CIRCOR Reports Second-Quarter 2014 Financial Results

BURLINGTON, Mass.--(BUSINESS WIRE)--Aug. 1, 2014-- CIRCOR International, Inc. (NYSE: CIR), a leading provider of valves and other highly engineered products for markets including oil & gas, power generation and aerospace & defense, today announced financial results for the second quarter ended June 29, 2014.

Second-Quarter 2014 Highlights

Adjusted operating margin expanded 70 basis points to 10.7%
Adjusted EPS grew 12% to $0.91
Year-to-date free cash flow was $21.8 million, 82% of net income
Orders up 2%
Growth and restructuring initiatives remain on track

“CIRCOR continued to demonstrate strong bottom-line improvement during the second quarter,” said Scott Buckhout, CIRCOR President and Chief Executive Officer. “We achieved a 70 basis point increase in adjusted operating margin to 10.7% largely driven by restructuring and cost control initiatives.”

“Similar to the first quarter, second-quarter quoting activity remained strong in upstream oil and gas, as well as in power generation; however, actual bookings continue to be slow. In our Aerospace & Defense business, bookings were up over the prior year.”

“Our ability to meet our bottom-line expectations is a result of our focus on expanding margins through operational excellence and the CIRCOR simplification program. We expect that our margin expansion initiatives will gain further traction throughout the year.”

“We continue to make investments in transforming CIRCOR into a growth company. We are increasing our sales and engineering capacity in key international growth markets while we focus more resources on developing innovative new products,” concluded Buckhout.

Third-Quarter 2014 Guidance

For the third quarter of 2014, the Company expects:

Revenues in the range of $200 million to $215 million;
Adjusted earnings per share, excluding restructuring and special charges, in the range of $0.87 to $0.94; and,
Restructuring and special related charges of approximately $1.6 million to $2.0 million.


Selected Consolidated Results

(In millions, except percents and bps)	Q2 2014		Q2 2013		Change
Revenue	$	207.9	$	223.6	-7%
Adjusted Operating Income¹	$	22.2	$	22.3	-1%
Adjusted Operating Margin¹		10.7%		10.0%	70 bps
GAAP Earnings Per Share (Diluted)	$	0.67	$	0.72	-7%
Adjusted Earnings Per Share (Diluted) ¹	$	0.91	$	0.81	12%
Orders	$	203.7	$	200.1	2%
Backlog²	$	413.1	$	433.5	-5%
Free Cash Flow	$	7.4	$	9.5	-22%


Segment Results

(In millions, except percents and bps)	Q2 2014		Q2 2013		Change
Energy
Revenue	$	160.6	$	173.6	-7%
Adjusted Operating Margin¹		14.6%		13.3%	130 bps
Orders	$	160.3	$	163.8	-2%
Backlog	$	279.5	$	263.6	6%

Aerospace & Defense
Revenue	$	47.3	$	50.1	-6%
Adjusted Operating Margin¹		7.1%		11.4%	-430 bps
Orders	$	43.4	$	36.3	20%
Backlog²	$	133.5	$	169.9	-21%

1. Consolidated and Segment Results exclude special and restructuring charges, $1.3 million and $2.3 million related to restructuring actions during Q2 2014 and Q2 2013, respectively, as well as $5.1 million in inventory charges related to the exit of certain landing gear product lines recorded during Q2 2014. Refer to reconciliation to commonly used US GAAP terms.
2. Consolidated and Aerospace & Defense Segment Backlog reflects a Q2 2014 reduction of $28.6 million associated with the exit of certain landing gear product lines.

Conference Call Information

CIRCOR International will hold a conference call to review its financial results today, August 1, 2014, at 10:00 a.m. ET. To listen to the conference call and view the accompanying presentation slides, visit “Webcasts & Presentations” in the “Investors” section of the CIRCOR website. The live call also can be accessed by dialing (877) 407-5790 or (201) 689-8328. 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 income, 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 third-quarter revenue and earnings guidance and estimated total annualized pre-tax savings from restructuring 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 highly engineered products and sub-systems for markets including oil & gas, power generation and aerospace & defense. With more than 7,000 customers in over 100 countries, CIRCOR has a diversified product portfolio with recognized, market-leading brands that fulfill its customers’ unique application needs. The Company’s strategy is to grow organically and through complementary acquisitions; simplify CIRCOR’s operations; achieve world class operational excellence; and attract and retain top industry talent. For more information, visit the Company’s investor relations website at http://investors.circor.com.


