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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

SCHEDULE 14D-9
(Amendment No. 1)
(Rule 14d-101)

SOLICITATION/RECOMMENDATION STATEMENT
UNDER SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934

CIRCOR INTERNATIONAL, INC.
(Name of Subject Company)

CIRCOR INTERNATIONAL, INC.
(Name of Persons Filing Statement)

Common Stock, Par Value of $0.01 Per Share
(Title of Class of Securities)
17273K109
(CUSIP Number of Class of Securities)

Scott A. Buckhout
President and Chief Executive Officer
CIRCOR International, Inc.
30 Corporate Drive, Suite 200
Burlington, MA 01803
(781) 270-1200
(Name, address and telephone number of person authorized to receive notices and communications on behalf of the persons filing statement)

COPIES TO:
Tara M. Fisher
Paul M. Kinsella
Ropes & Gray LLP
800 Boylston Street
Boston, MA 02199
(617) 951-7000


o
Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.

   

Introductory Note

        This Amendment No. 1 amends the Solicitation/Recommendation Statement on Schedule 14D-9 of CIRCOR International, Inc., a Delaware corporation (the "Company") filed with the Securities and Exchange Commission (the "SEC") on June 24, 2019 (the "Schedule 14D-9") relating to the unsolicited tender offer by Crane Co., a Delaware corporation ("Crane"), through its wholly owned subsidiary, CR Acquisition Company, a Delaware corporation (the "Purchaser"), to purchase all of the outstanding Shares at a price of $45.00 per Share, net to the seller in cash, without interest and less any required withholding taxes, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated June 17, 2019 (the "Offer to Purchase") and the related letter of transmittal that accompanies the Offer to Purchase (the "Letter of Transmittal") (which, together with any amendments or supplements thereto, collectively constitute the "Offer").

        All information in the Schedule 14D-9 is incorporated into this Amendment No. 1 by reference and, except as otherwise set forth below, the information set forth in the Schedule 14D-9 remains unchanged.

        This Amendment No. 1 is being filed to replace certain exhibits set forth in Item 9 and to replace Annex D and Annex F of the Schedule 14D-9 as indicated below.

Item 9.    Materials to Be Filed as Exhibits.

        Item 9 of the Schedule 14D-9 is hereby amended to replace Exhibits (a)(1), (a)(2) and (a)(5) with the exhibits listed on the exhibit index below and filed herewith.

Exhibit No.   Document
  (a)(1)   Press release issued by the Company on June 24, 2019 relating to recommendation.

 
(a)(2)
 
Press release issued by the Company on June 24, 2019 including a letter to stockholders.

 
(a)(5)
 
Investor Presentation, dated June 24, 2019 (included as Annex F to this Schedule 14D-9).


SIGNATURE

        After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct.

    CIRCOR INTERNATIONAL, INC.

 
 
By:
 
/s/ Scott A. Buckhout
 Scott A. Buckhout
 President and Chief Executive Officer

Dated: June 24, 2019

Annex D. Reconciliation of Non-GAAP Financial Measures.

        The Schedule 14D-9 is hereby amended to replace Annex D in its entirety with the Annex D set forth on the following page.


Annex D

Reconciliation of Non-GAAP Financial Measures

        Within this Statement, the Company uses non-GAAP financial measures, including EBITDA, Adjusted EBITDA, Adjusted EBITDA margin and net debt. These non-GAAP financial measures are used by management in the Company’s financial and operating decision making because the Company believes they reflect its ongoing business and facilitate period-to-period comparisons. The Company believes these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the Company’s current operating performance and future prospects in the same manner as management does, if they so choose. These non-GAAP financial measures also allow investors and others to compare the Company’s current financial results with the Company’s past financial results in a consistent manner.

        For example:

        The Company’s management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring the Company’s operating performance and comparing such performance to that of prior periods and to the performance of our competitors. The Company uses such measures when publicly providing its business outlook, assessing future earnings potential, evaluating potential acquisitions and dispositions and in its financial and operating decision-making process, including for compensation purposes.

        Investors should recognize that these non-GAAP measures might not be comparable to similarly titled measures of other companies. These measures should be considered in addition and not as a substitute for or superior to, any measure of performance, cash flow or liquidity prepared in accordance with accounting principles generally accepted in the United States.

        The Company is not able to provide a reconciliation of its non-GAAP financial guidance to the corresponding GAAP measures without unreasonable effort because of the inherent difficulty in forecasting and quantifying certain amounts necessary for such a reconciliation such as the costs associated with selling or exiting non-core businesses as well as the tax impact of these expenses.

D-1

        We completed the acquisition of Colfax Corporation’s Fluid Handling business in the fourth quarter of 2017. We present adjusted combined information for the year ended December 31, 2017, which presents the combined results of operations as if the acquisitions had been completed on January 1, 2017. The unaudited combined results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred in integrating the two companies. Accordingly, these unaudited combined results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations.

        During the first quarter of 2019, we completed the sale of the Reliability Services business for net cash proceeds of $82 million. We present adjusted pro forma income statement information for the year ended December 31, 2018, which gives effect to the sale as if it had occurred on January 1, 2018. We also present balance sheet information (debtless cash) as if the divestiture was completed on December 31, 2018. Such information is illustrative and not intended to represent what our results of operations would have been if the sale had been completed before the first quarter of 2019 or to project our results for any future period. Such information may not be comparable to, or indicative of, future performance.

D-2

CIRCOR International
Supplemental Financial Information
$ millions

Revenue
  2018   Reliability
Services 		  2018 PF(a)  

Energy

     451.3     65.6     385.7  

Aerospace & Defense

     237.1     —     237.1  

Industrial

     487.5     —     487.5  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

     1,175.8     65.6     1,110.2  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 

Reconciliation of GAAP Operating Income to
Adjusted Operating Income and GAAP
Operating Margin % to Adjusted Operating
Margin %
   
   % of
Revenue 		 
Reconciliation of GAAP Net Income to Adjusted
EBITDA
   
   % of
Revenue 		 

GAAP Operating Income

     9.4     0.8 %    

GAAP Net Loss

     (39.4 )   –3.3 %

Restructuring related inventory charges

     2.4     0.2 %    

Provision for income taxes

     3.3     0.3 %

Amortization of inventory step-up

     6.6     0.6 %    

Interest expense, net

     52.9     4.5 %

Restructuring charges, net

     12.8     1.1 %    

Depreciation & Amortization

     78.1     6.6 %

Acquisition amortization

     47.3     4.0 %    

Inventory restructuring charges

     2.4     0.2 %

Acquisition deprecation

     7.0     0.6 %    

Amortization of inventory step-up

     6.6     0.6 %

Special charges

     11.1     0.9 %    

Restructuring charges

     12.8     1.1 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adjusted Operating Income

     96.6     8.2 %    

Special charges, net of recoveries

     11.1     0.9 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

                 

Adjusted EBITDA

     127.8     10.9 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Components of Adjusted Operating Income

                  

Less Adj EBITDA of Reliability Services

     7.6        
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Energy Segment Operating Income

     33.5            

Pro Forma Adjusted EBITDA

     120.1     10.8 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Aerospace & Defense Segment Operating Income

     36.0            

 

              

Industrial Segment Operating Income

     57.3                            

Corporate Expenses

     (30.3 )                          
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adjusted Operating Income

     96.6                            
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 

Reconciliation of Segment Operating Income to Adjusted EBITDA
  Energy   Aerospace &
Defense 		  Industrial   Corporate   Total  

Segment/Adjusted Operating Income

     33.5     36.0     57.3     (30.3 )   96.6  

Remove: Depreciation & Amortization expense included in Segment Operating Income

     8.5     4.5     9.6     1.2     23.7  

Add: Other Income, not included in Segment Operating Income

     —     —     —     7.4     7.4  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adjusted EBITDA

    42.0     40.5     66.9     (21.7 )   127.8  

Reliability Services segment operating income

     6.6     —     —     —     6.6  

Reliability Services depreciation & amortization included in segment operating income

