CIRCOR INTERNATIONAL INC [CIR] Filings

10-Q 1 cir-20221002.htm 10-Q cir-20221002

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 2, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-14962

CIRCOR INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware

04-3477276

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

30 Corporate Drive, Suite 200

Burlington,

01803-4238

(Address of principal executive offices)

(Zip Code)

(781) 270-1200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CIR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Emerging growth company

☐

Non-accelerated filer

☐

Smaller reporting company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 8, 2022, there were 20,363,350 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.

CIRCOR INTERNATIONAL, INC.

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited) (As Restated)
	Condensed Consolidated Balance Sheets as of October 2, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended October 2, 2022 and October 3, 2021 (As Restated)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended October 2, 2022 and October 3, 2021 (As Restated)	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 2, 2022 and October 3, 2021 (As Restated)	6
	Condensed Consolidated Statements of Shareholders' Equity for the Three and Nine Months Ended October 2, 2022 and October 3, 2021 (As Restated)	8
	Notes to Condensed Consolidated Financial Statements (As Restated)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37
PART II.	OTHER INFORMATION	39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39




Item 6.	Exhibits	40
Signatures		41

PART I. FINANCIAL INFORMATION


ITEM 1.			FINANCIAL STATEMENTS

CIRCOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(UNAUDITED)


	October 2, 2022		December 31, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	47,131	$	59,924

Trade accounts receivable, net	95,407		100,149
Inventories	137,411		123,343

Prepaid expenses and other current assets	125,409		110,749


Total Current Assets	405,358		394,165
PROPERTY, PLANT AND EQUIPMENT, NET	130,442		154,461
OTHER ASSETS:
Goodwill	117,542		122,906
Intangibles, net	257,839		303,476
Lease right-of-use assets, net	40,836		21,139
Deferred income taxes	637		756
Other assets	27,323		22,395
TOTAL ASSETS	$	979,977	$	1,019,298
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	71,601	$	83,382
Accrued expenses and other current liabilities	73,505		81,998
Accrued compensation and benefits	31,817		26,551
Short-term borrowings and current portion of long-term debt	—		1,611
Total Current Liabilities	176,923		193,542
LONG-TERM DEBT	501,754		511,694
DEFERRED INCOME TAXES	18,101		21,721
PENSION LIABILITY, NET	104,438		120,881
LONG-TERM LEASE LIABILITIES	37,155		17,715
OTHER NON-CURRENT LIABILITIES	19,524		20,029
COMMITMENTS AND CONTINGENCIES (NOTE 9 AND 10)
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued and outstanding at October 2, 2022 and December 31, 2021	—		—
Common stock, $0.01 par value; 29,000,000 shares authorized; 21,735,838 and 21,633,131 issued at October 2, 2022 and December 31, 2021 respectively	218		217
Additional paid-in capital	455,208		454,852
Accumulated deficit	(184,132)		(198,081)
Common treasury stock, at cost (1,372,488 shares at October 2, 2022 and December 31, 2021)	(74,472)		(74,472)
Accumulated other comprehensive loss, net of tax	(74,740)		(48,800)
Total Shareholders’ Equity	122,082		133,716
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	979,977	$	1,019,298

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CIRCOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(UNAUDITED)


	Three Months Ended				Nine Months Ended
	October 2, 2022		As Restated October 3, 2021		October 2, 2022		As Restated October 3, 2021
Net revenues	$	195,362	$	189,709	$	572,392	$	553,750
Cost of revenues	128,116		131,898		391,660		387,943
Gross profit	67,246		57,811		180,732		165,807
Selling, general and administrative expenses	50,392		53,546		160,517		169,371
Special and restructuring (recoveries) charges, net	(25,702)		814		(22,430)		6,808
Operating income (loss)	42,556		3,451		42,645		(10,372)
Other expense (income):
Interest expense, net	11,821		7,997		31,481		24,325
Other (income), net	(2,396)		(256)		(5,321)		(3,301)
Total other expense, net	9,425		7,741		26,160		21,024
Income (loss) from continuing operations before income taxes	33,131		(4,290)		16,485		(31,396)
Provision for income taxes	1,661		850		2,536		3,206
Income (loss) from continuing operations, net of tax	31,470		(5,140)		13,949		(34,602)
Income from discontinued operations, net of tax	—		2,510		—		1,393
Net income (loss)	$	31,470	$	(2,630)	$	13,949	$	(33,209)

