Document UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 5, 2020
CIRCOR INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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Delaware | | | 001-14962 | 04-3477276 |
(State or other jurisdiction of incorporation or organization) | | | (Commission File Number) | (I.R.S. Employer Identification No.) |
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30 CORPORATE DRIVE, SUITE 200 |
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Burlington, | | MA | 01803-4238 |
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(Address of principal executive offices and Zip Code) | (Zip Code) |
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(781) 270-1200
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common stock, par value $0.01 per share | | CIR | | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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Item 2.02. Results of Operations and Financial Condition.
By press release dated November 5, 2020, CIRCOR International, Inc. (the “Company”) announced its financial results for the three months ended September 27, 2020. The full text of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
The information in this Item 2.02 of Form 8-K and the attached Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any registration statement or other document filed under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by special reference in such filing.
The Company’s management evaluates segment operating performance using operating income before certain charges/credits to cost of revenues and selling, general and administrative expenses, principally associated with acquisition-related activities; restructuring and other costs/income including costs arising from facility consolidations and gains and losses from the sale of product lines; and amortization of acquisition-related intangible assets. The Company also refers to this measure as segment operating income or adjusted operating income. The Company uses this measure because it helps management understand and evaluate the segments’ core operating results and facilitates comparison of performance for determining incentive compensation achievement.
In the press release and accompanying supplemental information, the Company uses the following non-GAAP financial measures: adjusted operating income, adjusted operating margin, free cash flow, adjusted net income, adjusted earnings per share (EPS), EBITDA, adjusted EBITDA, net debt, combined financial information, and organic revenue, described as follows:
•Adjusted operating income is defined as GAAP operating income excluding intangible amortization from acquisitions completed subsequent to December 31, 2011, depreciation and cost of goods sold charges related to step-up valuations from acquisitions completed subsequent to December 31, 2016, the impact of restructuring related inventory, impairment and special charges or gains.
•Adjusted operating margin is defined as adjusted operating income divided by net revenues.
•Free cash flow is defined as net cash flow from operating activities, less net capital expenditures. Management of this Company believes free cash flow is an important measure of its liquidity as well as its ability to service long-term debt, fund future growth and to provide a return to shareholders. We also believe this free cash flow definition does not have any material limitations.
•Adjusted net income is defined as net income, excluding intangible amortization from acquisitions completed subsequent to December 31, 2011, depreciation and cost of goods sold charges related to step-up valuations from acquisitions completed subsequent to December 31, 2016,, the impact of restructuring related inventory, impairment and special charges or gains, net of tax.
•Adjusted EPS is defined as earnings per common share diluted, excluding the per share impact of intangible amortization from acquisitions completed subsequent to December 31, 2011, depreciation and cost of goods sold charges related to step-up valuations from acquisitions completed subsequent to December 31, 2016,, the impact of restructuring related inventory, impairment and special charges or gains, net of tax.
•EBITDA is defined as net income plus net interest expense, provision for income taxes, depreciation and amortization.
•Adjusted EBITDA is defined as EBITDA plus the impact of special charges/gains including the impact of restructuring related inventory charges, cost of goods sold charges related to step-up valuations from acquisitions completed subsequent to December 31, 2016,, and impairments, net of tax.
•Net Debt is defined at total debt minus cash and cash equivalents.
•Organic growth - the change in revenue and orders excluding the impact of acquisitions, divestitures and changes in foreign exchange rates.
Our management uses these non-GAAP measures to gain an understanding of our comparative operating performance (when comparing such results with previous periods or forecasts). 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. For example:
•We exclude costs and tax effects associated with restructuring activities, such as reducing overhead and consolidating facilities. We believe that the costs related to these restructuring activities are not indicative of our normal operating costs.
•We exclude certain acquisition-related costs, including significant transaction costs and the related tax effects. We exclude these costs because we do not believe they are indicative of our normal operating costs.
•We exclude the expense and tax effects associated with the non-cash amortization of acquisition-related intangible assets because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have lives of 5 to 20 years. Exclusion of the non-cash amortization expense allows comparisons of operating results that are consistent over time for both our newly acquired and long-held businesses and with both acquisitive and non-acquisitive peer companies.
•We also exclude certain gains/losses and related tax effects, which are either isolated or cannot be expected to occur again with any predictability, and that we believe are not indicative of our normal operating gains and losses. For example, we exclude gains/losses from items such as the sale of a business, significant litigation-related matters and lump-sum pension plan settlements.
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 peers and 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 incentive 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 our non-GAAP financial measures to the most directly comparable GAAP financial measure is provided in the supplemental information table titled “Reconciliation of Key Performance Measures to Commonly Used Generally Accepted Accounting Principle Terms” which is included as an attachment to the press release in Exhibit 99.1.
Item 7.01. Regulation FD Disclosure
Presentation slides discussing the Company's quarterly operating results are attached to this Current Report on Form 8-K, as Exhibit 99.2, and are incorporated herein by reference. The information in this Item 7.01 of Form 8-K and the attached Exhibit 99.2 shall not be deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liability that section, nor shall it be deemed incorporated by reference into any registration statement or other document filed under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by special reference in such filing.
Item 9.01 Financial Statements and Exhibits.
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Exhibit No. | Description |
| Press Release regarding Earnings |
| Third Quarter 2020 Investor Review Presentation |
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 hereunto duly authorized.
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| CIRCOR INTERNATIONAL, INC. |
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November 5, 2020 | /s/ Abhi Khandelwal |
| Abhi Khandelwal |
| Senior Vice President and Chief Financial Officer |
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Document
CIRCOR Reports Third-Quarter 2020 Financial Results Exhibit 99.1
Burlington, MA – November 5, 2020
CIRCOR International, Inc. (NYSE: CIR), one of the world’s leading providers of mission critical flow control products and services for the Industrial and Aerospace & Defense markets, today announced GAAP and adjusted financial results for the third quarter ended September 27, 2020.
Third Quarter 2020 Overview
•Revenue of $187 million, down 21% reported, down 15% organically
◦Aerospace & Defense revenue of $62 million, down 8% reported, down 9% organically
◦Industrial revenue of $124 million, down 27% reported, down 18% organically
•Revenue drop through to earnings of 19%
•GAAP loss per share of $(2.93); Adjusted earnings per share of $0.36
•GAAP operating margin of 2.4%; Adjusted operating margin of 9.3%
•Aerospace & Defense operating margin of 23.7%, up 360 bps versus last year
•Gross debt reduction of $119 million and net debt reduction of $122 million over last 12 months
•Remain on track to achieve $45 million 2020 cost reduction plan
•Free cash flow flat and in line with prior guidance
“While the COVID-19 pandemic continues to have an impact around the globe, the strength, resilience, and diversification of our portfolio – together with the outstanding work and commitment of our employees – is mitigating the effect of the weaker economic environment,” said Scott Buckhout, CIRCOR’s President and CEO. “Fortunately, the mission critical nature of our products has ensured that our pricing strategy remains on track. In addition, the CIRCOR Operating System continues to play a pivotal role in driving execution, with most operating metrics improving through the downturn. We are working with urgency to ensure CIRCOR is positioned to take full advantage of an eventual market recovery by launching a record number of new products and establishing ongoing collaboration with customers and suppliers.”
“Looking ahead, we are focused on driving value for shareholders by investing in growth, expanding margins, generating strong free cash flow, and de-levering the balance sheet,” concluded Buckhout.
