Greetings and welcome to the Graham Corporation third quarter 2011 quarterly results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Deborah Pawlowski, Investor Relations for Graham Corporation. Thank you, Ms. Pawlowski, you may begin.

Thank you, [Claudia], and good morning, everyone. We appreciate your joining us today on Graham's fiscal 2011 third quarter conference call. On the call, I have with me today Jim Lines, President and CEO of the company, and Jeff Glajch, Chief Financial Officer. Jim and Jeff will be reviewing the results for the quarter and also provide a review of the company strategy and outlook. On our website at www.graham-mfg.com, you will find those press releases as well as supplemental slides that are posted there. Jim and Jeff will be referring to the slides during the formal part of their discussion. As you are aware, we may make some forward-looking statements during this discussion as well as during the Q&A. These statements apply to future events and are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what was stated here today. These risks and uncertainties and other factors are provided in the earnings release as well as other documents filed by the company with the Securities and Exchange Commission. These documents can be found at the company's website or at sec.gov. So, with that, let me turn it over to Jim to begin the discussion. Jim?

Thank you, Debbie, and good morning, everyone. We are pleased with the results of the third quarter and with our acquisition of Energy Steel in the quarter. I would like you to refer to slide five where I will review highlights for the quarter. Orders were strong in the quarter at $17.8 million. We won some very key orders during the quarter, a project for oil sands extraction facility in Alberta, which is the first of that type of order for us. We see a good opportunity in the coming years for this type of sale. We also won another project for a China refining facility. That's our ninth order in the last four years. Again, we continue to progress well with our China strategy focused on the refining market. We also won a nice order for a very large fertilizer project that will be built in India. It will be the largest fertilizer facility in the world. What's different about this one is we have partnered with an Indian company to fabricate the condensers locally in India with the Indian fertilizer facility, further advancing our local manufacturing strategies. We also had Energy Steel add about $800,000 of new orders since we owned them mid month in December. On the sales side, I thought we had a strong quarter for sales at $19.2 million. If we compare to a few quarters back, we had fairly similar sales from the third quarter of 2010 to the first quarter of 2011. Then we began to have sales expand in our second quarter and then in the third quarter. We're at a point now where we think we're through the trough, and we should begin to have a sequential revenue growth again in our fourth quarter. Comparing year over year is going to…

Thank you, Jim. As you can see on slide nine, as Jim has mentioned, we have had a fairly stagnant revenue period from Q3 of fiscal 2010 to the beginning of fiscal 2011. That obviously followed a downturn in the first half of fiscal 2010. However, over the last three quarters, we've really seen a pickup. Q3 revenue was $19.2 million, up sequentially 22% from the prior quarter. 18% of that 22% was organic growth. The other 4% was for the couple of weeks that we owned Energy Steel in December. This follows a 17% sequential increase in Q1 to Q2 in fiscal 2011. For the quarter, sales were up 58% versus the similar quarter last year. 52% of that growth, again, was organic; the remaining 6% from the Energy Steel acquisition. What we're seeing is revenue growth being driven by the international markets, which we expected, with the growth occurring in our key markets in Asia, the Middle East, South America and in Canada. We believe we're clearly out of the fourth quarter cycle bottom that we had been in earlier this year and late last year and are looking to continue to see growth in the next quarter also, as Jim has talked about. Earnings per share in the quarter were $0.08 a share, up about 10% from last year's number. But that includes the acquisition cost. When you strip out those acquisitions-related costs to the transaction cost, our earnings were up very dramatically at $0.13 a share. Looking at the next slide, orders have rebounded in the third quarter to $17.8 million from the low levels of the first half of this year. In fact, the third quarter order level was very close to the combination of the first and second quarter. Included in that $17.8 million…

Ladies and gentlemen, we'll now be conducting the question-and-answer session. (Operator Instructions). Your first question comes from the line of Rick Hoss - Roth Capital Partners.