     1.0     —     —     —     1.0  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Pro Forma Adjusted EBITDA

    34.4     40.5     66.9     (21.7 )   120.1  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 

Reconciliation of Segment Operating Income % to Adjusted EBITDA % of revenue
  Energy   Aerospace &
Defense 		  Industrial  

Segment Operating Income %

     7.4 %   15.2 %   11.8 %

Depreciation & Amortization

     1.9 %   1.9 %   2.0 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adjusted EBITDA %

     9.3 %   17.1 %   13.7 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(a)
2018 Pro Forma amounts assume the sale of Reliability Services occurred on January 1, 2018

D-3

CIRCOR International
Supplemental Financial Information
$ millions

Revenue
  2017   Fluid
Handling 		  2017
Combined 		 

Energy

     339.6     64.7     404.3  

Aerospace & Defense

     183.0     45.9     228.9  

Industrial

     139.1     326.7     465.8  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

     661.7     437.3     1,099.0  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Reconciliation of GAAP Operating Income to Adjusted Operating Income and GAAP Operating Margin % to Adjusted Operating Margin %

                    

GAAP Operating Income

     20.6     29.5     50.0  

Amortization of inventory step-up

     4.3     —     4.3  

Restructuring charges (recoveries), net

     6.1     —     6.1  

Acquisition amortization

     12.5     (13.0 )   (0.5 )

Acquisition deprecation

     0.2     2.4     2.7  

Special charges

     8.0           8.0  

Asbestos costs

     —     8.9     8.9  

Stay bonus

     —     2.3     2.3  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adjusted Operating Income

     51.7     30.0     81.7  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Components of Adjusted Operating Income

                    

Energy Segment Operating Income

     30.1     3.6     33.7  

Aerospace & Defense Segment Operating Income

     23.4     7.0     30.4  

Industrial Segment Operating Income

     19.9     19.5     39.4  

Corporate Expenses

     (21.7 )   —     (21.7 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adjusted Operating Income

     51.7     30.0     81.7  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 

Reconciliation of Industrial Segment Operating Income to Adjusted EBITDA
  Industrial  

Industrial segment operating income—reported

     19.9  

Industrial segment operating income—Fluid Handling

     19.5  
​ ​ ​ ​ ​

Combined Segment Operating Income

     39.4  

Depreciation & Amortization

     8.3  
​ ​ ​ ​ ​

Combined Adjusted EBITDA

     47.7  
​ ​ ​ ​ ​
​ ​ ​ ​ ​
​ ​ ​ ​ ​

D-4

CIRCOR International
Supplemental Financial Information
$ millions

Revenue
  2014  

Energy

     534.5  

Aerospace & Defense

     206.7  

Industrial

     100.3  
​ ​ ​ ​ ​

Total

     841.4  
​ ​ ​ ​ ​
​ ​ ​ ​ ​
​ ​ ​ ​ ​

 

Reconciliation of GAAP Operating Income to
Adjusted Operating Income and GAAP
Operating Margin % to Adjusted Operating
Margin %
   
   % of
Revenue 		 
Reconciliation of GAAP Net Income to Adjusted
EBITDA
   
   % of
Revenue 		 

GAAP Operating Income

     64.8     7.7 %    

GAAP Net Income

     50.4     6.0 %

Restructuring related inventory charges

     8.0     0.9 %    

Provision for income taxes

     12.9     1.5 %

Restructuring charges, net

     5.2     0.6 %    

Interest expense, net

     2.7     0.3 %

Impairment charges

     0.7     0.1 %    

Depreciation & Amortization

     19.6     2.3 %

Special charges

     7.5     0.9 %    

Inventory restructuring charges

     8.0     0.9 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adjusted Operating Income

     86.2     10.2 %    

Impairment charges

     0.7     0.1 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

                 

Special charges, net of recoveries

     12.7     1.5 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Components of Adjusted Operating Income

            

Adjusted EBITDA

     106.9     12.7 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Energy Segment Operating Income

     76.6                            

Aerospace & Defense Segment Operating Income

     15.4                            

Industrial Segment Operating Income

     17.6                            

Corporate Expenses

     (23.4 )                          
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adjusted Operating Income

     86.2                            
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 

Reconciliation of Segment Operating Income to Adjusted EBITDA
  Energy   Aerospace &
Defense 		  Industrial   Corporate   Total  

Segment/Adjusted Operating Income

     76.6     15.4     17.6     (23.4 )   86.2  

Remove: Depreciation & Amortization expense included in Segment Operating Income

     8.5     6.9     3.0     1.1     19.5  

Add: Other Income, not included in Segment Operating Income

     —     —     —     1.2     1.2  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adjusted EBITDA

     85.1     22.3     20.7     (21.2 )   106.9  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 

Reconciliation of Segment Operating Income % to Adjusted EBITDA % of revenue
  Energy   Aerospace &
Defense 		  Industrial  

Segment Operating Income %

     14.3 %   7.5 %   17.6 %

Depreciation & Amortization

     1.6 %   3.3 %   3.0 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adjusted EBITDA %

     15.9 %   10.8 %   20.6 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

D-5

Annex F. Investor Presentation.

        The Schedule 14D-9 is hereby amended to replace Annex F in its entirety with the Annex F set forth on the following page.


Annex F

Investor Presentation

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SIGNATURE
Reconciliation of Non-GAAP Financial Measures
Investor Presentation

Exhibit (a)(1)

 

FOR IMMEDIATE RELEASE

 

CIRCOR Board of Directors Unanimously Rejects Crane’s Unsolicited, Low-Value, Highly Conditional and Opportunistic Tender Offer

 

Crane’s Offer Substantially Undervalues CIRCOR and Its Future Prospects;

Execution of Strategic Plan to Deliver Significantly Greater Value in Near Term

 

Board Urges Shareholders Not to Tender Shares into Crane’s Offer

 

BURLINGTON, Mass., June 24, 2019 — CIRCOR International, Inc. (NYSE: CIR) (“CIRCOR”) today announced that its Board of Directors (the “Board”), after careful consideration with its independent financial and legal advisors, unanimously rejected the unsolicited tender offer (the “offer”) from Crane Co. (NYSE: CR) (“Crane”).  The Board unanimously recommends that shareholders not tender their shares into the offer.

 

The Board noted that the offer price is unchanged from the unsolicited proposal received from Crane on April 30, 2019, and publicized on May 21, 2019.  In reaching its recommendation that shareholders reject the offer, the Board, in consultation with its financial advisors, determined that the offer substantially undervalues the company and is low-value, highly conditional and opportunistic and not in the best interests of CIRCOR shareholders.

 

The basis for the Board’s recommendation with respect to the offer is set forth in CIRCOR’s Solicitation/Recommendation Statement on Schedule 14D-9 filed today with the Securities and Exchange Commission (“SEC”).  The Board considered numerous factors, including, but not limited to, the following:

 

·            The offer is inadequate and substantially undervalues CIRCOR.  The Board believes that execution of the company’s strategic plan will deliver significantly greater value in the near-term and the long-term for the company’s shareholders.

 

·                  The company is executing a detailed plan to deliver substantial earnings growth while deleveraging the company over the next 18 months.

 

·                  Delivering 2020 adjusted EBITDA of $165 million, up 37% over pro forma 2018;

·                  Expanding adjusted EBITDA margin to 14.9% in 2020 from 10.8% in pro forma 2018; and

·                  Reducing our net leverage ratio from 5.5x in pro forma 2018 to approximately 3.5x in 2020.

 

·            CIRCOR has strengthened and streamlined the business, positioning itself for increased revenue and profitability growth.

 

·                  Between 2014 and 2018, the company has increased (as a proportion of its total revenue) revenue from less cyclical, diversified end markets from 44% to 83%, increased revenue from differentiated products from 46% to 75%, and increased higher-margin aftermarket revenue from 6% to 26%.

