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CIRCOR Reports Second-Quarter 2014 Financial Results

CIRCOR International, Inc. (NYSE: CIR), a leading provider of valves and other highly engineered products for markets including oil & gas, power generation and aerospace & defense, today announced financial results for the second quarter ended June 29, 2014.

Second-Quarter 2014 Highlights

  • Adjusted operating margin expanded 70 basis points to 10.7%
  • Adjusted EPS grew 12% to $0.91
  • Year-to-date free cash flow was $21.8 million, 82% of net income
  • Orders up 2%
  • Growth and restructuring initiatives remain on track

“CIRCOR continued to demonstrate strong bottom-line improvement during the second quarter,” said Scott Buckhout, CIRCOR President and Chief Executive Officer. “We achieved a 70 basis point increase in adjusted operating margin to 10.7% largely driven by restructuring and cost control initiatives.”

“Similar to the first quarter, second-quarter quoting activity remained strong in upstream oil and gas, as well as in power generation; however, actual bookings continue to be slow. In our Aerospace & Defense business, bookings were up over the prior year.”

“Our ability to meet our bottom-line expectations is a result of our focus on expanding margins through operational excellence and the CIRCOR simplification program. We expect that our margin expansion initiatives will gain further traction throughout the year.”

“We continue to make investments in transforming CIRCOR into a growth company. We are increasing our sales and engineering capacity in key international growth markets while we focus more resources on developing innovative new products,” concluded Buckhout.

Third-Quarter 2014 Guidance

For the third quarter of 2014, the Company expects:

  • Revenues in the range of $200 million to $215 million;
  • Adjusted earnings per share, excluding restructuring and special charges, in the range of $0.87 to $0.94; and,
  • Restructuring and special related charges of approximately $1.6 million to $2.0 million.

Selected Consolidated Results

(In millions, except percents and bps)Q2 2014Q2 2013Change
Revenue $207.9 $ 223.6 -7%
Adjusted Operating Income1$22.2 $ 22.3 -1%
Adjusted Operating Margin110.7% 10.0% 70 bps
GAAP Earnings Per Share (Diluted) $0.67 $ 0.72 -7%

Adjusted Earnings Per Share (Diluted) 1

$0.91 $ 0.81 12%
Orders $203.7 $ 200.1 2%
Backlog2$413.1 $ 433.5 -5%
Free Cash Flow $7.4 $ 9.5 -22%

Segment Results

(In millions, except percents and bps)Q2 2014Q2 2013Change
Energy
Revenue $160.6 $ 173.6 -7%
Adjusted Operating Margin114.6% 13.3% 130 bps
Orders $160.3 $ 163.8 -2%
Backlog $279.5 $ 263.6 6%
Aerospace & Defense
Revenue $47.3 $ 50.1 -6%
Adjusted Operating Margin17.1% 11.4% -430 bps
Orders $43.4 $ 36.3 20%
Backlog2$133.5 $ 169.9 -21%

1. Consolidated and Segment Results exclude special and restructuring charges, $1.3 million and $2.3 million related to restructuring actions during Q2 2014 and Q2 2013, respectively, as well as $5.1 million in inventory charges related to the exit of certain landing gear product lines recorded during Q2 2014. Refer to reconciliation to commonly used US GAAP terms.
2. Consolidated and Aerospace & Defense Segment Backlog reflects a Q2 2014 reduction of $28.6 million associated with the exit of certain landing gear product lines.

Conference Call Information

CIRCOR International will hold a conference call to review its financial results today, August 1, 2014, at 10:00 a.m. ET. To listen to the conference call and view the accompanying presentation slides, visit “Webcasts & Presentations” in the “Investors” section of the CIRCOR website. The live call also can be accessed by dialing (877) 407-5790 or (201) 689-8328. The webcast will be archived for one year on the Company’s website.

Use of Non-GAAP Financial Measures

Adjusted net income, adjusted earnings per diluted share, adjusted operating income, adjusted operating margin, and free cash flow are non-GAAP financial measures and are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. CIRCOR believes that such information provides an additional measurement and consistent historical comparison of the Company’s performance. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in this news release.

