- Net sales increase 10% in 2005 to a record $265.4 million
- Adjusted income from operations for 2005 of $15.4 million achieves
previously issued guidance
CLEVELAND, March 7 /PRNewswire-FirstCall/ -- Hawk Corporation (Amex: HWK)
announced today that for the year ended December 31, 2005, net sales were
$265.4 million, a record for the Company. The 2005 net sales represented an
increase of $24.2 million or 10.0%, from $241.2 million in the comparable
prior year. The net sales for the year ended December 31, 2005 were slightly
below the low end of the most recent guidance range provided by the Company of
$267.0 million, due primarily to year end inventory management actions taken
by certain customers which delayed shipments into January, 2006.
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Throughout 2005, the Company's net sales benefited from new business
awards and improved economic conditions in most end markets, particularly in
construction, aerospace, heavy truck, specialty friction, fluid power and lawn
and garden. Net sales increases were posted by all three of Hawk's business
segments for the full year 2005 compared to 2004, with sales increases of
12.6% in the friction products segment, 6.4% in the precision components
segment and 3.5% in the performance racing segment.
Adjusted income from operations for the 2005 full year period was $15.4
million (Table 1) which was in line with Hawk's previously issued guidance.
The adjusted income from operations represents a decrease of $3.7 million, or
19.4%, from $19.1 million in the comparable prior year primarily as a result
of the Company's new Oklahoma facility.
Net sales for the fourth quarter of 2005 increased by $1.5 million, or
2.6%, to $59.7 million from $58.2 million in the comparable prior year period.
The effect of foreign currency exchange rates reduced reported net sales by
1.7% during the quarter as a result of the strength of the U.S. dollar
compared to the Euro.
Adjusted loss from operations was $2.0 million (Table 2) in the fourth
quarter of 2005 compared to adjusted income from operations of $2.1 million in
the comparable prior year period. The decline in the Company's operating
profit of $4.1 million during the quarter was primarily a result of the
significant expenses incurred to improve the production output of the new
Oklahoma facility, including outsourcing costs and costs to expedite shipments
to customers during this period.
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "We are completing a
very difficult, but nonetheless, a very important strategic move with our new
friction products facility in Oklahoma. Once beyond the initial investment to
start up this new operation, the Oklahoma facility will provide us with
expanded world class manufacturing capabilities and capacity to serve our
growing customers' product requirements in 2006 and beyond. The fact that
Hawk delivered record sales in 2005 despite the disruption caused by
transferring business to Oklahoma is a testament to our technology initiatives
and new product introductions, not to mention the hard work of our entire
dedicated team. Our sales group is pursuing exciting new opportunities
through direct aftermarket channels in our friction products segment and
diligently providing new customer solutions in the original equipment
markets."
Income from operations for the twelve month period decreased $8.0 million,
or 46.2%, to $9.3 million from $17.3 million in the comparable 2004 period.
Included in the Company's income from operations for the year ended December
31, 2005 was $5.5 million of restructuring costs related to the relocation to
Oklahoma, $1.1 million of loan forgiveness costs and employee medical benefit
curtailment income of $0.4 million for future medical benefit liabilities no
longer owed by the Company. These net non-recurring charges, when combined,
account for an expense of $.43 per diluted share. In the same twelve month
period of 2004, income from operations included restructuring costs and loan
forgiveness costs, totaling $1.8 million, when combined, accounted for
expenses representing $.13 per diluted share. Further, there have been
extraordinary costs related to establishing production efficiencies in
Oklahoma.
Income from operations during the fourth quarter of 2005 declined $4.7
million to an operating loss of $3.2 million compared to operating income of
$1.5 million in the comparable prior period. The decline in the Company's
operating profit during the quarter was primarily the result of the
restructuring costs and significant additional costs incurred during the
quarter as a result of the operating inefficiencies related to the Oklahoma
facility.
