Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 2, 2016.OR |
| |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to . Commission File Number 001-14962
CIRCOR INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
|
| | |
| | |
Delaware | | 04-3477276 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
|
| | |
| | |
c/o CIRCOR INTERNATIONAL, Inc. 30 Corporate Drive, Suite 200, Burlington, MA | | 01803-4238 |
(Address of principal executive offices) | | (Zip Code) |
(781) 270-1200(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. |
| | | | |
Large accelerated filer | x | | Accelerated filer | o |
Non-accelerated filer | o | (Do not check if a smaller reporting company) | Smaller reporting company | o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of October 25, 2016, there were 16,426,028 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.
CIRCOR INTERNATIONAL, INC.
TABLE OF CONTENTS
|
| | |
| Page |
| | |
| | |
| Condensed Consolidated Balance Sheets as of October 2, 2016 and December 31, 2015 | |
| Condensed Consolidated Statements of Income (Loss) for the Three and Nine Months Ended October 2, 2016 and October 4, 2015 | |
| Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended October 2, 2016 and October 4, 2015 | |
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 2, 2016 and October 4, 2015 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
PART I. FINANCIAL INFORMATION
|
| |
ITEM 1. | FINANCIAL STATEMENTS |
CIRCOR INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
|
| | | | | | | |
| October 2, 2016 | | December 31, 2015 |
ASSETS | | | |
CURRENT ASSETS: | | | |
Cash and cash equivalents | $ | 84,929 |
| | $ | 54,541 |
|
Trade accounts receivable, less allowance for doubtful accounts of $7,570 and $8,290, respectively | 112,122 |
| | 125,628 |
|
Inventories | 153,470 |
| | 177,840 |
|
Prepaid expenses and other current assets | 18,001 |
| | 16,441 |
|
Total Current Assets | 368,522 |
| | 374,450 |
|
PROPERTY, PLANT AND EQUIPMENT, NET | 81,327 |
| | 87,029 |
|
OTHER ASSETS: | | | |
Goodwill | 117,167 |
| | 115,452 |
|
Intangibles, net | 40,953 |
| | 48,981 |
|
Deferred income taxes | 42,713 |
| | 36,799 |
|
Other assets | 5,983 |
| | 7,204 |
|
TOTAL ASSETS | $ | 656,665 |
| | $ | 669,915 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
CURRENT LIABILITIES: | | | |
Accounts payable | $ | 50,500 |
| | $ | 64,284 |
|
Accrued expenses and other current liabilities | 39,950 |
| | 52,878 |
|
Accrued compensation and benefits | 17,386 |
| | 18,424 |
|
Income taxes payable | 5,956 |
| | 6,585 |
|
Total Current Liabilities | 113,792 |
| | 142,171 |
|
LONG-TERM DEBT | 92,400 |
| | 90,500 |
|
DEFERRED INCOME TAXES | 9,837 |
| | 10,424 |
|
OTHER NON-CURRENT LIABILITIES | 24,038 |
| | 26,043 |
|
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; 16,425,878 and 16,364,299 shares issued and outstanding at October 2, 2016 and December 31, 2015, respectively | 178 |
| | 177 |
|
Additional paid-in capital | 287,919 |
| | 283,621 |
|
Retained earnings | 268,169 |
| | 257,939 |
|
Common treasury stock, at cost (1,381,784 shares at October 2, 2016 and December 31, 2015) | (74,972 | ) | | (74,972 | ) |
Accumulated other comprehensive loss, net of tax | (64,696 | ) | | (65,988 | ) |
Total Shareholders’ Equity | 416,598 |
| | 400,777 |
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 656,665 |
| | $ | 669,915 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CIRCOR INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share data)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| October 2, 2016 | | October 4, 2015 | | October 2, 2016 | | October 4, 2015 |
Net revenues | $ | 134,833 |
| | $ | 159,258 |
| | $ | 432,023 |
| | $ | 492,023 |
|
Cost of revenues | 92,479 |
| | 113,865 |
| | 298,005 |
| | 343,187 |
|
GROSS PROFIT | 42,354 |
| | 45,393 |
| | 134,018 |
| | 148,836 |
|
Selling, general and administrative expenses | 36,002 |
| | 38,143 |
| | 110,290 |
| | 119,344 |
|
Impairment charges | 208 |
| | 2,502 |
| | 208 |
| | 2,502 |
|
Special charges, net | 2,631 |
| | 8,277 |
| | 9,165 |
| | 13,098 |
|
OPERATING INCOME (LOSS) | 3,513 |
| | (3,529 | ) | | 14,355 |
| | 13,892 |
|
Other expense (income): | | | | | | | |
Interest expense, net | 605 |
| | 828 |
| | 1,841 |
| | 2,274 |
|
Other expense (income), net | 163 |
| | (587 | ) | | (914 | ) | | (1,197 | ) |
TOTAL OTHER EXPENSE, NET | 768 |
| | 241 |
| | 927 |
| | 1,077 |
|
INCOME (LOSS) BEFORE INCOME TAXES | 2,745 |
| | (3,770 | ) | | 13,428 |
| | 12,816 |
|
Provision for income taxes (benefit) | (1,673 | ) | | 4,308 |
| | 1,325 |
| | 10,109 |
|
NET INCOME (LOSS) | $ | 4,418 |
| | $ | (8,078 | ) | | $ | 12,103 |
| | $ | 2,707 |
|
Earnings (Loss) per common share: | | | | | | | |
Basic | $ | 0.27 |
| | $ | (0.49 | ) | | $ | 0.74 |
| | $ | 0.16 |
|
Diluted | $ | 0.27 |
| | $ | (0.49 | ) | | $ | 0.73 |
| | $ | 0.16 |
|
Weighted average number of common shares outstanding: | | | | | | | |
Basic | 16,427 |
| | 16,485 |
| | 16,411 |
| | 16,989 |
|
Diluted | 16,629 |
| | 16,485 |
| | 16,568 |
| | 17,029 |
|
Dividends declared per common share | $ | 0.0375 |
| | $ | 0.0375 |
| | $ | 0.1125 |
| | $ | 0.1125 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CIRCOR INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| October 2, 2016 | | October 4, 2015 | | October 2, 2016 | | October 4, 2015 |
Net income (loss) | $ | 4,418 |
| | $ | (8,078 | ) | | $ | 12,103 |
| | $ | 2,707 |
|
Other comprehensive income (loss), net of tax: | | | | | | |
|
Foreign currency translation adjustments | 120 |
| | (6,409 | ) | | 1,292 |
| | (23,357 | ) |
Other comprehensive income (loss), net of tax | 120 |
| | (6,409 | ) | | 1,292 |
| | (23,357 | ) |
COMPREHENSIVE INCOME (LOSS) | $ | 4,538 |
| | $ | (14,487 | ) | | $ | 13,395 |
| | $ | (20,650 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CIRCOR INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
|
| | | | | | | |
| Nine Months Ended |
| October 2, 2016 | | October 4, 2015 |
OPERATING ACTIVITIES | | | |
Net income | $ | 12,103 |
| | $ | 2,707 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
Depreciation | 9,614 |
| | 10,676 |
|
Amortization | 7,586 |
| | 6,742 |
|
Bad debt (recovery) expense | (928 | ) | | 2,832 |
|
Loss on write down of inventory | 5,784 |
| | 11,808 |
|
Compensation expense of share-based plans | 4,200 |
| | 5,811 |
|
Tax effect of share-based plan compensation | 123 |
| | (259 | ) |
Loss on sale or write down of property, plant and equipment | 3,238 |
| | 478 |
|
Impairment charges | 208 |
| | 2,502 |
|
Gain on sale of business | — |
| | (1,044 | ) |
Changes in operating assets and liabilities, net of effects of acquisition and disposition: | | | |
Trade accounts receivable | 15,422 |
| | 8,118 |
|
Inventories | 20,216 |
| | (29,260 | ) |
Prepaid expenses and other assets | 545 |
| | (2,801 | ) |
Accounts payable, accrued expenses and other liabilities | (39,161 | ) | | (21,669 | ) |
Net cash provided by (used in) operating activities | 38,950 |
| | (3,359 | ) |
INVESTING ACTIVITIES | | | |
Purchases of property, plant and equipment | (10,776 | ) | | (9,604 | ) |
Proceeds from the sale of property, plant and equipment | 1,186 |
| | 1,200 |
|
Proceeds from the sale of affiliate | — |
| | 2,759 |
|
Business acquisition, net of cash acquired | — |
| | (79,983 | ) |
Net cash used in investing activities | (9,590 | ) | | (85,628 | ) |
FINANCING ACTIVITIES | | | |
Proceeds from long-term debt | 90,589 |
| | 241,619 |
|
Payments of long-term debt | (88,740 | ) | | (141,830 | ) |
Dividends paid | (1,873 | ) | | (1,937 | ) |
Proceeds from the exercise of stock options | 192 |
| | 259 |
|
Tax effect of share-based plan compensation | (123 | ) | | 259 |
|
Purchases of common stock | — |
| | (69,517 | ) |
Net cash provided by financing activities | 45 |
| | 28,853 |
|
Effect of exchange rate changes on cash and cash equivalents | 983 |
| | (7,416 | ) |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 30,388 |
| | (67,550 | ) |
Cash and cash equivalents at beginning of period | 54,541 |
| | 121,372 |
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 84,929 |
| | $ | 53,822 |
|
| | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CIRCOR INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited, condensed consolidated financial statements have been prepared according to the rules and regulations of the United States (the "U.S.") Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments necessary for a fair statement of the consolidated balance sheets, consolidated statements of income (loss), consolidated statements of comprehensive income (loss) and consolidated statements of cash flows of CIRCOR International, Inc. (“CIRCOR”, the “Company”, “us”, “we” or “our”) for the periods presented. We prepare our interim financial information using the same accounting principles we use for our annual audited consolidated financial statements. Certain information and note disclosures normally included in the annual audited consolidated financial statements have been condensed or omitted in accordance with prescribed SEC rules. We believe that the disclosures made in our condensed consolidated financial statements and the accompanying notes are adequate to make the information presented not misleading.
