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CIRCOR Reports First-Quarter 2016 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 first quarter ended April 3, 2016.

First-Quarter 2016 Highlights

  • Delivered Revenue of $151 million and Adjusted EPS of $0.52
  • Accelerated cost control and restructuring actions to improve bottom-line performance
  • Achieved Energy adjusted operating margin of 12.6%
  • Expanded Aerospace & Defense adjusted operating margin to 9.3%

“CIRCOR delivered solid first-quarter financial results, demonstrating ongoing progress on our margin expansion and simplification strategy,” said Scott Buckhout, President and Chief Executive Officer. “Despite significant headwinds in our Energy markets, we maintained strong margin performance and delivered year-over-year sales growth in our engineered valve and control valve businesses. Aerospace & Defense continued to improve its bottom line results, expanding margins 130 basis points over last year.”

“Going forward, we are focused on laying the foundation for long-term above market growth. We continue to improve our operations while we carefully invest in areas with the best long-term growth potential,” added Buckhout. “In addition, we are using the ongoing weakness in our Energy markets as an opportunity to further accelerate our cost reduction strategy. Our simplification and restructuring actions launched to date remain on track.”

“Finally we remain committed to creating shareholder value through growth, margin expansion, strong cash flow, and disciplined capital deployment,” concluded Buckhout.

Second-Quarter 2016 Guidance
For the second quarter of 2016, the Company will provide its guidance during the conference call later today.

Selected Consolidated Results

($ millions except EPS)Q1 2016Q1 2015Change
Revenue $150.8 $ 165.9 (9 )%
GAAP Operating Income $5.5 $ 12.3 (55 )%
Adjusted Operating Income1$11.3 $ 14.6 (23 )%
Adjusted Operating Margin17.5% 8.8 % (130) bps
GAAP Earnings Per Share (Diluted) $0.23 $ 0.50 (54 )%
Adjusted Earnings Per Share (Diluted)1$0.52 $ 0.60 (13 )%
Free Cash Flow $3.7 $ (18.4 ) NM
Orders $136.8 $ 182.3 (25 )%

Segment Results

($ millions)Q1 2016Q1 2015Change
Energy
Revenue $112.6 $ 127.6 (12 )%
Adjusted Operating Margin112.6% 13.8 % (120) bps
Orders $99.8 $ 143.1 (30 )%
Aerospace & Defense
Revenue $38.2 $ 38.3 0 %
Adjusted Operating Margin19.3% 8.0 % 130 bps
Orders $36.9 $ 39.2 (6 )%

1. Consolidated and Segment Results for Q1 2016 exclude special, restructuring and impairment charges totaling $5.8 million. This includes (i) $2.8 million related to the closure of the Brazil manufacturing operations; (ii) $1.9 million for non-cash acquisition-related intangible amortization expense; (iii) fixed asset write-down of $1.4 million for the closure of the California facility and (iv) other items for a net gain of $0.3 million. Q1 2015 results excluded special and restructuring charges totaling $2.2 million.

Conference Call Information
CIRCOR International will hold a conference call to review its financial results today, April 29, 2016, at 9:00 a.m. ET. To listen to the conference call and view the accompanying presentation slides, visit “Webcasts & Presentations” in the “Investors” portion of the CIRCOR website. The call also can be accessed by dialing (877) 407-5790 or (201) 689-8328. The webcast will be archived for one year on the Company’s website.

Use of Non-GAAP Financial Measures
Adjusted net income, adjusted earnings per share (diluted), 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 the realization of cost reductions from restructuring activities. 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. 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 web site at http://investors.circor.com.

CIRCOR INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

UNAUDITED

Three Months Ended

April 3,
2016

April 5,
2015

Net revenues $ 150,798 $ 165,860
Cost of revenues 105,565 113,211
GROSS PROFIT 45,233 52,649
Selling, general and administrative expenses 37,799 38,808
Special charges, net 1,939 1,511
OPERATING INCOME 5,495 12,331
Other expense (income):
Interest expense, net 631 641
Other income, net (528 ) (506 )
TOTAL OTHER EXPENSE, NET 103 135
INCOME BEFORE INCOME TAXES 5,392 12,196
Provision for income taxes 1,520 3,284
NET INCOME $ 3,872 $ 8,913
Earnings per common share:
Basic $ 0.24 $ 0.50
Diluted $ 0.23 $ 0.50
Weighted average number of common shares outstanding:
Basic 16,381 17,662
Diluted 16,481 17,712
Dividends paid per common share $ 0.0375 $ 0.0375
CIRCOR INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

