Circor International Inc (CIR) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the CIRCOR International fourth-quarter 2009 financial results conference call. Today's call will be recorded. At this time all participants have been placed in a listen-only mode. There will be an opportunity for questions and comments after the prepared remarks.

I will now turn the call over to Alexia Taxiarchos from Sharon Merrill Associates for opening remarks and introductions. Please go ahead.

Thank you and good morning, everyone. Welcome to CIRCOR International's fourth-quarter 2009 conference call. On the call today is Bill Higgins, the Company's Chairman and CEO; and Fred Burditt, the Company's CFO. The slides we'll be referring to today are available on CIRCOR's website at circor.com, on the Investor Relations page.

Today's discussion contains forward-looking statements that identify future expectations. These expectations are subject to known and unknown risks, uncertainties, and other factors. For a full discussion of these factors, the Company advises you to review CIRCOR's 2009 Form 10-K and other SEC filings.

All of the Company's filings are available on its website at circor.com. Actual results could differ materially from those anticipated or implied by today's remarks. Any forward-looking statements only represent the Company's views as of today, February 25, 2010. While CIRCOR may choose to update these forward-looking statements at a later date, the Company specifically disclaims any duty to do so.

In today's call, Management will often refer to adjusted operating income and adjusted operating margins. These metrics exclude any pretax special charges, as well as pretax charges associated with asbestos affecting the Company's Leslie Controls subsidiary. The reconciliation of CIRCOR's adjusted non-GAAP operating income and net incomes to the comparable GAAP measures available in the financial tables of the financial press release are available on CIRCOR's website.

So with that, I will now turn the call over to CIRCOR's Chairman and CEO, Bill Higgins.

Thank you, Alexia, and good morning, everyone. Given that it's our year end, I'd like to start by providing a few thoughts on 2009. Clearly, it was a challenging year for the economy and for CIRCOR. Our revenues declined by 19% year over year, as our end markets suffered the worst down cycle in generations and we recorded earnings per share of $0.34.

While we were certainly disappointed that our financial performance was hindered by the Great Recession, as it is called, we continued improving our underlying business, including the advancement of the CIRCOR Business System, or CBS as we call it. CBS is our vision of how we run the Company and how we add value across our segments regardless of the business unit or the end markets we serve. And the CIRCOR Business System starts with our commitment to attracting, developing and retaining the best talent we can find and develop and pursuing continuous improvement in everything we do.

I'll emphasize that we are a late-cycle company. As we work through the recession we keep that in mind. We're laying the track so that we can emerge a much stronger company. So in 2009, while we significantly reduced our cost structure, we also enhanced our global supply capabilities, invested in new product development, advanced our acquisition strategy, and continued to recruit top-notch talent. And let me provide a little color on each of those five areas.

First, our teams have been aggressively adjusting our cost structure in line with the new demand environment since before the recession began. We were able to do this quickly because of our commitment to Lean, the great talent we have on board, and the continuous improvement in our ability to manage change. In the past year we consolidated three facilities, we reduced headcount overall by 21%, and headcount reductions reached nearly half in our short-cycle Energy business, where we saw the greatest reduction in volumes. It's a difficult but necessary step to align our capacity with near-term demand.

Second, we made progress in expanding our global supply chain capability into developing countries such as India and China. During 2009 we incorporated a business entity in India. We hired a country manager, a team of people, including sales and marketing experts, design engineers, sourcing professionals. And we believe longer term India as well as other emerging markets are a great growth opportunity for CIRCOR.

Third, we continue to invest in new product development as we move up the value chain by advancing from components to subsystems and integrated systems. A great example of this is our Aerospace segment, where we were awarded the landing gear actuation subsystem on the new Airbus A350 XWB program. This is a major win for us and establishes a long-term base for higher organic growth, higher value-added organic growth.

Fourth, we executed on our acquisition strategy. We closed two acquisitions, Pipeline Engineering, which gives us a stronger presence in the global energy pipeline services market, as well as Bodet Aero and Atlas, which expanded our presence in the European aerospace market and provide us with a low-cost manufacturing capability in Morocco.

We also hired AJ Sharma, a seasoned M&A professional, as our Vice President of Business Development to lead our acquisition strategy globally. And our long-term objective here is to double the size of CIRCOR through acquisitions as well as organic growth.

