- Net Sales increase 19% in 2004
- Full year income from operations up 59%
CLEVELAND, Feb. 23 /PRNewswire-FirstCall/ -- Hawk Corporation
(Amex: HWK) announced today that for the year ended December 31, 2004, it had
net sales of $241.2 million, an increase of $38.6 million or 19.1%, from
$202.6 million in the comparable prior year. Income from operations for the
2004 full year period increased $6.4 million, or 58.7%, to $17.3 million from
$10.9 million in the comparable prior year period even after several
specifically identifiable factors including $1.1 million of costs relating to
a move of its friction products manufacturing facility to Oklahoma as well as
increases in its basic raw materials costs. Despite these factors, operating
margin, expressed as income from operations as a percent of net sales,
increased to 7.2% for the full year 2004 compared to 5.4% in the comparable
prior year period.
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Net sales for the fourth quarter of 2004 increased by $10.7 million, or
22.5%, to $58.2 million from $47.5 million in the comparable prior year
period. Increases were posted in each of the Company's business segments,
with sales increases of 26.5% in the friction products segment, 17.0% in the
precision components segment and 13.0% in the performance racing segment.
The effect of foreign currency exchange rates accounted for 2.1% of the 22.5%
net sales increase during the quarter.
Throughout 2004, the Company's net sales benefited from new business
awards and improved economic conditions in most of the Company's end markets,
particularly in construction, agriculture, heavy truck, specialty friction,
fluid power and aerospace.
Income from operations in the fourth quarter of 2004 increased $2.2
million to $1.5 million compared to an operating loss of $0.7 million in the
comparable prior period. As a percentage of net sales, the Company's operating
margin increased to 2.6% in the fourth quarter of 2004 compared to an
operating margin loss of 1.5% in the comparable quarter of 2003. The improved
operating leverage was primarily the result of increased sales volumes and
continued implementation of lean manufacturing and cost reduction programs
throughout the organization. This improvement occurred despite surcharges and
price increases on raw materials, product mix, increased labor and incentive
compensation costs and restructuring charges of $0.6 million during the fourth
quarter of 2004 relating to the Company's new facility in Oklahoma. Although
the Company passed on surcharges and increases in raw material costs to its
customers, a lag in the process negatively impacted the results in the fourth
quarter of 2004. In the fourth quarter of 2003, the Company recorded a $1.9
million pension curtailment charge related to the closing of its Ohio friction
products manufacturing facility, which did not recur in the fourth quarter of
2004.
The Company reported income from continuing operations, after income
taxes, of $1.5 million, or $0.15 per diluted share, for the year ended
December 31, 2004 compared to a loss from continuing operations, after income
taxes, of $0.4 million, or a loss of $0.07 per diluted share in the comparable
prior year period. The reported income from continuing operations, after
income taxes of $0.15 per diluted share includes exchange offer costs of $2.4
million ($1.6 million, net of tax), or $0.18 per diluted share, relating to
the Company's debt refinancing in November 2004 in addition to $1.1 million
($0.7 million, net of tax), or $0.08 per diluted share, relating to the move
of its friction products manufacturing facility.
During the fourth quarter of 2004, including costs associated with the
Company's debt refinancing of $2.4 million ($1.6 million, net of tax), or
$0.18 per diluted share and restructuring charges related to the Company's new
Oklahoma facility of $0.6 million ($0.4 million, net of tax), or $0.05 per
diluted share, Hawk reported a loss from continuing operations, after income
taxes, of $2.8 million or $0.32 per diluted share in the fourth quarter of
2004 compared to a loss of $2.2 million or $0.26 per diluted share in the
comparable prior year period.
The fourth quarter 2004 results were additionally impacted by a change in
the Company's full year effective tax rate to 66.1%. This rate is
substantially higher than the 42.9% used by the Company to compute its
estimated full year effective tax rate as of September 30, 2004. This
increase in the full year effective tax rate was substantially driven by the
impact of tax rate differences on the foreign income and domestic losses
incurred by the Company in the fourth quarter 2004 as well as the inability of
the Company to utilize certain tax credits during the quarter.