UNAUDITED

Three Months Ended

April 3,
2016

April 5,
2015

OPERATING ACTIVITIES
Net income $ 3,872 $ 8,913
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation 3,263 3,521
Amortization 2,529 710
Bad debt (recovery) expense (848 ) 312
Loss on write down of inventory 2,525 510
Compensation expense of share-based plans 1,538 2,222
Tax effect of share-based plan compensation 92 (289 )
Loss on sale of property, plant and equipment 14 46
Loss on write down of property, plant and equipment 1,489
Gain on sale of business (972 )
Changes in operating assets and liabilities, net of effects of acquisition and disposition:
Trade accounts receivable 11,089 6,694
Inventories 8,486 (19,207 )
Prepaid expenses and other assets (4,287 ) (3,431 )
Accounts payable, accrued expenses and other liabilities (22,108 ) (18,224 )
Net cash provided by (used in) operating activities 7,654 (19,195 )
INVESTING ACTIVITIES
Purchases of property, plant and equipment (4,021 ) (2,610 )
Proceeds from the sale of property, plant and equipment 87
Proceeds from the sale of affiliate 2,759
Net cash (used in) provided by investing activities (3,934 ) 149
FINANCING ACTIVITIES
Proceeds from long-term debt 35,139 46,903
Payments of long-term debt (27,871 ) (21,540 )
Dividends paid (625 ) (672 )
Proceeds from the exercise of stock options 111 38
Tax effect of share-based plan compensation (92 ) 289
Purchases of common stock (13,291 )
Net cash provided by financing activities 6,662 11,727
Effect of exchange rate changes on cash and cash equivalents 1,657 (10,081 )
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,039 (17,400 )
Cash and cash equivalents at beginning of year 54,541 121,286
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 66,580 $ 103,886
CIRCOR INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

UNAUDITED

April 3,
2016

December 31,
2015

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 66,580 $ 54,541
Trade accounts receivable, less allowance for doubtful accounts of $7,628 and $8,290, respectively 117,569 125,628
Inventories 170,100 177,840
Prepaid expenses and other current assets 21,303 16,441
Total Current Assets 375,552 374,450
PROPERTY, PLANT AND EQUIPMENT, NET 86,089 87,029
OTHER ASSETS:
Goodwill 118,170 115,452
Intangibles, net 47,520 48,981
Deferred income taxes 36,483 36,799
Other assets 7,283 7,204
TOTAL ASSETS $ 671,097 $ 669,915
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 55,726 $ 64,284
Accrued expenses and other current liabilities 43,081 52,878
Accrued compensation and benefits 17,173 18,424
Income taxes payable 8,406 6,585
Total Current Liabilities 124,386 142,171
LONG-TERM DEBT, NET OF CURRENT PORTION 97,800 90,500
DEFERRED INCOME TAXES 10,168 10,424
OTHER NON-CURRENT LIABILITIES 24,636 26,043
SHAREHOLDERS’ EQUITY:
Common stock 177 177
Additional paid-in capital 285,410 283,621
Retained earnings 261,186 257,939
Common treasury stock, at cost (74,972 ) (74,972 )
Accumulated other comprehensive loss, net of tax (57,694 ) (65,988 )
Total Shareholders’ Equity 414,107 400,777
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 671,097 $ 669,915
CIRCOR INTERNATIONAL, INC.

SUMMARY OF ORDERS AND BACKLOG

(in millions)

UNAUDITED

Three Months Ended

April 3,
2016

April 5,
2015

ORDERS (1)
Energy $ 99.8 $ 143.1
Aerospace & Defense 36.9 39.2
Total orders $ 136.8 $ 182.3
BACKLOG (2)

April 3,
2016

April 5,
2015

Energy $ 167.7 $ 247.6
Aerospace & Defense 92.3 104.2
Total backlog $ 260.0 $ 351.8

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 unshipped customer orders.

CIRCOR INTERNATIONAL, INC.