Selected Preliminary Consolidated Results
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($ in millions except EPS) | | Q3 2020 | | Q3 2019 | | Change | | Q3 YTD 2020 | | Q3 YTD 2019 | | Change |
Revenue | | $ | 186.6 | | | $ | 237.1 | | | -21 | % | | $ | 564.9 | | | $ | 721.7 | | | -22 | % |
Revenue - excluding divested businesses1 | | 186.6 | | | 216.4 | | | -14 | % | | 560.0 | | | 645.1 | | | -13 | % |
GAAP operating (loss) income | | 4.4 | | | (9.1) | | | 148 | % | | (70.4) | | | 20.7 | | | -440 | % |
Adjusted operating income2 | | 17.3 | | | 25.6 | | | -32 | % | | 44.3 | | | 77.6 | | | -43 | % |
GAAP operating margin | | 2.4 | % | | (3.8) | % | | 620 bps | | (12.5) | % | | 2.9 | % | | -1540 bps |
Adjusted operating margin2 | | 9.3 | % | | 10.8 | % | | -150 bps | | 7.8 | % | | 10.8 | % | | -300 bps |
Adjusted operating margin ex divestitures2 | | 9.3 | % | | 10.6 | % | | -130 bps | | 7.9 | % | | 9.8 | % | | -190 bps |
GAAP loss per share (diluted) | | $ | (2.93) | | | $ | (5.64) | | | 48 | % | | $ | (8.59) | | | $ | (6.81) | | | -26 | % |
Adjusted earnings per share (diluted)2 | | $ | 0.36 | | | $ | 0.63 | | | -43 | % | | $ | 0.78 | | | $ | 1.80 | | | -57 | % |
Operating cash flow | | 2.5 | | | 9.1 | | | -73 | % | | (46.4) | | | (0.9) | | | -5056 | % |
Free cash flow3 | | 0.1 | | | 10.1 | | | -99 | % | | (55.6) | | | (6.6) | | | -742 | % |
Orders | | 166.6 | | | 223.0 | | | -25 | % | | 567.7 | | | 740.9 | | | -23 | % |
Orders - excluding divested businesses1 | | 166.6 | | | 200.9 | | | -17 | % | | 563.2 | | | 663.8 | | | -15 | % |
Segment Results
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($ in millions) | | Q3 2020 | | Q3 2019 | | Change | | Q3 YTD 2020 | | Q3 YTD 2019 | | Change |
Aerospace & Defense | | | | | | | | | | | | |
Revenue | | $ | 62.2 | | | $ | 67.6 | | | -8 | % | | $ | 190.0 | | | $ | 193.6 | | | -2 | % |
Segment operating income | | 14.8 | | | 13.6 | | | 9 | % | | 40.4 | | | 33.4 | | | 21 | % |
Segment operating margin | | 23.7 | % | | 20.1 | % | | 360 bps | | 21.3 | % | | 17.2 | % | | 410 bps |
Orders | | 59.1 | | | 64.0 | | | -8 | % | | 207.8 | | | 245.5 | | | -15 | % |
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Industrial | | | | | | | | | | | | |
Revenue | | $ | 124.4 | | | $ | 169.4 | | | -27 | % | | $ | 374.9 | | | $ | 528.1 | | | -29 | % |
Revenue - excluding divested businesses1 | | 124.4 | | | 148.7 | | | -16 | % | | 370.0 | | | 451.5 | | | -18 | % |
Segment operating income | | 9.8 | | | 21.3 | | | -54 | % | | 27.4 | | | 70.0 | | | -61 | % |
Segment operating margin | | 7.9 | % | | 12.6 | % | | -470 bps | | 7.3 | % | | 13.3 | % | | -600 bps |
Orders | | 107.5 | | | 159.0 | | | -32 | % | | 359.9 | | | 495.5 | | | -27 | % |
Orders - excluding divested businesses1 | | 107.5 | | | 136.9 | | | -21 | % | | 355.5 | | | 418.3 | | | -15 | % |
1.Orders and revenue excluding divested businesses are non-GAAP measures and are calculated by subtracting the orders and revenues generated by the divested businesses during the periods prior to their divestiture from reported orders and revenues. Divested businesses include Reliability Services, Spence/Nicholson and Instrumentation & Sampling (all Industrial) which were sold before September 27, 2020.
2.Adjusted consolidated and segment results for Q3 2020 exclude net income from discontinued operations of $0.3 million and net loss from non-cash acquisition-related intangible amortization, special and restructuring charges totaling $12.9 million. These charges include: (i) $11.6 million for non-cash acquisition-related intangible amortization and depreciation expense; (ii) $0.8 million of professional fees and other costs associated with restructuring and cost reductions; and (iii) $0.5 million of other special and restructuring charges. It also excludes the Q3 2020 charge for valuation allowance against deferred tax assets by virtue of using an effective tax rate in the adjusted results which is a $53.3 million adjustment to taxes. Adjusted consolidated and segment results for Q3 2019 exclude net loss from discontinued operations of $84.7 million and net loss from non-cash acquisition-related intangible amortization, special and restructuring charges totaling $34.7million ($40.2 million, net of tax). These charges include: (i) $12.3 million for non-cash acquisition-related intangible amortization expense and amortization of the step-up in fixed asset values; (ii) $11.6 million related to business sales; (iii) $8.0 million of professional fees and other costs associated with restructuring and cost reductions; (iv) $4.0 million of professional fees associated
with an unsolicited tender offer to acquire all outstanding shares of the Company’s common stock; and (iv) $1.1 million of other special and restructuring recoveries.
3.Free cash flow is a non-GAAP financial measure and is calculated by subtracting GAAP capital expenditures, net of proceeds from asset sales, from GAAP operating cash flow.
Conference Call Information
CIRCOR International will hold a conference call to review its financial results at 9:00 a.m. ET today, November 5, 2020. To listen to the live conference call and view the accompanying presentation slides, please visit “Webcasts & Presentations” in the “Investors” portion of CIRCOR’s website. The live call also can be accessed by dialing (833) 665-0658 or (914) 987-7312. The conference ID number is 9088809. Participants are encouraged to dial in to the call at least 15 minutes prior to the start time. The webcast will be archived on the Company’s website for one year.
Use of Non-GAAP Financial Measures
Adjusted operating income, adjusted operating margin, adjusted net income, adjusted earnings per share (diluted), EBITDA, adjusted EBITDA, net debt, free cash flow and organic growth (and such measures further excluding discontinued operations) are non-GAAP financial measures. 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. For example:
We exclude costs and tax effects associated with restructuring activities, such as reducing overhead and consolidating facilities. We believe that the costs related to these restructuring activities are not indicative of our normal operating costs.
We exclude certain acquisition-related costs, including significant transaction costs and amortization of inventory and fixed-asset step-ups and the related tax effects. We exclude these costs because we do not believe they are indicative of our normal operating costs.
We exclude the expense and tax effects associated with the non-cash amortization of acquisition-related intangible assets because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have lives up to 25 years. Exclusion of the non-cash amortization expense allows comparisons of operating results that are consistent over time for both our newly acquired and long-held businesses and with both acquisitive and non-acquisitive peer companies.
We also exclude certain gains/losses and related tax effects, which are either isolated or cannot be expected to occur again with any predictability, and that we believe are not indicative of our normal operating gains and losses. For example, we exclude gains/losses from items such as the sale of a business, significant litigation-related matters and lump-sum pension plan settlements.
We exclude the results of discontinued operations.
We exclude goodwill impairment charges.
Due to the significance of recently sold businesses and to provide a comparison of changes in our orders and revenue, we also discuss these changes on an “organic” basis. Organic is calculated assuming the divestitures completed prior to September 27, 2020 were completed on January 1, 2019 and excluding the impact of changes in foreign currency exchange rates.
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 news release.
Safe Harbor Statement
This press release contains certain statements that are “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 (the “Act”). The words “may,” “hope,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” and other expressions, which are predictions of or indicate future events and trends and which do not relate to historical matters, identify forward-looking statements, although not all forward-looking statements are accompanied by such words. We believe that it is important to communicate our future expectations to our stockholders, and we, therefore, make forward-looking statements in reliance upon the safe harbor provisions of the Act. However, there may be events in the future that we are not able to accurately predict or control and our actual results may differ materially from the expectations we describe in our forward-looking statements. Forward-looking statements, including statements about outlook for the fourth quarter, the expected and potential direct or indirect impacts of the COVID-19 pandemic on our business, the realization of cost reductions from restructuring activities and expected synergies, the number of new product launches and future cash flows from operating activities, involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: the duration and severity of the COVID-19 pandemic and its impact on the global economy; changes in the price of and demand for oil and gas in both domestic and international markets; any adverse changes in governmental policies; variability of raw material and component pricing; changes in our suppliers’ performance; fluctuations in foreign currency exchange rates; changes in tariffs or other taxes related to doing business internationally; our ability to hire and retain key personnel; our ability to operate our manufacturing facilities at efficient levels including our ability to prevent cost overruns and reduce costs; our ability to generate increased cash by reducing our working capital; our prevention of the accumulation of excess inventory; our ability to successfully implement our divestiture; restructuring or simplification strategies; fluctuations in interest rates; our ability to successfully defend product liability actions; as well as the uncertainty associated with the current worldwide economic conditions and the continuing impact on economic and financial conditions in the United States and around the world, including as a result of COVID-19, natural disasters, terrorist attacks and other similar matters. We advise you to read further about these and other risk factors set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, which is filed with the Securities and Exchange Commission ("SEC") and is available on the SEC's website at www.sec.gov. 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 is one of the world’s leading providers of mission critical flow control products and services for the Industrial and Aerospace & Defense markets. The Company has a product portfolio of market-leading brands serving its customers’ most demanding applications. CIRCOR markets its solutions directly and through various sales partners to more than 14,000 customers in approximately 100 countries. The Company has a global presence with approximately 3,200 employees and is headquartered in Burlington, Massachusetts. For more information, visit the Company’s investor relations website at http://investors.circor.com.
