Document
false0001091883 0001091883 2020-05-29 2020-05-29
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): May 29, 2020
logoa02.jpg

CIRCOR INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
001-14962
04-3477276
(State or other jurisdiction
of incorporation or organization)
 
(Commission File Number)
(I.R.S. Employer
Identification No.)
 
 
 
 
 
 
 
 
 
 
30 CORPORATE DRIVE, SUITE 200

 
 
 

Burlington,
MA
01803-4238
(Address of principal executive offices and Zip Code)
(Zip Code)
 
 
(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: 
 
 
 
 
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common stock, par value logoa02.jpg

CIRCOR INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
001-14962
04-3477276
(State or other jurisdiction
of incorporation or organization)
 
(Commission File Number)
(I.R.S. Employer
Identification No.)
 
 
 
 
 
 
 
 
 
 
30 CORPORATE DRIVE, SUITE 200

 
 
 

Burlington,
MA
01803-4238
(Address of principal executive offices and Zip Code)
(Zip Code)
 
 
(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: 
 
 
 
 
 
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.  




Item 2.02. Results of Operations and Financial Condition.

By press release dated May 29, 2020, CIRCOR International, Inc. (the “Company”) announced its financial results for the three months ended March 29, 2020. The full text of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

The information in this Item 2.02 of Form 8-K and the Exhibits 99.1 and 99.2 attached hereto 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 9.01    Financial Statements and Exhibits. 
(d)
Exhibits.

Exhibit No.
Description
Press Release regarding Earnings
First 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.


 
 
 
CIRCOR INTERNATIONAL, INC.
May 29, 2020
/s/ Abhi Khandelwal
 
Abhi Khandelwal
 
Senior Vice President and Chief Financial Officer








 
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.  




Item 2.02. Results of Operations and Financial Condition.

By press release dated May 29, 2020, CIRCOR International, Inc. (the “Company”) announced its financial results for the three months ended March 29, 2020. The full text of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

The information in this Item 2.02 of Form 8-K and the Exhibits 99.1 and 99.2 attached hereto 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 9.01    Financial Statements and Exhibits. 
(d)
Exhibits.

Exhibit No.
Description
Press Release regarding Earnings
First 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.


 
 
 
CIRCOR INTERNATIONAL, INC.
May 29, 2020
/s/ Abhi Khandelwal
 
Abhi Khandelwal
 
Senior Vice President and Chief Financial Officer









Exhibit





Exhibit 99.1
CIRCOR Reports First-Quarter 2020 Financial Results


Burlington, MA - May 29, 2020

CIRCOR International, Inc. (NYSE: CIR), one of the world’s leading providers of flow control products and services for the Industrial and Aerospace & Defense markets, today announced GAAP and adjusted financial results for the first quarter ended March 29, 2020.

First-Quarter 2020 Overview

Prioritizing health and safety while continuing our strategic transformation and managing business continuity during the COVID-19 pandemic
Orders of $208 million produced a book-to-bill ratio of 1.09 and backlog increase of $16 million
Revenue of $192 million, down 20% reported, down 9% organically
Aerospace & Defense revenue of $65 million, up 7% reported, up 8% organically
Industrial revenue of $127 million, down 29% reported, down 16% organically
GAAP loss per share of $(3.96) reflecting a non-cash goodwill impairment charge of $116 million in the Industrial segment due to COVID-19 impact on outlook
Adjusted earnings per share of $0.20, including estimated $(0.45) impact from COVID-19, driven by:
Delayed revenue of $12 million and adjusted operating income of $5 million
Receivable write-off of $6 million
GAAP operating margin of (38%); adjusted operating margin of 5.8%
Aerospace & Defense operating margin of 19.1%, up 380 bps versus last year
Initiated $45 million of 2020 cost actions due to current market environment
Exited Q1 with $171 million of cash on hand
Repriced debt in February 2020, reducing interest expense by 25 bps
Completed sale of non-core Instrumentation & Sampling business in January 2020 for $172 million, subject to working capital adjustment
Distributed Valves business exit to be completed in Q2 2020

“At CIRCOR, our top priority remains the health and safety of our employees, customers and suppliers. The CIRCOR team has been doing a remarkable job and I want to thank them for their service and unwavering dedication to our customers in this rapidly changing environment,” said Scott Buckhout, CIRCOR’s President and CEO. “CIRCOR’s products and services have been deemed essential in the vast majority of regions in which we operate, and as a result, all of our facilities are currently open. During this time of unprecedented uncertainty, our team has taken extraordinary measures to maintain business continuity, implementing numerous safety measures in an effort to ensure our employees around the world remain safe and our business continues to supply essential products to our customers with as little disruption as possible.”

Mr. Buckhout continued, “We are taking prudent action in the face of the COVID-19 pandemic while continuing to execute against our previously announced 18-month strategic plan. De-levering the Company remains a top priority. We reduced our net debt by $138 million in the first quarter. In addition, we are aggressively taking cost out of our business to better align our cost structure with the current market environment. We expect the actions taken to date will reduce costs in 2020 by approximately $45

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million. As a result, we expect to improve our cash flow in the back half of the year as cost reductions kick in and we complete the disbursements associated with finalizing CIRCOR’s strategic transformation out of non-core upstream Oil & Gas.

Looking ahead, we continue to focus on creating long-term value for shareholders by positioning the Company for growth, expanding margins, generating strong free cash flow, and de-levering the Company.”
    
