Graham Corporation (GHM)

[Soapy Bubbles]

BUSINESSWIRE
Graham Corporation Reports 19.8% Increase in Sales for the Third Quarter of Fiscal 2009

Graham Corporation Reports 19.8% Increase in Sales for the Third Quarter of
Fiscal 2009

Net sales of $24.7 million in the quarter, up $4.1 million

BATAVIA, N.Y., Jan 30, 2009 (BUSINESS WIRE) -- --On track for record year: Fiscal
2009 expected to be peak of current cycle; downturn expected in fiscal 2010

--Strong balance sheet: $45.4 million in cash and investments and no long-term
debt

--Reaffirms fiscal 2009 revenue and margin guidance

--Board authorizes stock repurchase program

Graham Corporation (NYSE-A: GHM), a manufacturer of critical equipment for the
oil refinery, petrochemical and power industries, today reported financial
results for its fiscal 2009 third quarter ended December 31, 2008. Net sales were
$24.7 million in the quarter, up $4.1 million, or 19.8%, compared with net sales
of $20.6 million in the prior year's third quarter. Net income was $3.8 million,
or $0.37 per diluted share, in the third quarter, approximately the same as net
income in the same period the prior fiscal year. Graham's fiscal 2009 ends March
31, 2009.

Mr. James R. Lines, President and Chief Executive Officer of Graham, commented,
"Our third quarter financial results were in line with our expectations and
support our previously announced outlook that fiscal 2009 would be a record year
for sales and earnings. However, we believe that fiscal 2009 will represent the
peak of the current cycle that began for us in the latter half of fiscal 2004. We
took measured steps during the current cycle to control our growth, to maintain a
solid balance sheet and to make important gains in productivity. We expect that
these gains will help to reduce the effect of declining revenue as we head into
fiscal 2010. Moreover, we believe that our strong balance sheet and expected
operating performance during fiscal 2010 will allow us to maintain a strong
financial position that will enable us to take advantage of opportunities that
may present themselves during the downturn."

Sales on Track for Record Fiscal Year

The increase in third quarter sales of ejectors, heat exchangers and pump
packages was offset slightly by a decrease in sales of condensers and aftermarket
products. Ejector sales were $10.3 million, or 41.6% of total net sales, in the
third quarter, a 47.7% increase compared with $7.0 million, or 33.8% of total net
sales, in the same period during the prior year. The increase in ejector sales
reflects a greater number of oil refinery projects in the period.

Higher sales of heat exchangers were driven by more focused sales activities that
targeted a wider variety of end markets. Heat exchanger sales increased 23.9%
year-over-year to $3.0 million, or 12.1% of total net sales, in the third quarter
compared with $2.4 million, or 11.7% of total net sales, in the same period the
prior fiscal year. Pump package sales increased three-fold to $1.8 million, or
7.5% of total net sales, in the third quarter compared with $0.6 million, or 2.9%
of net sales, in the third quarter of fiscal 2008. The timing of customer
requirements for repair parts impacted our aftermarket product sales, which
decreased 21.8% to $2.8 million, or 11.3% of total net sales, in the third
quarter of fiscal 2009, compared with $3.6 million, or 17.3% of total net sales,
in the prior fiscal year's third quarter.

Sales of condensers declined in the third quarter to $6.8 million, or 27.5% of
total net sales, compared with $7.1 million, or 34.3% of total net sales, in the
same period the prior fiscal year, as the petrochemical industry slowed during
the latter part of 2008.

U.S. sales were $14.4 million, or 58% of total sales, in the third quarter,
compared with $10.7 million, or 52% of total sales, in the same quarter of fiscal
2008. International sales were $10.3 million, or 42% of total sales, in the third
quarter, slightly above $9.9 million, or 48%, in the same quarter a year ago.
Increased sales to Canada, the Middle East and Western Europe were mostly offset
by decreases in sales to South and Central America and Asia. Fluctuations in
sales among products and geographic locations can vary measurably from
quarter-to-quarter based on the timing and magnitude of projects, and we
generally do not believe that such fluctuations are indicative of business
trends.