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Reliance should not be placed on forward-looking statements because they involve unknown risks, uncertainties and other factors, which are, in some cases, beyond the control of CIRCOR. Any statements in this press release that are not statements of historical fact are forward-looking statements, including, but not limited to, those relating to CIRCOR’s future performance, including third-quarter revenue and earnings guidance and estimated total annualized pre-tax savings from restructuring actions. Actual events, performance or results could differ materially from the anticipated events, performance or results expressed or implied by such forward-looking statements. BEFORE MAKING ANY INVESTMENT DECISIONS REGARDING OUR COMPANY, WE STRONGLY ADVISE YOU TO READ THE SECTION ENTITLED "RISK FACTORS" IN OUR MOST RECENT ANNUAL REPORT ON FORM 10-K AND SUBSEQUENT REPORTS ON FORMS 10-Q, WHICH CAN BE ACCESSED UNDER THE "INVESTORS" LINK OF OUR WEBSITE AT WWW.CIRCOR.COM. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

About CIRCOR International, Inc.

CIRCOR International, Inc. designs, manufactures and markets highly engineered products and sub-systems for markets including oil & gas, power generation and aerospace & defense. With more than 7,000 customers in over 100 countries, CIRCOR has a diversified product portfolio with recognized, market-leading brands that fulfill its customers’ unique application needs. The Company’s strategy is to grow organically and through complementary acquisitions; simplify CIRCOR’s operations; achieve world class operational excellence; and attract and retain top industry talent. For more information, visit the Company’s investor relations website at http://investors.circor.com.

CIRCOR INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF INCOME

(in thousands, except share data)

UNAUDITED

Three Months EndedSix Months Ended
June 29, 2014June 30, 2013June 29, 2014June 30, 2013
Net revenues $ 207,884 $ 223,644 $ 419,070 $ 429,042
Cost of revenues 148,184 153,538 294,731 299,086
GROSS PROFIT 59,700 70,106 124,339 129,956
Selling, general and administrative expenses 42,609 47,596 87,498 93,168
Special charges, net 1,257 2,254 100 3,632
OPERATING INCOME 15,834 20,256 36,741 33,156
Other (income) expense:
Interest expense, net 891 838 1,809 1,625
Other (income) expense, net (384 ) 626 (853 ) 1,239
TOTAL OTHER EXPENSE, NET 507 1,464 956 2,864
INCOME BEFORE INCOME TAXES 15,328 18,792 35,785 30,292
Provision for income taxes 3,402 6,124 9,227 9,715
NET INCOME $ 11,926 $ 12,667 $ 26,558 $ 20,577
Earnings per common share:
Basic $ 0.68 $ 0.72 $ 1.51 $ 1.17
Diluted $ 0.67 $ 0.72 $ 1.50 $ 1.17
Weighted average number of common shares outstanding:
Basic 17,665 17,565 17,643 17,539
Diluted 17,767 17,607 17,754 17,569
Dividends paid per common share $ 0.0375 $ 0.0375 $ 0.0750 $ 0.0750

CIRCOR INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)

Six Months Ended
June 29, 2014June 30, 2013
OPERATING ACTIVITIES
Net income $ 26,558 $ 20,577
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 8,185 8,035
Amortization 1,591 1,509
Compensation expense of share-based plans 4,020 2,156
Tax effect of share-based plan compensation (971 ) (422 )
(Gain) on disposal of property, plant and equipment (54 ) (129 )
Changes in operating assets and liabilities:
Trade accounts receivable, net (23,705 ) (9,406 )
Inventories, net 3,600 (4,059 )
Prepaid expenses and other assets 143 (2,412 )
Accounts payable, accrued expenses and other liabilities 7,988 3,583
Net cash provided by operating activities 27,355 19,432
INVESTING ACTIVITIES
Additions to property, plant and equipment (5,603 ) (8,808 )
Proceeds from the sale of property, plant and equipment 32 314
Net cash used in investing activities (5,571 ) (8,494 )
FINANCING ACTIVITIES
Proceeds from long-term debt 81,910 74,255
Payments of long-term debt (88,776 ) (84,679 )
Dividends paid (1,341 ) (1,340 )
Proceeds from the exercise of stock options 237 1,498
Tax effect of share-based compensation 971 422
Net cash used in financing activities (6,999 ) (9,844 )
Effect of exchange rate changes on cash and cash equivalents (639 ) (2,002 )
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,146 (907 )
Cash and cash equivalents at beginning of year 102,180 61,738
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 116,326 $ 60,831
Cash paid during the year for:
Income taxes $ 6,375 $ 3,464
Interest $ 1,358 $ 1,054

