This Quarterly Report on Form 10-Q contains certain statements that are "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995 (the "Act") and releases issued by the Securities and Exchange Commission. 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. 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 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 cyclicality and highly competitive nature of some of

our end markets which can affect the overall demand for and pricing of our products, changes in the price of and demand for oil and gas in both domestic and international markets, variability of raw material and component pricing, changes in our suppliers' performance, fluctuations in foreign currency exchange rates, our ability to continue operating our manufacturing facilities at efficient levels including our ability to continue to reduce costs, our ability to generate increased cash by reducing our inventories, our prevention of the accumulation of excess inventory, our ability to successfully implement our acquisition strategy, increasing interest rates, our ability to successfully defend product liability actions including asbestos cases impacting our Leslie subsidiary, as well as the uncertain continuing impact on economic and financial conditions in the United States and around the world as a result of terrorist attacks, current Middle Eastern conflicts and related matters. We advise you to read further about certain of these and other risk factors set forth in Part I, Item 1A, "Risk Factors" of our Annual Report filed on Form 10-K for the year ended December 31, 2008, together with subsequent reports we have filed with the Securities and Exchange Commission on Forms 10-Q and 8-K, which may supplement, modify, supersede, or update those risk factors. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Overview

CIRCOR International, Inc. is a leading provider of valves and fluid control products for the industrial, aerospace, petrochemical, and energy markets. We offer one of the industry's broadest and most diverse range of products - a range that allows us to supply end-users with a wide array of valves and component products for fluid systems.

We have organized the Company into two segments: Instrumentation and Thermal Fluid Controls Products and Energy Products. The Instrumentation and Thermal Fluid Controls Products segment serves our broadest variety of end-markets, including military and commercial aerospace, chemical processing, marine, power generation, commercial HVAC systems, food and beverage processing, and other general industrial markets. The Energy Products segment primarily serves the oil and gas exploration, production and distribution markets.

Our growth strategy includes organic profitable growth as well as strategic acquisitions that extend our current offering of engineered flow control products. For organic growth, our businesses focus on developing new products and reacting quickly to changes in market conditions in order to help grow our revenues. Regarding acquisitions, we have made fifteen acquisitions in the last eight years that extended our product offerings. In February 2006, we acquired two businesses: Hale Hamilton Valves Limited and its subsidiary Cambridge Fluid Systems ("Hale Hamilton"), a leading provider of high pressure valves and flow control equipment, and Sagebrush Pipeline Equipment Company ("Sagebrush") which provides pipeline flow control and measurement equipment to oil and gas markets. In July 2007, we purchased the assets of Survival Engineering, Inc. ("SEI"), a leader in the design of pneumatic controls and inflation systems for the aerospace, marine, defense, and industrial markets. In May 2008, we acquired Motor Technology, Inc. ("Motor Tech"), a leader in the design and manufacture of specialty electric motors, actuators, and tachometers for aerospace, defense, medical and transportation markets. In March 2009, we acquired Bodet Aero ("Bodet") and its affiliate Atlas Productions ("Atlas"), leading manufacturers of electro-mechanical and fluidic controls for the aerospace, defense and transportation markets.

Regarding cash flow and liquidity, we used $4.7 million in cash flow from operating activities in the first three months of 2009. This compares to $1.9 million used during the same period of 2008. The lower cash generated from operating activities was primarily due to decreases in accounts payable, accrued expenses and other liabilities. As of March 29, 2009, we believe we remain a well-capitalized company with total debt-to-equity of 7%.

Basis of Presentation

All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period financial statement amounts have been reclassified to conform to currently reported presentations. We monitor our business in two segments: Instrumentation and Thermal Fluid Controls Products and Energy Products.

We operate and report financial information using a 52-week fiscal year ending December 31. The data periods contained within our Quarterly Reports on Form 10-Q reflect the results of operations for the 13-week, 26-week and 39-week periods which generally end on the Sunday nearest the calendar quarter-end date.

Critical Accounting Policies

The following discussion of accounting policies is intended to supplement the section "Summary of Significant Accounting Policies" presented in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008. These policies were selected because they are broadly applicable within our operating units. The expenses and accrued liabilities or allowances related to certain of these policies are initially based on our best estimates at the time of original entry in our accounting records. Adjustments are recorded when our actual experience, or new information concerning our expected experience, differs from underlying initial estimates. These adjustments could be material if our actual or expected experience were to change significantly in a short period of time. We make frequent comparisons of actual experience and expected experience in order to mitigate the likelihood of material adjustments.

There have been no significant changes from the methodology applied by management for critical accounting estimates previously disclosed in our most recent Annual Report on Form 10-K.

Revenue Recognition

Revenue is recognized when products are delivered, title and risk of loss have passed to the customer, no significant post-delivery obligations remain and collection of the resulting receivable is reasonably assured. Shipping and handling costs invoiced to customers are recorded as components of revenues and the associated costs are recorded as cost of revenues.