Jim, remind me. What's your win rate in China? Pick a period; five years, four years or whatever you think can demonstrate the success you're having there on larger, more significant refining or petrochemical fertilizer projects.

Up until 2006 we did not have an installation in China for a vacuum distillation service in the refinery. That's the very (inaudible) system that we sell routinely throughout the world. So we hadn't had an installation in China up to that point. We entered China at about that time with a focus on the refining sector because we knew they would be expanding. Over that period of time from really 2007, calendar 2007, to end of calendar 2010 there was about 3 million barrels per day of additional distillation capacity added and we had won about two-thirds of that. We have one nine of the -- actually, of the installations, we have won nine of about 17. But we have the majority of the distillation capacity defined as barrels per day. It's a higher capture ratio than the number of wins. We've done well. We think we have a very strong market condition, certainly about 50% market share. If we look at that period of time, 2007 through 2010, when we entered the market and our team focused on positioning our brand, demonstrating the value that's with the Graham brand and executing extremely well on the orders that we won to move ahead of our European competition and the local competitor that we see from time to time on smaller projects. So I've been very pleased and I think we dominate the market right now.

Would you say in the latter years you have a greater share versus the earlier years? In other words, are you taking share today versus when you necessarily entered that market?

That's correct. The first couple of years we were still finding our way, perfecting our model. The last two years our capture ratio actually has been much higher.

Can you give us an expectation for how orders are tracking so far in the fourth quarter? Do you feel that there is a potential to have fourth quarter orders higher than the third quarter or is it too early to tell?

I think there's a really good pipeline with Energy Steel. We're hoping to have a strong bookings quarter with them. They have a number of large projects that they're tracking. Our sense is they will close in the quarter and, should they do so, we'll have a very nice level of bookings. For the core business, the pipeline is really just incredible with the amount of work that we have that we're focused on. To be above the $17.8 million, I think that's very probable but there is a chance, based on timing, that the orders in the pipeline don't move to procurement and we could come in below that but I firmly believe, based on what our sales teams are advising, that there's a rich pipeline of opportunities expected to close in the quarter and I feel we're in pretty good position on most of them.

So I guess a more appropriate question would be your six month outlook is certainly above the top six months from a booking perspective.

Absolutely, I feel quite confident that we'll be at the first half of fiscal '11 what we pretty much did in the third quarter.

Then remind me. Does Energy Steel -- do they have a quicker conversion of backlog to revenue?

That's interesting because like the core business of Graham they have some short cycle business that comes in and out in a month to one quarter and then they have longer cycle sales like Graham that may be in backlog for six to 15 months. It's a similar split, maybe one-third, two-thirds, one-third short cycle, two-thirds long cycle. So that's pretty similar.

Last question for me -- what are you doing to mitigate raw material? I know that you typically build it into the contract due to the length of your contracts. But what are you seeing? What's your outlook, et cetera?

The outlook is for rising material costs. We're staying ahead of it, I believe, with our pricing our products. We're staying current for our major contracts, getting up-to-date pricing right up to the day we get the order, so we know what our material costs are. Then, as we've shared with everyone before, our policy after we have an order is to procure very shortly after we've won the order the volatile materials so we lock in any cost creep exposure. We've done very well over the last three or four years. It's been a very volatile metals market and our team has done well to stay in front of it and our procurement policy is such that we do well to retain margin if not improve our margin through procurement strategy. I don't see that changing.

I know that a couple quarters back you had a pretty decent benefit to EPS based on that strategy. Does it work better in an inflationary environment or it really doesn't matter?

It worked better at that point in time because the demand in the supply chain just wasn't there, so the suppliers were incredibly hungry and our procurement team took advantage of that to define the hungriest suppliers to negotiate the best prices. I found that to be more unique to bottom of the cycle, light demand and our procurement strategy to get at it, take advantage of it. As demand starts to increase in the supply chain some of that capability goes away because there is such strong demand.

