CIRCOR Reports First-Quarter 2014 Financial Results

BURLINGTON, Mass.--(BUSINESS WIRE)--Apr. 22, 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 first quarter ended March 30, 2014.

First-Quarter 2014 Highlights

Revenue grew 3%
Adjusted operating margin increased 230 basis points to 9.4%
Adjusted EPS grew 50% to $0.78 (including $0.03 from foreign currency)
Free cash flow was $14.4 million, 98% of net income
Announcing growth investment funded by restructuring G&A

“CIRCOR began 2014 with strong first-quarter operating results,” said Scott Buckhout, CIRCOR President and Chief Executive Officer. “Our margin expansion initiatives continued to gain traction with adjusted operating margins up year-over-year by 230 basis points to 9.4%. Margins improved across most of our businesses. We had strong sales growth in our upstream markets, particularly in our large international projects business and our instrumentation and sampling business.”

“Q1 order intake was down over last year primarily due to orders from our project businesses, which can vary significantly from quarter to quarter. We remain bullish on our energy end markets and expect solid order intake for the full year,” said Buckhout.

“Today we are announcing an investment program to accelerate organic growth. We intend to invest approximately $7 million to increase the size our sales force in growing markets, open international sales offices in Brazil and Malaysia, and increase our investment in new products. These actions will be entirely funded with a reduction in G&A expenses and the closure of three small facilities,” concluded Buckhout.

Second-Quarter 2014 Guidance
For the second quarter of 2014, the Company expects:

Revenues in the range of $220 million to $230 million;
Adjusted earnings per share, excluding special charges, in the range of $0.88 to $0.94; and,
Restructuring related costs of approximately $5 million to $6 million.

Selected Consolidated Results

(In millions, except percents and bps)	Q1 2014		Q1 2013		Change
Revenue	$	211.2	$	205.4		3%
Adjusted Operating Income	$	19.8	$	14.5		36%
Adjusted Operating Margin		9.4%		7.1%		230 bps
Adjusted Earnings Per Share (Diluted)	$	0.78	$	0.52		50%
Orders	$	199.9	$	226.8		(12)%
Backlog	$	448.3	$	457.3		(2)%
Free Cash Flow	$	14.4	$	1.1		-

Note: These amounts exclude special recoveries and charges. Refer to reconciliation to commonly used US GAAP terms.

Segment Results

(In millions, except percents and bps)	Q1 2014		Q1 2013		Change
Energy
Revenue	$	162.6	$	157.1		3%
Adjusted Operating Margin		13.8%		10.8%		300 bps
Orders	$	159.5	$	173.5		(8)%
Backlog	$	283.1	$	274.4		3%

Aerospace & Defense
Revenue	$	48.6	$	48.3		1%
Adjusted Operating Margin		9.1%		5.9%		320 bps
Orders	$	40.4	$	53.3		(24)%
Backlog	$	165.2	$	182.9		(10)%

Note: These amounts exclude special recoveries and charges. Refer to reconciliation to commonly used US GAAP terms.

Conference Call Information

CIRCOR International will hold a conference call to review its financial results today, April 22, 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 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 second-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
	March 30, 2014			March 31, 2013
Net revenues	$	211,186		$	205,398
Cost of revenues	146,548			145,549
GROSS PROFIT	64,638			59,849
Selling, general and administrative expenses	44,888			45,571
Special (recoveries) charges, net	(1,157		)	1,378
OPERATING INCOME	20,907			12,900
Other (income) expense:
Interest expense, net	918			787
Other (income) expense, net	(468		)	612
TOTAL OTHER EXPENSE, NET	450			1,399
INCOME BEFORE INCOME TAXES	20,457			11,501
Provision for income taxes	5,825			3,592
NET INCOME	$	14,632		$	7,908
Earnings per common share:
Basic	$	0.83		$	0.45
Diluted	$	0.82		$	0.45
Weighted average number of common shares outstanding:
Basic	17,620			17,511
Diluted	17,741			17,529
Dividends paid per common share	$	0.0375		$	0.0375

CIRCOR INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (UNAUDITED)
	Three Months Ended
	March 30, 2014			March 31, 2013
OPERATING ACTIVITIES
Net income	$	14,632		$	7,908
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	4,069			4,009
Amortization	786			758
Compensation expense of share-based plans	1,830			1,028
Tax effect of share-based plan compensation	(571		)	(285		)
(Gain) loss on disposal of property, plant and equipment	34			(66		)
Changes in operating assets and liabilities:
Trade accounts receivable, net	(9,952		)	(2,455		)
Inventories, net	234			(6,461		)
Prepaid expenses and other assets	(859		)	(827		)
Accounts payable, accrued expenses and other liabilities	6,854			2,198
Net cash provided by operating activities	17,057			5,807
INVESTING ACTIVITIES
Additions to property, plant and equipment	(2,670		)	(4,707		)
Proceeds from the sale of property, plant and equipment	13			75
Net cash used in investing activities	(2,657		)	(4,632		)
FINANCING ACTIVITIES
Proceeds from long-term debt	48,029			33,598
Payments of long-term debt	(41,781		)	(37,655		)
Dividends paid	(670		)	(670		)
Proceeds from the exercise of stock options	192			1,368
Tax effect of share-based compensation	571			285
Net cash (used in) provided by financing activities	6,341			(3,074		)
Effect of exchange rate changes on cash and cash equivalents	(824		)	(2,207		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	19,917			(4,106		)
Cash and cash equivalents at beginning of year	102,180			61,738
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	122,097		$	57,632
Cash paid during the year for:
Income taxes	$	2,913		$	1,462
Interest	$	677		$	655