 
 
Three Months Ended
 
 
($ in millions except EPS)
 
Q1 2020
 
Q1 2019
 
Change
Revenue
 
$
192.2

 
$
238.9

 
(20
)%
Revenue - excluding divested businesses 1
 
187.3

 
209.1

 
(10
)%
GAAP operating (loss) income
 
(73.4
)
 
17.8

 
(512
)%
Adjusted operating income 2
 
11.1

 
23.4

 
(53
)%
GAAP operating margin
 
(38.2
)%
 
7.4
%
 
-4560 bps

Adjusted operating margin 2
 
5.8
 %
 
9.8
%
 
-400 bps

Adjusted operating margin ex divestitures 2
 
5.9
 %
 
8.2
%
 
-230 bps

GAAP loss per share (diluted)
 
$
(3.96
)
 
$
(0.23
)
 
1,622
 %
Adjusted earnings per share (diluted) 2
 
$
0.20

 
$
0.52

 
(62
)%
Operating cash flow
 
(23.9
)
 
(22.4
)
 
7
 %
Free cash flow 3
 
(27.4
)
 
(26.1
)
 
5
 %
Orders
 
208.5

 
259.9

 
(20
)%
Orders - excluding divested businesses
 
204.0

 
229.3

 
(11
)%

Segment Results

Effective March 29, 2020, the Company changed its segment reporting for financial statement purposes to align with the manner in which the business is now managed. As previously announced, on January 31, 2020 the Company divested its Instrumentation & Sampling business, which was previously part of the Energy segment. In light of this divestiture, the Company realigned its segments by eliminating the Energy segment and moving the remaining businesses into the Industrial segment. The new reporting segments are Industrial and Aerospace & Defense.



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($ in millions)
 
Three Months Ended
 
 
 
 
Q1 2020
 
Q1 2019
 
Change
Aerospace & Defense
 
 
 
 
 
 
Revenue
 
$
65.5

 
$
61.2

 
7
 %
Segment operating income
 
12.5

 
9.4

 
33
 %
Segment operating margin
 
19.1
%
 
15.3
%
 
 380 bps

Orders
 
72.0

 
88.1

 
(18
)%
 
 
 
 
 
 
 
Industrial
 
 
 
 
 
 
Revenue
 
$
126.7

 
$
177.6

 
(29
)%
Revenue - excluding divested businesses 1
 
121.8

 
147.8

 
(18
)%
Segment operating income
 
5.2

 
22.6

 
(77
)%
Segment operating margin
 
4.1
%
 
12.7
%
 
 -860 bps

Orders
 
136.4

 
171.8

 
(21
)%
Orders - excluding divested businesses 1
 
132.0

 
141.2

 
(7
)%

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 March 29, 2020.
2.
Adjusted consolidated and segment results for Q1 2020 exclude income from discontinued operations of $9.2 million and net loss from non-cash acquisition-related intangible amortization, special and restructuring charges and goodwill impairment charge totaling $84.5 million ($92.2 million, net of tax). These charges include: (i) $11.2 million charge for non-cash acquisition-related intangible amortization and depreciation expense; (ii) $2.4 million of professional fees associated with an unsolicited tender offer to acquire all outstanding shares of the Company’s common stock; (iii) $53.2 million net gain from the divestiture of our Instrumentation & Sampling business; (iv) $3.5 million amortization of debt issuance fee; (v) $4.4 million of other special and restructuring charges; and (vi) $116.2 million goodwill impairment charge related to our Industrial segment. Adjusted Consolidated and Segment Results for Q1 2019 exclude loss from discontinued operations of $5.7 million and non-cash acquisition-related intangible amortization, special and restructuring charges totaling $5.7 million ($9.3 million, net of tax). These charges include: (i) $13.2 million charge for non-cash acquisition-related intangible amortization expense and amortization of the step-up in fixed asset values; (ii) $8.8 million net gain from the divestiture of our Reliability Services business; and (iii) $1.3 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, May 29, 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 (877) 407-5790 or (201) 689-8328. 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 divested businesses) 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-

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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 March 29, 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

4



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 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 expected impact of tariff increases 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; our ability to successfully integrate acquired businesses and dispose of businesses that are held for sale as contemplated; 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, any actions of stockholders or others in response to expiration of the recent unsolicited tender offer and the cost and disruption of responding to those 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, current Middle Eastern conflicts and other similar matters. BEFORE MAKING ANY INVESTMENT DECISIONS REGARDING OUR COMPANY, WE STRONGLY ADVISE YOU TO READ FURTHER ABOUT THESE AND OTHER RISK FACTORS SET FORTH IN THE “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, AND SUBSEQUENT REPORTS ON FORMS 10-Q, WHICH CAN BE ACCESSED UNDER THE "INVESTORS" LINK OF OUR WEBSITE AT WWW.CIRCOR.COM. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

About CIRCOR International, Inc.
CIRCOR International, Inc. is one of the world’s leading providers of flow control products and services for the Industrial and Aerospace & Defense markets. CIRCOR has a product portfolio of recognized, market-leading brands serving its customers’ most demanding applications. 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


5




CIRCOR INTERNATIONAL, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data) (unaudited)

 
 
 
 
Three Months Ended
 
 
 
 
Q1 2020
 
Q1 2019
 
 
 
 
 
 
 
Net revenues
 
$
192,213

 
$
238,855

Cost of revenues
 
132,170

 
164,441

Gross profit
 
60,043

 
74,414

Selling, general and administrative expenses
 
59,558

 
64,506

Goodwill impairment charge
 
116,182

 

Special and restructuring recoveries, net
 
(42,292
)
 