SUMMARY REPORT BY SEGMENT

(in thousands, except percentages)

UNAUDITED

2015

2016

1ST QTR2ND QTR3RD QTR4TH QTRTOTAL1ST QTR
NET REVENUES
Energy $ 127,586 $ 127,230 $ 122,905 $ 124,412 $ 502,133 $ 112,620
Aerospace & Defense 38,274 39,676 36,353 39,832 154,134 38,178
Total $ 165,860 $ 166,906 $ 159,258 $ 164,243 $ 656,267 $ 150,798
ADJUSTED OPERATING MARGIN
Energy 13.8 % 13.4 % 15.4 % 13.4 % 14.0 % 12.6 %
Aerospace & Defense 8.0 % 8.8 % 9.1 % 10.4 % 9.1 % 9.3 %
Segment operating margin 12.4 % 12.3 % 14.0 % 12.7 % 12.8 % 11.8 %
Corporate expenses (3.6 )% (3.3 )% (3.8 )% (2.5 )% (3.3 )% (4.3 )%
Adjusted operating margin 8.8 % 9.0 % 10.1 % 10.2 % 9.5 % 7.5 %
Restructuring related inventory charges % 1.2 % 4.0 % 0.6 % 1.4 % 1.3 %
Impairment charges % % 1.6 % % 0.4 % %
Special restructuring charges, net 0.9 % 1.9 % 0.2 % (0.2 )% 0.7 % 1.4 %
Special acquisition amortization % 1.3 % 1.6 % 1.4 % 1.0 % 1.2 %
Special other charges, net of recoveries % 0.1 % 5.0 % 1.0 % 1.5 % (0.1 )%
Brazil restatement impact 0.4 % 1.5 % % % 0.5 % %
Total GAAP operating margin 7.4 % 3.0 % (2.2 )% 7.5 % 4.0 % 3.6 %

CIRCOR INTERNATIONAL, INC.
SUMMARY REPORT BY SEGMENT
(in thousands, except earnings per share and percentages)
UNAUDITED

2015

2016

1ST QTR2ND QTR3RD QTR4TH QTRTOTAL1ST QTR
ADJUSTED OPERATING INCOME
Energy $ 17,550 $ 17,008 $ 18,932 $ 16,724 $ 70,214 $ 14,186
Aerospace & Defense 3,045 3,494 3,298 4,146 13,982 3,562
Segment operating income 20,595 20,502 22,230 20,870 84,197 17,748
Corporate expenses (6,034 ) (5,477 ) (6,078 ) (4,122 ) (21,710 ) (6,488 )
Adjusted operating income 14,561 15,025 16,152 16,748 62,487 11,260
Restructuring related inventory charges 2,005 6,412 974 9,391 1,958
Impairment charges 2,502 2,502
Special restructuring charges, net 1,512 3,127 342 (347 ) 4,634 2,040
Special acquisition amortization 2,110 2,490 2,238 6,838 1,868
Special other charges, net of recoveries (1 ) 183 7,935 1,603 9,720 (101 )
Brazil restatement impact 719 2,509 3,228
Total GAAP operating income (loss) 12,331 5,090 (3,529 ) 12,281 26,174 5,495
INTEREST EXPENSE, NET (640 ) (805 ) (828 ) (570 ) (2,844 ) (631 )
OTHER INCOME (EXPENSE), NET 506 104 587 (2,099 ) (902 ) 528
PRETAX INCOME (LOSS) 12,197 4,389 (3,770 ) 9,612 22,428 5,392
PROVISION FOR INCOME TAXES (3,284 ) (2,517 ) (4,308 ) (2,456 ) (12,565 ) (1,520 )
EFFECTIVE TAX RATE26.9%57.3%(114.3)%25.6%56.0%28.2%
NET INCOME (LOSS) $ 8,913 $ 1,872 $ (8,078 ) $ 7,156 $ 9,863 $ 3,872
Weighted Average Common Shares Outstanding (Diluted) 17,712 16,900 16,485 16,555 16,913 16,481
EARNINGS (LOSS) PER COMMON SHARE (Diluted) $ 0.50 $ 0.11 $ (0.49 ) $ 0.43 $ 0.58 $ 0.23

CIRCOR INTERNATIONAL, INC.

