UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q/A
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 1-14962
CIRCOR INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3477276
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 CORPORATE DRIVE, BURLINGTON, MA 01803-4230
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 270-1200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes No X (1)
------ ------
There were 13,236,877 shares of common stock outstanding as of November 19,
1999.
- --------------
(1)The registrant has been subject to such filing requirements since October
18, 1999, less than 90 days.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIRCOR International, Inc.
Combined Balance Sheets
(IN THOUSANDS)
September 30, 1999 June 30, 1999
Assets (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 4,311 $ 6,714
Short-term Investments 1,097 -
Accounts receivable, net of allowances
of $2,756 in September, 1999
and $2,949 in June, 1999 55,497 49,857
Inventories:
Raw materials 43,875 45,098
Work in process 28,617 23,087
Finished goods 36,840 40,725
------- -------
Total inventories 109,332 108,910
------- -------
Deferred income taxes 11,955 11,919
Prepaid expenses and other
current assets 5,091 6,817
------- -------
Total current assets 187,283 184,217
------- -------
Property, plant and equipment, at cost 147,222 143,877
Accumulated depreciation (69,837) (67,195)
------- -------
Property, plant and equipment, net 77,385 76,682
------- -------
Goodwill, net of accumulated amortization of
$11,077 in September, 1999 and
$10,353 in June, 1999 96,524 96,900
Other assets 4,426 4,571
------- -------
Total assets $365,618 $362,370
======= =======
The accompanying notes are an integral part of the combined financial
statements.
2
CIRCOR International, Inc.
Combined Balance Sheets
(IN THOUSANDS)
September 30, 1999 June 30, 1999
LIABILITIES AND SHAREHOLDER'S EQUITY (Unaudited) (Audited)
Current liabilities:
Accounts payable $ 20,568 $ 25,543
Accrued expenses and other current
liabilities 18,431 19,448
Accrued compensation and benefits 4,376 5,705
Income taxes payable 2,786 3,275
Current portion of long-term debt 5,548 4,178
------- -------
Total current liabilities 51,709 58,149
------- -------
Long-term debt, net of current portion 21,847 22,404
Deferred income taxes 10,780 10,766
Other non-current liabilities 7,366 7,675
Minority interest 4,102 4,120
-------- --------
Shareholder's equity:
Shareholder's equity 269,946 259,947
Accumulated other comprehensive income (132) (691)
-------- --------
Total shareholder's equity 269,814 259,256
------- -------
Total liabilities and
shareholder's equity $365,618 $362,370
======= =======
The accompanying notes are an integral part of the combined financial
statements.
3
CIRCOR International, Inc.
Combined Statements of Operations
(Unaudited)
(IN THOUSANDS)
For the three months ended
September 30, 1999 September 30, 1998
Net revenues $ 77,713 $ 80,997
Cost of revenues 54,574 55,167
------ ------
Gross profit 23,139 25,830
Selling, general and administrative
expenses 17,726 17,580
------ ------
Income from operations 5,413 8,250
Other (income) expense:
Interest income (22) (86)
Interest expense 2,154 1,987
Other (income) expense, net 317 (70)
------ ------
Total other (income) expense 2,449 1,831
------ ------
Income before income taxes 2,964 6,419
Provision for income taxes 1,276 2,713
------- ------
Net income $ 1,688 $ 3,706
====== ======
The accompanying notes are an integral part of the combined financial
statements.
4
CIRCOR International, Inc.
Combined Statements of Cash Flows
(Unaudited)
(IN THOUSANDS)
For the three months ended
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
Cash flows from operating activities:
Net income $ 1,688 $ 3,706
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation 2,707 2,214
Amortization 779 664
(Gain) loss on disposal of equipment (33) 7
Change in operating assets & liabilities,
net of effects from business acquisitions:
Accounts receivable (5,140) (145)
Inventories (203) 797
Deferred income taxes 1 105
Prepaid expenses and current assets 2,455 678
Accounts payable (5,271) (10,684)
Income taxes payable (1,047) (740)
Accrued expenses and other liabilities (2,746) (1,241)
------- ------ -
Net cash (used) by operating activities (6,810) (4,639)
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (3,262) (907)
Proceeds from sale of assets 45 1,005
Increase in other assets (335) -
Business acquisitions, net of cash acquired - (64,190)
Net change in short-term investments (1,075) -
------- -------
Net cash (used) by investing activities (4,627) (64,092)
------- ------
Cash flows from financing activities:
Proceeds from long-term borrowings 1,332 1,588
Payments of long-term debt (811) (3,013)
Net intercompany activity with Watts Industries, Inc. 8,311 70,969
------- ------
Net cash by financing activities 8,832 69,544
------- ------
Effect of exchange rate changes on cash and
cash equivalent 202 515
------- ------
Net increase (decrease) in cash and cash equivalents (2,403) 1,328
Cash and cash equivalents at beginning of period 6,714 6,241
------- ------
Cash and cash equivalents at end of period $ 4,311 $ 7,569
======= ======
The accompanying notes are an integral part of the combined financial
statements.
5
CIRCOR International, Inc.