(7,842
)
Operating (loss) income
 
(73,405
)
 
17,750

Other expense (income):
 
 
 
 
Interest expense, net
 
9,011

 
13,094

Other income, net
 
(2,680
)
 
(2,148
)
Total other expense, net
 
6,331

 
10,946

(Loss) income from continuing operations before income taxes
 
(79,736
)
 
6,804

Provision for income taxes
 
8,374

 
5,709

(Loss) income from continuing operations, net of tax
 
(88,110
)
 
1,095

Income (loss) from discontinued operations, net of tax
 
9,162

 
(5,728
)
Net loss
 
$
(78,948
)
 
$
(4,633
)
 
 
 
 
 
 
 
Basic (loss) income per common share:
 
 
 
 
Basic from continuing operations
 
$
(4.42
)
 
$
0.06

Basic from discontinued operations
 
$
0.46

 
$
(0.29
)
Net loss
 
$
(3.96
)
 
$
(0.23
)
Diluted (loss) income per common share:
 
 
 
 
Diluted from continuing operations
 
$
(4.42
)
 
$
0.05

Diluted from discontinued operations
 
$
0.46

 
$
(0.29
)
Net loss
 
$
(3.96
)
 
$
(0.23
)
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
Basic
 
 
19,935

 
19,870

Diluted
 
 
19,935

 
19,976











6




CIRCOR INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands) (unaudited)
 
 
 
 
Three Months Ended
 
 
 
 
Q1 2020
 
Q1 2019
OPERATING ACTIVITIES
 
 
 
 
Net loss
 
$
(78,948
)
 
$
(4,633
)
Income (loss) from discontinued operations, net of income taxes
 
9,162

 
(5,728
)
(Loss) income from continuing operations
 
(88,110
)
 
1,095

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
     Depreciation
 
5,121

 
5,500

     Amortization
 
10,611

 
12,807

     Provision for bad debt expense
 
5,802

 
(106
)
     Loss on write-down of inventory
 
343

 
487

     Compensation expense for share-based plans
 
608

 
1,372

     Amortization of debt issuance costs
 
4,513

 
1,010

     Loss on sale or write-down of property, plant and equipment
 

 
123

     Goodwill impairment charge
 
116,182

 

     Gain on sale of businesses
 
(54,356
)
 
(10,282
)
Changes in operating assets and liabilities, net of effects of acquisition and disposition:
 
 
 
     Trade accounts receivable
 
(1,550
)
 
(1,697
)
     Inventories
 
(13,365
)
 
(4,146
)
     Prepaid expenses and other assets
 
(5,507
)
 
8,436

     Accounts payable, accrued expenses and other liabilities
 
1,081

 
(43,676
)
     Net cash used in continuing operating activities
(18,627
)
 
(29,077
)
     Net cash (used in) provided by discontinued operating activities
(5,320
)
 
6,699

Net cash used in operating activities
 
(23,947
)
 
(22,378
)
INVESTING ACTIVITIES
 
 
 
 
Additions to property, plant and equipment
 
(3,412
)
 
(3,292
)
Proceeds from sale of property, plant and equipment
 

 
28

Proceeds from the sale of business, net
 
169,773

 
83,321

Proceeds from collection of beneficial interest
 
599

 

Net cash provided by continuing investment activities
 
166,960

 
80,057

Net cash provided by (used in) discontinued investing activities
 
68

 
(425
)
Net cash provided by investing activities
 
167,028

 
79,632

FINANCING ACTIVITIES
 
 
 
 
Proceeds from long-term debt
 
129,325

 
87,400

Payments of long-term debt
 
(180,891
)
 
(140,500
)
Proceeds from the exercise of stock options
 
118

 

Net cash used in continuing financing activities
(51,448
)
 
(53,100
)
Net cash used in financing activities
 
(51,448
)
 
(53,100
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
 
(5,389
)
 
957

INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
86,244

 
5,111

Cash, cash equivalents, and restricted cash at beginning of period
85,727

 
69,525

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD
$
171,971

 
$
74,636


7



CIRCOR INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(in thousands) (unaudited)
 
 
March 29, 2020
 
December 31, 2019
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
170,861

 
$
84,531

Trade accounts receivable, less allowance for doubtful accounts of $9,017 and $3,086 at March 29, 2020 and December 31, 2019, respectively
116,514

 
125,422

Inventories
147,175

 
137,309

Prepaid expenses and other current assets
86,840

 
66,664

Assets held for sale
26,617

 
161,193

Total Current Assets
 
548,007

 
575,119

PROPERTY, PLANT AND EQUIPMENT, NET
166,580

 
172,179

OTHER ASSETS:
 
 
 
Goodwill
150,928

 
271,893

Intangibles, net
368,519

 
385,542

Deferred income taxes
42,706

 
30,852

Other assets
32,337

 
35,360

TOTAL ASSETS
$
1,309,077

 
$
1,470,945

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
76,298

 
$
79,399

Accrued expenses and other current liabilities
103,917

 
94,169

Accrued compensation and benefits
25,601

 
19,518

Liabilities held for sale
26,617

 
43,289

Total Current Liabilities
 
232,433

 
236,375

LONG-TERM DEBT
588,958

 
636,297

DEFERRED INCOME TAXES
19,175

 
21,425

PENSION LIABILITY, NET
137,779

 
146,801

OTHER NON-CURRENT LIABILITIES
39,887

 
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; 19,956,518 and 19,912,362 shares issued at March 29, 2020 and December 31, 2019, respectively
213