·                  Since 2014, excluding acquisitions, the company decreased its manufacturing footprint by 40%, reduced the number of suppliers by 55%, shrunk the number of business units by 45% and streamlined the number of ERP systems by 45%.

 

 

·            CIRCOR has taken significant actions to de-risk and transform the business into a diversified global flow control technology company.

 

·                  The company has reduced its exposure to upstream oil & gas (“O&G”) during an unprecedented downturn and taken aggressive actions to reposition its Energy group through non-core divestitures, exiting unprofitable businesses and additional consolidation, simplification and restructuring.

·                  The company has successfully turned around the Aerospace & Defense (“A&D”) business by consolidating factories, exiting negative margin businesses, integrating the Colfax Fluid Handling Navy business, improving factory and supply chain performance, expanding engineering and sales and increasing new product launches.

·                  The company has driven A&D adjusted EBITDA from $22 million in 2014 to $40 million in 2018, an increase of eighty-two percent (82%), and expanded adjusted EBITDA margin by over 630bps.

·                  The company transformed its small industrial business into the company’s largest group.  It established the Industrial Group as part of the Colfax Fluid Handling integration and in 2018 CIRCOR increased the Industrial Group’s adjusted EBITDA by approximately 40%, and adjusted EBITDA margins by 350bps versus 2017 combined results.  The substantial increase in results was driven by synergies, G&A reduction, value pricing and the implementation of our CIRCOR Operating System.

 

·            CIRCOR’s recent investments are expected to drive additional future growth.

 

·                  The company has transformed its portfolio by deploying capital on accretive acquisitions.  The recent acquisitions of Critical Flow Solutions (a high technology business serving the downstream O&G market) and Colfax Fluid Handling (a severe-service pump technology business with diversified end markets and significant aftermarket exposure) greatly improved the quality of the company’s revenues and profitability.  Both acquisitions are performing well, exceeding initial synergy targets and delivering a strong ROIC.

·                  The company has invested in organic growth by expanding sales and engineering across the company while establishing a Product Management function that did not exist five years ago.  In 2019, the company anticipates launching 35 new products.  New products launched are expected to generate approximately $70 million of revenue in 2019.1

 

·            The offer is opportunistically timed.

 

·                  The Board believes that the offer represents an opportunistic attempt by Crane to acquire CIRCOR at a low share price, as the company is poised to deliver substantial value associated with its transformation, and, as a result, deprive any company shareholders who tender their Shares of the potential opportunity to realize the long-term value of their investment in the company.

·                  Crane is attempting to justify its undervalued offer by making inaccurate statements and focusing on the company’s past product portfolio and the impact of headwinds in upstream O&G—failing to recognize the recent transformation and opportunities for near-term value creation.

 

1  New product revenue is revenue from products launched within three years of current year

 

 

·            The Board has received an inadequacy opinion from each of its financial advisors.

 

·                  On June 20, 2019, each of J.P. Morgan and Evercore rendered an oral opinion to the Board, which was subsequently confirmed in writing, that, as of the date of such opinion, and based upon and subject to the factors, assumptions, limitations and qualifications set forth in its written opinion, the consideration proposed to be paid to shareholders of CIRCOR (other than Crane and any of its affiliates) pursuant to the offer was inadequate from a financial point of view to such holders. The full text of the written opinions of J.P. Morgan and Evercore, each dated June 20, 2019, which set forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinions, is attached to CIRCOR’s 14D-9 filing as Annexes B and C, respectively. J.P. Morgan and Evercore each provided its opinion to the Board (in its capacity as such) in connection with and for purposes of its evaluation of the Offer. The opinions of J.P. Morgan and Evercore do not constitute a recommendation to the Board or to any shareholder of CIRCOR in respect of the transactions, including as to whether any person should tender shares of CIRCOR in the offer or take any other action in respect of the transactions.

 

·            The conditions to the offer create significant uncertainty and risk.

 

·                  The offer contains numerous conditions, including certain conditions providing Crane broad discretion to decide not to purchase shares that are tendered.

 

CIRCOR issued a separate press release today containing an open letter to shareholders and has also provided an investor presentation highlighting its path to significant value creation.  The shareholder letter, investor presentation and Schedule 14D-9 are available on the company’s website at https://investors.circor.com.

 

Evercore and J.P. Morgan Securities LLC are serving as financial advisors to CIRCOR. Ropes & Gray LLP is serving as legal advisor to CIRCOR.

 

About CIRCOR

 

CIRCOR International, Inc. is a leading global flow control technology company that designs, manufactures and markets differentiated technology products and sub-systems for markets including aerospace & defense, industrials and oil & gas. CIRCOR has a diversified flow and motion control product portfolio with recognized, market-leading brands that fulfill its customers’ mission critical needs. CIRCOR’s strategy is to grow organically and through complementary acquisitions; simplify CIRCOR’s operations; achieve world class operational excellence; and attract and retain top talent.

 

CIRCOR routinely posts information that may be important to investors in the “Investor Relations” section of its website at www.circor.com. The Company encourages investors and potential investors to consult the CIRCOR website regularly for important information.

 

Use of Non-GAAP Financial Information

 

In this press release, the Company uses non-GAAP financial measures, including Adjusted EBITDA, Adjusted EBITDA margin and net debt. These non-GAAP financial measures are used by management in our financial and operating decision making because we believe they reflect our ongoing business and facilitate period-to-period comparisons. We believe these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the Company’s current operating performance and future prospects in the same manner as management does, if they so choose. These

 

 

non-GAAP financial measures also allow investors and others to compare the Company’s current financial results with the Company’s past financial results in a consistent manner.

 

CIRCOR’s management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring the Company’s operating performance and comparing such performance to that of prior periods and to the performance of our competitors. We use such measures when publicly providing our business outlook, assessing future earnings potential, evaluating potential acquisitions and dispositions and in our financial and operating decision-making process, including for compensation purposes.

 

Investors should recognize that these non-GAAP measures might not be comparable to similarly titled measures of other companies. These measures should be considered in addition and not as a substitute for or superior to, any measure of performance, cash flow or liquidity prepared in accordance with accounting principles generally accepted in the United States. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is included in this press release and available at https://investors.circor.com.

 

We are not able to provide a reconciliation of CIRCOR’s non-GAAP financial guidance to the corresponding GAAP measures without unreasonable effort because of the inherent difficulty in forecasting and quantifying certain amounts necessary for such a reconciliation such as the costs associated with selling or exiting non-core businesses as well as the tax impact of these expenses.

 

We completed the acquisition of Colfax Corporation’s Fluid Handling business in the fourth quarter of 2017. We present adjusted combined information for the year ended December 31, 2017, which presents the combined results of operations as if the acquisitions had been completed on January 1, 2017. The unaudited combined results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred in integrating the two companies. Accordingly, these unaudited combined results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations.

 

During the first quarter of 2019, we completed the sale of the Reliability Services business for net cash proceeds of $82 million. We present adjusted pro forma income statement information for the year ended December 31, 2018, which gives effect to the sale as if it had occurred on January 1, 2018. We also present balance sheet information (debtless cash) as if the divestiture was completed on December 31, 2018. Such information is illustrative and not intended to represent what our results of operations would have been if the sale had been completed before the first quarter of 2019 or to project our results for any future period. Such information may not be comparable to, or indicative of, future performance.

 

Forward Looking Statements

 

This press release contains forward-looking statements. Reliance should not be placed on forward-looking statements because they involve 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 plan to deliver significant value over the next 18 months, 2019 and 2020 financial guidance, divestitures under

 

 

consideration, plans to reduce leverage, our future performance, including realization of cost reductions from restructuring activities and expected synergies, and CIRCOR’s strategic priorities. Actual events, performance or results could differ materially from the anticipated events, performance or results expressed or implied by such forward-looking statements. Important factors that could cause actual results to vary from expectations include, but are not limited to: our ability to respond to competitive developments and to grow our business, both domestically and internationally; changes in the cost, quality or supply of raw materials; our ability to comply with our debt obligations; our ability to successfully implement our acquisition, divestiture or restructuring strategies, including our integration of the Fluid Handling business; changes in industry standards, trade policies or government regulations, both in the United States and internationally; and our ability to operate our manufacturing facilities at current or higher levels and respond to increases in manufacturing costs. BEFORE MAKING ANY INVESTMENT DECISIONS REGARDING CIRCOR, 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.

