CIRCOR Reports Third-Quarter 2012 Financial Results

CIRCOR Reports Third-Quarter 2012 Financial Results

Non-GAAP Adjusted EPS Climbs 22% to $0.76;

Revenue of $209.8 Million at High End of Guidance Range;


Energy and Flow Technologies Segments Report Excellent Margin Performance;

Repositioning Plans Expected to Result in $7 Million in Annualized Savings

BURLINGTON, Mass.--(BUSINESS WIRE)-- CIRCOR International, Inc. (NYS: CIR) , a leading provider of valves and other highly engineered products for the energy, aerospace and industrial markets, today announced financial results for the third quarter ended September 30, 2012.

"We are pleased with our excellent performance in the third quarter driven by margin improvement and the continued execution of our growth strategy," said Chairman and Chief Executive Officer Bill Higgins. "Our Energy segment continues to improve execution operationally and in international projects where we continue to grow and where we achieved favorable closure on several completed projects. In addition, Flow Technologies continued to deliver strong operating margins."

"During the quarter we continued to focus on our growth strategy in the oil & gas, power generation and aerospace markets," continued Higgins. "We have been attracting top talent across the organization, improving operations with Lean and operational excellence, and enhancing our competitive position by building our global supply chain and manufacturing footprint around the world to service global customers."

CIRCOR also announced that it is taking several repositioning actions over the next three quarters to enhance profitability, including consolidating facilities, shifting supply to lower cost regions and exiting certain non-strategic product lines. CIRCOR's third-quarter results include charges associated with these repositioning actions, and the Company expects further charges in the fourth quarter of 2012 and the first half of 2013. The Company anticipates annualized pre-tax savings from these actions to be approximately $7 million with a favorable margin impact in the range of 100 basis points, to be fully realized in the second half of 2013.

"As a result of our Lean and operational excellence initiatives, the efficiencies we have gained in our operations has and will enable us to consolidate facilities and drive margin expansion," said Higgins. "We believe CIRCOR is well positioned to continue to grow revenue, expand margins and deliver enhanced shareholder value."

Consolidated Results

Revenues of $209.8 million for the third quarter of 2012 were flat compared with the previous year. Net income for the third quarter of 2012 was $1.9 million, or $0.11 per diluted share, which includes special and impairment charges of $1.4 million and $10.3 million, respectively, as well as repositioning related inventory charges of $4.1 million, compared with net income of $10.9 million, or $0.63 per diluted share, for the third quarter of 2011, which included a benefit of $0.2 million in Leslie asbestos and bankruptcy charges. Excluding the charges from both periods, adjusted earnings per diluted share for the third quarter of 2012 increased 22% to $0.76 from $0.62 in the year-earlier quarter.

Excluding the charges in both periods, adjusted operating income was $18.5 million for the third quarter of 2012 compared with $15.7 million in the third quarter of 2011, an increase of 18%.

The Company received orders totaling $225.5 million during the third quarter of 2012, a decrease of 1% compared with the third quarter of 2011. Backlog as of September 30, 2012 was $444.3 million, up 1% from backlog of $440.2 million at October 2, 2011.

During the third quarter of 2012, the Company generated $18.7 million of free cash flow (defined as net cash from operating activities less capital expenditures). This compares with $5.2 million of free cash flow used in the third quarter of 2011.

Energy

Energy segment revenues increased 6% to $110.0 million for the third quarter of 2012 from $103.3 million for the third quarter of 2011 across most markets. The segment reported increases in the short-cycle North American and large international project businesses, partially offset by lower pipeline shipments as well as unfavorable foreign currency fluctuations of $5.1 million.

Incoming orders for the third quarter of 2012 were $118.1 million, an increase of 26% year-over-year primarily due to higher international project and North American short-cycle orders. Ending backlog totaled $210.4 million, an increase of 4% year-over-year. The increase in backlog was primarily due to higher order levels within our large international project business, partially offset by ongoing shipments of a large pipeline project booked in 2010.

