeley also grew the business through external means. In October 1971 Graham completed the purchase of a company located in Abercarn, Wales, Heat Transfer Limited, paying nearly $160,000 in cash and assuming more than $1 million in debt.
Berkeley launched another phase of aggressive growth in the early 1980s, but the attempt to digest two acquisitions in a single year proved too difficult. First, in August 1983 he formed Graham Corporation to serve as a holding company for the growing roster of subsidiaries, then in November of that year paid nearly $1.85 million in cash and notes for L&A Engineering & Equipment, Inc., a California food processing equipment company. Only a few weeks later, in December 1983, Graham added Therma Technology, Inc. at the cost of $650,000 in cash. Therma was a Tulsa, Oklahoma, company that served the oil and gas industries. In 1985 Therma would record sales on a par with Graham Manufacturing, but oil and gas encountered a prolonged slump that proved devastating for many companies involved in this sector. Although Graham began to lose money in fiscal 1984, it was still in expansion mode well into 1985. In July of that year the company paid $864,000 in cash for Hobal Engineering Ltd., a United Kingdom-based company that mostly made equipment for use in nuclear energy generation.
A downturn in petroleum and other processing industries, exacerbated by management problems at Hobal, led to a string of loses in the mid-1980s. Graham suffered net losses of $1.19 million in 1984, $4.18 million in 1985, and $1.19 in 1986. Management looked forward to a return to profitability in fiscal 1987. One attempt at diversification, the move into power--providing equipment for cogeneration and geothermal power plants--proved to be a lifesaver in some respects. Despite strong results from the Batavia operation, however, matters grew only worse for the company as a whole and the balance sheet showed another loss of more than $1 million, forcing drastic action. Therma, with the oil industry still far from recovering, had already been the first casualty, shuttered in the fall of 1986. Next, Hobal came under the gun. During its first six months of operation in 1985, the subsidiary had turned a profit, but then its primary customer, British Nuclear Fuel Ltd., tightened quality control procedures, and the Hobal's management team was simply unable to adapt to the sudden change. To make matters worse, Hobal booked more orders than the company could handle, resulting in late penalties and excessive levels of overtime pay. (Graham's other British subsidiary also booked an excessive number of orders, and together the two units lost a total of nearly $2 million for the year). In July 1988, Graham announced its intention to close down Hobal, but at the last minute a buyer surfaced and in October the business was sold at a price that Berkeley portrayed as a virtual giveaway, but management was happy to unload it and preserve the jobs. As a result, Graham also cut its debt by $3 million. Finally, in May 1989, Heat Transfer was cut loose, sold to Hoval Farrar, Ltd.
The measures adopted by management had the desired effect, so much so that in the second quarter of fiscal 1989, Graham recorded net income of $1.2 million, compared to a loss of $364,000 during the same period a year earlier. This surge caught the attention of Wall Street, which bid up the price of the company's stock by 100 percent in less than two weeks, increasing from $7 to $14. For the entire year Graham would earn $4.2 million, becoming the top stock on the American Stock Exchange in terms of growth in 1989. The stock price peaked in the fall of 1989 at $41, well above the company's previous historic high in the $16 range. A major reason for the dramatic spike in price, however, was related to the company's relatively small number of shares in circulation, because company insiders owned about 43 percent of the stock, with Berkeley himself owning 37 percent. Due to such a thin float the company was subject to a sudden collapse in price, should conditions suddenly change and, indeed, Graham's days as a Wall Street darling were brief. Once again, British operations were at the core of the problem. As had been the case in 1987, management overbooked orders, leading to delays that cost money. Instead of meeting projected earnings, the subsidiary produced an operating loss, and the price of Graham's stock steadily declined, so that by January 1991 it dipped below $12.
Challenges in the 1990s
During the early 1990s, Graham endured another difficult stretch. Management instituted cost-cutting measures and took other steps to improve profitability, but trimming staff was not one of the more readily available options. Because Graham's work force was highly skilled and costly to train, management was reluctant to sacrifice its investment in its people. But management did cut wages by 5 percent in 1993. Another step that could be taken was to unload L&A Engineering, which was sold off in February 1992. Since its acquisition in 1983, the subsidiary had only been profitable twice. Graham was forced to take a $1.3 million charge, but the company could now focus on its core markets, which now included the chemical, petrochemical, petroleum refining, and electric power generating industries.