The consolidated balance sheet at December 31, 2015 is as reported in our audited consolidated financial statements as of that date. Our accounting policies are described in the notes to our December 31, 2015 consolidated financial statements, which were included in our Annual Report filed on Form 10-K for the year ended December 31, 2015. We recommend that the financial statements included in our Quarterly Report on Form 10-Q be read in conjunction with the consolidated financial statements and notes included in our Annual Report filed on Form 10-K for the year ended December 31, 2015.
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. Operating results for the nine months ended October 2, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
The Company recorded additions to property, plant and equipment for which cash payments had not yet been made of $0.8 million and $1.1 million in the nine months ended October 2, 2016 and October 4, 2015, respectively.
(2) Summary of Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statements for the nine months ended October 2, 2016 are consistent with those discussed in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2015.
New Accounting Standards
In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 reduces the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. This ASU addresses eight specific cash flow issues with the objective of enhancing consistency in presentation and classification. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the requirements of ASU 2016-15 and have not yet determined its impact on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 outlines a model for lessees by recognizing lease-related assets and liabilities on the balance sheet. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. We are currently evaluating the requirements of ASU 2016-02 and have not yet determined its impact on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, as part of its Simplification Initiative. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this ASU are effective for fiscal years beginning after
December 15, 2016, and interim periods within those fiscal years. Early application is permitted for all entities. We are currently evaluating the requirements of ASU 2016-09 and have not yet determined its impact on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will replace most existing revenue recognition guidance in generally accepted accounting principles ("GAAP") when it becomes effective. ASU 2014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted but not earlier than the original effective date of December 15, 2016. An entity should apply ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized as an adjustment to the opening balance of retained earnings at the date of initial application. In March, April and May 2016, the FASB issued additional updates to the new revenue standard relating to reporting revenue on a gross versus net basis, identifying performance obligations and licensing arrangements, and narrow-scope improvements and practical expedients, respectively. We are currently evaluating the requirements of ASU 2014-09 and have not yet determined its impact on our consolidated financial statements.
(3) Inventories
Inventories consist of the following (in thousands):
|
| | | | | | | |
| October 2, 2016 | | December 31, 2015 |
Raw materials | $ | 50,304 |
| | $ | 51,439 |
|
Work in process | 73,505 |
| | 83,324 |
|
Finished goods | 29,661 |
| | 43,077 |
|
Total inventories | $ | 153,470 |
| | $ | 177,840 |
|
(4) Business Acquisition
On April 15, 2015, we acquired all of the outstanding equity interest of Germany-based Schroedahl GmbH ("Schroedahl"), a privately-owned manufacturer of safety and control valves primarily serving the power generation market. Founded in 1962 with customers in Asia, Europe and the Americas, Schroedahl designs and manufactures custom-engineered high-pressure auto-recirculation and control valves primarily for pump protection applications. We acquired Schroedahl for an aggregate purchase price of $79.7 million in cash, net of acquired cash. We acquired Schroedahl to further increase our penetration into the power generation market. The operating results of Schroedahl have been included in our consolidated financial statements from the date of acquisition and reported within the Energy segment. Acquisition-related costs of $0.9 million primarily consisted of legal and financial advisory services and were expensed as incurred in general and administrative expenses during the nine months ended October 4, 2015. We financed the acquisition of Schroedahl through cash on hand and net borrowings of approximately $23.8 million under our existing credit facility.
The purchase price allocation is based upon a valuation of assets and liabilities that was prepared with assistance from a third party valuation specialist. The purchase accounting was finalized during the first quarter of 2016. The assets and liabilities include the valuation of acquired intangible assets, certain operating liabilities, and the evaluation of deferred income taxes.
The following table summarizes the fair value of the assets acquired and the liabilities assumed, at the date of acquisition: |
| | | |
(in thousands) | |
Cash and cash equivalents | $ | 36,316 |
|
Other current assets | 11,470 |
|
Property, plant and equipment | 1,999 |
|
Intangible assets | 32,829 |
|
Current liabilities | (5,452 | ) |
Deferred tax liability | (7,285 | ) |
Other non-current liabilities | (642 | ) |
Total identifiable net assets | 69,235 |
|
Goodwill | 46,818 |
|
Total purchase price | $ | 116,053 |
|
The fair value of accounts receivable acquired approximates the contractual value of $4.3 million. The goodwill recognized is attributable primarily to projected future profitable growth, market penetration, as well as an expanded customer base for the Energy segment. The goodwill arising from the acquisition that is deductible for income tax purposes is $13.2 million.
The Schroedahl acquisition resulted in the identification of the following identifiable intangible assets:
|
| | | | | |
| Intangible assets acquired (in thousands) | | Weighted average amortization period (in years) |
Customer relationships | $ | 22,185 |
| | 7 |
Order backlog | 3,993 |
| | 1 |
Acquired technology | 2,260 |
| | 10 |
Trade name | 4,391 |
| | Indefinite |
Total intangible assets | $ | 32,829 |
| |
|
The fair value of the intangible assets was based on variations of the income approach, which estimates fair value based on the present value of cash flows that the assets are expected to generate which included the relief-from-royalty method, incremental cash flow method, multi-period excess earnings method and direct cash flow method, depending on the intangible asset being valued. Customer relationships, order backlog, and acquired technology are amortized on a cash flow basis. The trade name was assigned an indefinite life based on the Company’s intention to keep the Schroedahl name for an indefinite period of time. Refer to Note 5 for future expected amortization to be recorded.
Schroedahl's results for the nine months ended October 2, 2016 include $19.4 million of net revenue and $0.9 million of operating income, respectively. Operating income includes $5.7 million of intangible amortization. Pro forma results of operations for the acquisition have not been presented because the effects of the acquisition are not material to the Company's consolidated financial results.
