- Friction products segment sales increase by 19.6% to record $199.9
million
- As a result of sale, precision components segment treated as a
discontinued operation
- Income from operations reduced by a non-cash goodwill impairment charge
in the performance racing segment of $4.5 million, or $.31 per diluted
share
CLEVELAND, March 21 /PRNewswire-FirstCall/ -- Hawk Corporation (Amex:
HWK) announced today that net sales from its continuing operations for the
year ended December 31, 2006 increased by 16.5% to $212.0 million from
$181.9 million in the comparable prior year period. The Company's net sales
benefited during the third and fourth quarters from the impact of pricing
actions taken in its friction products segment, continued new product
introductions and strong economic conditions in the Company's end markets,
including the construction and mining, aerospace, heavy truck, performance
brake and agriculture markets. As a result of the sale of the Company's
precision components segment on February 2, 2007, the results of that
segment are reported in the Company's financial statements as a
discontinued operation for all periods presented.
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Income from operations for the 2006 full year period was $9.9 million,
an increase of $7.5 million, or 312.5%, from $2.4 million in the prior year
period. The increase in income from operations benefited from the result of
the pricing actions taken during the last half of 2006 and operating
improvements at the Company's Tulsa facility compared to 2005, partially
offset by the $4.5 million non-cash goodwill impairment charge recognized
in the fourth quarter by the Company's performance racing segment. Adjusted
income from operations (as defined in Table 1) for the full year 2006 was
$14.4 million, an increase of $5.8 million, or 67.4% from $8.6 million in
the prior year period.
Net sales for the fourth quarter of 2006 increased by $13.5 million, or
34.4%, to $52.8 million from $39.3 million in the comparable prior year.
Loss from operations in the fourth quarter of 2006 was $0.1 million
compared to a loss from operations of $4.8 million in the comparable prior
year period. Included in the fourth quarter results is 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 was $4.3 million compared to a loss from operations of $3.6 million
in the comparable prior year period (Table 2).
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "The 2006 year was
pivotal for Hawk Corporation during which we completed two important
projects. First, the relocation and start-up of our Tulsa friction products
facility is now behind us. The facility is now profitable and is not only
achieving adequate throughput to keep up with production needs but has
significantly reduced its past due backlog. We can expect to increase
efficiencies during the 2007 year which should further enhance margins."
Mr. Weinberg continued, "Secondly, we made a strategic decision to focus
our corporate resources on the friction products business. To that end, we
successfully completed the sale of our precision components segment in
February 2007 for approximately $94.2 million. The cash received from this
transaction will allow us to focus on the friction products business. We
are a world leader in the friction marketplace and anticipate opportunities
in acquisitions, new product introductions and geographic expansion. There
are four modes for using the proceeds from the precision components sale:
acquisitions, internal projects, debt retirement and stock buy-back."
For the twelve months ended December 31, 2006, the Company reported a
net loss from continuing operations of $2.0 million, or a loss of $.22 per
diluted share, an improvement of $3.6 million, compared to a net loss from
continuing operations of $5.6 million, or a loss of $.65 per diluted share,
in the comparable prior year period. The non-cash goodwill impairment
charge of $4.5 million in the performance racing segment accounted for a
charge to after-tax earnings of $.31 per diluted share for the twelve
months ended December 31, 2006.
Business Segment Results
Net sales in the friction products segment for the year ended December
31, 2006 increased $32.8 million, or 19.6%, to a record $199.9 million from
$167.1 million in the comparable prior year period. Primary drivers of the
sales increase in 2006 included pricing actions, strong worldwide demand in
the construction and mining, aerospace, heavy truck, and performance
automotive markets, and increased sales to the industrial and performance
automotive aftermarkets as a result of new product applications.
Productivity improvements in the segment's Tulsa facility resulted in
improved delivery capabilities throughout the year. For the fourth quarter
2006 net sales in this segment were $50.5 million, up 36.9%, from $36.9
million in the comparable prior year period.
For the year ended December 31, 2006, income from operations in the
friction products segment increased to $16.3 million from $3.2 million, or
409.4%, compared to the twelve months ended December 31, 2005. The increase
in income from operations was driven by pricing actions, unit volume
increases, and increased production and manufacturing efficiencies from the
Company's Tulsa plant. This increase was partially offset by increased
expenses including logistic and scrap expenses in Tulsa, increased medical
and incentive compensation expenses and increased raw material costs.
Adjusted income from operations was $16.3 million in 2006 compared to
adjusted income from operations of $9.2 million in the comparable period of
2005 (Table 1). For the fourth quarter of 2006, income from operations (as
well as adjusted income from operations) in this segment was $4.9 million,
an increase of $7.6 million, from a loss from operations of $2.7 million in
the comparable prior year period (Table 2).
In the Company's performance racing segment, net sales for the year
ended December 31, 2006 were $12.1 million, a decrease of $2.7 million or
18.2%, from $14.8 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. Over the course of the last two years,
the Company has sought to upgrade the engineering and technology expertise
of these two businesses to reflect like changes taking place in the
motorsports world. Quarter Master Industries has successfully come through
this transition. The transition began for Tex Racing in late 2005 and the
2006 results were impacted by these changes. During the fourth quarter of
2006, net sales were $2.2 million, a decrease of $0.2 million, or 8.3%,
from $2.4 million in the comparable prior year period.