 

Important Information

 

CIRCOR has filed with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9. CIRCOR shareholders are advised to read the company’s Solicitation/Recommendation Statement on Schedule 14D-9 because it contains important information.  Shareholders may obtain a free copy of the Solicitation/Recommendation Statement on Schedule 14D-9, as well as any other documents filed by CIRCOR in connection with the Offer, free of charge at the SEC’s website at www.sec.gov. In addition, investors and security holders can obtain free copies of these documents from CIRCOR by directing a request to CIRCOR International, 30 Corporate Drive, Burlington, Massachusetts 01803-4238, Attention: investor relations, or by calling (781) 270-1200. Shareholders may also request copies of these documents from MacKenzie Partners, Inc., which is assisting CIRCOR in this matter, by calling 800-322-2885 Toll-Free or by email at circor@mackenziepartners.com.

 

Investor Contact

David F. Mullen

Senior Vice President Finance

CIRCOR International

(781) 270-1200

 

Additional Investor Contact

MacKenzie Partners, Inc.

Dan Burch, (212)929-5784, dburch@mackenziepartners.com

Paul Schulman, (212) 929-5364, pschulman@mackenziepartners.com

Larry Schimmel, (212) 378-7068, lschimmel@mackenziepartners.com

 

Media Contact

Matthew Sherman / Andi Rose / Nick Lamplough

Joele Frank, Wilkinson Brimmer Katcher

(212) 355-4449

 

 

CIRCOR International

Supplemental Financial Information

$ millions

 

 

 

 

 

Reliability

 

 

 

 

 

2018

 

Services

 

2018 PF (a)

 

Revenue

 

 

 

 

 

 

 

Energy

 

451.3

 

65.6

 

385.7

 

Aerospace & Defense

 

237.1

 

—

 

237.1

 

Industrial

 

487.5

 

—

 

487.5

 

Total

 

1,175.8

 

65.6

 

1,110.2

 

 

 

 

 

 

% of Revenue

 

 

 

Reconciliation of GAAP Operating Income to Adjusted Operating Income and GAAP Operating Margin % to Adjusted Operating Margin %

 

 

 

 

 

 

 

GAAP Operating Income

 

9.4

 

0.8

%

 

 

Restructuring related inventory charges

 

2.4

 

0.2

%

 

 

Amortization of inventory step-up

 

6.6

 

0.6

%

 

 

Restructuring charges, net

 

12.8

 

1.1

%

 

 

Acquisition amortization

 

47.3

 

4.0

%

 

 

Acquisition deprecation

 

7.0

 

0.6

%

 

 

Special charges

 

11.1

 

0.9

%

 

 

Adjusted Operating Income

 

96.6

 

8.2

%

 

 

 

Components of Adjusted Operating Income

 

 

 

 

 

 

 

Energy Segment Operating Income

 

33.5

 

 

 

 

 

Aerospace & Defense Segment Operating Income

 

36.0

 

 

 

 

 

Industrial Segment Operating Income

 

57.3

 

 

 

 

 

Corporate Expenses

 

(30.3

)

 

 

 

 

Adjusted Operating Income

 

96.6

 

 

 

 

 

 

 

 

 

 

% of Revenue

 

Reconciliation of GAAP Net Income to Adjusted EBITDA

 

 

 

 

 

GAAP Net Loss

 

(39.4

)

-3.3

%

Provision for income taxes

 

3.3

 

0.3

%

Interest expense, net

 

52.9

 

4.5

%

Depreciation & Amortization

 

78.1

 

6.6

%

Inventory restructuring charges

 

2.4

 

0.2

%

Amortization of inventory step-up

 

6.6

 

0.6

%

Restructuring charges

 

12.8

 

1.1

%

Special charges, net of recoveries

 

11.1

 

0.9

%

Adjusted EBITDA

 

127.8

 

10.9

%

Less Adj EBITDA of Reliability

 

 

 

 

 

Services

 

7.6

 

 

 

Pro Forma Adjusted EBITDA

 

120.1

 

10.8

%

 

 

 

 

 

Aerospace

 

 

 

 

 

 

 

 

 

Energy

 

& Defense

 

Industrial

 

Corporate

 

Total

 

Reconciliation of Segment Operating Income to Adjusted EBITDA Segment/Adjusted Operating Income

 

33.5

 

36.0

 

57.3

 

(30.3

)

96.6

 

Remove: Depreciation & Amortization expense included in Segment Operating Income

 

8.5

 

4.5

 

9.6

 

1.2

 

23.7

 

Add: Other Income, not included in Segment Operating Income

 

—

 

—

 

—

 

7.4

 

7.4

 

Adjusted EBITDA

 

42.0

 

40.5

 

66.9

 

(21.7

)

127.8

 

Reliability Services segment operating income

 

6.6

 

—

 

—

 

—

 

6.6

 

Reliability Services depreciation & amortization included in segment operating income

 

1.0

 

—

 

—

 

—

 

1.0

 

Pro Forma Adjusted EBITDA

 

34.4

 

40.5

 

66.9

 

(21.7

)

120.1

 

 

 

 

 

 

Aerospace

 

 

 

 

 

 

 

 

 

Energy

 

& Defense

 

Industrial

 

 

 

 

 

Reconciliation of Segment Operating Income % to Adjusted EBITDA % of revenue

 

 

 

 

 

 

 

 

 

 

 

Segment Operating Income %

 

7.4

%

15.2

%

11.8

%

 

 

 

 

Depreciation & Amortization

 

1.9

%

1.9

%

2.0

%

 

 

 

 

Adjusted EBITDA %

 

9.3

%

17.1

%

13.7

%

 

 

 

 

 

(a) 2018 Pro Forma amounts the sale of Reliability Services occurred on January 1, 2018

 

 

CIRCOR International

Supplemental Financial Information

$ millions

 

Reconciliation of Gross Debt to Net Debt, Actual and Pro Forma

 

 

 

Year Ended

 

Net Proceeds

 

Pro Forma Year Ended

 

 

 

Dec. 31, 2018

 

from Sale (a)

 

Dec. 31, 2018

 

Debt Balances

 

 

 

 

 

 

 

Current Portion

 

7.9

 

(7.9

)

—

 

Long-term

 

799.2

 

(74.2

)

725.1

 

Gross Debt

 

807.1

 

(82.0

)

725.1

 

Less: Cash

 

(68.5

)

—

 

(68.5

)

Net Debt

 

738.6

 

(82.0

)

656.6

 

 

 

 

 

 

EBITDA,

 

Pro Forma Year

 

 

 

Year Ended

 

divested

 

Ended Dec. 31,

 

 

 

Dec. 31, 2018

 

business (b)

 

2018

 

Adjusted EBITDA

 

127.8

 

(7.6

)

120.1

 

 

 

 

 

 

 

 

 

Net Debt Divided by Adjusted EBITDA

 

5.8

 

 

 

5.5

 

 

(a) Reduces debt by the amount of proceeds from the sale of Reliability Services

(b) Removes the Adjusted EBITDA related to 2018 Reliability Services

 

 

CIRCOR International

Supplemental Financial Information

$ millions

 

 

 

 

 

 

 

2017

 

 

 

2017

 

Fluid Handling

 

Combined

 

Revenue

 

 

 

 

 

 

 

Energy

 

339.6

 

64.7

 

404.3

 

Aerospace & Defense

 

183.0

 

45.9

 

228.9

 

Industrial

 

139.1

 

326.7

 

465.8

 