For the third quarter of 2012, the Energy segment adjusted operating margin increased to 14.0% from 7.2% in the third quarter of 2011, primarily driven by favorable penalty reserve adjustments as CIRCOR closed several large international projects, improved pricing and increased volume with the associated leverage. Segment adjusted operating margin for the quarter excludes special and impairment charges of $1.1 million and $2.2 million, respectively, and repositioning related inventory charges of $0.9 million. The repositioning charges are related to the exiting of certain underperforming manufacturing operations and non-strategic product lines at the Company's Brazil operations.

Aerospace

Aerospace segment revenues decreased by 3% to $31.8 million for the third quarter of 2012 from $32.7 million in the third quarter of 2011. The decrease was primarily due to unfavorable foreign currency fluctuations of $1.0 million.

Incoming orders for the third quarter of 2012 were $42.9 million, a decrease of 32% year-over-year primarily due to lower landing gear orders in both commercial and military. Ending backlog totaled $162.7 million, an increase of 1% year-over-year.

The Aerospace segment's adjusted operating margin for the third quarter of 2012 decreased to 4.2% from 5.6% in the third quarter of 2011 primarily due to the timing of operating expenses as well as investments in future programs. Segment adjusted operating margin excludes special and impairment charges of $0.2 million and $8.2 million, respectively, and repositioning related inventory charges of $3.2 million. The charges in the third quarter of 2012 are related to exiting certain low margin product lines, as well as the repositioning of certain landing gear operations and manufacturing activities within California.

Flow Technologies

Flow Technologies segment revenues decreased 8% to $68.0 million for the third quarter of 2012 from $74.0 million in the third quarter of 2011. Third-quarter 2012 Flow Technologies segment revenues reflected an organic decline of $4.4 million and unfavorable foreign currency fluctuations of $1.5 million. The organic revenue decline was primarily due to lower LED equipment shipments, partially offset by organic growth across most other businesses.

Incoming orders for the Flow Technologies segment were $64.5 million for the third quarter of 2012, a decrease of 9% year-over-year, primarily due to weakness in the LED equipment market. Ending backlog totaled $71.2 million, a decrease of 8% year-over-year driven by the shipment of Navy backlog and lower LED equipment orders.

The segment's adjusted operating margin for the third quarter of 2012 decreased to 13.1% from 13.6% in the third quarter of 2011, primarily due to lower volume and associated leverage and growth investments partially offset by favorable mix and reduced spending.

Financial Outlook

As part of its repositioning actions, CIRCOR expects to incur pretax charges in the range of $3.0 million to $3.5 million, or $0.16 to $0.19 per diluted share, during the fourth quarter of 2012.

CIRCOR currently expects revenues for the fourth quarter of 2012 in the range of $203 million to $212 million. Excluding repositioning charges, adjusted earnings for the fourth quarter are expected to be in the range of $0.50 to $0.62 per diluted share. CIRCOR's guidance for adjusted earnings per share assumes a 30% tax rate on adjusted earnings. It also assumes that exchange rates remain at present levels.

Conference Call Information

CIRCOR International will hold a conference call to review its financial results today, November 1, 2012, 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. 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 fourth-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 the energy, aerospace and industrial markets. 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

Nine Months Ended

September 30, 2012

October 2, 2011

September 30, 2012

October 2, 2011

Net revenues

$

209,804

$

209,961

$

643,946

$

605,239

Cost of revenues

151,109

154,774

462,823

439,218

GROSS PROFIT

58,695

55,187

181,123

166,021

Selling, general and administrative expenses

44,314

39,448

134,562

124,083

Leslie asbestos and bankruptcy (recoveries) charges, net

(201

)

676

Impairment charges

10,348

10,348

Special charges

1,377

1,377

OPERATING INCOME

2,656

15,940

34,836

41,262

Other (income) expense:

Interest income

(101

)

(69

)

(262

)