And that leads me to our fifth point, which is leadership talent. We continued to recruit top talent from world-class companies around the world. Our strategy is to build a management team that's capable of running a much larger global company and at the same time emerge from the current recession stronger.

We continue to invest in strategic initiatives, including the recruiting and development of experts that can help us not only improve our current operations, but develop new products, customers and channels in growth markets around the world.

So with that brief recap of the year, let me turn the call over to Fred.

Thanks, Bill.

In an effort to try to be a little more streamlined, so we have more time for questions, I'll be focusing more on providing color on our financial metrics than on reviewing the numbers that can be found either in the accompanying slides or our Q4 release.

One more note -- as you may have noticed in our press release, this quarter we announced that we will be reporting our business in three versus two segments, which better reflects the way we make operating decisions and manage the growth and profitability of the business. Energy remains unchanged, but the prior Instrumentation and Thermal Fluids segment has been split into Aerospace and Flow Technologies.

Now, if you'll turn to slide three, if you have the presentation, I'll begin. As Bill said, our team continued to execute well against a very challenging economic backdrop. CIRCOR's operating results were in line with our guidance for the quarter, excluding an unforecasted $39.8 million asbestos provision which I will discuss later. In addition, we recorded only $0.6 million in other net asbestos charges, versus our guidance of $4 million.

Revenue came in at $158.1 million and our non-GAAP adjusted EPS, excluding the after-tax effect of the special charges and the noncash five-year asbestos reserve was $0.32. $0.32 was significantly higher than our guidance range of $0.17 to $0.23 for the fourth quarter because of the asbestos charges were much lower, as I explained, and we recorded a lower tax rate.

Bookings were up 19% both year over year and sequentially, although performance was inconsistent across our end markets. We remain cautious, but this growth is a positive sign.

The Energy segment delivered strong year-over-year sequential bookings growth in long-cycle international projects, with a very easier comparison for the fourth quarter of last year. In short-cycle bookings, we continued to experience a significant year-over-year decrease. However, in the second half of '09 rig counts have grown and our short-cycle bookings recorded a strong rebound sequentially over the third quarter.

Within Aerospace segment we reported lower year-over-year and sequential bookings due to a softness in commercial aerospace markets and the timing of military-related orders. In Flow Technologies, we saw strong year-over-year and sequential bookings, due to the Navy and semiconductor end market strength. The majority of our other markets continue to be flat or down.

Now I'll move to slide four for consolidated financial results. Consolidated revenues for the fourth quarter of '09 were down 22% from the fourth quarter of last year, but up 10% sequentially. The year-over-year decline consisted of 31% [core] organic reduction offset by a positive 5% contribution with -- from acquisitions and 4% from foreign exchange benefit.

On the earnings side, it is important to note that both 2008 and 2009 results included large noncash charges. Our operating loss in Q4 '09 of $32.5 million and the net loss of $20.7 million includes a $39.8 million pretax asbestos charge that I mentioned earlier. In comparison, Q4 of last year's operating loss was $116.6 million, which included $141.3 million pretax goodwill impairment charge.

Consolidated adjusted operating income decreased 68% from the fourth quarter of '08 to $8.3 million and was down 31% from Q3 '09. The primary drivers of this year-over-year decline were the lower overall volume and associated operating leverage, significant pricing pressure, severance costs, and facility closure expenses. These factors were partially offset by productivity improvement and labor and material cost reduction, as well as fixed-expense savings.

If you move to slide five, I'll explain in more detail now the $39.8 million pretax charge to establish a five-year reserve for future asbestos claims, as well as the other asbestos information. Those of you who know us know that our subsidiary Leslie Controls, which is reported in the Flow Technologies segment, is named as the defendant in asbestos product liability actions. Currently Leslie, along with many other defendants, is a party to 1,100 active claims. Prior to the fourth quarter of 2007, Leslie's policy was to accrue costs to defend against these claims as incurred. We accrued for pending claims only when resolution of specific claims was probable and when the probable loss was estimable.

