Circor International Inc (CIR) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the CIRCOR International's first quarter 2006 earnings conference call. Today's call will be recorded. (OPERATOR INSTRUCTIONS) I will now turn the call over to your host, Mr. Curhan McCann, from the Company's investor relations firm.

Thank you very much. Good morning, everyone. Welcome to our first quarter earnings call. Our objectives today are to review the Company's recent performance, and provide an updated outlook on 2006 with David Bloss, the Chairman and CEO of CIRCOR; Bill Higgins, the Company's Chief Operating Officer; and Ken Smith, its Chief Financial Officer. After their comments, we will then go to Q&A.

But before we start, two administrative notes. First, the slides we will be referring to today are available on CIRCOR's website at www.circor.com, under the link quarterly earnings from the investors page.

Second, today's discussion contains forward-looking statements that identify our future expectations. These expectations are subject to known and unknown risks, uncertainties, and other factors. For a full discussion of these factors, we advise you to read about them in the Company's 2005 Form 10-K, which also can be viewed on the Company's website. Of course, actual results could differ materially from those anticipated or implied from today's remarks.

Let me now turn the call over the CIRCOR's chairman, David Bloss.

Good morning, everyone. Here are the headlines for our financial results for the first quarter. Revenues of $127 million and earnings of $0.32 per share were in line with our expectations. Orders and backlog were very strong and at record levels. As you saw in our press release orders were up 82% while backlog increased 69% over the same period last year. Some of that came from acquisitions completed during the last 12 months. But even without those, orders were up a healthy 54% and backlog rose 31%, both new records for us.

The organic increase in orders in broad-based with our Instrumentation and Thermal Fluid Controls segment up 7% and our Energy Products segment breaking records by increasing 123% excluding acquisitions. We are seeing healthy end-user demand in domestic steam, industrial instrumentation, and of course, up-stream for oil and gas markets.

Our 2006 acquisitions are performing as expected. Both Hale Hamilton and Sagebrush are enjoying good market conditions. Sagebrush is being integrated into our Energy Products business. We are displacing competition with our own valve products sold through their shop faster than anticipated.

We're making progress on fixing the operational issues that we discussed with you during our February earnings call. To remind you, we are focusing on first, redirecting our [lean] initiatives to alleviate manufacturing constraints; reduce expediting costs; and improve production efficiencies. Number two, we're upgrading management to gain the skills we need to accelerate our program with lean, to build a culture of operational excellence. Number three, we are enhancing supplier management to respond better to market conditions. And number four, we're expanding our component sourcing from lower-cost countries.

We continue to expect to see the results of these efforts translate into improved profitability during the second half of this year. Now I'll turn the call over to Ken Smith, our CFO and Bill Higgins, our COO to take you through the details of our first quarter results.

Thanks David. I'll start with slide number three. This slide shows the P&L on a US GAAP basis. We had double-digit growth on revenue as the revenue growth for the quarter coming from our Energy Products segment and the three acquisitions – Industria in October 2005 and two acquisitions in February 2006, Sagebrush Pipeline and Hale Hamilton. While our profitability met our guidance, it was unchanged from last year. We had margin expansion in our Energy Products segment and margin decline in our Instrumentation and Thermal Fluid Products segment, which Bill will detail later.

In this quarter we had a lower cash rate that offset higher interest expense on new borrowings for our latest two acquisitions. Free cash flow was negative in Q1 of 2006 due to higher inventories, which have been purchased to support the record backlog and also gain higher amounts of variable compensation that was accrued at the end of 2005.

Turning to slide number four, which details the P&L. While Bill will discuss the segment performance on later slides, I will add color on corporate expense, interest expense, and taxes. First, the corporate expense rise this year is largely the new accounting rule requiring stock options to be expensed, which was an incremental 300,000 pre-tax in Q1 2006.

Second, for interest expense. It's higher this year as we borrowed $61 million for the two acquisitions in February 2006 – Sagebrush and Hale Hamilton, which leveraged us up to 23% on a total debt-to-capital ratio.

Third, regarding income taxes, we did reduce our effective tax rate to 32%. In Q1 2005 it was 35%.

Now slide number five, in the cash flow from operations and free cash flow, the notable item is the cash used for working capital. Although our DSO remains very competitive at 56 days as of March-end 2006, we did increase our inventories in the first quarter this year in reaction to the rising backlogs, as I mentioned. We also paid off the variable account that we had accrued.