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "I am pleased that Hawk
demonstrated substantially improved results in 2004 compared to 2003 despite
the special events during the year that detracted from our earnings. An
analysis of the underlying improvements in the business, without regard to the
special charges of 2004, suggests strong fundamentals in our core business
units. Our end markets remain robust, we continue to gain market share with
the introduction of new products and we are actively pursuing sales through
direct aftermarket sales opportunities."
Business Segment Results
Net sales in the friction products segment for the year ended December 31,
2004 increased $26.7 million, or 22.0%, to $148.3 million from $121.6 million
in the comparable prior year period. In the fourth quarter net sales increased
$7.6 million or 26.5%, to $36.3 million in 2004 from $28.7 million in the
comparable prior year period. Primary drivers of the sales increase were
market share gains in the construction market, improved economic conditions in
the Company's construction, agriculture, truck and aerospace markets,
increased sales to the aftermarket and fleet market, and to a lesser extent,
favorable foreign currency exchange rates. The Company serves the aftermarket
through two types of channels, via its original equipment manufacturers and
through direct aftermarket distribution channels. For the year ended December
31, 2004, direct aftermarket sales increased 19.0% over comparable prior year
levels. The effect of foreign currency exchange rates on net sales accounted
for 3.4% of the 26.5% net sales increase during the quarter. Net sales at the
Company's Italian facility, on a local currency basis, increased 13.6% in the
fourth quarter of 2004 compared to the same period in 2003 as a result of
market share gains, economic improvement and new product introductions in the
period. For the year ended December 31, 2004, net sales, on a local currency
basis, increased 15.8% compared to the same period in 2003.
For the year ended December 31, 2004, income from operations increased
$4.8 million, or 57.8%, to $13.1 million from $8.3 million in the comparable
prior year period. As a percentage of net sales, the segment's operating
margin improved to 8.8% for the year ended December 31, 2004 from 6.8% in the
comparable prior year period.
Income from operations in the friction products segment during the fourth
quarter of 2004 increased to $1.2 million compared to a loss from operations
of $0.9 million in the prior year period. The increase was the result of
improved sales volumes in all of the markets served by the segment which
provided a higher absorption of fixed manufacturing costs and the continued
implementation of cost reduction programs. The change in operating income was
also favorably impacted by a non-cash charge of $1.9 million taken by the
Company in the fourth quarter of 2003 related to the curtailment of a pension
plan associated with the closure of its Brook Park, Ohio friction facility
which was not repeated in 2004. The gains were partially offset by product
mix, increased operating costs to support the higher sales activity, increased
labor and incentive compensation costs, and restructuring charges of $0.6
million related to the plant relocation. As a percentage of net sales, the
segment's operating margin improved to 3.3% during the fourth quarter of 2004
compared to an operating margin loss of 3.1% in the comparable period of 2003.
In the Company's precision components segment, net sales for the year
ended December 31, 2004, were up $10.5 million, or 15.4%, to $78.6 million
from $68.1 million in the comparable prior year period. In the fourth quarter
of 2004, net sales increased 17.0% to $19.3 million from $16.5 million in the
comparable prior year period. The increase during the quarter was driven by
the continued improvements in the industrial markets served by this segment.
The segment experienced increases in its fluid power, appliance, truck and
power tool and the lawn and garden markets during the quarter.
For the year ended December 31, 2004, income from operations in the
precision components segment increased 52.2% to $3.5 million from $2.3 million
in the comparable prior year period. As a percentage of net sales, the
segment's operating margin improved to 4.5% for the year ended December 31,
2004 from 3.4% in the comparable prior year period.