Notes to Combined Financial Statements
September 30, 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
On December 15, 1998 the Board of Directors of Watts Industries, Inc. ("Watts")
approved a plan to spin off its industrial, oil and gas businesses as an
independent, publicly-traded company through a distribution to its shareholders
of all of the outstanding shares of CIRCOR International, Inc. CIRCOR owns the
assets and assumed the liabilities of Watts' industrial, oil and gas businesses.
The distribution was completed on October 18, 1999, after the appropriate
approvals of third parties and the receipt of a private letter ruling from the
Internal Revenue Service that the receipt of the Company shares by Watts'
shareholders would be tax-free and that no gain or loss would be recognized by
Watts or Watts' shareholders on the distribution. However, Watts' shareholders
would be subject to tax on gains attributable to cash received in lieu of
fractional shares.
Prior to the distribution, CIRCOR obtained an unsecured credit facility which is
intended to provide sufficient liquidity for the Company's current funding
needs. The unsecured credit facility has a four-year term.
In addition, CIRCOR and Watts entered into several agreements providing for the
separation of the companies and governing various relationships between CIRCOR
and Watts, including a Distribution Agreement, Supply Agreement, and Tradename
License Agreement.
The accompanying unaudited combined financial statements include the accounts of
CIRCOR International, Inc. and have been prepared in accordance with generally
accepted accounting principles for interim financial information and pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
For further information, refer to the combined financial statements and
footnotes included in the Form 10 of CIRCOR International, Inc. (the "Company")
for the year ended June 30, 1999.
In the opinion of management, all adjustments considered necessary for a fair
presentation of the financial statements have been included. The Company will
adopt the calendar year as its fiscal year beginning January 1, 2000. Operating
results for the three-month period ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the "six month" short year
ending December 31, 1999.
NOTE 2 - NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issues SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities". The Company will
adopt SFAS 133 no later than January 1, 2001. Its impact on the combined
financial statements is still being evaluated, but it is not expected to be
material.
6
NOTE 3 - SEGMENT INFORMATION
The following table presents certain operating segment information:
(IN THOUSANDS)
Instrumentation &
Fluid Regulation Petrochemical
Products Products Corporate Total
-------- -------- --------- -----
Three months ended
September 30, 1999
Net revenue $41,436 $36,277 $ - $77,713
Operating income (loss) 3,863 3,258 (1,708) 5,413
Three months ended
September 30, 1998
Net revenue $40,304 $40,693 $ - $80,997
Operating income (loss) 5,319 4,449 (1,518) 8,250
The above operating segments are presented on a basis consistent with the
presentation included in the Company's June 30, 1999 financial statements. There
have been no material changes in the identifiable assets of the individual
segments since June 30, 1999.
NOTE 4 - COMPREHENSIVE INCOME
As of July 1, 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive
Income", which established standards for the reporting and display of
comprehensive income and its components in the Financial statements. The
Company's other comprehensive income consists solely of cumulative translation
adjustments. The Company does not provide U.S. income taxes on foreign currency
translation adjustments since it does not provide for such taxes on
undistributed earnings of foreign subsidiaries. Comprehensive income for the
three months ended September 30, 1999 and 1998 were as follows:
(IN THOUSANDS)
1999 1998
---- ----
Net income $1,688 $3,706
Foreign currency translation adjustments 559 920
------ ------
Total comprehensive income $2,247 $4,626
====== ======
NOTE 5 - CONTINGENCIES AND ENVIRONMENTAL REMEDIATION
CONTINGENCIES
The Company has lawsuits and proceedings or claims arising from the ordinary
course of business pending or threatened. The Company has established reserves
which management presently believes are adequate in light of probable and
estimable exposure to the pending or threatened litigation of which it has
knowledge. Such contingencies are not expected to have a material effect on
financial position, results of operations, or liquidity of the Company.
7
ENVIRONMENTAL REMEDIATION
The Company has been named a potentially responsible party with respect to
identified contaminated sites. The level of contamination varies significantly
from site to site as do the related levels of remediation efforts. Environmental
liabilities are recorded based on the most probable cost, if known, or on the
estimated minimum cost of remediation. The Company's accrued estimated
environmental liabilities are based on assumptions which are subject to a number
of factors and uncertainties. Circumstances which can affect the reliability and
precision of these estimates include identification of additional sites,
environmental regulations, level of cleanup required, technologies available,
number and financial condition of other contributors to remediation and the time
period over which remediation may occur. The Company recognizes changes in
estimates as new remediation requirements are defined or as new information
becomes available. The Company estimates that its accrued environmental
remediation liabilities will likely be paid over the next five to ten years.
Such environmental remediation contingencies are not expected to have a material
effect on the financial position, results of operation, or liquidity of the
Company.