By industry, 46% of sales in the third quarter were to the refining industry,
compared with 38% in the same period the prior fiscal year. Approximately 27% of
sales were to the chemical/petrochemical industry and 21% to other industrial
applications during the current quarter, as compared with 42% and 19%,
respectively, in the third quarter of fiscal 2008. Power industry sales accounted
for 6% of sales during the third quarter of fiscal 2009, while that industry
represented approximately one percent of sales during the same period the prior
year.

Additional historical information regarding sales by industry and region are
contained in the tables at the end of this news release.

Managing Operational Effectiveness

Gross profit was $9.4 million, or 37.9% of sales, in the third quarter of fiscal
2009, compared with $8.6 million, or 41.9% of sales, in the same period the prior
fiscal year. The decline in margin during the quarter occurred as a result of a
contract in process requiring international fabrication that carried a lower
margin than those in the same quarter of fiscal 2008. Approximately 8% of
manufacturing production hours were outsourced in the third quarter of fiscal
2009.

Selling, general and administrative ("SG&A") expenses were $3.6 million, or 14.4%
of sales, in the third quarter of fiscal 2009 compared with $3.2 million, or
15.7% of sales, in the third quarter of fiscal 2008, but were below SG&A expenses
of $3.9 million, or 16.4% of sales in the trailing second quarter of fiscal 2009.
Costs related to Graham's ongoing initiatives to improve manufacturing
efficiencies and increased bonus and commission accruals, as a result of higher
sales and net income, caused the slight increase in SG&A expenses in the current
fiscal year quarter compared with the same quarter in the prior year.

Taking into account current backlog, the new order environment and the
productivity gains made over the past several years, in January of 2009 Graham
eliminated approximately 5% of its workforce. Graham believes that the
elimination of these positions better align its operating structure and costs. A
$365 thousand restructuring charge is expected to be recognized in the fourth
quarter of fiscal 2009, and on-going cost savings are expected to be
approximately $2.0 million per year. Excluding the restructuring charge, for the
remainder of fiscal 2009, SG&A expenses are expected to be in the range of 15% to
16% of sales.

Mr. Lines noted, "We've reduced our cost structure as we enter a period of
declining revenue. We will, however, remain disciplined about our ongoing
internal improvement efforts. The personnel reductions we made in January were
difficult but necessary. We believe we are prepared for the downturn and view it
as an opportunity to continue to drive improvement into the company, strengthen
our relationships with customers, capture additional market share, enter new
markets and be able to take greater advantage of the next up-cycle."

Interest income in the third quarter of fiscal 2009 declined to $83 thousand
compared with $304 thousand in the same period the prior fiscal year, primarily
as a result of a significant decline in current treasury yields compared with a
year ago.

Graham has revised its estimated fiscal 2009 effective tax rate upward by half a
percentage point to 34% in light of the actual rates experienced on its
recently-filed tax returns which resulted in an effective tax rate for the third
quarter of fiscal 2009 of 35.5%.

Nine-Month Review

Net sales for the first nine months of fiscal 2009 were $76.3 million, up 19.8%
compared with $63.7 million in the first nine months of fiscal 2008. Gross margin
was 42.1% for the nine-month period compared with 39.6% in the same period the
prior fiscal year. Higher aftermarket sales, particularly in the first quarter,
improved product mix and engineering and manufacturing operating efficiencies all
contributed to the year-over-year increase. Approximately 9% of manufacturing
production hours were outsourced in the first nine months of fiscal 2009. Graham
expects that outsourced manufacturing hours will be between 8% and 10% for the
full fiscal year 2009.

SG&A expenses were $11.3 million, or 14.8% of sales, in the first nine months of
fiscal 2009 compared with $9.8 million, or 15.3% of sales, in the same period of
fiscal 2008. The increase was related to higher variable compensation costs and
outside consulting fees.