Total

 

661.7

 

437.3

 

1,099.0

 

 

Reconciliation of GAAP Operating Income to Adjusted Operating Income and GAAP Operating Margin % to Adjusted Operating Margin

 

 

 

 

 

 

 

GAAP Operating Income

 

20.6

 

29.5

 

50.0

 

Amortization of inventory step-up

 

4.3

 

—

 

4.3

 

Restructuring charges (recoveries), net

 

6.1

 

—

 

6.1

 

Acquisition amortization

 

12.5

 

(13.0

)

(0.5

)

Acquisition deprecation

 

0.2

 

2.4

 

2.7

 

Special charges

 

8.0

 

 

 

8.0

 

Asbestos costs

 

—

 

8.9

 

8.9

 

Stay bonus

 

—

 

2.3

 

2.3

 

Adjusted Operating Income

 

51.7

 

30.0

 

81.7

 

 

 

 

 

 

 

 

 

Components of Adjusted Operating Income

 

 

 

 

 

 

 

Energy Segment Operating Income

 

30.1

 

3.6

 

33.7

 

Aerospace & Defense Segment Operating Income

 

23.4

 

7.0

 

30.4

 

Industrial Segment Operating Income

 

19.9

 

19.5

 

39.4

 

Corporate Expenses

 

(21.7

)

—

 

(21.7

)

Adjusted Operating Income

 

51.7

 

30.0

 

81.7

 

 

 

 

 

 

 

 

Industrial

 

Reconciliation of Industrial Segment Operating Income to Adjusted EBITDA

 

 

 

 

 

 

 

Industrial segment operating income - reported

 

 

 

 

 

19.9

 

Industrial segment operating income - Fluid Handling

 

 

 

 

 

19.5

 

Combined Segment Operating Income

 

 

 

 

 

39.4

 

Depreciation & Amortization

 

 

 

 

 

8.3

 

Combined Adjusted EBITDA

 

 

 

 

 

47.7

 

 

 

CIRCOR International

Supplemental Financial Information

$ millions

 

 

 

2014

 

 

 

Revenue

 

 

 

 

 

Energy

 

534.5

 

 

 

Aerospace & Defense

 

206.7

 

 

 

Industrial

 

100.3

 

 

 

Total

 

841.4

 

 

 

 

 

 

 

 

% of Revenue

 

Reconciliation of GAAP Operating Income to Adjusted Operating Income and GAAP Operating Margin % to Adjusted Operating Margin %

 

 

 

 

 

GAAP Operating Income

 

64.8

 

7.7

%

Restructuring related inventory charges

 

8.0

 

0.9

%

Restructuring charges, net

 

5.2

 

0.6

%

Impairment charges

 

0.7

 

0.1

%

Special charges

 

7.5

 

0.9

%

Adjusted Operating Income

 

86.2

 

10.2

%

 

Components of Adjusted Operating Income

 

 

 

 

 

Energy Segment Operating Income

 

76.6

 

 

 

Aerospace & Defense Segment Operating Income

 

15.4

 

 

 

Industrial Segment Operating Income

 

17.6

 

 

 

Corporate Expenses

 

(23.4

)

 

 

Adjusted Operating Income

 

86.2

 

 

 

 

 

 

 

 

% of Revenue

 

Reconciliation of GAAP Net Income to Adjusted EBITDA

 

 

 

 

 

GAAP Net Income

 

50.4

 

6.0

%

Provision for income taxes

 

12.9

 

1.5

%

Interest expense, net

 

2.7

 

0.3

%

Depreciation & Amortization

 

19.6

 

2.3

%

Inventory restructuring charges

 

8.0

 

0.9

%

Impairment charges

 

0.7

 

0.1

%

Special charges, net of recoveries

 

12.7

 

1.5

%

Adjusted EBITDA

 

106.9

 

12.7

%

 

 

 

 

 

Aerospace &

 

 

 

 

 

 

 

 

 

Energy

 

Defense

 

Industrial

 

Corporate

 

Total

 

Reconciliation of Segment Operating Income to Adjusted EBITDA Segment/Adjusted Operating Income

 

76.6

 

15.4

 

17.6

 

(23.4

)

86.2

 

Remove: Depreciation & Amortization expense included in Segment Operating Income

 

8.5

 

6.9

 

3.0

 

1.1

 

19.5

 

Add: Other Income, not included in Segment Operating Income

 

—

 

—

 

—

 

1.2

 

1.2

 

Adjusted EBITDA

 

85.1

 

22.3

 

20.7

 

(21.2

)

106.9

 

 

 

 

 

 

Aerospace &

 

 

 

 

 

 

 

 

 

Energy

 

Defense

 

Industrial

 

 

 

 

 

Reconciliation of Segment Operating Income % to Adjusted EBITDA % of revenue

 

 

 

 

 

 

 

 

 

 

 

Segment Operating Income %

 

14.3

%

7.5

%

17.6

%

 

 

 

 

Depreciation & Amortization

 

1.6

%

3.3

%

3.0

%

 

 

 

 

Adjusted EBITDA %

 

15.9

%

10.8

%

20.6

%

 

 

 

 

 



Exhibit (a)(2)

 

FOR IMMEDIATE RELEASE

 

CIRCOR Issues Open Letter to Shareholders and Provides Investor Presentation Highlighting Path to Significant Value Creation

 

Strategic Plan Expected to Deliver Substantial Additional Shareholder Value

Over Next 18 Months

 

Crane’s Highly Opportunistic Offer Substantially Undervalues CIRCOR and Would Transfer Significant Value Away from CIRCOR Shareholders

 

Board Strongly Urges Shareholders Not to Tender Shares into Crane’s Offer

 

BURLINGTON, Mass., June 24, 2019 — CIRCOR International, Inc. (NYSE: CIR) (“CIRCOR”) today issued an open letter to shareholders and posted an investor presentation on its website highlighting CIRCOR’s path to significant near-term value creation for shareholders.  The materials explain how CIRCOR has repositioned its portfolio and improved its operations to position the business for high growth with enhanced margins.  The presentation is available at https://investors.circor.com.

 

The company also today issued a separate press release and filed its Solicitation/Recommendation Statement on Schedule 14D-9 with the Securities and Exchange Commission (“SEC”) disclosing that the Board of Directors unanimously rejected the unsolicited tender offer (the “offer”) from Crane Co. (NYSE: CR) (“Crane”) and is recommending that shareholders not tender their shares into the offer.

 

The text of the letter follows:

 

June 24, 2019

 

Dear CIRCOR Shareholder,

 

CIRCOR’s Board of Directors and management team are focused on delivering value for you, our fellow shareholders.  Over the past few years, we have transformed our portfolio and streamlined our operations in the face of unprecedented upstream oil & gas (“O&G”) market headwinds.  We have repositioned CIRCOR into a stronger and more resilient business with enhanced growth and margin potential.

 

CIRCOR is executing a detailed plan to deliver substantial earnings growth while deleveraging the company over the next 18 months.  We are confident this plan will generate significant value for our shareholders in the near-term.  Through this plan, we are committed to:

 

·                  Delivering 2020 adjusted EBITDA of $165 million, up 37% over pro forma 20181

·                  Expanding adjusted EBITDA margin to 14.9% in 2020 from 10.8% in pro forma 20181

·                  Reducing our net leverage ratio from 5.5x in pro forma 20181 to 4.3x in run rate 20192 and ~3.5x in 2020.

 

1  Pro forma for the completed divestiture of Reliability Services

2  Reflects an estimate of full year benefit of cost actions taken in 2019, as detailed on slide 22 of the investor presentation

 

 

As you know, Crane Co. (“Crane”) made an unsolicited proposal to acquire CIRCOR for $45 per share and recently launched a tender offer (the “offer”) to acquire your shares at the same price.  Crane’s offer is a change of tactics to attempt to take over your company, but it does not change the fact that the offer fails to deliver a compelling valuation for CIRCOR.  Your Board of Directors, with the advice of independent financial and legal advisors, carefully reviewed Crane’s offer and unanimously determined that the offer was highly opportunistic and substantially undervalued CIRCOR and our future prospects.