Contact:
Abhi Khandelwal
Senior Vice President Finance & Chief Financial Officer
CIRCOR International
(781) 270-1200
CIRCOR INTERNATIONAL, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data) (unaudited)
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| | | | Three Months Ended | | Nine Months Ended |
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Net revenues | | $ | 186,640 | | | $ | 237,052 | | | $ | 564,920 | | | $ | 721,675 | |
Cost of revenues | | 130,630 | | | 162,578 | | | 389,905 | | | 490,870 | |
Gross profit | | 56,010 | | | 74,474 | | | 175,015 | | | 230,805 | |
Selling, general and administrative expenses | | 50,652 | | | 60,039 | | | 164,948 | | | 190,227 | |
Goodwill impairment charge | | — | | | — | | | 116,182 | | | — | |
Special and restructuring charges (recoveries), net | | 938 | | | 23,519 | | | (35,747) | | | 19,893 | |
Operating income (loss) | | 4,420 | | | (9,084) | | | (70,368) | | | 20,685 | |
Other expense (income), net: | | | | | | | | |
Interest expense, net | | 8,202 | | | 11,804 | | | 25,699 | | | 37,846 | |
Other expense (income), net | | 765 | | | (759) | | | 229 | | | (2,755) | |
Total other expense, net | | 8,967 | | | 11,045 | | | 25,928 | | | 35,091 | |
(Loss) income from continuing operations before income taxes | | (4,547) | | | (20,129) | | | (96,296) | | | (14,406) | |
Provision for (benefit from) income taxes | | 54,318 | | | 7,520 | | | 40,923 | | | 13,513 | |
(Loss) income from continuing operations, net of tax | | (58,865) | | | (27,649) | | | (137,219) | | | (27,919) | |
Income (loss) from discontinued operations, net of tax | | 341 | | | (84,688) | | | (34,345) | | | (107,572) | |
Net loss | | $ | (58,524) | | | $ | (112,337) | | | $ | (171,564) | | | $ | (135,491) | |
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Basic income (loss) per common share: | | | | | | | | |
Basic from continuing operations | | $ | (2.94) | | | $ | (1.39) | | | $ | (6.87) | | | $ | (1.40) | |
Basic from discontinued operations | | $ | 0.02 | | | $ | (4.25) | | | $ | (1.72) | | | $ | (5.41) | |
Net loss | | $ | (2.93) | | | $ | (5.64) | | | $ | (8.59) | | | $ | (6.81) | |
Diluted income (loss) per common share: | | | | | | | | |
Diluted from continuing operations | | $ | (2.94) | | | $ | (1.39) | | | $ | (6.87) | | | $ | (1.40) | |
Diluted from discontinued operations | | $ | 0.02 | | | $ | (4.25) | | | $ | (1.72) | | | $ | (5.41) | |
Net loss | | $ | (2.93) | | | $ | (5.64) | | | $ | (8.59) | | | $ | (6.81) | |
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Weighted average number of common shares outstanding: | | | | | | | | |
Basic | | | 20,001 | | | 19,916 | | | 19,975 | | | 19,898 | |
Diluted | | | 20,001 | | | 19,916 | | | 19,975 | | | 19,898 | |
CIRCOR INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands) (unaudited)
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| | | | Nine Months Ended |
| | | | September 27, 2020 | | September 29, 2019 |
OPERATING ACTIVITIES | | | | |
Net loss | | $ | (171,564) | | | $ | (135,491) | |
Loss from discontinued operations, net of income taxes | | (34,345) | | | (107,572) | |
Loss from continuing operations | | (137,219) | | | (27,919) | |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | |
Depreciation | | 14,881 | | | 16,618 | |
Amortization | | 32,418 | | | 36,023 | |
Provision for bad debt expense | | 7,219 | | | (469) | |
Write down of inventory | | 2,386 | | | 301 | |
Compensation expense for share-based plans | | 4,076 | | | 4,200 | |
Amortization of debt issuance costs | | 6,463 | | | 3,669 | |
Deferred tax provision | | 35,582 | | | 11,812 | |
Loss on sale or write-down of property, plant and equipment | | — | | | 2,889 | |
Goodwill impairment charge | | 116,182 | | | — | |
(Gain) loss on sale of businesses | | (54,253) | | | 2,707 | |
Changes in operating assets and liabilities, net of effects of acquisition and disposition: | | | |
Trade accounts receivable | | 18,051 | | | 17,413 | |
Inventories | | (8,477) | | | (11,724) | |
Prepaid expenses and other assets | | (39,184) | | | (20,546) | |
Accounts payable, accrued expenses and other liabilities | | (30,468) | | | (18,300) | |
Net cash (used in) provided by continuing operating activities | (32,343) | | | 16,674 | |
Net cash used in discontinued operating activities | (14,022) | | | (17,585) | |
Net cash used in operating activities | | (46,365) | | | (911) | |
INVESTING ACTIVITIES | | | | |
Additions to property, plant and equipment | | (9,147) | | | (9,519) | |
Proceeds from sale of property, plant and equipment | | (122) | | | 99 | |
Proceeds from the sale of business | | 166,210 | | | 163,056 | |
Proceeds from beneficial interest of factored receivables | | 2,212 | | | — | |
Net cash provided by continuing investment activities | | 159,153 | | | 153,636 | |
Net cash used in discontinued investing activities | | (11,338) | | | (2,435) | |
Net cash provided by investing activities | | 147,815 | | | 151,201 | |
FINANCING ACTIVITIES | | | | |
Proceeds from long-term debt | | 165,800 | | | 231,950 | |
Payments of long-term debt | | (279,191) | | | (379,897) | |
Proceeds from the exercise of stock options | | 117 | | | 106 | |
Net cash used in continuing financing activities | (113,274) | | | (147,841) | |
Net cash used in financing activities | | (113,274) | | | (147,841) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | 29 | | | (1,753) | |
(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | (11,795) | | | 696 | |
Cash, cash equivalents, and restricted cash at beginning of period | 85,727 | | | 69,525 | |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $ | 73,932 | | | $ | 70,221 | |
CIRCOR INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(in thousands) (unaudited)
| | | | | | | | | | | | | | |
| | September 27, 2020 | | December 31, 2019 |
ASSETS | | | |
CURRENT ASSETS: | | | |
Cash and cash equivalents | $ | 72,772 | | | $ | 84,531 | |
Trade accounts receivable, less allowance for doubtful accounts of $10,424 and $3,086 at September 27, 2020 and December 31, 2019, respectively | 102,840 | | | 125,422 | |
Inventories | 144,476 | | | 137,309 | |
Prepaid expenses and other current assets | 98,401 | | | 66,664 | |
Assets held for sale | — | | | 161,193 | |
Total Current Assets | | 418,489 | | | 575,119 | |
PROPERTY, PLANT AND EQUIPMENT, NET | 167,037 | | | 172,179 | |
OTHER ASSETS: | | | |
Goodwill | 158,117 | | | 271,893 | |
Intangibles, net | 357,038 | | | 385,542 | |
Deferred income taxes | 905 | | | 30,852 | |
Other assets | 43,621 | | | 35,360 | |
TOTAL ASSETS | $ | 1,145,207 | | | $ | 1,470,945 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
CURRENT LIABILITIES: | | | |
Accounts payable | $ | 63,966 | | | $ | 79,399 | |
Accrued expenses and other current liabilities | 86,176 | | | 94,169 | |
Accrued compensation and benefits | 27,570 | | | 19,518 | |
Liabilities held for sale | — | | | 43,289 | |
Total Current Liabilities | | 177,712 | | | 236,375 | |
LONG-TERM DEBT | 527,721 | | | 636,297 | |
DEFERRED INCOME TAXES | 16,823 | | | 21,425 | |
PENSION LIABILITY, NET | 143,599 | | | 146,801 | |
OTHER NON-CURRENT LIABILITIES | 58,538 | | | 38,636 | |
COMMITMENTS AND CONTINGENCIES | | | |
SHAREHOLDERS' EQUITY: | | | |
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued and outstanding | — | | | — | |
Common stock, $0.01 par value; 29,000,000 shares authorized; 19,997,931 and 19,912,362 outstanding at September 27, 2020 and December 31, 2019 respectively | 214 | | | 213 | |
Additional paid-in capital | 451,351 | | | 446,657 | |
(Accumulated deficit) retained earnings | (72,528) | | | 99,280 | |
Common treasury stock, at cost (1,372,488 shares at September 27, 2020 and December 31, 2019) | (74,472) | | | (74,472) | |
Accumulated other comprehensive loss, net of tax | (83,751) | | | (80,267) | |
Total Shareholders' Equity | | 220,814 | | | 391,411 | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 1,145,207 | | | $ | 1,470,945 | |
CIRCOR INTERNATIONAL, INC.
