CLEVELAND, Feb. 17 /PRNewswire-FirstCall/ -- Hawk Corporation (Amex: HWK)
announced today that net sales from continuing operations for the fourth
quarter of 2003 increased by 7.5% to $47.5 million from $44.2 million in the
comparable prior year period. The Company also reported a net loss from
continuing operations before pension curtailment charge of $.10 per diluted
share for the fourth quarter of 2003 compared to net income from continuing
operations of $.01 per diluted share in the comparable year ago period. In
accordance with generally accepted accounting principles (GAAP), net loss
before discontinued operations for the fourth quarter of 2003 was $.26 per
diluted share compared to net income before discontinued operations of $.01
per diluted share in the prior year.
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As previously disclosed in early January 2004, the Company has implemented
a strategic plan that will lead to the sale of its motor segment business and
the closure of its Brook Park, Ohio friction products manufacturing facility.
As a result of the planned divestiture of the motor segment, the Company will
be reporting the results of operations and the related adjustment of the
segment's assets to fair market value as discontinued operations both on an
historical basis and going forward. In accordance with GAAP, the financial
results of the discontinued operations are reflected in the Company's
financial statements on the line item, "Loss from discontinued operations, net
of tax" for all periods presented.
The Company announced a net loss for the fourth quarter 2003 of
$6.1 million, or $.71 per diluted share, compared to a net loss of $0.4
million, or $.05 per diluted share in the comparable prior year period. The
2003 fourth quarter net loss includes pre-tax, non-cash charges of $1.9
million to reflect the curtailment of a defined benefit pension plan as a
result of the Company's previously announced closure of its Brook Park
facility and a pre-tax, non-cash charge of $4.5 million associated with the
discontinued operations of the Company's motor segment based on a current
estimate of net proceeds for the disposition of the segment. This charge
represents an estimated impairment in the net assets of the discontinued
operations held for sale.
The Company reported that net sales from continuing operations in the
fourth quarter of 2003 increased by 7.5% to $47.5 million from $44.2 million
in the year-ago quarter. Increases were posted in the friction and precision
components segments of the business offsetting a slight decline in the
performance racing segment. The effect of foreign currency exchange rates
caused net sales in the three month period ended December 31, 2003 to increase
by 3.3%. The Company's net sales from continuing operations benefited from
improved economic conditions and market share gains during the quarter in a
number of the Company's end markets, including construction, specialty
friction, agriculture, lawn and garden and fluid power. During the quarter,
the Company's net sales to the aerospace market declined by 11.2%, in line
with our previously announced estimates. For the full year 2003, net sales
from continuing operations were $202.6 million, a 9.0% increase from $185.9
million in the prior year. The effect of foreign currency exchange rates
caused net sales from continuing operations for the full year 2003 to increase
by 3.2%.
In accordance with GAAP, the net loss before discontinued operations for
the fourth quarter of 2003 was $2.2 million, or $.26 per diluted share,
compared to net income before discontinued operations of $0.1 million, or $.01
per diluted share in the comparable prior year period. The decrease in income
before discontinued operations income was primarily attributable to a $1.9
million pre-tax pension curtailment charge as a result of the planned closing
of the Brook Park facility, increased defined benefit pension expense and
product mix. Additionally, in the fourth quarter of 2002, the Company's
operating income benefited from the elimination of discretionary incentive
compensation and profit sharing contributions of approximately $2.2 million.
The net loss before discontinued operations for the year ended December 31,
2003 was $0.4 million, or $.07 per diluted share, compared to a net income
from continuing operations of $0.8 million, or $.08 per diluted share, in the
prior year.
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "We have made a number
of decisions as we enter 2004, which will lead to greater focus and solid
operating results for the Company. Concentrating on our two core businesses,
friction products and powder metal, will enable us to provide our markets with
technically superior products in a cost-efficient manufacturing environment."
"During the past five months, we have continued to win new product awards
as a result of our leading technological processes," Mr. Weinberg added. "We
were encouraged by the strength of our sales orders in the fourth quarter of
2003, especially in our friction segment. This momentum has continued into
the first forty-five days of 2004. We remain optimistic that this positive
sales trend will continue through 2004 as a result of the improving economic
conditions in the markets we serve and our new product awards. We have also
identified our friction fleet and aftermarket business as an opportunity for
significant sales growth opportunities in 2004 and beyond."
Mr. Weinberg continued, "We continue to focus on lowering our
manufacturing cost structure and to that end, we are in the process of
relocating one of our domestic manufacturing facilities from which we expect
to achieve annual cost savings of approximately $3.0 million. We are also
expanding our friction and powder metal operations in China to take advantage
of the lower production costs as well as increased global sales opportunities
from those facilities."