 
213

Additional paid-in capital
447,867

 
446,657

Retained earnings
20,110

 
99,280

Common treasury stock, at cost (1,372,488 shares at March 29, 2020 and December 31, 2019)
(74,472
)
 
(74,472
)
Accumulated other comprehensive loss, net of tax
(102,873
)
 
(80,267
)
Total Shareholders' Equity
 
290,845

 
391,411

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
1,309,077

 
$
1,470,945




8




CIRCOR INTERNATIONAL, INC.
Summary of Orders and Backlog
(in millions) (unaudited)

 
 
Three Months Ended
 
 
Q1 2020
 
Q1 2019
ORDERS (1)
 
 
 
Aerospace & Defense
 
$
72.0

 
$
88.1

Industrial
 
136.4

 
171.8

Total orders
 
$
208.5

 
$
259.9

 
 
 
 
 
 
 
 
 
 
 
 
Q1 2020
 
Q1 2019
BACKLOG (2)
 
 
 
Aerospace & Defense
 
$
199.0

 
$
206.5

Industrial
 
222.2

 
254.9

Total backlog
 
$
421.2

 
$
461.4

 
 
 
 
 
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 three months ended March 29, 2020 include orders from businesses divested prior to March 29, 2020 of $4.5 million. Orders for the three months ended March 31, 2019 include orders from businesses divested of $30.6 million. Divested businesses are Reliability Services, Spence / Nicholson and Instrumentation and Sampling, all in the Industrial segment.
 
 
 
 
 
Note 2: Backlog includes unshipped customer orders for which revenue has not been recognized. Backlog at Q1 2019 includes $11.7 million for Industrial related to divested businesses.

9



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
ORDERS
 
 
 
 
 
 
Aerospace & Defense
$
88,107

$
93,405

$
63,968

$
68,459

$
313,939

$
72,031

Industrial
 
171,834

164,642

158,986

168,091

663,553

136,443

Total
 
$
259,941

$
258,047

$
222,954

$
236,550

$
977,492

$
208,474

 
 
 
 
 
 
 
 
NET REVENUES
 
 
 
 
 
 
Aerospace & Defense
$
61,240

$
64,694

$
67,621

$
79,070

$
272,625

$
65,493

Industrial
 
177,615

181,074

169,431

163,568

691,688

126,720

Total
 
$
238,855

$
245,768

$
237,052

$
242,638

$
964,313

$
192,213

 
 
 
 
 
 
 
 
SEGMENT OPERATING INCOME
 
 
 
 
 
 
Aerospace & Defense
$
9,374

$
10,443

$
13,564

$
19,099

$
52,480

$
12,494

Industrial
 
22,581

26,173

21,278

20,757

90,789

5,169

Corporate expenses
(8,522
)
(8,028
)
(9,248
)
(7,671
)
(33,469
)
(6,588
)
Total
 
$
23,433

$
28,588

$
25,594

$
32,185

$
109,800

$
11,075

 
 
 
 
 
 
 
 
SEGMENT OPERATING MARGIN %
 
 
 
 
 
 
Aerospace & Defense
15.3
%
16.1
%
20.1
%
24.2
%
19.2
%
19.1
%
Industrial
 
12.7
%
14.5
%
12.6
%
12.7
%
13.1
%
4.1
%
Total
 
9.8
%
11.6
%
10.8
%
13.3
%
11.4
%
5.8
%
 
 
 
 
 
 
 
 
 
 
2019
2020
Results of Divested Businesses (1)
1ST QTR
2ND QTR
3RD QTR
4TH QTR
TOTAL
1ST QTR
ORDERS - Industrial
$
30,611

$
24,448

$
22,090

$
18,047

$
95,196

$
4,449

NET REVENUES - Industrial
$
29,787

$
26,101

$
20,697

$
18,602

$
95,187

$
4,900

SEGMENT OP. INC. -Industrial
$
6,217

$
5,229

$
2,677

$
3,166

$
17,289

$

 
(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.

10



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
ORDERS
 
 
 
 
 
 
Aerospace & Defense
$
88,107

$
93,405

$
63,968

$
68,459

$
313,939

$
72,031

Industrial
 
141,223

140,194

136,896

150,044

568,357

131,994

Total
 
$
229,330

$
233,599

$
200,864

$
218,503

$
882,296

$
204,025

 
 
 
 
 
 
 
 
NET REVENUES
 
 
 
 
 
 
Aerospace & Defense
$
61,240

$
64,694

$
67,621

$
79,070

$
272,625

$
65,493

Industrial
 
147,828

154,973

148,734

144,966

596,501

121,820

Total
 
$
209,068

$
219,667

$
216,355

$
224,036

$
869,126

$
187,313

 
 
 
 
 
 
 
 
SEGMENT OPERATING INCOME
 
 
 
 
 
 
Aerospace & Defense
$
9,374

$
10,443

$
13,564

$
19,099

$
52,480

$
12,494

Industrial
 
16,364

20,944

18,601

17,591

73,500

5,169

Corporate expenses
(8,522
)
(8,028
)
(9,248
)
(7,671
)
(33,469
)
(6,588
)
Total
 
$
17,216

$
23,359

$
22,917

$
29,019

$
92,511

$
11,075

 
 
 
 
 
 
 
 
SEGMENT OPERATING MARGIN %
 
 
 
 
 