Summary of Orders and Backlog
(in millions) (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Nine Months Ended |
| | | | Q3 2020 | | Q3 2019 | | Q3 2020 | | Q3 2019 |
| | | | | | | | | | |
ORDERS (1) | | | | | | | | |
| | Aerospace & Defense | | $ | 59.1 | | | $ | 64.0 | | | $ | 207.8 | | | $ | 245.5 | |
| | Industrial | | 107.5 | | | 159.0 | | | 359.9 | | | 495.4 | |
| | Total Orders | | $ | 166.6 | | | $ | 223.0 | | | $ | 567.7 | | | $ | 740.9 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | Q3 2020 | | Q3 2019 | | | | |
BACKLOG (2) | | | | | | | | |
| | Aerospace & Defense | | $ | 211.4 | | | $ | 206.9 | | | | | |
| | Industrial | | 204.0 | | | 218.4 | | | | | |
| | Total Backlog | | $ | 415.4 | | | $ | 425.3 | | | | | |
| | | | | | | | | | |
Note 1: Orders do not include the foreign exchange impact due to the re-measurement of customer backlog amounts denominated in foreign currencies. Orders for the nine months ended September 27, 2020 include orders from businesses divested prior to September 27, 2020 of $4.5 million. Orders for the three months ended September 27, 2019 include orders from businesses divested of $22.1 million ($77.1 million for the nine months ended September 27, 2019). Divested businesses are Reliability Services, Spence/Nicholson and Instrumentation & Sampling, all in the Industrial segment. |
| | | | | | | | | | |
Note 2: Backlog includes unshipped customer orders for which revenue has not been recognized. Backlog at Q3 2019 includes $9.1 million for Industrial related to divested businesses. |
CIRCOR INTERNATIONAL, INC.
Segment Information
(in thousands, except percentages)
UNAUDITED
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | 2020 |
As reported | | 1ST QTR | 2ND QTR | 3RD QTR | 4TH QTR | TOTAL | 1ST QTR | 2ND QTR | 3RD QTR | TOTAL |
ORDERS | | | | | | | | | | |
Aerospace & Defense | | $ | 88,107 | | $ | 93,405 | | $ | 63,968 | | $ | 68,459 | | $ | 313,939 | | $ | 72,031 | | $ | 76,616 | | $ | 59,105 | | $ | 207,752 | |
Industrial | | 171,834 | | 164,642 | | 158,986 | | 168,091 | | 663,553 | | 136,443 | | 116,023 | | 107,453 | | 359,919 | |
Total | | $ | 259,941 | | $ | 258,047 | | $ | 222,954 | | $ | 236,550 | | $ | 977,492 | | $ | 208,474 | | $ | 192,639 | | $ | 166,558 | | $ | 567,671 | |
| | | | | | | | | | |
NET REVENUES | | | | | | | | | | |
Aerospace & Defense | | $ | 61,240 | | $ | 64,694 | | $ | 67,621 | | $ | 79,070 | | $ | 272,625 | | $ | 65,493 | | $ | 62,241 | | $ | 62,249 | | $ | 189,983 | |
Industrial | | 177,615 | | 181,074 | | 169,431 | | 163,568 | | 691,688 | | 126,720 | | 123,825 | | 124,391 | | 374,937 | |
Total | | $ | 238,855 | | $ | 245,768 | | $ | 237,052 | | $ | 242,638 | | $ | 964,313 | | $ | 192,213 | | $ | 186,066 | | $ | 186,640 | | $ | 564,920 | |
| | | | | | | | | | |
SEGMENT OPERATING INCOME | | | | | | | | | | |
Aerospace & Defense | | $ | 9,374 | | $ | 10,443 | | $ | 13,564 | | $ | 19,099 | | $ | 52,480 | | $ | 12,494 | | $ | 13,142 | | $ | 14,782 | | $ | 40,418 | |
Industrial | | 22,581 | | 26,174 | | 21,278 | | 20,757 | | 90,790 | | 5,169 | | 12,406 | | 9,807 | | 27,383 | |
Corporate expenses | | (8,522) | | (8,028) | | (9,248) | | (7,671) | | (33,469) | | (6,588) | | (9,664) | | (7,244) | | (23,496) | |
Total | | $ | 23,433 | | $ | 28,589 | | $ | 25,594 | | $ | 32,185 | | $ | 109,801 | | $ | 11,075 | | $ | 15,884 | | $ | 17,345 | | $ | 44,305 | |
| | | | | | | | | | |
SEGMENT OPERATING MARGIN % | | | | | | | | | | |
Aerospace & Defense | | 15.3 | % | 16.1 | % | 20.1 | % | 24.2 | % | 19.2 | % | 19.1 | % | 21.1 | % | 23.7 | % | 21.3 | % |
Industrial | | 12.7 | % | 14.5 | % | 12.6 | % | 12.7 | % | 13.1 | % | 4.1 | % | 10.0 | % | 7.9 | % | 7.3 | % |
Total | | 9.8 | % | 11.6 | % | 10.8 | % | 13.3 | % | 11.4 | % | 5.8 | % | 8.5 | % | 9.3 | % | 7.8 | % |
| | | | | | | | | | |
| | 2019 | 2020 |
Results of divested businesses (1) | | 1ST QTR | 2ND QTR | 3RD QTR | 4TH QTR | TOTAL | 1ST QTR | 2ND QTR | 3RD QTR | TOTAL |
ORDERS - Industrial | | $ | 30,611 | | $ | 24,448 | | $ | 22,090 | | $ | 18,047 | | $ | 95,196 | | $ | 4,449 | | $ | — | | $ | — | | $ | 4,449 | |
NET REVENUES - Industrial | | $ | 29,787 | | $ | 26,101 | | $ | 20,697 | | $ | 18,602 | | $ | 95,187 | | $ | 4,900 | | $ | — | | $ | — | | $ | 4,900 | |
SEGMENT OP. INC. -Industrial | | $ | 6,217 | | $ | 5,229 | | $ | 2,677 | | $ | 3,166 | | $ | 17,289 | | $ | — | | $ | — | | $ | — | | $ | — | |
CIRCOR INTERNATIONAL, INC.