Income from operations in the precision components segment in the fourth
quarter of 2004 was $0.6 million, flat compared to the comparable quarter of
2003. These results give effect to significant increases in raw material
costs which negatively impacted the operating results of this segment in the
fourth quarter of 2004. A significant amount of these raw material price
increases have been strategically passed on to the segment's customers.
However, the timing of these price increases lagged the rate at which they
were incurred by the Company. As a percentage of net sales, the segment's
operating margin declined slightly to 3.1% in the fourth quarter of 2004
compared to 3.6% for the comparable period of 2003.
In the Company's performance racing segment, net sales for the year ended
December 31, 2004 increased 10.9% to $14.3 million from $12.9 million in the
prior year. In the fourth quarter of 2004, net sales increased 13.0%, to $2.6
million from $2.3 million in the comparable prior year period. The increase
in net sales was primarily the result of the introduction of new products
during the quarter.
For the year ended December 31, 2004, income from operations in the
performance racing segment increased 133.3% to $0.7 million compared to $0.3
million in the comparable prior year period. Loss from operations in the
performance racing segment improved to $0.2 million in the fourth quarter of
2004 compared to a loss from operations of $0.4 million in the comparable
prior year period.
Working Capital and Liquidity
As of December 31, 2004 working capital increased by $40.1 million from
December 31, 2003 levels, or $16.0 million, excluding the Company's $24.1
million bank facility, which was included in current liabilities as of
December 31, 2003. The increase was largely the result of growth in the
Company's accounts receivable levels as a result of the higher sales volumes
and expanded inventory levels to support the increased production volumes, the
move to the Company's new facility in Oklahoma and cash outlays associated
with the Company's exchange offer.
On November 1, 2004, the Company entered into a Credit and Security
Agreement with KeyBank National Association, as a replacement for its then
existing bank facility. The new credit facility has a maximum revolving credit
commitment of $30.0 million, including a $5.0 million letter of credit
subfacility. Also on November 1, 2004, the Company issued $110.0 million
8-3/4% Senior Notes due November 2014. The proceeds of these financings were
used to repay the Company's existing senior notes, repay the outstanding
amounts under its existing bank facility, pay fees and expenses associated
with the transactions, as well as to provide for general corporate purposes.
Total debt outstanding increased $18.0 million, to $113.0 million at December
31, 2004, compared to $95.0 million at December 31, 2003. The increase was
primarily to support the growth of the Company's working capital assets as
well as capital expenditures during the period. In connection with the
November 2004 refinancing, the Company took a $2.4 million charge ($1.6
million net of tax), or $0.18 per diluted share, relating primarily to the
write-off of deferred financing charges and consent payments and fees
associated with the retired financial instruments.
Business Outlook
The Company anticipates that many of its major markets will continue to
show signs of strength in 2005 as the economy continues to improve, such as
the construction market which the Company expects to grow approximately 20%
over 2004 levels, the truck market which the Company expects to increase
approximately 17% and the Company's performance brake market which Hawk
believes will outpace its 2004 record sales level by expanding an additional
30% in 2005. The Company believes that after several years of tremendous
growth in the agriculture market, sales will be flat to slightly down in 2005,
and the aerospace market will be flat to slightly up in 2005 after a 7% sales
growth in 2004.
In both the friction products and precision components segments a portion
of the net sales increase in 2004 compared to 2003 was derived from new
business awards either relating to new applications or new materials or
processes that the Company developed. The Company believes it will be
successful with new business in both areas in 2005, furthering its expansion
into new markets and applications.
As a result of Hawk's current view of the markets it serves, and the
anticipated continued success in winning new business, the Company expects
full year 2005 revenues to increase between 10% and 12% compared to 2004
levels. The expectation for first quarter of 2005 revenue growth is an
increase of 13% to 15% over the comparable quarter of 2004.