Net income for the first nine months of fiscal 2009 was up 28.1% to $13.9
million, compared with $10.8 million in the same period the prior year. On a per
diluted share basis, net income grew to $1.36, a 25.9% increase over $1.08 in the
same period the prior fiscal year.

Strong, Flexible Balance Sheet with Significant Cash Position

Cash, cash equivalents and investments at December 31, 2008 were $45.4 million,
compared with $36.8 million at March 31, 2008 and $42.9 million at September 30,
2008. Net cash provided by operating activities was $7.4 million in the first
nine months of fiscal 2009, compared with $16.0 million in the same period the
prior fiscal year. The year-over-year decrease was a result of higher working
capital requirements, primarily from an increase in Graham's accounts receivable
balance due to the timing of customer billings. Approximately $41.2 million was
invested in United States Treasury notes with maturity periods of 91 to 180 days
at December 31, 2008. As of December 31, 2008, Graham had no borrowings and $7.5
million of outstanding letters of credit under its $30.0 million revolving line
of credit facility.

Capital expenditures were $398 thousand in the third quarter of fiscal 2009 and
$1.2 million for the nine-month period, compared with $212 thousand and $659
thousand in the third quarter and nine-month period of fiscal 2008, respectively.
Capital expenditures for the full-year fiscal 2009 are expected to be in the
range of $1.8 to $2.0 million, of which approximately 50% will be allocated for
machinery and equipment, 40% for information technology and 10% for other
expenditures. An estimated 75% of the fiscal 2009 capital spending is expected to
be used for productivity improvements and the remaining 25% for capitalized
maintenance and other general purposes.

Addressing the Down Slope of a Cycle

Orders began to slow during September and October as the world reacted to the
unprecedented worldwide financial crisis and the seizure of capital markets, and
we experienced a rapid and severe decline in order activity in November and
December. While we maintain our strong market position, orders received in the
third quarter of fiscal 2009, net of cancellations, were an unusually low $8.1
million compared with orders of $26.6 million in the same period the prior fiscal
year. Oil refiners have curtailed or cancelled many projects as they evaluate the
changing outlook on demand for oil and its many by-products resulting from the
worldwide economic slowdown. Because of the magnitude of certain individual
orders and shipment timing, there can be significant variability in sales and
orders from quarter-to-quarter. Graham does not believe such fluctuations are
indicative of business trends.

Graham's backlog was $52.5 million at December 31, 2008, down 16.7% compared with
$63.0 million at December 31, 2007. Backlog was reduced by $1.6 million due to
the cancellation of an order for a refinery project. Included in backlog is
approximately $5.7 million in orders for refinery projects that customers have
currently suspended subject to their further review of the related projects.
Approximately 45% of projects in backlog are for refinery projects, 33% for
chemical and petrochemical projects and 22% for power and other industrial
commercial applications, compared with 50%, 23% and 27%, respectively, at the end
of the third quarter of fiscal 2008. Approximately 90% of backlog is expected to
ship in the next twelve months.

"The significant decline during the quarter is the most severe
quarter-over-quarter swing that I have seen in the 25 years I have been with
Graham. Since we may experience significant variability in sales and orders from
quarter-to-quarter, we analyze business trends over multiple quarterly periods.
For the nine-month period ended December 31, 2008, we received $53.4 million in
new orders. Nonetheless, we expect that we will be near $100 million in sales for
fiscal 2009, as we had previously projected, and expect gross margins will be
consistent with our previous guidance of approximately 39% to 42%," stated Mr.
Lines.

He added, "What is not clear is the extent or duration of the down slope of this
new cycle. Oil companies are reducing capital budgets by an estimated 12% for
2009 and many higher cost projects, such as oil sands, have been cancelled.
Petrochemical companies are facing difficult times and investment in new capacity
has been dramatically scaled down. Consequently, we are prepared for a measurably
lower level of sales in fiscal 2010. Notwithstanding current conditions, we
continue to believe that longer-term overall global growth will continue to drive
demand for our products."

He concluded, "Strategically, our goal remains to double the size of Graham over
the next three to five years. Moreover, we see this downturn and our financial
strength as an opportunity for us to be very selective and effective with our
acquisition strategy."