CIRCOR INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (in thousands) UNAUDITED
	March 30, 2014		December 31, 2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	122,097	$	102,180
Short-term investments	92		95
Trade accounts receivable, less allowance for doubtful accounts of $2,543 and $2,449, respectively	154,821		144,742
Inventories, net	199,200		199,404
Prepaid expenses and other current assets	20,496		19,815
Deferred income tax asset	17,566		17,686
Total Current Assets	514,272		483,922
PROPERTY, PLANT AND EQUIPMENT, NET	106,455		107,724
OTHER ASSETS:
Goodwill	75,999		75,876
Intangibles, net	34,924		35,656
Deferred income tax asset	17,167		18,579
Other assets	5,140		4,893
TOTAL ASSETS	$	753,957	$	726,650
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	83,391	$	70,589
Accrued expenses and other current liabilities	56,710		57,507
Accrued compensation and benefits	25,191		31,289
Income taxes payable	4,946		3,965
Notes payable and current portion of long-term debt	10,519		7,203
Total Current Liabilities	180,757		170,553
LONG-TERM DEBT, NET OF CURRENT PORTION	45,614		42,435
DEFERRED INCOME TAXES	9,217		9,666
OTHER NON-CURRENT LIABILITIES	25,768		27,109
CONTINGENCIES AND COMMITMENTS
SHAREHOLDERS’ EQUITY:
Common stock	176		176
Additional paid-in capital	272,202		269,884
Retained earnings	217,045		202,930
Accumulated other comprehensive gain, net of taxes	3,178		3,897
Total Shareholders’ Equity	492,601		476,887
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	753,957	$	726,650

CIRCOR INTERNATIONAL, INC. SUMMARY OF ORDERS AND BACKLOG (in millions) UNAUDITED
	Three Months Ended
	March 30, 2014		March 31, 2013
ORDERS (1)
Energy	$	159.5	$	173.5
Aerospace & Defense	40.4		53.3
Total orders	$	199.9	$	226.8

BACKLOG (2)	March 30, 2014		March 31, 2013
Energy	$	283.1	$	274.4
Aerospace & Defense	165.2		182.9
Total backlog	$	448.3	$	457.3

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.

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
NET REVENUES
Energy	$	157,104		$	173,557		$	167,660		$	162,649		$	660,970		$	162,587
Aerospace & Defense	48,294			50,087			47,071			51,386			196,838			48,599
Total	$	205,398		$	223,644		$	214,731		$	214,035		$	857,808		$	211,186
ADJUSTED OPERATING MARGIN
Energy	10.8		%	13.3		%	15.2		%	17.1		%	14.1		%	13.8		%
Aerospace & Defense	5.9		%	11.4		%	12.1		%	8.4		%	9.5		%	9.1		%
Segment operating margin	9.6		%	12.9		%	14.5		%	15.0		%	13.0		%	12.7		%
Corporate expenses	(2.6		)%	(2.9		)%	(3.4		)%	(3.5		)%	(3.1		)%	(3.4		)%
Adjusted operating margin	7.1		%	10.0		%	11.1		%	11.6		%	9.9		%	9.4		%
Restructuring inventory charges	0.1		%	(0.1		)%	—		%	0.3		%	0.1		%	—		%
Impairment charges	—		%	—		%	—		%	3.2		%	0.8		%	—		%
Special (recoveries)	—		%	—		%	(1.5		)%	—		%	(0.4		)%	(1.1		)%
Special charges	0.7		%	1.0		%	1.4		%	2.4		%	1.4		%	0.5		%
Total GAAP operating margin	6.3		%	9.1		%	11.1		%	5.6		%	8.1		%	9.9		%



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

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


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


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

CIRCOR INTERNATIONAL, INC. RECONCILIATION OF FUTURE PERFORMANCE MEASURES TO COMMONLY USED GENERALLY ACCEPTED ACCOUNTING PRINCIPLE TERMS UNAUDITED
	2nd Quarter 2014
	Low		High
REVENUE (in millions)	$	220	$	230

EXPECTED ADJUSTED EARNINGS PER SHARE (DILUTIVE)	$	0.88	$	0.94
LESS: Restructuring related charges, Special charges	$	0.25	$	0.21
EXPECTED EARNINGS PER COMMON SHARE (Diluted)	$	0.63	$	0.73

Note: Assumes 26% - 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 First-Quarter 2014 Financial Results