The other category on this slide largely is the non-cash expense in the P&L for equity compensation that has both stock options and restricted stock awards. CapEx, the Q1 2005 amount was noticeably higher because at that period we paid out nearly $3 million for a new facility in Rotterdam for our CIP Europe operations. For the full year 2006, we expect free cash flow to approximate $35 million.

Now to slide number six, the balance sheet. Our balance sheet continues to be very healthy. The increase leverage this quarter resulted from our borrowing of $61 million for the two acquisitions this past February.

Now Bill Higgins, our Chief Operating Officer will speak about our segment performance.

Thank you Ken. Now on slide seven, our Instrumentation and Thermal Fluid segment results, regarding orders that David mentioned, our end markets continue to be positive. Power generation, aerospace, chemical, general industrial markets were solid, although we had more orders [indiscernible] domestically than we had in Europe this quarter compared to Q1 2005. Just in organic order growth, we've benefited from our acquisitions of Industria in October 2005 and Hale Hamilton in February 2006. Revenues have grown solidly in our Instrumentation and Thermal Fluid businesses strongly aided by our acquisitions.

Regarding operating income and margin, we're still not satisfied with this segment's results. The year-over-year margin decline resulted from lower productivity; higher costs for raw materials not offset fully by price increases to our customers; and costs associated with severance workers' comp, product liability, warranty, and other matters.

We're working aggressively to improve margins and productivity on multiple fronts. We continue to drive operational excellence with the deployment of lean manufacturing and sic sigma. We're upgrading management in key leadership operations and supplier management roles. We're rebuilding our factory and supply chain planning, scheduling, and execution processes. To alleviate material cost pressures, we're expanding our supply chain internationally to take advantage of our China operation to benefit from low-cost country materials and components sources. And we're raising prices at a rate the market will bear. We continue to rationalize product lines and facilities to lower our fixed costs.

Now to turn to slide eight, our Energy Products segments, the oil and gas end market served by this segment continued to be very, very healthy for both the large international project business as well as our domestic production and distribution. The total order increases as well as the organic order increase were substantial, evidenced in the robustness of the oil and gas markets as Dave pointed out earlier. These numbers do not include $20 million of letters-of-intent from Middle East energy customers that we expect to be booked in the second quarter of 2006. In short, this end market continues to be very strong.

As for profitability in this segment, we had good operating margin expansion resulting from volume and pricing improvements compared to the first quarter of 2005. In this segment, we also had some higher charges for raw materials that we've not yet fully offset with customer price increases, but expect to as we continue to raise prices in the first half of 2006. As we reported last quarter, our consolidation of the Mallard and Hydroseal product lines from Texas into our Oklahoma facility drove higher supply costs than planned in the fourth quarter of 2005 and in the face of growing demand. We largely resolved in the first quarter of 2006.

Now if we turn to slide number nine, on this slide we point out our assumptions for key end markets that we serve. As you see, most are expected to be positive for 2006.

I move along to slide number 10, many of our expectations for revenue and margin for 2006 are cited here. Regarding the second quarter of 2006, we're providing EPS guidance of $0.37 to $0.39 per diluted share, excluding special charges. The range of $0.37 to $0.39 is comparable to the second quarter of 2005 when we reported $0.39 per share excluding special charges.

To increase our operating margins, and in particular in our Instrumentation and Thermal Fluid Products segments, we'll likely take up to three to six months to fix our supply chain issues, strengthen management in key operations and material planning roles, and complete the improvement actions I described.

Regarding corporate expenses, our 2006 estimate includes incremental equity-based compensation compared to 2005. We implemented the new accounting rule requiring the expense of stock options, which is a pre-tax expense of 1.3 million or $0.05 per diluted share for the full year 2006. We also will have an incremental pre-tax cost of 900,000 or $0.04 per share for restricted share units for the full year 2006. These equity-based increases will be partially offset by decreases in our other 2006 corporate spending for consulting and other variable compensation and audit fees. For income taxes, we expect a full year rate of 32%. Regarding our acquisitions in Q1 2006, we expect Hale Hamilton to contribute $0.05 to $0.06 net of borrowing costs and amortization expense from the purchase price allocation; and Sagebrush to be nominally accretive in 2006 as we have some initial integration costs.

To summarize our outlook, we have good end market conditions and healthy backlogs. We're driving improvement on multiple fronts, implementing customer price increases where and when we can, implementing lean manufacturing and sic sigma methodologies for the long-term benefit of our customers and CIRCOR, increasing lower-cost foreign sourcing of supply, upgrading management talent, and consolidating facilities to reduce fixed costs.

