##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  ANNUAL REPORT
 PURSUANT TO SECTION 13 OR
    15(d)
 OF THE SECURITIES EXCHANGE ACT
    OF 1934
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the year ended
    March 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to          .   Commission file
    number 1-8462
  GRAHAM CORPORATION
 (Exact name of registrant as
    specified in its charter)
  DELAWARE

16-1194720(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)20 Florence Avenue, Batavia, New York

14020(Address of Principal Executive
    Offices)

(Zip Code)   Registrants telephone number, including area code
    585-343-2216
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of each class

Name of each exchange on which registeredCommon Stock (Par Value $.10)

American Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
  Title of ClassCommon Stock Purchase Rights   o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
      Documents
    Incorporated By Reference




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##### 





Table of
    Contents
    GRAHAM CORPORATION
    Annual Report on
    Form 10-K
    Year Ended March 31, 2008
  
  PagePART IItem 1





Business


1Item 1A





Risk Factors


5Item 1B





Unresolved Staff Comments


9Item 2





Properties


9Item 3





Legal Proceedings


10Item 4





Submission of Matters to a Vote of Security
    Holders


10PART IIItem 5





Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


10Item 6





Selected Financial Data


11Item 7





Managements Discussion and Analysis of
    Financial Condition and Results of Operations


12Item 7A





Quantitative and Qualitative Disclosures About
    Market Risk


21Item 8





Financial Statements and Supplementary Data


22Item 9





Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


50Item 9A





Controls and Procedures


50Item 9B





Other Information


50PART IIIItem 10





Directors, Executive Officers and Corporate
    Governance


51Item 11





Executive Compensation


51Item 12





Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


51Item 13





Certain Relationships and Related Transactions,
    and Director Independence


51Item 14





Principal Accounting Fees and Services


52PART IVItem 15





Exhibits and Financial Statement Schedules


52EX-10.19EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1    Note:
    Portions of the registrants definitive proxy statement, to
    be issued in connection with the registrants 2008 Annual
    Meeting of Stockholders to be held on July 31, 2008, have
    been incorporated by reference into Part III,
    Items 10, 11, 12, 13 and 14 of this Annual Report on
    Form 10-K.




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##### Table of Contents



PART I



(Dollar amounts in thousands except per share data).  Item 1.
    Business.  ®
    
    petroleum refineries;
    chemical and petrochemical plants;
    fertilizer plants;
    power generation facilities, such as fossil fuel, nuclear,
    cogeneration and geothermal power plants;
    pharmaceutical plants;
    plastics plants;
    liquefied natural gas production facilities;
    soap manufacturing plants;
    air conditioning systems;
    food processing plants; and
    other process industries.    Our
    Fiscal 2008 Highlights
    
    Net income and income per diluted share for fiscal 2008, were
    $15,034 and $2.98 compared with net income of $5,761 and income
    per diluted share of $1.17 for fiscal year ended March 31,
    2007, which we refer to as fiscal 2007. Net income for fiscal
    2008 was a record high.
    Net sales for fiscal 2008 of $86,428 were up 31% compared with
    net sales of $65,822 for fiscal 2007. Fiscal 2008 net sales
    were a record high.
    Orders placed with us in fiscal 2008 of $107,102 were up 24%
    compared with fiscal 2007, when orders were $86,540. Orders
    received in fiscal 2008 were a record high.
    Backlog grew to $75,662 on March 31, 2008, representing a
    40% increase compared with March 31, 2007, when our backlog
    was $54,184. Backlog as of March 31, 2008 was a record high.
    Gross profit and operating margins for fiscal 2008 were 40% and
    24% compared with 26% and 9%, respectively, for the year ended
    March 31, 2007. Gross profit margin and operating margin
    percentages for fiscal 2008 were record highs. 1




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
    Cash and short-term investments at year-end fiscal 2008 were
    $36,793, compared with $15,051 as of March 31, 2007, up
    144%. Cash and investments on hand at March 31, 2008 were a
    record high.    
    Global consumption of crude oil is estimated to expand
    significantly over the next decade.
    There is a shortage of global oil refining capacity, which is
    being addressed through refinery upgrades, revamps and
    expansions.
    Known supplies of sweet crude oil are being depleted. Sour crude
    sources are identified and believed to be plentiful.
    There is a differential in raw material prices for sweet and
    sour crude oil. To lower production costs, many refineries are
    upgrading facilities in order to be able to process sour crude
    oil, which requires an upgrade of vacuum and heat transfer
    equipment of the types we design and manufacture.
    Expanding middle class in Asia is driving increasing demand for
    power, refinery and petrochemical products.
    The high cost of natural gas in North America and Europe is
    leading to the construction of new petrochemical plants in the
    Middle East, where natural gas is plentiful and less expensive.
    There is an increased need in certain regions for geothermal
    electrical power plants to meet increased electricity demand.
    Refineries in the United States are being upgraded to process
    synthetic crude oil from the Alberta oil sands region of Canada.  Our
    Customers and Markets
        Form 10-K.
  Our
    Strengths
    
    We have strong brand recognition. Over the past 72 years,
    we believe that we have built a reputation for top quality,
    reliable products and high standards of customer service. We
    have also established a large installed 2




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application base. As a result, the Graham name is well known not
    only by our existing customers, but also by many of our
    potential customers. We believe that such recognition of the
    Graham brand allows us to capitalize on market opportunities in
    both existing and potential markets.  
    We engineer and manufacture high quality products and systems
    that address the particular needs of our customers. With over
    72 years of engineering expertise, we believe that we are
    well respected for our knowledge in vacuum and heat transfer
    technologies. We maintain strict quality control and
    manufacturing standards in order to manufacture products of the
    highest quality.
    We have a global presence. Our products are used worldwide, and
    we have sales representatives located in major cities throughout
    the world.
    We believe that we have a solid reputation and strong
    relationships with our existing customer base, as well as with
    our key suppliers.
    We have a strong balance sheet with significant cash and
    investments, and minimal debt. We have a high quality credit
    facility, which allows for a $30,000 borrowing capacity.  Our
    Strategy
    
    Capitalize on the strength of the Graham brand in order to win
    more business in our traditional markets and enter other markets.
    Continue to invest in engineering resources and technology in
    order to advance our vacuum and heat transfer technology market
    penetration.
    Invest resources to meet the growing demand for our products in
    the oil refining, petrochemical processing and power generating
    industries, especially in emerging markets. Specifically, we
    intend to establish sales, engineering and manufacturing
    capabilities in Asia where we believe estimates of demand for
    oil and oil by-products will continue to increase.
    Delivering products and solutions that enable our customers to
    achieve their operating objectives.
    Provide products and services to our customers that
    differentiate us from our competitors, and which allows us to
    win new orders based on value.
    Expand our margins by implementing and expanding upon our
    operational efficiencies through a flexible manufacturing flow
    model and other cost efficiencies.
    Enhance our engineering and manufacturing capacities, especially
    in connection with the design of our products, in order to be
    able to more quickly respond to existing and future customer
    demands.
    Accelerate our bids on available contracts by implementing
    front-end bid automation and design processes.
    Expand our global sales presence in order to further broaden our
    existing markets and reach additional markets.
    Examine acquisition and organic growth opportunities to expand
    and complement our core business, including opportunities to
    extend our existing product lines and opportunities to move into
    complementary product lines. 3