Business Segment Results
In the friction segment, fourth quarter net sales increased $2.7 million
or 10.4%, to $28.7 million from $26.0 million in the year-ago period. The
effect of foreign currency exchange rates caused the friction segment's net
sales in the fourth quarter of 2003 to increase by 5.4%. Primary drivers of
the sales increase were new product introductions, resulting in market share
gains to customers primarily in the construction and agriculture markets,
improved conditions in the Company's truck market, increased sales to the
aftermarket and the fleet market, and increased sales from the Company's
Italian and Chinese facilities. These increases were partially offset by
sales declines in the quarter in the aerospace market as well as from the
Company's previously announced exit from the automotive stamping market in
June 2003.
The Company's global business programs continue to benefit from improved
economic conditions, as well as new product introductions. Net sales at the
Company's Italian facility, on a local currency basis, increased 24.0% in the
fourth quarter of 2003 compared to the same period in 2002, while net sales at
the Company's Chinese facility increased 111% during the same period.
Net sales in the friction segment for the year ended December 31, 2003
increased 14.6% to $121.6 million from $106.1 million in the comparable prior
year period. Sales benefited from growth at the segment's foreign facilities,
new product introductions and continued market share gains during the period
in most of the markets served by the segment. The effect of foreign currency
exchange rates caused the friction segment's net sales for the year ended
December 31, 2003 to increase by 5.6%.
Income from operations before pension curtailment charge in the friction
segment during the fourth quarter of 2003 was $0.9 million, compared to
$2.5 million in the comparable prior year period. The decrease was the result
of product mix, especially due to the decline in sales in the aircraft market,
and the elimination of discretionary incentive compensation and profit sharing
contributions in this segment of $1.2 million benefiting the 2002 fourth
quarter period. No corresponding benefit occurred in the fourth quarter of
2003. Additionally, the segment experienced increased pension expense in the
quarter compared to the prior year comparable quarter. In the fourth quarter
of 2003, in accordance with GAAP, the friction segment reported a loss from
operations of $1.0 million compared to income from operations of $2.5 million
in the comparable prior year period. For the year ended December 31, 2003,
income from operations before pension curtailment charge increased $2.4
million, or 30.8%, to $10.2 million from $7.8 million in the comparable prior
year period. In accordance with GAAP, for the year ended December 31, 2003,
income from operations was $8.3 million, or 6.4%, compared to $7.8 million in
the prior year.
In the Company's precision components segment, net sales increased 5.8% to
$16.5 million in the fourth quarter of 2003 from $15.6 million in the
comparable prior year period. The increase during the quarter was driven by
the improvements in the lawn and garden, fluid power and power tool markets,
partially offset by declines in the automotive and appliance markets. Net
sales for the year ended December 31, 2003, were up $0.9 million, or 1.3%, to
$68.1 million from $67.2 million in the prior year. The Company's powder
metal production facility in China began production and shipment of product in
the fourth quarter of 2003.
Income from operations in the precision components segment in the fourth
quarter of 2003 was $0.6 million compared to $2.1 million during the
comparable quarter of 2002, a decline of $1.5 million or 71.4%. This decrease
was primarily due to the elimination of discretionary incentive compensation
and profit sharing contributions which benefited the 2002 fourth quarter
period in the amount of $1.0 million, product mix, and start-up and training
costs associated with the installation of new equipment. No corresponding
benefit occurred in the fourth quarter of 2003. Additionally, during the
fourth quarter of 2003, the segment continued to incur expenses for the
start-up of its powder metal production capabilities in China. For the year
ended December 31, 2003, income from operations decreased 46.5% to
$2.3 million from $4.3 million in the prior year.
Net sales in the Company's performance racing segment, which consists of
racing clutches and drive train components, decreased 11.5%, to $2.3 million
in the fourth quarter of 2003 compared to $2.6 million in the comparable prior
year period. The decline in net sales was primarily caused by a reduction in
racing team sponsorship money during the period. Net sales for the year ended
December 31, 2003 increased 2.4% to $12.9 million from $12.6 million in the
prior year.
Loss from operations in the performance racing segment in the fourth
quarter of 2003 was $0.4 million compared to $0.2 million in the comparable
prior year period. For the year ended December 31, 2003, income from
operations was $0.3 million compared to $0.9 million in the prior year.
Working Capital and Liquidity
As of December 31, 2003 working capital, exclusive of the Company's senior
credit facility was reduced by $7.8 million. Principal amounts outstanding
under the Company's senior credit facility declined by $12.3 million compared
to December 31, 2002 levels.
As previously announced the Company needed to seek an amendment to certain
of the financial covenants in its senior credit facility to be able to
implement its strategic repositioning plan in 2004. At this time, the Company
has obtained verbal assurances from its bank group to the amendment.