With that, we'd now like to open up the lines for any questions that you may have.

Thank you very much Mr. Higgins. (OPERATOR INSTRUCTIONS). Michael Schneider with Robert W. Baird.

Good morning. Maybe first you can address the Instrumentation margin. I am curious, given the run rate you're on today in the single digits, why you expect margins to climb to 11% to 12% for the year. What specifically drives it? What gives you the confidence that you can achieve it?

I think first and foremost, there is a lot of work going on right now. We're going business unit by business unit to fix the issues and improve the margin. I mentioned at number of things. There are a lot of other things going on as well. Some of those things we feel confident that we've nailed in the first quarter and in the second quarter. We still have a few more major areas of focus that will take us into the third quarter. There is a little bit of a risk of it taking us a little longer in the fourth quarter. We feel good with the progress we've made so far.

We're constantly looking at the business assumption page that we provide every quarter. We're going to take another close look at it next quarter and update it as well. We could be a little bit high in the 11% to 12% that we're giving, but we didn't have any better information to deal with at this point. It just depends on the progress that we make in the second quarter. It may be 9.5 to 11 as we move forward. But right now, we thought that we would stick with the 11 to 12 that we originally had and showed you last quarter.

Are there some unusual – be they consulting fees, expedited shipments, whatever type of meaningful expenses that hit the first quarter that give you some confidence there is a mechanical stair-step higher in margin in 2Q versus the 3-4Q?

We had almost a full 100 basis points in the first quarter of costs that we do not think will be recurring. That helps what Bill described as improvement that will come through these other productivity and supply chain [multiple speakers] that he has got driving.

What type of expenses were those, Ken?

We had some severance costs. We had some very specific product warranty claims that we accrued for in the first quarter that will not repeat, at least of the same nature. [Similar to the] cost of sale.

You said that was nearly 100 basis points just in the Instrumentation group?

Yes. It was in this one segment.

Could you address the energy orders. You obviously didn't project converting the LOIs 30 into 50 million this quarter. The remaining 20 million, does that already – is that already incorporated into the Energy guidance of revenue growth of 25 to 30%?

Yes, it does. It is factored in.

Can you describe what type----

because we do expect to convert that into our orders for the second quarter '06.

Can you describe what type of projects these are? Given the ramp in Energy guidance for the margins, it appears that they are nicely profitable as well. Some color would be helpful.

A lot of it is in the Middle East for the CapEx expansion infrastructure expansion that continues to go on in the countries of Qatar and Kuwait and even now some increased up-ticks from Saudi Arabia. As you know, they are multi-billion dollar projects that are being developed over there for LNG facilities, gas production. In the case of Saudi Arabia, we are actually benefiting from water and some desalination projects that are going on in that country. The vast majority of this up-tick in orders is predominantly gas-related in the Middle East.

Does this 50 million all ship in 2006?

No, not all of it does. In fact, some spills over into the first quarter of 2007.

Bill, in Pibiviesse, where are you in capacity now, given that you have 50 million in orders coming? Are you using outsourcing to a record degree? Just how are you absorbing these orders?

Team at Pibiviesse has been expanding the supply chain, working with the local supply chain so they can expand the capacity for these project orders.

Okay. I'll get back in line. Thanks.

(OPERATOR INSTRUCTIONS) Mark Grzymski with Needham & Company.

Good morning. Congratulations. You mentioned price increases and a lot of them being implemented in the first half of the year. I am not sure if you touched on it – at this point, where have you increased prices this year. Specifically where else are you – in what product lines or end markets do you see the need for increased prices?

We had some in our Energy segment, particularly in our domestic US and Canadian geographies. We've had very targeted increases in our aerospace business and in our instrumentation technologies group that is also part of the Instrumentation and Thermal Fluids segment. We've had some very broader-based price increases at the beginning of 2006.

Looking into your assumptions for the year – revenue growth of 6 to 7 and 25 to 30. How much of that is price increases? Do you have any sense?

In the, I would say in the Energy it's 25 to 30. I would say there is probably 15 – probably more than half of that is unit volume. The Instrumentation and Thermal, I would say the majority of that is probably price related, not only what has been instituted at the beginning of '06, but also carry-overs from the second half of 2005 price increases. It was more pervasive across the product groups, I think, of the Instrumentation segment.