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Competition
    NORTH
    AMERICA
  Market

CompetitorsRefining vacuum distillation

Gardner DenverChemicals/Petrochemicals

Croll Reynolds; Schutte Koerting; Gardner DenverTurbomachinery Original Equipment Manufacturer
    (OEM)  refining, petrochemical

Ambassador; Yuba; KreugerTurbomachinery OEM  power and power producer

Holtec; Babcock; Thermal Engineering; Yuba; KreugerHVAC

Alfa Laval; APV; ITT; Ambassador   INTERNATIONAL
  Market

CompetitorsRefining vacuum distillation

Gardner Denver; GEA Jet Pump; Korting Hannover; EdwardsChemicals/Petrochemicals

Croll Reynolds; Schutte Koerting; Gardner Denver; GEA Jet Pump;
    Korting Hannover; EdwardsTurbomachinery OEM  refining, petrochemical

Donghwa-Entec; Bumwoo; Oiltechnik; Kreuger; various local
    fabricatorsTurbomachinery OEM  power and power producer

Holtec; Babcock; Thermal Engineering; Yuba; Kreuger   Intellectual
    Property
    Availability
    of Raw Materials
    Working
    Capital Practices
    Environmental
    Matters
    Seasonality
   4




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Research
    Activities
    Information
    Regarding Our International Sales
    Form 10-K
  Available
    Information
    Form 10-K, Form 10-Q, Form 8-K
  Item 1A.
    Risk
    Factors  Our business and operations are subject to numerous risks,
    many of which are described below and elsewhere in this Annual
    Report on
    Form 10-K.
    If any of the events or risks described below occur or
    materialize, our business and results of operations could be
    seriously harmed.
  Risks
    related to our business
  The
    industries in which we operate are cyclical, and downturns in
    such industries may adversely affect our operating
    results.
    Our
    international sales operations are subject to uncertainties that
    could harm our business.
   5




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
    difficulty enforcing agreements through some foreign legal
    systems;
    general economic and political conditions in the countries where
    we sell our products may have an adverse effect on our sales in
    those countries;
    foreign governments may adopt regulations or take other actions
    that could directly or indirectly harm our business and growth
    strategy; and
    it may be difficult to enforce intellectual property rights in
    some foreign countries.    We are
    subject to foreign currency fluctuations which may adversely
    affect our operating results.
    If we
    fail to introduce enhancements to our existing products or to
    keep abreast of technological changes in our markets, our
    business and results of operations could be adversely
    affected.
    The
    loss of any key management personnel and our inability to
    replace them with qualified management personnel could harm our
    business.
    Our
    business is highly competitive. If we are unable to successfully
    implement our business strategy, we risk losing market share to
    current and future competitors.
   6




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If we
    are unable to make necessary capital investments or respond to
    pricing pressures, our business may be harmed.
    If
    third parties infringe our intellectual property or if we were
    to infringe the intellectual property of third parties, we may
    expend significant resources enforcing or defending our rights
    or suffer competitive injury.
      A
    decrease in supply or increase in cost of the materials used in
    our products could harm our profitability.
    If we
    are unable to effectively outsource a portion of our production
    during times when we are experiencing strong demand, our results
    of operations might be adversely affected. In addition,
    outsourcing may negatively affect our profit
    margins.
   7




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We
    face potential liability from asbestos exposure and similar
    claims.
    Risks
    related to operating a subsidiary in China
  The
    operations of our Chinese subsidiary may be adversely affected
    by Chinas evolving economic, political and social
    conditions.
    Intellectual
    property rights are difficult to enforce in China.
    Uncertainties
    with respect to the Chinese legal system may adversely affect
    the operations of our Chinese subsidiary.
    Risks
    related to the ownership of our common stock
  Provisions
    contained in our certificate of incorporation, bylaws and our
    stockholder rights plan could impair or delay stockholders
    ability to change our management and could discourage takeover
    transactions that our stockholders might consider to be in their
    best interests.
   8




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##### Table of Contents




    We could issue shares of preferred stock with terms
    adverse to our common stock.  Under our
    certificate of incorporation, our Board of Directors is
    authorized to issue shares of preferred stock and to determine
    the rights, preferences and privileges of such shares without
    obtaining any further approval from the holders of our common
    stock. We could issue shares of preferred stock with voting and
    conversion rights that adversely affect the voting power of the
    holders of our common stock, or that have the effect of delaying
    or preventing a change in control of our company.
    We maintain a stockholder rights, or poison
    pill, plan.  Our stockholder rights plan
    has the effect of discouraging any person or group that wishes
    to acquire 15% or more of our common stock from doing so without
    obtaining our agreement because such acquisition would cause
    such person or group to suffer substantial dilution. Such plan
    may have the effect of discouraging a change in control
    transaction that our stockholders would otherwise consider to be
    in their best interests.
    Only a minority of our directors may be elected in a given
    year.  Our bylaws provide for a classified
    Board of Directors, with only approximately one-third of our
    Board elected each year. This provision makes it more difficult
    to effect a change of control because at least two annual
    stockholder meetings are necessary to replace a majority of our
    directors.
    Our bylaws contain advance notice
    requirements.  Our bylaws also provide that
    any stockholder who wishes to bring business before an annual
    meeting of our stockholders or to nominate candidates for
    election as directors at an annual meeting of our stockholders
    must deliver advance notice of their proposals to us before the
    meeting. Such advance notice provisions may have the effect of
    making it more difficult to introduce business at stockholder
    meetings or nominate candidates for election as director.
    Our certificate of incorporation requires supermajority
    voting to approve a change of control
    transaction.  Seventy-five percent of our
    outstanding shares entitled to vote are required to approve any
    merger, consolidation, sale of all or substantially all of our
    assets and similar transactions if the other party to such
    transaction owns 5% or more of our shares entitled to vote. In
    addition, a majority of the shares entitled to vote not owned by
    such 5% or greater stockholder are also required to approve any
    such transaction.
    Amendments to our certificate of incorporation require
    supermajority voting.  Our certificate of
    incorporation contains provisions that make its amendment
    require the affirmative vote of both 75% of our outstanding
    shares entitled to vote and a majority of the shares entitled to
    vote not owned by any person who may hold 50% or more of our
    shares unless the proposed amendment was previously recommended
    to our stockholders by an affirmative vote of 75% of our Board.
    This provision makes it more difficult to implement a change to
    our certificate of incorporation that stockholders might
    otherwise consider to be in their best interests without
    approval of our Board.
    Amendments to our bylaws require supermajority
    voting.  Although our Board of Directors is
    permitted to amend our bylaws at any time, our stockholders may
    only amend our bylaws upon the affirmative vote of both 75% of
    our outstanding shares entitled to vote and a majority of the
    shares entitled to vote not owned by any person who owns 50% or
    more of our shares. This provision makes it more difficult for
    our stockholders to implement a change they may consider to be
    in their best interests without approval of our Board.  Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties   9