For the year ended December 31, 2006, loss from operations in the
performance racing segment was $6.4 million compared to a loss from
operations of $0.8 million for the comparable prior year period. In the
fourth quarter of 2006, based on an assessment of its present and future
operations, the segment recognized a non-cash charge of $4.5 million for
the impairment of its remaining goodwill. Additionally, the segment's
operating results were negatively impacted by cost increases on various
driveline components and increased levels of inventory reserves. During the
fourth quarter of 2006, the loss from operations was $5.1 million compared
to a loss from operations of $0.9 million in the comparable prior year
period. Adjusted loss from operations was $1.9 million in 2006 compared to
an adjusted loss from operations of $0.7 million in the comparable period
of 2005 (Table 1). For the fourth quarter of 2006, the adjusted loss from
operations in this segment was $0.6 million compared to a loss from
operations of $0.9 million in the comparable prior year period (Table 2).
The Company's discontinued operations, which consisted of its precision
components and motors segments, reported income after taxes of $4.9 million
for the year ended December 31, 2006, an increase of $0.7 million, or
16.7%, compared to $4.2 million in the comparable prior year period. As
previously reported, the Company's precision components segment was sold on
February 2, 2007 for approximately $94.2 million. The Company's previously
issued revenue and income from operations guidance for 2006 included
projections for the precision components segment. Had the precision
components segment not met the requirements for discontinued operations
treatment at December 31, 2006, the Company would have been within the
ranges for revenue and income from operations previously provided.
Working Capital and Liquidity
As of December 31, 2006 working capital increased by $4.2 million from
December 31, 2005 levels. The increase was largely the result of higher
accounts receivable levels as a result of increased sales volumes in the
friction products segment during the last half of 2006, and a reduction of
a receivable factoring program at the Company's Italian facility during
2006.
Total debt outstanding, including current portion, decreased $5.5
million, to $111.2 million at December 31, 2006, compared to $116.7 million
at December 31, 2005. The decrease was primarily the result of increased
cash flows from the higher sales volumes as well as the reduction of costs
associated with improved logistics and manufacturing efficiencies at the
Company's friction products facility in Tulsa during the second half of
2006. As of December 31, 2006, the Company had no borrowings under its
revolving credit facility and $27.8 million available for additional
borrowings under that facility.
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 will be determined by the Company's management, based on
its evaluation of market conditions, share price and other factors.
Business Outlook
As previously announced, Hawk expects net sales from its continuing
operations for the full year 2007 to be between $217.0 million and $222.0
million, or an increase of between 2.3% and 4.7% compared to net sales for
the full year 2006 of $212.0 million.
The Company expects its income from operations to increase to a range
of $11.0 million to $14.0 million in 2007, or an increase of between 11.1%
to 41.4%, from income from operations of $9.9 million for the full year
2006 or a reduction of between 23.6% to approximately flat results when
compared to adjusted income from operations of $14.4 million for the full
year 2006. The Company expects its consolidated depreciation and
amortization expense for 2007 to be approximately between $7.0 million and
$8.0 million. The Company's capital expenditures for the full year 2007 are
expected to be approximately $10.0 million.
Given the numerous potential applications of the net cash generated by
the sale of the precision components segment, which include the stock
repurchase program, reduction of the Company's senior notes, acquisitions
and the resulting impact that all or some of these actions might have on
the Company's results, the Company will not be providing guidance on
earnings per share for the 2007 year.
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 1,100 employees at 11 manufacturing, research, sales and
administrative sites in 5 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 Company's vulnerability to adverse
general economic and industry conditions and competition; a significant
portion of the Company's total revenues is derived from a limited number of
large organizations; the impact on the Company's gross profit margins as a
result of changes in product mix; the effect of the transfer of
manufacturing to China and other lower wage locations by other
manufacturers who compete with the Company; decisions by the Company
regarding the use of proceeds from the sale of its precision components
segment; acquisitions opportunities; the satisfaction of limitations on the
use of proceeds contained in the Company's financing arrangements; 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 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, 2005, 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
Thursday, March 22, 2007 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
investor relations page of the Company's web site.
