Circor International Inc (CIR) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to CIRCOR International third-quarter 2010 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. (Operator instructions). I'll now turn the call over to Mr. David Calusdian from Sharon Merrill Associates for opening remarks and introductions. Please go ahead, sir

Thank you and good morning, everyone. 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 www.circor.com on the Investor Relations page. Please turn to slide 2.

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, including the 2010 quarterly reports on Form 10-Q. 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, November 4, 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 asbestos and bankruptcy charges related to Leslie Controls subsidiary. The reconciliation of CIRCOR's adjusted non-GAAP operating income, net income and free cash flow to the comparable GAAP measures are available in the financial tables of the earnings press release on CIRCOR's website.

Fred Burditt Thanks, David and good afternoon everyone. This is Fred Burditt. Please turn to slide 3 for the highlights.

Our third-quarter results demonstrate the progress we are making improving our top and bottom line results. Total revenues, which grew 23% year over year, came in at the high end of our guidance range. Revenue growth was primarily driven by continued strength of the short cycle Energy business and early-cycle Flow Technologies end markets. On the bottom line, our earnings, excluding any Leslie bankruptcy and asbestos charges, surpassed our expectations for the quarter, although there were some nonoperational benefits in the quarter. Nevertheless, we are on a solid improvement performance trajectory coming through the recession.

Our bookings performance for the quarter was particularly impressive. Total orders were up 51% year over year, which includes 17% from acquisitions. Orders were strongest for our short-cycle Energy business, but were also up in all three segments. The only area of disappointment was the late-cycle large international Energy projects which we had thought would pick up this quarter, but orders remained essentially flat.

I would like to take a minute to provide a quick update on the progress of our subsidiary Leslie Controls' pre-negotiated Chapter 11 Plan of Reorganization. We obtained the asbestos claimant votes necessary for approval of the Plan and last week the US Bankruptcy Court entered an order confirming the Plan. We are now focused on obtaining district court approval and then winning any appeals that may be pursued. At this point, certain of Leslie's insurers have filed a Notice of Appeal, but we believe any appeals are without merit. Leslie is continuing to conduct business as usual during the Chapter 11 process.

Now please turn to slide 4. Revenues for the third quarter of $177.6 million were up 23% from the third quarter of 2009 and up 6% sequentially. The year-over-year increase consisted of 19% organic growth, 7% from acquisitions, partially offset by a 3% negative foreign exchange impact. Adjusted operating income, the lower right chart, at $15.8 million increased 31% from the third quarter of last year and 37% sequentially from the second quarter of 2010. On a margin basis we came in at 8.9%, up 200 basis points sequentially as the Energy and Flow Technologies segments improved.

Our net income for the quarter was $10.4 million compared with a net income of $8.4 million in Q3 of '09. Adjusted earnings per diluted share, which excludes special charges and Leslie asbestos and bankruptcy charges, were $0.69 for the third quarter of 2010, compared to $0.54 in the third quarter of 2009.

Now I'll turn to segment performance beginning with Energy on slide 5. The Energy segment bookings increased 95% year over year due to strong short-cycle business and the Pipeline Engineering acquisition we purchased in the fourth quarter of last year. Bookings were also up sequentially by 24%. Our ending backlog at $153 million, was up 34% year over year and 23% sequentially. Energy revenues increased 32% year over year from organic growth of 24% and growth from acquisitions of 12%, partially offset by an unfavorable currency impact of 4%. Sequentially, revenues were up 4%.

The segment's adjusted operating margin was 11.1%, compared with 10.9% in the third quarter of 2009 and 8.3% in Q2. The third quarter of 2010 included a benefit of $2.3 million from a favorable insurance recovery and a penalty accrual adjustment associated with a previously concluded project. Excluding this benefit, the quarter's performance was mixed. While the short-cycle business continued to improve strongly, the long-cycle business was below our expectations, as pricing, volume and margins have not materially rebounded yet. We do expect sequential improvements to be in the fourth quarter.

Now turning to Aerospace on slide 6 -- within our Aerospace segment, bookings increased 15% year over year and 16% sequentially. Both increases were approximately 50% due to the acquisition of Castle Precision Industries. We ended the third quarter with segment backlog of $152.8 million, an increase of 27% year over year and 30% sequentially. Revenues were up 8% year-over-year, driven by growth from acquisitions of 9% and 2% organic, partially offset by a 2% foreign currency decrease.