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Item 3.
    Legal
    Proceedings  Form 10-K
  Item 4.
    Submission
    of Matters to a Vote of Security Holders  Form 10-K.
 PART II    Item 5.
    Market
    For Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities      High


LowFiscal year 2008First quarter

$
22.80


$
12.60Second quarter


36.60



20.33Third quarter


60.96



31.64Fourth quarter


50.30



28.00Fiscal year 2007First quarter

$
18.40


$
14.01Second quarter


15.48



12.88Third quarter


14.20



10.04Fourth quarter


13.60



10.14      10




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Form 10-K.
  Item 6.
    Selected
    Financial Data  GRAHAM CORPORATION  EIGHT YEAR SUMMARY OF SELECTED
    FINANCIAL DATA2008


2007(1)


2006(1)


2005(1)(2)


2004(1)(2)(Amounts in thousands, except per share data)Operations:Net Sales

$
86,428


$
65,822


$
55,208


$
41,333


$
37,508Gross Profit


34,162



16,819



15,959



7,540



5,890Gross Profit Percentage


40
%


26
%


29
%


18
%


16
%Income (Loss) From Continuing Operations


15,034



5,761



3,586



296



(832
)Dividends


493



387



367



334



327Common stock:Basic Earnings (Loss) From Continuing Operations per Share

$
3.03


$
1.18


$
.79


$
.07


$
(.20
)Diluted Earnings (Loss) From Continuing Operations Per Share


2.98



1.17



.77



.07



(.20
)Stockholders Equity Per Share


9.73



6.31



5.66



3.91



4.37Dividend Declared Per Share


.10



.08



.08



.08



.08Market Price Range of Common StockHigh


60.96



18.40



20.80



7.12



4.68Low


12.60



10.04



6.62



4.28



2.82Average Common Shares Outstanding  Diluted


5,042



4,925



4,668



4,292



4,117Financial data at March 31:Cash and Cash Equivalents and Investments

$
36,793


$
15,051


$
10,988


$
2,717


$
5,763Working Capital


36,998



20,119



16,779



11,204



11,652Capital Expenditures


1,027



1,637



1,048



224



249Depreciation


862



874



775



768



793Total Assets


70,711



48,878



40,556



33,529



35,740Long-Term Debt, Including Capital Lease Obligations


36



56



30



44



93Stockholders Equity


48,536



30,654



27,107



16,578



18,102     (1)
    
    Per share data has been adjusted to reflect a five-for-four
    stock split declared on October 26, 2007.(2)
    
    Per share data has been adjusted to reflect a two-for-one stock
    split declared on July 28, 2005. 11




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Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Overview
    
    Net income and income per diluted share for fiscal 2008, were
    $15,034 and $2.98 compared with net income and income per
    diluted share of $5,761 and $1.17 for fiscal year ended
    March 31, 2007, which we refer to as fiscal 2007. Net
    income for fiscal 2008 was a record high.
    Net sales for fiscal 2008 of $86,428 were up 31% compared with
    $65,822 for fiscal 2007. Fiscal 2008 net sales were a
    record high.
    Orders placed with us in fiscal 2008 of $107,102 were up 24%
    compared with fiscal 2007, when orders were $86,540. Orders
    received in fiscal 2008 were a record high.
    Backlog grew to $75,662 on March 31, 2008, representing a
    40% increase compared with March 31, 2007, when our backlog
    was $54,184. Backlog as of March 31, 2008 was a record high.
    Gross profit and operating margins for fiscal 2008 were 40% and
    24% compared with 26% and 9%, respectively, for the year ended
    March 31, 2007. Gross profit margin and operating margin
    percentages for fiscal 2008 were record highs.
    Cash and short-term investments at year-end fiscal 2008 were
    $36,793, compared with $15,051 as of March 31, 2007, up
    144%. Cash and investments on hand at March 31, 2008 were a
    record high.        
    Global consumption of crude oil is estimated to expand
    significantly over the next decade.
    There is a shortage of global oil refining capacity, which is
    being addressed through refinery upgrades, revamps and
    expansions.
    Known supplies of sweet crude oil are being depleted. Sour crude
    sources are identified and believed to be plentiful.
    There is a differential in raw material prices for sweet and
    sour crude oil. To lower production costs, many refineries are
    upgrading facilities in order to be able to process sour crude
    oil, which requires an upgrade of vacuum and heat transfer
    equipment of the types we design and manufacture.
    Expanding middle class in Asia is driving increasing demand for
    power, refinery and petrochemical products.
    The high cost of natural gas in North America and Europe is
    leading to the construction of new petrochemical plants in the
    Middle East, where natural gas is plentiful and less expensive. 12




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
    There is an increased need in certain regions for geothermal
    electrical power plants to meet increased electricity demand.
    Refineries in the United States are being upgraded to process
    synthetic crude oil from the Alberta oil sands region of Canada.    Forward
    Looking Statements
  Form 10-K
  Form 10-K.
  
    the current and future economic environments affecting us and
    the markets we serve;
    sources of revenue and anticipated revenue, including the
    contribution from the growth of new products, services and
    markets;
    plans for future products and services and for enhancements to
    existing products and services;
    estimates regarding our liquidity and capital requirements;
    our ability to attract or retain customers;
    the outcome of any existing or future litigation; and
    our ability to increase our productivity and capacity.     13




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Results
    of Operations
  Form 10-K.
    Year Ended March 31,2008


2007


2006Net sales

$
86,428


$
65,822


$
55,208Net income

$
15,034


$
5,761


$
3,586Diluted income per share

$
2.98


$
1.17


$
0.77Identifiable assets

$
70,711


$
48,878


$
40,556   Fiscal
    2008 Compared with Fiscal 2007
  Ninety-two
             14




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Fiscal
    2007 Compared with Fiscal 2006
  Fifty-two
                Stockholders
    Equity
    Fiscal 2008

Fiscal 2007

Fiscal 2006$
48,536


$
30,654


$
27,107  15




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Fiscal
    2008 Compared with Fiscal 2007
      Fiscal
    2007 Compared with Fiscal 2006
  Employers Accounting for
    Defined Benefit Pension and Other Postretirement Plans and/or
  Liquidity
    and Capital Resources
    March 31,2008


2007Working capital

$
36,998


$
20,119Working capital ratio(1)


2.8



2.2Long-term debt (capital leases)

$
36


$
56Long-term debt/capitalization(2)


0.0
%


0.2
%Long-term liabilities/capitalization(3)


3.7
%


5.2
%     1)
    
    Working capital ratio equals current assets divided by current
    liabilities.2)
    
    Long-term debt/capitalization equals long-term debt divided by
    stockholders equity plus long-term debt.3)
    
    Long-term liabilities/capitalization equals total liabilities
    minus current liabilities divided by stockholders equity
    plus long-term debt. 16




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Payments Due by PeriodLess Than


1 − 3


3 − 5Total


1 Year


Years


Years


ThereafterCapital lease obligations

$
63


$
24


$
39


$



$
Operating leases(1)


388



126



166



96



Pension and postretirement benefits(2)


3,629



3,629











Accrued compensation


303



71











232Accrued pension liability


271







271







Total

$
4,654


$
3,850


$
476


$
96


$
232     1)
    
