CIRCOR Reports First-Quarter 2013 Financial Results

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CIRCOR Reports First-Quarter 2013 Financial Results

Achieves High End of Top and Bottom Line Guidance Ranges

Repositioning Actions on Track


BURLINGTON, Mass.--(BUSINESS WIRE)-- CIRCOR International, Inc. (NYS: CIR) , a leading provider of valves and other highly engineered products for markets including energy, oil & gas, power generation and aerospace, today announced financial results for the first quarter ended March 31, 2013.

"CIRCOR began the year achieving both revenue and adjusted EPS at the high end of our Q1 guidance ranges," said Scott Buckhout, CIRCOR's President and Chief Executive Officer. "Our focus on improving operating results and expanding margins led to a 6% year-over-year increase in adjusted EPS and a 70 basis point improvement in adjusted operating margins."

"Bookings grew 12% sequentially due to increased Aerospace orders, as well as strong demand in Energy for large international projects," said Buckhout. "In Brazil, we received our first large oil and gas valve order since acquiring operations in this market."

"The repositioning actions we took in all three of our segments to generate greater profitability and better focus on key strategic markets are on track for completion by the end of the current second quarter," said Buckhout. "We expect to begin realizing the full run-rate of approximately $7 million in annualized savings from these actions in the second half of 2013."

"We anticipate improved performance on both the top and bottom lines in the second quarter and we remain focused on margin expansion and evaluating further repositioning opportunities. Our key markets are attractive and have significant long-term growth potential. We believe these markets will continue to provide opportunities for CIRCOR to expand organically and through acquisitions," concluded Buckhout.

Consolidated Results

Revenues for the first quarter of 2013 were $205.4 million, a 4% decrease from $214.3 million in the first quarter of 2012, due primarily to lower energy shipments as a result of lower North American rig counts. Adjusted earnings per diluted share in the first quarter of 2013, excluding the impact of special charges of $0.07, was $0.52, a 6% increase compared to the prior year's first-quarter results of $0.49. Net income for the first quarter of 2013, including special charges, was $7.9 million, or $0.45 per diluted share, compared with net income of $8.6 million, or $0.49 per diluted share, for the first quarter of 2012.

The Company received orders totaling $226.8 million during the first quarter of 2013, a decrease of 9% compared with the first quarter of 2012 due primarily to lower Energy orders in both the North American short cycle and large international project businesses. This was partially offset by growth in both Aerospace and Flow Technologies. Backlog as of March 31, 2013 was $457.3 million, up 6% from backlog of $432.3 million at April 1, 2012.

During the first quarter of 2013, the Company generated $1.1 million of free cash flow, up $8.2 million from the same period in 2012 due primarily to improved working capital.

Energy

Energy segment revenues decreased 11% to $96.7 million for the first quarter of 2013 from $109.3 million for the first quarter of 2012. First-quarter 2013 Energy segment revenues declined across most markets compared to the same period in 2012 when revenues were particularly strong with high rig counts. In addition, the year-over-year decrease was exacerbated by unfavorable foreign currency fluctuations.

Incoming orders for the first quarter of 2013 were $110.1 million, a decrease of 19% year-over-year as a result of a decline in rig counts in North America and timing of large international projects. Ending backlog totaled $217.8 million, an increase of 12% year-over-year, primarily due to higher order levels in the Middle East within the Company's large international project business.

For the first quarter of 2013, the Energy segment's adjusted operating margin increased to 11.1% from 8.2% in the first quarter of 2012, primarily driven by improved large international project pricing. This was partially offset by lower volume and increases in selling and marketing expenses to expand the Company's presence in emerging markets. Segment adjusted operating margin for the quarter excludes special and repositioning related inventory charges of $0.6 million related to the repositioning of the Company's Brazil operations.

Flow Technologies

Flow Technologies segment revenues increased 7% to $71.4 million for the first quarter of 2013 from $66.9 million in the first quarter of 2012. The revenue increase was primarily due to higher power generation and instrumentation revenues, partially offset by unfavorable foreign currency fluctuations.

Incoming orders for the Flow Technologies segment were $74.5 million for the first quarter of 2013, an increase of 2% year-over-year, primarily driven by power generation and instrumentation, partially offset by lower HVAC orders. Ending backlog totaled $76.9 million, an increase of 1% over last year.