In Q4 '07 we engaged Hamilton, Rabinovitz & Associates, or HR&A, a firm specializing in estimating liabilities of mass tort claims to help us determine our asbestos-related liabilities. At the time, because Leslie's claims experience was both limited and variable, HR&A concluded that any estimate of pending or future liability asbestos claims was highly uncertain. Consequently at the time we continued to make no provision for future claims. However, we did provide a reserve for all filed claims, based on a historical average of resolving them. In '08 HR&A came to the same conclusions regarding the future claims and we made no change.

Then, updating the analysis in Q4 '09, HR&A concluded that Leslie now had enough claims experience to provide a reasonable estimate of the liability associated with Leslie's open asbestos claims and those anticipated for the next five years. As a result of that analysis, Leslie has now recorded into Q4 an additional $39.8 million to its asbestos liability accrual for indemnity for estimated future claims to be filed during the next five years.

Four points I should note before we move on. First, this is a noncash charge. Second, we will maintain this five-year future claims accrual at $39.8 million until facts and circumstances change. Third, any current activity on current or newly-filed claims will be accounted for as in the past and will affect our current-period results. And fourth and finally, legal expenses will continue to be expensed as incurred. For further details, I encourage you to read our disclosures in 10-K this year.

In addition to $39.8 million accrual during the quarter, we also reported $0.6 million in net asbestos charges, which is significantly lower than what we had anticipated. This quarter we benefited from two major factors. First, we won an appeal on an adverse verdict in the State of California, which was very positive news, which resulted in a $1.3 million favorable adjustment to our provision. Second, we had lower indemnity charges, as both the number of new claims decreased and the average cost to resolve claim was favorable for the quarter.

And before I leave asbestos, I want to reflect on the entire year. If we look at the full year in 2009, it was very positive for Leslie regarding asbestos trends. In 2009 our claims were actually flat to 2008, and our average cost to resolve claim came down.

Now I'll turn back to segment performance. We'll begin with Energy on slide six where you can see the backlog at the end of the fourth quarter was 23% lower than the same period last year, but 17% sequentially -- up sequentially. Excuse me. The organic revenue decline of 48% was due to the softness across our end markets and pricing pressure in our large international projects.

The segment's adjusted operating margin was 3%, down from 21.1% (sic - see Slide 6) in the fourth quarter of '08 and 10.9% in Q3 of '09. As we discussed in our Q3 conference call, we expected these margins to be in single digits. The segment AOI was impacted by a number of factors, which included organic revenue declines across the segment, coupled with the associated lost operating leverage, unfavorable pricing in large international projects, severance, and facility closure costs. In the quarter, we closed two facilities to streamline our footprint and to reduce fixed costs. The quality of earnings achievements in 2009 will help to mitigate some of this downward pressure and we will plan on returning double-digit margins as we enter Q3.

Now turning to slide seven and Aerospace segment, we discussed orders earlier but I want to highlight that orders in this segment can be very lumpy, with deliveries often scheduled one to two years out. Revenues were up 4% year over year, due to growth from acquisitions of 12% (sic - see Press Release) and a favorable FX adjustment of 3%, which was partially offset by broad-based organic declines of 12%. We ended the fourth quarter with segment backlog up 13% from the final quarter of '08, down 4% from the sequential third quarter of '09. And the year-over-year increase primarily reflects acquisition strength in military and the medical end markets.

The segment's adjusted operating margin was 14.7%, flat year over year, but up versus 13.2% in the third quarter. The sequential increase in margin was due primarily to improved volume, partially offset by some nonrecurring expenses.

And in Flow Technologies on slide eight, revenues declined 5% year over year due to organic declines of 9%, offset by favorable foreign currency. Sequentially revenues increased 12% due to improved semiconductor sales. And we ended the fourth quarter with segment backlog flat to Q4 of '08 and up 8% from third quarter of '09. Their adjusted operating margin was 11.7% compared to 9.7% in the fourth quarter last year and 10.7% (sic - see Slide 8) sequentially. And the year-over-year and sequential improvements were due primarily through improved productivity through facility consolidations, sourcing savings and other quality of earnings actions more than offsetting much lower volume with the associated negative leverage.

If you turn to slide nine, you can see our P&L highlights. We've already discussed the key issues, including segment results, asbestos charges and special charges. So I'd like to direct you to the EPS lines. Note that if you exclude special charges related to trade name impairments and the $39.8 million noncash five-year asbestos reserve, our adjusted EPS came in at $0.32 for the quarter compared to $1.12 last year.