Our adjusted operating margins were 9.6%, down year over year from 13.2% and from 14.6% in the second quarter of this year. The sequential adjusted operating income margins declined as a result of higher operating expenses related to support of new programs, acquisition transaction costs for Castle, and seasonal Q3 unabsorbed fixed cost partially offset by some productivity gains and favorable pricing.

Now, let me move to Flow Technologies. Strength across most of our end markets resulted in a 30% year over year and 20% sequential increase in bookings. We ended the third quarter with segment backlog of $85.9 million, up 36% from last year. Revenues increased 21% year over year due to organic growth of 22%, the result of strength in semiconductor, maritime, instrumentation and process -- and 2% from acquisitions, partially offset by a negative foreign exchange impact of 3%.

The segment's margins were 13.1%, compared to 10.9% in the third quarter of 2009 and 10.1% in Q2 2010. The year-over-year increase resulted from higher volumes and productivity. The sequential improvement included favorable volume, mix, and improved impact of the Q2 Mazda acquisition.

Slide 8 shows highlights from our P&L, some of which we've already discussed, but let me touch on asbestos charges, other income and our tax rate. Q3 included $2.3 million expense all related to Leslie bankruptcy charges which is less than the $4.0 million we had forecasted. We anticipate most of this reduction has shifted to Q4 2010. Last year's asbestos charges were $2.0 million but of course this was associated with our indemnity and defense costs prior to filing.

Other income of $0.9 million was primarily driven by foreign exchange gains as the euro and other currencies strengthened against the US dollar in the quarter.

The effective tax rate in the third quarter was 23.6% versus our guidance of 27%. This improvement, worth about $0.03, was primarily driven by the impact of revaluing our UK deferred tax assets and liabilities pursuant to the UK tax reduction effective April 1, 2011.

Excluding the Leslie asbestos and bankruptcy charges, as I mentioned earlier, our adjusted earnings per share was $0.69 for the third quarter of 2010, an increase of 28% compared to $0.54 in the third quarter of '09.

Our balance sheet, on Slide 9, continues to be strong. The cash on our balance sheet and our available credit facility currently provides us with the flexibility to complete the Leslie bankruptcy, invest in organic growth and pursue strategic acquisitions.

During the quarter, we used $3.6 million in free cash flow compared with generating $11.2 million in Q3 2009, due primarily to changes in working capital and increased capital expenditures.

Our total debt is $42.4 million versus $9.4 (sic - see slide 9) million at the end of the third quarter of '09. The increase was due mostly to the Castle acquisition made in August.

One further note before I turn this to Bill. Today, CIRCOR is filing a $400 million universal shelf registration with the SEC. This filing is a proactive action on our part to provide the flexibility to our capital structure to take advantage of financing opportunities, acquisitions, and other business opportunities that may arise over the next years. This does not, however, indicate that we have any offer pending.

Now let me turn the call over to Bill.

Thank you, Fred. Please turn to slide 10. We'll be covering our end market and end market assumptions. Let's start with the large international Energy projects.

Quoting activity remains high in the Middle East and Asia-Pacific for large international projects. We had expected an uptick in actual order intake this quarter, but orders remained flat compared to Q2. Most of the orders we're receiving, including those from Asia-Pacific customers, are destined for projects in the Middle East. And as we've mentioned before, we continue to face pricing headwinds in large projects being as there is excess production capacity available.

Our short-cycle business remains strong, driven by healthy North American rig activity. Our distributors continue to order on pace with the market. And we're watching for seasonal year-end slowdown in short-cycle orders. However, the short cycle business has been strong so far this year. And in fact, we've announced a price increase effective January 1.

In our pipeline business, RFQ activity is high in Europe and Asia and the pricing environment appears to be slowly improving.

Now, let's turn to Aerospace, which is a late-cycle business in terms of the economy. The commercial side of Aerospace is improving as passenger and air cargo traffic are both up to pre-2008 levels. The one exception appears to -- continues to be business jet traffic, which remains low and related demand is not expected to improve anytime soon.

On the military side, demand is steady in Aerospace. The 2011 US defense budget has been delayed and we're watching for any effects the recent elections may have on programs in which we're involved. In Europe, defense budgets across the board are being cut and we anticipate a difficult year in 2011 internationally for the military sector.

