Sidoti’s 14th Annual New York Emerging
Jim Lines, President & CEO
Sidoti s 14 Annual New York EmergingGrowth Institutional Investor ForumMarch 24, 2010March 24, 2010
Safe Harbor Statement Regarding Forward Looking Statements
This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 asThis presentation 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 futureoperating performance, events, or developments that Graham Corporation expects or anticipates will occur in the future, including but not limited to, statements relating to anticipated revenue, the timing of conversion of backlog to sales, 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 it operates, changes in general economic conditions and customer behavior and its acquisition strategy are forward looking statements Because they are forward looking they should bebehavior and its 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 inGraham 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 underlyingShould 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 relianceshould 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 CorporationFounded: 1936; IPO: 1968;
NYSE Amex: GHM $19.47
Common shares outstanding 9.845 million$Market capitalization $192 million
52-week price range $21.84 – $8.27Avg. daily trading volume (12 mos.) 137,278Stock splits:
► 5 for 4 1/2/2008
► 2 for 1 10/7/2008Ownership:
►Institutional 61.1%►Insider 2.8%
Note: Market data as of March 16, 2010; ownership as of most recent filing.
Our Vision
Our goal is to be a Our goal is to be a world leader in the design world leader in the design o d eade t e des go d eade t e des g
and manufacture of and manufacture of ENGINEEREDENGINEERED--TOTO--ORDERORDER
products for the products for the ENERGYENERGY MARKETSMARKETS
P d tProductsCondensers
27%
EjectorsHeat
Exchangersjec o s35%
Exchangers10%
Pumps6%
Aftermarket22%
U.S. 48%
International 52%
Note: All percentages based on Fiscal 2010 nine-month revenue of $48.4 million
Di ifi d M k tDiversified Markets
Chemical Processing Original Equipment
M f t
Refining43%
Processing32%
Manufacturers(Dresser Rand, GE etc.)
EPC Contractors(Jacobs, Fluor etc.)to
mer
s
43%Power &
Other25%
( , )
End Users(Exxon Mobil, Chevron etc.)C
ust
Note: Percentages based on Fiscal 2010 nine-month revenue of $48.4 million
C lti t Di M k t
OIL REFINING CHEMICAL PROCESSING
Cultivate Diverse Markets
OIL REFINING
Conventional crude oilOil sandsExtra-heavy crude oil
CHEMICAL PROCESSING
EthyleneAmmoniaNitrogen
Ethylene glycolDetergent alcoholsPlastics, resins, fibersExtra heavy crude oil
Sour crudeLube oil
NitrogenMethanol StyrenePolystyrene
Plastics, resins, fibersCoal-to-liquids (CTL)Gas-to-liquids (GTL)
POWER GENERATION
CogenerationWaste to energy
OTHER APPLICATIONSEdible oil/OleochemicalsBiofuels:Waste-to-energy
Heat, power and lightGeothermalNuclearI it
Biofuels:EthanolBiodiesel
HVACIndustrial gasesIn-situ Industrial gasesCryogenic
Di ersified Geographies & Ind striesDiversified Geographies & Industries Fiscal 2010 Nine-month Orders
Refining $36.1 million Oman, Saudi Arabia, Taiwan, Brazil, China, Thailand,Colombia, USA
Chemical Processing $14.9 million Vietnam, Thailand, Malaysia India USAMalaysia, India, USA
Power Generation & Other
$39.0 million USA, China
Total $90.0 million
Global Distillation Capacity Growth
Total Net Growth: 6 mb/d
Global Distillation Capacity Growth(through 2015)
Europe: 0.2 mb/d
Total Net Growth: 6 mb/dRussia and Eastern Europe:
US & Canada:0.9 mb/d
Europe: 0.2 mb/d
Latin/South
Asia-Pacific: 2.9 mb/d
America & Africa: 0.3 mb/d
Middle East: 1.3 mb/d
mb/d = million barrels per daySource: OPEC World Oil Outlook 2009
I t ti l M k t E diInternational Markets Expanding
Asia (China)• Refining, petrochemical,
coal-to-liquid fertilizercoal-to-liquid, fertilizer
Middle East• Refining petrochemical
Sales Mix: becoming
more Refining, petrochemical
South America
internationally weighted
• Refining, petrochemical
M j P j t C lY 1 Y 2 Y 3 Y 4 Y 5
Major Project CycleYear 1 Year 2 Year 3 Year 4 Year 5
Conception to RFP Contracts awarded Construction
Graham Competitive Advantage:Early Involvement
awarded
Year 1 Year 2
Early Involvement$150 million
pipeline consistent with past few years
Graham establishes competitive advantage during first 24 months… Understanding pipeline, developing design options, identifying
p y
decision makers, understanding timing, creating strong relationships to…Gain advantage, optimize margin and win business
Financial PerformanceFinancial PerformanceFinancial PerformanceFinancial Performance
($ in millions)
Captured Revenue in Expansion Cycle
$86.4$101.1
$76 3
$41.3
$55.2$65.8 $61.5$60 - $63
$76.3
$48 4
FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 E t *
$48.4
Q3 2009 YTD Q3 2010 YTDFY2005 FY2006 FY2007 FY2008 FY2009 FY2010 Est.*
* Guidance provided as of January 29, 2010 and is not being updated as part of this presentation
Q3 2009 YTD Q3 2010 YTD
being updated as part of this presentation
EBITDA Margins
$110
EBITDA MarginsPrevious Cycle: FY1993 to 2000* Current Cycle: FY2005 to Present
$86.4
$101.1
$95
$110($ in millions)
$55.2
$65.8
$73.3
$51.8
$65
$80
$41.3$40.3 $41.0$46.4 $46.8
$51.8$48.9
$34.9$35
$50
FY2005 FY2006 FY2007 FY2008 FY2009 Q3 FY10 TTM
$20FY1993 FY1994 FY1995 FY1996 FY1998 FY1999 FY2000
3.6% 4.5% 25.5%10.5%11.3%1.4%3.3%7.0%11.1%10.1%7.7% 27.1% 21.8%
**
Margin
* Data from FY1993 though FY2000 excludes discontinued operations.** 1997 was a three-month transition year and is excluded from this comparison; 1996 reflects a 12-month period.Note: See supplemental slides for EBITDA reconciliation.
N t I d EPS($ in millions)
Net Income and EPS
$15.0$17.5
$13.9
$3.6$5.8 $5.8
$0.3
FY2005* FY2006 FY2007 FY2008 FY2009Q3 2009 YTD Q3 2010 YTD
Earnings per Share $1.71$1.49$0.58**$0.38$0.03 $1.36 $0.58
Note: All earnings per share amounts adjusted for stock splits
* From continuing operations ** Includes R&D tax credit of $0.16
St B l Sh tStrong Balance Sheet
Cash, Cash Equivalents and Investments
($ in millions) ($ in millions)
Working Capital, Net of Cash, Cash Equivalents & Investments
$8.5
$5 8$36.8
$46.2
$57.7($ in millions) ( )
$5.8 $5.1
$0.2
$3.3
$2.7$11.0
$15.1
-$2.5
FY2005 FY2006 FY2007 FY2008 FY2009 Q3 FY10
FY2005 FY2006 FY2007 FY2008 FY2009 Q3 FY10
3 3%0 2%7 7%10 5%20 5% (3 4)%*Percent of 3.3%0.2%7.7%10.5%20.5% (3.4)%
* Based on Q3 FY10 TTM revenue of $73.3 million
Revenue
St t & O tl kStrategy & Outlook
C t l t Ch i Fi i l P fCatalysts Changing Financial PerformanceA Company-wide Approach to a Better Graham Today and in the Future
Selling Process:• Re-branding• Adding value
• VacAdemics• VacWorks• Technical support
Operational Excellence:• Capital plan • Graham production system• Focus on lead time reduction• First time, every time• Training
Improved Operating Performance
Throughout Cycle
• Technical support• Redefining profit metrics• Decision rights & disciplined
approach• Gain market share• Not every order is a good order
• Training • Safety culture• Continuous improvement• Creating scale
• IT• OutsourcingThroughout Cycley g g• Variable costs
People Process:• Accountability• Policy deployment
Sustainability:• Leadership commitment• Long-term visionPolicy deployment
• Performance management• Change agents:
• IT, HR, OPS & executive
• Alignment
Long term vision• Balance financial results with
investing in the future• Graham management system• Succession planning
• Engagement
D ti C l Shift$107.1 $110.5($ in millions)
Dramatic Cycle Shift
$54.2
$75.7
$48 3 $50 5
$89.8
$49.9
$66.2
$86.5$73.9
$54.9$67.0
($ )
$22.4$33.1
$48.3$37.0
$50.5$49.9
FY2005 FY2006 FY2007 FY2008 FY2009 Q1FY2010 TTM
Q2FY2010 TTM
Q3FY2010 TTM
$51.6OrderVariation
Orders Backlog($ in millions)
$27.8$17.5
$8.1
$20.5
$8.8
$29.6
Variation($ )
Orders are historically lumpy and best evaluated on at least a trailing four
Q109 Q209 Q309 Q409 Q110 Q210 Q310$25 million U.S. Navy order
gquarter basis
A i iti C it iAcquisition CriteriaEngineered-
to-orderto-order products for
Energy Industry
Geographic Expansion
and/or
Strong management Up to
$60 million and/orDiversify
Products/Markets
gteam / quality
culture$60 million in revenue
Return exceeds cost
f it lof capital
A i iti St t Th O tiAcquisition Strategy: Three OptionsGeographic Expansiong p p
• Asia, especially China• Middle East• South America
Product Diversification• Specialty heat exchangers
Market Diversification• PowerSpecialty heat exchangers
• Process vacuum equipment• Packaged systems• Process vessels
E i t l
Power√ Nuclear√ Solar√ Alternative energy
• Environmental
I t t Hi hli htInvestment HighlightsExpected long-term energy demand growth
resulting in capacity expansionresulting in capacity expansion
Worldwide brand recognition
Sales model based on early engineering involvement
Demonstrated success in Asia, Middle EastDemonstrated success in Asia, Middle East and South America
Strong balance sheet
Acquisition opportunities
Results-oriented management team
Sidoti’s 14th Annual New York Emerging
Jim Lines, President & CEO
Sidoti s 14 Annual New York EmergingGrowth Institutional Investor ForumMarch 24, 2010March 24, 2010
Supplemental Slides
EBITDA ReconciliationEBITDA Reconciliation
Current Cycle 2005 2006 2007 2008 2009Q310 TTM
GAAP operating profit (206)$ 5,454$ 6,013$ 21,088$ 26,328$ 14,428$ Depreciation & amortization 780 793 887 989 1 111 1 544Depreciation & amortization 780 793 887 989 1,111 1,544 EBITDA 574$ 6,247$ 6,900$ 22,077$ 27,439$ 15,972$
Previous Cycle 2000* 1999* 1998* 1996* 1995* 1994* 1993*Previous Cycle 2000 1999 1998 1996 1995 1994 1993
GAAP operating profit 332$ 2,591$ 4,932$ 3,995$ 2,818$ 1,075$ 662$ Depreciation & amortization 827 820 804 706 732 771 807EBITDA 1,159$ 3,411$ 5,736$ 4,701$ 3,550$ 1,846$ 1,469$
* Data from FY1993 though FY2000 excludes discontinued operations and is unaudited; 1997 was a three-month transition year and is excluded from this comparison; 1996 reflects a 12-month period.