For the twelve months ended December 31, 2005 the Company reported a net
loss of $1.3 million, or $.17 per diluted share, a decrease of $2.4 million,
compared to net income of $1.1 million, or $.11 per diluted share in the
comparable prior year period. Adjusted net income (Table 3) for the twelve
months ended December 31, 2005, was $2.4 million, or $.26 per diluted share
compared to adjusted net income of $2.3 million, or $.24 per diluted share in
the comparable 2004 period. The significant costs associated with operating
inefficiencies during the production transfer and start-up of the Oklahoma
facility discussed above, are included in the Company's net income for the
twelve months ended December 31, 2005.
Business Segment Results
Net sales in the friction products segment for the year ended December 31,
2005 increased $18.7 million, or 12.6%, to $167.0 million from $148.3 million
in the comparable prior year period. In the fourth quarter net sales increased
$0.6 million or 1.7%, to $36.9 million in 2005 from $36.3 million in the
comparable prior year period. Primary drivers of the sales increase were
market share gains in the construction market, strong economic conditions in
the Company's construction, truck and aerospace markets and increased sales to
the aftermarket. Production limitations resulting from the move to Oklahoma,
and customer initiated inventory management initiatives in December lowered
shipments below expectations.
The Company serves the friction products aftermarket through two types of
channels, via its original equipment manufacturers and through direct
aftermarket distribution channels. For the year ended December 31, 2005,
direct aftermarket sales increased 5.7% over comparable prior year levels. The
effect of foreign currency exchange rates reduced the friction products
segment's reported net sales by 2.8% during the quarter as a result of the
strength of the U.S. dollar during the period. Net sales at the Company's
Italian facility, on a local currency basis, increased 10.3% in the year ended
December 31, 2005 compared to the same period in 2004, primarily as a result
of market share gains, economic improvement and new product introductions in
the period. Total shipments, on a local currency basis, at the Company's
Chinese friction products facility increased 36.0% for the twelve months ended
December 31, 2005.
For the year ended December 31, 2005, income from operations in the
friction products segment decreased $7.4 million, or 56.5%, to $5.7 million
from $13.1 million in the comparable prior year period The decrease was the
primarily the result of restructuring costs of $5.5 million and additional
costs incurred as a result of the start-up efficiency issues in Oklahoma. For
the fourth quarter ended December 31, 2005, income from operations in the
friction products segment decreased $4.9 million to a loss of $3.8 million
from income of $1.1 million in the comparable prior year period.
In the Company's precision components segment, net sales for the year
ended December 31, 2005 were $83.6 million, an increase of $5.0 million, or
6.4%, from $78.6 million in the comparable prior year period. For the three
months ended December 31, 2005 net sales were up $1.1 million, or 5.7%, to
$20.4 million from $19.3 million in the comparable prior period. The
segment's net sales increases were the result of new product introductions in
addition to strong market conditions, primarily in the fluid power and lawn
and garden markets during the period.
Income from operations in the precision components segment for the year
ended December 31, 2005 was $4.1 million, an increase of $0.6 million, or
17.1% from the comparable prior year period. The segment benefited from the
sales increase during the year and product mix which was partially offset by
phase-in costs associated with the segment's new powder metal technologies and
the continued support of its new facility in China and raw material
surcharges. In the fourth quarter of 2005, income from operations was $1.5
million, an increase of $0.9 million, or 150.0% from $0.6 million in the
comparable prior year period.
In the Company's performance racing segment, net sales for the year ended
December 31, 2005 were $14.8 million, an increase of $0.5 million or 3.5%,
from $14.3 million in the comparable prior year period. During the fourth
quarter of 2005, net sales were $2.4 million, a decrease of $0.2 million, or
7.7%, from $2.6 million in the comparable prior year period.
For the year ended December 31, 2005, the loss from operations in the
performance racing segment was $0.5 million compared to income from operations
of $0.7 million for the comparable prior year period. During the fourth
quarter of 2005 the loss from operations was $0.9 million compared to a loss
from operations of $0.2 million in the comparable prior year period. The
segment's operating results were negatively impacted by cost increases on
various driveline components, and reserves created to reflect parts determined
to be obsolete due to rule changes in the racing circuits served by this
segment.