 

We expect our plan to deliver significant value to CIRCOR shareholders over the next 18 months, far in excess of the offer.  Applying CIRCOR’s historic multiples to our expected 2020 adjusted EBITDA (less our projected year-end 2019 net debt) suggests the potential magnitude of the disconnect.  We also may have upside from potential multiple expansion as a result of further diversification away from upstream O&G and accelerated deleveraging.  In addition, our plan does not assume a recovery in the company’s O&G end markets, which, if markets recover, could increase our 2020 estimated EBITDA.

 

We Have Transformed Our Business

 

Improved revenue quality.  CIRCOR’s Board and management team have transformed the company into a stronger, more resilient business with an improved growth and margin profile.  We have reduced exposure to upstream O&G and made significant investments to grow and strengthen our Aerospace & Defense (“A&D”) and Industrial businesses.

 

Since 2014, we have proactively repositioned the company during an unprecedented and protracted downturn in the upstream O&G market.  We took aggressive actions inside our Energy group, including non-core divestitures, the exit of unprofitable businesses, factory consolidations, and significant simplification and restructuring.

 

Between 2014 and 2018, we reduced our O&G exposure and improved the quality of revenue along several dimensions:

 

·                  Increased exposure to more attractive and resilient end markets: A&D, Industrial, and Downstream O&G.  CIRCOR’s adjusted EBITDA generated from these attractive end markets grew by 2.7x.  These markets represented 83% of sales in 2018, up from 44% in 2014.

·                  Increased sales of higher-margin, highly-differentiated products by 2.3x.  These products represented 75% of sales in 2018, up from 46% in 2014.

·                  Increased higher-margin aftermarket sales by 6.1x.  Aftermarket represented 26% of sales in 2018, up from 6% in 2014.

 

Increased profitability.  In addition to improving the quality of CIRCOR’s revenue, we implemented substantial simplification initiatives to drive profitability.  Since 2014 we decreased our manufacturing footprint by 630,000 square feet, reduced the number of our suppliers by 55% (helping to drive average annual savings of $9 million over the last three years), shrunk the

 

 

number of business units from 22 to 12 (reducing our overhead burden) and reduced the number of ERP systems by ~45%.3

 

Within A&D, we consolidated factories, exited negative margin businesses, integrated the Colfax Fluid Handling Navy business, improved factory and supply chain performance, expanded engineering and sales, and increased new product launches each year over the last four years.  These actions led to a successful turnaround of the A&D business.  We drove A&D adjusted EBITDA from $22 million in 2014 to $40 million in 2018, an increase of 82% and expanded adjusted EBITDA margin by over 630bps.

 

In addition, we transformed our industrial business into our largest group. We established the Industrial Group as part of the Colfax Fluid Handling integration, and in 2018 we increased the Industrial Group’s adjusted EBITDA by approximately 40%, and adjusted EBITDA margins by 350bps versus 2017 combined results.  The substantial increase in results was driven by synergies, G&A reduction, value pricing and the implementation of our CIRCOR Operating System.  In addition, we continued to invest in growth.  Within the Industrial Group, we launched nine new products in 2018, and expect to launch an additional nine new products in 2019.  The Industrial Group ended 2018 with a record backlog.

 

Deployed capital for growth.  CIRCOR has transformed its portfolio by deploying capital on accretive acquisitions.  The recent acquisitions of Critical Flow Solutions (a high technology business serving the downstream O&G market) and Colfax Fluid Handling (a severe-service pump technology business with diversified end markets and significant aftermarket exposure) greatly improved the quality of CIRCOR’s revenue and profitability.

 

Both of these acquisitions are performing well, exceeding our initial synergy targets and delivering a strong ROIC:

 

·                  10.7% in 2018 (year 2) for Critical Flow Solutions, expected to be 12%+ by year 3; and

·                  8.8% in 2018 (year 1) for Colfax Fluid Handling, expected to be 11%+ by year 3.

 

In addition to acquisitions, CIRCOR has invested in organic growth by expanding sales and engineering across the company while establishing a Product Management function that did not exist 5 years ago.  In 2019 CIRCOR anticipates launching at least 35 new products, a ~45% increase over 2018.  New products are expected to generate approximately $70 million of revenue in 2019.4

 

We are Poised to Deliver Significant Value

 

And our work isn’t done.  We are executing a detailed plan to deliver accelerated earnings growth while we significantly deleverage the company over the next 18 months by:

 

·                  Accelerating growth and margin expansion in A&D;

·                  Driving integration synergies and investing in growth in Industrial;

·                  Further repositioning Energy;

 

3  Excluding the impact of acquired businesses

4  New product revenue is revenue from products launched within three years of current year

 

 

·                  Prudently managing the portfolio, including evaluating non-core divestitures; and

·                  Further enhancing operational efficiency.

 

We expect to deliver substantial shareholder value over the next 18 months compared to 2018 pro forma.  Our 2020 earnings and leverage targets include:

 

·                  Growing adjusted EBITDA by 37%;

·                  Improving adjusted EBITDA margin by 410 bps; and

·                  Reducing leverage by ~2x.

 

We are confident in our outlook because it is based largely on actions in our control and a business mix with higher visibility as a result of our transformation.  In addition, the outlook includes cost actions that have been or are in the process of being executed.

 

We also have potential upside opportunities.  Continued portfolio optimization and non-core divestitures may contribute additional debt reduction and potential multiple expansion.  We have taken a conservative view of our upstream O&G prospects; therefore, a recovery in those markets could drive additional earnings growth and cash generation.

 

CIRCOR’s executive compensation structure is correlated with the successful execution of this strategic plan and our interests are closely aligned with those of our shareholders.

 

Crane’s Highly Opportunistic Offer

 

In addition to substantially undervaluing our business, Crane’s offer is opportunistically timed just as the company is poised to deliver substantial value associated with its transformation, taking away value that rightfully belongs to CIRCOR shareholders.  Crane’s offer was made at a time when CIRCOR’s stock price was in the process of a rapid upswing and CIRCOR had substantial visibility into significantly improved business results.

 

Crane is attempting to justify its undervalued offer by making inaccurate statements and focusing on CIRCOR’s past product portfolio and the impact of headwinds in upstream O&G — failing to recognize our recent transformation and opportunities for near-term value creation.

 

Our Commitment to Value

 

CIRCOR’s Board is committed to delivering value to CIRCOR shareholders, and we are open to all opportunities to enhance value, but Crane’s offer substantially undervalues our company given the value we expect to deliver in the near and long-term.

 

We appreciate the feedback that we have received from shareholders and look forward to providing you with updates on our progress.

 

Best Regards,

 

The CIRCOR Board of Directors

 

/s/ David Dietz

 

/s/ Scott Buckhout

Chairman of the Board

 

President and Chief Executive Officer

 

 

Evercore and J.P. Morgan Securities LLC are serving as financial advisors to CIRCOR. Ropes & Gray LLP is serving as legal advisor to CIRCOR.

 

About CIRCOR

 

CIRCOR International, Inc. is a leading global flow control technology company that designs, manufactures and markets differentiated technology products and sub-systems for markets including aerospace & defense, industrials and oil & gas. CIRCOR has a diversified flow and motion control product portfolio with recognized, market-leading brands that fulfill its customers’ mission critical needs. CIRCOR’s strategy is to grow organically and through complementary acquisitions; simplify CIRCOR’s operations; achieve world class operational excellence; and attract and retain top talent.

 

CIRCOR routinely posts information that may be important to investors in the “Investor Relations” section of its website at www.circor.com. The company encourages investors and potential investors to consult the CIRCOR website regularly for important information.