Also, could – touching on the Instrumentation and Thermal Fluid Products, could you give a little more sense – obviously a lot of things are very positive. Where do you think we stand in a lot of these end markets. I know aerospace is a trigger word these days. Certain aspects of the industrial markets are performing extremely well. What is your sense on where we are and where you think you are in the cycle if you want to characterize it like that.

We hope that these cycles are longer lived. Let me take it one-by-one. The Energy markets – we've been on a nice run for the last couple of years, accelerating growth rates and so forth, and project activity that we're seeing now. The budgetary quotations that we're working on with our end-user customers tell us that we may have a couple more years, on the outside possibly three of good business conditions. On the aerospace side, I think you said it. The commercial side has been improved for us. But the military side has retracted a little bit. On the helicopter programs that the Loud Engineering business has, that has been a nice business for us since the acquisition over a year ago. We think that is going to continue. The new ship sets as well as the refurbishment – those helicopters, the Chinook CH-46,47 helicopters are being used extensively around the world by our military and also by other applications. So that business, I think, is going to be a pretty steady business for us for the duration. We look out, probably with some confidence, about 12 months out.

On the Instrumentation side, that's a month-to-month business for us. We are affected by economic cycles more quickly there than almost any of our other businesses. That one has to go with the cycles of chemical processing and general industrial. I think there are enough predictors out there for you to follow in those categories. We're thinking that the markets have been healthy for us and should continue at least throughout the rest of this year.

In the other Thermal Fluid Controls businesses, we've reported in the past that the Navy business has been in a down cycle. We're getting a lot of engineering projects with the US Navy. The Hale Hamilton business opens up the British Navy to us.

On the HVAC, the [street steam move] business, that has been nice for us this past year's heating season. We're going into the slow season now in the summertime. Our production scheduling predicts that this fall and winter will be another okay year for us. We went through a down cycle probably two years ago as vacancy rates were high in some of these commercial office buildings. But the maintenance spending was down. We think it's back to normal levels now.

That, I think, summarizes it major market by major market for you.

Finally, a lot of talk about ethanol. Wondering how that might play out for you. Any thoughts you might have initially?

As you know, there is probably somewhere between 15 and 20 new ethanol plants being constructed now in the Midwest. We do have sales coverage on those projects. The relative output is – they are certainly not mega outputs in comparison to some of the refineries that you see down in the Gulf. Where we think it's going to advantage us in our order rates – I think it's going to be fairly modest numbers, even though there is a fairly number of new plants being constructed given their size.

Okay, thanks. I appreciate it.

[Andrea Worth] with Robert W. Baird.

Good morning. The first question in Energy. Could you give us the split between what you are seeing domestically versus what you seeing at Pibiviesse. I guess essentially, are both businesses running in this double-digit growth rate? Or is it being mostly driven by Pibiviesse?

The significance of the order improvement quarter-over-quarter was weighted heavily to Pibiviesse because of the large international projects. They come in millions of dollars in lumps. They happened to have a positive lump coming through – Pibiviesse did in the first quarter of 2006. Nonetheless, our North American business was – had nice improvement on its own, but certainly not to the absolute dollar magnitude of the increase that our Italian and Middle East exposure had.

Once again, just talking about the lumpiness of Pibiviesse, order rates were, I believe, down in the fourth quarter. Would that imply the second quarter would probably have a little bit weaker growth rate as far as our modeling purposes go?

The order intake in the first quarter for our Energy business was big, even if we excluded the Sagebrush acquisition. We took in, without Sagebrush, I think it was almost $100 million of orders compared to an average last year of about 45 million a quarter. In the fourth quarter, as you are referencing Andrea, fourth quarter 2005 order intake was about 44 million. It's a huge scale that we have in the first quarter. We'd like it to continue at that 100 million level. I think realistically, we are going to see it was an abnormality here in 2006.

What I was referring to is the revenue growth we should expect in the second quarter. Because of that lag that we saw in the fourth quarter, would that then translate into a little bit lower growth in the second quarter – in the essentially the 25% we saw this quarter?

I think we could have nearly equivalent revenue increase in Q2 '06 versus Q2 '05 as we had in the first. A lot of this order improvement that we've just reported in the first quarter is going to affect the second half and certainly the first quarter of '07.

I think you are referring to a couple years ago we had – or was it? It was a couple years that we had a real downturn in one quarter in orders. That affected – I think it was first quarter. Then it affected our fourth quarter. We now – in this past up-tick, we've now been filling our order forward and our production schedules healthily near term. This dip in the fourth quarter of last year, you won't see it affecting any particular quarter going forward because we are booking so far ahead now.