(5) Goodwill and Intangibles, net
The following table shows goodwill by segment as of October 2, 2016 (in thousands):
|
| | | | | | | | | | | |
| Energy | | Aerospace & Defense | | Consolidated Total |
Goodwill as of December 31, 2015 | $ | 93,175 |
| | $ | 22,277 |
| | $ | 115,452 |
|
Adjustments to preliminary purchase price allocation | 132 |
| | — |
| | 132 |
|
Currency translation adjustments | 1,537 |
| | 46 |
| | 1,583 |
|
Goodwill as of October 2, 2016 | $ | 94,844 |
| | $ | 22,323 |
| | $ | 117,167 |
|
The table below presents gross intangible assets and the related accumulated amortization as of October 2, 2016 (in thousands):
|
| | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization |
Patents | $ | 5,399 |
| | $ | (5,377 | ) |
Non-amortized intangibles (primarily trademarks and trade names) | 14,957 |
| | — |
|
Customer relationships | 52,389 |
| | (29,081 | ) |
Order backlog | 5,154 |
| | (4,854 | ) |
Acquired technology | 2,393 |
| | (820 | ) |
Other | 5,287 |
| | (4,494 | ) |
Total | $ | 85,579 |
| | $ | (44,626 | ) |
Net carrying value of intangible assets | $ | 40,953 |
| | |
The table below presents estimated remaining amortization expense for intangible assets recorded as of October 2, 2016 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Remainder of 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | After 2020 |
Estimated amortization expense | $ | 2,456 |
| | $ | 7,849 |
| | $ | 6,074 |
| | $ | 4,456 |
| | $ | 2,860 |
| | $ | 2,301 |
|
(6) Segment Information
The following table presents certain reportable segment information (in thousands):
|
| | | | | | | | | | | | | | | |
| Energy | | Aerospace & Defense | | Corporate / Eliminations | | Consolidated Total |
Three Months Ended October 2, 2016 | | | | | | | |
Net revenues | $ | 99,798 |
| | $ | 35,035 |
| | $ | — |
| | $ | 134,833 |
|
Inter-segment revenues | 315 |
| | 22 |
| | (337 | ) | | — |
|
Operating income (loss) | 7,690 |
| | 2,345 |
| | (6,522 | ) | | 3,513 |
|
Interest expense, net | | | | | | | 605 |
|
Other expense, net | | | | | | | 163 |
|
Income before income taxes | | | | | | | $ | 2,745 |
|
Identifiable assets | 711,012 |
| | 176,637 |
| | (230,984 | ) | | 656,665 |
|
Capital expenditures | 1,821 |
| | 787 |
| | 582 |
| | 3,190 |
|
Depreciation and amortization | 4,166 |
| | 1,125 |
| | 335 |
| | 5,626 |
|
| | | | | | | |
Three Months Ended October 4, 2015 | | | | | | | |
Net revenues | $ | 122,905 |
| | $ | 36,353 |
| | $ | — |
| | $ | 159,258 |
|
Inter-segment revenues | 183 |
| | 75 |
| | (258 | ) | | — |
|
Operating (loss) income | (685 | ) | | 3,234 |
| | (6,078 | ) | | (3,529 | ) |
Interest expense, net | | | | | | | 828 |
|
Other income, net | | | | | | | (587 | ) |
Loss before income taxes | | | | | | | $ | (3,770 | ) |
Identifiable assets | 824,182 |
| | 191,100 |
| | (300,921 | ) | | 714,361 |
|
Capital expenditures | 3,353 |
| | 501 |
| | 96 |
| | 3,950 |
|
Depreciation and amortization | 4,938 |
| | 1,492 |
| | 302 |
| | 6,732 |
|
| | | | | | | |
Nine Months Ended October 2, 2016 | | | | | | | |
Net revenues | $ | 323,096 |
| | $ | 108,927 |
| | $ | — |
| | $ | 432,023 |
|
Inter-segment revenues | 674 |
| | 113 |
| | (787 | ) | | — |
|
Operating income (loss) | 27,718 |
| | 5,080 |
| | (18,443 | ) | | 14,355 |
|
Interest expense, net | | | | | | | 1,841 |
|
Other income, net | | | | | | | (914 | ) |
Income before income taxes | | | | | | | $ | 13,428 |
|
Identifiable assets | 711,012 |
| | 176,637 |
| | (230,984 | ) | | 656,665 |
|
Capital expenditures | 5,389 |
| | 3,666 |
| | 811 |
| | 9,866 |
|
Depreciation and amortization | 12,406 |
| | 3,802 |
| | 992 |
| | 17,200 |
|
| | | | | | | |
Nine Months Ended October 4, 2015 | | | | | | | |
Net revenues | $ | 377,721 |
| | $ | 114,302 |
| | $ | — |
| | $ | 492,023 |
|
Inter-segment revenues | 685 |
| | 176 |
| | (861 | ) | | — |
|
Operating income (loss) | 24,417 |
| | 7,484 |
| | (18,009 | ) | | 13,892 |
|
Interest expense, net | | | | | | | 2,274 |
|
Other income, net | | | | | | | (1,197 | ) |
Income before income taxes | | | | | | | 12,816 |
|
Identifiable assets | 824,182 |
| | 191,100 |
| | (300,921 | ) | | 714,361 |
|
Capital expenditures | 6,777 |
| | 2,150 |
| | 643 |
| | 9,570 |
|
Depreciation and amortization | 12,021 |
| | 4,513 |
| | 885 |
| | 17,419 |
|
Each reporting segment is individually managed and has separate financial results that are reviewed by our chief operating decision-maker. Each segment contains related products and services particular to that segment.
In calculating operating income for each reporting segment, certain administrative expenses incurred at the corporate level for the benefit of other reporting segments were allocated to the segments based upon specific identification of costs, employment related information or net revenues.
Corporate / Eliminations are reported on a net “after allocations” basis. Inter-segment intercompany transactions affecting net operating profit have been eliminated within the respective operating segments.
The operating loss reported in the Corporate / Eliminations column in the preceding table consists primarily of the following corporate expenses: compensation and fringe benefit costs for executive management and other corporate staff; Board of Director compensation; corporate development costs (relating to mergers and acquisitions); human resource development and benefit plan administration expenses; legal, accounting and other professional and consulting fees; facilities, equipment and maintenance costs; and travel and various other administrative costs. The above costs are incurred in the course of furthering the business prospects of the Company and relate to activities such as: implementing strategic business growth opportunities; corporate governance; risk management; treasury; investor relations and shareholder services; regulatory compliance; strategic tax planning; and stock transfer agent costs.
The total assets for each operating segment have been reported as the Identifiable Assets for that segment, including inter-segment intercompany receivables, payables and investments in other CIRCOR businesses. Identifiable assets reported in Corporate / Eliminations include both corporate assets, such as cash, deferred taxes, prepaid and other assets, fixed assets, as well as the elimination of all inter-segment intercompany assets. The elimination of intercompany assets results in negative amounts reported in Corporate / Eliminations for Identifiable Assets as of October 2, 2016 and October 4, 2015. Corporate Identifiable Assets after elimination of intercompany assets were $55.5 million and $25.6 million as of October 2, 2016 and October 4, 2015, respectively.
(7) Earnings (Loss) Per Common Share ("EPS")
|
| | | | | | | | | | | | | | | | | | | | | |
(in thousands, except per share amounts) | Three Months Ended |
| October 2, 2016 | | October 4, 2015 |
| Net Income | | Shares | | Per Share Amount | | Net (Loss) | | Shares | | Per Share Amount |
Basic EPS | $ | 4,418 |
| | 16,427 |
| | $ | 0.27 |
| | $ | (8,078 | ) | | 16,485 |
| | $ | (0.49 | ) |
Dilutive securities, common stock options | — |
| | 202 |
| | — |
| | — |
| | — |
| | — |
|
Diluted EPS | $ | 4,418 |
| | 16,629 |
|
| $ | 0.27 |
|
| $ | (8,078 | ) |
| 16,485 |
|
| $ | (0.49 | ) |
| | | | | | | | | | | |
| Nine Months Ended |
| October 2, 2016 | | October 4, 2015 |
| Net Income | | Shares | | Per Share Amount | | Net Income | | Shares | | Per Share Amount |
Basic EPS | $ | 12,103 |
| | 16,411 |
| | $ | 0.74 |
| | $ | 2,707 |
| | 16,989 |
| | $ | 0.16 |
|
Dilutive securities, common stock options | — |
| | 157 |
| | (0.01 | ) | | — |
| | 40 |
| | — |
|
Diluted EPS | $ | 12,103 |
| | 16,568 |
| | $ | 0.73 |
| | $ | 2,707 |
| | 17,029 |
| | $ | 0.16 |
|
Stock options, Restricted Stock Unit Awards (“RSU Awards”) and Restricted Stock Unit Management Stock Plans ("RSU MSPs") covering 130,259 and 479,390 shares of common stock, for the nine months ended October 2, 2016 and October 4, 2015, respectively, were not included in the computation of diluted EPS because their effect would be anti-dilutive.