 

Use of Non-GAAP Financial Information

 

In this press release, the company uses non-GAAP financial measures, including Adjusted EBITDA, Adjusted EBITDA margin and net debt. These non-GAAP financial measures are used by management in our financial and operating decision making because we believe they reflect our ongoing business and facilitate period-to-period comparisons. We believe these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the company’s current operating performance and future prospects in the same manner as management does, if they so choose. These non-GAAP financial measures also allow investors and others to compare the company’s current financial results with the company’s past financial results in a consistent manner.

 

CIRCOR’s management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring the company’s operating performance and comparing such performance to that of prior periods and to the performance of our competitors. We use such measures when publicly providing our business outlook, assessing future earnings potential, evaluating potential acquisitions and dispositions and in our financial and operating decision-making process, including for compensation purposes.

 

Investors should recognize that these non-GAAP measures might not be comparable to similarly titled measures of other companies. These measures should be considered in addition and not as a substitute for or superior to, any measure of performance, cash flow or liquidity prepared in accordance with accounting principles generally accepted in the United States. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is included in this press release and available at https://investors.circor.com.

 

We are not able to provide a reconciliation of CIRCOR’s non-GAAP financial guidance (including the 2019 information presented on a run-rate basis, which reflects an estimate of the full year benefit of cost actions taken in 2019, as detailed on slide 22 of the investor presentation) to the corresponding GAAP measures without unreasonable effort because of the inherent difficulty in forecasting and quantifying certain amounts necessary for such a reconciliation such as the costs associated with selling or exiting non-core businesses as well as the tax impact of these expenses.

 

 

We completed the acquisition of Colfax Corporation’s Fluid Handling business in the fourth quarter of 2017.  We present adjusted combined information for the year ended December 31, 2017, which presents the combined results of operations as if the acquisitions had been completed on January 1, 2017. The unaudited combined results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred in integrating the two companies. Accordingly, these unaudited combined results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations.

 

During the first quarter of 2019, we completed the sale of the Reliability Services business for net cash proceeds of $82 million. We present adjusted pro forma income statement information for the year ended December 31, 2018, which gives effect to the sale as if it had occurred on January 1, 2018. We also present balance sheet information (debtless cash) as if the divestiture was completed on December 31, 2018. Such information is illustrative and not intended to represent what our results of operations would have been if the sale had been completed before the first quarter of 2019 or to project our results for any future period. Such information may not be comparable to, or indicative of, future performance.

 

Forward Looking Statements

 

This press release contains forward-looking statements.  Reliance should not be placed on forward-looking statements because they involve 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 plan to deliver significant value over the next 18 months, 2019 and 2020 financial guidance, divestitures under consideration, plans to reduce leverage, our future performance, including realization of cost reductions from restructuring activities and expected synergies, and CIRCOR’s strategic priorities.  Actual events, performance or results could differ materially from the anticipated events, performance or results expressed or implied by such forward-looking statements.  Important factors that could cause actual results to vary from expectations include, but are not limited to: our ability to respond to competitive developments and to grow our business, both domestically and internationally; changes in the cost, quality or supply of raw materials; our ability to comply with our debt obligations; our ability to successfully implement our acquisition, divestiture or restructuring strategies, including our integration of the Fluid Handling business; changes in industry standards, trade policies or government regulations, both in the United States and internationally; and our ability to operate our manufacturing facilities at current or higher levels and respond to increases in manufacturing costs.  BEFORE MAKING ANY INVESTMENT DECISIONS REGARDING CIRCOR, 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.

 

Important Information

 

CIRCOR has filed with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9.  CIRCOR shareholders are advised to read the company’s Solicitation/Recommendation Statement on Schedule 14D-9 because it contains important information.  Shareholders may obtain a free copy of the

 

 

Solicitation/Recommendation Statement on Schedule 14D-9, as well as any other documents filed by CIRCOR in connection with the offer, free of charge at the SEC’s website at www.sec.gov.  In addition, investors and security holders can obtain free copies of these documents from CIRCOR by directing a request to CIRCOR International, 30 Corporate Drive, Burlington, Massachusetts 01803, Attention: investor relations, or by calling (781) 270-1200.  Shareholders may also request copies of these documents from MacKenzie Partners, Inc., which is assisting CIRCOR in this matter, by calling 800-322-2885 Toll-Free or by email at circor@mackenziepartners.com.

 

Investor Contact

David F. Mullen

Senior Vice President Finance

CIRCOR International

(781) 270-1200

 

Additional Investor Contact

MacKenzie Partners, Inc.

Dan Burch, (212)929-5784, dburch@mackenziepartners.com

Paul Schulman, (212) 929-5364, pschulman@mackenziepartners.com

Larry Schimmel, (212) 378-7068, lschimmel@mackenziepartners.com

 

Media Contact

Matthew Sherman / Andi Rose / Nick Lamplough

Joele Frank, Wilkinson Brimmer Katcher

(212) 355-4449

 

 

CIRCOR International

Supplemental Financial Information

$ millions

 

 

 

 

 

Reliability

 

 

 

 

 

2018

 

Services

 

2018 PF (a)

 

Revenue

 

 

 

 

 

 

 

Energy

 

451.3

 

65.6

 

385.7

 

Aerospace & Defense

 

237.1

 

—

 

237.1

 

Industrial

 

487.5

 

—

 

487.5

 

Total

 

1,175.8

 

65.6

 

1,110.2

 

 

 

 

 

 

% of Revenue

 

 

 

Reconciliation of GAAP Operating Income to Adjusted Operating Income and GAAP Operating Margin % to Adjusted Operating Margin %

 

 

 

 

 

 

 

GAAP Operating Income

 

9.4

 

0.8

%

 

 

Restructuring related inventory charges

 

2.4

 

0.2

%

 

 

Amortization of inventory step-up

 

6.6

 

0.6

%

 

 

Restructuring charges, net

 

12.8

 

1.1

%

 

 

Acquisition amortization

 

47.3

 

4.0

%

 

 

Acquisition deprecation

 

7.0

 

0.6

%

 

 

Special charges

 

11.1

 

0.9

%

 

 

Adjusted Operating Income

 

96.6

 

8.2

%

 

 

 

Components of Adjusted Operating Income

 

 

 

 

 

 

 

Energy Segment Operating Income

 

33.5

 

 

 

 

 

Aerospace & Defense Segment Operating Income

 

36.0

 

 

 

 

 

Industrial Segment Operating Income

 

57.3

 

 

 

 

 

Corporate Expenses

 

(30.3

)

 

 

 

 

Adjusted Operating Income

 

96.6

 

 

 

 

 

 

 

 

 

 

% of Revenue

 

Reconciliation of GAAP Net Income to Adjusted EBITDA

 

 

 

 

 

GAAP Net Loss

 

(39.4

)

-3.3

%

Provision for income taxes

 

3.3

 

0.3

%

Interest expense, net

 

52.9

 

4.5

%

Depreciation & Amortization

 

78.1

 

6.6

%

Inventory restructuring charges

 

2.4

 

0.2

%

Amortization of inventory step-up

 

6.6

 

0.6

%

Restructuring charges

 

12.8

 

1.1

%

Special charges, net of recoveries

 

11.1

 

0.9

%

Adjusted EBITDA

 

127.8

 

10.9

%

Less Adj EBITDA of Reliability

 

 

 

 

 

Services

 

7.6

 

 

 

Pro Forma Adjusted EBITDA

 

120.1

 

10.8

%

 

 

 

 

 

Aerospace

 

 

 

 

 

 

 

 

 

Energy

 

& Defense

 

Industrial

 

Corporate

 

Total

 

Reconciliation of Segment Operating Income to Adjusted EBITDA Segment/Adjusted Operating Income

 

33.5

 

36.0

 

57.3

 

(30.3

)

96.6

 

Remove: Depreciation & Amortization expense included in Segment Operating Income

 

8.5

 

4.5

 

9.6

 

1.2

 

23.7

 

Add: Other Income, not included in Segment Operating Income

 

—

 

—

 

—

 

7.4

 

