- Net sales increase by 7.9% to record $228.7 million
- Income from operations increases 87.9% to $18.6 million
- Company reports cash and marketable securities as of December 31, 2007 of
$81.0 million
CLEVELAND, March 17 /PRNewswire-FirstCall/ -- Hawk Corporation (Amex:
HWK) announced today that net sales for the year ended December 31, 2007
increased by 7.9% to a record $228.7 million from $212.0 million in the
comparable prior year period. The Company's 2007 net sales benefited from
strong economic conditions in most of its end markets, pricing actions, new
product introductions and favorable foreign currency exchange rates. The
effect of foreign currency exchange rates accounted for 3.2% of the total
net sales increase of 7.9% during 2007. Net sales for the fourth quarter of
2007 increased by $4.4 million, or 8.3%, to $57.2 million from $52.8
million in the comparable prior year.
(Logo: http://www.newscom.com/cgi-bin/prnh/20001129/HWKLOGO )
Income from operations for the 2007 full year was $18.6 million, an
increase of $8.7 million, or 87.9%, from $9.9 million in the prior year.
Income from operations benefited from volume related absorption of fixed
overhead, continued pricing actions and a continuation of the Company's
lean manufacturing philosophies. This increase was partially offset by
legal fees associated with the previously announced SEC and DOJ
investigations and the Company's variable incentive compensation program
during 2007 compared to 2006.
Income from operations in the fourth quarter of 2007 was $3.7 million
compared to a loss from operations of $0.1 million in the comparable prior
year period. The fourth quarter of 2006 benefited from the effect of a
retroactive contractual sales price increase which did not, as was not
expected to, reoccur in the fourth quarter of 2007. Also included in the
2006 fourth quarter results was a $4.5 million non-cash goodwill impairment
charge in the Company's performance racing segment. Adjusted income from
operations before consideration of this charge as well as a one time
retroactive price increase in certain product lines was $4.3 million in the
fourth quarter of 2006 (Table 2).
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "The year 2007 was a
rewarding one for Hawk Corporation as we began to recognize the benefits of
our operational excellence efforts. First, our Tulsa friction products
facility is operating at levels comparable to our other domestic
facilities. The facility is profitable and we are now working on lean
manufacturing techniques to further enhance its operating margins. We will
be working on further increasing efficiencies during 2008 at all of our
operating facilities which should provide opportunities for additional
margin enhancement." Mr. Weinberg continued, "Second, we made a strategic
decision to focus our corporate resources on the friction products
business. We successfully completed the sale of our precision components
segment in February 2007 and enjoy the benefits of a strong cash position
as we look to pursue acquisitions and an enhanced capital expenditure
program to further add to shareholder value. Hawk is a world leader in the
friction materials marketplace and with our strong balance sheet, we
anticipate future opportunities for strategic acquisitions and continued
new product introductions. Our geographic expansion continued in 2007 as we
extended our sales presence in South and Latin America, Russia and India
while continuing our sales growth in the U.S., Europe and China."
For the year ended December 31, 2007, the Company reported net income
from continuing operations of $7.2 million, or $.75 per diluted share, an
improvement of $9.2 million, compared to a net loss from continuing
operations of $2.0 million, or a loss of $.22 per diluted share, in the
comparable prior year period.
For the twelve months ended December 31, 2007, the Company reported net
income of $17.3 million, or $1.83 per diluted share, an increase of $14.3
million, or 476.7%, compared to $3.0 million, or $0.30 per diluted share in
the comparable prior year period.
Business Segment Results
------------------------
In 2007, the friction products segment achieved record net sales of
$215.9 million, an increase of $16.0 million, or 8.0%, from $199.9 million
in the comparable prior year period. Primary drivers of the sales increase
included strong worldwide demand in the construction and mining, aircraft
and defense, agriculture, specialty friction and performance automotive
markets, customer price increases, new business awards and the strength of
the Euro during 2007. As previously disclosed, sales to the heavy truck
market declined in 2007 compared to 2006 due to the impact of the
implementation of new emission control standards in January 2007. The
Company's Italian and Chinese operations experienced strong sales growth
during 2007 compared to 2006, increasing to 36.8% of the Company's total
net sales in 2007 compared to 30.4% of net sales in 2006. For the fourth
quarter 2007, net sales in this segment were $54.9 million, up 8.7%, from
$50.5 million in the comparable prior year period.