Basic income (loss) per common share:
Basic from continuing operations	$	1.55	$	(0.25)	$	0.69	$	(1.72)
Basic from discontinued operations	$	—	$	0.12	$	—	$	0.07
Net income (loss)	$	1.55	$	(0.13)	$	0.69	$	(1.65)

Diluted income (loss) per common share:
Diluted from continuing operations	$	1.54	$	(0.25)	$	0.68	$	(1.72)
Diluted from discontinued operations	$	—	$	0.12	$	—	$	0.07
Net income (loss)	$	1.54	$	(0.13)	$	0.68	$	(1.65)

Weighted average number of common shares outstanding:
Basic	20,364		20,257		20,345		20,181
Diluted	20,410		20,257		20,410		20,181

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CIRCOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(UNAUDITED)


	Three Months Ended				Nine Months Ended
	October 2, 2022		As Restated October 3, 2021		October 2, 2022		As Restated October 3, 2021
Net income (loss)	$	31,470	$	(2,630)	$	13,949	$	(33,209)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(13,948)		(1,244)		(25,398)		(4,423)
Interest rate swap adjustments (1)	—		1,644		(688)		4,792
Pension adjustment	49		50		146		161

Other comprehensive (loss) income, net of tax	(13,899)		450		(25,940)		530
COMPREHENSIVE INCOME (LOSS)	$	17,571	$	(2,180)	$	(11,991)	$	(32,679)

(1) Net of an income tax effect of $(2.5) million and $0.0 million for the nine months ended October 2, 2022 and October 3, 2021 respectively.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CIRCOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)


	Nine Months Ended
OPERATING ACTIVITIES	October 2, 2022		As Restated October 3, 2021
Net income (loss)	$	13,949	$	(33,209)
Income from discontinued operations, net of income taxes	—		1,393
Income (loss) from continuing operations, net of tax	13,949		(34,602)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation	15,012		17,505
Amortization	27,704		31,929
Change in provision for bad debt expense	(263)		(383)
Write down of inventory	1,797		1,742
Compensation expense for share-based plans	980		4,165
Loss on debt extinguishment	4,977		—
Amortization of debt issuance costs	2,672		3,032
Deferred tax provision	45		823


Loss on sale of businesses	—		1,308
Gain on sale of real estate	(47,977)		—
Other impairment charges	8,011		—
Loss on deconsolidation charges	4,675		—
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
Trade accounts receivable	(1,116)		8,686
Inventories	(28,364)		(11,621)
Prepaid expenses and other assets	(25,387)		(26,686)
Accounts payable, accrued expenses and other liabilities	(6,047)		6,439
Net cash (used in) provided by continuing operating activities	(29,332)		2,337
Net cash used in discontinued operating activities	—		(2,484)
Net cash used in operating activities	(29,332)		(147)
INVESTING ACTIVITIES
Additions to property, plant and equipment	(13,291)		(10,579)
Proceeds from the sale of property, plant and equipment	82		2
Proceeds from the sale of real estate	54,945		—
Proceeds from beneficial interest of factored receivables	3,461		1,531
Proceeds from the sale of business	—		9,993


Net cash provided by investing activities	45,197		947
FINANCING ACTIVITIES
Proceeds from long-term debt	180,441		145,550
Payments of long-term debt	(182,166)		(148,450)
Net change in short-term borrowings	(1,573)		(225)
Proceeds from the exercise of stock options	—		151
Withholding tax payments on net share settlements on equity awards	(1,299)		(4,154)
Payment of debt issuance costs	(16,701)		—



Net cash used in financing activities	(21,298)		(7,128)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(7,096)		(2,834)
DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(12,529)		(9,162)
Cash, cash equivalents, and restricted cash at beginning of period	61,374		68,607
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD	$	48,845	$	59,445

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CIRCOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

(UNAUDITED)


	Common Stock			Additional Paid-in Capital		Accumulated deficit		Accumulated Other Comprehensive (Loss)		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
Balance as of July 3, 2022	20,352	$	217	$	454,361	$	(215,602)	$	(60,841)	$	(74,472)	$	103,663
Net income	—	—		—		31,470		—		—		31,470
Other comprehensive (loss), net of tax	—	—		—		—		(13,899)		—		(13,899)

Conversion of restricted stock units	12	1		243		—		—		—		244
Share-based plan compensation	—	—		604		—		—		—		604
Balance as of October 2, 2022	20,364	$	218	$	455,208	$	(184,132)	$	(74,740)	$	(74,472)	$	122,082