Supplemental Information Regarding Divested Businesses
(in thousands, except percentages) (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2019 | 2020 |
| Results excluding divested businesses | 1ST QTR | 2ND QTR | 3RD QTR | 4TH QTR | TOTAL | 1ST QTR | 2ND QTR | 3RD QTR | TOTAL |
| ORDERS | | | | | | | | | |
| Aerospace & Defense | $ | 88,107 | | $ | 93,405 | | $ | 63,968 | | $ | 68,459 | | $ | 313,939 | | $ | 72,031 | | $ | 76,616 | | $ | 59,105 | | $ | 207,752 | |
| Industrial | 141,223 | | 140,194 | | 136,896 | | 150,044 | | 568,357 | | 131,994 | | 116,023 | | 107,453 | | 355,470 | |
| Total | $ | 229,330 | | $ | 233,599 | | $ | 200,864 | | $ | 218,503 | | $ | 882,296 | | $ | 204,025 | | $ | 192,639 | | $ | 166,558 | | $ | 563,222 | |
| | | | | | | | | | | |
| NET REVENUES | | | | | | | | | |
| Aerospace & Defense | $ | 61,240 | | $ | 64,694 | | $ | 67,621 | | $ | 79,070 | | $ | 272,625 | | $ | 65,493 | | $ | 62,241 | | $ | 62,249 | | $ | 189,983 | |
| Industrial | 147,828 | | 154,973 | | 148,734 | | 144,966 | | 596,501 | | 121,820 | | 123,825 | | 124,391 | | 370,037 | |
| Total | $ | 209,068 | | $ | 219,667 | | $ | 216,355 | | $ | 224,036 | | $ | 869,126 | | $ | 187,313 | | $ | 186,066 | | $ | 186,640 | | $ | 560,020 | |
| | | | | | | | | | | |
| SEGMENT OPERATING INCOME | | | | | | | | | |
| Aerospace & Defense | $ | 9,374 | | $ | 10,443 | | $ | 13,564 | | $ | 19,099 | | $ | 52,480 | | $ | 12,494 | | $ | 13,142 | | $ | 14,782 | | $ | 40,418 | |
| Industrial | 16,364 | | 20,945 | | 18,601 | | 17,591 | | 73,501 | | 5,169 | | 12,406 | | 9,807 | | 27,383 | |
| Corporate expenses | (8,522) | | (8,028) | | (9,248) | | (7,671) | | (33,469) | | (6,588) | | (9,664) | | (7,244) | | (23,496) | |
| Total | $ | 17,216 | | $ | 23,360 | | $ | 22,917 | | $ | 29,019 | | $ | 92,512 | | $ | 11,075 | | $ | 15,884 | | $ | 17,345 | | $ | 44,305 | |
| | | | | | | | | | | |
| SEGMENT OPERATING MARGIN % | | | | | | | | | |
| Aerospace & Defense | 15.3 | % | 16.1 | % | 20.1 | % | 24.2 | % | 19.2 | % | 19.1 | % | 21.1 | % | 23.7 | % | 21.3 | % |
| Industrial | 11.1 | % | 13.5 | % | 12.5 | % | 12.1 | % | 12.3 | % | 4.2 | % | 10.0 | % | 7.9 | % | 7.4 | % |
| Total | 8.2 | % | 10.6 | % | 10.6 | % | 13.0 | % | 10.6 | % | 5.9 | % | 8.5 | % | 9.3 | % | 7.9 | % |
| | | | | | | | | | | |
| (1) Divested businesses are related to the Industrial Segment and include Reliability Services, Spence/Nicholson and Instrumentation & Sampling. Engineered Valves and Distributed Valves are discontinued operations and not reflected in the As Reported figures in accordance with US GAAP. |
CIRCOR INTERNATIONAL, INC.
Reconciliation of Key Performance Measures to Commonly Used Generally Accepted Accounting Principle Terms
(in thousands, except percentages) (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | 2020 |
| | 1ST QTR | 2ND QTR | 3RD QTR | 4TH QTR | TOTAL | 1ST QTR | 2ND QTR | 3RD QTR | TOTAL |
| | | | | | | | | | |
Net Cash (Used In) Provided By Operating Activities | | $ | (22,378) | | $ | 12,339 | | $ | 9,128 | | $ | 16,822 | | $ | 15,911 | | $ | (23,947) | | $ | (24,883) | | $ | 2,465 | | $ | (46,365) | |
LESS | | | | | | | | | | |
Capital expenditures, net of sale proceeds (a) | | 3,689 | | 2,995 | | (963) | | (1,535) | | 4,186 | | 3,412 | | 3,527 | | 2,330 | | 9,269 | |
FREE CASH FLOW | | $ | (26,067) | | $ | 9,344 | | $ | 10,091 | | $ | 18,357 | | $ | 11,725 | | $ | (27,359) | | $ | (28,410) | | $ | 135 | | $ | (55,634) | |
| | | | | | | | | | |
| | | | | | | | | | |
Gross Debt | | $ | 753,950 | | $ | 748,250 | | $ | 659,100 | | $ | 653,850 | | $ | 653,850 | | $ | 602,288 | | $ | 592,038 | | $ | 540,463 | | $ | 540,463 | |
Less: Cash & Cash equivalents | | 73,619 | | 76,082 | | 69,225 | | 84,531 | | 84,531 | | 170,861 | | 125,421 | | 72,772 | | 72,772 | |
GROSS DEBT, NET OF CASH | | $ | 680,331 | | $ | 672,168 | | $ | 589,875 | | $ | 569,319 | | $ | 569,319 | | $ | 431,427 | | $ | 466,617 | | $ | 467,691 | | $ | 467,691 | |
| | | | | | | | | | |
TOTAL SHAREHOLDERS' EQUITY | | $ | 516,177 | | $ | 494,899 | | $ | 375,388 | | $ | 391,411 | | $ | 391,411 | | $ | 290,845 | | $ | 273,351 | | $ | 220,814 | | $ | 220,814 | |
| | | | | | | | | | |
GROSS DEBT AS % OF EQUITY | | 146 | % | 151 | % | 176 | % | 167 | % | 167 | % | 207 | % | 217 | % | 245 | % | 245 | % |
GROSS DEBT, NET OF CASH AS % OF EQUITY | | 132 | % | 136 | % | 157 | % | 145 | % | 145 | % | 148 | % | 171 | % | 212 | % | 212 | % |
| | | | | | | | | | |
(a) includes capital expenditures, net of sales proceeds of discontinued operations |
CIRCOR INTERNATIONAL, INC.
Reconciliation of Key Performance Measures to Commonly Used Generally Accepted Accounting Principle Terms
(in thousands, except percentages) (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | 2020 |
| | 1ST QTR | 2ND QTR | 3RD QTR | 4TH QTR | TOTAL | 1ST QTR | 2ND QTR | 3RD QTR | TOTAL |
NET (LOSS) INCOME | | $ | (4,633) | | $ | (18,520) | | $ | (112,338) | | $ | 1,555 | | $ | (133,936) | | $ | (78,948) | | $ | (34,092) | | $ | (58,524) | | $ | (171,564) | |
LESS: | | | | | | | | | | |
Restructuring related inventory charges | | 325 | | — | | (1,145) | | — | | (820) | | (602) | | — | | 351 | | (250) | |
| | | | | | | | | | |
Restructuring charges, net | | 358 | | 299 | | 5,038 | | (509) | | 5,186 | | 2,883 | | 588 | | 502 | | 3,973 | |
Acquisition amortization | | 12,077 | | 11,247 | | 11,202 | | 11,189 | | 45,715 | | 10,218 | | 10,681 | | 10,625 | | 31,523 | |
Acquisition depreciation | | 1,123 | | 1,106 | | 1,102 | | 1,021 | | 4,352 | | 974 | | 980 | | 1,011 | | 2,965 | |
Special (recoveries) charges, net | | (8,200) | | 3,917 | | 18,481 | | 3,488 | | 17,686 | | (45,175) | | 5,019 | | 436 | | (39,720) | |
Goodwill Impairment charge | | — | | — | | — | | — | | — | | 116,182 | | — | | — | | 116,182 | |
Income tax impact | | 3,625 | | (2,266) | | 5,533 | | (1,752) | | 5,140 | | 7,704 | | (22,549) | | 53,240 | | 38,395 | |
Net loss (income) from discontinued operations | | 5,728 | | 17,156 | | 84,688 | | 1,595 | | 109,167 | | (9,162) | | 43,848 | | (341) | | 34,345 | |
ADJUSTED NET INCOME | | $ | 10,403 | | $ | 12,939 | | $ | 12,561 | | $ | 16,587 | | $ | 52,490 | | $ | 4,074 | | $ | 4,475 | | $ | 7,300 | | $ | 15,849 | |
| | | | | | | | | | |
(LOSS) EARNINGS PER COMMON SHARE (Diluted) | | $ | (0.23) | | $ | (0.93) | | $ | (5.64) | | $ | 0.08 | | $ | (6.73) | | $ | (3.96) | | $ | (1.68) | | $ | (2.93) | | $ | (8.59) | |
LESS: | | | | | | | | | | |
Restructuring related inventory charges | | 0.02 | | — | | (0.06) | | — | | (0.04) | | (0.03) | | — | | 0.02 | | (0.01) | |
| | | | | | | | | | |
Restructuring charges, net | | 0.02 | | 0.02 | | 0.25 | | (0.03) | | 0.26 | | 0.14 | | 0.03 | | 0.02 | | 0.20 | |
Acquisition amortization | | 0.61 | | 0.57 | | 0.56 | | 0.56 | | 2.30 | | 0.51 | | 0.53 | | 0.53 | | 1.58 | |
Acquisition depreciation | | 0.06 | | 0.06 | | 0.06 | | 0.05 | | 0.22 | | 0.05 | | 0.05 | | 0.05 | | 0.15 | |
Special (recoveries) charges, net | | (0.41) | | 0.20 | | 0.93 | | 0.18 | | 0.89 | | (2.27) | | 0.25 | | 0.02 | | (1.99) | |
Impairment charge | | — | | — | | — | | — | | — | | 5.83 | | — | | — | | 5.82 | |
Income tax impact | | 0.18 | | (0.12) | | 0.28 | | (0.10) | | 0.24 | | 0.39 | | (1.11) | | 2.66 | | 1.91 | |
Earnings (Loss) per share from discontinued operations | | 0.29 | | 0.86 | | 4.25 | | 0.08 | | 5.48 | | (0.46) | | 2.16 | | (0.02) | | 1.72 | |
ADJUSTED EARNINGS PER SHARE (Diluted) | | $ | 0.52 | | $ | 0.65 | | $ | 0.63 | | $ | 0.82 | | $ | 2.62 | | $ | 0.20 | | $ | 0.22 | | $ | 0.36 | | $ | 0.78 | |
CIRCOR INTERNATIONAL, INC.
