Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CIR > SEC Filings for CIR > Form 10-Q on 31-Oct-2013All Recent SEC Filings

Show all filings for CIRCOR INTERNATIONAL INC

Form 10-Q for CIRCOR INTERNATIONAL INC


31-Oct-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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 SEC. 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, any adverse changes in governmental policies, variability of raw material and component pricing, changes in our suppliers' performance, fluctuations in foreign currency exchange rates, our ability to hire and maintain key personnel, our ability to continue operating our manufacturing facilities at efficient levels including our ability to prevent cost overruns and 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, fluctuations in interest rates, our ability to continue to successfully defend product liability actions including asbestos-related claims, our ability to realize savings anticipated to result from the restructuring activities discussed herein, 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 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, 2012, together with subsequent reports we have filed with the SEC 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.

Company Overview

CIRCOR International, Inc. designs, manufactures and markets valves and other highly engineered products for markets including energy, oil & gas, power generation, and aerospace. Within our major product groups, we develop, manufacture, sell and service a portfolio of fluid-control products, subsystems and technologies that enable us to fulfill our customers' unique fluid-control application needs.

We have organized our reporting structure into three segments: Energy, Aerospace, and Flow Technologies. Our Energy segment primarily serves large international energy projects, short-cycle North American energy, and the pipeline transmission equipment and services end-markets. Our Aerospace segment primarily serves the commercial and military aerospace end-markets. Our Flow Technologies segment serves our broadest variety of end-markets, including power generation, industrial and process markets, chemical and refining, and industrial and commercial HVAC/steam. The Flow Technologies segment also provides products specifically designed for U.S. and international Navy applications.

On October 31, 2013, we announced an organizational restructuring under which we will simplify the manner in which we manage our businesses. Under this restructuring we will consolidate our group structure from three groups to two during the fourth quarter of 2013. Consistent with our new management structure we intend to begin reporting in two segments during the fourth quarter of 2013. The first segment will be 'Energy,' which will include all of the businesses from the existing Energy segment and the majority of the current 'Flow Technologies' businesses. The second segment will be 'Aerospace and Defense,' which will include all of the current Aerospace segment businesses plus a few primarily defense-oriented businesses currently in the Flow Technologies segment.

We have been enhancing both our domestic and our worldwide operations through the development of the CIRCOR Business System. The CIRCOR Business System is based on lean operating techniques designed to continuously improve product and work flow and drive waste out of our manufacturing, sales, procurement and office-related systems ("Lean"). Within the CIRCOR Business System, we are committed to attracting, developing and refining the best talent and pursuing continuous improvement in all aspects of our business and operations. The CIRCOR Business System promotes improved shareholder value through the enhancement of core competencies across all of our business units, including continuous improvement, talent


acquisition, development and retention, acquisition integration and factory restructuring, global business and supply chain development and product innovation.

Our primary objective is to enhance shareholder value through improvement of operating margins on existing businesses as well as profitable growth of our diversified, multi-national company utilizing the CIRCOR Business System. We are working to accomplish these objectives by focusing on factory repositioning activities and by winning highly engineered project and product opportunities in key end-markets that have above average growth. These end-markets include the upstream and midstream oil and gas, power generation, process and aerospace markets. In capitalizing on these opportunities, we are using the CIRCOR Business System to excel at:

Lean Enterprise, Six Sigma and Continuous Improvement;

Talent Acquisition, Development and Retention;

Acquisition and Factory Restructuring;

Global Business and Supply Chain Development;

Customer Relationship Development; and

Product Innovation.

Through organic and acquisition-based growth our three to five year objectives are to gain significant market positions in our key end-markets and build a global capability in high-growth emerging markets while improving operating margins.

Basis of Presentation

All significant intercompany balances and transactions have been eliminated in consolidation. We monitor our business in three segments: Energy, Aerospace and Flow Technologies.

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, 2012. 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.

In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("AOCI"). The new ASU requires entities to disclose in a single location (either on the face of the financial statement that reports net income or in the notes) the effects of reclassifications out of accumulated other comprehensive income. For items reclassified out of AOCI in their entirety into net income, entities must disclose the effect of the reclassification on each affected net income item. For AOCI reclassification items that are not reclassified in their entirety into net income, entities must provide a cross reference to other required U.S. GAAP disclosures. The new disclosure requirements are effective for annual reporting after December 15, 2012, and interim periods within those years. No reclassifications out of AOCI were made by the Company for the three and nine months ended September 29, 2013 or the three months and nine months ended September 30, 2012 and therefore no additional AOCI disclosure is presented in our Quarterly Report on Form 10-Q.


In July 2013, FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The new ASU requires companies to present an unrecognized tax benefit as a reduction of a deferred tax asset for a tax loss or credit carryforward on the balance sheet when either: (A) the tax law requires the company to use the tax loss or credit carryforward to satsify amounts payable upon disallowance of the tax position, or (B) the tax loss or credit carryforward is available to satisfy amounts payable upon disallowance of the tax position, and the company intends to use the deferred tax asset for that purpose. The new disclosure requirements are effective for annual reporting after December 15, 2013, and interim periods within those years. We do not believe the adoption of this update will have a material impact on our financial statements.