Balance as of July 4, 2021 (As Restated)	20,248	216		452,512		(167,023)		(89,048)		(74,472)		122,185
Net (loss)	—	—		—		(2,630)		—		—		(2,630)
Other comprehensive income, net of tax	—	—		—		—		450		—		450

Conversion of restricted stock units	7	1		(13)		—		—		—		(12)
Share-based plan compensation	—	—		1,262		—		—		—		1,262
Balance as of October 3, 2021 (As Restated)	20,255	$	217	$	453,761	$	(169,652)	$	(88,599)	$	(74,472)	$	121,256

Balance as of December 31, 2021	20,261	$	217	$	454,852	$	(198,081)	$	(48,800)	$	(74,472)	$	133,716
Net income	—	—		—		13,949		—		—		13,949
Other comprehensive (loss), net of tax	—	—		—		—		(25,940)		—		(25,940)

Conversion of restricted stock units	103	1		(623)		—		—		—		(622)
Share-based plan compensation	—	—		979		—		—		—		979

Balance as of October 2, 2022	20,364	$	218	$	455,208	$	(184,132)	$	(74,740)	$	(74,472)	$	122,082

Balance as of December 31, 2020 (As Restated)	20,001	214		452,728		(136,443)		(89,129)		(74,472)		152,898
Net (loss)	—	—		—		(33,209)		—		—		(33,209)
Other comprehensive income, net of tax	—	—		—		—		530		—		530
Stock options exercised	24	—		151		—		—		—		151
Conversion of restricted stock units	230	3		(3,283)		—		—		—		(3,280)
Share-based plan compensation	—	—		4,165		—		—		—		4,165

Balance as of October 3, 2021 (As Restated)	20,255	$	217	$	453,761	$	(169,652)	$	(88,599)	$	(74,472)	$	121,256

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CIRCOR INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of CIRCOR International, Inc. (“CIRCOR” or the “Company”) have been prepared according to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”) for interim reporting, along with accounting principles generally accepted in the U.S. (“GAAP”). In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring items) necessary for a fair presentation of the Company’s results of operations, financial position and cash flows for the periods presented. The Company prepares its interim financial information using the same accounting principles it uses for its annual audited consolidated financial statements. Certain information and note disclosures normally included in the annual audited consolidated financial statements have been condensed or omitted in accordance with SEC rules. The Company believes that the disclosures made in its unaudited condensed consolidated financial statements and the accompanying notes are adequate to make the information presented not misleading. The unaudited results of operations for interim periods reported are not necessarily indicative of the results for the full year or any other period.

The condensed consolidated balance sheet as of December 31, 2021 was derived from CIRCOR’s audited consolidated financial statements as of that date but does not include all of the information and notes required for annual financial statements. The Company recommends that the financial statements included in its Quarterly Report on Form 10-Q be read in conjunction with the consolidated financial statements and notes included in its Annual Report on Form 10-K for the year ended December 31, 2021 ("2021 Annual Report").

As further described in the Explanatory Note in its 2021 Annual Report and Note 2 and Note 23 in Item 8 of the 2021 Annual Report, the Company discovered accounting irregularities in its Pipeline Engineering business unit and restated its financial statements for prior periods. The restatement of prior period financial statements includes interim financial statements for the three and nine months ended October 3, 2021. The comparative financial statements presented for the three and nine months ended October 3, 2021, are restated for the matters as further described in the 2021 Annual Report.

CIRCOR operates and reports financial information using a fiscal year ending December 31. The data periods contained within its Quarterly Reports on Form 10-Q reflect the results of operations for the 13-week, 26-week and 39-week periods which generally end on the Sunday nearest to the calendar quarter-end date. Operating results for the three and nine months ended October 2, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any future period.

Unless otherwise indicated, all financial information and statistical data included in these notes to the Company's condensed consolidated financial statements relate to its continuing operations, with dollar amounts expressed in thousands (except share and per-share data). As of July, 3, 2022, the Company's condensed consolidated financial statements reflect the deconsolidation of the Catterick, UK entity of the Pipeline Engineering business.

Certain prior period amounts included in the condensed consolidated balance sheet have been reclassified to conform with current period presentation. Specifically, the Company reclassified $21.1 million from Other Assets to the Lease Right-Of-Use Asset balance and $20.0 million from Other Long-Term Liabilities to Long-Term Lease Liabilities as of December 31, 2021.

COVID-19

The COVID-19 pandemic continues to impact the global economy, resulting in rapidly changing market and economic conditions. The effects of the COVID-19 pandemic continue to negatively impact the Company’s results of operations, cash flows and financial position. The Company’s consolidated financial statements presented herein reflect management's estimates and assumptions regarding the effects of COVID-19 as of the date of the consolidated financial statements.