CIRCOR INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except share data)
UNAUDITED

	Three Months Ended					Six Months Ended
	June 29, 2014			June 30, 2013		June 29, 2014			June 30, 2013
Net revenues	$	207,884		$	223,644	$	419,070		$	429,042
Cost of revenues	148,184			153,538		294,731			299,086
GROSS PROFIT	59,700			70,106		124,339			129,956
Selling, general and administrative expenses	42,609			47,596		87,498			93,168
Special charges, net	1,257			2,254		100			3,632
OPERATING INCOME	15,834			20,256		36,741			33,156
Other (income) expense:
Interest expense, net	891			838		1,809			1,625
Other (income) expense, net	(384		)	626		(853		)	1,239
TOTAL OTHER EXPENSE, NET	507			1,464		956			2,864
INCOME BEFORE INCOME TAXES	15,328			18,792		35,785			30,292
Provision for income taxes	3,402			6,124		9,227			9,715
NET INCOME	$	11,926		$	12,667	$	26,558		$	20,577
Earnings per common share:
Basic	$	0.68		$	0.72	$	1.51		$	1.17
Diluted	$	0.67		$	0.72	$	1.50		$	1.17
Weighted average number of common shares outstanding:
Basic	17,665			17,565		17,643			17,539
Diluted	17,767			17,607		17,754			17,569
Dividends paid per common share	$	0.0375		$	0.0375	$	0.0750		$	0.0750


CIRCOR INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)

	Six Months Ended
	June 29, 2014			June 30, 2013
OPERATING ACTIVITIES
Net income	$	26,558		$	20,577
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	8,185			8,035
Amortization	1,591			1,509
Compensation expense of share-based plans	4,020			2,156
Tax effect of share-based plan compensation	(971		)	(422		)
(Gain) on disposal of property, plant and equipment	(54		)	(129		)
Changes in operating assets and liabilities:
Trade accounts receivable, net	(23,705		)	(9,406		)
Inventories, net	3,600			(4,059		)
Prepaid expenses and other assets	143			(2,412		)
Accounts payable, accrued expenses and other liabilities	7,988			3,583
Net cash provided by operating activities	27,355			19,432
INVESTING ACTIVITIES
Additions to property, plant and equipment	(5,603		)	(8,808		)
Proceeds from the sale of property, plant and equipment	32			314
Net cash used in investing activities	(5,571		)	(8,494		)
FINANCING ACTIVITIES
Proceeds from long-term debt	81,910			74,255
Payments of long-term debt	(88,776		)	(84,679		)
Dividends paid	(1,341		)	(1,340		)
Proceeds from the exercise of stock options	237			1,498
Tax effect of share-based compensation	971			422
Net cash used in financing activities	(6,999		)	(9,844		)
Effect of exchange rate changes on cash and cash equivalents	(639		)	(2,002		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	14,146			(907		)
Cash and cash equivalents at beginning of year	102,180			61,738
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	116,326		$	60,831
Cash paid during the year for:
Income taxes	$	6,375		$	3,464
Interest	$	1,358		$	1,054


CIRCOR INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

	June 29, 2014		December 31, 2013
ASSETS	(unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	116,326	$	102,180
Short-term investments	95		95
Trade accounts receivable, less allowance for doubtful accounts of $2,832 and $2,449, respectively	168,541		144,742
Inventories, net	196,389		199,404
Prepaid expenses and other current assets	19,817		19,815
Deferred income tax asset	19,476		17,686
Total Current Assets	520,644		483,922
PROPERTY, PLANT AND EQUIPMENT, NET	105,461		107,724
OTHER ASSETS:
Goodwill	76,860		75,876
Intangibles, net	34,476		35,656
Deferred income tax asset	16,779		18,579
Other assets	4,866		4,893
TOTAL ASSETS	$	759,086	$	726,650
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	81,886	$	70,589
Accrued expenses and other current liabilities	63,023		57,507
Accrued compensation and benefits	24,369		31,289
Income taxes payable	6,396		3,965
Notes payable and current portion of long-term debt	3,642		7,203
Total Current Liabilities	179,316		170,553
LONG-TERM DEBT, NET OF CURRENT PORTION	39,797		42,435
DEFERRED INCOME TAXES	9,236		9,666
OTHER NON-CURRENT LIABILITIES	23,375		27,109
SHAREHOLDERS’ EQUITY:
Common stock	170		176
Additional paid-in capital	274,580		269,884
Retained earnings	227,868		202,930
Accumulated other comprehensive gain, net of taxes	4,744		3,897
Total Shareholders’ Equity	507,362		476,887
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	759,086	$	726,650