Revenue Recognition
Revenue is recognized when products are delivered, title and risk of loss have passed to the customer, persuasive evidence of an arrangement exists, no significant post-delivery obligations remain, the price to the buyers is fixed or determinable and collection of the resulting receivable is reasonably assured. We have limited long-term arrangements, representing less than 2% of our revenue, requiring delivery of products or services over extended periods of time and revenue and profits on certain of these arrangements are recognized in accordance with the percentage of completion method of accounting. Shipping and handling costs invoiced to customers are recorded as components of revenues and the associated costs are recorded as cost of revenues.

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 $198.5 million as of September 29, 2013, compared to $198.0 million as of December 31, 2012. Our inventory allowance as of September 29, 2013 was $24.0 million, compared with $22.3 million as of December 31, 2012. Our provision for inventory obsolescence was $4.2 million and $8.4 million for the first nine months of 2013 and 2012, respectively.

If there were to be a sudden and significant decrease in demand for our products, significant price reductions, or if there were a higher incidence of inventory obsolescence for any reason, including a change in technology or 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.

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 historical customer settlement experience and management's assessment of specific shipment delay information. Accruals related to these potential late shipment penalties as of September 29, 2013, and December 31, 2012 were $10.0 million and $8.6 million, respectively. 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.

Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments and trade receivables. A significant portion of our revenue and receivables are from customers who are either in or service the energy, aerospace and industrial markets. We perform ongoing credit evaluations of our customers and maintain allowances for potential credit losses. During 2012, 2011, and 2010, the Company did not experience any significant losses related to the collection of our accounts receivable. For the years ended December 31, 2012, 2011 and 2010 we had no customers from which we derived revenues that exceeded 10% of our consolidated revenues.


Acquisition 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 phase and is concluded within twelve months of the acquisition. We account for business combinations under the purchase method, and accordingly, the assets and liabilities of the acquired businesses are recorded at their estimated fair value on the acquisition date with the excess of the purchase price over their estimated fair value recorded as goodwill. We determine acquisition related asset and liability fair values through established valuation techniques for industrial manufacturing companies and utilize third party valuation firms to assist in the valuation of certain tangible and intangible assets.

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 "Contingencies and Commitments" in Note 10 of the accompanying unaudited consolidated financial statements as well as "Legal Proceedings" in Part II, Item 1 hereof.

Impairment Analysis
As required by ASC Topic 350, "Intangibles - Goodwill and Other," we perform an annual assessment as to whether there was an indication that goodwill and certain intangible assets are impaired. We also perform impairment analyses whenever events and circumstances indicate that goodwill or certain intangibles may be impaired. In assessing the fair value of goodwill, we use our best estimates of future cash flows of 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.

If our estimates or related projections change in the future due to changes in industry and market conditions, we may be required to record additional impairment charges. The goodwill recorded on the consolidated balance sheet as of September 29, 2013 decreased $1.4 million to $76.1 million compared to $77.4 million as of December 31, 2012 due to foreign currency fluctuations. There were no impairment triggering events as of September 29, 2013.

Income Taxes
See "Income Taxes" in Note 12 of the accompanying unaudited consolidated financial statements.

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.

During the three and nine months ended September 29, 2013, we made cash contributions of $0.4 million and $1.2 million, respectively to our qualified defined benefit pension plan. For the remainder of 2013, we expect to make a voluntary cash contribution of approximately $0.4 million to our qualified defined benefit pension plan, although global capital market and interest rate fluctuations may impact future funding requirements.


Results of Operations for the Three Months Ended September 29, 2013 Compared to the Three Months Ended September 30, 2012

The following table sets 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 September 29, 2013 and September 30, 2012:

                                        Three Months Ended          Three Months Ended
                                        September 29, 2013          September 30, 2012        % Change
                                                           (Dollars in thousands)
Net revenues                         $  214,731       100.0  %   $  209,804       100.0  %       2.3  %
Cost of revenues                        144,593        67.3  %      151,109        72.0  %      (4.3 )%
Gross profit                             70,138        32.7  %       58,695        28.0  %      19.5  %
Selling, general and administrative
expenses                                 46,392        21.6  %       44,314        21.1  %       4.7  %
Impairment charges                            -           -  %       10,348         4.9  %    (100.0 )%
Special charges / (recoveries)             (190 )      (0.1 )%        1,377         0.7  %    (113.8 )%
Operating income                         23,936        11.1  %        2,656         1.3  %     801.2  %
Other expense:
Interest expense, net                       745         0.3  %        1,122         0.5  %     (33.6 )%
Other expense, net                          568         0.3  %          564         0.3  %       0.7  %
Total other expense                       1,313         0.6  %        1,686         0.8  %     (22.1 )%
Income before income taxes               22,623        10.5  %          970         0.5  %   2,232.3  %
Provision for income taxes                4,903         2.3  %         (899 )      (0.4 )%    (645.4 )%
Net income                           $   17,720         8.3  %   $    1,869         0.9  %     848.1  %