Stock Buyback Program Authorized

On January 29, 2009, Graham's Board of Directors authorized a stock repurchase
program, permitting Graham to repurchase up to 1,000,000 shares of its common
stock in open market and privately negotiated transactions. Graham's repurchase
program will continue until the earlier of July 29, 2009, until such time that
all 1,000,000 shares have been repurchased or until the Board of Directors
terminates the program. Graham intends to use cash on hand to fund any stock
repurchases under the program.

Webcast and Conference Call

Graham will host a conference call and live webcast today at 11:00 a.m. ET.
During the conference call and webcast, James R. Lines, President and Chief
Executive Officer, and Jennifer Condame, Chief Accounting Officer, will review
Graham's financial and operating results for the third quarter and first nine
months of fiscal 2009 as well as Graham's strategy and outlook. A
question-and-answer session will follow.

Graham's conference call and live webcast can be accessed as follows:

-- The live webcast can be found at http://www.graham-mfg.com. Participants
should go to the website 10 -15 minutes prior to the scheduled conference in
order to register and download any necessary audio software.

-- The teleconference can be accessed by dialing 1-201-689-8560 and referencing
conference ID number 309815 approximately 5 - 10 minutes prior to the call.

The conference call and webcast will be archived and can be reviewed as follows:

-- The webcast will be archived at http://www.graham-mfg.com and a transcript
will be posted once available. The webcast and transcript will remain available
on the website for approximately 30 days.

-- A replay can be heard by calling 1-201-612-7415, and entering the account
number 3055 and conference ID number 309815. The telephonic replay will be
available through February 6, 2009 at 11:59 p.m. Eastern Time.

ABOUT GRAHAM CORPORATION

With world-renowned engineering expertise in vacuum and heat transfer technology,
Graham Corporation is a global designer, manufacturer and supplier of ejectors,
pumps, condensers, vacuum systems and heat exchangers. Over the past 72 years,
Graham has built a reputation for top quality, reliable products and
high-standards of customer service. Sold either as components or complete system
solutions, the principal markets for Graham's equipment are the petrochemical,
oil refining and electric power generation industries, including cogeneration and
geothermal plants. Graham's equipment can be found in diverse applications, such
as metal refining, pulp and paper processing, ship-building, water heating,
refrigeration, desalination, food processing, pharmaceutical, heating,
ventilating and air conditioning.

Graham Corporation's reach spans the globe. Its equipment is installed in
facilities from North and South America to Europe, Asia, Africa and the Middle
East. Graham routinely posts news and other important information on its website,
http://www.graham-mfg.com, where additional comprehensive information on the
Company can be found.