And on slide 10, it's clear that our balance sheet remains strong. Total debt decreased to $7.5 million versus $13 million at the end of the fourth quarter of '08, and we reduced our debt-to-equity ratio from 2% to 4% (sic - see Slide 10). Also, if you exclude acquisitions during the year, we actually reduced our inventories by $48 million.

And with that, I'll give the floor back to Bill and he'll give us an update on the end markets and provide some color on our outlook.

Thank you, Fred.

Please turn to slide number 11 and we'll start with our large international energy projects. As we've said for a few quarters now, quoting activity continues in the Middle East and we are winning orders. During the second half of 2009 we began to see increased quoting activity in the Far East as well. Because of increased competition, however, we are facing severe pricing pressure, as Fred noted, and we expect this to continue for at least the near term. Although projects have been, and continue to be, released we'll remind everyone this is a lumpy business and visibility is limited.

Regarding our short-cycle business, rate counts are still off from their highs, but the comparisons are now favorable, or more favorable. Distributors have been working off their excess inventory in the channel and they are now beginning to procure orders to fill in the gaps. And we expect to see sequential improvement in 2010. However, we're still cautious as to what the length and magnitude of that improvement will be.

Turning to the pipeline markets, we began to see a rebound in bookings late in the fourth quarter in North America and quotation activity remains healthy. We also continue to see steady demand worldwide in export pipeline markets.

On the aerospace and our Aerospace segment, as we mentioned before, Aerospace is a late-cycle business in terms of the economy in general. And right now we're seeing the commercial side of our Aerospace continue to decline. It's not a new story that the business jet market, business jet aviation was hit particularly hard. It isn't showing any signs of recovery yet. Airline passenger traffic remains at all-time lows and build rates are relatively weak and we're seeing some push-outs of aircraft. We expect the commercial side of the business will remain soft for the foreseeable future.

In the longer run, however, we are continuing to win key programs. As I mentioned, last month we won the contract to provide the integrated speed sensing and control solutions for the A350 XWB landing gear. And as I mentioned earlier last quarter we were awarded the A350 landing gear actuation system. So programs such as these position us well for the future.

While the military demand continues to be steady, we are beginning to see some moderation in maintenance order. That said, we're well positioned on the Boeing Chinook CH 47 helicopter, which sees high usage in Afghanistan and Iraq, and the CH 47 and other military contracts provide opportunities for long-term revenue generation.

Moving to the HVAC and steam-related markets, we are continuing to see little evidence of new commercial construction in North America. Bookings are weak and we're seeing some pricing pressure in this market. While visibility remains limited, we expect demand to continue to be soft, at least through the first half of this year. We don't expect much from the stimulus spending and although we've seen some pickup in demand related to the cold weather, this market remains relatively soft. On a positive note, there is growth opportunities in emerging markets around the world, in places like South America.

The industrial and process end markets have stabilized in recent months. We expect that demand will be flat in 2010 compared with 2009. The OEM business, primarily driven by capital spending, continues to be weak except in spots in places like Germany, where exporters are benefiting from demand in China and emerging markets around the world. The aftermarket side of the industrial markets, MRO maintenance, repair remains steady. We continue to see robust semiconductor activity, which is driven largely by LED, semiconductor LED markets in Asia, particularly in China.

In power generation we're pleased to have seen a pickup in our domestic markets. Our OEM business continues to grow incrementally. Internationally, Asian markets are strong in power gen and we're securing larger orders where we're providing higher pressure, more highly engineered products such as valves on turbine systems that require higher safety and reliability standards.

Turning to the chemical and refining markets, the chemical markets remain weak and petrochemical markets continue to be at overcapacity globally. And analysts have noted this is probably the worst refining market in 20 or 25 years and continue to be quite depressed in the near term. In spite of this bleak environment we have seen orders coming in, the majority from China and the Middle East, in the refining space.

And finally, the Navy business for us is a bright spot in 2009 order results and provides a solid revenue stream for us in -- throughout 2010.