(2) Summary of Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements for the three and nine months ended October 2, 2022 are consistent with those discussed in Note 3 to the consolidated financial statements in the 2021 Annual Report.

The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying disclosures. Some of the more significant estimates, which are impacted by management's estimates and assumptions regarding the effects of COVID-19, relate to recoverability of goodwill and indefinite-lived trade names, estimated total costs for ongoing long-term revenue contracts where transfer of control occurs over time, inventory valuation, share-based compensation, amortization and impairment of long-lived assets, income taxes (including valuation allowance), fair value of disposal group, pension benefit obligations, acquisition accounting, penalty accruals for late shipments, asset valuations, and product warranties. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ materially from those estimates.

(3) Revenue Recognition

The Company's revenue is derived from a variety of contracts. A significant portion of revenues are from contracts associated with the design, development, manufacture or modification of highly engineered, complex and severe environment products with customers who are either in or service the aerospace, defense and industrial markets. Contracts within the defense markets are primarily with U.S. military customers. These contracts typically are subject to the Federal Acquisition Regulations (“FAR”). The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Contracts may be modified to account for changes in contract specifications and requirements.

For revenue that is recognized from products and services transferred to customers over-time, the Company uses an input measure (e.g., costs incurred to date relative to total estimated costs at completion, known as the “cost-to-cost” method) to measure progress. The Company uses the cost-to-cost measure of progress because it best depicts the transfer of control to the customer which occurs as it incurs costs on its contracts. Under the cost-to-cost measure of progress, revenue is recognized proportionally as costs are incurred. Contract costs include labor, materials and subcontractors’ costs, other direct costs and an allocation of overhead, as appropriate.

As of October 2, 2022 the Company had $215.0 million of transaction price related to remaining performance obligations which, is invoiced and paid in accordance with terms of contractual agreements. The Company expects to recognize approximately 32% of its remaining performance obligations as revenue during the remainder of 2022, 55% in 2023, and the remaining 13% in 2024 and thereafter.

In order to determine revenue recognized during the period from contract liabilities at the beginning of the period, the Company first allocates revenue to the individual contract liabilities balance outstanding at the beginning of the period until the revenue exceeds that balance. If additional advances are received on those contracts in the subsequent periods, it assumes all revenue recognized in the reporting period first applies to the beginning contract liability as opposed to a portion applying to the new advances for the period. Revenue recognized during the nine months ended October 2, 2022 that was included in contract liabilities at the beginning of the period amounted to $20.2 million.

Disaggregation of Revenue

The following tables present revenue disaggregated by major product line and geographical market (in thousands):


		Three Months Ended				Nine Months Ended
		October 2, 2022		As Restated October 3, 2021		October 2, 2022		As Restated October 3, 2021


Aerospace & Defense Segment
	Commercial Aerospace & Other	$	34,098	$	23,757	$	88,132	$	67,247
	Defense	38,121		39,704		114,728		115,315
	Total	72,219		63,461		202,860		182,562
Industrial Segment
	Valves	45,061		45,630		131,973		133,107
	Pumps	78,082		80,618		237,559		238,081
	Total	123,143		126,248		369,532		371,188
Net Revenues		$	195,362	$	189,709	$	572,392	$	553,750


		Three Months Ended				Nine Months Ended
		October 2, 2022		As Restated October 3, 2021		October 2, 2022		As Restated October 3, 2021


Aerospace & Defense Segment
	EMEA	$	15,906	$	15,097	$	45,916	$	43,945
	North America	51,295		45,151		143,455		128,604
	Other	5,018		3,213		13,489		10,013
	Total	72,219		63,461		202,860		182,562
Industrial Segment
	EMEA	46,419		56,907		152,277		171,942
	North America	45,180		34,841		128,572		105,112
	Other	31,544		34,500		88,683		94,134
	Total	123,143		126,248		369,532		371,188

Net Revenues		$	195,362	$	189,709	$	572,392	$	553,750

Contract Balances

The Company’s contract assets and contract liabilities balances as of October 2, 2022 and December 31, 2021 are as follows (in thousands):



	October 2, 2022		December 31, 2021		Increase/(Decrease)

Contract assets:
Recorded within prepaid expenses and other current assets	$	99,244	$	87,527	$	11,717
Recorded within other assets	6,384		6,336		48
	$	105,628	$	93,863	$	11,765

Contract liabilities:
Recorded within accrued expenses and other current liabilities	$	27,013	$	26,870	$	143
Recorded within other non-current liabilities	5,838		4,847		991
	$	32,851	$	31,717	$	1,134

Contract assets increased by $11.8 million during the nine months ended October 2, 2022, primarily due to revenue recognized in excess of invoicing within the Defense and Industrial Pumps and Valves businesses partially offset due to invoicing upon project completion milestones in excess of revenue recognized within Refinery Valves business.