(8) Financial Instruments
Fair Value
The carrying amounts of cash and cash equivalents, trade receivables and trade payables approximate fair value because of the short maturity of these financial instruments. Cash equivalents are carried at cost which approximates fair value at the balance sheet date and are Level 1 financial instruments. As of October 2, 2016 and December 31, 2015, the outstanding balance of the Company’s debt approximated its fair value based on current rates available to the Company for debt of the same maturity and is a Level 2 financial instrument.
(9) Guarantees and Indemnification Obligations
As permitted under Delaware law, we have agreements whereby we indemnify certain of our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. However, we have directors’ and officers’ liability insurance policies that insure us with respect to certain events covered under the policies and should enable us to recover a portion of any future amounts paid under the indemnification agreements. We have no liabilities recorded from those agreements as of October 2, 2016.
We record provisions for the estimated cost of product warranties, primarily from historical information, at the time product revenue is recognized. We also record provisions with respect to any significant individual warranty issues as they arise. While we engage in extensive product quality programs and processes, our warranty obligation is affected by product failure rates, utilization levels, material usage, service delivery costs incurred in correcting a product failure, and supplier warranties on parts delivered to us. Should actual product failure rates, utilization levels, material usage, service delivery costs or supplier warranties on parts differ from our estimates, revisions to the estimated warranty liability would be required.
The following table sets forth information related to our product warranty reserves for the nine months ended October 2, 2016 (in thousands):
|
| | | |
Balance beginning December 31, 2015 | $ | 4,551 |
|
Provisions | 1,722 |
|
Claims settled | (2,326 | ) |
Currency translation adjustment | 69 |
|
Balance ending October 2, 2016 | $ | 4,016 |
|
Warranty obligations decreased $0.6 million from $4.6 million as of December 31, 2015 to $4.0 million as of October 2, 2016, primarily related to higher claims settled within our engineered valves and Aerospace and Defense (California) businesses for $2.3 million, offset in part by our standard provisions during the period of $1.7 million.
(10) Contingencies and Commitments
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.
Asbestos-related product liability claims continue to be filed against two of our subsidiaries: Spence Engineering Company, Inc. (“Spence”), the stock of which we acquired in 1984; and CIRCOR Instrumentation Technologies, Inc. (f/k/a Hoke, Inc.) (“Hoke”), the stock of which we acquired in 1998. Due to the nature of the products supplied by these entities, the markets they serve and our historical experience in resolving these claims, we do not believe that these asbestos-related claims will have a material adverse effect on the financial condition, results of operations or liquidity of our financial condition, consolidated results of operations or liquidity of the Company.
Standby Letters of Credit
We execute standby letters of credit, which include bid bonds and performance bonds, in the normal course of business to ensure our performance or payments to third parties. The aggregate notional value of these instruments was $44.8 million at October 2, 2016. Our historical experience with these types of instruments has been good and no claims have been paid in the current or past five fiscal years. We believe that the likelihood of demand for a significant payment relating to the outstanding instruments is remote. These instruments generally have expiration dates ranging from less than 1 month to 5 years from October 2, 2016.
The following table contains information related to standby letters of credit instruments outstanding as of October 2, 2016 (in thousands):
|
| | | |
Term Remaining | Maximum Potential Future Payments |
0–12 months | $ | 17,365 |
|
Greater than 12 months | 27,439 |
|
Total | $ | 44,804 |
|
(11) Retirement Plans
We maintain two benefit pension plans, a qualified noncontributory defined benefit plan and a nonqualified, noncontributory defined benefit supplemental plan that provides benefits to certain retired 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.
During the nine months ended October 2, 2016, we made cash contributions of $0.8 million to our qualified noncontributory defined benefit pension plan. We made no cash contributions during the three months ended October 2, 2016. We expect to make cash contributions during the fourth quarter 2016 in the amount of $0.2 million. Additionally, substantially all of our U.S. employees are eligible to participate in a 401(k) savings plan. Under this plan, we match a specified percentage of employee contributions, and are able to make a discretionary core contribution, subject to certain limitations.
In Q3 2016, management offered a lump sum cash payout option to terminated and vested pension plan participants. In connection with this action, the window for participants who opt to avail themselves of this program closed on September 2016. Based on the number of participants, we would expect to incur a non-cash settlement charge between $4.5 million and $5.0 million. This special charge is to be recorded when payment occurs, which is expected to be in November 2016.
The components of net periodic cost (benefit) of defined benefit pension plans are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| October 2, 2016 | | October 4, 2015 | | October 2, 2016 | | October 4, 2015 |
Interest cost on benefits obligation | $ | 574 |
| | $ | 548 |
| | $ | 1,721 |
| | $ | 1,645 |
|
Estimated return on assets | (664 | ) | | (723 | ) | | (1,991 | ) | | (2,169 | ) |
Loss amortization | 226 |
| | 210 |
| | 679 |
| | 632 |
|
Net periodic cost of defined benefit pension plans | $ | 136 |
| | $ | 35 |
| | $ | 409 |
| | $ | 108 |
|
(12) Income Taxes
As of October 2, 2016 and December 31, 2015, we had $2.8 million and $2.9 million of unrecognized tax benefits, respectively, of which $2.5 million and $2.7 million, respectively, would affect our effective tax rate if recognized in any future period.
In the quarter ended October 2, 2016, the Company determined that a portion of its foreign earnings are not permanently reinvested within the meaning of ASC 740-30-25-17. The Company estimates that approximately $34 million will be repatriated to the US in the fourth quarter of 2016, resulting in a tax benefit of $1.8 million in the quarter ended October 2, 2016.
The Company files income tax returns in the U.S. federal, state and local jurisdictions and in foreign jurisdictions. The Company is no longer subject to examination by the Internal Revenue Service (the "IRS") for years prior to 2013 and is no
longer subject to examination by the tax authorities in foreign and state jurisdictions prior to 2006. The Company is currently under examination for income tax filings in various foreign jurisdictions.
The Company has a net U.S. domestic deferred income tax asset and a net foreign deferred tax liability. Due to uncertainties related to our ability to utilize certain of these U.S. domestic deferred income tax assets, primarily consisting of state net operating losses and state tax credits carried forward, we maintained a total valuation allowance of $0.9 million at October 2, 2016 and December 31, 2015. The valuation allowance is based on estimates of income in each of the jurisdictions in which we operate and the period over which our deferred tax assets will be recoverable. If future results of operations exceed our current expectations, our existing tax valuation allowances may be adjusted, resulting in future tax benefits. Alternatively, if 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 deferred tax assets, which may have a material adverse effect on our business, results of operations and financial condition. The Company has had a history of domestic and foreign income, is able to avail itself of federal tax carryback provisions, has future taxable temporary differences and projects future domestic and foreign income. We believe that after considering all of the available objective evidence, it is more likely than not that the results of future operations will generate sufficient income to realize the remaining net deferred income tax asset.
(13) Share-Based Compensation
As of October 2, 2016, there were 756,179 stock options and 215,132 RSU Awards outstanding. In addition, there were 1,024,829 shares available for grant under the 2014 Stock Option and Incentive Plan (the "2014 Plan") as of October 2, 2016.
During the nine months ended October 2, 2016, we granted 210,633 stock options compared with 118,992 stock options granted during the nine months ended October 4, 2015.
The average fair value of stock options granted during the first nine months of 2016 and 2015 was $11.91 and $17.88, respectively, and was estimated using the following weighted-average assumptions:
|
| | | | |
| 2016 |
| 2015 |
|
Risk-free interest rate | 1.2 | % | 1.4 | % |
Expected life (years) | 4.5 |
| 4.5 |
|
Expected stock volatility | 36.2 | % | 40.4 | % |
Expected dividend yield | 0.4 | % | 0.3 | % |
For additional information regarding the historical issuance of stock options, refer to our Form 10-K for the year ended December 31, 2015 filed with the SEC on February 23, 2016.
During the nine months ended October 2, 2016 and October 4, 2015, we granted 87,629 and 60,090 RSU Awards with approximate fair values of $39.61 and $51.85 per RSU Award, respectively. During the first nine months of 2016 and 2015, we granted performance-based RSUs as part of the overall mix of RSU Awards. These performance-based RSUs include metrics for achieving Return on Invested Capital and Adjusted Operating Margin with target payouts ranging from 0% to 200%. Of the 87,629 RSU Awards granted during the nine months ended October 2, 2016, 43,016 are performance-based RSU Awards. This compares to 26,094 performance-based RSU Awards granted during the nine months ended October 4, 2015.