So this brings us to our expectations going forward. While visibility is still limited in most of our end markets, as a late cycle business we expect the recession to continue to be a drag on our results in 2010. And while there's certainly some brighter spots in our outlook, for example, the improvement in our short-cycle Energy business and order stabilization in some of our end markets, many areas of business continue to be soft. As we noted, pricing pressure, particularly in large energy projects, will continue to have a negative effect on margins.

So our teams are continuing to aggressively adjust our cost structure and drive operational improvements with Lean, increase the use of lower-cost sourcing and manufacturing in places like India and China to help offset the pricing pressure we're seeing. And as I've mentioned, we're a late-cycle company and we'll have a tough start in 2010. But we expect to continue to improve operational performance sequentially through the year, striving for double-digit adjusted operating margins in Q3.

And so with that, turn to slide 12 and we'll review our guidance for the first quarter of 2010. We expect revenues for the first quarter in the range of $148 million to $154 million and earnings, excluding special charges, but including asbestos charges, to be in the range of $0.10 to $0.15 per diluted share. And this assumes a tax rate of 27% and a budget assumption of $4 million in asbestos charges for the quarter.

So before we go to questions, I'd like to leave you with a few final thoughts. First, while 2009 was a difficult year, we made some real significant progress in a number of areas, including Lean continuous improvement, enhancing our supply chain capability, new product development, advancing our acquisition strategy and key talent across the organization. And second, as Fred noted earlier, we have a strong balance sheet -- enables us to capitalize on acquisition opportunities.

The quality-of-earnings initiatives we implemented in 2009 has enabled us to enter 2010 a much leaner and stronger organization. We're confident that our cost structure, which is more closely aligned with near-term demand, will enable us to deliver a significant improvement in profitability as markets stabilize and improve.

And finally, on a different note, we're pleased to announce that -- and we released last night -- that we've added a new director to our Board of Directors. Mr. Peter Wilver is Senior Vice President and CFO of Thermo Fisher Scientific. Pete brings great experience and a diversified manufacturing, growth-oriented, global manufacturing company. So we're pleased to have Pete join our Board and the expertise he can bring to it.

So with that, we'd like to open up the call for question.

Thank you. (Operator instructions.) Kevin Maczka; BB&T Capital Markets.

Good morning. I guess I'd like to start with the Q1 guidance. And maybe you can help me understand it a little bit better. It looks like on the top line you're looking for a 4 or 5% sequential decline and similar EBIT margins as you go sequentially into Q1. So I guess my question is, how do we get such a significant earnings decline with those two assumptions?

Well, you're correct, the guidance is in that range. The sequential revenues are dropping about that much and the, again, our AOI margins are remaining about really flat to Q4. Asbestos is going from, like I said, $600,000 -- we've gone -- our guidance includes $4 million for Q1. So the biggest change in margins at the sort of operating level is just asbestos coming back.

Okay. So that asbestos line is really the difference there, Fred?

Yes. If you look at our operating margins without asbestos they're fairly consistent both quarters.

Okay. And then, on that topic how should we think about asbestos and the impact on the P&L going into 2010? It sounds like some of these costs will continue to be there, even with the charge you took in Q4. And it looks like you're guiding to your normal $4 million again in Q1.

Yes. So let me just try to talk about it a little again. That reserve $5 million -- excuse me, five years, $39.8 million, is for future claims for five years. The way we're going to account for it is we're going to leave that accrual out there. So every quarter it will still be $39.8 million. And so any kind of current activity, if we get new claims, let's just say, this quarter or resolving claims we already have in house, they're going to be treated the same way we would have in the past and run through our P&L. So that reserve will really always -- we'll always be out five years. Even after the first quarter we'll still have a running five-year number. And we may adjust that accrual if circumstances change, like at the end of this year -- for sure at the end of this year we'll definitely reexamine it closely to see if that reserve's large enough or needs to be shrunk for the next five years. Is that clear?

It is. And I guess, beyond Q1, should we be thinking about $4 million a quarter from now on, or should that increase in the out years as we -- all else equal, as some other insurance is exhausted?

Well, that's a good question. During this year, based on, again, our run rates, it -- our insurance picture will remain pretty constant through the year and so the $4 million includes about a 36% benefit from insurance for legal costs. As we roll out of 2010, somewhere around the end of the year or early next year, again based on run rates, we will exhaust that remaining insurance. However, at that point in time we do have secondary layer of insurance that will benefit us in the future. And we've talked about that in our K, that we've had some experts look at it and there's monies out there at this point. Not exactly sure about how high -- how much that is and also how soon we get some of the benefit.