 
Aerospace & Defense
15.3
%
16.1
%
20.1
%
24.2
%
19.2
%
19.1
%
Industrial
 
11.1
%
13.5
%
12.5
%
12.1
%
12.3
%
4.2
%
Total
 
8.2
%
10.6
%
10.6
%
13.0
%
10.6
%
5.9
%

11



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
 
 
 
 
 
 
 
 
Net Cash (Used In) Provided By Operating Activities
 
$
(22,378
)
$
12,339

$
9,128

$
16,822

$
15,911

$
(23,947
)
Less: Capital expenditures, net of sale proceeds (a)
 
3,689

2,995

(963
)
(1,535
)
4,186

3,412

FREE CASH FLOW
 
$
(26,067
)
$
9,344

$
10,091

$
18,357

$
11,725

$
(27,359
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross Debt
 
$
753,950

$
748,250

$
659,100

$
653,850

$
653,850

$
602,288

Less: Cash & Cash equivalents
 
73,619

76,082

69,225

84,531

84,531

170,861

GROSS DEBT, NET OF CASH
 
$
680,331

$
672,168

$
589,875

$
569,319

$
569,319

$
431,427

 
 
 
 
 
 
 
 
TOTAL SHAREHOLDERS' EQUITY
 
$
516,177

$
494,899

$
375,388

$
391,411

$
391,411

$
290,845

 
 
 
 
 
 
 
 
GROSS DEBT AS % OF EQUITY
 
146
%
151
%
176
%
167
%
167
%
207
%
GROSS DEBT, NET OF CASH AS % OF EQUITY
 
132
%
136
%
157
%
145
%
145
%
148
%
 
 
 
 
 
 
 
 
(a) includes capital expenditures, net of sales proceeds of discontinued operations

12



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
NET (LOSS) INCOME
 
$
(4,633
)
$
(18,520
)
$
(112,338
)
$
1,555

$
(133,935
)
$
(78,948
)
LESS:
 
 
 
 
 
 
 
Restructuring related inventory charges
 
325


(1,145
)

(820
)
(602
)
Amortization of inventory step-up
 






Restructuring charges, net
 
358

299

5,038

(509
)
5,186

2,883

Acquisition amortization
 
12,077

11,247

11,202

11,189

45,715

10,218

Acquisition depreciation
 
1,123

1,106

1,102

1,021

4,352

974

Special charges (recoveries), net
 
(8,200
)
3,917

18,481

3,488

17,686

(45,175
)
Goodwill impairment charge
 





116,182

Income tax impact
 
3,625

(2,266
)
5,533

(1,752
)
5,140

7,704

Net loss (income) from discontinued operations
 
5,728

17,156

84,688

1,595

109,167

(9,162
)
ADJUSTED NET INCOME
 
$
10,403

$
12,939

$
12,561

$
16,587

$
52,491

$
4,074

 
 
 
 
 
 
 
 
 
EARNINGS (LOSS) PER COMMON SHARE (Diluted)
$
(0.23
)
$
(0.93
)
$
(5.64
)
$
0.08

$
(6.73
)
$
(3.96
)
LESS:
 
 
 
 
 
 
 
Restructuring related inventory charges
 
0.02


(0.06
)

(0.04
)
(0.03
)
Amortization of inventory step-up
 






Restructuring charges, net
 
0.02

0.02

0.25

(0.03
)
0.26

0.14

Acquisition amortization
 
0.61

0.57

0.56

0.56

2.30

0.51

Acquisition depreciation
 
0.06

0.06

0.06

0.05

0.22

0.05

Special charges (recoveries), net
 
(0.41
)
0.20

0.93

0.18

0.89

(2.27
)
Impairment charge
 





5.83

Income tax impact
 
0.18

(0.12
)
0.28

(0.10
)
0.24

0.39

Loss (earnings) per share from discontinued operations
 
0.29

0.86

4.25

0.08

5.48

(0.46
)
ADJUSTED EARNINGS PER SHARE (Diluted)
 
$
0.52

$
0.65

$
0.63

$
0.82

$
2.62

$
0.20


13



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
 
 
 
 
 
 
 
 
NET (LOSS) INCOME
 
$
(4,633
)
$
(18,520
)
$
(112,338
)
$
1,555

$
(133,935
)
$
(78,948
)
LESS:
 
 
 
 
 
 
 
Interest expense, net
 
13,094

12,947

11,804

10,763

$
48,609

$
9,011

Depreciation
 
5,499

5,568

5,551

5,427

22,045

5,121

Amortization
 
12,536

11,685

11,629

11,741

47,591

10,516

Provision for income taxes
 
5,709

284

7,490

1,193

14,676

8,374

Loss (income) from discontinued operations
 
5,728

17,156

84,688

1,595

109,167

(9,162
)
EBITDA
 
$
37,933

$
29,121

$
8,825

$
32,274

$
108,153

$
(55,088
)
LESS:
 
 
 
 
 
 
 
Restructuring related inventory charges (recoveries)
 
325


(1,145
)

(820
)
(602
)
Amortization of inventory step-up
 






Restructuring charges, net
 
358

299

5,038

(509
)
5,186

2,883

Special (recoveries) charges, net
 
(8,200
)
3,917

18,481

3,488

17,686

(45,175
)
Goodwill impairment charge
 





116,182

ADJUSTED EBITDA
 
$
30,416

$
33,337

$
31,199

$
35,253

$
130,205

$
18,200


14



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
GAAP OPERATING INCOME (LOSS)
 
$
17,750

$
12,019

$
(9,084
)
$
16,996

$
37,681

$
(73,405
)
LESS:
 
 
 
 
 
 
 
Restructuring related inventory charges (recoveries)
 