Good, perfect. Switching over to the Instrumentation side, you did address the markets quite a bit. I suppose I was a little bit surprised at the organic growth of only about 2% given how strong you said the chemical market is and the general industrial markets is. Talk a little bit about where you expect the growth rates to go sequentially. You are looking for 6 to 7% organic overall for the year. That is a decent increase from essentially the 2% this quarter. Talk specifically about where you see an acceleration happening. What kind of dry is throughout the year?

We had some – usually in aerospace we have some seasonality that is stronger at the end of the fiscal calendar year. We did have a sequential downturn in aerospace in our first quarter of '06. But then we get back to some more reasonably stable levels in our aerospace performance in the second quarter '06. Sequentially Q1 '06 to Q2 '06, we expect something greater than – oh, man – somewhere around 7, 8% sequential revenue growth between those, at least for that segment. I think we had a bit of a – because of the aerospace program deliveries, we didn't have as strong deliveries in the first quarter '06 in that particular product group. But does resume a more normal rate in the second quarter.

A final question on pricing, going back to that. You seem a little bit more confident than you have in the past about ability to get pricing. Has something changed at all in the market with your competitors or customers accepting pricing? Or are there still some areas where you feel you are still not able to get the amount of pricing that you would like to get.

We would still like to see more on our Instrumentation business, but competitive conditions we've talked about in the past haven't changed. That is the one business area where we would like to see more, but are unable to achieve it. As soon as we see opportunities, we'll be capitalizing on that.

The others – there really hasn't been a lot of change. We've been moving forward where we can and it has been sticking in pricing. Like I say, the Instrumentation Group is still behind. We're watching that closely for any changes.

Great. Thank you.

Ned Armstrong with Friedman, Billings, & Ramsey.

With respect to your margins in your Energy Products segment, what do you think the potential for them is over the long-term as to how high they can get?

It's interesting you should ask. We've been going through some strategic planning ourselves – long-range planning processes. Obviously I can't reveal all of the details to you. But we've said in the past that the Energy Products business has historically been on a profit pattern of – if you look at our most recent past – down around 5% in the downturn and 10 to 11% on the upturn side. We've done a lot of work in changing the dynamics of that business – outsourcing, using our wholly-owned operation in China, gearing our Pibiviesse operation and business to the higher-end, more sophisticated applications. Obviously there is a mix of products that you still have to maintain. I think we have shifted that quite dramatically over the past four years. That range, which was 5 to 11%, I think the downside of that may now be somewhere around 8% -- 7 to 8% arena with the upside we're hoping to be at or above 12.

In an earlier question about price increases, I want to make sure I heard the answer right. Ken, I think you remarked that of the 6 to 7% growth in the Instrumentation and Thermal Fluids segment that you are projecting for the year, did you say most of that was price increases? Or did you say that most of it was organic?

I said most of it was price increases.

Most of it was price increases. Okay, thank you.

Charles Brady with Harris Nesbit.

This is actually [Koonie] sitting in for Charlie. Thank you for taking my question. First, just pushing back to your Instrumentation segment for a second. How much of the – can you give us an idea as to how much of the operating margin improvement you would attribute to improvements from your ongoing main manufacturing initiatives and how much goes to pricing?

Just a clarification, the outlook for the year is what you are referring to?

Yes, sorry.

I would offer – I am looking at Bill. I would say probably weighted towards – two-thirds to three-quarters of that is going to come from operational improvement and the balance being from pricing that is instituted at the beginning of this year or late last year.

On the Energy segment, I know you touched on capacity for your Pibiviesse portion. What about for the rest of the segment? Do you feel comfortable there?

For the Energy segment?

Yes.

Yes. We are enjoying the work we have done in our China facility with our wholly-owned plant that we moved into at the end of last year and expanding that capacity as we speak.

Finally, would you be able to comment on what you have in your acquisition pipeline? What are you looking at and where do you feel comfortable? Any details would be great. Thank you.

We offer very few details on that because in the deal business things happen, both good and bad as far as being successful in the deals. We continue to look at them. We're very strategic. We're looking at product line additions. As we are adopting lean, we are now seeing visibly additional factory floor space become available. That means that we have room to add product lines into our existing facilities. Our first priority will be to find product line acquisitions that can fold in easily and move into our capacity that we are creating in some of our facilities.