    For additional information, see Note 5 to the consolidated
    financial statements.2)
    
    Amounts represent anticipated contributions during fiscal 2009
    to our defined benefit pension plan and postretirement medical
    benefit plan, which provides healthcare benefits for eligible
    retirees and eligible survivors of retirees. On February 4,
    2003, we terminated postretirement healthcare benefits for our
    U.S. employees. Benefits payable to retirees of record on
    April 1, 2003 remained unchanged for fiscal 2009. We expect
    to be required to make cash contributions in connection with
    these plans beyond one year, but such amounts cannot be
    estimated. The contribution to our defined benefit pension plan
    for fiscal 2009 is estimated to be $3,500.  Fiscal
    2008 Compared with Fiscal 2007
           17




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Orders
    and Backlog
        Contingencies
    and Commitments
   18




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Critical
    Accounting Policies
  Form 10-K,
    Revenue Recognition.
    Pension and Postretirement Benefits.
  Income Taxes.
    Critical
    Accounting Estimates and Judgments
  Form 10-K
 19




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Form 10-K.
            Form 10-K
  New
    Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes
  Fair
    Value Measurements
 20




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Employers Accounting for
    Defined Benefit Pension and Other Postretirement Plans
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities
  Disclosures about Derivative Instruments and Hedging
    Activities Accounting for Derivative Instruments
    and Hedging Activities
  Off
    Balance Sheet Arrangements
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk      Foreign
    Currency
     21




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##### 



Item 8.
    Financial
    Statements and Supplementary Data  INDEX TO
    FINANCIAL STATEMENTS
   
 Graham Corporation

PageConsolidated Financial Statements:Consolidated Statements of Operations for the
    years ended March 31, 2008, 2007 and 2006


23Consolidated Balance Sheets as of March 31,
    2008 and 2007


24Consolidated Statements of Cash Flows for the
    years ended March 31, 2008, 2007 and 2006


25Consolidated Statements of Changes in
    Stockholders Equity for the years ended March 31,
    2008, 2007 and 2006


26Notes to Consolidated Financial Statements


27Reports of Independent Registered Public
    Accounting Firm


48   22




---



##### Table of Contents



(References
    to years represent years ended March 31, 2008, 2007 and
    2006)
  CONSOLIDATED
    STATEMENTS OF OPERATIONS  Year Ended March 31,2008


2007


2006(Amounts in thousands,except per share data)Net sales

$
86,428


$
65,822


$
55,208Cost of products sold


52,266



49,003



39,249Gross profit


34,162



16,819



15,959Other expenses and income:Selling, general and administrative


13,074



10,806



10,505Interest income


(1,026
)


(516
)


(316
)Interest expense


10



10



17Total other expenses and income


12,058



10,300



10,206Income before income taxes


22,104



6,519



5,753Provision for income taxes


7,070



758



2,167Net income

$
15,034


$
5,761


$
3,586Per Share DataBasic:Net income

$
3.03


$
1.18


$
.79Diluted:Net income

$
2.98


$
1.17


$
.77Average common shares outstanding:Basic


4,956



4,867



4,567Diluted


5,042



4,925



4,668Dividends declared per share

$
.10


$
.08


$
.08    23




---



##### Table of Contents



CONSOLIDATED
    BALANCE SHEETS  March 31,2008


2007(Amounts in thousands, except per share data)AssetsCurrent assets:Cash and cash equivalents

$
2,112


$
1,375Investments


34,681



13,676Trade accounts receivable, net of allowances ($41 and $48 in
    fiscal 2008 and fiscal 2007, respectively)


5,052



11,859Unbilled revenue


8,763



4,793Inventories


4,797



4,682Domestic and foreign income taxes receivable


1,502



145Prepaid expenses and other current assets


463



209Total current assets


57,370



36,739Property, plant and equipment, net


9,060



8,780Deferred income tax asset


70



2,901Prepaid pension asset


4,186



445Other assets


25



13Total assets

$
70,711


$
48,878Liabilities and stockholders equityCurrent liabilities:Current portion of capital lease obligations

$
20


$
37Accounts payable


5,461



5,143Accrued compensation


4,517



3,205Accrued expenses and other liabilities


2,114



2,048Customer deposits


5,985



6,100Deferred income tax liability


2,275



87Total current liabilities


20,372



16,620Capital lease obligations


36



56Accrued compensation


232



263Deferred income tax liability


315



Other long-term liabilities






58Accrued pension liability


271



251Accrued postretirement benefits


949



976Total liabilities


22,175



18,224Commitments and contingencies (Note 14)Stockholders equity:Preferred stock, $1 par value Authorized, 500 sharesCommon stock, $.10 par value Authorized, 6,000 sharesIssued, 4,991 and 4,859 shares in 2008 and 2007,
    respectively


499



389Capital in excess of par value


12,674



10,008Retained earnings


37,216



22,675Accumulated other comprehensive loss


(1,820
)


(2,367
)Treasury stock (1 share in 2008)


(22
)


Notes receivable from officers and directors


(11
)


(51
)Total stockholders equity


48,536



30,654Total liabilities and stockholders equity

$
70,711


$
48,878    24




---



##### Table of Contents



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended March 31,2008


2007


2006(Dollar amounts in thousands)Operating activities:Net income

$
15,034


$
5,761


$
3,586Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


989



887



793Discount accretion on investments


(904
)


(458
)


(265
)Stock-based compensation expense


187



84



Loss (gain) on disposal or sale of property, plant and equipment


3



(17
)


(6
)Deferred income taxes


4,342



646



2,150(Increase) decrease in operating assets:Accounts receivable


6,807



(5,882
)


4,048Unbilled revenue


(3,969
)


185



(1,358
)Inventories


(115
)


433



(45
)Domestic and foreign income taxes receivable


(634
)


(31
)


(70
)Prepaid expenses and other current and non-current assets


(250
)


(7
)


(104
)Prepaid pension asset


(3,045
)


(1,979
)


(3,076
)Increase (decrease) in operating liabilities:Accounts payable


159



1,007



761Accrued compensation, accrued expenses and other current and
    non-current liabilities


1,308



237



825Customer deposits


(127
)


4,547



258Long-term portion of accrued compensation, accrued pension
    liability and accrued postretirement benefits


(83
)


(220
)


(964
)Total adjustments


4,668



(568
)


2,947Net cash provided by operating activities


19,702



5,193



6,533Investing activities:Purchase of property, plant and equipment


(1,027
)


(1,637
)


(1,048
)Proceeds from disposal of property, plant and equipment


45



25



8Purchase of investments


(94,781
)


(33,300
)


(33,160
)Redemption of investments at maturity


74,680



30,500



25,000Net cash used by investing activities


(21,083
)


(4,412
)


(9,200
)Financing activities:Decrease in short-term debt, net










(1,872
)Principal repayments on long-term debt net of proceeds from
    issuance of long-term debt


(37
)


(52
)


(50
)Issuance of common stock


1,116



413



1,424Dividends paid


(493
)


(387
)


(452
)Sale of treasury stock










3,403Excess tax deduction on stock awards


1,473







Other


(17
)


