* Net sales increase 7.6% to $76.3 million
* Net income up 11.8% to $1.9 million
* Tulsa facility achieves profitability
* Precision components segment sets record for new business awards
CLEVELAND, Ohio, Aug. 1 /PRNewswire-FirstCall/ -- Hawk Corporation
(Amex: HWK) announced today that net sales for the second quarter of 2006
increased by 7.6% to $76.3 million from $70.9 million in the comparable
prior year period. The Company's net sales benefited during the quarter
from continued new product introductions, strong economic conditions in the
Company's end markets, including the construction and mining, aerospace,
heavy truck, fluid power and appliance markets and the continued delivery
improvements as the new Tulsa facility ramped up production levels.
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Income from operations in the second quarter was $6.2 million in both
2006 and 2005. As a percentage of net sales, the Company's operating margin
decreased to 8.1% in the second quarter of 2006 from 8.7% in the comparable
quarter of 2005. This operating leverage reduction was primarily the result
of the start-up costs at the Company's Tulsa friction products facility,
increased medical and raw material costs and higher depreciation expense
during the period. The results in the second quarter of 2006 benefited from
operating improvements, particularly in May and June at the new Tulsa
facility and strong results from the Company's precision components
segment. These improvements were partially offset by a poor performance in
the Company's performance racing segment.
Income from operations in the second quarter of 2005 included $1.3
million of restructuring costs related to the Tulsa plant move. In the
second quarter of 2006, there were no restructuring costs included in
income from operations. Adjusted operating income before consideration of
these restructuring charges was $7.5 million, or 10.6% of net sales, in the
second quarter of 2005 (Table 1).
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "We are pleased with
the second quarter results and the impetus they were given from operational
improvements in our Tulsa plant and operating profits at our precision
components segment. During the second quarter of 2006, the Tulsa facility
began generating monthly operating profits and we anticipate a continuation
of this trend. We are focusing on a number of lean manufacturing
initiatives, both short and long term, to achieve our targeted efficiencies
and improve service levels to our customers."
For the six month period ended June 30, 2006, net sales were $154.7
million, an increase of $11.8 million, or 8.3%, from $142.9 million in the
comparable prior year period. Income from operations for the same six month
period decreased $3.4 million, or 26.6%, to $9.4 million from $12.8 million
in the comparable prior period. This comparison is driven in large part by
the fact that through the second quarter of 2005, the Tulsa plant move had
only just started and the operating costs associated with the startup had
not yet begun. These startup costs are reflected in the three and six
period ending June 30, 2006 results. However, included in the Company's
income from operations for the six months ended June 30, 2005 was $2.1
million of restructuring costs related to the move to Tulsa and $1.1
million of loan forgiveness costs. In the same six month period of 2006,
there were no restructuring or loan forgiveness costs included in income
from operations. Adjusted operating income before consideration of these
restructuring and loan forgiveness charges was $16.0 million or 11.2% of
net sales, in the first six months of 2005 (Table 2).
The Company reported net income of $1.9 million, or $.20 per diluted
share, on 9.5 million shares outstanding in the second quarter of 2006, an
increase of 11.8% compared to net income of $1.7 million, or $.17 per
diluted share, on 9.4 million shares outstanding in the comparable prior
year period. The Company reported a worldwide effective tax rate of 47.2%
and 46.8% in the second quarter and first half of 2006 compared to 52.4%
and 51.6% in the comparable periods of 2005 primarily resulting from the
effect of the restructuring costs on the Company's domestic tax losses. For
the six months ended June 30, 2006, net income was $2.3 million, or $.24
per diluted share, a decrease of 36.1%, compared to $3.6 million or $.38
per diluted share, in the comparable prior year period.
Business Segment Results
Net sales in the friction products segment for the second quarter ended
June 30, 2006 increased $4.5 million, or 9.9%, to a record $50.2 million
from $45.7 million in the comparable prior year period. The second quarter
net sales broke the previous quarterly sales record for the segment set in
the first quarter of 2006. Primary drivers of this increase were strong
worldwide demand in the construction and mining, heavy truck, performance
automotive and aerospace markets, and increased sales to the industrial and
performance automotive aftermarkets as well as sales from new product
applications to the construction and heavy truck markets. For the six
months ended June 30, 2005 net sales in this segment were $99.2 million, up
10.2%, from $90.0 million in the comparable prior year period.
For the second quarter ended June 30, 2006, income from operations in
the friction products segment increased $0.3 million to $5.2 million, or
6.1%, from $4.9 million in the second quarter of 2005. The increase in
income from operations was primarily the result increasing the production
flow from the Tulsa plant and improved control of deliveries and expenses
as the facility benefited from advancing up the manufacturing learning
curve. This increase was partially offset by expenses incurred due to the
continued start-up costs in Tulsa, increased medical expenses and increased
raw material costs. Adjusted income from operations of $5.2 million in the
second quarter of 2006 compares to adjusted income from operations of $6.2
million (Table 1) in the comparable quarter of 2005. For the six months
ended June 30, 2006, income from operations in this segment was $6.5
million, a decrease of $3.4 million, or 34.3%, from $9.9 million in the
comparable prior year period. Adjusted income from operations for the six
month period ended June 30, 2006 of $6.5 million compares to adjusted
income from operations of $12.5 million (Table 2) in the comparable period
of 2005. Income from operations for the six month period ended June 30,
2005 included $2.7 million of restructuring and loan forgiveness costs
(Table 2).