For the year ended December 31, 2007, income from operations in the
friction products segment increased to $20.0 million from $16.3 million, or
22.7%, compared to the twelve months ended December 31, 2006. The increase
in income from operations was driven by margin improvement from volume
related absorption of fixed overhead, continued pricing actions and
operational improvements at our domestic facilities, particularly the
Company's Tulsaplant. This increase was partially offset by legal expenses
associated with the SEC and DOJ investigations and increased incentive
compensation expenses during 2007 compared to 2006. In the fourth quarter
of 2007, income from operations was $4.5 million compared to income from
operations of $4.9 million in the comparable prior year period. The fourth
quarter of 2006 benefited from the effect of a retroactive contractual
sales price increase which did not, as was not expected to, reoccur in the
fourth quarter of 2007.
In the Company's performance racing segment, net sales for the year
ended December 31, 2007 were $12.8 million, an increase of $0.7 million or
5.8%, from $12.1 million in the comparable prior year period. The
performance racing segment is comprised of two businesses, Quarter Master
Industries, which manufactures racing clutches, and Tex Racing, which
manufactures racing transmissions and drivelines. The increase in net sales
was primarily attributable to sales into the "Car of Tomorrow" concept car
introduced by NASCAR for the 2007 race season. During the fourth quarter of
2007, net sales were $2.4 million, an increase of $0.2 million, or 9.1%,
from $2.2 million in the comparable prior year period.
For the year ended December 31, 2007, loss from operations in the
performance racing segment was $1.4 million compared to a loss from
operations of $6.4 million for the comparable prior year period. In the
fourth quarter of 2006, the segment recognized a non-cash charge of $4.5
million for the impairment of its remaining goodwill. Adjusted loss from
operations before consideration of this charge was $1.9 million for the
full year 2006 (Table 1). During the fourth quarter of 2007, the loss from
operations was $0.8 million compared to a loss from operations of $5.1
million in the comparable prior year period. For the fourth quarter of
2006, the adjusted loss from operations in this segment was $0.6 million
(Table 2).
Working Capital and Liquidity
-----------------------------
As a result of the sale of the precision components segment in February
2007 and cash generated from the Company's operations during the year,
71.5% of the Company's net working capital at December 31, 2007, consisted
of cash, cash equivalents and marketable securities. At December 31, 2007,
working capital decreased by $2.5 million from December 31, 2006. The
decrease in working capital was largely the result of increased payable
levels to meet first quarter 2008 customer demands and higher incentive
compensation accruals partially offset by higher accounts receivable levels
as a result of increased sales volumes in the friction products segment
during the last half of 2007.
Total debt outstanding, including current portion, decreased $24.1
million, to $87.1 million at December 31, 2007, compared to $111.2 million
at December 31, 2006. The decrease was primarily the result of the cash
proceeds from the sale of the precision components sale that were used to
repay a portion of the senior notes. As of December 31, 2007, the Company
had no borrowings under its revolving credit facility and $17.9 million
available for additional borrowings under that facility based on its
eligible collateral as of December 31, 2007.
Stock Repurchase Program
------------------------
The Company's Board of Directors approved a stock repurchase program
pursuant to which the Company is authorized to purchase up to $4.0 million
of its outstanding shares of common stock as allowed under its current
senior note indenture and credit facility. Such repurchases may occur from
time to time in the open market, in negotiated transactions, or otherwise
in accordance with securities laws and regulations. The timing and amount
of any repurchases is determined by the Company's management, based on its
evaluation of market conditions, share price and other factors. As of
December 31, 2007 the Company had repurchased $3.7 million of its common
stock.
Business Outlook
----------------
Based on the Company's current view of the markets it serves, it
believes that its 2008 net sales will increase between 7.1% and 9.3% to
between $245.0 million and $250.0 million compared to 2007 net sales of
$228.7 million. The Company anticipates continued strength in the majority
of the markets it serves in 2008 based on general market conditions and its
expanded sales initiatives in Asia, Russia and India. The Company expects
the truck market to recover modestly coming off of a soft 2007 year which
was affected by reduced sales due to the large volume of new truck sales in
advance of the emission standards change at the end of 2006. Its
construction and mining and agriculture markets continue to be strong. The
Company expects to benefit in North America as a result of the recently
enacted tax relief measures which should result in increased equipment
purchases, and worldwide the Company expects to benefit due to the overall
strength in commodities and infrastructure needs. The Company anticipates
that its aircraft market will show modest growth in 2007.
The Company expects that its margins will benefit from the incremental
sales volume and continued emphasis on improving its operational efficiency
both domestically and abroad. Partially offsetting this improvement will be
inflationary pressures. Although the Company believes that through fixed
price contracts it has protection in 2008 against commodity pricing
fluctuations on many critical raw material components consumed in its
manufacturing process, it is experiencing increases in the cost of steel
that leave it exposed to market conditions. The Company may be able to pass
some of these price increases through to its customers, but cannot
guarantee that it will be successful in passing these cost increases to its
customers or that it will be able to increase prices in a timely fashion.