During the third quarter we acquired the assets of Castle Precision, which manufactures landing gear, landing gear and actuation subsystems, and provides maintenance, repair and overhaul services to commercial and military aircraft markets. The addition of Castle strengthens our capability and expands our landing gear capabilities. Better positions us to meet OEM and aftermarket customer expectations, particularly on the commercial side.

Moving on to Flow Technologies end markets, the HVAC and steam-related markets continue to be soft as the result of limited new construction, particularly in North America. Customers are spending money on maintenance and repair and efficiency improvements, but are not investing in longer-term capital-intensive building projects. On the positive side, distributors are beginning to replenish inventories in anticipation of the coming heating season.

Turning to the industrial and process markets, the semiconductor market remains strong due to capacity expansion and particularly LED production in Asia. RFQ activity remains high. Base industrials continue to improve as domestic orders are picking up and international markets are strengthening. Maintenance and repair orders are also increasing.

In power generation markets we're seeing good demand internationally and we expect that domestic MRO activity will continue to be steady as well. There are growing opportunities for exports into emerging markets such as valves on steam turbines for China and India.

Petrochemical and refining end markets continue to be weak and are slowing from 2009 levels. MRO activity continues to be stable, however.

Turning to our Navy and maritime business, orders are steady and our export market continue to be stable. The UK is planning a reduction in its naval fleet, which could affect our spares business in the future.

So this brings us to our expectations going forward. In Energy we expect demand in our short-cycle business will continue to be strong. Large international project orders have improved from the bottom of the cycle, but appear somewhat flat today and have not grown as much as we had anticipated. Pricing will continue to be a drag on large projects, but may be improving in the short cycle end markets.

We continue to expect that Aerospace segment is at the bottom of a cyclical downturn and will improve in 2011 and beyond.

Flow Technologies continues to build on a base of MRO spending and early-cycle demand.

Overall we believe that we are still in the early phase of a cyclical recovery. With that said, please turn to slide number 11 and we'll review our guidance for the fourth quarter of 2010. We expect revenues for the fourth quarter of this year in the range of $192 million to $202 million and adjusted earnings per diluted share in the range of $0.50 to $0.63. This excludes $0.06 per diluted share in charges related to Leslie's bankruptcy process and no impairment or special charges. It also assumes that the exchange rates remain at present levels and a tax rate of 26%.

So before we go to your questions, I'd like to leave you with a few key thoughts. First, we've built strong management teams across CIRCOR and continue to manage well through the downturn and through the recession.

Second, we're executing on our long-term growth strategy, which includes growing by investing in new products and systems and through acquisitions and by expanding our global supply chain and presence in emerging markets.

And finally, our sales, bookings, and backlog trends are all positive and were especially strong in our short-cycle Energy and our earlier-cycle Flow Technologies businesses.

So with that, we'd like to go to your questions.

Thank you. (Operator instructions.) Charlie Brady; BMO Capital Markets.

Nice quarter, guys. With respect to the Energy segment and the operating margin, you had some commentary in the release about a favorable penalty reserve adjustment. What exactly was that and can you quantify it?

Yes. Well, most of the $2.3 million I mentioned in my comments was most of that had to do with that adjustment. And what it was was a very large project -- I think we've talked about it in the past, the RasGas project back in 2007 and 2008 we completed. And we never finally resolved the contract and the closing out of it due to some dispute over deliveries and penalties. And we finally resolved that during the quarter and favorably to us.

Okay. And then, in your commentary you talked about that you expect sequential improvement in the Energy business in Q4. Are you referring to the operating margin or just as the business as whole?

We're talking about the revenues and just the business as a whole. But we weren't referring to the -- if you exclude the impact of that favorable adjustment, we do anticipate a sequential improvement in the margins also.

Okay. And then on Flow Tech in the prepared remarks, in the release, you talked about operating margin being impacted by mix. Could you just give us a little more granularity on sort of what was the mix and kind of what was the impact on that mix in the quarter?

We had some very good -- we had some -- certain [percentage] of our projects are contracts. We had very favorable margins on those businesses. They were higher than they are in our typical quarter. And that -- would say probably around 100 basis points, plus a couple other adjustments in the quarter that benefited that.