RSU MSPs totaling 20,130 and 38,965 with per unit discount amounts representing fair values of $12.83 and $17.11 were granted during the nine months ended October 2, 2016 and October 4, 2015, respectively.
Compensation expense related to our share-based plans for the nine month periods ended October 2, 2016 and October 4, 2015 was $4.2 million and $5.8 million, respectively. For the nine month period ended October 2, 2016, $4.2 million of compensation expense was recorded as selling, general and administrative expenses. For the nine month period ended October 4, 2015, $5.4 million was recorded as selling, general and administrative expense and $0.4 million was recorded as a special charge related to the retirement of one of our executive officers. As of October 2, 2016, there was $8.1 million of total unrecognized compensation costs related to our outstanding share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 1.9 years.
The weighted average contractual term for stock options outstanding and options exercisable as of October 2, 2016 was 6.3 years and 5.7 years, respectively. The aggregate intrinsic value of stock options exercised during the nine months ended
October 2, 2016 was insignificant and the aggregate intrinsic value of stock options outstanding and options exercisable as of October 2, 2016 was $9.2 million and $3.6 million, respectively.
The aggregate intrinsic value of RSU Awards settled during the nine months ended October 2, 2016 was $2.2 million and the aggregate intrinsic value of RSU Awards outstanding and RSU Awards vested and deferred as of October 2, 2016 was $8.4 million and $0.2 million, respectively.
The aggregate intrinsic value of RSU MSPs settled during the nine months ended October 2, 2016 was $0.3 million and the aggregate intrinsic value of RSU MSPs outstanding as of October 2, 2016 was $1.8 million. The RSU MSPs vested and deferred amount was insignificant.
As of October 2, 2016, there were 34,002 Cash Settled Stock Unit Awards outstanding compared to 28,660 as of December 31, 2015. During the nine months ended October 2, 2016, the aggregate cash used to settle Cash Settled Stock Unit Awards was $0.5 million. As of October 2, 2016, we had $0.8 million of accrued expenses in current liabilities associated with these Cash Settled Stock Unit Awards compared with $0.6 million as of December 31, 2015. Cash Settled Stock Unit Awards related compensation costs for the nine month periods ended October 2, 2016 and October 4, 2015 was $0.7 million and $0.2 million, respectively, and was recorded as selling, general, and administrative expenses.
(14) Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated other comprehensive loss, net of tax, which is reported as a component of shareholder's equity, for the nine months ended October 2, 2016 (in thousands):
|
| | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Pension, net | | Total |
Balance as of December 31, 2015 | $ | (36,725 | ) | | $ | (29,263 | ) | | $ | (65,988 | ) |
Other comprehensive income, net of tax | 1,292 |
| | — |
| | 1,292 |
|
Balance as of October 2, 2016
| $ | (35,433 | ) | | $ | (29,263 | ) | | $ | (64,696 | ) |
(15) Special Charges, net
General Background
Special Charges, net generally includes restructuring costs, costs to exit a product line or program, litigation settlements and other special charges or gains that are generally not reflective of our core-business operational results.
During 2016, we have initiated certain restructuring activities, under which we continue to simplify our business ("2016 Actions"). Under these restructurings, we will reduce expenses, primarily through reductions in force and closing a number of smaller facilities.
On November 3, 2015, the Board of Directors approved the closure and exit of our Brazil manufacturing operations ("Brazil Closure") due to the economic realities in Brazil and the ongoing challenges with our only significant end customer, Petrobras. CIRCOR Brazil has reported substantial operating losses every year since it was acquired in 2011 while the underlying market conditions and outlook have deteriorated. In connection with the closure, we recorded $2.7 million in special charges within the Energy Segment during the nine months ended October 2, 2016, which primarily related to employee termination costs and losses incurred subsequent to our Q1 2016 closure of manufacturing operations. As of October 2, 2016, our remaining Brazil assets were $2.2 million of which $1.0 million relates to cash, $0.9 million relates to assets held for sale, and $0.2 million relates to net third party accounts receivables. The Brazil assets held for sale as of October 2, 2016 are reported within the other current assets caption on our condensed consolidated balance sheet.
In July 2015, we announced the closure of one of the two Corona, California manufacturing facilities ("California Restructuring"). Under this restructuring, we are reducing certain general, manufacturing and facility related expenses.
On April 15, 2015, we acquired Germany-based Schroedahl, a privately-owned manufacturer of safety and control valves primarily in the power generation market. In connection with our acquisition of Schroedahl, we recorded certain acquisition related professional fees ("Acquisition related charges") as special charges.
During the first quarter of 2015, we recorded special charges of $0.4 million associated with the retirement of our Energy President ("Executive retirement charges"). These charges primarily related to equity award modification charges.
On January 6, 2015, we announced the divestiture of two of our non-core businesses ("Divestitures") as part of our simplification strategy. The Energy divestiture was substantially completed in the fourth quarter of 2014. During the first quarter of 2015, the Aerospace & Defense divestiture was substantially completed and we recorded a special gain of $1.0 million.
The special charges described above are recorded in the special charges, net caption on our condensed consolidated statements of income (loss).
Inventory Restructuring
During the first and second quarters of 2016, we recorded restructuring related inventory charges of $1.9 million and $0.1 million, respectively, associated with the closure of manufacturing operations and the exit of the gate, globe and check valves product line in Brazil. As of October 2, 2016, all remaining inventory in our Brazilian operations has been fully reserved.
During the first quarter of 2016, in connection with the restructuring of certain structural landing gear product lines, we recorded inventory related charges of less than $0.1 million within the Aerospace & Defense segment. As of October 2, 2016, our remaining structural landing gear product line inventory balance is $1.2 million, which we believe is recoverable based upon our net realizable value analysis.
The inventory restructuring charges described above are recorded in the cost of revenues caption on our condensed consolidated statement of income.
Intangible Impairments
During the three months ended October 2, 2016, we recorded a $0.2 million impairment charge for a China patent deemed to no longer have economic value. The impairment charge is included in the impairment charge line on our consolidated statement of income (loss).
Q3 2016
The tables below (in thousands) show the non-inventory restructuring related and non-impairment special charges, net of recoveries, for the three and nine months ending October 2, 2016:
|
| | | | | | | | | | | | | | | |
| Special Charges / (Recoveries) |
| As of and for the three months ended October 2, 2016 |
| Energy | | Aerospace & Defense | | Corporate | |
Total |
Facility related expenses, net | 401 |
| | 389 |
| | — |
| | 790 |
|
Employee related expenses | 790 |
| | 672 |
| | — |
| | 1,462 |
|
Total restructuring charges, net | $ | 1,191 |
| | $ | 1,061 |
| | $ | — |
| | $ | 2,252 |
|
Brazil Closure | 379 |
| | — |
| | — |
| | 379 |
|
Total special charges, net | $ | 1,570 |
| | $ | 1,061 |
| | $ | — |
| | $ | 2,631 |
|
| | | | | | | |
Accrued special and restructuring charges as of July 3, 2016 | | | | | | | $ | 4,493 |
|
Total quarterly special charges, net (shown above) | | | | | | | 2,631 |
|
Special charges paid / settled, net | | | | | | | (2,177 | ) |
Accrued special and restructuring charges as of October 2, 2016 | | | | | | | $ | 4,947 |
|
| | | | | | | |
| Special Charges / (Recoveries) |
| As of and for the nine months ended October 2, 2016 |
| Energy | | Aerospace & Defense | | Corporate | |
Total |
Facility related expenses, net | 287 |
| | 3,482 |
| | — |
| | 3,769 |
|
Employee related expenses | 1,526 |
| | 1,379 |
| | — |
| | 2,905 |
|
Total restructuring charges, net | $ | 1,813 |
| | $ | 4,861 |
| | $ | — |
| | $ | 6,674 |
|
Acquisition related recoveries | (161 | ) | | — |
| | — |
| | (161 | ) |
Brazil Closure | 2,650 |
| | — |
| | 2 |
| | 2,652 |
|
Total special charges, net | $ | 4,302 |
| | $ | 4,861 |
| | $ | 2 |
| | $ | 9,165 |
|
| | | | | | | |
Accrued special and restructuring charges as of December 31, 2015 | | | | | | | $ | 4,664 |
|
Total year to date special charges, net (shown above) | | | | | | | 9,165 |
|
Special charges paid / settled, net | | | | | | | (8,882 | ) |
Accrued special and restructuring charges as of October 2, 2016 | | | | | | | $ | 4,947 |
|
The restructuring charges incurred to date that remain accrued as of October 2, 2016 primarily relate to Brazil closure charges recorded in 2015 for supplier cancellation penalties for fixed purchase commitments, customer cancellation penalties, and litigation claims that we deem probable of loss. We expect to make payment or settle the majority of Brazil related obligations accrued as of October 2, 2016 during 2017. We expect to make payment or settle the majority of the non-Brazil related obligations accrued as of October 2, 2016 during the fourth quarter of 2016.
