Item 2.02. Results of Operations and Financial Condition.
By press release dated August 7, 2020, CIRCOR International, Inc. (the
"Company") announced its financial results for the three months ended June 28,
2020. The full text of the press release is attached as Exhibit 99.1 to this
Current Report on Form 8-K.
The information in this Item 2.02 of Form 8-K and the Exhibits 99.1 and 99.2
attached hereto shall not be deemed "filed" for purposes of Section 18 of the
Securities and Exchange Act of 1934 (the "Exchange Act") or otherwise subject to
the liability of that section, nor shall it be deemed incorporated by reference
into any registration statement or other document filed under the Securities Act
of 1933 or the Exchange Act, except as expressly set forth by special reference
in such filing.
The Company's management evaluates segment operating performance using operating
income before certain charges/credits to cost of revenues and selling, general
and administrative expenses, principally associated with acquisition-related
activities; restructuring and other costs/income including costs arising from
facility consolidations and gains and losses from the sale of product lines; and
amortization of acquisition-related intangible assets. The Company also refers
to this measure as segment operating income or adjusted operating income. The
Company uses this measure because it helps management understand and evaluate
the segments' core operating results and facilitates comparison of performance
for determining incentive compensation achievement.
In the press release and accompanying supplemental information, the Company uses
the following non-GAAP financial measures: adjusted operating income, adjusted
operating margin, free cash flow, adjusted net income, adjusted earnings per
share (EPS), EBITDA, adjusted EBITDA, net debt, combined financial information,
and organic revenue, described as follows:
• Adjusted operating income is defined as GAAP operating income excluding
intangible amortization from acquisitions completed subsequent to December
31, 2011, depreciation and cost of goods sold charges related to step-up
valuations from acquisitions completed subsequent to December 31, 2016,
the impact of restructuring related inventory, impairment and special
charges or gains.
• Adjusted operating margin is defined as adjusted operating income divided
by net revenues.
• Free cash flow is defined as net cash flow from operating activities, less
net capital expenditures. Management of this Company believes free cash
flow is an important measure of its liquidity as well as its ability to
service long-term debt, fund future growth and to provide a return to
shareholders. We also believe this free cash flow definition does not have
any material limitations.
• Adjusted net income is defined as net income, excluding intangible
amortization from acquisitions completed subsequent to December 31, 2011,
depreciation and cost of goods sold charges related to step-up valuations
from acquisitions completed subsequent to December 31, 2016, the impact of
restructuring related inventory, impairment and special charges or gains,
net of tax.
• Adjusted EPS is defined as earnings per common share diluted, excluding
the per share impact of intangible amortization from acquisitions
completed subsequent to December 31, 2011, depreciation and cost of goods
sold charges related to step-up valuations from acquisitions completed
subsequent to December 31, 2016, the impact of restructuring related
inventory, impairment and special charges or gains, net of tax.
• EBITDA is defined as net income plus net interest expense, provision for
income taxes, depreciation and amortization.
• Adjusted EBITDA is defined as EBITDA plus the impact of special
charges/gains including the impact of restructuring related inventory
charges, cost of goods sold charges related to step-up valuations from
acquisitions completed subsequent to December 31, 2016, and impairments,
net of tax.
• Net Debt is defined at total debt minus cash and cash equivalents.
• Organic growth - the change in revenue and orders excluding the impact of
acquisitions, divestitures and changes in foreign exchange rates.
Our management uses these non-GAAP measures to gain an understanding of our
comparative operating performance (when comparing such results with previous
periods or forecasts). These non-GAAP financial measures are used by management
in our financial and operating decision making because we believe they reflect
our ongoing business and facilitate period-to-
period comparisons. We believe these non-GAAP financial measures provide useful
information to investors and others in understanding and evaluating the
Company's current operating performance and future prospects in the same manner
as management does, if they so choose. These non-GAAP financial measures also
allow investors and others to compare the Company's current financial results
with the Company's past financial results in a consistent manner. For example:
• We exclude costs and tax effects associated with restructuring activities,
such as reducing overhead and consolidating facilities. We believe that
the costs related to these restructuring activities are not indicative of
our normal operating costs.
• We exclude certain acquisition-related costs, including significant
transaction costs and the related tax effects. We exclude these costs
because we do not believe they are indicative of our normal operating
• We exclude the expense and tax effects associated with the non-cash
amortization of acquisition-related intangible assets because a
significant portion of the purchase price for acquisitions may be
allocated to intangible assets that have lives of 5 to 20 years. Exclusion
of the non-cash amortization expense allows comparisons of operating
results that are consistent over time for both our newly acquired and
long-held businesses and with both acquisitive and non-acquisitive peer
• We also exclude certain gains/losses and related tax effects, which are
either isolated or cannot be expected to occur again with any
predictability, and that we believe are not indicative of our normal
operating gains and losses. For example, we exclude gains/losses from
items such as the sale of a business, significant litigation-related
matters and lump-sum pension plan settlements.
CIRCOR's management uses these non-GAAP measures, in addition to GAAP financial
measures, as the basis for measuring the Company's operating performance and
comparing such performance to that of prior periods and to the performance of
our peers and competitors. We use such measures when publicly providing our
business outlook, assessing future earnings potential, evaluating potential
acquisitions and dispositions and in our financial and operating decision-making
process including for incentive compensation purposes.
Investors should recognize that these non-GAAP measures might not be comparable
to similarly titled measures of other companies. These measures should be
considered in addition and not as a substitute for or superior to, any measure
of performance, cash flow or liquidity prepared in accordance with accounting
principles generally accepted in the United States.
A reconciliation of our non-GAAP financial measures to the most directly
comparable GAAP financial measure is provided in the supplemental information
table titled "Reconciliation of Key Performance Measures to Commonly Used
Generally Accepted Accounting Principle Terms" which is included as an
attachment to the press release in Exhibit 99.1.
Item 9.01 Financial Statements and Exhibits.
Exhibit No. Description
99.1 Press Release regarding Earnings
99.2 Second Quarter 2020 Investor Review Presentation
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