Your next question comes from the line of Dick Ryan - Dougherty & Company.

Jim, the contract you mentioned in backlog that's on hold, I believe it was around $1 million. Any sense whether that, given the better environment out there, does that come off hold?

Our sense with that one, Dick, it's a refinery in Africa. We're having conversations with our customer now that our sense is it's going to be coming off of hold and will be released into production with deliveries sometime the latter half of calendar '12. So we feel very positive that should get released. We may do a change to the engineering, which could delay when it's released. But our sense is, based on the feedback we're having from our customer, it's coming off hold.

You mentioned seeing some margin improvement or placing improvement on contracts. Are you seeing that in Energy Steel as well or is that more descriptive of your core business?

I would see that's more descriptive of our core business and I'll be better able to comment on that probably in the May, June call after we've had more time with Energy Steel.

What sort of feedback have you gotten to date from either their customers or others in the industry now that you own them?

We've gotten very positive feedback of smart acquisition, a good decision and the customer base likes the long-term potential they see with the combination of what Graham brought to the table and the strength that Energy Steel had. So it's been a very favorable response across the customer base and those serving the nuclear market.

You talked briefly on the rising material costs. In your conversations with customers, is that a factor that they might start moving some of these projects to the left a little bit if they're getting concerned of pricing as well [to get] in the queue of further increases?

We haven't seen that. That is something we clearly did see in the 2007, 2008 timeframe. I think it's too early in the market recovery to expect that type of behavior by our customers. They are aware of rising material costs. We are in conversations with them with respect to how it affects the price but we haven't seen a move to the left.

Your next question comes from the line of Chris McCampbell - Stifel Nicolaus.

Could you give a little color on what's going on with the oil sands business maybe in comparison to the last cycle as far as Graham is concerned? Also, I hate to ask about other acquisitions now that you just made one, but maybe if you could talk about where you are in the process of finding other opportunities.

Oil sands -- we're very optimistic about oil sands and where it is today. We see investment happening in the extraction side and that's the order that we won recently, which was a new type of application for Graham on the extraction side. We hadn't really participated there before. But there is a lot of investment going on in extraction capacity, therefore, new bitumen capacity and there's demand there for our products now with the solution that we provided with the recent order. Then downstream of that for the upgraders, we're seeing -- there really was a stop to investment and upgrading activity about three years ago. But we now are seeing a couple of projects move back onto the table where we're doing early design work, some engineering studies and it's beginning to feel positive again that investment will be made. It was our sense about a year ago that we didn't think upgrading investment would take place until calendar '12 and I still think we're tracking towards that. What's important is we're now serving two ends of the oil sands sector, the extraction side and the upgrading side. So, again, we have enlarged our addressable market with some strategies that we undertook during the downturn to get at another piece of the business that we hadn't served before.

Jim, how does that compare to the last cycle? I don't recall how much business you all actually got out of that last time.

Well, these are -- on the upgrader side, these are massive projects. It's been our experience, and if history repeats itself, we didn't really see more than two go in a 24-month period, the way the projects pace and the resources that are required for these massive projects. But for us it's great incremental business. It's an area that we have a strong brand and a good market share. But it's not as though we would expect five or six projects to come together in a 12-month period. We would expect one or two. The ASP on that could be 3 million to 4 million per upgrader.

Chris, this is Jeff. On your second question, we took a good amount of time to make sure we found the right acquisition the first time. We're very happy with Energy Steel. They met our market criteria. They met our business criteria. They met our management criteria with having a strong management team and a quality focus. So all those things came in line and we're very pleased with that. We are continuing to look. We're going to make sure that we fully integrate Energy Steel within the Graham family and then we'll continue to look while we're doing that. I'm not expecting anything in the immediate term but certainly if the right opportunity comes up we'll pursue it. So I can't really give you a timeframe other than to say we want to make sure we get this one integrated cleanly first and then we'll move on. We obviously have a good balance sheet as well as with our new facility with Bank of America. We have quite a bit of flexibility on debt, if we decide to go with an acquisition large enough to require some debt. But, again, I don't -- I wouldn't be looking for something in the immediate future. We want to make sure we integrate this one cleanly first.