CIRCOR INTERNATIONAL, INC.
SUMMARY OF ORDERS AND BACKLOG
(in millions)
UNAUDITED

	Three Months Ended				Six Months Ended
	June 29, 2014		June 30, 2013		June 29, 2014		June 30, 2013
ORDERS (1)
Energy	$	160.3	$	163.8	$	319.9	$	337.3
Aerospace & Defense	43.4		36.3		83.7		89.6
Total orders	$	203.7	$	200.1	$	403.6	$	426.9

BACKLOG (2)	June 29, 2014		June 30, 2013
Energy	$	279.5	$	263.6
Aerospace & Defense (3)	133.5		169.9
Total backlog	$	413.1	$	433.5

Note 1: Orders do not include the foreign exchange impact due to the re-measurement of customer order backlog amounts denominated in foreign currencies.

Note 2: Backlog includes all unshipped customer orders.

Note 3: Aerospace & Defense backlog reflects a reduction of $28.6 million associated with the exit of certain landing gear product lines recorded in the second quarter of 2014.

CIRCOR INTERNATIONAL, INC. SUMMARY REPORT BY SEGMENT (in thousands, except earnings per share) UNAUDITED
	2013															2014
	1ST QTR			2ND QTR			3RD QTR			4TH QTR			TOTAL			1ST QTR			2ND QTR			TOTAL
NET REVENUES
Energy	$	157,104		$	173,557		$	167,660		$	162,649		$	660,970		$	162,587		$160,580			$323,167
Aerospace & Defense	48,294			50,087			47,071			51,386			196,838			48,599			47,304			95,903
Total	$	205,398		$	223,644		$	214,731		$	214,035		$	857,808		$	211,186		$	207,884		$	419,070
ADJUSTED OPERATING MARGIN
Energy	10.8		%	13.3		%	15.2		%	17.1		%	14.1		%	13.8		%	14.6		%	14.2		%
Aerospace & Defense	5.9		%	11.4		%	12.1		%	8.4		%	9.5		%	9.1		%	7.1		%	8.1		%
Segment operating margin	9.6		%	12.9		%	14.5		%	15.0		%	13.0		%	12.7		%	12.9		%	12.8		%
Corporate expenses	(2.6		)%	(2.9		)%	(3.4		)%	(3.5		)%	(3.1		)%	(3.4		)%	(2.2		)%	(2.8		)%
Adjusted operating margin	7.1		%	10.0		%	11.1		%	11.6		%	9.9		%	9.4		%	10.7		%	10.0		%
Restructuring inventory charges	0.1		%	(0.1		)%	—		%	0.3		%	0.1		%	—		%	2.5		%	1.2		%
Impairment charges	—		%	—		%	—		%	3.2		%	0.8		%	—		%	—		%	—		%
Special (recoveries)	—		%	—		%	(1.5		)%	—		%	(0.4		)%	(1.1		)%	—		%	(0.5		)%
Special charges	0.7		%	1.0		%	1.4		%	2.4		%	1.4		%	0.5		%	0.6		%	0.6		%
Total GAAP operating margin	6.3		%	9.1		%	11.1		%	5.6		%	8.1		%	9.9		%	7.6		%	8.8		%