CIRCOR INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

June 29, 2014December 31, 2013
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 116,326 $ 102,180
Short-term investments 95 95
Trade accounts receivable, less allowance for doubtful accounts of $2,832 and $2,449, respectively 168,541 144,742
Inventories, net 196,389 199,404
Prepaid expenses and other current assets 19,817 19,815
Deferred income tax asset 19,476 17,686
Total Current Assets 520,644 483,922
PROPERTY, PLANT AND EQUIPMENT, NET 105,461 107,724
OTHER ASSETS:
Goodwill 76,860 75,876
Intangibles, net 34,476 35,656
Deferred income tax asset 16,779 18,579
Other assets 4,866 4,893
TOTAL ASSETS $ 759,086 $ 726,650
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 81,886 $ 70,589
Accrued expenses and other current liabilities 63,023 57,507
Accrued compensation and benefits 24,369 31,289
Income taxes payable 6,396 3,965
Notes payable and current portion of long-term debt 3,642 7,203
Total Current Liabilities 179,316 170,553
LONG-TERM DEBT, NET OF CURRENT PORTION 39,797 42,435
DEFERRED INCOME TAXES 9,236 9,666
OTHER NON-CURRENT LIABILITIES 23,375 27,109
SHAREHOLDERS’ EQUITY:
Common stock 170 176
Additional paid-in capital 274,580 269,884
Retained earnings 227,868 202,930
Accumulated other comprehensive gain, net of taxes 4,744 3,897
Total Shareholders’ Equity 507,362 476,887
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 759,086 $ 726,650

CIRCOR INTERNATIONAL, INC.

SUMMARY OF ORDERS AND BACKLOG

(in millions)

UNAUDITED

Three Months EndedSix Months Ended
June 29,
2014
June 30,
2013
June 29,
2014
June 30,
2013
ORDERS (1)
Energy $ 160.3 $ 163.8 $ 319.9 $ 337.3
Aerospace & Defense 43.4 36.3 83.7 89.6
Total orders $ 203.7 $ 200.1 $ 403.6 $ 426.9
BACKLOG (2)June 29,
2014
June 30,
2013
Energy $ 279.5 $ 263.6
Aerospace & Defense (3) 133.5 169.9
Total backlog $ 413.1 $ 433.5

Note 1: Orders do not include the foreign exchange impact due to the re-measurement of customer order backlog amounts denominated in foreign currencies.

Note 2: Backlog includes all unshipped customer orders.

Note 3: Aerospace & Defense backlog reflects a reduction of $28.6 million associated with the exit of certain landing gear product lines recorded in the second quarter of 2014.

CIRCOR INTERNATIONAL, INC.

SUMMARY REPORT BY SEGMENT

(in thousands, except earnings per share)

UNAUDITED

20132014
1ST QTR2ND QTR3RD QTR4TH QTRTOTAL1ST QTR2ND QTRTOTAL
NET REVENUES
Energy $ 157,104 $ 173,557 $ 167,660 $ 162,649 $ 660,970 $ 162,587

$160,580

$323,167

Aerospace & Defense 48,294 50,087 47,071 51,386 196,838 48,599 47,304 95,903
Total $ 205,398 $ 223,644 $ 214,731 $ 214,035 $ 857,808 $ 211,186 $ 207,884 $ 419,070
ADJUSTED OPERATING MARGIN
Energy 10.8 % 13.3 % 15.2 % 17.1 % 14.1 % 13.8 % 14.6 % 14.2 %
Aerospace & Defense 5.9 % 11.4 % 12.1 % 8.4 % 9.5 % 9.1 % 7.1 % 8.1 %
Segment operating margin 9.6 % 12.9 % 14.5 % 15.0 % 13.0 % 12.7 % 12.9 % 12.8 %
Corporate expenses (2.6 )% (2.9 )% (3.4 )% (3.5 )% (3.1 )% (3.4 )% (2.2 )% (2.8 )%
Adjusted operating margin 7.1 % 10.0 % 11.1 % 11.6 % 9.9 % 9.4 % 10.7 % 10.0 %
Restructuring inventory charges 0.1 % (0.1 )% % 0.3 % 0.1 % % 2.5 % 1.2 %
Impairment charges % % % 3.2 % 0.8 % % % %
Special (recoveries) % % (1.5 )% % (0.4 )% (1.1 )% % (0.5 )%
Special charges 0.7 % 1.0 % 1.4 % 2.4 % 1.4 % 0.5 % 0.6 % 0.6 %
Total GAAP operating margin 6.3 % 9.1 % 11.1 % 5.6 % 8.1 % 9.9 % 7.6 % 8.8 %
20132014
1ST QTR2ND QTR3RD QTR4TH QTRTOTAL1ST QTR2ND QTRTOTAL
ADJUSTED OPERATING INCOME
Energy $ 16,940 $ 23,114 $ 25,441 $ 27,809 $ 93,304 $ 22,462