The key point with that is while we've acquired Energy Steel, our acquisition program is still active and we're still looking.

Yes, we still are looking routinely at what's out there and if something comes up we'll pursue it. But we want to make sure we get this one in-house and clean first.

(Operator Instructions). Your next question comes from the line of Scott Blumenthal - Emerald Advisers.

Jim, I think it was last quarter, possibly the previous quarter, you telegraphed the lower margin composition of your backlog and how you expected that to persist probably until the end of the fiscal year here. Can you talk about the composition of what you currently have in backlog and what your feelings are with regard to that?

As you indicated, we felt Q3 and Q4 would have margin squeeze because of the margin in the backlog that was being converted to revenue at that time. As we look on average at the margin in the backlog, it's higher than what's being converted to revenue. The suggestion there is as we get through that lower margin backlog we'll have margin lift as we get to the higher margin work and we'll also have the benefit of leverage because the revenue run rate, pressure rate, is going to be higher at that point in time. We have to deal with the realities of Q1 and Q2, which were about $18 million of total bookings. We need to push through the business and they're pushing through really a little bit in Q3, a lot in Q4 and somewhat into Q1. We get this behind us -- it's pretty much behind us, I think, in Q4. The average margin of the backlog is superior to what we're producing now and that will provide a nice lift to the margin.

Jeff, with regard to the quarter that we're talking about now, I saw that you had a sequential increase in backlog even though book to bill was, as you mentioned, below one, which would suggest that your short cycle businesses are doing really pretty well. Can you talk about specifically the short cycle businesses and what you saw during this quarter and how you've seen that maybe accelerate into the current quarter?

Actually, the growth in the backlog in the quarter was really due to the acquisition of Energy Steel. Adding Energy Steel on top of our Q2 backlog was really what pushed it up. With regard to short cycle businesses, they have been a little stronger, I'd say in the last quarter or two than they have been previous to that. But really the big jump in the -- the $7.2 million jump in the backlog was due to adding over $8 million of Energy Steel backlog onto our existing backlog.

(Operator Instructions). Your next question comes from the line of Walter Lang - Avondale Partners.

I was curious if you're seeing any increase in activity in US refiners given the improvement [Kraxberg] in the recent past.

We're seeing some early inquiry activity. To be candid, though, we think it's not near-term purchase opportunities that we're working on. We don't see much of the pipeline really tied to the US refining market, our bookings pipeline tied to the US refining market. There are a few. It's nice to see a few but it's not at a point where we saw it in '04, '05, '06.

Your next question comes from the line of Scott Blumenthal - Emerald Advisers.

Jim, do you -- is there any opportunity for you in shale gas as I sit here on top of the Marcellus?

There could be, not necessarily at the extraction, if you will, but conversion of the shale gas to petrochemicals or chemical or fuels. There will be some process applications that require vacuum and heat transfer equipment and that's where we fit in. Yes, but not on the extraction.

So you would be then a beneficiary, I guess, as the opportunity evolved towards the mid and late part of the cycle.

That's correct.

Gentlemen, it appears we have no further questions. I'll now turn the floor back over to Jim Lines for closing comments.

Thank you for your time this morning. We are very encouraged by our third quarter results, our forecast for the remainder of the year but, most importantly, getting through this trough to the expansionary period that we believe we're in the early stages of. I feel we've done the right things in the downturn to provide different and additional avenues for growth. We focused on improving the core business and we've added Energy Steel to Graham and we're very excited about the next many years for our business and I look forward to updating you on the, I guess, May conference call that we'll have. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and we thank you for your participation.