Safe Harbor Regarding Forward Looking Statements

This press release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements are
subject to risks, uncertainties and assumptions and are identified by words such
as "expects," "estimates," "projects," "anticipates," "believes," "could," and
other similar words. All statements addressing operating performance, events, or
developments that Graham Corporation expects or anticipates will occur in the
future, including but not limited to, statements relating to anticipated
revenues, profit margins, foreign sales operations, its strategy to build its
global sales representative channel, the effectiveness of automation in expanding
its engineering capacity, its ability to improve cost competitiveness, customer
preferences, changes in market conditions in the industries in which Graham
Corporation operates, changes in general economic conditions and customer
behavior and Graham Corporation's acquisition strategy are forward-looking
statements. Because they are forward-looking, they should be evaluated in light
of important risk factors and uncertainties. These risk factors and uncertainties
are more fully described in Graham Corporation's most recent Annual and Quarterly
Reports filed with the Securities and Exchange Commission, including under the
heading entitled "Risk Factors." Should one or more of these risks or
uncertainties materialize, or should any of Graham Corporation's underlying
assumptions prove incorrect, actual results may vary materially from those
currently anticipated. In addition, undue reliance should not be placed on Graham
Corporation's forward-looking statements. Except as required by law, Graham
Corporation disclaims any obligation to update or publicly announce any revisions
to any of the forward-looking statements contained in this press release.
Graham Corporation Third Quarter Fiscal 2009
Consolidated Statements of Operations and Retained Earnings
(Amounts in thousands, except per share data)
(Unaudited)
Three Months EndedNine Months Ended
December 31,December 31,
2008200720082007
(Amounts in thousands, except per share data)
Net sales$24,701$20,625$76,263$63,672
Cost of products sold15,33911,97844,18438,449
Gross profit9,3628,64732,07925,223
Gross profit margin37.9%41.9%42.1%39.6%
Other expenses:
Selling, general and administrative3,5673,23911,3209,756
Operating profit5,7955,40820,75915,467
Operating profit margin23.5%26.2%27.2%24.3%
Interest income(83)(304)(386)(799)
Interest expense1149
Total other expenses and income3,4852,93610,9388,966
Income before income taxes5,8775,71121,14116,257
Provision for income taxes2,0871,9487,2555,414
Net income3,7903,76313,88610,843
Retained earnings at beginning of period46,99529,55937,21622,675
Dividends(203)(148)(557)(344)
Effect of adoption of measurement date provisions of Statement of--37-
Financial Accounting Standards No. 158
Retained earnings at end of period$50,582$33,174$50,582$33,174
Per share data:
Basic:
Net income$.37$.38$1.37$1.10
Diluted:
Net income$.37$.37$1.36$1.08
Weighted average common shares outstanding:
Basic:10,1819,94310,1459,871
Diluted:10,21110,12410,22110,035
Dividends declared per share$.02$.015$.055$.035


Graham Corporation Third Quarter Fiscal 2009
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Unaudited)
December 31,March 31,
20082008
(Amounts in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents$4,229$2,112
Investments41,15234,681
Trade accounts receivable, net of allowances ($21 and $41 at8,4195,052
December 31, and March 31, 2008, respectively)
Unbilled revenue8,5568,763
Inventories5,0194,797
Income taxes receivable6181,502
Prepaid expenses and other current assets826463
Total current assets68,81957,370
Property, plant and equipment, net9,6159,060
Deferred income tax asset15670
Prepaid pension asset7,0154,186
Other assets1625
Total assets$85,621$70,711
Liabilities and stockholders' equity
Current liabilities:
Current portion of capital lease obligations$27$20
Accounts payable4,0565,461
Accrued compensation4,1564,517
Accrued expenses and other liabilities1,9492,114
Customer deposits6,0805,985
Deferred income tax liability2,2752,275
Total current liabilities18,54320,372
Capital lease obligations3936
Accrued compensation241232
Deferred income tax liability1,344315
Accrued pension liability259271
Accrued postretirement benefits941949
Total liabilities21,36722,175
Stockholders' equity:
Preferred stock, $1.00 par value - Authorized, 500 shares
Common stock, $.10 par value - Authorized, 25,500 and 6,000 shares
at December 31 and March 31, 2008, respectively
Issued 10,127 and 9,982 shares at December 31 and March 31, 2008,1,013499
respectively
Capital in excess of par value14,86612,674
Retained earnings50,58237,216
Accumulated other comprehensive loss(2,163 )(1,820 )
Other(44)(33)
Total stockholders' equity64,25448,536
Total liabilities and stockholders' equity$85,621$70,711