As the Company continues to expand its operations and puts into effect
its strategic initiatives, it anticipates hiring additional engineering,
sales and operational expertise that require an investment in these areas
as compared to 2007.
The Company expects its income from operations to increase 7.5% to
18.3% to a range of $20.0 million to $22.0 million from $18.6 million in
2007. The Company believes its 2008 effective tax rate will be in a range
similar to its 2007 effective tax rate of 43.4%.
The Company continues to explore options to utilize its current cash
holdings, including acquisitions, although it cannot predict the timing of
any potential acquisition or the impact that it may have on its earnings.
The Company anticipates accelerating its investment rate on internal
projects. The Company's capital expenditure budget for 2008 is $15.0
million and will be used primarily to increase capacity, to continue its
lean manufacturing projects, and for equipment expenditures for its fuel
cell and carbon composite product line initiatives. The Company expects
depreciation and amortization expense to be approximately $8.0 million in
2008.
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 and mining equipment, farm equipment, recreational and
performance automotive vehicles. The Company's performance racing group
manufactures clutches and gearboxes for motorsport applications and
performance automotive markets. Headquartered in Cleveland, Ohio, Hawk has
approximately 1,150 employees at 13 manufacturing, research, sales and
administrative sites in 7 countries.
Forward-Looking Statements
--------------------------
This press release includes forward-looking statements concerning sales
and operating earnings. 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 ability to execute its business plan to meet its forecasted
results from continuing operations; the costs and outcome of the ongoing
SEC and DOJ investigations; decisions by the Company regarding the use of
proceeds from the sale of its precision components segment, including
acquisition opportunities; the impact on the Company's gross profit margins
as a result of changes in product mix; the Company's vulnerability to
adverse general economic and industry conditions and competition; work
stoppages by union employees; ongoing capital expenditures and investment
in research and development; compliance with government regulations;
compliance with environmental and health and safety laws and regulations;
the effect of any interruption in the Company's supply of raw materials or
a substantial increase in the price of raw materials; 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; reliance for a significant portion of the Company's total
revenues on a limited number of large organizations and the continuity of
business relationships with major customers; the loss of key personnel; and
control by existing preferred stockholders.
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, 2007, 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 Monday,
March 17, 2008 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 is online at: http://www.hawkcorp.com/
HAWK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share date)
Year Ended Three Months Ended
December 31 December 31
2007 2006 2007 2006
-------------------- -------------------
Net sales $ 228,695 $ 212,050 $ 57,239 $ 52,781
Cost of sales 175,705 165,367 45,051 41,176
-------------------- -------------------
Gross profit 52,990 46,683 12,188 11,605
Selling, technical and
administrative expenses 33,710 31,822 8,291 7,137
Goodwill impairment charge - 4,465 - 4,465
Amortization of intangibles 727 495 182 124
-------------------- -------------------
Total expenses 34,437 36,782 8,473 11,726
Income (loss) from operations 18,553 9,901 3,715 (121)
Interest expense (9,394) (11,182) (2,018) (2,688)
Interest income 3,835) 98 941 37
Other income (expense), net (295) 106 139 15
-------------------- -------------------
Income (loss) from continuing
operations before income taxes 12,699 (1,077) 2,777 (2,757)
Income tax provision (benefit) 5,509 897 1,234 (396)
-------------------- -------------------
Income (loss) from continuing
operations, after income taxes 7,190 (1,974) 1,543 (2,361)
Income (loss) from
discontinued operations,
net of tax 10,078 4,943 (839) 917
-------------------- -------------------
Net income (loss) $ 17,268 $ 2,969 $ 704 $ (1,444)
==================== ===================
Diluted earnings (loss)
per share:
Income (loss) from continuing
operations $ 0.75 $ (0.22) $ 0.16 $ (0.26)
Discontinued operations,
net of tax 1.08 0.52 $ (0.09) $ 0.10
-------------------- -------------------
Net earnings (loss) per diluted
share $ 1.83 $ 0.30 $ 0.07 $ (0.16)
==================== ===================
Diluted weighted average shares
outstanding 9,360 9,514 9,342 9,502
==================== ===================
Year Ended Three Months Ended
December 31 December 31
Segment data: 2007 2006 2007 2006