Okay. So it sounds like what you're saying is, think about $4 million from now on.

Correct. Certainly for 2010, and maybe slightly higher in 2011.

Okay.

That's assuming that the current run rate of cases remains about the same.

Okay. And then just finally from me and I'll get back in line, on the Energy side, with what you're seeing now and what you're hearing from your customers and some order rates looking a little bit better, is it reasonable to think the top line will grow in energy in 2010?

It probably is. I mean, in our budget plan process we have assumed flat. But I think if what we're hearing now in the end markets continues, that's probably a reasonable assumption to make.

Okay. Great.

Charlie Brady; BMO Capital Markets.

Thanks. Good morning. With respect to Energy products and the margin, I guess I'm just trying to understand really how much of an impact came out of the pricing on these large infrastructure jobs. And then you talked about workforce reduction and relocation expense impacting margins. Can you just give us some granularity on the impact on margins from that in Q4 and what that might look like going forward? Is it going to improve at all?

Yes. We've talked a lot in the last year about the pressure on margins as it relates to pricing. We talked around a 600 basis point impact. During the quarter -- it was probably a little bit more than that during Q4. And so that's obviously hurting us on that side. From a relocation perspective, we did, as we talked about, in the quarter we did spend monies in Q4 to close two facilities in our Energy group. And that will benefit us as we really -- as we enter, starting to get into Q2, mostly because of the -- we have a lot of cost is still in our inventory. So it will take us a while to get that through our inventory. So that's what we talked about. We expect to get back to the double-digit margins as we go get into Q3.

Can you quantify what the impact of Q4 margins was on the relocation expense and workforce reduction expense?

We spent in the Energy group I think close to $1.5 million.

Okay.

That's one-time nonrecurring expenses.

Right. And then on Aerospace, the commentary that the fourth-quarter orders were down related somewhat to military contract timing, can you give a little more detail on that? Are there orders that you thought would hit Q4 and slid out into 2010? Or are you just talking about kind of general lumpiness in military orders?

It's probably more the latter. We had a very large set of orders the prior -- fourth quarter of the prior year for mul- -- as Fred kind of indicated in his commentary, the helicopter orders that go out multiple years.

Yes. We had an over-$20 million order in Q4 of '08 having to do with future years for the Chinook.

All right. Okay. And just one more and I'll get back in the queue. Your comment on doubling the size of the Company through organic and acquisition, you want to put a -- any kind of idea of what timeframe you're talking about on that? I know it's a tough question to answer, but since you put it out there, I'll ask.

Yes. It's really in our strategic thinking about how we're built CIRCOR and the foundation we've been building when we talk about our CIRCOR Business System, with a longer-term strategy. So in sort of the strategic planning timeframe of four, five years we're looking at having the ingredients in place today that we could double the Company in that kind of time frame.

Do you think that would be more weighted to the Aerospace side or one of the other two segments?

I don't know that I'd say that. I think that we'd like to see ourselves growing as a diversified industrial manufacturer.

Great. Thanks.

Matt Summerville; KeyBanc Capital Markets.

Morning. Couple questions. First, I was wondering if you can talk a little bit about what you're seeing exactly in your shorter-cycle North American business as far as sequential and your year-over-year improvement there. And I guess how do you think about that looking out over the next couple months with natural gas prices kind of rolling off a little bit here? And similar to the project side of the business, what have you seen in terms of pricing in your short-cycle energy business right now?

Well, let's separate the two. The short-cycle North American business, if you went back a year ago we were cranking out shipments and then a serious drop to levels of the 60% decline in volume. So it was a very rapid drop in the short-cycle business. Then we went through the fall where we talked about destocking in the channels of our distribution customers and then burning down excess inventory to get supply more in line with demand and inventories more in line with what's needed to meet near-term demand.

We feel like we're going through that process. We talked about working through that in the first quarter. And we think we're coming out of that kind of inventory resetting, destocking process as we're seeing some pickup in orders, particularly in the second half of Q4 coming into Q1. So it's more -- it's kind of a combination of higher rig count and rig-count-driven demand, but also the channel's getting to a point where they're more reasonably stocked, with demand. So how that goes forward is anyone's guess. It's a short-cycle business. Rig counts are pretty well off their lows, although a long way from the top.