As far as reaching out and looking for other legs of CIRCOR moving forward, I think that is something that will come as we continue to gain momentum in our operational excellence lean initiatives. You won't be seeing anything like that probably within the next 18 months or so, until we get further along in that program.

Thank you very much.

Steve [Raneri]with Franklin Advisory Services.

Good morning. A question on the backlog. If I X-out the core business and look at the acquisitions, it appears that the backlogs grew faster than the rate of order growth? Is that correct? Maybe you can tell me why, if that's the case.

Give us a second to verify your numbers.

Sure, no problem.

Backlog, at least March '05 versus March '06, backlogs grew without acquisitions by 31%. Our orders 53% or thereabouts.

If I try to work backwards, your backlog was 142.8 million last year growing to 187? And now your backlog is 241.3, which would imply $54 million. Whereas the sales growth, if I back out the core – the sales growth from your acquisitions was about 30 million, 31 million. Is that correct?

Orders you are talking about?

I thought you said revenue.

I am sorry. Orders.

If I backed out acquisitions----

I am looking at the acquisition piece, the acquired businesses. And I am looking at the base business. It appears that the backlog at the companies, which you recently purchased, grew at a faster rate than their orders.

That is because when we report our backlogs, we record these two acquisitions we had in February '06. We add the level of backlog, which can be an accumulation of more than one month of orders. The order numbers for just those two acquisitions represent just two months' worth – February and March. If they had a backlog at the time we acquired them, then that shows up in whatever is unshipped at CIRCOR as of the end of March 2006. So, yes they would have larger backlog, but it's a representation that it's an acquisition.

It seemed like it grew faster than the rate of orders. That's all.

No. The backlog didn't grow from zero to where it is today. It grew from something----

Right. Like I said, I had the backlogs growing at $54 million and the orders growing by 31 million.

No. The orders didn't grow by 51 million. I mean the backlog didn't grow by 50-some million. There was a backlog at the time of acquisition. Maybe on our board they grew from zero to 50 million. But on their records, they may have grown from 40 to 50 million – if you know what I'm saying. I don't know what that number is that we inherited at the time of acquisition. But that is the relevant number that you should be comparing to.

Okay. Thanks.

Michael Schneider with Robert W. Baird.

Can you give us a sense of where the biggest pass-through backlogs lie today as an indication of what businesses are wrestling with the greatest production and supply problems and where the biggest opportunities thus lie.

I think from an absolute dollar number, the largest pass-through backlogs would be in the Energy business segments – energy segment. From a standpoint of----

[In the] KF or Pibiviesse?

Pibiviesse has probably got a little bit bigger pass-through backlog than KF. Both of them have fairly decent length supply chains from a responsiveness standpoint that we're working through.

Within the other segment?

The other one that would have a relatively bigger pass-through backlog would be in aerospace due to the long lead times on some of the forging materials that come from for Loud, the Loud Engineering. Again, another a longer supply chain. As we start to lay in the new planning and scheduling and execution [inaudible] that I referenced earlier, we'll have it [hail] to them. That will take us time to work through.

You didn't mention Hoke. What is the status there?

Hoke is a more month-to-month business as David referred to. The Instrumentation business that doesn't have the long – it has some project business. But it doesn't have the long lead-time orders. It's more of a – within the quarter manufacturing process. We take the orders in. We make it. We ship it. So there is some pass-through there. But it is not a driver of our pass-throughs.

Their backlogs ordinarily aren't that high. But they probably have the largest percentage of the backlogs being in the pass-through status. But dollar value of that isn't as great.

Can you talk then – just switching to pricing in Energy and the competitive landscape. Your largest competitor was bought by another valve company. What changes in quoting or bidding or the leverage you've seen in this market because it's been disruptive in the past as a result of their actions.

It is early to indicate any trends. They are going through some consolidation, I am sure. They are doing their work and research and making their decisions. We are continuing to keep our focus on our customers and quote as we have in the past and hoping that we see more opportunities. It's too early to tell right now.

At Alright. Thanks again.

At this time, there are no further questions. At this time, I would like to turn it back over to Mr. Bloss for final or closing comments.

[inaudible] time it is. We're going to go back to work. We've got a lot to do. The work ahead of us is to fix some of the issues that we referred last quarter and this quarter. We expect to see the benefits during the second half. We'll talk to you again in July. Thank you.

That does conclude today's presentation. We thank you for your participation. Have a great day.

Final Transcript Feb. 23. 2006 / 10:30AM ET, CIR - Q4 2005 Circor International Earnings Conference Call

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