Income from operations in the Company's friction products segment for
the second quarter of 2006 of $5.2 million compares to $1.3 million
reported in the first quarter of 2006, an improvement of $3.9 million, or
300.0%. The sequential improvement in the segment's operating income from
the first quarter of 2006 to the second is due primarily to continued
operating improvements and increased production capabilities at the new
facility in Tulsa.
In the Company's precision components segment, net sales for the three
months ended June 30, 2006 were up $1.6 million, or 7.5%, to $22.8 million
from $21.2 million in the comparable prior period. The segment's net sales
increases were the result of strong end market demand and new product
introductions, primarily in the fluid power and appliance markets during
the quarter. The new product introductions were enabled, in large part
because of, the segment's new investments in innovative manufacturing
capacity. For the six months ended June 30, 2006 net sales in this segment
were $48.4 million, an increase of $4.4 million, or 10.0%, from $44.0
million in the comparable prior year period.
Income from operations in the precision components segment in the
second quarter of 2006 was $1.4 million, an increase of $0.2 million, or
16.7% from the comparable prior year period. During the second quarter of
2006, the segment benefited from changes in product mix and margin
improvement from volume related absorption of fixed overhead. The increase
in operating income was partially offset by the continuing start-up costs
of the segment's China facility, increased medical costs, raw material
increases and increased depreciation expense relating to the segment's new
technology equipment. For the six months ended June 30, 2006 income from
operations in this segment was $3.5 million, an increase of $1.3 million,
or 59.1% from $2.2 million in the comparable prior year period.
In the Company's performance racing segment, net sales in the second
quarter were $3.3 million, a decrease of $0.7 million or 17.5%, from $4.0
million in the comparable prior year period. The decrease resulted
primarily from a realignment of the Company's strategic customer focus at
its driveline transmission facility. At the end of 2005, the Company made a
significant change in the management of its driveline business operations,
and in so doing began repositioning itself in the marketplace by increasing
the level of engineering and product design capabilities while aligning
itself with a new provider of premium gears for the racing market. These
measures were taken to meet increased competition in the transmission
market. For the six months ended June 30, 2006, net sales were $7.1
million, a decrease of $1.8 million, or 20.2%, from $8.9 million in the
comparable prior year period.
For the quarter ended June 30, 2006, loss from operations in the
performance racing segment was $0.4 million compared to income of $0.2
million in the comparable prior year period primarily as a result of the
reduced sales volume and increased costs of component inventory. For the
six months ended June 30, 2006 loss from operations in this segment was
$0.6 million, a decrease of $1.3 million from income from operations of
$0.7 million in the comparable prior year period.
Working Capital and Liquidity
As of June 30, 2006, working capital increased by $9.3 million from
December 31, 2005 levels primarily from increased accounts receivable and
inventory levels as a result of the sales increase during the first half of
2006. The net increase in working capital was funded by cash flow from
operations, as well as borrowings under the Company's revolving credit
facility. As of June 30, 2006, the Company had $10.0 million outstanding
under its revolving credit facility. This compares to borrowings of $15.3
million under the revolving credit facility as of March 31, 2006. As of
June 30, 2006, the Company had $17.8 million available for additional
borrowings under its revolving credit facility.
Business Outlook
Hawk reaffirms its previously issued guidance expecting 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, and 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. The Company believes that the second half of 2006 will
benefit from continued strength in the Company's end markets, operational
improvements within the friction products segment relating to Tulsa,
pricing initiatives with existing customers, continued cost reduction
programs, lean manufacturing initiatives and continuing improvements in net
sales within the precision components segment related to the segment's new
technology and Conversioneering(R) initiatives. Included in the guidance of
income from operations is consolidated depreciation and amortization
expense for the full year 2006 of approximately $13.0 million. As a result
of the above factors, the Company continues to expect, as disclosed in
previously issued releases, earnings for 2006 to be in a range of $.80 to
$.90 cents per diluted common share on approximately 9.4 million fully
diluted shares.
Mr. Weinberg said, "We are pleased to report that through our
Conversioneering(R) sales efforts in our precision components segment, we
have received a record number of new business awards from our customers as
of the end of the second quarter. This achievement by the precision
components group combined with the additional ability to penetrate new
products and markets not available using conventional powder metal
technologies will provide us with additional sales growth as we move
through 2006 and into 2007 in this segment." Mr. Weinberg continued, "We
are excited by the momentum and market fundamentals embedded within our
friction products and precision components segments and the positive
results that we fully anticipate achieving in the future."