The project business and the pricing business -- pricing in the project business is continuing to be pressured as both Fred and I noted. We haven't seen that abatement just yet. However, if -- I know in larger projects credit seems to be better and larger projects around the world picking up. We're hopeful that after a period of time that market space will get better.

Okay, Bill. I guess with regards to pricing, I was more looking for you to maybe contrast what you're seeing in the international project business versus the shorter-cycle business here in North America. Are you seeing similar pressure here that you are elsewhere?

I don't think the pricing pressure in the short-cycle business is the same as in the large project business where everything's a bidded competition. We're not going to see price pickups per se in the short-cycle business in North America, but we're not seeing as severe pricing pressure. I'll put it that way.

The projects you're bidding now on the international side of the business, are you starting to see any relief on price? And I guess what I'm trying to get at is as we move through the year, when should we see an inflection point in your P&L where some of those less desirable priced deals are kind of working their way through and wear off?

Yes. It's a great question and it's one we're constantly examining. The cycle time and the lead time of the project business going out six-plus months, two to three quarters, indicates the first half of the year we've got backlog that's competed at lower pricing. So it's going to take us a bit. I can't see we can confirm whether prices have moved yet or not, but we're certainly going to watch it. So if there is a pickup it would be more in the second half of the year.

Thanks, Bill.

Jamie Sullivan; RBC Capital Markets.

Good morning, Bill and Fred. Question on the restructuring you mentioned on the Energy segment -- were there some charges in the other segments as well and can you quantify those for us?

Yes. We spent probably a little under $2.5 million in the quarter. Now, we always have nonrecurring, so it's not like it's all like special. We're always doing activities in different businesses. But pure dollars, that's about what we had in there.

Okay. All right. And you said $1.5 million in Energy. Where did the others shake out?

Actually it was both in the Flow Technologies segment and Aerospace. All of our groups have had, obviously, volume declines that required activities and we are also always working on trying to reduce our fixed-cost footprint.

Okay. All right. And sorry if I missed this earlier, but did you talk about the size of the orders in the large project business in Energy?

No, we hadn't specifically mentioned that. But it was more than one. We've seen more than a couple of projects. So it's not any one particular project [by themselves.]

Right. I mean, I guess can you talk a little bit more about how much of the bookings improvement was large project versus short cycle if we look at the sequential improvement there?

Most of the sequential improvement was short cycle.

Okay. Okay. Great. And on the pricing pressure that you're talking about, is there any way -- if we think about kind of the margins in that business, is it 5 points, 10 points? I mean, what's kind of the heaviest impact that you see there from those bids?

You mean on a -- I'm not quite sure of the question.

So the margins on the project business, how much is pricing really impacting those orders? Is it 5 points on the margin? Is it 10 points? I'm just trying to get a sense of the level of pressure that you're talking about.

Yes. Of course there's a lot -- there's a range, but it can be in 10 -- it's been 10 points at times, even higher than that, depending on the projects.

Okay. All right. And then, you mentioned some of the quoting activity still looks pretty good. You're talking about China, Middle East -- any other geographies and applications? Any other color there?

There's been pickup in, I think I mentioned, Asia in general and Latin America, South America.

All right. And I guess moving on to the other segments and the additional breakouts there is helpful. Can you slice the Aerospace business for us on how much is commercial and military? And I guess even in the commercial if you could talk about business jet, if you could break that out as well?

Let me see. Just hang on one second. I don't have it. The military portion of Aerospace, we typically think about half. It's a little bit less than that. It's about 40%, in the 40's, 40% of our total Aerospace group and then the rest of it I don't have the breakdown. The business aviation part of it's relatively small as is the commercial aftermarket spares piece of Aerospace. The largest piece is the military and then the OEM production that we do for customers such as Boeing and Airbus. And that production is relatively stable. It's down slightly, but relatively stable as well.

Okay. And so there, the larger OEMS relatively stable and military stable because of the backlog. It's in more the business aviation and commercial aftermarket --

Yes.