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

(in thousands, except percentages)

UNAUDITED

2015

2016

1ST QTR2ND QTR3RD QTR4TH QTRTOTAL1ST QTR
FREE CASH FLOW AS % OF NET INCOME (LOSS)(207)%239%(27)%397%169%96%
FREE CASH FLOW$(18,415)$4,483$2,169$28,403$16,640$3,720
ADD:
Capital expenditures, net of sale proceeds 1,983 3,584 2,837 2,098 10,502 3,934
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ (16,432 ) $ 8,067 $ 5,006 $ 30,501 $ 27,142 $ 7,654
NET (CASH) DEBT$(66,337)$59,051$57,277$35,959$35,959$31,220
ADD:
Cash & cash equivalents 103,883 55,027 53,822 54,541 54,541 66,580
TOTAL DEBT $ 37,546 $ 114,078 $ 111,099 $ 90,500 $ 90,500 $ 97,800
TOTAL SHAREHOLDERS' EQUITY $ 462,384 $ 421,070 $ 407,979 $ 400,777 $ 400,777 $ 414,107
DEBT AS % OF EQUITY8%27%27%23%23%24%

CIRCOR INTERNATIONAL, INC.
RECONCILIATION OF KEY PERFORMANCE MEASURES TO COMMONLY USED GENERALLY ACCEPTED ACCOUNTING PRINCIPLE TERMS
(in thousands, except earnings per share)
UNAUDITED

2015

2016

1ST QTR2ND QTR3RD QTR4TH QTRTOTAL1ST QTR
ADJUSTED NET INCOME$10,564$9,357$10,635$10,512$41,068$8,683
LESS:
Restructuring related inventory charges, net of tax 1,339 6,412 799 8,550 1,945
Impairment charges, net of tax 2,502 2,502
Special restructuring charges, net of tax 1,079 2,175 304 (561 ) 2,997 1,665
Special acquisition amortization, net of tax 1,409 1,587 1,695 4,691 1,266
Special other net charges, net of tax (147 ) 53 7,908 1,423 9,237 (65 )
Brazil restatement impact 719 2,509 3,228
NET INCOME (LOSS) $ 8,913 $ 1,872 $ (8,078 ) $ 7,156 $ 9,863 $ 3,872
ADJUSTED EARNINGS PER SHARE (Diluted)$0.60$0.55$0.64$0.63$2.43$0.52
LESS:
Restructuring related inventory charges, net of tax 0.08 0.39 0.05 0.51 0.12
Impairment charges, net of tax 0.15 0.15
Special restructuring charges, net of tax 0.06 0.13 0.02 (0.03 ) 0.18 0.10
Special acquisition amortization, net of tax 0.08 0.10 0.10 0.28 0.08
Special other net charges, net of tax 0.47 0.08 0.54 (0.01 )
Brazil restatement impact 0.04 0.15 0.19
EARNINGS (LOSS) PER COMMON SHARE (Diluted) $ 0.50 $ 0.11 $ (0.49 ) $ 0.43 $ 0.58 $ 0.23

CIRCOR INTERNATIONAL, INC.
RECONCILIATION OF KEY PERFORMANCE MEASURES TO COMMONLY USED GENERALLY ACCEPTED ACCOUNTING PRINCIPLE TERMS
(in thousands, except earnings per share)
UNAUDITED

2015

2016

1ST QTR2ND QTR3RD QTR4TH QTRTOTAL1ST QTR
ADJUSTED EBITDA$19,299$19,474$20,980$18,927$78,681$15,712
LESS:
Restructuring related inventory charges (2,005 ) (6,412 ) (974 ) (9,391 ) (1,958 )
Impairment charges (2,502 ) (2,502 )
Special restructuring charges, net (1,512 ) (3,127 ) (342 ) 347 (4,634 ) (2,040 )
Special other charges, net of recoveries 1 (183 ) (7,935 ) (1,603 ) (9,720 ) 101
Brazil restatement impact (719 ) (2,509 ) (3,228 )
EBITDA$17,068$11,650$3,789$16,698$49,206$11,815
LESS:
Interest expense, net (641 ) (805 ) (828 ) (570 ) (2,844 ) (631 )
Depreciation (3,521 ) (3,629 ) (3,526 ) (3,578 ) (14,254 ) (3,263 )
Amortization, including special acquisition (710 ) (2,827 ) (3,205 ) (2,939 ) (9,681 ) (2,529 )
Provision for income taxes (3,284 ) (2,517 ) (4,308 ) (2,456 ) (12,565 ) (1,520 )
NET INCOME (LOSS) $ 8,913 $ 1,872 $ (8,078 ) $ 7,156 $ 9,863 $ 3,872

Contacts:

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

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