Graham Corporation Third Quarter Fiscal 2009
Condensed Consolidated Statements of Cash Flows
(Dollar amounts in thousands)
(Unaudited)
Nine Months Ended
December 31,
20082007
(Amounts in thousands)
Operating activities:
Net income$13,886$10,843
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization826706
Discount accretion on investments(371)(693)
Stock-based compensation expense315125
Loss on disposal of property, plant and equipment2-
Deferred income taxes1,1783,035
(Increase) decrease in operating assets:
Accounts receivable(3,365)4,248
Unbilled revenue208507
Inventories(222)173
Income taxes receivable/payable884(687)
Prepaid expenses and other current and non-current assets(358)(376)
Prepaid pension asset(3,630)(2,028)
Increase (decrease) in operating liabilities:
Accounts payable(1,483)(1,866)
Accrued compensation, accrued expenses and other current and(531)214
non-current liabilities
Customer deposits821,745
Long-term portion of accrued compensation, accrued pension2468
liability and accrued postretirement benefits
Net cash provided by operating activities7,44516,014
Investing activities:
Purchase of property, plant and equipment(1,193)(659)
Proceeds from sale of property, plant and equipment144
Purchase of investments(102,550 )(65,271 )
Redemption of investments at maturity96,45049,750
Net cash used by investing activities(7,292)(16,136 )
Financing activities:
Proceeds from issuance of long-term debt2,45069
Principal repayments on long-term debt(2,471)(97)
Issuance of common stock695970
Dividends paid(557)(344)
Excess tax deduction on stock awards1,6961,198
Other(10)39
Net cash provided by financing activities1,8031,835
Effect of exchange rates on cash16130
Net increase in cash and cash equivalents2,1171,743
Cash and cash equivalents at beginning of period2,1121,375
Cash and cash equivalents at end of period$4,229$3,118


Graham Corporation Third Quarter Fiscal 2009
Additional Information
ORDER AND BACKLOG TREND
($, in millions)
Q108Q208Q308Q408FY 2008Q109Q209Q3099-Months
FY2009
6/30/079/30/0712/31/073/31/083/31/086/30/089/30/0812/31/0812/31/08
Orders$ 24.9$ 20.5$ 26.6$ 35.1$ 107.1$ 27.8$ 17.5$ 8.1$ 53.4
Backlog$ 59.2$ 56.8$ 63.0$ 75.7$ 75.7$ 76.0$ 69.7$ 52.5$ 52.5


SALES BY INDUSTRY FISCAL 2009
($, in millions)
Q109%Q209%Q309%9-Months%
FY2009
6/30/08Total9/30/08Total12/31/08Total12/31/08Total
Refining$14.452%$11.147%$11.346%$36.848%
Chem/ Petrochemical$5.319%$6.427%$6.627%$18.324%
Power$1.35%$2.08%$1.56%$4.86%
Other$6.624%$4.418%$5.321%$16.422%
Total$27.6$23.9$24.7$76.3


SALES BY INDUSTRY FISCAL 2008
($, in millions)
Q108%Q208%Q308%Q408%FY 2008%
6/30/07Total9/30/07Total12/31/07Total3/31/08Total3/31/08Total
Refining$9.748%$12.052%$7.838%$7.533%$37.043%
Chem/ Petrochemical$4.623%$6.528%$8.542%$7.332%$26.931%
Power$0.84%$0.42%$0.11%$0.10%$1.42%
Other$4.925%$4.218%$4.119%$7.935%$21.124%
Total$20.0$23.1$20.5$22.8$86.4


SALES BY REGION FISCAL 2009
($, in millions)
Q109%Q209%Q309%9-Months%
FY 2009
6/30/08Total9/30/08Total12/31/08Total12/31/08Total
North America$20.976%$17.071%$16.667%$54.471%
Middle East$2.07%$3.013%$2.811%$7.810%
Asia$3.011%$1.04%$3.715%$7.810%
Other$1.76%$2.912%$1.67%$6.39%
Total$27.6$23.9$24.7$76.3


SALES BY REGION FISCAL 2008
($, in millions)
Q108%Q208%Q308%Q408%FY 2008%
6/30/07Total9/30/07Total12/31/07Total3/31/08Total3/31/08Total
North America$11.759%$17.877%$11.255%$12.053%$52.761%
Middle East$4.221%$0.52%$1.68%$3.716%$10.011%
Asia$2.512%$2.19%$3.919%$4.319%$12.815%
Other$1.68%$2.712%$3.818%$2.812%$10.913%
Total$20.0$23.1$20.5$22.8$86.4


SOURCE: Graham Corporation

Kei Advisors LLC
Deborah K. Pawlowski, 716-843-3908
[e-mail]


Copyright Business Wire 2009