	2013															2014
	1ST QTR			2ND QTR			3RD QTR			4TH QTR			TOTAL			1ST QTR			2ND QTR			TOTAL
ADJUSTED OPERATING INCOME
Energy	$	16,940		$	23,114		$	25,441		$	27,809		$	93,304		$	22,462		$23,502			$	45,964
Aerospace & Defense	2,864			5,724			5,705			4,342			18,635			4,426			3,362			7,788
Segment operating income	19,804			28,838			31,146			32,151			111,939			26,888			26,864			53,752
Corporate expenses	(5,277		)	(6,570		)	(7,400		)	(7,400		)	(26,646		)	(7,137		)	(4,634		)	(11,771		)
Adjusted operating income	14,528			22,268			23,746			24,751			85,293			19,750			22,231			41,981
Restructuring inventory charges	250			(242		)	—			638			646			—			5,139			5,139
Impairment charges	—			—			—			6,872			6,872			—			—			—
Special (recoveries)	—			—			(3,151		)	—			(3,151		)	(2,243		)	—			(2,243		)
Special charges	1,378			2,254			2,961			5,160			11,752			1,086			1,257			2,343
Total GAAP operating income	12,900			20,256			23,936			12,081			69,174			20,907			15,834			36,741
INTEREST EXPENSE, NET	(787		)	(838		)	(745		)	(792		)	(3,162		)	(918		)	(891		)	(1,809		)
OTHER (EXPENSE) INCOME, NET	(612		)	(626		)	(568		)	(167		)	(1,974		)	468			384			853
PRETAX INCOME	11,501			18,792			22,623			11,122			64,038			20,457			15,328			35,785
PROVISION FOR INCOME TAXES	(3,592		)	(6,124		)	(4,903		)	(2,297		)	(16,916		)	(5,825		)	(3,402		)	(9,227		)
EFFECTIVE TAX RATE	31.2		%	32.6		%	21.7		%	20.7		%	26.4		%	28.5		%	22.2		%	25.8		%
NET INCOME	$	7,908		$	12,668		$	17,720		$	8,825		$	47,121		$	14,632		$	11,926		$	26,558
Weighted Average Common Shares Outstanding (Diluted)	17,529			17,607			17,667			17,710			17,629			17,741			17,767			17,754
EARNINGS PER COMMON SHARE (Diluted)	$	0.45		$	0.72		$	1.00		$	0.50		$	2.67		$	0.82		$	0.67		$	1.50
ADJUSTED EBITDA	$	18,682		$	26,419		$	27,850		$	29,441		$	102,392		$	27,387		$	14,744		$	42,131
ADJUSTED EBITDA AS A % OF SALES	9.1		%	11.8		%	13.0		%	13.8		%	11.9		%	13.0		%	7.1		%	10.1		%
CAPITAL EXPENDITURES	$	4,707		$	4,100		$	4,772		$	3,749		$	17,328		$	2,670		$	2,933		$	5,603


CIRCOR INTERNATIONAL, INC.
RECONCILIATION OF KEY PERFORMANCE MEASURES TO COMMONLY USED GENERALLY ACCEPTED ACCOUNTING PRINCIPLE TERMS
(in thousands, except earnings per share)
UNAUDITED

	2013															2014
	1ST QTR			2ND QTR			3RD QTR			4TH QTR			TOTAL			1ST QTR			2ND QTR			TOTAL
FREE CASH FLOW AS % OF NET INCOME	14		%	75		%	167		%	167		%	116		%	98		%	62		%	82		%
FREE CASH FLOW	$	1,100		$	9,525		$	29,557		$	14,696		$	54,878		$	14,387		$	7,365		$	21,752
ADD:
Capital Expenditures	4,707			4,100			4,772			3,749			17,328			2,670			2,933			5,603
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	5,807		$	13,625		$	34,329		$	18,445		$	72,206		$	17,057		$	10,298		$	27,355
NET DEBT (CASH)	$	8,814		$	(1,376	)	$	(36,466	)	$	(52,637	)	$	(52,637	)	$	(66,056	)	$	(72,982	)	$	(72,982	)
ADD:
Cash & Cash Equivalents	57,633			60,831			86,285			102,180			102,180			122,097			116,326			116,326
Investments	99			96			98			95			95			92			95			95
TOTAL DEBT	$	66,546		$	59,551		$	49,917		$	49,638		$	49,638		$	56,133		$	43,439		$	43,439
DEBT AS % OF EQUITY	16		%	14		%	11		%	10		%	10		%	11		%	9		%	9		%
TOTAL DEBT	66,546			59,551			49,917			49,638			49,638			56,133			43,439			43,439
TOTAL SHAREHOLDERS' EQUITY	418,819			432,151			459,058			476,887			476,887			492,601			507,363			507,363