42



61Net cash provided by financing activities


2,042



16



2,514Effect of exchange rate changes on cash


76



8



(1
)Net increase (decrease) in cash and cash equivalents


737



805



(154
)Cash and cash equivalents at beginning of year


1,375



570



724Cash and cash equivalents at end of year

$
2,112


$
1,375


$
570    25




---



##### Table of Contents



CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY  Accumulated





NotesCommon Stock


Capital in





Other





ReceivablePar


Excess of


Retained


Comprehensive


Treasury


from Officers


StockholdersShares


Value


Par Value


Earnings


Loss


Stock


and Directors


Equity(Dollar amounts in thousands)Balance at April 1, 2005


1,796,740


$
180


$
5,553


$
14,082


$
(1,698
)

$
(1,385
)

$
(154
)

$
16,578Net income














3,586















3,586Foreign currency translation adjustment


















(1
)










(1
)Minimum pension liability adjustment, net of income tax of $915


















1,698











1,698Total comprehensive income






























5,283Issuance of shares


136,645



13



1,411



















1,424Stock option tax benefit










725



















725Dividends














(367
)














(367
)Two-for-one stock split


1,899,005



190



(190
)


















Sale of treasury stock










2,018











1,385







3,403Collection of notes receivable from officers and directors


























61



61Balance at March 31, 2006


3,832,390



383



9,517



17,301



(1
)






(93
)


27,107Net income














5,761















5,761Foreign currency translation adjustment


















7











7Total comprehensive income






























5,768Adjustment to initially apply SFAS No. 158 for pension
    and other postretirement benefits, net of income tax of $1,335


















(2,373
)










(2,373
)Issuance of shares


55,100



6



407



















413Dividends














(387
)














(387
)Recognition of equity-based compensation expense










84



















84Collection of notes receivable from officers and directors


























42



42Balance at March 31, 2007


3,887,490



389



10,008



22,675



(2,367
)






(51
)


30,654Net income














15,034















15,034Foreign currency translation adjustment


















64











64Pension and other postretirement benefits adjustments, net of
    income tax of $271


















483











483Total comprehensive income






























15,581Issuance of shares


111,266



11



1,105



















1,116Stock award tax benefit










1,473



















1,473Dividends














(493
)














(493
)Five-for four stock split


992,189



99



(99
)


















Recognition of equity-based compensation expense










187



















187Purchase of treasury stock






















(22
)






(22
)Collection of notes receivable from officers and directors


























40



40Balance at March 31, 2008


4,990,945


$
499


$
12,674


$
37,216


$
(1,820
)

$
(22
)

$
(11
)

$
48,536    26




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS

for years ended March 31, 2008, 2007 and 2006,

which are referred to as fiscal 2008, fiscal 2007 and fiscal
    2006, respectively:    Note 1 
    The
    Company and Its Accounting Policies:    Principles
    of consolidation and use of estimates in the preparation of
    financial statements
      Translation
    of foreign currencies
    Revenue
    recognition
  Percentage-of-Completion
    Method
    Completed
    Contract Method
   27




---



##### Table of Contents



Shipping
    and handling fees and costs
    Investments
    Inventories
      2008


2007Costs incurred since inception on contracts in progress

$
14,817


$
11,135Estimated earnings since inception on contracts in progress


10,340



3,85925,157



14,994Less billings to date


25,561



20,353Net (over) under billings

$
(404
)

$
(5,359
)     2008


2007Unbilled revenue

$
8,763


$
4,793Progress payments reducing inventory (Note 2)


(3,182
)


(4,052
)Customer deposits


(5,985
)


(6,100
)Net (over) under billings

$
(404
)

$
(5,359
)   Property,
    plant, equipment and depreciation
   28




---



##### Table of Contents



Product
    warranties
    Research
    and development
    Income
    taxes
    Accounting for
    Uncertainty in Income Taxes
  Stock
    splits
   29




---



##### Table of Contents



Stock-based
    compensation
  Share-Based Payment Transition Election Related to
    Accounting for the Tax Effects of Share-Based Payment
    Awards Statement of Cash Flows
  Accounting for
    Stock-Based Compensation Accounting for Stock Issued to Employees
    Year EndedMarch 31, 2006Net incomeAs reported

$
3,586Stock-based employee compensation cost, net of related tax
    benefits


(224
)Pro forma net income

$
3,362Basic income per shareAs reported

$
.79Pro forma

$
.74Diluted income per shareAs reported

$
.77Pro forma

$
.72  30




---



##### Table of Contents



Income
    per share data
    Year Ended March 31,2008


2007


2006Basic income per share:Numerator:Net income

$
15,034


$
5,761


$
3,586Denominator:Weighted common shares outstanding


4,919



4,831



4,534Share equivalent units (SEUs) outstanding


37



36



33Weighted average shares and SEUs outstanding


4,956



4,867



4,567Basic income per share

$
3.03


$
1.18


$
.79Diluted income per share:Numerator:Net income

$
15,034


$
5,761


$
3,586Denominator:Weighted average shares and SEUs outstanding


4,956



4,867



4,567Stock options outstanding


86



58



99Contingently issuable SEUs










2Weighted average common and potential common shares outstanding


5,042



4,925



4,668Diluted income per share

$
2.98


$
1.17


$
.77     Cash flow
    statement
         31




---



##### Table of Contents



Accumulated
    other comprehensive income (loss)
    Accounting
    and Reporting Changes
  Fair Value Measurements
  Employers
    Accounting for Defined Benefit Pension and Other Postretirement
    Plans
  Before Application





After Application ofBalance Sheet Caption

of SFAS No. 158


Adjustments


SFAS No. 158Prepaid pension asset

$
5,056


$
(4,611
)

$
445Long-term deferred income tax asset

$
1,567


$
1,335


$
2,902Accrued postretirement benefits

$
(1,879
)

$
903


$
(976
)Accumulated other comprehensive loss (income)

$
(6
)

$
2,373


$
2,367   The
    Fair Value Option for Financial Assets and Financial
    Liabilities
  Disclosures about Derivative Instruments and Hedging
    Activities Accounting for Derivative Instruments
    and Hedging Activities
  Reclassifications
   32




---



##### Table of Contents



Note 2 
    Inventories:    March 31,2008


2007Raw materials and supplies

$
2,047


$
1,427Work in process


5,348



6,847Finished products


584



4607,979



8,734Less  progress payments


3,182



4,052$
4,797


$
4,682   Note 3 
    Property,
    Plant and Equipment:    March 31,2008


2007Land

$
210


$
210Buildings and improvements


10,575



10,560Machinery and equipment


16,924



15,458Construction in progress


399



85228,108



27,080Less  accumulated depreciation and amortization


19,048



18,300$
9,060


$
8,780     Note 4 
    Product
    Warranty Liability:    Year Ended March 31,2008


2007Balance at beginning of year

$
357


$
330Expense for product warranties


361



199Product warranty claims paid


(277
)