-------------------- -------------------
Net sales:
Friction products $ 215,879 $ 199,915 $ 54,872 $ 50,536
Performance racing 12,816 12,135 2,367 2,245
-------------------- -------------------
Total $ 228,695 $ 212,050 $ 57,239 $ 52,781
==================== ===================
Gross profit:
Friction products $ 51,372 $ 44,867 $ 12,185 $ 11,537
Performance racing 1,618 1,816 3 68
-------------------- -------------------
Total $ 52,990 $ 46,683 $ 12,188 $ 11,605
==================== ===================
Depreciation and amortization:
Friction products $ 7,277 $ 7,055 $ 1,741 $ 1,830
Performance racing 277 241 70 64
-------------------- -------------------
Total $ 7,554 $ 7,296 $ 1,811 $ 1,894
==================== ===================
Income (loss) from operations:
Friction products $ 19,993 $ 16,290 $ 4,491 $ 4,938
Performance racing (1,440) (6,389) (776) (5,059)
-------------------- -------------------
Total $ 18,553 $ 9,901 $ 3,715 $ (121)
==================== ===================
Adjusted income (loss) from
operations:
(Tables 1 & 2):
Friction products $ 19,993 $ 16,290 $ 4,491 $ 4,938
Performance racing (1,440) (1,924) (776) (594)
-------------------- -------------------
Total $ 18,553 $ 14,366 $ 3,715 $ 4,344
==================== ===================
Capital expenditures
Friction products $ 7,648 $ 7,894 $ 1,820 $ 2,503
Performance racing 283 176 13 -
-------------------- -------------------
Total $ 7,931 $ 8,070 $ 1,833 $ 2,503
==================== ===================
Reconciliation of Financial Measures
------------------------------------ This earnings release discloses income from operations and adjusted
income from operations (income from operations before goodwill impairment
charge) 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 U.S. GAAP. A reconciliation of each
of these financial measures to the most comparable U.S. 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 goodwill impairment charge, 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 U.S. GAAP.
Table 1
Adjusted income from operations
Twelve months ended
December 31,
Income from operations, as Adjusted income
reported (GAAP) Other costs, net(1) from operations
---------------------------------------------------------------
2007 2006 2007 2006 2007 2006
---------------------------------------------------------------
Friction
products $ 19,993 $ 16,290 $ - $ - $ 19,993 $ 16,290
Performance
racing (1,440) (6,389) - 4,465 (1,440) (1,924)
---------------------------------------------------------------
Total
pre-tax $ 18,553 $ 9,901 $ - $ 4,465 $ 18,553 $ 14,366
===============================================================
Operating
margin 8.1% 4.7% 8.1% 6.8%
(1) Other costs include non-cash goodwill impairment charges in the
Company's performance racing segment in 2006.
Table 2
Adjusted income from operations
Three months ended
December 31,
Income from operations, as Adjusted income
reported (GAAP) Other costs, net(1) from operations
---------------------------------------------------------------
2007 2006 2007 2006 2007 2006
---------------------------------------------------------------
Friction
products $ 4,491 $ 4,938 $ - $ - $ 4,491 $ 4,939
Performance
racing (776) (5,059) - 4,465 (776) (595)
---------------------------------------------------------------
Total
pre-tax $ 3,715 $ (121) $ - $ 4,465 $ 3,715 $ 4,344
===============================================================
Operating
margin 6.5% -0.2% 6.5% 8.2%
(1) Other costs include non-cash goodwill impairment charges in the
Company's performance racing segment in 2006.
HAWK CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
December 31
2007 2006
-------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 79,995 $ 6,177
Marketable Securities 1,019 -
Accounts receivable, net 38,591 34,502
Inventories 41,050 38,890
Deferred tax asset 1,355 2,472
Other current assets 4,816 3,609
Current assets of discontinued
operations - 87,313
-------------------------
Total current assets 166,826 172,963
Property, plant and equipment, net 40,745 39,409
Goodwill - -
Other intangible assets 7,157 7,884
Other assets 5,176 8,998
Long-term assets of discontinued
operations - -
-------------------------
Total assets $ 219,904 $ 229,254
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 31,449 $ 23,023
Other accrued expenses 22,050 20,269
Short-term debt - 980
Current portion of long-term debt 59 127
Current liabilities of discontinued
operations - 12,795
-------------------------
Total current liabilities 53,558 57,194
Long-term debt 87,090 110,053
Deferred income taxes 922 1,025
Other 11,010 14,253
Long-term liabilities of discontinued
operations - -
Shareholders' equity 67,324 46,729
-------------------------
Total liabilities and shareholders'
equity $ 219,904 $ 229,254
=========================
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 Investor Relations,
John Baldissera of BPC Financial Marketing, +1-800-368-1217
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