Working Capital and Liquidity
As of December 31, 2005 working capital decreased by $0.4 million from
December 31, 2004 levels. The decrease was largely the result of lower
accounts receivable levels as a result of active collection activity and
management of payable and other accrued expense levels, partially offset by
expanded inventory requirements to support the increased production volumes
and the move to the Company's new facility in Oklahoma.
Total debt outstanding increased $4.6 million, to $117.6 million at
December 31, 2005, compared to $113.0 million at December 31, 2004. The
increase was primarily to support the acquisition of fixed assets as well as
costs associated with the move of the Company's friction products facility to
Oklahoma during the period. As of December 31, 2005 the Company had $5.0
million outstanding under its revolving credit facility and $22.5 million
available for additional borrowings under that facility.
Business Outlook
Hawk expects net sales for the full year 2006 to be between $290.0 million
and $300.0 million, or an increase of between 9.3% and 13.0% compared to net
sales for the full year 2005 of $265.4 million. The Company continues to see
strength through 2006 in the majority of its markets including construction
and mining, heavy-duty truck, specialty friction and fluid power.
Additionally, the Company expects that 2006 revenues will be positively
impacted by continued new business awards in all three business segments,
increased sales in the friction direct aftermarket, as well as continued
strong performance in its international operations.
The Company expects its income from operations to increase to a range of
$23.0 million to $25.0 million in 2006, or an increase of between 49.4% to
62.3%, from adjusted income from operations of $15.4 million for the full year
2005. Adjusted income from operations in 2005 excludes plant restructuring
charges of $5.5 million related to the move of the friction products facility
to Oklahoma and employee severance costs and other net costs of $0.7 million
relating to a pension curtailment and loan forgiveness costs (Table 1). Hawk
is not anticipating and is not forecasting plant restructuring charges,
relating to the relocation of the Oklahoma facility and employee severance
expense, or any other non-recurring costs to impact its 2006 income from
operations. The 2006 forecast also gives effect to expected start-up costs in
Oklahoma in the first and second quarters of 2006. The Company expects its
consolidated depreciation and amortization expense for 2006 to be
approximately $13.0 million. The Company's capital expenditures for the full
year 2006 are expected to be approximately $15.0 million.
As a result of the above factors, the Company continues to expect, as
disclosed in previously issued guidance, earnings for 2006 to be in a range of
$0.80 to $0.90 cents per diluted common share on approximately 9.4 million
fully diluted shares.
In the first quarter of 2006, the Company expects net sales to be in a
range of $74.0 million to $77.0 million, an increase of between 2.6% and 6.8%
from net sales reported in the first quarter of 2005 of $72.1 million.
Hawk expects income from operations in the first quarter of 2006 to be
$2.0 million to $3.0 million, or a decrease of between 76.2% and 64.3% as
compared to first quarter 2005 adjusted income from operations of $8.4 million
(Table 4). The 2006 forecast is impacted by expected continued start-up costs
in the Oklahoma facility which were not present in the first quarter of 2005,
and product mix changes from 2005 to 2006. This range represents an
improvement over the adjusted loss from operations in the fourth quarter of
2005 of $2.0 million, reflecting the Company's expectation that the
performance in its Oklahoma facility will continue to improve and that the
results will benefit from expected increase in the first quarter 2006 net
sales compared to the fourth quarter of 2005.
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 1,800 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: continuing impact of
operational inefficiencies at the Oklahoma friction products facility; the
ability to hire and train qualified people at the Company's new friction
products facility; the ability to achieve the projected cost savings at the
new facility, including whether the cost savings can be achieved in a timely
manner; 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 powder metal facility in China; 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 meet the terms of its credit facilities, including the numerous
financial covenants and other restrictions; the Company's vulnerability to
adverse general economic and industry conditions and competition; 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 ability of the Company to
utilize tax loss carryforwards in future periods; 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 effect of any interruption
in the Company's supply of raw materials or a substantial increase in the
price of raw materials; and, the continuity of business relationships with
major customers.