(172
)Balance at end of year

$
441


$
357   Note 5 
    Leases:      March 31,2008


2007Machinery and equipment

$
116


$
171Less accumulated amortization


64



80$
52


$
91  33




---



##### Table of Contents



Operating


CapitalLeases


Leases2009


126



242010


82



202011


84



192012


59



2013


37



Total minimum lease payments

$
388


$
63Less  amount representing interest






7Present value of net minimum lease payments





$
56   Note 6 
    Debt:  Short-Term
    Debt Due to Banks
           34




---



##### Table of Contents



Long-Term
    Debt
    March 31,2008


2007Capital lease obligations (Note 5)

$
56


$
93Less: current amounts


20



37Total

$
36


$
56     Note 7 
    Financial
    Instruments and Derivative Financial Instruments  Concentrations
    of Credit Risk
    Letters
    of Credit
    Foreign
    Exchange Risk Management
  and/or
  Fair
    Value of Financial Instruments
    Cash and cash equivalents:
  Investments:
 35




---



##### Table of Contents



Note 8 
    Income
    Taxes:    Year Ended March 31,2008


2007


2006United States

$
22,382


$
6,476


$
5,739United Kingdom


(8
)


9



14China


(270
)


34



$
22,104


$
6,519


$
5,753     Year Ended March 31,2008


2007


2006Current:Federal

$
2,646


$
80


$
State


73



29



14Foreign


9



3



32,728



112



17Deferred:Federal


4,474



438



1,878State


(55
)


201



272Foreign


(77
)


7



4,342



646



2,150Total provision for income taxes

$
7,070


$
758


$
2,167     Year Ended March 31,2008


2007


2006Provision for income taxes at federal rate

$
7,516


$
2,216


$
1,956State taxes


(6
)


221



281Charges not deductible for income tax purposes


26



21



32Recognition of tax benefit generated by extraterritorial income
    exclusion






(88
)


(100
)Recognition of tax benefit generated by qualified production
    activities deduction


(206
)Research and development tax credits


(234
)


(1,607
)


Other


(26
)


(5
)


(2
)Provision for income taxes

$
7,070


$
758


$
2,167  36




---



##### Table of Contents



March 31,2008


2007Depreciation

$
(898
)

$
(918
)Accrued compensation


143



187Prepaid pension asset


(1,593
)


(421
)Accrued pension liability


94



98Accrued postretirement benefits


414



460Compensated absences


476



533Inventories


(3,124
)


(1,112
)Warranty liability


153



139Accrued expenses


172



322Federal and state loss carryforwards


122



1,605Federal tax credits


1,280



1,808New York State investment tax credit


190



140Other


51



(26
)(2,520
)


2,815Less: Valuation allowance






Total

$
(2,520
)

$
2,815     March 31,2008


2007Current deferred income tax asset





$
1Long-term deferred income tax asset

$
70



2,901Current deferred income tax liability


(2,275
)


(87
)Long-term deferred income tax liability


(315
)


$
(2,520
)

$
2,815      37




---



##### Table of Contents



Note 9 
    Employee Benefit Plans:
  Retirement
    Plans
      Year Ended March 31,2008


2007


2006Service cost-benefits earned during the period

$
471


$
472


$
450Interest cost on projected benefit obligation


1,123



1,056



988Expected return on assets


(1,639
)


(1,360
)


(921
)Amortization of:Unrecognized prior service cost


4



4



4Actuarial loss


236



349



297Net pension cost

$
195


$
521


$
818     Discount rate


5.91
%


5.75
%


5.93
%Rate of increase in compensation levels


3.5
%


3.5
%


3.5
%Long-term rate of return on plan assets


8.5
%


8.5
%


8.5
%         Year Ended March 31,2008


2007Change in the benefit obligationProjected benefit obligation at beginning of year

$
19,064


$
18,863Service cost


392



393Interest cost


1,123



1,056Actuarial (gain) loss


(958
)


(624
)Benefit payments


(602
)


(624
)Projected benefit obligation at end of year

$
19,019


$
19,064  38




---



##### Table of Contents



March 31,2008


2007Discount rate


6.48
%


5.91
%Rate of increase in compensation levels


3.5
%


3.5
%Change in fair value of plan assetsFair value of plan assets at beginning of year

$
19,509


$
15,515Actual return on plan assets


1,298



2,118Employer contributions


3,000



2,500Benefit and administrative expense payments


(602
)


(624
)Fair value of plan assets at end of year

$
23,205


$
19,509Funded statusFunded status at end of year

$
4,186


$
445Amount recognized in the Consolidated Balance Sheets

$
4,186


$
445       March 31,2008


2007Net actuarial losses

$
2,333


$
2,929Prior service cost


19



22$
2,352


$
2,951     Net actuarial gain arising during the year

$
445Amortization of actuarial loss


152Amortization of prior service cost


3$
600       2009

$
5532010


6932011


7722012


8052013


8712014-2018


5,240Total

$
8,934  39




---



##### Table of Contents



Target


December 31,Allocation


2007


2006Asset CategoryEquity securities


50-70
%


64
%


66
%Debt securities


20-50
%


36
%


34
%Other, including cash


0-10
%






100
%


100
%           Other
    Postretirement Benefits
        Year Ended March 31,2008


2007


2006Interest cost on accumulated benefit obligation

$
61


$
63


$
70Amortization of prior service benefit


(166
)


(166
)


(166
)Amortization of actuarial loss


29



25



15Net postretirement benefit income

$
(76
)

$
(78
)

$
(81
)    40




---



##### Table of Contents



Year Ended March 31,2008


2007Change in the benefit obligationProjected benefit obligation at beginning of year

$
1,110


$
1,175Interest cost


61



63Participant contributions


4



14Actuarial loss


45



24Benefit payments


(142
)


(166
)Projected benefit obligation at end of year

$
1,078


$
1,110     March 31,2008


2007Discount rate


6
%


5.65
%Medical care cost trend rate


8
%


8.5
%     Year Ended March 31,2008


2007Change in fair value of plan assetsFair value of plan assets at beginning of year

$



$
Employer contribution


138



152Participants contributions


4



14Benefit payments


(142
)


(166
)Fair value of plan assets at end of year

$



$
Funded statusFunded status at end of year

$
(1,078
)

$
(1,110
)Amount recognized in the Consolidated Balance Sheets

$
(1,078
)

$
(1,110
)       March 31,2008


2007Net actuarial loss

$
270


$
260Prior service cost


(731
)


(838
)$
(461
)

$
(578
)  41




---



##### Table of Contents



Net actuarial gain arising during the year

$
29Amortization of actuarial loss


(18
)Amortization of prior service cost


106$
117       2009

$
1292010


1262011


1122012


1042013


1002014-2018


496Total

$
1,067     Employee
    Stock Ownership Plan
    Note 10 
    Stock
    Compensation Plans:     42




---



##### Table of Contents



Share-Based Payment
          2008


2007


2006Expected life


5 years



5 years



5 yearsVolatility


43.86
%


48.44
%


46.86
%Risk-free interest rate


4.83
%


5.03
%


4.46
%Dividend yield


.63
%


.58
%


.63
%      43




---



##### Table of Contents



WeightedShares


Average


Weighted


AggregateUnder


Exercise


Average Remaining


IntrinsicOption


Price


Contractual Term


ValueOutstanding at April 1, 2005


478


$
4.96Granted


70


$
11.12Exercised


(299
)

