-- Net sales increase by 10.1% to record $58.9 million
-- Income from operations up 32.5% to $5.3 million
-- Income from continuing operations after taxes increases 280.0% to $1.9
million
-- Full year 2007 income for operations guidance increased to between $14.0
million to $16.0 million
CLEVELAND, Aug. 8 /PRNewswire-FirstCall/ -- Hawk Corporation (Amex:
HWK) announced today that net sales for the second quarter ended June 30,
2007 increased by 10.1% to $58.9 million from $53.5 million in the
comparable prior year period. The Company's net sales benefited during the
quarter from the impact of pricing actions initiated in the second half of
2006, strong economic conditions in most of the Company's end markets,
including the construction and mining, aerospace and defense, agriculture,
specialty friction and its performance automotive markets. Anticipated
weakness in the heavy truck market has proved to be more modest than
originally anticipated. Sales for the six months ended June 30, 2007 were
$117.1 million, an increase of $10.8 million, or 10.2%, from $106.3 million
in the comparable prior year period.
(Logo: http://www.newscom.com/cgi-bin/prnh/20001129/HWKLOGO )
Income from operations for the second quarter of 2007 was $5.3 million,
an increase of $1.3 million, or 32.5%, from $4.0 million in the prior year
period. The increase in income from operations resulted from the Company's
sales unit volume increases, continued operating improvements at the
Company's domestic manufacturing facilities and pricing actions. This
improvement in earnings led to higher incentive compensation expenses in
the second quarter of 2007 compared to the prior year period. The Company
incurred $0.4 million of legal costs during the three month period ended
June 30, 2007, related to the previously announced Securities and Exchange
Commission (SEC) and Department of Justice (DOJ) investigations. For the
six month period ended June 30, 2007, the Company reported income from
operations of $10.6 million, an increase of $6.5 million, or 158.5%, from
$4.1 million in the comparable prior year period.
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "We are very pleased
with the second quarter results, which benefitted from strong end market
activity as well as continued improvements from our Tulsa facility. Our
operational and working capital management is improving, as evidenced by an
increase in our cash position of $3.3 million during the quarter, despite
spending $2.0 million in our stock buy-back program and a $1.0 million
foreign debt reduction. In addition we reduced our inventory levels by $2.7
million from December 31, 2006 levels. Our income from operations increased
during the second quarter of 2007 by 32.5% reflecting the success of our
pricing actions and the efficiencies working through the organization as a
result of the continuing operating improvements in Tulsa. We continue to
focus on the
strategic initiatives we set for ourselves at the completion of the
sale of our precision components segment."
For the second quarter ended June 30, 2007, the Company reported net
income from continuing operations after taxes of $1.9 million, or $.20 per
diluted share, an improvement of $1.4 million, or 280.0%, compared to net
income from continuing operations after taxes of $0.5 million, or $.05 per
diluted share, in the comparable prior year period. The Company reported
interest income of $1.1 million and $1.8 million, respectively, for the
three and six month periods ended June 30, 2007 which was generated from
the investment of cash proceeds from the sale of the precision components
segment on February 2, 2007.
The Company reported net income, including net income from its
discontinued operations of $2.1 million, or $.22 per diluted share for the
three months ended June 30, 2007, an increase of $0.3 million, or 10.5%,
compared to net income of $1.9 million, or $.20 per diluted share for the
three month period ended June 30, 2006. For the six month period ended June
30, 2007, the Company reported net income of $14.9 million, or $1.58 per
diluted share, an increase of $12.6 million, or 547.8%, compared to $2.3
million, or $.24 per diluted share in the comparable prior year period.
Business Segment Results
Net sales in the friction products segment for the three months ended
June 30, 2007 increased $5.1 million, or 10.2%, to a record $55.3 million
from $50.2 million in the comparable prior year period. Primary drivers of
the sales increase included pricing actions, strong worldwide demand in the
construction and mining, aerospace and defense, agriculture, specialty
friction and performance automotive markets, and increased sales as a
result of new business awards. As expected, sales to the heavy truck market
declined, but not as steeply as anticipated, as a result of the
implementation of the new vehicle emission control standards at the
beginning of 2007. Net sales from the segment's foreign facilities
represented 38.1% of the segment's total net sales for the three month
period ended June 30, 2007 compared to 32.6% in the comparable prior year
period. The effect of foreign currency exchange rates accounted for 2.7% of
the segment's 10.1% net sales increase during the quarter. For the six
months ended June 30, 2007, net sales in the friction products segment were
a record $109.5 million, up 10.4%, from $99.2 million in the comparable
prior year period.