Okay. One more and I'll hop back in queue. On the price increase that you guys put through January 1 on the Energy business, what's the size of that price increase?

It's in the range of around 5%.

Thank you.

Matt Summerville; KeyBanc Capital Markets.

Couple questions. Fred, just to make sure I understand, so you had a $2 million one-time favorable adjustment in Energy. Is that correct?

That's correct.

Okay. And then I guess from my standpoint, if we kind of do a walk-through from Q3 to Q4 using roughly the midpoint of your guidance, we're going to see revenue improve $20 million. We're going to see EPS move from $0.70 in Q3 to a range of $0.50 to $0.63. If I call $0.08 of that just one-time gain -- I guess I'm having a hard time reconciling the big jump you're going to see in revenue and your sequentially down earnings.

Yes. Some of the other factors that are impacting us, Matt, is the tax rate. We won't get that benefit. That was around 3% a quarter. We're going to have higher interest expense because of the Leslie -- funding of the bankruptcy. We also had a favorable $0.03 gain on foreign currency during Q3 and then some of the higher favorable margin -- mix margins in the CFT segment. Those are the big ones, other than what we've just talked about in Energy.

Okay. And then, you guys have provided a little bit of color in the past on the longer-cycle project business, the magnitude of price pressure you're seeing there. Can you give us an update? I think a quarter or two ago it was maybe at 6 to 8 points of pressure. Kind of where is that now? And then, conversely, in your North American business you mentioned to Charlie's question, pricing moving up 5% effective January 1st. Are you seeing your larger competitors follow suit with that?

As it relates to the, I'm sorry, first question -- I'm sorry. Could you ask that question again? I apologize.

Sure. I'm trying to get a sense for whether the magnitude of price pressure you're seeing in the large international project business is actually declining in magnitude or whether it's gotten worse. And in the past you've sort of quantified the amount of pressure you've seen there.

Yes. I would say the amount of pricing pressure is about the same as it's been. We've seen, as we said, slight improvement in our backlog, but that's not going to be -- that's not coming through in our actual results yet. That would be obviously later, next year. But it's slight. It's not a major --

I think it's important, too, to remind everyone that that long-cycle backlog is a three-quarter cycle. It's more than half a year, but less than a full year. So any pricing that we experience in bidding now will show up three quarters later.

And I have to get back to you on the price increase. As far as I know, no one has followed our price increase.

I think it's too early to call on that.

I'd have to check (inaudible.)

I think it's too early to call.

Okay. And then, just I guess on -- Bill, so your comment there, are you saying that the projects you're bidding on now are at more favorable price points so we should start to see that nine months from now? I just want to make sure I'm closing that loop.

Yes. No, I think the way we were describing it is that we went through a bottom when pricing was pretty severe a year ago. It's gotten a little bit better. It's stabilized. We haven't seen the order quantities that we expected yet, but we have kind of formed a base floor and building from there. And pricing seems to be a little bit better.

And how should we think of pricing in terms of raw material costs in that business as we move into next year?

Typically when we win an award, we lock in the raw materials, at least the large forging and casting and things that we need for the future. So there's not a lot of material cost risk looking out (inaudible.)

Appreciate it. Thank you.

Thank you. (Operator instructions.) One moment while we poll for questions.

If there are no other questions we would like to express our appreciation and thank everyone for their continued interest in CIRCOR and look forward to speaking with you again. Thank you.

We do have a question coming from Marty Pollack. Please proceed with your question.

Yes. Just wondering if you might talk about the Aerospace business and what kind of profitability you should be expecting after third quarter. Are we back into that 13, 14% type range going into next year? I mean, what would be a reason why that number would not be a number that we can see a recovery to?

Yes, Marty, this is Fred. You -- we should see a rebound back into, I'd say, the 12 to 13% range in the Energy segment.

That would be in -- okay, and as far as the Aerospace?

I'm sorry; in the Aerospace segment. I apologize.

Aerospace, okay. As far as -- I mean, I guess we don't have a 2011 guidance at this point. Just any more color in terms of as you speak about the project business still kind of being a little late here, you didn't get the order pickup. But maybe just describe the confidence that somehow or other we really are at the bottom or coming off the bottom. Can you talk about that at all, into 2011?