During 2005, the Company expects to substantially complete the relocation
into its newly constructed manufacturing facility in Oklahoma, and reaffirms
its previously disclosed range of costs to complete this relocation project at
$4.0 million to $4.5 million before taxes in 2005. On an after tax basis, the
Company expects that this will impact earnings per diluted share results by
between $0.30 and $0.33 for 2005. The Company expects first quarter 2005
costs associated with this project to be approximately $0.6 million to $0.8
million.
After giving effect to the charges related to the relocation of the new
manufacturing facility income from operations is expected to increase by 7% to
9% for the full year 2005 when compared to 2004. For the first quarter of
2005, income from operations is expected to increase between 5% and 7%
compared to the first quarter of 2004.
The Company's effective tax rate will continue to be impacted in 2005
primarily by differences in the Company's foreign and domestic income levels.
The Company anticipates that its effective tax rate on continuing operations
will be in the range of 48% to 53% for the full year 2005.
"Despite the noise in our financial results created by the costs
associated with completing our move to our new world class facility in
Oklahoma and the volatility in our effective tax rate, we are confident that
2005 will be a strong year for Hawk." stated Mr. Weinberg. "We are
aggressively taking market share, benefiting from the improving economy, and
taking full advantage of the technology and global investments we have made in
past few years. It is our expectation that despite the $0.30 to $0.33 after
tax charge per diluted share related to the Company's relocation project, Hawk
will report 2005 earnings in a range of $0.35 to $0.40 per diluted share."
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, recreational and performance
automotive vehicles. Through its precision components group, the Company is a
leading supplier of powder metal and metal injected molded components used in
industrial, consumer and other applications, such as pumps, motors and
transmissions, lawn and garden equipment, appliances, small hand tools, trucks
and telecommunications equipment. The Company's performance racing group
manufactures clutches and gearboxes for motorsport applications and
performance automotive markets. Headquartered in Cleveland, Ohio, Hawk has
approximately 1,600 employees at 17 manufacturing, research, sales and
administrative sites in 5 countries.
Forward-Looking Statements
This press release includes forward-looking statements concerning 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 ability of the Company
to meet the terms of its credit facilities, including the numerous financial
covenants and other restrictions; the effect of the Company's debt service
requirements on funds available for operations and future business
opportunities and the Company's vulnerability to adverse general economic
and industry conditions and competition; the Company's ability to effectively
utilize all of its manufacturing capacity as the industrial and commercial
end-markets it serves improve; the timely completion of the construction of
the new facility in the Company's friction products segment; 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; higher than anticipated costs related to
the relocation of the friction products segment facility and the sale of the
Company's motor segment; whether or not the Company's motor segment will be
sold and if sold whether the sale can take place in the time or at the price
projected by the Company; the impact on the Company's gross profit margins as
a result of changes in product mix; the ability of the Company to begin
generating profits from its facilities in China and to turn a profit at its
start-up metal injection molding operation; the effect of the transfer of
manufacturing to China and other lower wage locations by other manufacturers
who compete with the Company; the effect on the Company's international
operations of unexpected changes in legal and regulatory requirements, export
restrictions, currency controls, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, political and
economic instability, difficulty in accounts receivable collection and
potentially adverse tax consequences; the effect of foreign currency exchange
rates as the Company's non-U.S. sales continue to increase; the ability of the
Company to successfully negotiate new agreements, as they expire, with its
unions representing certain of its employees, on terms favorable to the
Company without experiencing work stoppages; 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, 2003, 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 full year 2004 results can be accessed via the investor
relations page on Hawk Corporation's web site (http://www.hawkcorp.com ) on
Wednesday, February 23, 2005 at 11:00 a.m. Eastern time. An archive of the
call will be available shortly after the end of the conference call on the
investor relations page of the Company's web site.