Net Revenues
Net revenues for the three months ended September 29, 2013 increased by $4.9
million, or 2%, to $214.7 million from $209.8 million for the three months ended
September 30, 2012. The change in net revenues for the three months ended
September 29, 2013 was attributable to the following:

                                            Three Months Ended
                                    September 29,        September 30,                                        Foreign
Segment                                  2013                2012           Total Change     Operations       Exchange
                                                                      (In thousands)
Energy                            $        108,474     $       109,968     $     (1,494 )   $    (3,567 )   $    2,073
Aerospace                                   36,483              31,795            4,688           4,026            662
Flow Technologies                           69,774              68,041            1,733           1,207            526
Total                             $        214,731     $       209,804     $      4,927     $     1,666     $    3,261

The Energy segment accounted for approximately 51% of net revenues for the three months ended September 29, 2013 compared to 52% for the three months ended September 30, 2012. The Aerospace segment accounted for 17% of net revenues for the three months ended September 29, 2013 compared to 15% for the three months ended September 30, 2012. The Flow Technologies segment accounted for 32% of net revenues for the three months ended September 29, 2013 compared to 32% for the three months ended September 30, 2012.

Energy segment revenues decreased by $1.5 million, or 1%, for the three months ended September 29, 2013 compared to the three months ended September 30, 2012. The decreased revenue was driven by $3.6 million (3%) of organic declines primarily due to reductions in the short-cycle North American market as rig counts are down year over year partially offset by growth in large international projects. This net year over year organic decrease was offset by favorable foreign currency fluctuations of $2.1 million. Energy segment orders decreased $17.1 million to $101.0 million for the three months ended September 29, 2013 compared to $118.1 million for the same period in 2012 primarily due to lower large international projects. Backlog for our Energy segment has decreased $1.9 million to $208.5 million as of September 29, 2013 compared to $210.4 million as of September 30, 2012 primarily due to our large international project business.


Aerospace segment revenues increased by $4.7 million, or 15%, for the three months ended September 29, 2013 compared to the same period in 2012. The revenue increase was due to net organic increases of $4.0 million (13%) with contributions from most of our markets as well as favorable foreign currency fluctuations of $0.7 million. Orders for this segment increased $0.9 million to $43.8 million for the three months ended September 29, 2013 compared to $42.9 million for the same period in 2012 primarily due to growth in most markets partially offset by a decline in landing gear. Order backlog decreased $1.7 million to $161.0 million as of September 29, 2013 compared to $162.7 million as of September 30, 2012.

Flow Technologies segment revenues increased by $1.7 million, or 3%, for the three months ended September 29, 2013 compared to the same period in 2012. The revenue increase was due to net organic increases of $1.2 million (2%) primarily due to contributions from power and instrumentation, as well as favorable foreign currency fluctuations of $0.5 million. This segment's customer orders increased $14.0 million to $78.5 million for the three months ended September 29, 2013 compared to $64.5 million for the same period in 2012 with growth across the segment. Order backlog increased $6.2 million to $77.4 million as of September 29, 2013 compared to $71.2 million as of September 30, 2012.

Special Charges / (Recoveries)
Special charges / (recoveries) of ($0.2) million were recorded during the three months ended September 29, 2013; ($3.1) million of recoveries in our Energy segment, partially offset by $1.1 million of expenses in our Aerospace segment, $1.1 million of expenses in our Flow Technologies segment, and $0.6 million in Corporate.
Special charges of $1.3 million were recorded during the three months ended September 30, 2012; $1.1 million in our Energy segment, $0.2 million in our Aerospace segment, and less than $0.1 million in our Flow Technologies segment. For additional information on the special charges / (recoveries), see Note 13 of the accompanying unaudited consolidated financial statements. Operating Income (Loss)
The change in operating income for the three months ended September 29, 2013 compared to the three months ended September 30, 2012 was as follows:

                                         Three Months Ended                   Total                        Foreign     Impairment, Special, and
Segment                       September 29, 2013     September 30, 2012      Change       Operations      Exchange        Restructuring (1)
                                                                 (In thousands)
Energy                       $          21,620      $           11,236     $  10,384     $     2,544     $     581     $           7,258
Aerospace                                3,002                 (10,284 )      13,286           2,793            20                10,473
Flow Technologies                        8,334                   8,873          (539 )           443           109                (1,091 )
Corporate                               (9,020 )                (7,169 )      (1,851 )        (1,253 )           3                  (600 )
Total                        $          23,936      $            2,656     $  21,280     $     4,527     $     713     $          16,040
. . .
  Add CIR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CIR - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.