Flow Technologies adjusted operating margin for the first quarter of 2013 increased to 12.7% from 11.3% in the first quarter of 2012, primarily due to higher volume and associated leverage. Segment adjusted operating margin excludes special and repositioning charges of $0.1 million related to repositioning activities in India.

Aerospace

Aerospace segment revenues decreased 2% to $37.3 million for the first quarter of 2013 from $38.1 million in the first quarter of 2012 primarily due to a decline in landing gear shipments associated with exiting the low margin landing gear overhaul product line as part of the repositioning actions in California.

Incoming orders for the first quarter of 2013 were $42.2 million, an increase of 5% year-over-year, primarily due to higher landing gear orders. Ending backlog totaled $162.7 million, an increase of 1% year-over-year.

Aerospace segment adjusted operating margin for the first quarter of 2013 decreased to 3.5% from 10.8% in the first quarter of 2012, primarily due to product development investments and start-up costs for new programs, including the A350, A330 and Blackhawk with an approximate impact of 500bps. In addition, during Q1 of 2012 CIRCOR completed a large engineering project which favorably impacted segment adjusted operating margin that quarter. Segment adjusted operating margin for Q1 2013 excludes special and repositioning charges of $0.9 million related to the repositioning of certain operations and manufacturing activities.

Financial Outlook

For the second quarter of 2013 the Company expects revenues to be in the range of $214 to $220 million, up sequentially from the first quarter of 2013, led by Energy.

During the second quarter, the Company expects to incur pre-tax repositioning related charges of between $4.2 and $4.8 million. Excluding those charges, adjusted earnings are expected to be in the range of $0.64 to $0.70 per diluted share, up sequentially from the first quarter of 2013 with margin expansion in all segments.

The tax rate on adjusted earnings is expected to be approximately 29.5%. Excluding repositioning, the rate is anticipated to be approximately 31.1%. This guidance assumes that exchange rates remain at present levels.

Conference Call Information

CIRCOR International will hold a conference call to review its financial results today, May 2, 2013, at 10:00 a.m. ET. Those who wish to listen to the conference call and view the accompanying presentation slides should visit "Webcasts & Presentations" in the "Investors" portion of the CIRCOR website. The live call also can be accessed by dialing (877) 407-5790 or (201) 689-8328. If you are unable to listen to the live call, the webcast will be archived for one year on the Company's website.

Use of Non-GAAP Financial Measures

Adjusted net income, adjusted earnings per diluted share, adjusted operating margin, and free cash flow are non-GAAP financial measures and are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Free cash flow is defined as net cash from operating activities less capital expenditures. CIRCOR believes that such information provides an additional measurement and consistent historical comparison of the Company's performance. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in this news release.

Safe Harbor Statement

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. Reliance should not be placed on forward-looking statements because they involve unknown risks, uncertainties and other factors, which are, in some cases, beyond the control of CIRCOR. Any statements in this press release that are not statements of historical fact are forward-looking statements, including, but not limited to, those relating to CIRCOR's future performance, including second-quarter revenue and earnings guidance and estimated total annualized pre-tax savings from repositioning actions.Actual events, performance or results could differ materially from the anticipated events, performance or results expressed or implied by such forward-looking statements. BEFORE MAKING ANY INVESTMENT DECISIONS REGARDING OUR COMPANY, WE STRONGLY ADVISE YOU TO READ THE SECTION ENTITLED "RISK FACTORS" IN OUR MOST RECENT ANNUAL REPORT ON FORM 10-K AND SUBSEQUENT REPORTS ON FORMS 10-Q, WHICH CAN BE ACCESSED UNDER THE "INVESTORS" LINK OF OUR WEBSITE AT WWW.CIRCOR.COM. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

About CIRCOR International, Inc.

CIRCOR International, Inc. designs, manufactures and markets valves and other highly engineered products for markets including energy, oil & gas, power generation and aerospace. With more than 7,500 customers in over 100 countries, CIRCOR has a diversified product portfolio with recognized, market-leading brands. CIRCOR's culture, built on the CIRCOR Business System, is defined by the Company's commitment to attracting, developing and retaining the best talent and pursuing continuous improvement in all aspects of its business and operations. The Company's strategy includes growing organically by investing in new, differentiated products; adding value to component products; and increasing the development of mission-critical subsystems and solutions. CIRCOR also plans to leverage its strong balance sheet to acquire strategically complementary businesses. For more information, visit the Company's investor relations web site at http://investors.circor.com.