325


(1,145
)

(820
)
(602
)
Amortization of inventory step-up
 






Restructuring charges (recoveries), net
 
358

299

5,038

(509
)
5,186

2,883

Acquisition amortization
 
12,077

11,247

11,202

11,189

45,715

10,218

Acquisition depreciation
 
1,123

1,106

1,102

1,021

4,352

974

Special charges (recoveries), net
 
(8,200
)
3,917

18,481

3,488

17,686

(45,175
)
Goodwill impairment charge
 





116,182

ADJUSTED OPERATING INCOME
 
$
23,433

$
28,588

$
25,594

$
32,185

$
109,800

$
11,075

 
 
 
 
 
 
 
 
 
GAAP OPERATING MARGIN
 
7.4
 %
4.9
%
(3.8
)%
7.0
 %
3.9
 %
(38.2
)%
LESS:
 
 
 
 
 
 
 
 
Restructuring related inventory charges (recoveries)
 
0.1
 %
%
(0.5
)%
 %
(0.1
)%
(0.3
)%
Amortization of inventory step-up
 
 %
%
 %
 %
 %
 %
Restructuring charges (recoveries), net
 
0.1
 %
0.1
%
2.1
 %
(0.2
)%
0.5
 %
1.5
 %
Acquisition amortization
 
5.1
 %
4.6
%
4.7
 %
4.6
 %
4.7
 %
5.3
 %
Acquisition depreciation
 
0.5
 %
0.5
%
0.5
 %
0.4
 %
0.5
 %
0.5
 %
Special charges (recoveries), net
 
(3.4
)%
1.6
%
7.8
 %
1.4
 %
1.8
 %
(23.5
)%
Goodwill impairment charge
 
 %
%
 %
 %
 %
60.4
 %
ADJUSTED OPERATING MARGIN
 
9.8
 %
11.6
%
10.8
 %
13.3
 %
11.4
 %
5.8
 %


15
firstquarter2020investor
INDUSTRIAL AEROSPACE & DEFENSE First Quarter 2020 Investor Review May 29, 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 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 expected impact of tariff increases 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; our ability to successfully integrate acquired businesses and dispose of businesses that are held for sale as contemplated; 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, any actions of stockholders or others in response to expiration of the recent unsolicited tender offer and the cost and disruption of responding to those 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, current Middle Eastern conflicts and other similar matters. BEFORE MAKING ANY INVESTMENT DECISIONS REGARDING OUR COMPANY, WE STRONGLY ADVISE YOU TO READ FURTHER ABOUT THESE AND OTHER RISK FACTORS SET FORTH IN THE “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, 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. See page 15 for information on the use of non-GAAP financial measures. 2


 
Managing through the COVID-19 Pandemic • Pandemic response team meeting daily • Deep cleaning and PPE at all facilities Prioritize Health & Safety • Tight protocol for handling exposure to COVID-19 • Detailed returned to work protocol • All plants operational and deemed essential Support Customers • Collaborating with customers/suppliers to ensure continuity Maintain Business Continuity • Most sites operating at normal production levels • Executed structural as well as temporary cost actions Maintain Financial Flexibility • Reducing CAPEX and improving working capital • Exiting cash flow negative Distributed Valves in Q2 • Accelerating actions in 18-month plan Remain focused on long term strategy • Preserving growth capacity despite cost reduction • Launching new products at an increasing rate • Positioning company to capitalize on recovery 3


 
Q1 2020 Highlights ($ millions) Orders -31 -3 -22 4 -12% -1% -10% 260 229 204 208 Q1 2019 Divestitures Q1 2019 FX Organic Q1 2020 Divestitures Q1 2020 Reported Continuing Ops* Continuing Ops* Reported Revenue -30 -3 -19 5 -12% -1% -9% 239 209 187 192 Q1 2019 Divestitures Q1 2019 FX Organic Q1 2020 Divestitures Q1 2020 Reported Continuing Ops* Continuing Ops* Reported Adjusted Operating Income -6 0 -6 -27% 23 -1% 0 17 -34% 11 11 9.8% 8.2% 8.2% 5.9% 5.8% Q1 2019 Divestitures Q1 2019 FX Organic Q1 2020 Divestitures Q1 2020 Reported Continuing Ops* Continuing Ops* Reported * Continuing Ops figures exclude the impact of businesses divested prior to the end of Q1 2020 which are Reliability Services, Delden, Spence/Nicholson and Instrumentation & Sampling. 4 Numbers may not add due to rounding.


 
Industrial Segment Highlights ($ millions) Orders Comments on Organic YOY Results -31 Q1 2020 Orders -3 -7 4 -18% -2% -5% • Industrial markets softened in March due to COVID-19 172 141 132 136 Q1 2019 Divestitures Q1 2019 FX Organic Q1 2020 Divestitures Q1 2020 Reported Continuing Ops* Continuing Ops* Reported Revenue Q1 2020 Revenues -30 -3 -24 • Softening Industrial markets anticipated at the start of -17% 5 -2% the year compounded by impact of COVID-19 178 -16% 148 122 127 • Revenue push out of $12 due to COVID-19 Q1 2019 Divestitures Q1 2019 FX Organic Q1 2020 Divestitures Q1 2020 Reported Continuing Ops* Continuing Ops* Reported Adjusted Operating Income Q1 20120 Segment Operating Income & Margin -6 0 -11 • Receivable write-off of $6 linked to COVID-19 -28% -1% 23 • Excluding the impact of write-off, AOI was 9%, 16 and drop through on lower sales @ 19% -67% 5 5 12.7% 11.1% 4.2% 4.1% Q1 2019 Divestitures Q1 2019 FX Organic Q1 2020 Divestitures Q1 2020 Reported Continuing Ops* Continuing Ops* Reported * Continuing Ops figures exclude the impact of businesses divested prior to the end of Q1 2020 which are Reliability Services, Spence/Nicholson and Instrumentation & Sampling. 5 Numbers may not add due to rounding.