Business Outlook
"We are encouraged that the sales momentum that began in the latter half
of 2003 has continued as we move into 2004. We continue to work on a number
of new programs that we expect will lead to new sales orders during the first
quarter of this year. Additionally, sales from our foreign operations should
remain robust as a result of market share gains and the introduction of new
products to the marketplace from those facilities," stated Mr. Weinberg. "As
a result, we currently anticipate our full year revenues from continuing
operations to grow at approximately 6% in 2004, despite our anticipation that
sales to the aircraft market will be slightly lower to flat for the year."
Presentation of Non-GAAP Financial Information
The Company's presentation of "(Loss) income from continuing operations
before pension curtailment charges" and per share data for "(Loss) income from
continuing operations before pension curtailment charges" are non-GAAP
financial measures. Because of the significant steps taken by Hawk in its
strategic plan to close its Brook Park, Ohio facility, Hawk believes that
presenting earnings that exclude this charge is helpful to our investors to
better understand Hawk's operating results. Pursuant to Regulation G, Hawk
has included in the section of the press release captioned "Reconciliation of
non-GAAP Financial Measures" a reconciliation of the non-GAAP operating
results before the pension curtailment charge to GAAP operating results.
The Company
Hawk Corporation is a leading worldwide supplier of highly engineered
products. Its friction products group is a leading supplier of friction
materials for brakes, clutches and transmissions used in airplanes, trucks,
construction equipment, farm equipment and recreational vehicles. Through its
precision components group, the Company is a leading supplier of powder metal
and metal injected molded components for industrial applications, including
pump, motor and transmission elements, gears, pistons and anti-lock sensor
rings. The Company's performance racing group manufactures clutches and
gearboxes for motorsport applications and performance automotive markets.
Headquartered in Cleveland, Ohio, Hawk has approximately 1,550 employees and
15 manufacturing, research and administrative sites in four countries.
Forward-Looking Statements
This press release includes forward-looking statements concerning the full
year of 2003 sales, market share, foreign operations, working capital and
other statements that involve risks and uncertainties. These forward-looking
statements are based upon management's expectations and beliefs concerning
future events. Forward-looking statements are necessarily subject to risks,
uncertainties and other factors, many of which are outside the control of the
Company and which could cause actual results to differ materially from such
statements. These risks and uncertainties include, but are not limited to:
the Company's signing an amendment to its senior credit facility containing
the necessary amendments to certain financial covenants to which the bank
group has verbally agreed; the ability of the Company to meet the existing and
amended terms of its credit facilities, including the numerous financial
covenants and other restrictions; the timely completion of construction and
initiation of production of Wellman Products' new facility; the ability to
hire and train qualified people at the new facility; the ability to transfer
production to the new facility and commence production at the new facility
without causing customer delays or dissatisfaction; the ability to achieve the
projected cost savings at the new facility, including whether the cost savings
can be achieved in a timely manner; whether or not Hawk's motor segment will
be sold and if sold whether the sale can take place in the time or at the
price projected by Hawk; whether or not the motor segment will be able to
improve its operating performance during the selling process; higher than
anticipated costs related to relocation of Wellman Products' facility and the
sale of Hawk's motor segment; the impact of the reduction in air travel on our
aerospace business; the impact on our gross profit margins as a result of
changes in our product mix; the Company's ability to effectively utilize all
of its manufacturing capacity as the industrial and commercial end-markets we
serve gradually improve or if improvement is not achieved as we anticipate;
the effect of general economic and industry conditions and competition; the
ability of the Company to begin generating profits from its facility in China;
as the Company continues to expand internationally, the effect of changes in
international laws and regulations and currency exchange rates; the effect of
competition by manufacturers using new or different technologies; the ability
of the Company to successfully negotiate new agreements with its unions as
they come due; the effect of any interruption in the Company's supply of raw
materials or a substantial increase in the price of raw materials; the
continuity of business relationships with major customers; and the ability of
the Company's aircraft component products to meet stringent Federal Aviation
Administration criteria and testing requirements.
Actual results and events may differ significantly from those projected in
the forward-looking statements. Reference is made to Hawk's filings with the
Securities and Exchange Commission, including its annual report on Form 10-K
for the year ended December 31, 2002, its quarterly reports on Form 10-Q, and
other periodic filings, for a description of the foregoing and other factors
that could cause actual results to differ materially from those in the
forward-looking statements. Any forward-looking statement speaks only as of
the date on which such statement is made, and the Company undertakes no
obligation to update any forward-looking statement, whether as a result of new
information, future events or otherwise.