$23,502

$ 45,964
Aerospace & Defense 2,864 5,724 5,705 4,342 18,635 4,426 3,362 7,788
Segment operating income 19,804 28,838 31,146 32,151 111,939 26,888 26,864 53,752
Corporate expenses (5,277 ) (6,570 ) (7,400 ) (7,400 ) (26,646 ) (7,137 ) (4,634 ) (11,771 )
Adjusted operating income 14,528 22,268 23,746 24,751 85,293 19,750 22,231 41,981
Restructuring inventory charges 250 (242 ) 638 646 5,139 5,139
Impairment charges 6,872 6,872
Special (recoveries) (3,151 ) (3,151 ) (2,243 ) (2,243 )
Special charges 1,378 2,254 2,961 5,160 11,752 1,086 1,257 2,343
Total GAAP operating income 12,900 20,256 23,936 12,081 69,174 20,907 15,834 36,741
INTEREST EXPENSE, NET (787 ) (838 ) (745 ) (792 ) (3,162 ) (918 ) (891 ) (1,809 )
OTHER (EXPENSE) INCOME, NET (612 ) (626 ) (568 ) (167 ) (1,974 ) 468 384 853
PRETAX INCOME 11,501 18,792 22,623 11,122 64,038 20,457 15,328 35,785
PROVISION FOR INCOME TAXES (3,592 ) (6,124 ) (4,903 ) (2,297 ) (16,916 ) (5,825 ) (3,402 ) (9,227 )
EFFECTIVE TAX RATE31.2%32.6%21.7%20.7%26.4%28.5%22.2%25.8%
NET INCOME $ 7,908 $ 12,668 $ 17,720 $ 8,825 $ 47,121 $ 14,632 $ 11,926 $ 26,558
Weighted Average Common Shares Outstanding (Diluted) 17,529 17,607 17,667 17,710 17,629 17,741 17,767 17,754
EARNINGS PER COMMON SHARE (Diluted) $ 0.45 $ 0.72 $ 1.00 $ 0.50 $ 2.67 $ 0.82 $ 0.67 $ 1.50
ADJUSTED EBITDA $ 18,682 $ 26,419 $ 27,850 $ 29,441 $ 102,392 $ 27,387 $ 14,744 $ 42,131
ADJUSTED EBITDA AS A % OF SALES 9.1 % 11.8 % 13.0 % 13.8 % 11.9 % 13.0 % 7.1 % 10.1 %
CAPITAL EXPENDITURES $ 4,707 $ 4,100 $ 4,772 $ 3,749 $ 17,328 $ 2,670 $ 2,933 $ 5,603

CIRCOR INTERNATIONAL, INC.

RECONCILIATION OF KEY PERFORMANCE MEASURES TO COMMONLY USED GENERALLY ACCEPTED ACCOUNTING PRINCIPLE TERMS

(in thousands, except earnings per share)