Q3 2015
The tables below (in thousands) show the non-inventory restructuring related and non-impairment special charges, net of recoveries, for the three and nine months ending October 4, 2015:
|
| | | | | | | | | | | | | | | |
| Special Charges / (Recoveries) |
| As of and for the three months ended October 4, 2015 |
| Energy | | Aerospace & Defense | | Corporate | |
Total |
Facility related expenses, net | (260 | ) | | — |
| | — |
| | (260 | ) |
Employee related expenses | 539 |
| | 63 |
| | — |
| | 602 |
|
Total restructuring charges, net | $ | 279 |
| | $ | 63 |
| | $ | — |
| | $ | 342 |
|
Acquisition related charges | 59 |
| | — |
| | — |
| | 59 |
|
Brazil Closure | 7,876 |
| | — |
| | — |
| | 7,876 |
|
Total special charges, net | $ | 8,214 |
| | $ | 63 |
| | $ | — |
| | $ | 8,277 |
|
| | | | | | | |
Accrued special and restructuring charges as of July 5, 2015 | | | | | | | $ | 8,327 |
|
Total quarterly special charges, net (shown above) | | | | | | | 8,277 |
|
Special charges paid / settled, net | | | | | | | (5,579 | ) |
Accrued special and restructuring charges as of October 4, 2015 | | | | | | | $ | 11,025 |
|
| | | | | | | |
| Special Charges / (Recoveries) |
| As of and for the nine months ended October 4, 2015 |
| Energy | | Aerospace & Defense | | Corporate | |
Total |
Facility related expenses, net | 121 |
| | 257 |
| | — |
| | 378 |
|
Employee related expenses | 3,319 |
| | 1,284 |
| | — |
| | 4,603 |
|
Total restructuring charges, net | $ | 3,440 |
| | $ | 1,541 |
| | $ | — |
| | $ | 4,981 |
|
Divestitures | (2 | ) | | (1,042 | ) | | — |
| | (1,044 | ) |
Acquisition related charges | 865 |
| | — |
| | — |
| | 865 |
|
Brazil Closure | 7,876 |
| | — |
| | — |
| | 7,876 |
|
Executive retirement charges | — |
| | — |
| | 420 |
| | 420 |
|
Total special charges, net | $ | 12,179 |
| | $ | 499 |
| | $ | 420 |
| | $ | 13,098 |
|
| | | | | | | |
Accrued special and restructuring charges as of December 31, 2014 | | | | | | | $ | 9,133 |
|
Total year to date special charges, net (shown above) | | | | | | | 13,098 |
|
Special charges paid / settled | | | | | | | (11,206 | ) |
Accrued special and restructuring charges as of October 4, 2015 | | | | | | | $ | 11,025 |
|
Inception to Date
The following table (in thousands) summarizes our California Restructuring related special charges for the period ended October 2, 2016:
|
| | | |
| California Restructuring Charges, net as of October 2, 2016 |
| Aerospace & Defense |
Facility related expenses - incurred to date | $ | 3,481 |
|
Employee related expenses - incurred to date | 800 |
|
Total restructuring related special charges - incurred to date | $ | 4,281 |
|
The following table (in thousands) summarizes the restructuring charges for our 2016 Actions through October 2, 2016:
|
| | | | | | | | | | | |
| 2016 Actions Restructuring Charges / (Recoveries), net as of October 2, 2016 |
| Energy | | Aerospace & Defense | | Total |
Facility related expenses - incurred to date | $ | 203 |
| | $ | 94 |
| | $ | 297 |
|
Employee related expenses - incurred to date | 1,609 |
| | 471 |
| | 2,080 |
|
Total restructuring related special charges - incurred to date | $ | 1,812 |
| | $ | 565 |
| | $ | 2,377 |
|
The California Restructuring was completed during the third quarter of 2016. The 2016 Actions are expected to be completed in the fourth quarter of 2016.
(16) Subsequent Events
Critical Flow Solutions Acquisition
On October 12, 2016, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Downstream Holding, LLC, a Delaware limited liability company (“Downstream”), Downstream Acquisition LLC, a Delaware limited liability company and subsidiary of the Company, and Sun Downstream, LP, a Delaware limited partnership to acquire all of the outstanding units of Downstream for $210 million. Subsidiaries of Downstream, which do business as Critical Flow Solutions ("CFS"), manufacture critical severe service equipment for refining operations. This acquisition diversifies CIRCOR’s revenue base by providing further penetration into the downstream refining market. CFS brings a portfolio of high technology valves and automation equipment for severe-service applications. Under its DeltaValve brand, CFS offers solutions for the delayed coking process in refineries, and under its TapcoEnpro brand, the company provides solutions for the fluid catalytic cracking process in refineries. CFS has a total of approximately 200 employees at its Salt Lake City, Utah headquarters, Houston, Texas facilities and Barnsley, England service center.
The consideration payable by the Company pursuant to the terms of the Merger Agreement is $195 million, subject to (i) up to an additional $15 million payable pursuant to an earn-out relating to achievement of specified business performance targets by the acquired business in the twelve month period ended September 30, 2017, (ii) increase or decrease based on deviation, subject to certain limitations, from a working capital target, (iii) decrease for indebtedness and certain transactions expenses of Downstream, (iv) increase for the amount of Downstream’s cash as of the closing, and (v) a potential increase for certain transaction related tax benefits, net of certain adjustments, if and when realized by the Company. The total consideration paid at closing on October 13, 2016 was approximately $198 million in cash, net of cash acquired and including amounts paid at closing for estimated adjustments for Downstream’s working capital, the repayment of Downstream’s outstanding indebtedness and payment of certain transaction expenses. The Company funded the purchase price and payments at closing from borrowings under the Company’s existing credit agreement.
Segment Realignment
On October 28, 2016, the Company announced it is realigning its organizational structure which will result in two reportable business segments: Energy and Advanced Flow Solutions. The Energy segment will include all of the businesses from the existing Energy segment and Critical Flow Solutions and exclude certain businesses that operate in the industrial, power, and process markets (also referred to as the Control Valves businesses). The Advanced Flow Solutions segment will include all of the businesses from the existing Aerospace & Defense segment and the Control Valve businesses previously reported within the Energy segment. We intend to begin reporting the new two segments during the fourth quarter of 2016. All previously reported segment information will be adjusted on a retrospective basis to reflect this change beginning in the fourth quarter of 2016.
|
| |
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 Securities and Exchange Commission (“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, changes in the price of and demand for oil & gas in both domestic and international markets, our ability to successfully integrate the businesses of Downstream, 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, 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 acquisitions, divestiture, restructuring, or simplification strategies, fluctuations in interest rates, our ability to continue to successfully defend product liability actions, our ability to realize savings anticipated to result from the repositioning 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 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, 2015 or in the Company's Form 10-Qs for subsequent quarterly periods, which are filed with the SEC and are available on the SEC's website at www.sec.gov. 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 and sub-systems used in the Oil & Gas, power generation, aerospace, defense and industrial markets. Within our major product groups, we develop, manufacture, sell and service a portfolio of fluid-control products, sub-systems and technologies that enable us to fulfill our customers’ unique fluid-control application needs.
We have organized our reporting structure into two segments: Energy and Aerospace & Defense. The primary markets served by our Energy segment are Oil & Gas: upstream, mid-stream and downstream; as well as the global power generation market. The Aerospace & Defense segment primarily serves commercial and military aerospace end-markets as well as certain international Navy applications.
Basis of Presentation
All significant intercompany balances and transactions have been eliminated in consolidation. We monitor our business in two segments: Energy and Aerospace & Defense.
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, 2015. 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.