Investor Conference Call
A live Internet broadcast of the Company's conference call discussing
quarterly and year to date results can be accessed via the investor relations
page on Hawk Corporation's web site (http://www.hawkcorp.com) on Tuesday,
February 17, 2004 at 10:00 a.m. Eastern Time. An archive of the call will be
available shortly after the end of the conference call on the investors
relations page of the Company's web site.
Hawk Corporation is online at: http://www.hawkcorp.com
HAWK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
Three Months Ended Year Ended
December 31, December 31,
2003 2002 2003 2002
Net sales $ 47,536 $ 44,190 $ 202,551 $ 185,912
Cost of sales 37,588 32,920 155,182 141,716
Gross profit 9,948 11,270 47,369 44,196
Selling, technical
and administrative
expenses 8,549 6,714 33,731 30,474
Pension curtailment
charge 1,920 1,920
Amortization of
intangibles 217 165 800 767
Total expenses 10,686 6,879 36,451 31,241
(Loss) income from
continuing operations (738) 4,391 10,918 12,955
Interest expense (2,669) (2,897) (10,752) (10,366)
Interest income 15 26 57 116
Exchange offer costs (1,066) (1,851)
Other income
(expense), net 66 (99) 183 (718)
(Loss) income from
continuing operations
before income taxes (3,326) 355 406 136
Income tax (benefit)
provision (1,144) 235 855 (669)
Net (loss) income
before discontinued
operations and
cumulative effect
of change in
accounting principle (2,182) 120 (449) 805
Loss from
discontinued
operations, net
of tax (3,911) (527) (4,973) (1,850)
Cumulative effect of
change in accounting
principle, net of tax (17,200)
Net loss $ (6,093) $ (407) $ (5,422) $ (18,245)
Diluted (loss)
earnings per share:
(Loss) earnings before
discontinued
operations and
cumulative effect of
change in accounting
principle $ (.26) $ .01 $ (.07) $ .08
Discontinued
operations,
net of tax (.45) (.06) (.58) (.22)
Cumulative effect
of change in
accounting principle,
net of tax (2.01)
Net loss per
diluted share $ (.71) $ (.05) $ (.65) $ (2.15)
Three Months Ended Year Ended
December 31, December 31,
2003 2002 2003 2002
Other data:
Depreciation
and amortization
Continuing
operations $ 2,811 $2,597 $ 10,873 $ 11,014
Discontinued
operations $ 206 $ 198 $ 835 $ 748
Reconciliation of
non-GAAP financial
measures:
(Loss) income from
continuing
operations $ (2,182) $ 120 $ (449) $ 805
Pension curtailment
charge, net of tax (1,356) (1,356)
(Loss) income from
continuing operations
before pension
curtailment charges $ (826) $ 120 $ 907 $ 805
Diluted loss
per share:
(Loss) income from
continuing operations $ (.26) $ .01 $ (.07) $ .08
Pension curtailment
charge, net of tax (.16) (.16)
(Loss) income from
continuing operations
before pension
curtailment charges $ (.10) $ .01 $ .09 $ .08
Friction segment data:
(Loss) income from
continuing operations $ (955) $2,462 $ 8,284 $ 7,794
Pension curtailment
charge (1,920) (1,920)
Income from
continuing operations
before pension
curtailment charges $ 965 $2,462 $ 10,204 $ 7,794
HAWK CORPORATION
CONSOLIDATED BALANCE SHEET (Unaudited)
(in thousands)
December 31, December 31,
2003 2002
ASSETS
Current assets
Cash and cash equivalents $ 3,365 $ 1,702
Accounts receivable 32,272 29,475
Inventories 35,424 32,681
Taxes receivable 521 3,333
Deferred tax asset 3,551 745
Other current assets 4,032 3,909
Assets of discontinued operations 4,302 3,965
Total current assets 83,467 75,810
Property, plant and equipment, net 63,136 61,820
Goodwill 32,495 32,495
Other intangible assets 9,904 10,701
Assets of discontinued operations 6,408
Other assets 4,547 5,646
Total assets $ 193,549 $ 192,880
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 21,569 $ 16,104
Other accrued expenses 18,185 9,095
Short-term debt 1,326
Bank facility 24,059 36,327
Current portion of long-term debt 1,148 3,103
Liabilities of discontinued operations 3,652 2,126
Total current liabilities 69,939 66,755
Long-term debt 68,443 68,890
Deferred income taxes 4,360 5,245
Liabilities of discontinued operations 633
Other 9,102 6,523
Shareholders' equity 41,705 44,834
Total liabilities and
shareholders' equity $ 193,549 $ 192,880
SOURCE Hawk Corporation
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CONTACT:
Ronald E. Weinberg, Chairman, CEO and
President, or Thomas A. Gilbride, Vice President - Finance, both
of Hawk Corporation, +1-216-861-3553
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