	2013															2014
	1ST QTR			2ND QTR			3RD QTR			4TH QTR			TOTAL			1ST QTR			2ND QTR			TOTAL
ADJUSTED OPERATING INCOME	$	14,528		$	22,268		$	23,746		$	24,751		$	85,293		$	19,750		$	22,230		$	41,980
LESS:
Inventory restructuring charges	250			(242		)	—			638			646			—			5,139			5,139
Impairment charges	—			—			—			6,872			6,872			—			—			—
Special (recoveries)	—			—			(3,151		)	—			(3,151		)	(2,243		)	—			(2,243		)
Special charges	1,378			2,254			2,961			5,160			11,753			1,086			1,257			2,343
OPERATING INCOME	$	12,900		$	20,256		$	23,936		$	12,081		$	69,173		$	20,907		$	15,834		$	36,741
ADJUSTED NET INCOME	$	9,043		$	14,044		$	16,439		$	16,773		$	56,299		$	13,916		$	16,090		$	30,006
LESS:
Inventory restructuring charges, net of tax	174			(165		)	—			396			405			—			3,316			3,316
Impairment charges, net of tax	—			—			—			4,261			4,261			—			—			—
Special (recoveries), net of tax	—			—			(3,151		)	—			(3,151		)	(1,391		)	—			(1,391		)
Special charges, net of tax	961			1,541			1,870			3,291			7,663			675			848			1,523
NET INCOME	$	7,908		$	12,668		$	17,720		$	8,825		$	47,121		$	14,632		$	11,926		$	26,558
ADJUSTED EARNINGS PER SHARE	$	0.52		$	0.81		$	0.93		$	0.95		$	3.21		$	0.78		$	0.91		$	1.70
LESS:
Inventory restructuring charges, net of tax	0.01			(0.01		)	—			0.02			0.02			—			0.19			0.19
Impairment charges, net of tax	—			—			—			0.24			0.24			—			—			—
Special (recoveries), net of tax	—			—			(0.18		)	—			(0.18		)	(0.08		)	—			(0.08		)
Special charges, net of tax	0.06			0.10			0.11			0.19			0.46			0.04			0.05			0.09
EARNINGS PER COMMON SHARE (Diluted)	$	0.45		$	0.72		$	1.00		$	0.50		$	2.67		$	0.82		$	0.67		$	1.50


	2013															2014
	1ST QTR			2ND QTR			3RD QTR			4TH QTR			TOTAL			1ST QTR			2ND QTR			TOTAL
EBITDA	$	17,054		$	24,407		$	23,368		$	11,914		$	86,272		$	26,230		$	21,140		$	47,370
LESS:
Interest expense, net	(787		)	(838		)	(745		)	(792		)	(3,162		)	(918		)	(891		)	(1,809		)
Depreciation	(4,009		)	(4,026		)	(3,908		)	(4,091		)	(16,034		)	(4,069		)	(4,116		)	(8,185		)
Amortization	(758		)	(751		)	(764		)	(766		)	(3,039		)	(786		)	(805		)	(1,591		)
Provision for income taxes	(3,592		)	(6,124		)	(4,903		)	(2,297		)	(16,916		)	(5,825		)	(3,402		)	(9,227		)
NET INCOME	$	7,908		$	12,668		$	17,720		$	8,825		$	47,121		$	14,632		$	11,926		$	26,558
ADJUSTED EBITDA	$	18,682		$	26,419		$	27,850		$	29,441		$	102,392		$	27,387		$	14,744		$	42,131
Inventory restructuring charges	(250		)	242			—			(638		)	(646		)	—			5,139			5,139
Impairment charges	—			—			—			(6,872		)	(6,872		)	—			—			—
Special (recoveries)	—			—			3,151			—			3,151			(2,243		)	—			(2,243		)
Special charges	(1,378		)	(2,254		)	(2,961		)	(5,160		)	(11,753		)	1,086			1,257			2,343
Interest expense, net	(787		)	(838		)	(745		)	(792		)	(3,162		)	(918		)	(891		)	(1,809		)
Depreciation	(4,009		)	(4,026		)	(3,908		)	(4,091		)	(16,034		)	(4,069		)	(4,116		)	(8,185		)
Amortization	(758		)	(751		)	(764		)	(766		)	(3,039		)	(786		)	(805		)	(1,591		)
Provision for income taxes	(3,592		)	(6,124		)	(4,903		)	(2,297		)	(16,916		)	(5,825		)	(3,402		)	(9,227		)
NET INCOME	$	7,908		$	12,668		$	17,720		$	8,825		$	47,121		$	14,632		$	11,926		$	26,558


CIRCOR INTERNATIONAL, INC.
RECONCILIATION OF FUTURE PERFORMANCE MEASURES TO COMMONLY
USED GENERALLY ACCEPTED ACCOUNTING PRINCIPLE TERMS
UNAUDITED

	3rd Quarter 2014
	Low		High
REVENUE (in millions)	$	200	$	215

EXPECTED ADJUSTED EARNINGS PER SHARE (DILUTIVE)	$	0.87	$	0.94
LESS: Restructuring related charges, Special charges		0.08		0.06
EXPECTED EARNINGS PER COMMON SHARE (Diluted)	$	0.79	$	0.88

Note: Assumes 26% to 27% tax rate and exchange rates at present values.

Source: CIRCOR International, Inc.

CIRCOR International
Rajeev Bhalla, 781-270-1200
Executive Vice President & Chief Financial Officer

News Release

CIRCOR Reports Second-Quarter 2014 Financial Results