Contract liabilities increased by $1.1 million during the nine months ended October 2, 2022, primarily due to customer advances received in excess of revenue recognized in the Defense and Refinery Valves businesses, partially offset by recognition of revenue against customer advances within Industrial Pumps and Valves business.

Revenue on over time contracts is recognized as the Company, in accordance with the terms of the applicable contract, transfers control in the underlying products or services to the customer, which occurs as it incurs costs on its contracts under the cost-to-cost measure of progress. Revenue on over time contracts may be recognized before or after payments, advances or progress billings from customers are received. Recognition of revenue on over time contracts before the Company can invoice the customer can result in contract assets. Receipt of progress billings or advances from customers in advance of recognizing revenue can result in contract liabilities. Contract assets and contract liabilities amounts presented above are determined at the contract level unit of account. At the contract level it is determined whether the contract is in a net contract asset or net contract liability position.

Contract assets are generally classified between current (one year or less) and non-current (more than one year) based on factors such as when payments are due. Contract liabilities are generally classified between current and non-current based on factors such as expected timing of satisfaction of performance obligation.

Allowance for Credit Losses

The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses or doubtful accounts based upon expected losses, its historical experience, expectation of changes in risk of loss and any specific customer collection issues that it has identified. During the nine months ended October 2, 2022, there were no material changes in the allowance for credit losses including additional allowances, write-offs or recoveries other than charges in the amount of $1.5 million for the Pipeline Engineering business as described further in Note 4, Special and restructuring (recoveries) charges, net.

(4) Special and Restructuring (Recoveries) Charges, net

Special and restructuring (recoveries) charges, net

Special and restructuring (recoveries) charges, net consist of restructuring costs (including costs to exit a product line or program) as well as certain special (recoveries) charges such as significant litigation settlements and other transactions (charges or recoveries) that are described below. All items described below are recorded in Special and restructuring (recoveries) charges, net on the condensed consolidated statements of operations. Certain other special and restructuring (recoveries) charges such as inventory related items may be recorded in cost of revenues given the nature of the item.

The table below summarizes the amounts recorded within the special and restructuring (recoveries) charges, net line item on the condensed consolidated statements of operations for the three and nine months ended October 2, 2022 and October 3, 2021 (in thousands):


	Special & restructuring (recoveries) charges, net
	Three Months Ended				Nine Months Ended
	October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021
Special (recoveries) charges, net	$	(25,529)	$	1,126	$	(33,399)	$	2,779
Restructuring (recoveries) charges, net	(173)		(312)		10,969		4,029
Total special and restructuring (recoveries) charges, net	$	(25,702)	$	814	$	(22,430)	$	6,808

Special (recoveries) charges, net

The table below details the special (recoveries) charges, net recognized for the three and nine months ended October 2, 2022 (in thousands):


	Special (recoveries) charges, net
	Three Months Ended October 2, 2022
	Aerospace & Defense		Industrial		Corporate		Total

Pipeline Engineering investigation and restatement costs	$	—	$	—	141		$	141
Gain on real estate sales	(25,969)		—		—		(25,969)
Strategic alternatives evaluation	—		—		214		214

Other special (recoveries) charges, net	—		(67)		152		85
Total special (recoveries) charges, net	$	(25,969)	$	(67)	507		(25,529)

	Special (recoveries) charges, net
	Nine Months Ended October 2, 2022
	Aerospace & Defense		Industrial		Corporate		Total
Pipeline Engineering investigation and restatement costs	$	—	$	—	$	6,504	$	6,504
Gain on real estate sales	(25,969)		(22,008)		—		(47,977)
Strategic alternatives evaluation	—		—		1,159		1,159
Debt amendment charges	—		—		4,977		4,977
Other special charges	—		898		1,040		1,938
Total special (recoveries) charges, net	$	(25,969)	$	(21,110)	13,680		(33,399)

Pipeline Engineering investigation and restatement costs: During the three and nine months ended October 2, 2022, the Company recognized special charges, net of $0.1 million and $6.5 million, respectively, related to the investigation into accounting irregularities at the Company's Pipeline Engineering businesses and incremental professional services charges incurred due to the restatement.