Results of Operations for the Three Months Ended October 2, 2016 Compared to the Three Months Ended October 4, 2015 (unaudited)
The following table sets forth the consolidated results of operations, percentage of net revenues and the period-to-period percentage change in certain financial data for the three months ended October 2, 2016 and October 4, 2015:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Three Months Ended | | |
| October 2, 2016 | | October 4, 2015 | | % Change |
| (in thousands, except percentages) | | |
Net revenues | $ | 134,833 |
| | 100.0 | % | | $ | 159,258 |
| | 100.0 | % | | (15.3 | )% |
Cost of revenues | 92,479 |
| | 68.6 | % | | 113,865 |
| | 71.5 | % | | (18.8 | )% |
Gross profit | 42,354 |
| | 31.4 | % | | 45,393 |
| | 28.5 | % | | (6.7 | )% |
Selling, general and administrative expenses | 36,002 |
| | 26.7 | % | | 38,143 |
| | 24.0 | % | | (5.6 | )% |
Impairment charges | 208 |
| | 0.2 | % | | 2,502 |
| | 1.6 | % | | (91.7 | )% |
Special charges, net | 2,631 |
| | 2.0 | % | | 8,277 |
| | 5.2 | % | | (68.2 | )% |
Operating income (loss) | 3,513 |
| | 2.6 | % | | (3,529 | ) | | (2.2 | )% | | 199.5 | % |
Other expense (income): |
|
| | | | | |
|
| |
|
|
Interest expense, net | 605 |
| | 0.4 | % | | 828 |
| | 0.5 | % | | (26.9 | )% |
Other expense (income), net | 163 |
| | 0.1 | % | | (587 | ) | | (0.4 | )% | | 127.8 | % |
Total other expense, net | 768 |
| | 0.6 | % | | 241 |
| | 0.2 | % | | 218.7 | % |
Income before income taxes | 2,745 |
| | 2.0 | % | | (3,770 | ) | | (2.4 | )% | | 172.8 | % |
Income taxes (benefit) provision | (1,673 | ) | | (1.2 | )% | | 4,308 |
| | 2.7 | % | | (138.8 | )% |
Net income (loss) | $ | 4,418 |
| | 3.3 | % | | $ | (8,078 | ) | | (5.1 | )% | | 154.7 | % |
| | | | | | | | | |
Net Revenues
Net revenues for the three months ended October 2, 2016 decreased by $24.4 million, or 15%, to $134.8 million from $159.3 million for the three months ended October 4, 2015. The change in net revenues for the three months ended October 2, 2016 was attributable to the following:
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Total Change | | Operations | | Foreign Exchange |
Segment | October 2, 2016 | | October 4, 2015 | |
| (in thousands) |
Energy | $ | 99,798 |
| | $ | 122,905 |
| | $ | (23,107 | ) | | $ | (22,706 | ) | | $ | (401 | ) |
Aerospace & Defense | 35,035 |
| | 36,353 |
| | (1,318 | ) | | (467 | ) | | (851 | ) |
Total | $ | 134,833 |
| | $ | 159,258 |
| | $ | (24,425 | ) |
| $ | (23,173 | ) | | $ | (1,252 | ) |
The Energy segment accounted for approximately 74% and 77% of net revenues for the three months ended October 2, 2016 and October 4, 2015, with the Aerospace & Defense segment accounting for the remainder.
Energy segment net revenues decreased by $23.1 million, or 19%, for the three months ended October 2, 2016 compared to the three months ended October 4, 2015. The decrease was primarily driven by lower volume in our North American short-cycle (-7%), large international projects (-4%), instrumentation business (-3%), and control valves (-3%) businesses. Orders decreased $15.7 million or 17%, to $78.5 million for the three months ended October 2, 2016 compared to $94.2 million for the same period in 2015, primarily due to continued weakness in the short-cycle instrumentation business (-6%), a decrease in industrial bookings for control valves (-6%) and lower orders within our large international projects business (-1%). We experienced continued weakness in North American short-cycle business orders (-2%). Orders within our large international project businesses can be unpredictable or "lumpy" given the nature of the procurement process. Backlog decreased $89.7 million to $120.9 million as of October 2, 2016 compared to $210.6 million as of October 4, 2015. The decline in Orders and Backlog is directly attributable to the continued weakness and deterioration of the oil and gas market especially our upstream market.
Aerospace & Defense segment net revenues decreased by $1.3 million or 4% for the three months ended October 2, 2016 compared to the same period in 2015 primarily driven by unfavorable foreign exchange fluctuations (-2%). Orders decreased $1.4 million, or 4%, to $32.9 million for the three months ended October 2, 2016 compared to $34.3 million for the same period in 2015, primarily due to decreases in our actuation business (-4%). Backlog increased $5.2 million to $99.3 million as of October 2, 2016 compared to $94.1 million as of October 4, 2015, primarily as a result of higher bookings in our fluid controls business (+8%).
Operating Income (Loss)
The change in operating income (loss) for the three months ended October 2, 2016 compared to the three months ended October 4, 2015 was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Total Change | | Operations | | Foreign Exchange | | Special and Restructuring Charges, net |
Segment | October 2, 2016 | | October 4, 2015 | | |
| (in thousands) |
Energy | $ | 7,690 |
| | $ | (685 | ) | | $ | 8,375 |
| | $ | (6,962 | ) | | $ | (13 | ) | | $ | 15,350 |
|
Aerospace & Defense | 2,345 |
| | 3,234 |
| | (889 | ) | | 146 |
| | (37 | ) | | (998 | ) |
Corporate | (6,522 | ) | | (6,078 | ) | | (444 | ) | | (457 | ) | | 13 |
| | — |
|
Total | $ | 3,513 |
| | $ | (3,529 | ) | | $ | 7,042 |
| | $ | (7,273 | ) | | $ | (37 | ) | | $ | 14,352 |
|
Restructuring related, impairment, and special charges, net of recoveries, for the three months ended October 2, 2016 and October 4, 2015 were as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended October 2, 2016 | | Inventory Restructuring (1) | | Restructuring Charges, net (2) | | Special Charges (Recoveries), net (2) |
Segment | |
| (in thousands) |
Energy | $ | 1,778 |
| | $ | — |
| | $ | 996 |
| | $ | 782 |
|
Aerospace & Defense | 1,061 |
| | — |
| | 1,061 |
| | — |
|
Corporate | — |
| | — |
| | — |
| | — |
|
Total | $ | 2,839 |
| | $ | — |
| | $ | 2,057 |
| | $ | 782 |
|
| | | | | | | |
| Three Months Ended October 4, 2015 | | Inventory Restructuring (1) | | Restructuring Charges, net (2) | | Special Charges (Recoveries), net (2) |
Segment | |
| (in thousands) |
Energy | $ | 17,128 |
| | $ | 6,412 |
| | $ | 279 |
| | $ | 10,437 |
|
Aerospace & Defense | 63 |
| | — |
| | 63 |
| | — |
|
Total | $ | 17,191 |
| | $ | 6,412 |
| | $ | 342 |
| | $ | 10,437 |
|
| | | | | | | |
(1) Restructuring related inventory charges are included in Cost of revenues. See Note 15, Special Charges, net for additional detail on restructuring related inventory charges. |
(2) See Note 15, Special Charges, net for additional detail. |
Operating income increased $7.0 million to $3.5 million for the three months ended October 2, 2016, compared to operating loss of $3.5 million for the same period in 2015.
Operating income for our Energy segment increased $8.4 million to $7.7 million for the three months ended October 2, 2016, compared to $0.7 million operating loss for the same period in 2015. The year over year increase in operating income was primarily driven by lower restructuring and special charges from prior period, partially offset by the operational impact from lower volumes attributed to the deterioration of the oil and gas market.
Operating income for our Aerospace & Defense segment decreased $0.9 million, or 27%, to $2.3 million for the three months ended October 2, 2016, compared to $3.2 million for the same period in 2015. The year over year decrease in operating income was primarily driven by increases in restructuring charges (-31%) from prior period.
Corporate operating expenses increased $0.4 million for the three months ended October 2, 2016, compared to the same period in 2015, primarily due to corporate development fees.
Interest Expense, Net
Interest expense, net decreased $0.2 million to $0.6 million for the three months ended October 2, 2016 and compared to $0.8 million for the three months ended October 4, 2015. This change in interest expense was primarily due to lower outstanding debt balances during the period compared to the previous year.