Hawk Corporation is online at: http://www.hawkcorp.com/
HAWK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Cost of sales 164,663 145,197 40,868 36,488
Gross profit 47,387 36,661 11,913
2,763
Selling, technical
and administrative
expenses 32,526 28,952 7,445 6,328
Restructuring charges - 4,962 - 1,082
Employee benefit
curtailment income - (424) - -
Goodwill impairment
charge 4,465 - 4,465 -
Amortization of
intangibles 495 724 124 182
Total expenses 37,486 34,214 12,034 7,592
Income (loss) from
operations 9,901 2,447 (121) (4,829)
Interest expense (11,182) (10,562) (2,688) (2,716)
Interest income 98 40 37
19
Other income
(expense), net 106 100 15 399
Loss from continuing
operations before
income taxes (1,077) (7,975) (2,757) (7,127)
Income tax provision
(benefit) 897 (2,391) (396) (2,917)
Loss from continuing
operations, after
income taxes (1,974) (5,584) (2,361) (4,210)
Income from
discontinued
operations, net of tax 4,943 4,240 917 910
Net income (loss) $2,969 $(1,344) $(1,444) $(3,300)
Diluted (loss) earnings
per share:
Loss from continuing
operations $(0.22) $(0.65) $(0.26) $(0.47)
Discontinued
operations,
net of tax 0.52 0.48 0.10 0.10
Net earnings (loss)
per diluted share $0.30 $(0.17) $(0.16) $(0.37)
Diluted weighted
average shares
outstanding 9,514 8,869 9,011 8,914
Year Ended Three Months Ended
December 31 December 31
Segment data: 2006 2005 2006 2005
Net sales:
Friction products $199,915 $167,059 $50,536 $ 36,854
Performance racing 12,135 14,799 2,245 2,397
Total $212,050 $181,858 $52,781 $ 39,251
Gross profit:
Friction products $45,571 $33,661 $11,845 $2,673
Performance racing 1,816 3,000 68 90
Total $47,387 $36,661 $11,913 $2,763
Depreciation and
amortization:
Friction products $7,055 $6,955 $1,830 $1,759
Performance racing 241 229 64 59
Total $7,296 $7,184 $1,894 $1,818
Income (loss) from operations:
Friction products $16,290 $3,203 $4,938 $(3,913)
Performance racing (6,389) (756) (5,059) (916)
Total $9,901 $2,447 $(121) $(4,829)
Adjusted income (loss) from operations
(Tables 1 & 2):
Friction products $16,290 $9,239 $4,938 $(2,737)
Performance racing (1,924) (652) (594) (916)
Total $14,366 $8,587 $4,344 $(3,653)
Capital expenditures:
Friction products $7,894 $7,482 $2,503 $1,461
Performance racing 176 285 - 44
Total $8,070 $7,767 $2,503 $1,505
Reconciliation of Financial Measures
This earnings release discloses income from operations, income and
adjusted income from operations (income from operations before
restructuring, goodwill impairment charge, employee benefit curtailment
income 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 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 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 U.S. GAAP.
Table 1
Adjusted income from operations
Twelve months ended
December 31,
Income from
operations, as Restructuring
reported (GAAP) costs(1)
2006 2005 2006 2005
Friction products $16,290 $3,203 $- $5,464
Performance racing (6,389) (756) - -
Total pre-tax $9,901 $2,447 $- $5,464
Operating margin 4.7% 1.3%
Other costs, Adjusted income
net(2) from operations
2006 2005 2006 2005
Friction products $- $572 $16,290 $9,239
Performance racing 4,465 104 (1,924) (652)
Total pre-tax $4,465 $676 $14,366 $8,587
Operating margin 6.8% 4.7%
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 Operations as cost of sales items.
2. Other costs include non-cash goodwill impairment charges in the
Company's performance racing segment in 2006 and loan forgiveness
costs and employee benefit curtailment income in 2005.
Table 2
Adjusted income from operations
Three months ended
December 31,
Income from
operations, as Restructuring
reported (GAAP) costs(1)
2006 2005 2006 2005
Friction products $4,938 $(3,913) $- $1,176
Performance racing (5,059) (916) - -
Total pre-tax $(121) $(4,829) $- $1,176
Operating margin -0.2% -12.3%
Other costs, Adjusted income
net(2) from operations
2006 2005 2006 2005
Friction products $- $- $4,938 $(2,737)
Performance racing 4,465 - (594) (916)
Total pre-tax $4,465 $- $4,344 $(3,653)
Operating margin 8.2% -9.3%
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 Operations as cost of sales items.
2. Other costs include non-cash goodwill impairment charges in the
Company's performance racing segment.
HAWK CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31, December 31,
2006 2005
ASSETS
Current assets:
Cash and cash equivalents $6,177 $6,761
Accounts receivable, net 34,502 22,969
Inventories 38,890 37,120
Deferred tax asset 2,472 4,430
Other current assets 4,607 4,712
Assets held for sale - 1,644
Assets of discontinued operations 87,313 89,101
Total current assets 173,961 166,737
Property, plant and equipment, net 39,409 37,474
Goodwill - 4,465
Other intangible assets 7,884 8,379
Other assets 8,000 8,944
Total assets $229,254 $225,999
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $23,023 $22,160
Other accrued expenses 20,269 15,262
Short-term debt 980 1,362
Current portion of long-term debt 127 142
Liabilities of discontinued
operations 12,795 15,237
Total current liabilities 57,194 54,163
Long-term debt 110,053 115,203
Deferred income taxes 1,025 885
Other 14,253 15,032
Shareholders' equity 46,729 40,716
Total liabilities and shareholders'
equity $229,254 $225,999
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; Investor Relations
Contact Information: John Baldissera, BPC Financial Marketing,
+1-800-368-1217, for Hawk Corporation
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