 
Aerospace & Defense Segment Highlights ($ millions) Orders Comments on Organic YOY Results 0 -16 Q1 2020 Orders 0% -18% • Down due to timing of large US Naval Defense and 88 72 UK Dreadnaught Sub orders last year and impact of COVID-19 on Commercial Aerospace Q1 2019 FX Organic Q1 2020 Reported Reported Revenue Q1 2020 Revenues 0 5 • Growth driven primarily by Naval (Virginia Class -1% 8% Sub) and Aerospace Defense (for JSF) shipments 61 65 • Ongoing strength in Defense Q1 2019 FX Organic Q1 2020 Reported Reported Adjusted Operating Income Q1 2020 Segment Operating Income & Margin 3 • Margin expansion driven by volume, favorable 0 mix and price 0% 34% 12 9 15.3% 19.1% Q1 2019 FX Organic Q1 2020 Reported Reported 6 Numbers may not add due to rounding.


 
Q1 P&L Selected Items Q1 2020 Q1 2019 ($ millions, except EPS) GAAP Special Adjusted Adj Ex Div* GAAP Special Adjusted Adj Ex Div* Sales 192 - 192 187 239 - 239 209 Operating (Loss) Income (73) 84 11 11 18 6 23 17 Interest Expense 9 - 9 13 - 13 Other Income (3) - (3) (2) - (2) Pre-tax (80) 84 5 7 6 12 Tax (provision) Benefit (8) 8 (1) (6) 4 (2) Net (Loss) Income from continuing operations (88) 92 4 1 9 10 Net Income (Loss) from discontinued operations 9 (9) - (6) 6 - Net (Loss) Income (79) 83 4 (5) 15 10 EPS - Continuing Operations $ (4.42) $ 0.20 $ 0.05 $ 0.52 EPS - Net Loss (Income) $ (3.96) $ 0.20 $ (0.23) $ 0.52 Restructuring & Special Charges (exclude from AOI) Special Charges in Cost of Goods Sold Q1 2020 Q1 2019 Acquisition-related depreciation & amortization 4.4 5.6 Restructuring-related inventory charges (0.6) 0.3 - subtotal 3.8 6.0 Special Charges in SG&A Acquisition-related depreciation & amortization 6.8 7.6 Impairment charges 116.2 - Gain on sale of business (54.6) (10.3) Loss from divested business 1.4 1.4 Issuance fee amortization 3.5 - Professional Fees relating to tender 2.4 - Cyber incident 0.7 - Other business sales 0.2 0.2 Other special / restructuring charges 4.1 0.9 - subtotal 80.7 (0.2) Total 84.5 5.7 * Adjusted: Reflects non-GAAP measures, see CIRCOR Q1 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 Q1 2020 which are Reliability Services, 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) Q1 2020 Q4 2019 Q1 2019 Cash Flow from Operations (24) 17 (22) Capital Expenditures, net (3) 2 (4) Free Cash Flow (27) 18 (26) Total Debt 602 654 754 Cash and Cash Equivalents 171 85 74 Net Debt 431 569 680 • $138 net debt paydown in Q1 2020 • Seasonal weakness in Q1 cash flow • Total Debt reflects $80 proactive drawdown on revolver 8


 
Capital Structure and Liquidity ($ millions) DEBT PROFILE COVENANT COMPLIANCE 807 6.5X Leverage Covenant 69 654 602 4.8X 85 171 739 3.3X 569 431 2018 2019 Current Net Debt Cash & Cash Equivalents Q1 Bank Leverage Q1 ProForma Bank Leverage DEBT MATURITY Highlights Term Loan 492 • Cash Balance $171 • $150 Revolver Credit Facility matures Dec 11th, 2022 th Revolving Credit • Term Loan repayment due Dec 11 , 2024 Facility • Proforma bank leverage of 3.3X versus 110 leverage covenant of 6.5X 2020 2021 2022 2023 2024 * Proforma bank leverage excludes Distributed Valves from prior 12 months. 9


 
A Leading Provider of Mission Critical Flow Control Products Globally CIRCOR COMPANY PROFILE Revenue by End Markets • Products for mission $869M ~3,500 2019 critical and severe 2019 REVENUE EMPLOYEES service applications Commercial % Aerospace $112M ~13 8% • Leader in niche 2019 ADJUSTED 2019 ADJUSTED Downstream O&G EBITDA ($) EBITDA (%) Industrial segments with 16% benefits of scale 52% Select Brands Defense • Global and diverse 24% end markets with longstanding customer base Revenue by Geography • Proven operator with clear roadmap for 2019 value creation ROW 16% Pumps Valves Actuation North America 46% EMEA 38% Three-Screw Centrifugal Bottom Unheading Electromechanical Device Actuation * 2019 Proforma Financials Reflecting Continuing Operations 10