$
4.77Outstanding at March 31, 2006


249


$
6.92Granted


74


$
15.84Exercised


(69
)

$
5.99Forfeited


(18
)

$
15.95Outstanding at March 31, 2007


236


$
9.31Granted


56


$
14.66Exercised


(129
)

$
8.65Forfeited


(10
)

$
15.41Expired


(6
)

$
8.50Outstanding at March 31, 2008


147


$
11.52



7.22 years


$
3,543Vested or expected to vest at March 31, 2008


140


$
11.34



7.15 years


$
3,410Exercisable at March 31, 2008


59


$
6.19



4.90 years


$
1,747     Options Outstanding





Weighted Averageat March 31,


Weighted Average


RemainingExercise Price

2008


Exercise Price


Contractual Life$ 3.00- 3.52


15


$
3.27



3.53 years4.40- 5.00


30



4.79



4.2411.12-15.95


97



14.26



8.6021.68-25.04


5



23.36



9.33$ 3.00-25.04


147



11.52



7.22      44




---



##### Table of Contents



Restricted


Weighted Average


AggregateStock


Grant Date for Value


Intrinsic ValueOutstanding at March 31, 2007


Granted


3


$
13.80Outstanding at March 31, 2008


3


$
13.80


$
55Vested at March 31, 2008


1


$
13.80


$
25Non vested at March 31, 2008


2


$
13.80


$
30     Note 11 
    Shareholder
    Rights Plan:        Note 12 
    Related
    Party Transaction:   45




---



##### Table of Contents



Note 13 
    Segment
    Information:      2008


2007


2006Heat transfer equipment

$
31,988


$
28,275


$
24,242Vacuum equipment


38,911



26,676



21,011All other


15,529



10,871



9,955Net sales

$
86,428


$
65,822


$
55,208     2008


2007


2006Net Sales:Africa

$
342


$
84


$
30Asia


12,840



11,157



8,854Australia & New Zealand


85



1,652



295Canada


5,869



2,764



5,201Mexico


905



583



2,578Middle East


9,918



15,253



7,893South America


7,862



583



1,965U.S


46,881



33,006



27,881Western Europe


1,128



566



375Other


598



174



136Net sales

$
86,428


$
65,822


$
55,208       Note 14 
    Commitments
    and Contingencies:     46




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##### Table of Contents



Note 15 
    Sale of
    Treasury Stock:    Note 16 
    Quarterly Financial Data (Unaudited):
    First


Second


Third


Fourth


Total2008

Quarter(1)


Quarter(1)


Quarter


Quarter


YearNet sales

$
19,987


$
23,060


$
20,625


$
22,756


$
86,428Gross profit


6,679



9,897



8,647



8,939



34,162Provision for income taxes


1,167



2,299



1,948



1,656



7,070Net income


2,658



4,422



3,763



4,191



15,034Per share:Net income:Basic


.54



.90



.76



.84



3.03Diluted


.53



.88



.74



.83



2.98Market price range of common stock


12.60-22.80



20.33-36.60



31.64-60.96



28.00-50.30



12.60-60.96   First


Second


Third


Fourth


Total2007(1)

Quarter


Quarter


Quarter


Quarter


YearNet sales

$
14,608


$
15,903


$
14,500


$
20,811


$
65,822Gross profit


4,118



3,224



3,390



6,087



16,819Provision (benefit) for income taxes


705



267



322



(536
)


758Net income


1,116



563



666



3,416
(2)


5,761Per share:Net income:Basic


.23



.12



.14



.70



1.18Diluted


.23



.11



.14



.69



1.17Market price range of common stock


14.01-18.40



12.88-15.48



10.04-14.20



10.14-13.60



10.04-18.40     (1)
    
    Per share data has been adjusted to reflect a five-for-four
    stock split declared on October 26, 2007.(2)
    
    In the fourth quarter of fiscal 2007, the Company recognized a
    tax benefit of $1,607 for research and development tax credits
    related to qualifying expenditures for fiscal years 1999 to 2007. 47




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM          Employers Accounting for Defined Benefit
    Pension and Other Postretirement Plans.
  Internal Control  Integrated Framework
       48




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control  Integrated Framework
        Internal Control  Integrated Framework
         49




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
    Changes
    in Internal Control Over Financial Reporting
  Form 10-K
  Managements
    Annual Report on Internal Control over Financial
    Reporting
  Rule 13a-15(f).
   Item 9B.  Other
    Information   50




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##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Code of Ethics. Form 8-K
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Securities
    Authorized for Issuance under Equity Compensation Plans as of
    March 31, 2008
  Equity Compensation Plan InformationNumber of securitiesremaining availableNumber of securities





for future issuanceto be issued upon


Weighted average


under equityexercise of


exercise price of


compensation plansoutstanding options,


outstanding options,


(excluding securitiesPlan Category

warrants and rights


warrants and rights


reflected in column (a))(a)


(b)


(c)Equity compensation plans approved by security holders


147


$
11.52



327Equity compensation plans not approved by security holders










Total


147


$
11.52



327   Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence   51




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##### Table of Contents



Item 14.
    Principal
    Accounting Fees and Services    Item 15.
    Exhibits
    and Financial Statement Schedules  Form 10-K Form 10-K
    Form 10-K Form 10-K.
 52




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
        
     53




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##### Table of Contents



GRAHAM
    CORPORATION AND SUBSIDIARIES
  SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS
 (In
    Thousands)
  Balance at


Charged to


Charged to





Balance atBeginning


Costs and


Other





End ofDescription

of Period


Expenses


Accounts


Deductions


PeriodYear ended March 31, 2008Reserves deducted from the asset to which they apply:Reserve for doubtful accounts receivable

$
48


$
4


$



$
(11
)

$
41Reserves included in the balance sheet caption accrued
    expensesProduct warranty liability


357



361







(277
)


441Restructuring reserve


14



(1
)






(13
)


Year ended March 31, 2007Reserves deducted from the asset to which they apply:Reserve for doubtful accounts receivable

$
28


$
23


$



$
(3
)

$
48Reserves included in the balance sheet caption accrued
    expensesProduct warranty liability


330



199







(172
)


357Restructuring reserve


26











(12
)


14Year ended March 31, 2006Reserves deducted from the asset to which they apply:Reserve for doubtful accounts receivable

$
28


$
5


$



$
(5
)

$
28Reserves included in the balance sheet caption accrued
    expensesProduct warranty liability


255



301







(226
)


330Restructuring reserve


142



19







(135
)


26  54




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##### Table of Contents



INDEX TO
    EXHIBITS
  (2)

Plan of acquisition, reorganization, arrangement, liquidation or
    successionNot applicable.(3)

Articles of Incorporation and By-Laws3
.1

Certificate of Incorporation, as amended, is incorporated herein
    by reference to Exhibit 4.1 to the Companys
    Registration Statement on
    Form S-2
    (SEC File
    No. 333-128646)
    filed on September 28, 2005.3
.2

Amended and Restated By-laws of Graham Corporation are
    incorporated herein by reference to Exhibit 3.2 to the
    Companys Current Report on
    Form 8-K
    dated October 25, 2007.(4)