HAWK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
Year Ended Three Months Ended
December 31, December 31,
2004 2003 2004 2003
Net sales $241,188 $202,551 $ 58,150 $ 47,536
Cost of sales 184,662 155,182 46,748 37,588
Gross profit 56,526 47,369 11,402 9,948
Selling, technical
and administrative
expenses 37,405 33,731 9,092 8,549
Restructuring charges 1,117 610
Pension curtailment
charge 1,920 1,920
Amortization of
intangibles 734 800 184 217
Total expenses 39,256 36,451 9,886 10,686
Income (loss)
from operations 17,270 10,918 1,516 (738)
Interest expense (10,265) (10,752) (2,578) (2,669)
Interest income 54 57 21 15
Exchange offer costs (2,431) (2,431)
Other (expense)
income, net (244) 183 376 66
Income (loss) from
continuing
operations
before income taxes 4,384 406 (3,096) (3,326)
Income tax (benefit)
provision 2,899 855 (308) (1,144)
Income (loss) from
continuing
operations, after
income taxes 1,485 (499) (2,788) (2,182)
(Loss) income from
discontinued
operations,
net of tax (344) (4,973) 71 (3,911)
Net income (loss) $1,141 $(5,422) $(2,717) $(6,093)
Diluted earnings
(loss) per share:
Earnings (loss) from
continuing
operations $ .15 $ (.07) $ (.32) $ (.26)
Discontinued
operations,
net of tax (.04) (.58) .01 (.45)
Net earnings (loss)
per diluted share $ .11 $ (.65) $ (.31) $ (.71)
Diluted weighted
average shares
outstanding 8,972 8,571 8,762 8,578
Other data:
Depreciation and
amortization
Continuing
operations $10,793 $10,873 $ 2,749 $ 2,811
Segment data:
Net sales
Friction products $148,242 $121,569 $36,249 $28,719
Precision
components 78,629 68,123 19,288 16,482
Performance racing 14,317 12,859 2,613 2,335
Total $241,188 $202,551 $58,150 $47,536
Gross profit
Friction products $ 36,483 $ 29,510 $ 7,311 $ 5,856
Precision
components 16,605 14,458 3,729 3,776
Performance racing 3,438 3,401 362 316
Total $ 56,526 $ 47,369 $11,402 $ 9,948
Income (loss)
from operations:
Friction products $ 13,051 $ 8,284 $ 1,107 $ (955)
Precision components 3,508 2,254 649 604
Performance racing 711 380 (240) (387)
Total $ 17,270 $ 10,918 $ 1,516 $ (738)
HAWK CORPORATION
CONSOLIDATED BALANCE SHEET (Unaudited)
(in thousands)
December 31, December 31,
2004 2003
ASSETS
Current assets
Cash and cash equivalents $ 6,785 $ 3,365
Accounts receivable 39,044 32,272
Inventories 41,550 35,424
Taxes receivable 373 521
Deferred tax asset 7,417 3,551
Other current assets 3,460 4,032
Assets of discontinued operations 4,499 4,302
Total current assets 103,128 83,467
Property, plant and equipment, net 70,028 63,136
Goodwill 32,495 32,495
Other intangible assets 9,170 9,904
Other assets 5,030 4,547
Total assets $219,851 $193,549
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 25,554 $ 21,569
Other accrued expenses 18,052 18,185
Short-term debt 980 1,326
Bank facility 24,059
Current portion of long-term debt 639 1,148
Liabilities of discontinued operations 4,297 3,652
Total current liabilities 49,522 69,939
Long-term debt 111,402 68,443
Deferred income taxes 6,465 4,360
Other 7,795 9,102
Shareholders' equity 44,667 41,705
Total liabilities and
shareholders' equity $219,851 $193,549
SOURCE Hawk Corporation
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http://www.hawkcorp.com
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CONTACT:
Ronald E. Weinberg, Chairman, CEO and
President, +1-216-861-3553, or Thomas A. Gilbride, Vice President
- Finance, +1-216-861-3553, both of Hawk Corporation; or Investor
Relations: John Baldissera of BPC Financial Marketing,
1-800-368-1217, for Hawk Corporation
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