Gain on real estate sales: During the three and nine months ended October 2, 2022, the Company recognized gains of $26.0 million and $48.0 million on the sales of real estate, respectively.

During the three and nine months ended October 2, 2022, within the Aerospace and Defense segment, the Company recognized a gain on the sale of real estate of $26.0 million located at Corona, California. On September 6, 2022, the Company entered into a five year operating lease on the Corona facility, at the market rate of buildings of similar size and location, with a five year option to renew. The Company recorded an initial $14.3 million of operating right of use asset and lease liabilities.

During the nine months ended October 2, 2022, the Company recognized a gain on the sale of real estate of $22.0 million within the Industrial segment located at Walden, New York and Tampa, Florida. The Company recognized a gain of $6.4 million and $15.6 million on each building, respectively. On April 8, 2022, the Company entered into a five year operating lease on the Tampa facility, at the market rate of buildings of similar size and location, with a five year option to renew. The Company recorded an initial $9.3 million of operating right of use asset and lease liability.

Strategic alternatives evaluation: The Company incurred special charges of $0.2 million and $1.2 million for the three and nine months ended October 2, 2022, respectively, related to the evaluation of strategic alternatives for the Company.

Debt amendment charges: The Company incurred special charges of $5.0 million for the nine months ended October 2, 2022 related to the amendments of its credit agreements. See Note 8, Financing Arrangements for amendment information.

Other special charges, net: During the three and nine months ended October 2, 2022, the Company recognized other special charges, net of $0.1 million and $1.9 million, respectively. Other special charges, net within Corporate for the nine months ended October 2, 2022 include a net $0.9 million for severance related to the former CEO, comprised of $1.7 million severance, partially offset by the accounting effects of forfeitures for certain unvested CEO stock based compensation awards. Additionally, for the three and nine months ended, October 2, 2022 the Company incurred other special (recoveries), net of $0.1 million and $0.9 million, respectively within Industrial related to severance and contract termination costs, and other special charges.

The table below details the special charges (recoveries), net recognized for the three and nine months ended October 3, 2021 (in thousands):


	Special charges, net
	Three Months Ended October 3, 2021
	Aerospace & Defense		Industrial		Corporate		Total
Heater & Control Valves divestiture	$	—	$	481	$	143	$	624
Other special charges, net	—		376		126		502
Total special charges, net	$	—	$	857	$	269	$	1,126

	Special charges (recoveries), net
	Nine Months Ended October 3, 2021
	Aerospace & Defense		Industrial		Corporate		Total
Cryo divestiture	$	—	$	(1,947)	$	—	$	(1,947)
Heater & Control Valves divestiture	—		3,459		143		3,602

Other special charges (recoveries), net	35		995		94		1,124
Total special charges (recoveries), net	$	35	$	2,507	$	237	$	2,779

Heater & Control Valves divestiture: During the three and nine months ended October 3, 2021, the Company recognized special charges of $0.6 million and $3.6 million, respectively, related to the sale of the Heater and Control Valve businesses. The Company also recognized charges of $0.1 million in Corporate associated with the divestiture during the three and nine months ended October 3, 2021.

Cryo divestiture: During the nine months ended October 3, 2021, the Company recognized a net special recovery of $1.9 million from the sale of the Cryo business. The Company received cash proceeds of $7.2 million and recognized a pre-tax gain on sale of $1.9 million.

Other special charges (recoveries), net: The Company recognized special charges of $0.5 million and $1.1 million for the three and nine months ended October 3, 2021, respectively. Included in the charge recognized during the nine months ended October 3, 2021 is $0.9 million within the Industrial segment pertaining to a contingency indemnification to the buyer of a previously divested business within the Industrial segment. The Company also recognized charges of $0.1 million in Corporate associated with streamlining operations and reducing costs during the three months ended October 3, 2021.

Restructuring charges, net

The tables below detail the charges associated with restructuring actions recorded for the three and nine months ended October 2, 2022 and October 3, 2021. Accruals associated with the restructuring actions are recorded within Accrued expenses and other current liabilities on the condensed consolidated balance sheets (in thousands):


	Restructuring charges (recoveries), net
	Three Months Ended October 2, 2022
	Aerospace & Defense		Industrial		Corporate		Total
Facility and other related charges (recoveries), net	$	5	$	(252)	$	—	$	(247)
Employee related charges (recoveries), net	—		25		49