7.4

 

Adjusted EBITDA

 

42.0

 

40.5

 

66.9

 

(21.7

)

127.8

 

Reliability Services segment operating income

 

6.6

 

—

 

—

 

—

 

6.6

 

Reliability Services depreciation & amortization included in segment operating income

 

1.0

 

—

 

—

 

—

 

1.0

 

Pro Forma Adjusted EBITDA

 

34.4

 

40.5

 

66.9

 

(21.7

)

120.1

 

 

 

 

 

 

Aerospace

 

 

 

 

 

 

 

 

 

Energy

 

& Defense

 

Industrial

 

 

 

 

 

Reconciliation of Segment Operating Income % to Adjusted EBITDA % of revenue

 

 

 

 

 

 

 

 

 

 

 

Segment Operating Income %

 

7.4

%

15.2

%

11.8

%

 

 

 

 

Depreciation & Amortization

 

1.9

%

1.9

%

2.0

%

 

 

 

 

Adjusted EBITDA %

 

9.3

%

17.1

%

13.7

%

 

 

 

 

 

(a) 2018 Pro Forma amounts the sale of Reliability Services occurred on January 1, 2018

 

 

CIRCOR International

Supplemental Financial Information

$ millions

 

Reconciliation of Gross Debt to Net Debt, Actual and Pro Forma

 

 

 

Year Ended

 

Net Proceeds

 

Pro Forma Year Ended

 

 

 

Dec. 31, 2018

 

from Sale (a)

 

Dec. 31, 2018

 

Debt Balances

 

 

 

 

 

 

 

Current Portion

 

7.9

 

(7.9

)

—

 

Long-term

 

799.2

 

(74.2

)

725.1

 

Gross Debt

 

807.1

 

(82.0

)

725.1

 

Less: Cash

 

(68.5

)

—

 

(68.5

)

Net Debt

 

738.6

 

(82.0

)

656.6

 

 

 

 

 

 

EBITDA,

 

Pro Forma Year

 

 

 

Year Ended

 

divested

 

Ended Dec. 31,

 

 

 

Dec. 31, 2018

 

business (b)

 

2018

 

Adjusted EBITDA

 

127.8

 

(7.6

)

120.1

 

 

 

 

 

 

 

 

 

Net Debt Divided by Adjusted EBITDA

 

5.8

 

 

 

5.5

 

 

(a) Reduces debt by the amount of proceeds from the sale of Reliability Services

(b) Removes the Adjusted EBITDA related to 2018 Reliability Services

 

 

CIRCOR International

Supplemental Financial Information

$ millions

 

 

 

 

 

 

 

2017

 

 

 

2017

 

Fluid Handling

 

Combined

 

Revenue

 

 

 

 

 

 

 

Energy

 

339.6

 

64.7

 

404.3

 

Aerospace & Defense

 

183.0

 

45.9

 

228.9

 

Industrial

 

139.1

 

326.7

 

465.8

 

Total

 

661.7

 

437.3

 

1,099.0

 

 

Reconciliation of GAAP Operating Income to Adjusted Operating Income and GAAP Operating Margin % to Adjusted Operating Margin

 

 

 

 

 

 

 

GAAP Operating Income

 

20.6

 

29.5

 

50.0

 

Amortization of inventory step-up

 

4.3

 

—

 

4.3

 

Restructuring charges (recoveries), net

 

6.1

 

—

 

6.1

 

Acquisition amortization

 

12.5

 

(13.0

)

(0.5

)

Acquisition deprecation

 

0.2

 

2.4

 

2.7

 

Special charges

 

8.0

 

 

 

8.0

 

Asbestos costs

 

—

 

8.9

 

8.9

 

Stay bonus

 

—

 

2.3

 

2.3

 

Adjusted Operating Income

 

51.7

 

30.0

 

81.7

 

 

 

 

 

 

 

 

 

Components of Adjusted Operating Income

 

 

 

 

 

 

 

Energy Segment Operating Income

 

30.1

 

3.6

 

33.7

 

Aerospace & Defense Segment Operating Income

 

23.4

 

7.0

 

30.4

 

Industrial Segment Operating Income

 

19.9

 

19.5

 

39.4

 

Corporate Expenses

 

(21.7

)

—

 

(21.7

)

Adjusted Operating Income

 

51.7

 

30.0

 

81.7

 

 

 

 

 

 

 

 

Industrial

 

Reconciliation of Industrial Segment Operating Income to Adjusted EBITDA

 

 

 

 

 

 

 

Industrial segment operating income - reported

 

 

 

 

 

19.9

 

Industrial segment operating income - Fluid Handling

 

 

 

 

 

19.5

 

Combined Segment Operating Income

 

 

 

 

 

39.4

 

Depreciation & Amortization

 

 

 

 

 

8.3

 

Combined Adjusted EBITDA

 

 

 

 

 

47.7

 

 

 

CIRCOR International

Supplemental Financial Information

$ millions

 

 

 

2014

 

 

 

Revenue

 

 

 

 

 

Energy

 

534.5

 

 

 

Aerospace & Defense

 

206.7

 

 

 

Industrial

 

100.3

 

 

 

Total

 

841.4

 

 

 

 

 

 

 

 

% of Revenue

 

Reconciliation of GAAP Operating Income to Adjusted Operating Income and GAAP Operating Margin % to Adjusted Operating

 

 

 

 

 

GAAP Operating Income

 

64.8

 

7.7

%

Restructuring related inventory charges

 

8.0

 

0.9

%

Restructuring charges, net

 

5.2

 

0.6

%

Impairment charges

 

0.7

 

0.1

%

Special charges

 

7.5

 

0.9

%

Adjusted Operating Income

 

86.2

 

10.2

%

 

Components of Adjusted Operating Income

 

 

 

 

 

Energy Segment Operating Income

 

76.6

 

 

 

Aerospace & Defense Segment Operating Income

 

15.4

 

 

 

Industrial Segment Operating Income

 

17.6

 

 

 

Corporate Expenses

 

(23.4

)

 

 

Adjusted Operating Income

 

86.2

 

 

 

 

 

 

 

 

% of Revenue

 

Reconciliation of GAAP Net Income to Adjusted EBITDA

 

 

 

 

 

GAAP Net Income

 

50.4

 

6.0

%

Provision for income taxes

 

12.9

 

1.5

%

Interest expense, net

 

2.7

 

0.3

%

Depreciation & Amortization

 

19.6

 

2.3

%

Inventory restructuring charges

 

8.0

 

0.9

%

Impairment charges

 

0.7

 

0.1

%

Special charges, net of recoveries

 

12.7

 

1.5

%

Adjusted EBITDA

 

106.9

 

12.7

%

 

 

 

 

 

Aerospace &

 

 

 

 

 

 

 

 

 

Energy

 

Defense

 

Industrial

 

Corporate

 

Total

 

Reconciliation of Segment Operating Income to Adjusted EBITDA Segment/Adjusted Operating Income

 

76.6

 

15.4

 

17.6

 

(23.4

)

86.2

 

Remove: Depreciation & Amortization expense included in Segment Operating Income

 

8.5

 

6.9

 

3.0

 

1.1

 

19.5

 

Add: Other Income, not included in Segment Operating Income

 

—

 

—

 

—

 

1.2

 

1.2

 

Adjusted EBITDA

 

85.1

 

22.3

 

20.7

 

(21.2

)

106.9

 

 

 

 

 

 

Aerospace &

 

 

 

 

 

 

 

 

 

Energy

 

Defense

 

Industrial

 

 

 

 

 

Reconciliation of Segment Operating Income % to Adjusted EBITDA % of revenue

 

 

 

 

 

 

 

 

 

 

 

Segment Operating Income %

 

14.3

%

7.5

%

17.6

%

 

 

 

 

Depreciation & Amortization

 

1.6

%

3.3

%

3.0

%

 

 

 

 

Adjusted EBITDA %

 

15.9

%

10.8

%

20.6

%