-- where you're kind of seeing some --

I think with the way we think about the commercial aerospace market is it's going to be down slightly this year. It's just later in the cycle. But I wouldn't call it flat and it's certainly not growing.

Right. Right. Okay. And then, on -- can you just talk about your -- an update on acquisitions? What's the pipeline of targets there? How's that activity? How are those discussions going? Seems like we're still kind of in limbo in terms of the bid/ask spreads on pricing. Any update there would be helpful.

Yes. We have, as I mentioned, we hired our Vice President of Business Development, AJ Sharma, who's out working with our teams. And we've spent a lot of time on the road constantly looking for acquisitions that would align with our strategy. While we've got a lot of activity working, the general M&A market I guess is that -- the color you're looking for, seems pretty slow. And my sense is there is a still a divergence between sellers and buyers. And I don't know how that's going to work out, but our intention is to continue to pursue acquisitions that fit with our strategy and help us build a global company we want to have.

Right. Okay. Thanks a lot. That's all I had.

(Operator instructions.) Mike Schneider; Robert W. Baird.

Good morning, guys. Bill, maybe just one final question from me is the power market you mentioned in your color commentary market by market was stronger accelerating -- I forget the phrase you used. But that seems contrary to what we've heard, at least in the US and I think that's what your comments were directed on. Can you give us some specific color on what types of customers you're referring to or what type of projects you're referring to?

Yes. In the US power market it's a combination of what I'll call maintenance and upgrades with existing power plants, but also the work that we do with manufacturers of other systems that would include our higher-pressure valves on those systems, in turbine systems for example, domestically. So we've seen a slight pickup there.

The stronger market growth in power obviously is not so much in the US. Europe's been strong the last couple of years, but it's more in the higher growth areas around the world, Indias and Chinas and other places.

So domestically, though, it's primarily utilities and work on existing facilities, or these are new project bids, or both?

It's probably a mix, but it's probably more existing utilities, existing power companies doing maintenance and upgrades as they kind of approach the planning season for maintenance and repair.

Okay. Thank you.

Charlie Brady; BMO Capital Markets.

Thanks. I know you're probably going to restate the financials for this new segment reporting. Is there a timing on when that data would come out?

Our 10-K will go out today.

All right. Thank you.

Marty Pollack/ NWQ Investment Management.

Yes. If I may, just on the question about the severe pricing pressures you described for long projects -- large project orders, you used the phrase "persistent --" I think the phrase is, "Significant pricing pressures persist." And I'm just wondering if that suggests that the pressures on pricing are -- is really, is there a step down on Q1 in terms of that, or was that effectively just continued weak pricing? And overall, how would you describe overall energy -- impact of pricing on the both -- overall on the short-cycle and large aggregate?

I think -- if I read your question right, we were talking about the pricing pressures in the projects business. We were saying that they are continuing at the same levels sequentially. There's not a ramp up from what we've been seeing. We're just -- it's just that we still see that pricing in the market, that pressure in the market.

And with regard to the overall -- an aggregate --[aggregatee] impact of pricing, both on the large- and short-cycle, how does that translate into sort of your outlook then further when you combine them both together, when you talk about pricing for energy?

Well, again, on a sequential basis we hope to see some relief in the project business as the demand picks up. On the short-cycle business, as Bill said, we haven't seen any -- nearly the type of pressure that we saw on the project business and we don't -- we aren't anticipating any major changes there.

I think that the fundamentals for the project pricing pressure have come from overcapacity -- excess capacity available in the overall market. And as projects have been let and as activity strengthens, we're assuming that that capacity is going be used up and that pricing pressure could get better in the second half of the year.

Just one last question -- on the mix between the two in terms of its -- on revenues, is it similar to -- [or can you] just describe that, whether it dovetails with orders on both and what is that mix?

It's roughly around -- well, again, we have the -- roughly around 40% of our business, the projects, is the long-cycle business. Around 40% is the short-cycle and then we have about 40% in the pipeline service -- I mean, excuse me, not 40% -- 15 to 20% in the pipeline services segment.

Okay. Thank you very much.

At this time we've reached the end of the Q&A session. I will now turn the conference back over to Mr. Bill Higgins for any closing or additional remarks.

We appreciate your interest in CIRCOR and we look forward to our next earnings call after Q1. Thank you, everybody.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for joining us today.