UNAUDITED

20132014
1ST QTR2ND QTR3RD QTR4TH QTRTOTAL1ST QTR2ND QTRTOTAL
FREE CASH FLOW AS % OF NET INCOME14%75%167%167%116%98%62%82%
FREE CASH FLOW$1,100$9,525$29,557$14,696$54,878$14,387$7,365$21,752
ADD:
Capital Expenditures 4,707 4,100 4,772 3,749 17,328 2,670 2,933 5,603
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,807 $ 13,625 $ 34,329 $ 18,445 $ 72,206 $ 17,057 $ 10,298 $ 27,355
NET DEBT (CASH)$8,814$(1,376)$(36,466)$(52,637)$(52,637)$(66,056)$(72,982)$(72,982)
ADD:
Cash & Cash Equivalents 57,633 60,831 86,285 102,180 102,180 122,097 116,326 116,326
Investments 99 96 98 95 95 92 95 95
TOTAL DEBT $ 66,546 $ 59,551 $ 49,917 $ 49,638 $ 49,638 $ 56,133 $ 43,439 $ 43,439
DEBT AS % OF EQUITY16%14%11%10%10%11%9%9%
TOTAL DEBT 66,546 59,551 49,917 49,638 49,638 56,133 43,439 43,439
TOTAL SHAREHOLDERS' EQUITY 418,819 432,151 459,058 476,887 476,887 492,601 507,363 507,363
20132014
1ST QTR2ND QTR3RD QTR4TH QTRTOTAL1ST QTR2ND QTRTOTAL
ADJUSTED OPERATING INCOME$14,528$22,268$23,746$24,751$85,293$19,750$22,230$41,980
LESS:
Inventory restructuring charges 250 (242 ) 638 646 5,139 5,139
Impairment charges 6,872 6,872
Special (recoveries) (3,151 ) (3,151 ) (2,243 ) (2,243 )
Special charges 1,378 2,254 2,961 5,160 11,753 1,086 1,257 2,343
OPERATING INCOME $ 12,900 $ 20,256 $ 23,936 $ 12,081 $ 69,173 $ 20,907 $ 15,834 $ 36,741
ADJUSTED NET INCOME$9,043$14,044$16,439$16,773$56,299$13,916$16,090$30,006
LESS:
Inventory restructuring charges, net of tax 174 (165 ) 396 405 3,316 3,316
Impairment charges, net of tax 4,261 4,261
Special (recoveries), net of tax (3,151 ) (3,151 ) (1,391 ) (1,391 )
Special charges, net of tax 961 1,541 1,870 3,291 7,663 675 848 1,523
NET INCOME $ 7,908 $ 12,668 $ 17,720 $ 8,825 $ 47,121 $ 14,632 $ 11,926 $ 26,558
ADJUSTED EARNINGS PER SHARE$0.52$0.81$0.93$0.95$3.21$0.78$0.91$1.70
LESS:
Inventory restructuring charges, net of tax 0.01 (0.01 ) 0.02 0.02 0.19 0.19
Impairment charges, net of tax 0.24 0.24
Special (recoveries), net of tax (0.18 ) (0.18 ) (0.08 ) (0.08 )
Special charges, net of tax 0.06 0.10 0.11 0.19 0.46 0.04 0.05 0.09
EARNINGS PER COMMON SHARE (Diluted) $ 0.45 $ 0.72 $ 1.00 $ 0.50 $ 2.67 $ 0.82 $ 0.67 $ 1.50
20132014
1ST QTR2ND QTR3RD QTR4TH QTRTOTAL1ST QTR2ND QTRTOTAL
EBITDA$17,054$24,407$23,368$11,914$86,272$26,230$21,140$47,370
LESS:
Interest expense, net (787 ) (838 ) (745 ) (792 ) (3,162 ) (918 ) (891 ) (1,809 )
Depreciation (4,009 ) (4,026 ) (3,908 ) (4,091 ) (16,034 ) (4,069 ) (4,116 ) (8,185 )
Amortization (758 ) (751 ) (764 ) (766 ) (3,039 ) (786 ) (805 ) (1,591 )
Provision for income taxes (3,592 ) (6,124 ) (4,903 ) (2,297 ) (16,916 ) (5,825 ) (3,402 ) (9,227 )
NET INCOME $ 7,908 $ 12,668 $ 17,720 $ 8,825 $ 47,121 $ 14,632 $ 11,926 $ 26,558
ADJUSTED EBITDA$18,682$26,419$27,850$29,441$102,392$27,387$14,744$42,131
Inventory restructuring charges (250 ) 242 (638 ) (646 ) 5,139 5,139
Impairment charges (6,872 ) (6,872 )
Special (recoveries) 3,151 3,151 (2,243 ) (2,243 )
Special charges (1,378 ) (2,254 ) (2,961 ) (5,160 ) (11,753 ) 1,086 1,257 2,343
Interest expense, net (787 ) (838 ) (745 ) (792 ) (3,162 ) (918 ) (891 ) (1,809 )
Depreciation (4,009 ) (4,026 ) (3,908 ) (4,091 ) (16,034 ) (4,069 ) (4,116 ) (8,185 )
Amortization (758 ) (751 ) (764 ) (766 ) (3,039 ) (786 ) (805 ) (1,591 )
Provision for income taxes (3,592 ) (6,124 ) (4,903 ) (2,297 ) (16,916 ) (5,825 ) (3,402 ) (9,227 )
NET INCOME $ 7,908 $ 12,668 $ 17,720 $ 8,825 $ 47,121 $ 14,632 $ 11,926 $ 26,558

CIRCOR INTERNATIONAL, INC.

RECONCILIATION OF FUTURE PERFORMANCE MEASURES TO COMMONLY

USED GENERALLY ACCEPTED ACCOUNTING PRINCIPLE TERMS

UNAUDITED

3rd Quarter 2014

Low

High

REVENUE (in millions)

$

200

$215

EXPECTED ADJUSTED EARNINGS PER SHARE (DILUTIVE)

$ 0.87 $ 0.94

LESS: Restructuring related charges, Special charges

0.08 0.06
EXPECTED EARNINGS PER COMMON SHARE (Diluted) $ 0.79 $ 0.88
Note: Assumes 26% to 27% tax rate and exchange rates at present values.

Contacts:

CIRCOR International
Rajeev Bhalla, 781-270-1200
Executive Vice President & Chief Financial Officer

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