For the quarter ended June 30, 2007, income from operations in the
friction products segment increased $0.9 million or 20.0%, to $5.4 million
from $4.5 million in three months ended June 30, 2006. The increase in
income from operations was driven by sales unit volume increases, and
increased manufacturing efficiencies from the Company's domestic
manufacturing facilities and pricing actions. The increase was partially
offset by increased incentive compensation expense during the period and
legal costs related to the Company's previously announced SEC and DOJ
investigations. For the six months ended June 30, 2007 income from
operations in the friction products segment was $10.8 million, up $6.0
million, or 125.0% from $4.8 million in the comparable prior year period.
In the Company's performance racing segment, net sales for the three
months ended June 30, 2007 were $3.6 million, an increase of $0.3 million,
or 9.1%, from $3.3 million in the comparable prior year period. Over the
course of the last two years, the Company has sought to upgrade the
engineering and technological expertise of this segment to reflect similar
changes taking place in the motorsports market. The sales increase
represented the effects of the upgrade initiative and new business awards
resulting from the newly introduced NASCAR "Car of Tomorrow" which was
introduced on a limited schedule for the 2007 race season. For the six
months ended June 30, 2007, net sales in the performance racing segment
were $7.6 million, an increase of $0.5 million, or 7.0%, from $7.1 million
in the comparable prior year period.
For the three months ended June 30, 2007, the performance racing
segment reported a loss from operations of $.01 million compared to a loss
from operations of $0.5 million in the comparable prior period. The
improvement was a result of the increased sales unit volumes partially
offset by the effect of product mix. For the six months ended June 30,
2007, the performance racing segment reported a loss from operations of
$0.2 million compared to a loss from operations of $0.7 million in the
comparable prior year period.
The Company's discontinued operations, which consisted of the precision
components segment for the period ended June 30, 2007 and the precision
components and motor segments for the period ended June 30, 2006, reported
income after taxes of $0.2 million for the three months ended June 30,
2007, a decrease of $1.2 million, compared to $1.4 million in the
comparable prior year period as the remaining activities of the
discontinued operations wind down. For the six months ended June 30, 2007,
the Company reported income after taxes of $10.9 million compared to $3.3
million in the comparable prior year period.
Working Capital and Liquidity
At June 30, 2007, working capital increased by $18.3 million from
December 31, 2006. This increase was largely the result of cash proceeds
from the gain on the sale of the precision components segment and increased
sales volumes in the friction products segment during the second quarter of
2007 compared to the quarter ended December 31, 2006, which led to higher
accounts receivable levels partially offset by reduced inventory levels as
of June 30, 2007. As previously announced, the Company initiated its $4.0
million common stock repurchase plan in March 2007. Through June 30, 2007,
the Company repurchased 188,535 shares of common stock and spent $2.2
million in connection with its repurchase of such stock under the plan.
Total debt outstanding, including current portion, decreased $1.1
million, to $110.1 million at June 30, 2007, compared to $111.2 million at
December 31, 2006 reflecting the payoff of a $1.0 million loan previously
outstanding at its operations in China. Cash and marketable securities
increased to $93.5 million as of June 30, 2007 from $90.2 million as of
March 31, 2007. This increase is after taking into account the payoff of
the $1.0 million debt in China and the $2.0 million stock repurchase during
the period. As of June 30, 2007 and December 31, 2006, the Company had no
borrowings under its $30.0 million revolving credit facility. At June 30,
2007, based on its collateral values, the Company had $20.7 million
available for borrowings under the facility.
As previously announced, the Company initiated an offer to purchase
approximately $84.9 million of its outstanding 8 3/4% Senior Notes due
2014. The offer to purchase was made pursuant to the Indenture dated as of
November 1, 2004, among Hawk Corporation, the guarantors named therein and
HSBC Bank USA, National Association, as Trustee, and the provision of the
notes. The offer to purchase expired on August 7, 2007. There were $22.9
million notes tendered under the offer to purchase leaving $62.0 million
available for general corporate purposes, including acquisitions. After the
offer to purchase is completed, the Company will have $87.1 million of
Senior Notes outstanding.
Business Outlook
Reflecting the strength of the first half of 2007, the Company is
revising its expectations for net sales from the original guidance of
between $217.0 million and $222.0 million to a new range of between $224.0
million and $226.0 million. This revised range represents an increase of
between 5.6% and 6.6% as compared to revenues of $212.0 million in the
fiscal year ended December 31, 2006.
As a result of the stronger expected sales volume and continued
operational improvements, we expect income from operations to increase from
our original range of between $11.0 million and $14.0 million to a revised
range of between $14.0 million and $16.0 million. This new range includes
an estimate for legal costs relating to the SEC and DOJ investigations in
the second half of the year despite the difficulty of determining this
expense with any degree of accuracy.