I think it's fair to say that we've come up off of the lows of where we were. We've formed kind of a steady base of where we are and there's still a lot of order activity going on. So we're fairly confident it will either stay where it is from here or grow and I'm just -- we'll just have to wait and see how the quarter turns out on bookings. But there's a fair amount of activity, particularly in the Middle East.

I mean, so this quarter it would not, in a sense -- potential orders being pushed to the right and not necessarily -- or maybe they're not actually there yet. But I mean, any potential orders should emerge next year if they -- because of activity being very strong or at least being better this quarter. One could think of it as maybe activity that has been pushed to the right so that it's just a matter of getting those bookings? Is that one way to think about it again, just try to go --

I think it is. However, there's been a lot of activity for the last year or so. So I think it's really about decision makers and the finalization of capital spending plans. As oil prices continue to go up, that gets more likely.

Okay, yes. Thanks so much.

Brad Evans; Heartland Capital.

Yes, it's Heartland Funds. Thanks for taking the questions. Could you just give us your thoughts in terms of the three respective business units and where you think you're long-term segment operating margins should be for those respective businesses? What's a good, long-term goal for each business's respective profitability?

Well, we've said consistently in the past that we define a well run operating the business as in the mid-teens operating margins and we have plans to grow from those businesses that were or have been at different times below double-digit operating margin to the 10 to 15% operating range. And then as we build out more of a presence in the markets and as we expand our scale we can get into 15%-plus operating margin levels.

I'm not sure what you just said. Are you speaking on a consolidated basis, operating income, for the whole corporation?

At the segment level.

Pre-corporate?

Yes.

Okay. Just curious, as you look at the fourth quarter, should there be any major changes in terms of the right side of the balance sheet from a debt perspective? Or can you just give us your thoughts as to how the balance sheet will look in the fourth quarter, following the Leslie bankruptcy? Or is the third quarter a pretty accurate reflection of how it should look?

Well, the funding is $75 million. We expect around $40 million of that to come from cash and about $35 million, the rest, the remainder, to come from debt. So our debt will -- we anticipate will be somewhere around $60 million.

At the end of the year.

Of total debt?

Correct, total debt.

I'm sorry, I'm just coming up the learning curve here a little bit. Does the asbestos liability then come off the balance sheet or does that stay on the balance sheet going forward?

It comes off the balance sheet.

Okay. And do you have any thoughts for capital spending preliminarily as you look out to next year, for 2011?

We at this point have not given any guidance for next year. We'll be starting to do that as we enter, obviously, the end of the fourth quarter. But at a normal -- we spend most of our CapEx on new projects and key productivity projects.

And last one from me and I'll get back in the queue if there -- I don't want to hog the call. But on the Aerospace side, could you just give us your current mix between military and commercial and your thoughts as you look out to the next couple of years as defense rolls over a bit? Will the commercial segment of that operation recover cyclically strong enough to allow for the optics of growth for the entire segment in your view?

Yes, our strategy is to grow the commercial side of the business and diversify. Our single biggest program is the Chinook helicopter, which is a great program. But we recognize that longer term we want to have more balance and that's part of the acquisition strategy. That's part of the reason we just bought Castle, which gives us more business in the aftermarket on the commercial side. So as the commercial transport picks up in business and regional and eventually someday business, we will see a cyclical pickup.

Is it your view that the commercial recovery should -- as that industry cyclically recovers, will that be strong enough to allow for the segment to grow in the face of headwinds in the military end markets?

Hello? Hello?

We seem to be experiencing some technical difficulty with our speaker line.

Sorry. This is Fred Burditt and Bill Higgins. Somehow we got dropped. So we're back on. I apologize.

Am I still on the line? This is Brad Evans speaking.

Yes, Brad. You're about three questions back, probably. We couldn't hear.

No, I think -- so did you hear my last question?

Why don't you ask it again, just to be sure.

I'm sorry. I was just hoping for just a little bit of further clarification. You had articulated that you expected the military markets to be softer as we move out over the next '11 and 2012, I guess. And I'm just curious as to whether the commercial end market recovery will allow for that segment to continue to grow as we go forward.

Yes. We believe it will. And that's part of our strategy.

Okay. I'll get back into queue.

Yes, just a little more color on that. The military, obviously, has a lot to do with the budget. But we are -- we do have some new programs, especially in the JSF, which will help us grow during a period when even normal military orders would be kind of flat (inaudible).