(166

)

Interest expense

1,223

956

3,482

3,058

Other, net

564

354

887

1,830

TOTAL OTHER EXPENSE

1,686

1,241

4,107

4,722

INCOME BEFORE INCOME TAXES

970

14,699

30,729

36,540

(Benefit) provision for income taxes

(899

)

3,752

9,138

10,191

NET INCOME

$

1,869

$

10,947

$

21,591

$

26,349

Earnings per common share:

Basic

$

0.11

$

0.63

$

1.24

$

1.53

Diluted

$

0.11

$

0.63

$

1.24

$

1.51

Weighted average number of common shares outstanding:

Basic

17,433

17,266

17,391

17,226

Diluted

17,467

17,423

17,436

17,412

CIRCOR INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)

Nine Months Ended

September 30, 2012

October 2, 2011

OPERATING ACTIVITIES

Net income

$

21,591

$

26,349

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation

11,765

11,265

Amortization

2,823

3,293

Impairment charges

10,348

Payment for Leslie bankruptcy settlement

(1,000

)

(76,625

)

Compensation expense of share-based plans

3,409

3,007

Tax effect of share-based compensation

573

(649

)

Loss (gain) on property, plant and equipment

1,148

(68

)

Changes in operating assets and liabilities, net of effects from business acquisitions:

Trade accounts receivable

(123

)

(1,249

)

Inventories

8,586

(43,901

)

Prepaid expenses and other assets

(2,110

)

(9,453

)

Accounts payable, accrued expenses and other liabilities

(26,178

)

17,353

Net cash provided by (used in) operating activities

30,832

(70,678

)

INVESTING ACTIVITIES

Additions to property, plant and equipment

(14,097

)

(11,254

)

Proceeds from the sale of property, plant and equipment

200

84

Business acquisitions, net of cash acquired

(20,221

)

Net cash used in investing activities

(13,897

)

(31,391

)

FINANCING ACTIVITIES

Proceeds from long-term debt

170,795

224,455

Payments of long-term debt

(192,040

)

(126,269

)

Debt issuance costs

(2,001

)

Dividends paid

(1,997

)

(1,987

)

Proceeds from the exercise of stock options

348

496

Tax effect of share-based compensation

(573

)

649

Net cash (used in) provided by financing activities

(23,467

)

95,343

Effect of exchange rate changes on cash and cash equivalents

653

228

DECREASE IN CASH AND CASH EQUIVALENTS

(5,879

)

(6,498

)

Cash and cash equivalents at beginning of period

54,855

45,752

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

48,976

$

39,254

CIRCOR INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

UNAUDITED

September 30, 2012

December 31, 2011

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

48,976

$

54,855

Short-term investments

102

99

Trade accounts receivable, less allowance for doubtful accounts of $1,722 and $1,127, respectively

156,744

156,075

Inventories, net

194,644

203,777

Prepaid expenses and other current assets

14,768

12,376

Deferred income tax asset

15,795

16,320

Assets held for sale

542

542

Total Current Assets

431,571

444,044

PROPERTY, PLANT AND EQUIPMENT, NET

105,348

104,434

OTHER ASSETS:

Goodwill

77,411

77,829

Intangibles, net

45,677

58,442

Deferred income tax asset

28,073

27,949

Other assets

9,556

9,825

TOTAL ASSETS

$

697,636

$

722,523

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$

72,379

$

92,493

Accrued expenses and other current liabilities

60,109

63,386

Accrued compensation and benefits

26,045

24,328

Asbestos liability

1,000

Income taxes payable

2,686

5,553

Notes payable and current portion of long-term debt

6,723

8,796

Total Current Liabilities

167,942

195,556

LONG-TERM DEBT, NET OF CURRENT PORTION

77,061

96,327

DEFERRED INCOME TAXES

10,196

11,284

OTHER NON-CURRENT LIABILITIES

34,117

35,271

SHAREHOLDERS' EQUITY: