a global designer, manufacturer, and supplier of ejectors, pumps, condensers, vacuum systems and heat exchangers for the oil refining, petrochemical and power generation industries, today reported results for its first quarter ended June 30, 2005. Sales for the first quarter of $11.7 million were up $3.4 million, or 42%, compared with the first quarter of fiscal year 2005. Income from continuing operations was $703 thousand in the quarter, compared with a loss of $749 thousand in the same period last fiscal year, while diluted earnings per share from continuing operations for the quarter grew to $0.39 from a loss of $0.45 per share in the prior year's period. The first quarter of fiscal 2005 included a loss from discontinued operations of $228 thousand.

Gross margin for the first quarter was 28%, up from 9.4% in the first quarter of the previous fiscal year. Increases in gross margin reflect the continued trend of higher operating leverage on strengthened sales volume, improved product mix, and increased product prices resulting in greater contribution margins across most product lines.

William C. Johnson, President and CEO of Graham Corporation commented, "Our first quarter sales reflect the overall continued improvement in global opportunities. As capital spending to expand capacity continues to increase in the oil refinery, petrochemical and power markets, demand for our condensers and ejector systems continues to rise in these sectors, particularly in China and the Middle East. Demand for our products is being further driven by investments in oil refinery equipment upgrades to allow for the processing of lower cost, heavy sulfur crude, as well as by more demanding environmental regulations. We anticipate that our margins will continue to improve in relation to growth in our sales volume. Historically, we have achieved gross margins as high as the low 30% range."

Selling, general and administrative expenses declined to 19% of sales in the first quarter compared with 24% in the corresponding period of fiscal year 2005 due to increased revenue and expense control. Operating margin from continuing operations for the first quarter was 9%, an improvement from negative 14% in the first quarter of the previous fiscal year.

Net cash generated by operating activities was $5.8 million for the three months ended June 30, 2005, compared with net cash from continuing operations of $276 thousand during the same period last year. Higher profits and a reduction in working capital contributed to this increase. All short-term and long-term debt, excluding capital leases, was retired as of June 30, 2005.

Capital expenditures for the quarter were $81 thousand compared with $27 thousand in the first quarter last year.

Outlook

Orders received in the first quarter of fiscal 2006 were $20.4 million compared with $13.5 million in the first quarter of 2005, a 51% increase. Improved demand for condensers in the first quarter resulted in orders increasing 36% over the same period last fiscal year, while ejector systems saw an increase of 126%. Export orders increased 67% when compared with the same quarter last year, while domestic orders were up 28%.

As of June 30, 2005, backlog was $31.1 million compared with $18.8 million at June 30, 2004, a 65% increase. Approximately 36% of the backlog can be attributed to equipment for refinery work, 38% to petrochemical projects, 18% to power generation projects and 8% to a variety of other industrial applications.

Mr. Johnson added, "Given the current backlog, level of inquiries and delivery schedule, combined with anticipated demand for our smaller heat exchangers, we believe revenue for fiscal year 2006 will be in the range of $55 to $60 million.

"We also believe we have the potential to strengthen margins, and we are taking steps to drive efficiencies in our internal operating environment, such as automating the design and quote processes. We are also expanding our worldwide marketing and sales presence. One of our goals is to maximize the benefits from this current "up cycle" while preparing ourselves for future swings in demand. Our strategic objective is to grow the business by expanding our global sales presence, capitalizing on our brand strength to better penetrate other industries and by making selective acquisitions."