Reconciliation of Key Performance Measures to Commonly Used Generally Accepted Accounting Principle Terms
(in thousands, except percentages) (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | 2020 |
| | 1ST QTR | 2ND QTR | 3RD QTR | 4TH QTR | TOTAL | 1ST QTR | 2ND QTR | 3RD QTR | TOTAL |
| | | | | | | | | | |
NET (LOSS) INCOME | | $ | (4,633) | | $ | (18,520) | | $ | (112,338) | | $ | 1,555 | | $ | (133,936) | | $ | (78,948) | | $ | (34,092) | | $ | (58,524) | | $ | (171,564) | |
LESS: | | | | | | | | | | |
Interest expense, net | | 13,094 | | 12,947 | | 11,804 | | 10,763 | | 48,609 | | 9,011 | | 8,486 | | 8,202 | | 25,699 | |
Depreciation | | 5,499 | | 5,568 | | 5,551 | | 5,427 | | 22,045 | | 5,121 | | 4,958 | | 4,802 | | 14,881 | |
Amortization | | 12,536 | | 11,685 | | 11,629 | | 11,741 | | 47,591 | | 10,516 | | 10,976 | | 10,925 | | 32,418 | |
Provision for income taxes | | 5,709 | | 284 | | 7,490 | | 1,193 | | 14,676 | | 8,374 | | (21,769) | | 54,318 | | 40,923 | |
Loss (income) from discontinued operations | | 5,728 | | 17,156 | | 84,688 | | 1,595 | | 109,167 | | (9,162) | | 43,847 | | (341) | | 34,345 | |
EBITDA | | $ | 37,933 | | $ | 29,121 | | $ | 8,825 | | $ | 32,274 | | $ | 108,152 | | $ | (55,088) | | $ | 12,406 | | $ | 19,383 | | $ | (23,299) | |
LESS: | | | | | | | | | | |
Restructuring related inventory charges (recoveries) | | 325 | | — | | (1,145) | | — | | (820) | | (602) | | — | | 351 | | (250) | |
| | | | | | | | | | |
Restructuring charges (recoveries), net | | 358 | | 299 | | 5,038 | | (509) | | 5,186 | | 2,883 | | 588 | | 502 | | 3,973 | |
Special (recoveries) charges, net | | (8,200) | | 3,917 | | 18,481 | | 3,488 | | 17,686 | | (45,175) | | 5,019 | | 436 | | (39,720) | |
Goodwill impairment charge | | — | | — | | — | | — | | — | | 116,182 | | — | | — | | 116,182 | |
ADJUSTED EBITDA | | $ | 30,416 | | $ | 33,337 | | $ | 31,199 | | $ | 35,253 | | $ | 130,204 | | $ | 18,200 | | $ | 18,013 | | $ | 20,671 | | $ | 56,885 | |
CIRCOR INTERNATIONAL, INC.
Reconciliation of Key Performance Measures to Commonly Used Generally Accepted Accounting Principle Terms
(in thousands, except percentages) (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | 2020 |
| | 1ST QTR | 2ND QTR | 3RD QTR | 4TH QTR | TOTAL | 1ST QTR | 2ND QTR | 3RD QTR | TOTAL |
| | | | | | | | | | |
GAAP OPERATING INCOME (LOSS) | | $ | 17,750 | | $ | 12,020 | | $ | (9,084) | | $ | 16,996 | | $ | 37,682 | | $ | (73,405) | | $ | (1,384) | | $ | 4,420 | | $ | (70,368) | |
LESS: | | | | | | | | | | |
Restructuring related inventory charges (recoveries) | | 325 | | — | | (1,145) | | — | | (820) | | (602) | | — | | 351 | | (250) | |
Amortization of inventory step-up | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
Restructuring charges (recoveries), net | | 358 | | 299 | | 5,038 | | (509) | | 5,186 | | 2,883 | | 588 | | 502 | | 3,973 | |
Acquisition amortization | | 12,077 | | 11,247 | | 11,202 | | 11,189 | | 45,715 | | 10,218 | | 10,681 | | 10,625 | | 31,523 | |
Acquisition depreciation | | 1,123 | | 1,106 | | 1,102 | | 1,021 | | 4,352 | | 974 | | 980 | | 1,011 | | 2,965 | |
Special (recoveries) charges, net | | (8,200) | | 3,917 | | 18,481 | | 3,488 | | 17,686 | | (45,175) | | 5,019 | | 436 | | (39,720) | |
Goodwill impairment charge | | — | | — | | — | | — | | — | | 116,182 | | — | | — | | 116,182 | |
ADJUSTED OPERATING INCOME | | $ | 23,433 | | $ | 28,589 | | $ | 25,594 | | $ | 32,185 | | $ | 109,801 | | $ | 11,075 | | $ | 15,884 | | $ | 17,345 | | $ | 44,305 | |
| | | | | | | | | | |
GAAP OPERATING MARGIN | | 7.4 | % | 4.9 | % | (3.8) | % | 7.0 | % | 3.9 | % | (38.2) | % | (0.7) | % | 2.4 | % | (12.5) | % |
LESS: | | | | | | | | | | |
Restructuring related inventory charges (recoveries) | | 0.1 | % | — | % | (0.5) | % | — | % | (0.1) | % | (0.3) | % | — | % | 0.2 | % | — | % |
Amortization of inventory step-up | | — | % | — | % | — | % | — | % | — | % | — | % | — | % | — | % | — | % |
Restructuring charges (recoveries), net | | 0.1 | % | 0.1 | % | 2.1 | % | (0.2) | % | 0.5 | % | 1.5 | % | 0.3 | % | 0.3 | % | 0.7 | % |
Acquisition amortization | | 5.1 | % | 4.6 | % | 4.7 | % | 4.6 | % | 4.7 | % | 5.3 | % | 5.7 | % | 5.7 | % | 5.6 | % |
Acquisition depreciation | | 0.5 | % | 0.5 | % | 0.5 | % | 0.4 | % | 0.5 | % | 0.5 | % | 0.5 | % | 0.5 | % | 0.5 | % |
Special (recoveries) charges, net | | (3.4) | % | 1.6 | % | 7.8 | % | 1.4 | % | 1.8 | % | (23.5) | % | 2.7 | % | 0.2 | % | (7.0) | % |
Goodwill impairment charge | | — | % | — | % | — | % | — | % | — | % | 60.4 | % | — | % | — | % | 20.6 | % |
ADJUSTED OPERATING MARGIN | | 9.8 | % | 11.6 | % | 10.8 | % | 13.3 | % | 11.4 | % | 5.8 | % | 8.5 | % | 9.3 | % | 7.8 | % |
a2020q3earningcallinvest
INDUSTRIAL AEROSPACE & DEFENSE Third Quarter 2020 Investor Review November 5, 2020
Safe Harbor This presentation contains certain statements that are “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 (the “Act”). The words “may,” “hope,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” and other expressions, which are predictions of or indicate future events and trends and which do not relate to historical matters, identify forward-looking statements, although not all forward-looking statements are accompanied by such words. We believe that it is important to communicate our future expectations to our stockholders, and we, therefore, make forward-looking statements in reliance upon the safe harbor provisions of the Act. However, there may be events in the future that we are not able to accurately predict or control and our actual results may differ materially from the expectations we describe in our forward-looking statements. Forward-looking statements, including statements about outlook for the fourth quarter, the expected and potential direct or indirect impacts of the COVID-19 pandemic on our business, the realization of cost reductions from restructuring activities and expected synergies, the number of new product launches and future cash flows from operating activities, involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: the duration and severity of the COVID-19 pandemic and its impact on the global economy; changes in the price of and demand for oil and gas in both domestic and international markets; any adverse changes in governmental policies; variability of raw material and component pricing; changes in our suppliers’ performance; fluctuations in foreign currency exchange rates; changes in tariffs or other taxes related to doing business internationally; our ability to hire and retain key personnel; our ability to operate our manufacturing facilities at efficient levels including our ability to prevent cost overruns and reduce costs; our ability to generate increased cash by reducing our working capital; our prevention of the accumulation of excess inventory; our ability to successfully implement our divestiture; restructuring or simplification strategies; fluctuations in interest rates; our ability to successfully defend product liability actions; as well as the uncertainty associated with the current worldwide economic conditions and the continuing impact on economic and financial conditions in the United States and around the world, including as a result of COVID-19, natural disasters, terrorist attacks and other similar matters. We advise you to read further about these and other risk factors set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, which is filed with the Securities and Exchange Commission ("SEC") and is available on the SEC's website at www.sec.gov. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. See page 12 for information on the use of non-GAAP financial measures. 2