Cash, Cash Equivalents, and Short-term Investments

Cash and cash equivalents consist of amounts on deposit in checking and savings accounts with banks and other financial institutions. Short-term investments primarily consist of bank repurchase agreements which generally have short-term maturities and are carried at cost which generally approximates fair value.

Allowance for Inventory

We typically analyze our inventory aging and projected future usage on a quarterly basis to assess the adequacy of our inventory allowances. We provide inventory allowances for excess, slow-moving, and obsolete inventories determined primarily by estimates of future demand. The allowance is measured on an item-by-item basis determined based on the difference between the cost of the inventory and estimated market value. The provision for inventory allowance is a component of our cost of revenues. Assumptions about future demand are among the primary factors utilized to estimate market value. At the point of the loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Our net inventory balance was $177.5 million as of March 29, 2009, compared to $183.3 million as of December 31, 2008. Our inventory allowance as of March 29, 2009 was $12.7 million, compared with $12.5 million as of December 31, 2008. Our provision for inventory obsolescence was $1.1 million and $1.3 million for the first quarter of 2009 and 2008, respectively.

If there were to be a sudden and significant decrease in demand for our products, or if there were a higher incidence of inventory obsolescence because of changing technology and customer requirements, we could be required to increase our inventory allowances and our gross profit could be adversely affected.

Inventory management remains an area of focus as we balance the need to maintain adequate inventory levels to ensure competitive lead times against the risk of inventory obsolescence because of changing technology and customer requirements.

Penalty Accruals

Some of our customer agreements, primarily in our project related businesses, contain late shipment penalty clauses whereby we are contractually obligated to pay consideration to our customers if we do not meet specified shipment dates. The accrual for estimated penalties is shown as a reduction of revenue and is based on several factors including limited historical customer settlement experience and management's assessment of specific shipment delay information. As of the March 29, 2009, we have accrued $12.1 million related to these potential late shipment penalties. As we conclude performance under these agreements, the actual amount of consideration paid to our customers may vary significantly from the amounts we currently have accrued.

Purchase Accounting

In connection with our acquisitions, we assess and formulate a plan related to the future integration of the acquired entity. This process begins during the due diligence process and is concluded within twelve months of the acquisition. Our methodology for determining the fair values relating to purchase acquisitions is determined through established valuation techniques for industrial manufacturing companies and we typically utilize third party valuation firms to assist in the valuation of certain tangible and intangible assets.

In December 2007, the FASB issued SFAS No. 141R, "Business Combinations Statement 141R," a replacement of SFAS No. 141. SFAS 141R is effective for fiscal years beginning on or after December 15, 2008 and applies to all business combinations. SFAS 141R provides that, upon initially obtaining control, an acquirer shall recognize 100% of the fair values of acquired assets, including goodwill, and assumed liabilities, with only limited exceptions, even if the acquirer has not acquired 100% of its target. Additionally, SFAS 141R changes current practice, in part, as follows: (1) contingent consideration arrangements will be fairly valued at the acquisition date and included on that basis in the purchase price consideration; (2) transaction costs will be expensed as incurred, rather than capitalized as part of the purchase price;
(3) pre-acquisition contingencies, such as legal issues, will generally have to be accounted for in purchase accounting at fair value; and (4) in order to accrue for a restructuring plan in purchase accounting, the requirements in SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," would have to be

met at the acquisition date. The adoption of this standard as of January 1, 2009 had no material effect on our results of operations or financial condition although the new standard could materially change the accounting for business combinations consummated subsequent to that date.

Legal Contingencies

We are currently involved in various legal claims and legal proceedings, some of which may involve substantial dollar amounts. Periodically, we review the status of each significant matter and assess our potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the determination of probability and the determination as to whether an exposure can be reasonably estimated. Because of uncertainties related to these matters, accruals are based on the best information available at the time. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material adverse effect on our business, results of operations and financial position. For more information related to our outstanding legal proceedings, see "Commitments and Contingencies" in Note 11 of the accompanying consolidated financial statements as well as "Legal Proceedings" in Part II, Item 1.

Impairment Analysis

As required by SFAS No. 142, "Goodwill and Intangible Assets", we perform an annual assessment as to whether there is an indication that goodwill and certain intangible assets are impaired. We also perform impairment analyses whenever events and circumstances indicate that they may be impaired. In assessing the fair value of goodwill, we use our best estimates of future cash flows from operating activities and capital expenditures of the reporting unit, the estimated terminal value for each reporting unit, and a discount rate based on the weighted average cost of capital.