Mr. Weinberg said, "As we looked at the continued strength of our end
markets for the balance of the year, we felt it was appropriate to reflect
this strength in our revised full year outlook." Mr. Weinberg continued,
"With the offer to purchase the Senior Notes completed and the funds from
the sale of the precision components segment now available to us for
general corporate purposes, we will continue to look at strategic
acquisition opportunities available to us in the friction products segment
as well as targeted sales growth opportunities in our existing core
businesses."
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; decisions by the
Company regarding the use of proceeds from the sale of its precision
components segment, including the Company's ability to identify suitable
acquisition candidates and complete such acquisitions; the Company's
dependence on a limited number of customers for a significant portion of
its total revenues; 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 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
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, 2006, 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 August 9, 2007 at 11:00 a.m. Eastern time. An archive of the call
will be available shortly after the end of the conference call on the
investor relations page of the Company's web site.
HAWK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
2007 2006 2007 2006
--------------------------------------
Net sales $58,940 $53,496 $117,107 $106,313
Cost of sales 44,832 41,923 88,266 85,810
Gross profit --------------------------------------
14,108 11,573 28,841 20,503
Selling, technical and
administrative expenses 8,616 7,464 17,819 16,130
Amortization of intangibles 182 124 363 248
--------------------------------------
Total expenses 8,798 7,588 18,182 16,378
Income from operations 5,310 3,985 10,659 4,125
Interest expense (2,551) (2,837) (5,111) (5,644)
Interest income 1,100 12 1,841 21
--------------------------------------
Other income (expense), net (44) (45) 66 50
Income (loss) from continuing
operations before income taxes 3,815 1,115 7,455 (1,448)
Income tax provision (benefit) 1,902 633 3,494 (434)
--------------------------------------
Income (loss) from continuing
operations, after income taxes 1,913 482 3,961 (1,014)
Income from discontinued operations,
net of tax 204 1,423 10,942 3,323
--------------------------------------
Net income $2,117 $1,905 $14,903 $2,309
======================================
Diluted earnings (loss) per share:
Income (loss) from continuing
operations $0.20 $0.05 $0.41 $(0.11)
Discontinued operations, net of tax 0.02 0.15 1.17 0.35
--------------------------------------
Net earnings per diluted share $0.22 $0.20 $1.58 $0.24
======================================
Diluted weighted average shares
outstanding 9,374 9,539 9,374 9,547
Three Months Ended Six Months Ended
June 30 June 30
Segment data: 2007 2006 2007 2006
--------------------------------------
Net sales:
Friction products $55,342 $50,152 $109,517 $99,239
Performance racing 3,598 3,344 7,590 7,074
--------------------------------------
Total $58,940 $53,496 $117,107 $106,313
======================================
Gross profit:
Friction products $13,474 $11,029 $27,471 $19,166
Performance racing 634 544 1,370 1,337
--------------------------------------
Total $14,108 $11,573 $28,841 $20,503
======================================
Depreciation and amortization:
Friction products $1,938 $1,730 $3,824 $3,451
Performance racing 70 58 134 116
--------------------------------------
Total $2,008 $1,788 $3,958 $3,567
======================================
Income (loss) from operations:
Friction products $5,454 $4,500 $10,830 $4,844
Performance racing (144) (515) (171) (719)
--------------------------------------
Total $5,310 $3,985 $10,659 $4,125
======================================
Capital expenditures:
Friction products $1,784 $1,112 $4,273 $3,650
Performance racing 131 23 205 125
--------------------------------------
Total $1,915 $1,135 $4,478 $3,775
======================================
HAWK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
June 30 December 31
2007 2006
--------------------------
ASSETS
Current assets:
Cash and cash equivalents $46,762 $6,177
Marketable securities 46,709 -
Accounts receivable, net 41,896 34,502
Inventories 36,168 38,890
Deferred tax asset 2,465 2,472
Other current assets 4,158 4,607
Current assets of discontinued
operations - 87,313
--------------------------
Total current assets 178,158 173,961
Property, plant and equipment, net 39,854 39,409
Finite-lived intangible assets 7,521 7,884
Other assets 4,852 8,000
--------------------------
Total assets $230,385 $229,254
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $22,525 $23,023
Other accrued expenses 20,408 20,269
Short-term debt - 980
Current portion of long-term debt 114 127
Current liabilities of discontinued
operations - 12,795
--------------------------
Total current liabilities 43,047 57,194
Long-term debt 110,006 110,053
Deferred income taxes 1,027 1,025
Other 14,839 14,253
Shareholders' equity 61,466 46,729
--------------------------
Total liabilities and shareholders'
equity $230,385 $229,254
==========================
SOURCE Hawk Corporation
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