Q3 2020 Summary Strong Quarter Despite Unprecedented Macro Challenges Resilient business portfolio continues to deliver • End market and product diversification mitigating impact of weaker economic environment • Regional diversity in Industrial end markets serving as a natural hedge • Robustness in Defense offsetting pressure from Commercial Aerospace • Mission critical product portfolio ensuring price increases despite market downturn Strong Operational Execution • Continued focus on productivity and cost resulting in decrementals of 19% • $45 million of structural and temporary cost actions for 2020 on plan • Aerospace and Defense margin expansion +360bps driven by productivity and price • CIRCOR Operating System delivering improved operating performance across most metrics Positioning CIRCOR to take advantage of market recovery • New product introductions remain on plan with 45 launches expected in 2020,13 in Q3 • Close collaboration with suppliers and customers to ensure available capacity as demand recovers • Continued focus on deleveraging and liquidity 3
Q3 2020 Highlights ($ millions) Orders ‐22 3 ‐38 ‐10% 2% 223 ‐19% 201 167 Q3 2019 Divestitures Q3 2019 FX Organic Q3 2020 Reported Continuing Ops* Reported Revenue ‐21 3 ‐33 ‐9% 2% ‐15% 237 216 187 Q3 2019 Divestitures Q3 2019 FX Organic Q3 2020 Reported Continuing Ops* Reported Adjusted Operating Income ‐3 0 ‐6 ‐10% 2% ‐26% 26 23 17 10.6% 10.8% 5.9% 8.5% 9.3% Q3 2019 Divestitures Q3 2019 FX Organic Q3 2020 Reported Continuing Ops* Reported * Continuing Ops figures exclude the impact of businesses divested prior to the end of Q3 2020 which are Spence/Nicholson and Instrumentation & Sampling. 4 Numbers may not add due to rounding.
Industrial Segment Highlights ($ millions) Orders Comments on Organic YOY Results ‐22 2 ‐32 Q3 2020 Orders ‐14% 2% ‐23% • Industrial markets remain soft due to COVID-19 159 137 107 • Sequential improvement in Aftermarket while capital projects remain depressed Q3 2019 Divestitures Q3 2019 FX Organic Q3 2020 • Slight sequential recovery witnessed in Germany and Asia Reported Continuing Ops* Reported Revenue Q3 2020 Revenue ‐21 3 ‐27 • Industrial markets remain soft due to COVID-19 ‐12% 2% 169 149 ‐18% • Customer maintenance delays and lower asset utilization 124 • Strength in Power Generation and Defense Q3 2019 Divestitures Q3 2019 FX Organic Q3 2020 Reported Continuing Ops* Reported Adjusted Operating Income Q3 2020 Segment Operating Income & Margin ‐3 0 ‐9 ‐13% 2% • AOI decline driven by lower volume and impact of COVID-19 production disruption, partially offset by cost 21 19 ‐49% 10 actions and price 12.6% 12.5% 7.9% • Revenue drop through to earnings of 36% Q3 2019 Divestitures Q3 2019 FX Organic Q3 2020 Reported Continuing Ops* Reported * Continuing Ops figures exclude the impact of businesses divested prior to the end of Q3 2020. 5 Numbers may not add due to rounding.
Aerospace & Defense Segment Highlights ($ millions) Orders Comments on Organic YOY Results Q3 2020 Orders 1 ‐6 • Orders decline driven by impact of COVID-19 on 1% ‐9% commercial aerospace and timing of large project 64 59 orders in Defense Q3 2019 FX Organic Q3 2020 Reported Reported Revenue Q3 2020 Revenue 1 ‐6 • Decline driven by COVID-19 impact on commercial 1% ‐9% aerospace and ongoing delay of 737MAX partially offset by strong Defense shipments (JSF, Virginia 68 62 Class Sub, Block V) Q3 2019 FX Organic Q3 2020 Reported Reported Adjusted Operating Income Q3 2020 Segment Operating Income & Margin • Margin expansion of 360 bps despite lower volume, 0 1 driven by price, productivity and cost actions 1% 8% 14 15 20.1% 23.7% Q3 2019 FX Organic Q3 2020 Reported Reported 6 Numbers may not add due to rounding.
Q3 P&L Selected Items ($ millions, except EPS) Q3 2020 Q3 2019 GAAP Special Adjusted GAAP Special Adjusted Adj Ex Div* Sales 187 ‐ 187 237 ‐ 237 216 Operating (loss) income 4 13 17 (9) 35 26 23 Interest expense 8 ‐ 8 12 ‐ 12 Other income 1 ‐ 1 (1) ‐ (1) Pre‐tax (5) 13 8 (20) 35 15 Tax benefit (provision) (54) 53 (1) (8) 6 (2) Net income (loss) from continuing operations (59) 66 7 (28) 40 13 Net (loss) income from discontinued operations 0 (0) ‐ (85) 85 ‐ Net (loss) income (59) 66 7 (112) 125 13 EPS ‐ continuing operations$ (2.94) $ 0.36 $ (1.39) $ 0.63 EPS ‐ net loss (income)$ (2.93) $ 0.36 $ (5.64) $ 0.63 Restructuring & Special Charges (excluded from AOI) Special charges in cost of goods sold Q3 2020 Q3 2019 Acquisition‐related depreciation & amortization 4.7 5.3 Restructuring 0.4 (1.1) ‐ subtotal 5.1 4.1 Special charges in SG&A Acquisition‐related depreciation & amortization 6.9 7.0 Professional fees and other costs related to re‐ 0.8 8.0 structuring and cost reductions Professional fees relating to tender ‐ 4.0 Other business sales ‐ 11.6 Other special / restructuring charges 0.1 (0.1) ‐ subtotal 7.8 30.5 Total 12.9 34.7 * Adjusted: Reflects non-GAAP measures, see CIRCOR Q3 2020 earnings press release for definitions and a reconciliation to GAAP. * Adj Ex Div: Adjusted P&L items excluding the impact of businesses divested prior to the end of Q3 2020 which are Spence/ Nicholson and Instrumentation & Sampling. EPS: Earnings (Loss) Per Share or Diluted Earnings Per Share Numbers may not add due to rounding. 7
Cash Flow and Debt Position ($ millions) Q3 2020 Q3 2019 Cash Flow from Operations 2 9 Capital Expenditures, net (2) 1 Free Cash Flow 0 10 30-Sep-20 30-Sep-19 Total Debt 540 659 Cash and Cash Equivalents 73 69 Net Debt 468 590 $122 million Net Debt Reduction 8
Industrial Outlook Share of YoY Outlook Comments Primary End Market 2019 Revenue Q4 2020 Q4 vs Prior Q3 Outlook (5%) – (15%) Improved versus prior outlook as refiners move selected projects Downstream 14% forward (2%) – (8%) Improved outlook but with OEM CapEx reduction and delays Machinery Manufacturing 9% continuing Commercial Marine 8% (20%) – (35%) Consistent outlook: Q2-Q3 record low new orders & shipbuilding (1%) – (5%) Consumer demand slowly improving driving demand for Plastics, Chemical Processing 7% Fiber, Textiles, etc. Power Generation 4% (1%) – (5%) Improved outlook sequentially (global) Midstream O&G 4% (10%) – (30%) (2%) – (15%) Slightly improved but CapEx push outs and project delays across Building & Construction 4% end markets still ongoing Wastewater 2% (1%) – (5%) Other End Markets 14% (2%) – (8%) Slight sequential improvement in customer activity Slightly improved outlook sequentially (5%) – (15%) • Cruise ship and OSV utilization remain low Aftermarket 32% • Customer facility utilization low • Continued Refinery maintenance delays where possible Price 1% 1% 2019 carry over and surgical pricing Total Industrial 100% (5%) – (15%) Sequential Change from Q3: flat to +10% 9 Numbers may not add due to rounding.