Certain negative macroeconomic factors began to impact the global credit markets in late 2008 and we noted significant adverse trends in business conditions in the fourth quarter of 2008. Concurrent with these adverse developments, we commenced our annual impairment assessment of goodwill and certain intangible assets. In connection with preparing the impairment assessment, we identified deterioration in the expected future financial performance of our Instrumentation and Thermal Fluid Controls segment compared to the expected future financial performance of this segment at the end of 2007. We also determined that the appropriate discount rate (based on weighted average cost of capital) as of December 31, 2008 was significantly higher than the discount rate in our 2007 impairment assessment. As a result, we recognized goodwill and intangible impairments of $140.3 million and $1.0 million, respectively, within the Instrumentation and Thermal Fluid Controls segment for the year ended December 31, 2008.

The goodwill recorded on the consolidated balance sheet as of March 29, 2009 increased $2.6 million to $34.7 million compared to $32.1 million as of December 31, 2008. This increase is primarily due to the $2.3 million acquisitions of Bodet and Atlas in March 2009 within our Instrumentation and Thermal Fluid Controls segment. There have been no further indicators of impairment as of March 29, 2009.

Income Taxes

Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowance. Our effective tax rates differ from the statutory rate due to the impact of research and product development tax credits, extraterritorial income exclusion, domestic manufacturing deduction, state taxes, and the tax impact of non-U.S. operations. Our effective tax rate was 44.9%, 31.1%, and 30.6% for 2008, 2007 and 2006, respectively. Our tax rate for 2008 included the tax impact of an adjustment for goodwill and intangible impairment of $141.3 million for which the tax basis was $32.8 million. Excluding the goodwill and impairment charge, the 2008 effective tax rate would have been 30.3%.

For 2009, we expect an effective income tax rate of 30%. Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and vice versa. Changes in the valuation of our deferred tax assets or liabilities, or changes in tax laws or interpretations thereof may also adversely affect our future effective tax rate. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

Regarding deferred income tax assets, we maintained a total valuation allowance of $9.1 million at March 29, 2009 and at December 31, 2008, respectively, due to uncertainties related to our ability to utilize these assets, primarily consisting of certain foreign tax credits, state net operating losses and state tax credits carried forward. The valuation allowance is based on estimates of taxable income in each of the jurisdictions in which we operate and the period over which our deferred tax assets will be recoverable. If market conditions improve and future results of operations exceed our current expectations, our existing tax valuation allowances

may be adjusted, resulting in future tax benefits. Alternatively, if market conditions deteriorate or future results of operations are less than expected, future assessments may result in a determination that some or all of the deferred tax assets are not realizable. Consequently, we may need to establish additional tax valuation allowances for all or a portion of the gross deferred tax assets, which may have a material adverse effect on our business, results of operations and financial condition.

Pension Benefits

We maintain two pension benefit plans, a qualified noncontributory defined benefit plan and a nonqualified, noncontributory defined benefit supplemental plan that provides benefits to certain highly compensated officers and employees. To date, the supplemental plan remains an unfunded plan. These plans include significant pension benefit obligations which are calculated based on actuarial valuations. Key assumptions are made in determining these obligations and related expenses, including expected rates of return on plan assets and discount rates. Benefits are based primarily on years of service and employees' compensation. As of July 1, 2006, in connection with a revision to our retirement plan, we froze the pension benefits of our qualified noncontributory plan participants. Under the revised plan, such participants generally do not accrue any additional benefits under the defined benefit plan after July 1, 2006 and instead receive enhanced benefits associated with our defined contribution 401(k) plan in which substantially all of our U.S. employees are eligible to participate.

In 2009, we currently do not expect to make voluntary cash contributions to our pension plans, although global capital market and interest rate fluctuations will impact future funding requirements.

Results of Operations for the Three Months Ended March 29, 2009 Compared to the
Three Months Ended March 30, 2008

The following tables set forth the results of operations, percentage of net
revenues and the period-to-period percentage change in certain financial data
for the three months ended March 29, 2009 and March 30, 2008:



                                                                  (Dollars in thousands)
                                                 Three Months Ended        Three Months Ended
                                                   March 29, 2009            March 30, 2008         % Change
Net revenues                                   $    175,647     100.0 %   $    176,575    100.0 %       (0.5 )%
Cost of revenues                                    119,628      68.1          121,686     68.9         (1.7 )

Gross profit                                         56,019      31.9           54,889     31.1          2.1
Selling, general and administrative expenses         34,099      19.4           34,145     19.3         (0.1 )
Asbestos charges                                      8,263       4.7            1,075      0.6        668.7
Special charges                                      (1,135 )    (0.6 )            160      0.1       (809.4 )

Operating income                                     14,792       8.4           19,509     11.0        (24.2 )
Other (income) expense:
Interest expense, net                                    32       0.0              145      0.1        (77.9 )
Other (income) expense, net                            (183 )    (0.1 )            401      0.2       (145.6 )