St th d G P fit M iStrengthened Gross Profit Margin($ in millions)
$86.4$101.1
39 5% 41.3%$76.2
$41.3
$55.2$65.8 $60-$63
28.9%
25 6%
35.0%
39.5% .3%
42.1%
$48.4
FY2005 FY2006 FY2007 FY2008 FY2009 FY 2010 Q3 2009 YTD Q3 2010 YTD
18.2%
25.6%
37.1%
FY2005 FY2006 FY2007 FY2008 FY2009 FY 2010 Est.*Gross MarginRevenue
* Estimated FY 2010 gross margin is 34% to 36% on estimated revenue of $60 to $63 million. Guidance provided as of January 29, 2010 and is not being updated as part of this presentation
CNorth American Competition
Market GHM CompetitorsMarket GHM Market Share
Competitors
Refining vacuum distillation ~ 75% Gardner DenverRefining vacuum distillation 75% Gardner Denver
Chemicals/Petrochemicals ~ 25% Croll Reynolds; Schutte Koerting;Gardner Denver
Turbomachinery OEM – refining ~ 50% Ambassador; SPX (Yuba); KreugerTurbomachinery OEM refining, petrochemical
50% Ambassador; SPX (Yuba); Kreuger
Turbomachinery OEM – power and power producer
~ 15% Holtec; Babcock; Thermal Engineering; SPX (Yuba); Krueger
HVAC ~ 10% Alfa Laval; APV; ITT; Ambassador
CInternational Competition
Market GHM CompetitorsMarket GHM Market Share
Competitors
Refining vacuum distillation ~ 35 to 50% Gardner Denver; GEA Jet Pump; g ; p;Korting Hannover; Edwards
Chemicals/Petrochemicals ~ 25% Croll Reynolds; Schutte Koerting;Gardner Denver; GEA Jet Pump; K ti H Ed dKorting Hannover; Edwards
Turbomachinery OEM – refining, petrochemical
~ 50% Donghwa-Entec; Bumwoo; Oiltechnik; Kreuger; various local fabricators
Turbomachinery OEM – power and power producer
~ 15% Holtec; Babcock; Thermal Engineering; SPX (Yuba); Krueger
C t ti i E I d tContraction in Energy Industry
Decline in projected U S consumption
Global recession slows demand growth
Decline in projected U.S. consumption
Cap and Trade heavily penalizes U.S. refiners
Over capacity in U.S. refining
Expanding economies in emerging/developing countries
A i Middl E t S th A iAsia Middle East South America
Ch d Gl b l Oil D d P j tiChanged Global Oil Demand Projections
World Oil Outlook 2008: 50% demand increase by 2030World Oil Outlook 2008: 50% demand increase by 2030
World Oil Outlook 2009: 23% demand increase by 2030
► Consumption dropping in developed areas
► Energy policy changing
► Crude oil pricing lowered sharply
► Capacity utilization is down► Capacity utilization is down
N C ti l Oil S l G thNon-Conventional Oil Supply Growth
Oil SandsBiggest contributor =
5 mb/d by 2030
C l
by 2030
Increases Gas-to-liquid
Coal-to-liquid
output by 6 mb/d to 7.5 mb/d
by 2030
Extra-heavyExtra heavy crude
Source: OPEC World Oil Outlook 2008
P M k tPower Market
• Waste to energy renewables
• GeothermalUnited States • NuclearStates
• Growing power requirements
• NuclearChina and
India • Hydro, geothermal, fossil fuels
India
Refinery Ejector SystemAn ejector system lowers the pressure in the distillation column to allow crude oil
CNOOC Huizhou Refinery–China
240,000 BBL/day refinery
to boil at a lower temperature. This allows for more efficient and cost-effective separation of crude oil into valuable products, such as diesel, gas oils, kerosene, and other fuels.kerosene, and other fuels.
A condenser supports a steam turbine and enables theturbine and enables the conversion of maximum energy in high pressure steam into power. Condensers
Ejectors
Graham Corporation, 2009
P d t Di t C t t C dProducts: Direct Contact Condenser
An 11 MW turbine-generator set at a geothermal power producing plant in Papua New Guinea.
P d t S f C dProducts: Surface Condenser
Supports a steam turbine and enables the conversion of maximum energy in high pressure steam into power.