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, 2004, 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,
March 7, 2006 at 2:00 p.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
(In thousands, except per share data)
Year Ended Three Months Ended
December 31, December 31,
2005 2004 2005 2004
Net sales $265,434 $241,188 $59,681 $58,150
Cost of sales 213,013 184,662 53,320 46,748
Gross profit 52,421 56,526 6,361 11,402
Selling, technical
and administrative
expenses 37,874 37,405 8,306 9,092
Restructuring charges 4,962 1,117 1,082 610
Employee benefit
curtailment income (424)
Amortization of
intangibles 734 734 182 184
Total expenses 43,146 39,256 9,570 9,886
Income (loss)
from operations 9,275 17,270 (3,209) 1,516
Interest expense (10,588) (10,265) (2,722) (2,578)
Interest income 40 54 19 21
Exchange offer costs (2,431) (2,431)
Other (expense)
income, net 98 (244) 405 376
(Loss) income from
continuing operations
before income taxes (1,175) 4,384 (5,507) (3,096)
Income tax provision
(benefit) 201 2,899 (2,300) (308)
(Loss) income from
continuing operations,
after income taxes (1,376) 1,485 (3,207) (2,788)
Income (loss) from
discontinued operations,
net of tax 32 (344) (93) 71
Net (loss) income $(1,344) $1,141 $(3,300) $(2,717)
Diluted (loss)
earnings per share:
(Loss) earnings from
continuing operations $(.17) $.15 $(.36) $(.32)
Discontinued operations,
net of tax (.04) (.01) .01
Net (loss) earnings
per diluted share $(.17) $.11 $(.37) $(.31)
Diluted weighted
average shares
outstanding 8,869 8,972 8,914 8,762
Year Ended Three Months Ended
December 31, December 31,
2005 2004 2005 2004
Other data:
Depreciation and amortization
from continuing operations $ 11,443 $ 10,793 $ 3,024 $ 2,749
Segment data:
Net sales
Friction products $ 167,059 $148,242 $ 36,854 $ 36,249
Precision components 83,576 78,629 20,430 19,288
Performance racing 14,799 14,317 2,397 2,613
Total $ 265,434 $241,188 $ 59,681 $ 58,150
Gross profit
Friction products $ 33,661 $ 36,483 $ 2,673 $ 7,311
Precision components 15,760 16,605 3,598 3,729
Performance racing 3,000 3,438 90 362
Total $ 52,421 $ 56,526 $ 6,361 $ 11,402
Income (loss) from operations:
Friction products $ 5,652 $ 13,051 $ (3,828) $ 955
Precision components 4,131 3,508 1,542 608
Performance racing (508) 711 (923) (47)
Total $ 9,275 $ 17,270 $ (3,209) $ 1,516
Adjusted income (loss)
from operations
(Tables 1 & 2):
Friction products $11,285 $ 14,557 $ (2,652) $ 1,565
Precision components 4,574 3,808 1,542 608
Performance racing (444) 754 (923) (47)
Total $15,415 $ 19,119 $ (2,033) $ 2,126
Reconciliation of Financial Measures
This earnings release discloses income from operations, income from
operations per diluted share and adjusted income from operations (income from
operations before restructuring, employee benefit curtailment and loan
forgiveness costs) for each business segment or for the Company in total, each
of which excludes amounts that differ from the most directly comparable measure
calculated in accordance with GAAP. A reconciliation of each of these
financial measures to the most comparable GAAP measure is included below in
this earnings release. Management believes that these financial measures are
useful to investors because they exclude The Company's non-recurring
restructuring and other costs, allowing investors to more easily compare the
Company's financial performance period to period. Management uses this
information in monitoring and evaluating the on-going performance of the
Company and each of its business segments. These non-GAAP financial measures
should not be considered an alternative to measures required by GAAP>
Table 1
Adjusted income from operations
Twelve months ended
December 31,
Income from
operations, Adjusted
as reported Restructuring Other costs, income from
(GAAP) costs(1) net(2) operations
2005 2004 2005 2004 2005 2004 2005 2004
Friction
products $5,652 $13,051 $5,464 $1,117 $169 $389 $11,285 $14,557
Precision
components 4,131 3,508 443 300 4,574 3,808
Performance
racing (508) 711 64 43 (444) 754
Total
pre-tax $9,275 $17,270 $5,464 $1,117 $676 $732 $15,415 $19,119
After tax $3,360 $687 $416 $450 $9,480 $11,758
Per diluted
share $.38 $.08 $.05 $.05 $1.07 $1.31
Operating
margin 3.5% 7.2% 5.8% 7.9%
(1) Restructuring costs in this table for the twelve months ended December
31, 2005 include $0.5 million classified in the Company's Consolidated
Statement of Income as Cost of sales items.