8
CIRCOR International, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
September 30, 1999
(IN THOUSANDS)
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,311 $ - $ 4,311
Short-term investments 1,097 - 1,097
Accounts receivable, net 55,497 - 55,497
Inventories, net 109,332 - 109,332
Other assets 17,046 - 17,046
-------- --------
TOTAL CURRENT ASSETS 187,283 - 187,283
Property, plant and equipment, net 77,385 - 77,385
Goodwill, net 96,524 - 96,524
Other assets 4,426 - 4,426
------- ------- -------
TOTAL ASSETS $365,618 $ - $365,618
======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 20,568 $ - $ 20,568
Accrued expenses and other current
liabilities 22,807 - 22,807
Income taxes payable 2,786 - 2,786
Current portion of long-term debt 5,548 - 5,548
------- ------- -------
TOTAL CURRENT LIABILITIES 51,709 - 51,709
Long term debt, net of current portion 21,847 96,000 (a) 117,847
Deferred income taxes 10,780 - 10,780
Other non-current liabilities 11,468 - 11,468
SHAREHOLDER'S EQUITY
Common stock - 132 132
Additional paid-in capital - 173,814 (a) 173,814
Accumulated other comprehensive income (132) - (132)
Shareholder's Equity 269,946 (269,946) -
-------- -------- --------
TOTAL SHAREHOLDER'S EQUITY 269,814 (96,000) 173,814 (f)
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY $365,618 $ - $365,618
======== ======== ========
9
CIRCOR International, Inc.
Unaudited Pro Forma Combined Statement of Operations
For Three Months Ended September 30, 1999
(IN THOUSAND EXCEPT PER SHARE DATA)
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
Net revenues $ 77,713 $ - $ 77,713
Cost of revenues 54,574 - 54,574
-------- -------- --------
GROSS PROFIT 23,139 - 23,139
Selling, general and administrative
expenses 17,726 51 (b) 17,777
-------- -------- --------
INCOME FROM OPERATIONS 5,413 (51) 5,362
Other (income) expense:
Interest income (22) - (22)
Interest expense 2,154 269 (c) 2,423
Other expense, net 317 - 317
-------- -------- --------
Income before income taxes 2,964 (320) 2,644
Provision for income taxes 1,276 (128)(d) 1,148 (f)
-------- -------- --------
NET INCOME $ 1,688 $ (192) $ 1,496
======== ======== ========
Net income per share-basic (e) $ .13 $ (.02) $ .11
======== ======== ========
Net income per share-diluted (e) $ .13 $ (.02) $ .11
======== ======== ========
10
CIRCOR International, Inc.
Notes to Unaudited Pro Forma Combined Financial Information
September 30, 1999
Note (a) To record a $96.0 million payment made to Watts by CIRCOR
on October 18, 1999, which settled all inter-company loans and
advances. The net debt allocated to CIRCOR and included in the
Combined Balance Sheet amounted to $99.1 million at September 30,
1999.
Note (b) To record estimated additional administrative expenses that would
have been incurred by CIRCOR as a publicly held, independent
company. CIRCOR would have incurred additional compensation and
related costs for employees to perform functions that have been
performed at Watts' corporate headquarters (i.e., treasury,
investor relations, regulator compliance and risk management).
CIRCOR would have also incurred additional amounts for corporate
governance costs, stock transfer agent costs, incremental
professional fees and other administrative activities.
Approximately $51,000 of such incremental costs are expected above
the $1,533,000 of general and administrative expenses allocated
from Watts.
Note (c) Historical interest expense includes $1,594,000 of interest expense
allocated from Watts to CIRCOR. Pro forma interest expense includes
$1,863,000 of interest expense on borrowings under the CIRCOR
credit facility and from the issuance of senior unsecured notes.
The borrowings under the CIRCOR credit facility and senior
unsecured notes are assumed to bear an annualized interest rate,
including amortization of related fees, of 7.3%, which is
management's estimate of the currently available rate for
borrowings under comparable credit facilities. The interest rates
applicable to borrowings under the CIRCOR credit facility will
continue to be subject to changes in the general financial markets
interest rates. The historical allocation of Watts' interest
expense was based on Watts' weighted average interest rate applied
to the average balance of investments by and advances from Watts to
CIRCOR.
Note (d) To record income tax benefits attributable to adjustments
(b) and (c) at a combined federal and state rate of 40%.
Note (e) Pro forma earnings per share information is based upon the
weighted average number of common and common equivalent shares used
by Watts to determine its earnings per share for the respective
periods, adjusted in accordance with the distribution ratio (one
share of CIRCOR Common Stock for every two shares of Watts Common
Stock held). The pro forma number of common and common equivalent
shares for the period ended September 30, 1999 are 13,223,968 for
basic and 13,262,706 for diluted.
Note (f) Amended to report the correct pro forma amounts. The
total/extension amounts were incorrectly reported in the original
10-Q filed December 2, 1999.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CIRCOR INTERNATIONAL, INC.
DECEMBER 17, 1999 /S/ DAVID A. BLOSS, SR. .
- --------------------------- -------------------------------------------
Date David A. Bloss, Sr.
Chairman, President and Chief Executive Officer
DECEMBER 17, 1999 /S/ COSMO S. TRAPANI .
- --------------------------- -------------------------------------------
Date Cosmo S. Trapani
Senior Vice President, Chief Financial Officer
And Treasurer
Chief Financial and Accounting Officer
12