A&D Outlook - Defense Share of YoY Outlook Comments Primary End Market 2019 Revenue Q4 2020 Q4 vs Prior Q3 Outlook TOP PROGRAM Joint Strike Fighter (JSF) Virgina Class Sub DDG 51 Improvement vs prior outlook with growth driven by 28% 30% – 35% JSF, Virginia Class, and Dreadnought Class Columbia Class Sub Submarines CVN Carrier Dreadnought Class Sub OTHER OEM Drone Missile Helicopter Improvement from prior outlook driven by the strong 17% 20% – 25% defense orders in Q2 for missile programs (Hellfire, Submarine GMLRS, SM3) and Predator Multi-Mission Aircraft Other Deterioration vs. prior outlook driven by reduced US Aftermarket 24% 0% – (5%) defense spares Price 2% 4% Consistent with prior outlook Total Defense 68% 15% – 20% Sequential Change from Q3: +20% to +25% Note: Analysis excludes “other” revenue in Aerospace & Defense that totals ~$40M per year. 10
A&D Outlook - Commercial Primary End Share of YoY Outlook Comments Market 2019 Revenue Q4 2020 Q4 vs Prior Q3 Outlook BOEING / AIRBUS B737 A350 A320 Additional deterioration from prior outlook driven by 14% (55%) – (60%) A220 both single aisle and twin aisle build rates A330 B767 OTHER OEM Bus Jet Civil Helicopter Civil Transport 14% (15%) – (20%) Slight improvement due to timing of deliveries to Q4 Regional Jet Space Other Aftermarket 3% (50%) – (55%) Consistent with prior outlook Price 3% 4% Consistent with prior outlook Total Commercial 32% (40%) – (45%) Sequential Change from Q3: +15% to +25% Note: Analysis excludes “other” revenue in Aerospace & Defense that totals ~$40M per year. 11
Use of Non-GAAP Financial Measures Within this presentation the Company uses non-GAAP financial measures, including Adjusted operating income, Adjusted operating margin, Adjusted net income, Adjusted earnings per share (diluted), EBITDA, Adjusted EBITDA, net debt, free cash flow and organic growth (and such measures further excluding discontinued operations). 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. For example: • We exclude costs and tax effects associated with restructuring activities, such as reducing overhead and consolidating facilities. We believe that the costs related to these restructuring activities are not indicative of our normal operating costs. • We exclude certain acquisition-related costs, including significant transaction costs and amortization of inventory and fixed-asset step-ups and the related tax effects. We exclude these costs because we do not believe they are indicative of our normal operating costs. • We exclude the expense and tax effects associated with the non-cash amortization of acquisition-related intangible assets because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have lives up to 25 years. Exclusion of the non-cash amortization expense allows comparisons of operating results that are consistent over time for both our newly acquired and long-held businesses and with both acquisitive and non-acquisitive peer companies. • We also exclude certain gains/losses and related tax effects, which are either isolated or cannot be expected to occur again with any predictability, and that we believe are not indicative of our normal operating gains and losses. For example, we exclude gains/losses from items such as the sale of a business, significant litigation-related matters and lump-sum pension plan settlements. • We exclude the results of discontinued operations. • We exclude goodwill impairment charges. • Due to the significance of recently sold businesses and to provide a comparison of changes in our orders and revenue, we also discuss these changes on an “organic” basis. Organic is calculated assuming the divestitures completed prior to September 30, 2020 were completed on January 1, 2019 and excluding the impact of changes in foreign currency exchange rates. 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 available in the Company’s third-quarter 2020 news release available on its website at www.CIRCOR.com. Figures labeled “Adjusted” exclude certain charges and recoveries. A description of these charges and recoveries and a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the Company’s third-quarter 2020 news release available on its website at www.CIRCOR.com. 12
Appendix 13
Q3 Results ($ millions, except EPS) Q3 2020 Q3 2019 GAAP Special Adjusted GAAP Special Adjusted Adj Ex Div* Orders 167 ‐ 167 223 ‐ 223 201 Sales 187 ‐ 187 237 ‐ 237 216 Gross margin 56 5 61 74 4 79 73 SG&A 51 (7) 44 60 (7) 53 50 Special & restructuring income, net 1 (1) ‐ 24 (24) ‐ ‐ Operating (loss) income 4 13 17 (9) 35 26 23 Interest expense 8 ‐ 8 12 ‐ 12 Other income 1 ‐ 1 (1) ‐ (1) Pre‐tax (5) 13 8 (20) 35 15 Tax benefit (provision) (54) 53 (1) (8) 6 (2) Net income (loss) from continuing operations (59) 66 7 (28) 40 13 Net (loss) income from discontinued operations 0 (0) ‐ (85) 85 ‐ Net (loss) income (59) 66 7 (112) 125 13 EPS ‐ continuing operations$ (2.94) $ 0.36 $ (1.39) $ 0.63 EPS ‐ net loss (income)$ (2.93) $ 0.36 $ (5.64) $ 0.63 * Adjusted: Reflects non-GAAP measures, see CIRCOR Q3 2020 earnings press release for definitions and a reconciliation to GAAP. * Adj Ex Div: Adjusted P&L items excluding the impact of businesses divested prior to the end of Q3 2020 which are Spence/ Nicholson and Instrumentation & Sampling. EPS: Earnings (Loss) Per Share or Diluted Earnings Per Share Numbers may not add due to rounding. 14
18 Month Strategic Plan Update Our Strategic Priorities Status Update Program transitions to low cost Morocco site on track, including product for A350 and A320 1 A&D: Accelerating Growth With Further Margin Expansion Price increase in line with 2019 Launching 32 new products in 2020 vs. 25 in 2019 Delivering 2020 sourcing synergies as planned 2 Industrial: Driving Integration Synergies Significant reduction of OPEX beyond plan levels and Investing in Growth Launching 13 new products in 2020 vs 8 last year Established dedicated aftermarket organization Exit from upstream O&G complete 3 Energy: Exit Eliminated Energy Group Executed 4 non-core divestitures. Gross proceeds of $342M 4 Prudent Portfolio Management Preserving growth capacity despite structural and temporary 5 Disciplined Investment in Growth cost actions Launching a total of 45 new products in 2020 vs. 33 in 2019 Significant reduction of structural cost vs. original plan 6 Enhancing Operational Efficiency and Margin Raising prices in line with original plan despite volume headwind 15
CIRCOR End Market Exposure CIRCOR 2019 Revenue by End Market Comments Aerospace & Defense (5%) • Completed exit from Upstream Oil & Gas with divestiture of Distributed Valves Aftermarket Industrial (22%) 27% • Large global installed base driving higher margin Aftermarket orders, mitigating broader Commercial Aerospace (8%) economic decline Aerospace & Defense Defense (14%) 27% • Key program wins and existing platform growth Other End Markets (5%) in Defense driving strong performance Downstream O&G (10%) OEM 73% • Strength in Defense offsetting pressure in Machinery Manufacturing Commercial Aerospace due to COVID-19 Commercial Marine Industrial Chemical Processing 46% Midstream O&G Power • Diversified Industrial portfolio with no end Building & Construction Wastewater market more than 6% of revenue Other End Markets Note: Revenue excludes divested businesses. 16 Numbers may not add due to rounding.