CIRCOR International, Inc. (NYSE: CIR) today announced a major
development in its effort to stem mounting asbestos litigation
costs and resolve asbestos liability claims at its Leslie Controls,
Inc. subsidiary.
Leslie today filed a pre-negotiated plan of reorganization as a
voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in
U.S. Bankruptcy Court for the District of Delaware. Supported by a
committee of attorneys representing current asbestos claimants and
a proposed independent representative of future claimants, the plan
is intended to permanently resolve Leslie’s asbestos liability
through the creation of a trust pursuant to Section 524(g) of the
U.S. Bankruptcy Code. All current and future asbestos claims
against Leslie would be channeled to the trust for review and
payment, thus providing both Leslie and CIRCOR with permanent court
protection from such claims.
“Because we strongly believe that exposure to Leslie’s products
has not caused any asbestos-related illness, our strategy has been
to vigorously defend these claims,” said CIRCOR Chairman and Chief
Executive Officer Bill Higgins. “However, the cost of this defense
has exceeded the profits generated by Leslie’s operations, and we
have been considering for some time a range of strategic
alternatives that would enable us to permanently eliminate this
expense and risk. Resolving Leslie’s asbestos liability through a
pre-negotiated plan of reorganization accomplishes that aim, while
preserving the value of a strong and viable business.”
“We believe that a 524(g) trust that equitably resolves all
pending and future claims and provides CIRCOR with permanent
protection from derivative claims is in the best interest of all
our stakeholders, including CIRCOR’s shareholders and Leslie’s
customers, suppliers and employees,” Higgins continued.
“Unencumbered by financial and legal exposure to asbestos
liability, Leslie will be positioned to grow and contribute to
CIRCOR’s profitability and cash flow going forward.”
Leslie intends to conduct business as usual during the Chapter
11 process, which could be completed in as little as 120 days.
Today’s filing stays all pending and future asbestos litigation
against Leslie. As a result, Leslie expects that its cash from
operations will be sufficient to satisfy all of its operating
obligations during this period. In addition, debtor-in-possession
financing has been arranged for Leslie if needed.
Key terms of the pre-negotiated plan are as follows:
- Funding for the 524(g) trust
will consist of a $75 million contribution by Leslie and CIRCOR
together with a contribution of proceeds from Leslie’s remaining
asbestos insurance assets;
- A provision that permanently
protects CIRCOR and its affiliates from future derivative claims
associated with Leslie’s asbestos liability; and
- Leslie will remain a subsidiary
of CIRCOR during and after Chapter 11.
Key outcomes of the plan are as follows:
- Leslie employees will not be
adversely affected;
- Leslie’s suppliers will continue
to be paid in full; and
- Leslie’s customer obligations
will be honored in the ordinary course of business.
Because the plan has been pre-negotiated and is supported by
many key members of the plaintiffs bar, Leslie is confident that
the plan will obtain the required approval of 75 percent of current
asbestos claimants. Leslie expects the solicitation process for
formal approval of the plan to begin within approximately 30-45
days and to be completed within approximately 60-90 days. Once the
plan is confirmed and affirmed by the courts and all other actions
necessary to implement the plan are effected, Leslie and CIRCOR
will fund the 524(g) trust and Leslie will emerge from
bankruptcy.
For the year ended December 31, 2009, Leslie recorded $35.2
million in revenue, which represented approximately 5.5 percent of
CIRCOR’s consolidated revenue of $642.6 million. Since 2002, Leslie
has been named in an escalating number of asbestos-related personal
injury claims. These claims relate primarily to the use of asbestos
on U.S. Navy ships from the 1940s to the 1980s. The vast majority
of asbestos on these ships was used as insulation material around
piping, and was not specified, supplied or utilized by Leslie.
While certain of Leslie’s products included asbestos-containing
gaskets or packing supplied by third parties, any asbestos in these
products was encapsulated inside the products and did not create
any ambient exposure to asbestos particles. Therefore, Leslie
strongly believes that exposure to its products has not caused
asbestos- related illness to any person.
In connection with Leslie’s pre-negotiated Chapter 11 filing,
CIRCOR expects to record an anticipated pretax charge of $27.2
million in the second quarter of 2010. In addition, net cost for
asbestos litigation prior to the filing is expected to be $1.6
million. As a result, CIRCOR anticipates incurring a total of $28.8
million in pretax asbestos-related costs, $18.7 million after tax,
during the second quarter of 2010. This compares with approximately
$4.0 million in pretax asbestos-related costs, $2.6 million after
tax, assumed in the second-quarter 2010 earnings guidance provided
by CIRCOR on May 10, 2010.
Conference Call Information
CIRCOR International will hold a conference call to discuss this
announcement today, July 12, 2010, at 9:00 a.m. ET. Those who wish
to listen to the conference call and view the accompanying
presentation slides should visit “Webcasts & Presentations” in
the “Investors” portion of the CIRCOR website. The live call also
can be accessed by dialing (877) 407-5790 or (201) 689-8328. For
those unable to listen to the live call, the webcast will be
archived on the CIRCOR website.
About Leslie Controls
Based in Tampa, Florida, Leslie Controls is a manufacturer of
process control valves, severe service control valves, on-off
valves, regulators, steam water heaters, actuators and
controls.
Additional information about Leslie’s asbestos litigation can be
found in CIRCOR’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31,
2009.
About CIRCOR International, Inc.
CIRCOR International, Inc. provides valves and other highly
engineered products and subsystems that control the flow of fluids
safely and efficiently in the aerospace, energy and industrial
markets. With more than 9,000 customers in over 100 countries,
CIRCOR has a diversified product portfolio with recognized,
market-leading brands. CIRCOR’s strategy includes growing
organically by investing in new, differentiated products; adding
value to component products; and increasing the development of
mission-critical subsystems. The Company also plans to leverage its
strong balance sheet to acquire complementary businesses.
Safe Harbor Statement
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. You can identify these forward-looking statements by
CIRCOR’s use of words such as “may,” “hope,” “will,” “should,”
“could,” “expects,” “plans,” “estimates,” “anticipates,”
“projects,” “intends,” “believes,” or any other expressions that do
not relate to historical matters. Reliance should not be placed on
forward-looking statements because they involve unknown risks,
uncertainties and other factors, which are, in some cases, beyond
CIRCOR’s control. Such risks and uncertainties include, but are not
limited to, those relating to Leslie’s ability to reach acceptable
definitive agreements with asbestos claimants and other creditors,
Leslie’s ability to obtain court approval for a proposed
reorganization plan and its proposed debtor-in-possession
financing, and unforeseen developments affecting Leslie’s ability
to pay creditors in full, operate in the ordinary course and
adequately fund a trust to resolve all pending and future asbestos
claims. Actual events, performance or results may differ materially
from the anticipated events, performance or results expressed or
implied by such forward-looking statements. BEFORE MAKING ANY
INVESTMENT DECISIONS REGARDING CIRCOR, YOU ARE STRONGLY ADVISED TO
READ THE SECTION ENTITLED “RISK FACTORS” IN CIRCOR’S MOST RECENT
ANNUAL REPORT ON FORM 10-K AND IN SUBSEQUENT QUARTERLY REPORTS ON
FORM 10-Q, WHICH CAN BE ACCESSED UNDER THE “INVESTORS” LINK OF
CIRCOR’S WEBSITE AT WWW.CIRCOR.COM. CIRCOR undertakes no obligation
to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise.
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