Other Expense (Income), Net
Other expense (income), net increased $0.8 million to $0.2 million for the three months ended October 2, 2016 compared to other income of $0.6 million for the three months ended October 4, 2015. The difference was primarily due to foreign currency fluctuations.
Other Comprehensive Income (Loss)
Other comprehensive income of $0.1 million for the three months ended October 2, 2016, compared to other comprehensive loss of $6.4 million for the three months ended October 4, 2015, was primarily driven by favorable foreign currency impact related to balance sheet remeasurements. Other comprehensive loss for the three months ended October 4, 2015 was primarily due to the Brazilian Real ($5.3 million).
Income Taxes (Benefit) Provision
The effective tax rate was a net benefit (-61%) for the quarter ended October 2, 2016. The tax rate for the quarter ended October 2, 2016 was favorably impacted by certain tax benefits on repatriation of foreign earnings, as well as lower foreign losses with no tax benefit. After removing the Brazil loss of $19.2M from the results of the quarter ended October 4, 2015, the effective tax rate would have been 27.8% for the quarter ended October 4, 2015. The tax rate in the quarter ended October 4,
2015 was negatively impacted by adjustments based on tax return filings, partially offset by statute expirations, in addition to tax benefits for foreign source income that occurred in the same period of 2014. See Note 12 for further details.
Results of Operations for the Nine Months Ended October 2, 2016 Compared to the Nine Months Ended October 4, 2015
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 nine months ended October 2, 2016 and October 4, 2015:
|
| | | | | | | | | | | | | | | | |
| Nine Months Ended | | Nine Months Ended | | |
| October 2, 2016 | | October 4, 2015 | | % Change |
| (in thousands, except percentages) | | |
Net revenues | $ | 432,023 |
| | 100.0 | % | | $ | 492,023 |
| | 100.0 | % | | (12.2 | )% |
Cost of revenues | 298,005 |
| | 69.0 | % | | 343,187 |
| | 69.8 | % | | (13.2 | )% |
Gross profit | 134,018 |
| | 31.0 | % | | 148,836 |
| | 30.2 | % | | (10.0 | )% |
Selling, general and administrative expenses | 110,290 |
| | 25.5 | % | | 119,344 |
| | 24.3 | % | | (7.6 | )% |
Impairment charges | 208 |
| | — | % | | 2,502 |
| | 0.5 | % | | (91.7 | )% |
Special charges, net | 9,165 |
| | 2.1 | % | | 13,098 |
| | 2.7 | % | | (30.0 | )% |
Operating income | 14,355 |
| | 3.3 | % | | 13,892 |
| | 2.8 | % | | 3.3 | % |
Other expense (income): |
|
| | | | | | | | |
Interest expense, net | 1,841 |
| | 0.4 | % | | 2,274 |
| | 0.5 | % | | (19.0 | )% |
Other (income), net | (914 | ) | | (0.2 | )% | | (1,197 | ) | | (0.2 | )% | | (23.6 | )% |
Total other expense, net | 927 |
| | 0.2 | % | | 1,077 |
| | 0.2 | % | | (13.9 | )% |
Income before income taxes | 13,428 |
| | 3.1 | % | | 12,816 |
| | 2.6 | % | | 4.8 | % |
Income taxes (benefit) provision | 1,325 |
| | 0.3 | % | | 10,109 |
| | 2.1 | % | | (86.9 | )% |
Net income | $ | 12,103 |
| | 2.8 | % | | $ | 2,707 |
| | 0.6 | % | | 347.1 | % |
| | | | | | | | | |
Net Revenues
Net revenues for the nine months ended October 2, 2016 decreased by $60.0 million, or 12%, to $432.0 million from $492.0 million for the nine months ended October 4, 2015. The change in net revenues for the nine months ended October 2, 2016 was attributable to the following:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | Total Change | | Acquisitions | | Operations | | Foreign Exchange |
Segment | October 2, 2016 | | October 4, 2015 | |
| (in thousands) |
Energy | $ | 323,096 |
| | $ | 377,720 |
| | $ | (54,624 | ) | | $ | 6,106 |
| | $ | (60,463 | ) | | $ | (267 | ) |
Aerospace & Defense | 108,927 |
| | 114,303 |
| | (5,376 | ) | | — |
| | (3,999 | ) | | (1,377 | ) |
Total | $ | 432,023 |
| | $ | 492,023 |
| | $ | (60,000 | ) | | $ | 6,106 |
|
| $ | (64,462 | ) |
| $ | (1,644 | ) |
The Energy segment accounted for 75% and 77% of net revenues for the nine months ended October 2, 2016 and October 4, 2015 with the Aerospace & Defense segment accounting for the remainder.
Energy segment net revenues decreased by $54.6 million, or 14%, for the nine months ended October 2, 2016 as compared to the nine months ended October 4, 2015. The decrease was primarily driven by lower shipment volumes in our North American short-cycle business (-14%). Energy segment orders decreased $82.2 million to $266.5 million for the nine months ended October 2, 2016, compared to $348.7 million for the same period in 2015, primarily due to a decrease in bookings in the large international projects business (-11%), North American short-cycle business (-8%) and instrumentation business (-2%). Orders within our large international project businesses can be unpredictable or "lumpy" given the nature of the procurement process. Our North American short-cycle business has experienced a downturn since the prior year attributable to the deterioration of the oil and gas market.
Aerospace & Defense segment net revenues decreased by $5.4 million, or 5%, for the nine months ended October 2, 2016, as compared to the nine months ended October 4, 2015. The decrease was primarily driven by declines in our fluid control business (-7%) due to delayed shipments on one of our major missile programs and foreign exchange impact (-1%), offset by increases in our actuation business (+4%). Orders for this segment increased $13.1 million to $117.0 million for the nine months ended October 2, 2016, compared to $103.9 million for the same period in 2015, primarily as a result of order increases in our fluid control business (+11%) and our fluid control business in France (+5%).
Operating Income (Loss)
The change in operating income (loss) for the nine months ended October 2, 2016 compared to the nine months ended October 4, 2015 was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | Total Change | | Acquisition | | Operations | | Foreign Exchange | | Restructuring Related Inventory & Special Charges (Recoveries), net |
Segment | October 2, 2016 | | October 4, 2015 | |
| (in thousands) | | |
Energy | $ | 27,718 |
| | $ | 24,417 |
| | $ | 3,301 |
| | $ | 2,209 |
| | $ | (14,188 | ) | | $ | 538 |
| | $ | 14,742 |
|
Aerospace & Defense | 5,080 |
| | 7,484 |
| | (2,404 | ) | | — |
| | 317 |
| | (174 | ) | | (2,547 | ) |
Corporate | (18,443 | ) | | (18,009 | ) | | (434 | ) | | — |
| | (868 | ) | | 16 |
| | 418 |
|
Total | $ | 14,355 |
| | $ | 13,892 |
| | $ | 463 |
| | $ | 2,209 |
|
| $ | (14,739 | ) |
| $ | 380 |
|
| $ | 12,613 |
|
Special charges and restructuring related inventory for the nine months ended October 2, 2016 and October 4, 2015 were as follows:
|
| | | | | | | | | | | | | | | |
| Nine Months Ended | | Restructuring Related Inventory Charges (1) | | Restructuring Charges, net (2) | | Special Charges (Recoveries), net (2) |
Segment | October 2, 2016 | |
| (in thousands) |
Energy | 6,503 |
| | $ | 1,993 |
| | $ | 1,560 |
| | $ | 2,950 |
|
Aerospace & Defense | 4,900 |
| | 39 |
| | 4,861 |
| | — |
|
Corporate | 2 |
| | — |
| | — |
| | 2 |
|
Total | $ | 11,405 |
| | $ | 2,032 |
| | $ | 6,421 |
| | $ | 2,952 |
|
| | | | | | | |
| Nine Months Ended | | Restructuring Related Inventory Charges (1) | | Restructuring Charges, net (2) | | Special Charges (Recoveries), net (2) |
Segment | October 4, 2015 | |
| (in thousands) |
Energy | $ | 21,244 |
| | $ | 6,565 |
| | $ | 3,440 |
| | $ | 11,239 |
|
Aerospace & Defense | 2,353 |
| | 1,852 |
| | 1,541 |
| | (1,040 | ) |
Corporate | 420 |
| | — |
| | — |
| | 420 |
|
Total | $ | 24,017 |
| | |