Instruments defining the rights of security holders, including
    indentures4
.1

Stockholder Rights Plan is incorporated herein by reference to
    Exhibit 99.3 to the Companys
    Form 8-A
    (SEC File
    No. 000-18703)
    filed September 15, 2000.(9)

Voting trust agreementNot applicable.(10)

Material Contracts#10
.1

1995 Graham Corporation Incentive Plan to Increase Shareholder
    Value is incorporated herein by reference to Appendix A to
    the Companys Proxy Statement for its 1996 Annual Meeting
    of Stockholders.#10
.2

Employment Agreement between the Company and J. Ronald Hansen
    dated May 13, 1993 is incorporated herein by reference to
    Exhibit 10.4 to the Companys Annual Report on
    Form 10-K
    for the year ended March 31, 1998.#10
.3

Graham Corporation Senior Executive Severance Agreement between
    the Company and J. Ronald Hansen dated July 28, 1995
    is incorporated herein by reference to Exhibit 10.5 to the
    Companys Annual Report on
    Form 10-K
    for the year ended March 31, 1998.#10
.4

Amendment No. 1, dated September 26, 1996, to
    Employment Agreement between the Company and J. Ronald Hansen,
    dated May 13, 1993, is incorporated herein by reference to
    Exhibit 10.4 to the Companys Annual Report on
    Form 10-K
    for the year ended March 31, 1998.#10
.5

2000 Graham Corporation Incentive Plan to Increase Shareholder
    Value is incorporated herein by reference to Appendix A to
    the Companys Proxy Statement for its 2001 Annual Meeting
    of Stockholders.#10
.6

Long-Term Stock Ownership Plan of Graham Corporation is
    incorporated herein by reference to Appendix A to the
    Companys Proxy Statement for its 2000 Annual Meeting of
    Stockholders.#10
.7

Agreement and Release of Claims between Alvaro Cadena and the
    Company dated November 29, 2004 is incorporated herein by
    reference to Exhibit 10.1 to the Companys Current
    Report on
    Form 8-K
    dated November 29, 2004.#10
.8

Form of Director Indemnification Agreement is incorporated
    herein by reference to Exhibit 10.1 to the Companys
    Quarterly Report on
    Form 10-Q
    for the quarterly period ended December 31, 2004.#10
.9

Graham Corporation Outside Directors Long-Term Incentive
    Plan is incorporated herein by reference to Exhibit 10.1 to
    the Companys Current Report on
    Form 8-K
    dated March 3, 2005.#10
.10

Graham Corporation Policy Statement for U.S. Foreign Service
    Employees is incorporated herein by reference to
    Exhibit 99.1 to the Companys Current Report on
    Form 8-K
    dated March 27, 2006.#10
.11

Graham Corporation Annual Stock-Based Incentive Award is
    incorporated herein by reference to Exhibit 99.2 to the
    Companys Current Report on
    Form 8-K
    dated March 27, 2006.#10
.12

Graham Corporation Annual Executive Cash Bonus Program is
    incorporated herein by reference to Exhibit 99.3 to the
    Companys Current Report on
    Form 8-K
    dated March 27, 2006.#10
.13

Employment Agreement between Graham Corporation and James R.
    Lines executed July 27, 2006 with an effective date of
    August 1, 2006, is incorporated herein by reference to
    Exhibit 99.1 to the Companys Current Report on
    Form 8-K
    dated July 27, 2006.#10
.14

Amended and Restated 2000 Graham Corporation Incentive Plan to
    Increase Shareholder Value is incorporated herein by reference
    to Appendix A to the Companys Proxy Statement for its
    2006 Annual Meeting of Stockholders. 55




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##### Table of Contents



10
.15

Loan Agreement between the Company and Bank of America, N.A.,
    dated as of December 5, 2007, is incorporated herein by
    reference to Exhibit 99.1 to the Companys Current
    Report on
    Form 8-K
    dated December 5, 2007.10
.16

Security Agreement between the Company and Bank of America,
    N.A., dated as of December 5, 2007, is incorporated herein
    by reference to Exhibit 99.2 to the Companys Current
    Report on
    Form 8-K
    dated December 5, 2007.10
.17

Patent Security Agreement between the Company and Bank of
    America, N.A., dated as of December 5, 2007, is
    incorporated herein by reference to Exhibit 99.3 of the
    Companys Current Report on
    Form 8-K
    dated December 5, 2007.10
.18

Trademark Security Agreement between the Company and Bank of
    America, N.A., dated as of December 5, 2007, is
    incorporated herein by reference to the Companys Current
    Report on
    Form 8-K
    dated December 5, 2007.#*10
.19

Employment Agreement between Graham Corporation and Alan E.
    Smith executed August 1, 2007 with an effective date of
    July 30, 2007.(11)

Statement re computation of per share earningsComputation of per share earnings is included in Note 1 of
    the Notes to Consolidated Financial Statements.(12)

Statement re computation of ratiosNot applicable.(13)

Annual report to security holders,
    Form 10-Q
    or quarterly report to security holdersNot applicable.(14)

Code of EthicsNot applicable.(16)

Letter re change in certifying accountantNot applicable.(18)

Letter re change in accounting principlesNot applicable.*(21)

Subsidiaries of the registrant*21
.1

Subsidiaries of the registrant(22)

Published report regarding matters submitted to vote of security
    holders.Not applicable.(23)

Consents of Experts and Counsel*23
.1

Consent of Deloitte & Touche LLP(24)

Power of AttorneyNot applicable.(31)

Rule 13a-14(a)/15d-14(a)
    Certifications*31
.1

Certification of Principal Executive Officer*31
.2

Certification of Principal Financial Officer(32)

Section 1350 Certifications*32
.1

Section 1350 Certifications(99)

Additional ExhibitsNot applicable     *
    
    Exhibits filed with this report.#
    
    Management contract or compensatory plan. 56




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##### Table of Contents



SIGNATURES
      Date: June 3, 2008

By: /s/  J.
    Ronald HansenJ.
    Ronald HansenVice President  Finance &
    Administration
    and Chief Financial Officer     Signature/s/  James
    R. LinesJames
    R. Lines

President and Chief Executive Officer and
      Director (Principal Executive Officer)

June 3, 2008/s/  J.
    Ronald HansenJ.
    Ronald Hansen

Vice President  Finance &
      Administration and Chief Financial
    Officer (Principal Financial Officer 
    and Principal Accounting Officer)

June 3, 2008/s/  Cornelius
    S. Van ReesCornelius
    S. Van Rees

Director

June 3, 2008/s/  Jerald
    D. BidlackJerald
    D. Bidlack

Director (Chairman of the Board)

June 3, 2008/s/  Helen
    H. BerkeleyHelen
    H. Berkeley

Director

June 3, 2008/s/  H.
    Russel LemckeH.
    Russel Lemcke

Director

June 3, 2008/s/  James
    J. MalvasoJames
    J. Malvaso

Director

June 3, 2008/s/  Gerard
    T. MazurkiewiczGerard
    T. Mazurkiewicz

Director

June 3, 2008  57




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72