Total other (income) expense                           (151 )    (0.1 )            546      0.3       (127.7 )

Income before income taxes                           14,943       8.5           18,963     10.7        (21.2 )
Provision for income taxes                            4,483       2.6            6,068      3.4        (26.1 )

Net income                                     $     10,460       6.0 %   $     12,895      7.3 %      (18.9 )%

Net Revenues

Net revenues for the three months ended March 29, 2009 decreased by $0.9
million, or 0.5%, to $175.6 million from $176.6 million for the three months
ended March 30, 2008. The decrease in net revenues for the three months ended
March 29, 2009 was attributable to the following:



                                                    Three Months Ended
                                                                                    Total                                       Foreign
                                             March 29, 2009      March 30, 2008     Change      Acquisitions     Operations    Exchange
Segment                                                                           (In thousands)
Instrumentation & Thermal Fluid Controls   $           86,340   $         88,450   $ (2,110 )   $       2,427   $      1,517   $  (6,054 )
Energy                                                 89,307             88,125      1,182                -           8,945      (7,763 )

Total                                      $          175,647   $        176,575   $   (928 )   $       2,427   $     10,462   $ (13,817 )

The Instrumentation and Thermal Fluid Controls Products segment accounted for 49% of net revenues for the three months ended March 29, 2009 compared to 50% for the three months ended March 30, 2008. Likewise, our Energy Products segment accounted for 51% of net revenues for the three months ended March 29, 2009 compared to 50% for the three months ended March 30, 2008.

Instrumentation and Thermal Fluid Controls Products revenues decreased $2.1 million, or 2%, for the quarter ended March 29, 2009 compared to the quarter ended March 30, 2008. This segment's quarterly revenues were negatively impacted by lower Euro exchange rates compared to the US dollar partially offset by higher aerospace sales and by $2.4 million in incremental revenues resulting from the acquisitions of Motor Tech in May 2008 and Bodet and Atlas in March 2009. This segment's customer orders decreased 32% in the first quarter 2009 compared to the same period last year with particular weakness in HVAC, general industry markets, semiconductor, and a large multi-year maritime order booked in 2008. The backlog increased to $170.9 million as of March 29, 2009 compared to $159 million as of March 30, 2008. For the remainder of 2009, we expect market conditions to remain under pressure for most of the general industrial, commercial HVAC, power generation, semiconductor and aerospace end markets served by this segment. Due to the volatility and uncertainty in these markets, as well as currency fluctuations, at this time we are uncertain of the magnitude and duration of recent declines and the impact on this segment.

Energy Products revenues increased by $1.2 million, or 1%, for the quarter ended March 29, 2009 compared to the quarter ended March 30, 2008. The increase in revenues was the net result of an incremental $8.9 million from organic increases primarily due to large international projects and fabricated systems in North America offset by $7.8 million in lower revenues resulting from foreign currency fluctuations due to lower Euro compared to the US dollar. Orders for this segment declined $80.0 million to $45.8 million for the three months ended March 30, 2009 compared to $125.9 million for the three months ended March 30, 2008 primarily due to delays in large international projects and a reduction in drilling and production activities resulting from lower oil and natural gas pricing. Backlog has declined by $165.3 million to $127.3 million as of March 30, 2009 compared to the same period in 2008. With the sharp declines in drilling rig counts and volatile prices for gas and oil, we anticipate a continued decline in energy orders during the remainder of 2009 compared to 2008. Due to the volatility and uncertainty in these markets, as well as currency fluctuations, at this time we are uncertain as to the magnitude and duration of these declines and the impact on this segment.

Gross Profit

Consolidated gross profit increased $1.1 million, or 2%, to $56.0 million for the quarter ended March 29, 2009 compared to $54.9 million for the quarter ended March 30, 2008. Consolidated gross margin increased 80 basis points to 31.9% for the quarter ended March 29, 2009 from 31.1% for the quarter ended March 30, 2008.

Gross profit for the Instrumentation and Thermal Fluid Controls Products segment increased $0.1 million or 0.5% for the quarter ended March 29, 2009 compared to the quarter ended March 30, 2008. Unfavorable foreign exchange rates impacted gross profit by $2.2 million offsetting benefits of $1.5 million from organic growth due to improved mix, productivity and material costs and $0.8 million from the recent acquisitions of Motor Tech, Bodet, and Atlas. We continue to look at outsourcing and foreign-sourcing to lower our cost of goods sold. During the quarter ended March 29, 2009, we established a subsidiary in India to advance our outsourcing and supply chain capabilities. In addition, during the first quarter of 2009, we acquired Atlas to enhance the low cost manufacturing capabilities and capacity of our European aerospace businesses. We also remain focused on lean manufacturing initiatives to not only achieve more linear and efficient production levels but also to ensure a more predictable flow of . . .