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
and trucks. 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, income from operations, earnings, earnings per share, 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 Tulsa 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 effect of any interruption in the
Company's supply of raw materials or a substantial increase in the price of
raw materials; 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 other
manufacturers who compete with the Company transferring manufacturing
operations to China and other lower wage locations; 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; 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
Tuesday, August 1, 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 is online at: http://www.hawkcorp.com/
HAWK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
Net sales $76,328 $70,874 $154,702 $142,945
Cost of sales 60,281 53,356 124,338 106,741
Gross profit 16,047 17,518 30,364 36,204
Selling, technical and
administrative expenses 9,763 9,933 20,696 21,139
Restructuring costs - 1,172 - 1,903
Amortization of intangibles 126 184 253 368
Total expenses 9,889 11,289 20,949 23,410
Income from operations 6,158 6,229 9,415 12,794
Interest expense (2,844) (2,625) (5,656) (5,241)
Interest income 14 5 23 15
Other (expense) income, net (45) (105) 80 (256)
Income from continuing
operations before income taxes 3,283 3,504 3,862 7,312
Income tax provision 1,549 1,837 1,808 3,774
Income from continuing
operations 1,734 1,667 2,054 3,538
Income from discontinued
operations, net of tax 171 38 255 111
Net income $1,905 $1,705 $2,309 $3,649
Diluted earnings per share:
Earnings from continuing
operations $.18 $.17 $.21 $.37
Discontinued operations,
net of tax .02 .00 .03 .01
Earnings per diluted share $.20 $.17 $.24 $.38
Diluted shares outstanding 9,539 9,420 9,547 9,338
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
Segment data:
Net sales
Friction products $50,152 $45,620 $99,239 $90,013
Precision components 22,832 21,213 48,389 44,012
Performance racing 3,344 4,041 7,074 8,920
Total $76,328 $70,874 $154,702 $142,945
Gross profit
Friction products $11,120 $12,141 $19,379 $24,726
Precision components 4,383 4,374 9,648 9,066
Performance racing 544 1,003 1,337 2,412
Total $16,047 $17,518 $30,364 $36,204
Depreciation and amortization:
Friction products $1,730 $1,714 $3,449 $3,515
Precision components 1,291 1,027 2,564 2,039
Performance racing 58 55 116 112
Total $3,079 $2,796 $6,129 $5,666
Income (loss) from operations:
Friction products $5,167 $4,866 $6,469 $9,884
Precision components 1,438 1,180 3,501 2,209
Performance racing (447) 183 (555) 701
Total $6,158 $6,229 $9,415 $12,794
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 U.S. generally accepted
accounting principles (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.
Table 1
Adjusted income from operations
Three months ended
June 30
Income (loss)
from operations, Adjusted
as reported Restructuring income (loss)
(GAAP) costs* from operations
2006 2005 2006 2005 2006 2005
Friction
products $5,167 $4,866 $ - $1,340 $5,167 $6,206
Precision
components 1,438 1,180 - - 1,438 1,180
Performance
racing (447) 183 - - (447) 183
Total
pre-tax $6,158 $6,229 $ - $1,340 $6,158 $7,569
Operating
margin 8.1% 8.7% 8.1% 10.6%
*Restructuring costs in this table for the second quarter ended June 30,
2005 include $0.2 million classified in the Company's Consolidated
Statement of Income as Cost of sales items.
Table 2
Adjusted income from operations
Six months ended
June 30
Income (loss)
from operations, Loan Adjusted
as reported Restructuring forgiveness income (loss)
(GAAP) costs* costs from operations
2006 2005 2006 2005 2006 2005 2006 2005
Friction
products $6,469 $9,884 $ - $2,071 $ - $593 $6,469 $12,548
Precision
components 3,501 2,209 - - - 443 3,501 2,652
Performance
racing (555) 701 - - - 64 (555) 765
Total
pre-tax $9,415 $12,794 $ - $2,071 $ - $1,100 $9,415 $15,965
Operating
margin 6.1% 9.0% 6.1% 11.2%
*Restructuring costs in this table for the six months ended June 30, 2005
include $0.2 million classified in the Company's Consolidated Statement
of Income as Cost of sales items.
HAWK CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands)
June 30, December 31,
2006 2005
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $5,777 $7,111
Accounts receivable, net 47,952 36,225
Inventories 49,649 46,379
Taxes receivable 347 347
Deferred income taxes 4,542 4,430
Other current assets 5,119 5,660
Assets held for sale 1,644 1,644
Assets of discontinued operations 3,091 3,633
Total current assets 118,121 105,429
Property, plant and equipment, net 71,136 70,918
Goodwill 32,495 32,495
Finite-lived intangible assets 8,182 8,435
Deferred income taxes 916 916
Other assets 7,842 8,035
49,435 49,881
Total assets $238,692 $226,228
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $32,537 $30,444
Other accrued expenses 22,426 19,629
Short-term debt 1,043 1,386
Current portion of long-term debt 255 307
Liabilities of discontinued operations 2,242 3,334
Total current liabilities 58,503 55,100
Long-term debt 120,742 115,892
Deferred income taxes 1,014 885
Pension liabilities 10,552 10,522
Other 3,399 3,113
Shareholders' equity 44,482 40,716
Total liabilities and shareholders' equity $238,692 $226,228
SOURCE Hawk Corporation
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CONTACT:
Joseph J. Levanduski, 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, for Hawk Corporation
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