 
Industrial Outlook Share of Outlook Primary End Market Comments 2019 Revenue 2020 Q2/Q3 Downstream 14% (20%) – (30%) • Capital project delays at refiners Machinery Manufacturing 9% (20%) – (30%) • OEM CapEx reduction impact Commercial Marine 8% (35%) – (45%) • YTD Shipbuilding lower Chemical Processing 7% (15%) – (20%) • Consumer demand decline in Plastics, Fiber, Textiles, etc. Power Generation 4% (20%) – (25%) • Capex Push outs and maintenance delays Midstream O&G 4% (30%) – (40%) • Reduction in CapEx and OpEx Building & Construction 4% (15%) – (25%) Wastewater 2% (5%) – (10%) • CapEx reduction and project delays across end markets Other End Markets 14% (20%) – (30%) • Cruise ship and OSV utilization decline Aftermarket 32% (15%) – (25%) • Customer facility shutdowns • Refinery maintenance delays Price 1% 1% • 2019 carry over and surgical pricing Total Industrial 100% (20%) – (30%) 11 Numbers may not add due to rounding.


 
A&D Outlook ($ millions) COMMERCIAL AEROSPACE DEFENSE Share of 2019 2020 Outlook Share of 2019 2020 Outlook A&D Revenue Q2/Q3 A&D Revenue Q2/Q3 BOEING / AIRBUS TOP PROGRAM B737 Joint Strike Fighter (JSF) A350 Virgina Class Sub A320 DDG 51 14% (30%)-(40%) 28% 0%-5% A220 Columbia Class Sub A330 CVN Carrier B767 Dreadnought Class Sub OTHER OEM OTHER OEM Bus Jet Drone Civil Helicopter Missile Civil Transport Helicopter 14% (15%)-(25%) 17% (15%)-(25%) Regional Jet Submarine Space Multi-Mission Aircraft Other Other AFTERMARKET 3% (30%)-(40%) AFTERMARKET 24% 15%-25% Price +3% +3% Price +2% +3% TOTAL 32% (20%)-(30%) TOTAL 68% 5-10% * Analysis excludes approximately $40 of “other” revenue. 12


 
Cost Reduction and Cash Summary ($ millions) COST ACTIONS INITIATED 2020 2020 CASH DRIVERS IMPACT OpEx + Maintain Business Continuity MFG Overhead STRUCTURAL ~$21 Outside Services + Reduce Cost Outsourcing Furloughs + Improve Working Capital Executive and Board Paycuts TEMPORARY ~$19 Travel & Entertainment + Prioritize CapEx Benefits - DV Operations/Exit Q2/Q3 Merit Increase Delay COST AVOIDANCE ~$5 Hiring Freeze - Restructuring Q2/Q3 TOTAL ~$45 - Professional fees/M&A Expenses Q2 • Depressed Cashflow Q2/Q3 • Clean Operating Cash Flow in Q4 13


 
Accelerating 18 Month Strategic Plan 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 Distributed Valves by end of Q2, completing CIRCOR’s 3◼ Energy: Further Repositioning exit from upstream O&G ✓ Eliminated Energy Group ✓ Executed 4 non-core divestitures. Gross proceeds of $342M 4◼ Prudent Portfolio Management ✓ Exit Distributed Valves by end of Q2 ✓ 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 increase in structural cost reduction vs. original 6◼ Enhancing Operational Efficiency and Margin plan ✓ Raising prices in line with original plan despite volume 14 headwind


 
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 Engineered Valves). 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 March 29, 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 first-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 fourth-quarter 2019 news release available on its website at www.CIRCOR.com. 15


 
Appendix 16


 
Q1 Results ($ millions, except EPS) Q1 2020 Q1 2019 GAAP Adjusted Adj Ex Div* GAAP Adjusted Adj Ex Div* Orders 208 208 204 260 260 229 Sales 192 192 187 239 239 209 Gross Margin 60 64 64 74 80 71 SG&A 60 53 53 65 57 54 Goodwill Impairment Charge 116 - - - - - Special & Restructuring Income, net (42) - - (8) - - Operating (Loss) Income (73) 11 11 18 23 17 Interest Expense 9 9 13 13 Other Income (3) (3) (2) (2) Pre-tax (80) 5 7 12 Tax (provision) Benefit (8) (1) (6) (2) Net (Loss) Income from continuing operations (88) 4 1 10 Net Income (Loss) from discontinued operations 9 - (6) - Net (Loss) Income (79) 4 (5) 10 EPS - Continuing Operations $ (4.42) $ 0.20 $ 0.05 $ 0.52 EPS - Net Loss (Income) $ (3.96) $ 0.20 $ (0.23) $ 0.52 * Adjusted: Reflects non-GAAP measures, see CIRCOR Q1 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 Q1 2020 which are Reliability Services, Spence/ Nicholson and Instrumentation & Sampling. EPS: Earnings (Loss) Per Share or Diluted Earnings Per Share Numbers may not add due to rounding. 17


 
v3.20.1
Document and Entity Information Document
May 29, 2020
Cover page.  
Document Type 8-K
Document Period End Date May 29, 2020
Entity Registrant Name CIRCOR INTERNATIONAL, INC.
Entity Central Index Key 0001091883
Amendment Flag false
Entity Incorporation, State or Country Code DE
Entity File Number 001-14962
Entity Tax Identification Number 04-3477276
Entity Address, Address Line One 30 CORPORATE DRIVE, SUITE 200
Entity Address, City or Town Burlington,
Entity Address, State or Province MA
Entity Address, Postal Zip Code 01803-4238
City Area Code 781
Local Phone Number 270-1200
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of 12(b) Security Common stock, par value $0.01 per share
Trading Symbol CIR
Security Exchange Name NYSE
Entity Emerging Growth Company false