Later in 1992 Graham was beset by yet another problem, this time in the form of litigation. A major customer, Mississippi-based Ingalls Shipbuilding, sued the company in November 1992, alleging that Graham breached the warranties on the condensers supplied to U.S. Navy Ships. According to Buffalo News, Graham maintained that "the troubles were caused because Ingalls subjected the condensers during testing to temperatures that were higher than both Ingalls' design limit and the maximum level Graham set for the equipment. When the condensers developed problems, Graham said it fixed them by modifying the design specifications." But addressing the prob- lem came at a cost, and as a result the company suffered a $3.5 million operating loss for fiscal 1992. To make matters worse, "Graham's bankers also imposed tighter restrictions on its credit facility, which had a lasting impact on the company"--and Ingalls still proceeded with its litigation. On trial in U.S. District Court in Mississippi, Graham, a New York company, felt it was at a decided disadvantage. When the case finally went to trial, a jury, in January 1995, ruled against Graham on the most significant of three counts, leading to $1.2 million judgment. Although management believed it had a stronger case than Ingalls, it opted to pay the money rather than risk an even greater judgment being rendered in a second trial. "You just can't win against a company that's many, many times bigger," Berkeley told Buffalo News, adding "A New York company can't go down and win in court in Mississippi ... We'd like to move on to a new chapter in Graham and forget Ingalls ever existed." The loss capped a highly disappoint year for Graham in fiscal 1994, when the company lost $8.4. In addition to the money paid to Ingalls, Graham also continued to be plagued by losses at its Graham Manufacturing Ltd. subsidiary in England, the poor health of which threatened the well-being of its profitable British sister company, Graham Precision Pumps Ltd. Faced with the choice of putting the business into receivership or making a quick sale, Graham opted for the later course, selling the operation in January 1995.
Distractions continued in 1995, this time by an attempt of the International Association of Bridge, Structural and Ornamental Iron Workers to organize 162 of the Batavia plant's 429 workers. A month before the union drive, management restored the 5 percent wage cut imposed in 1993, but did not threaten to relocate the business. In the end, a majority of the workers voted against the union. Although pleased by the results, management was still upset about the procedure, which because of the time lost to meetings with workers and workers discussing the vote among themselves adversely impacted productivity. This factor, coupled with extra legal fees and administrative costs, was key, in the opinion of management, to a quarterly loss of $137,000. But with its legal and labor problems in the past, the company was able to post $1.3 million in income from continuing operations for fiscal 1995. That number would more than double to $3.1 million in fiscal 1996.
The Late 1990s and Beyond
Diagnosed with cancer, Berkeley, aged 68, took the first step toward transferring power in July 1997 by naming 53-year-old Alvaro Cadena, a long-time Graham executive, to the presidency of the firm. Later in October 1997 Jerald D. Bidlack, president of a local firm, Griffin Automation Inc., was named vice-chairman. When Berkeley died in April 1998 Bidlack became chairman, and Cadena became chief executive officer and the primary architect of Graham's future. Cadena was born in Colombia and as the eldest of four sons was expected to one day take over the running of the family business, a prosperous distributorship for American Standard Cos. Inc. He came to the United States in 1965 to study engineering at New York University's Bronx campus. He first became involved with Graham in 1969 when he took a part-time job at the company's Long Island sales office. Liking the work, he took a full-time position and relegated his schools to night-time courses. He still intended to return to Colombia, but each time he was on the verge of moving he received a promotion and stayed. In 1975 he became manager of Latin American sales, which at least afforded him an opportunity to make periodic visits to family and friends at home. He later became manager of international sales, then vice-president of international sales. When he and his Colombian-born wife both became U.S. citizens in 1982, the thought of returning home to run the family business began to fade. Instead, he continued to climb the ranks at Graham, eventually becoming president and chief operating officer at the Batavia subsidiary.
As Graham embarked on a new phase in its history under the guidance of Cadena, it was a leaner operation, having shed all but two of its operating subsidiaries. Because the holding company structure no longer made sense, in January 1999 Graham Manufacturing Co., Inc. and parent company, Graham Corporation, merged, leaving a newly constituted Graham Corporation. The company closed the 1990s with some strong years, posting profits of $3.8 million in 1998 and $2.4 million in 1999. Business fell off because of a poor economy during the early years of the new century, but the company remained a profitable concern and well established and respected in its field.
Principal Subsidiaries: Graham Vacuum and Heat Transfer Ltd.; Graham Precision Pumps Ltd.
Principal Competitors: Dover Corporation; Haskel International, Inc.; Pfeiffer Vacuum Technology AG.