CIRCOR INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except per share data)

UNAUDITED
  Three Months Ended
March 31, 2013  April 1, 2012
Net revenues$205,398$214,280
Cost of revenues145,549 155,668 
GROSS PROFIT59,84958,612
Selling, general and administrative expenses45,57144,912
Special charges1,378  
OPERATING INCOME12,900 13,700 
Other (income) expense:
Interest income(43)(83)
Interest expense8301,164
Other, net612 138 
TOTAL OTHER EXPENSE1,399 1,219 
INCOME BEFORE INCOME TAXES11,50112,481
Provision for income taxes3,592 3,896 
NET INCOME$7,908 $8,585 
Earnings per common share:
Basic$0.45$0.50
Diluted$0.45$0.49
Weighted average number of common shares outstanding:
Basic17,51117,315
Diluted17,52917,390
 
CIRCOR INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)
  Three Months Ended
March 31, 2013  April 1, 2012
OPERATING ACTIVITIES  
Net income$7,908$8,585
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation4,0094,008
Amortization758964
Compensation expense of share-based plans1,0281,195
Tax effect of share-based compensation(285)479

(Gain) loss on property, plant and equipment

(66)2
Changes in operating assets and liabilities, net of effects from business acquisitions:
Trade accounts receivable(2,455)3,539
Inventories(6,461)(2,179)
Prepaid expenses and other assets(827)(5,549)
Accounts payable, accrued expenses and other liabilities2,198 (14,011)
Net cash provided by (used in) operating activities5,807 (2,967)
INVESTING ACTIVITIES
Additions to property, plant and equipment(4,707)(4,122)
Proceeds from the sale of property, plant and equipment75 15 
Net cash used in investing activities(4,632)(4,107)
FINANCING ACTIVITIES
Proceeds from long-term debt33,59841,123
Payments of long-term debt(37,655)(47,806)
Dividends paid(670)(666)
Proceeds from the exercise of stock options1,36873
Tax effect of share-based compensation285 (479)
Net cash used in financing activities(3,074)(7,755)
Effect of exchange rate changes on cash and cash equivalents(2,207)1,265 
DECREASE IN CASH AND CASH EQUIVALENTS(4,105)(13,564)
Cash and cash equivalents at beginning of period61,738 54,855 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$57,633 $41,291 
 
CIRCOR INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

UNAUDITED
  

March 31,
2013

  

December 31,
2012

ASSETS
CURRENT ASSETS:
Cash and cash equivalents$57,633$61,738
Short-term investments99101
Trade accounts receivable, less allowance for doubtful accounts of $1,683 and $1,706, respectively150,849150,825
Inventories201,618198,005
Prepaid expenses and other current assets17,64716,510
Deferred income tax asset15,36515,505
Assets held for sale542 542 
Total Current Assets443,753 443,226 
PROPERTY, PLANT AND EQUIPMENT, NET104,756105,903
OTHER ASSETS:
Goodwill76,53577,428
Intangibles, net42,95445,157
Deferred income tax asset28,56330,064
Other assets7,549 8,203 
TOTAL ASSETS$704,110 $709,981 
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable$90,756$80,361
Accrued expenses and other current liabilities58,68367,235
Accrued compensation and benefits22,73226,540
Income taxes payable982393
Notes payable and current portion of long-term debt8,000 7,755 
Total Current Liabilities181,153 182,284 
LONG-TERM DEBT, NET OF CURRENT PORTION58,54662,729
DEFERRED INCOME TAXES9,95610,744
OTHER NON-CURRENT LIABILITIES35,63635,977
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued and outstanding
Common stock, $0.01 par value; 29,000,000 shares authorized; 17,549,210 and 17,445,687 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively175174
Additional paid-in capital264,719262,744
Retained earnings165,750158,509
Accumulated other comprehensive loss, net of taxes(11,825)(3,180)
Total Shareholders' Equity418,819 418,247 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$704,110 $709,981 
 
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CIRCOR INTERNATIONAL, INC.
SUMMARY OF ORDERS AND BACKLOG

(in millions)

UNAUDITED
  Three Months Ended

March 31,
2013

  

April 1,
2012

ORDERS (1)
Energy$110.1$135.6
Aerospace42.240.2
Flow Technologies74.5 72.9
Total orders$226.8 $248.7
 
BACKLOG (2)March 31,
2013
April 1,
2012
Energy$217.8$195.2
Aerospace162.7161.1
Flow Technologies76.8 76.0
Total backlog$457.3 $