And we've won new programs such as the A-350, extra wide body, the new aircraft landing gear program. So we're in good shape for the future.

One last question, if I may just sneak one in terms of free cash deployment, in terms of your priorities for deploying free cash flow between acquisitions, reinvesting in the business and potential share repurchases or dividend increases. Could you just outline your current thinking in terms of highest and best uses for cash?

Yes. Our focus right now and our strategy is to use our cash for organic and acquisition growth opportunities.

And that dovetails the recent shelf filing, I assume?

Yes, that would be consistent with that also. Yes.

Okay. Thank you.

Follow up question; Charlie Brady; BMO Capital Markets.

Just with regard to the Energy business and the incoming orders, so the majority of that, if I understand the release, is the short-cycle business. And I guess what I'm trying to get to is, as I look at the Energy backlog then, has the mix within the Energy backlog then, has the cycle time of that backlog shrunk, given that there's probably a greater proportion of the short-cycle business maybe being embedded in that?

The short-cycle business has been strong. We did get a decent order in the pipeline business, which I would describe as medium cycle. So there is a mix of cycles in that backlog.

But our long-cycle backlog has been relatively steady, actually, over the last -- the first three quarters of this year. We did come down from the highs, obviously, last year, but.

So the growth would be in the short- and medium-cycle businesses.

Right.

And as the mix gets a little bit better, assuming the project cycle long stuff kind of stays flattish, that the embedded margin in that backlog ought to improve as well?

I'm not quite sure, Charlie, what the question is, in the sense of --

I guess I'm saying, as I understand it from what you're answering is that the mix in the backlog in Energy has moved a little more toward the shorter cycle.

With the exception of the acquisition of Pipeline Engineering.

Right. So then, if there's a greater proportion of that short-cycle business in the backlog, would that not inherently make the backlog margin better than maybe it's been even earlier part of this year, end of last year?

Yes, that's fair. That's fair. It's slightly better. Yes.

Thank you.

Are there any more questions?

Follow-up; Brad Evans.

I'm sorry, just what is your capital budget for the fourth quarter and can you just help us with the forward tax rate, please?

26% for the fourth quarter on the tax rate. And the capital expenditures will be in the range of $3 million.

Is that 26% a reasonable number to use as we look out to next year?

We haven't given any guidance on that yet, Brad, so it probably would be slightly higher than that next year I would anticipate.

Okay. Thank you very much.

Follow-up; Matt Summerville; KeyBanc Capital Markets.

I apologize if this has been answered. There was some difficulty and I think I missed some of the dialogue, but I'm going to go ahead and ask it anyway. Can we just get a little bit more detail on the sequential performance from an operating profit standpoint in Aerospace from Q2 to Q3, or even just year over year? I know you talked about some of the headwinds, but maybe just put some numbers on that. Obviously, the one-time acquisition costs will go away. I don't know if we're in the middle of a bigger R&D cycle for you guys with the A-350. So can you talk about the moving parts there and what the margin profile this business is going to look like over the next couple of quarters?

Yes. Well, I'd say we're probably going to -- we are going to rebound in Q4 as we -- again, as the bene- -- the cost of the acquisition goes away and some of the -- Q3 tends to be one of our lower-margin quarters. We'll be back into the 13, 14% range in the fourth quarter. And it has some impact in there of the new programs. We've had that most of this year. And going forward that would be the same. It would probably be consistent going forward if we -- unless there was some other new program that we had.

What is it about Q3, Fred, that would make it a lower margin quarter for you guys? If I go back in the history since you've reported the three segments, Aerospace margins have never been in the single-digit range. I mean, this is a big drop.

Well, there was -- acquisitions was a big piece of that. Between the -- I think the total impact on the quarter was probably about $700,000 that impacted the quarter. So that was the biggest issue in the quarter.

And we have more and more -- over the last couple of years, we've -- our acquisition activity, a lot of it has been in Europe and France. And quite frankly, because of the shut-downs in the European business during Q3, it tends to hurt our absorption of our fixed costs.

Thank you for clarifying that. That's helpful.

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

Yes. We appreciate your continued interest and support of CIRCOR and look forward to seeing you again soon. Thank you very much.

And that concludes our conference call. Thank you for joining us today.