(2) Other costs include loan forgiveness costs and employee benefit
curtailment costs.
Table 2
Adjusted income from operations
Three months ended
December 31,
Income (loss) from
operations, as Adjusted (loss)
reported (GAAP) Restructuring Other costs, income from
costs(1) net operations
2005 2004 2005 2004 2005 2004 2005 2004
Friction
products $(3,828) $955 $1,176 $610 $(2,652) $1,565
Precision
components 1,542 608 1,542 608
Performance
racing (923) (47) (923) (47)
Total
pre-tax $(3,209) $1,516 $1,176 $610 $(2,033) $2,126
After tax $723 $375 $(1,250) $1,307
Per diluted
share $.08 $.04 $(.14) $.15
(1) Restructuring costs in this table for the fourth quarter ended
December 31, 2005 include $0.1 million classified in the Company's
Consolidated Statement of Income as Cost of sales items.
Table 3
Adjusted net income
Twelve months ended
December 31,
Net income Restructuring Other net
(loss), as costs, costs, Adjusted
reported (GAAP) net of tax(1) net of tax(2) net income
2005 2004 2005 2004 2005 2004 2005 2004
Total $(1,344) $1,141 $3,360 $687 $416 $450 $2,432 $2,278
Per
diluted
share $(.17) $.11 $.38 $.08 $.05 $.05 $.26 $.24
(1) Restructuring costs in this table for the twelve months ended December
31, 2005 include $1.0 million classified in the Company's Consolidated
Statement of Income as Cost of sales items.
(2) Other costs include loan forgiveness costs and employee benefit
curtailment costs.
Table 4
Projected adjusted income from operations
Three months ended
March 31,
Income from
operations (GAAP) Restructuring costs (1)
2006 2005 2006 2005
projected actual projected actual
Low range of guidance $2,500 $6,565 $731
High range of guidance $3,000 $6,565 $731
Adjusted income from
Other costs, net (2) operations
2006 2005 2006 2005
projected actual projected actual
Low range of guidance $ 1,100 $ 2,500 $ 8,396
High range of guidance $ 1,100 $ 3,500 $ 8,396
(1) Restructuring costs in this table for the twelve months ended December
31, 2005 include $0.5 million classified in the Company's Consolidated
Statement of Income as Cost of sales items.
(2) Other costs include loan forgiveness costs.
HAWK CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31, December 31,
2005 2004
ASSETS
Current assets:
Cash and cash equivalents $7,111 $6,785
Accounts receivable 36,225 39,044
Inventories 46,379 41,550
Taxes receivable 347 373
Deferred tax asset 4,430 4,583
Other current assets 5,660 3,460
Shareholder notes 600
Assets held for sale 1,644
Assets of discontinued operations 3,633 4,499
Total current assets 105,429 100,894
Property, plant and equipment 70,918 70,028
Goodwill 32,495 32,495
Other intangible assets 8,435 9,170
Other assets 8,951 8,279
Total assets $226,228 $220,866
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $30,444 $25,554
Other accrued expenses 19,629 18,277
Short-term debt 1,006 980
Current portion of long-term debt 284 639
Liabilities of discontinued operations 3,334 4,297
Total current liabilities 54,697 49,747
Long-term debt 116,295 111,402
Deferred income taxes 885 3,631
Other 13,635 11,059
Shareholders' equity 40,716 45,027
Total liabilities and shareholders' equity $226,228 $220,866
SOURCE Hawk Corporation
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CONTACT:
Joseph J. Levanduski, Vice President - CFO,
+1-216-861-3553, or Thomas A. Gilbride, Vice President - Finance,
+1-216-861-3553, both of Hawk Corporation; or John Baldissera of
BPC Financial Marketing, 800-368-1217, for Hawk Corporation
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