CLEVELAND, Sept. 28 /PRNewswire-FirstCall/ -- Hawk Corporation (Amex: HWK)
announced today that costs associated with the relocation of its manufacturing
facility in Brook Park, Ohio to Tulsa, Oklahoma are running higher than
originally forecast. These costs include increased labor and training
expenses, scrap costs, equipment refurbishing and costs for expediting product
deliveries necessitated by manufacturing inefficiencies associated with the
start-up of the Tulsa facility and to keep up with customer demand.
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In addition to these costs, as previously disclosed, the Company expected
restructuring costs for the relocation project to be approximately
$4.5 million in 2005, with the peak of the costs to be incurred in the third
quarter of 2005. The Company is revising this restructuring cost estimate and
now anticipates the costs to range between $5.0 million and $5.5 million for
the full year 2005. As of June 30, 2005 the Company had incurred $2.1 million
in restructuring costs.
Based on the additional expenses related to the relocation project and
increased restructuring costs, Hawk is revising its income from operations
guidance for the second half of 2005 to be between $2.5 million and
$2.8 million. This represents a decrease of 50% to 55% from income from
operations of $5.5 million for the comparable six-month period of 2004. Full
year 2005 income from operations is now expected to be between $15.3 million
and $15.6 million, or a 9.8% to 11.5% decrease over full year 2004 results of
$17.3 million. Previous guidance issued by the Company had 2005 full year
income from operations increasing by 7.0% to 9.0% over full year 2004 results.
Based on the revision to income from operations, the Company is also
adjusting its expectation for net income to be between $.15 and $.18 per
diluted share, after taking into account the restructuring costs of
approximately $.35 per diluted share for the full year 2005. This replaces
the Company's prior guidance of net income of $.35 to $.40 per diluted share,
after taking into account restructuring costs of approximately $.30 per
diluted share. The Company's 2005 full year effective tax rate is expected to
be approximately 61% as a result of the impact of these additional
restructuring and relocation costs on the Company's expected domestic tax
losses in 2005. Previously, the Company anticipated its effective tax rate
would be in a range of 48% to 53%.
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "Although moving an
entire facility is always a complex project in its own right, we encountered
two primary issues outside of our original plan. First, moving the equipment
from our Ohio facility involved more time and expense than we originally
projected in order to bring it back into production. Second, during a period
of robust customer demand, we were not able to build our inventory safety
stock to levels that we anticipated. Consequently, we have incurred
significant additional expenses to expedite production and keep our customers
supplied." Mr. Weinberg continued, "We have always viewed 2005 as a
transition year and look forward to 2006 as these one-time costs are behind
us."
Customer demand has led the Company to operate its Brook Park, Ohio
facility longer than anticipated. This on-going operation left the Company
with the resulting duplicate fixed overhead and additional labor costs from
the operation of the two manufacturing facilities. At the same time, the
Tulsa, Oklahoma facility is incurring learning curve inefficiencies as it
ramps up to full production levels. As of the end of September, the Tulsa
facility is operational. As the fourth quarter commences, the Company's focus
will be on increasing output to match customer demand and improving operating
efficiencies. The Company expects to benefit from elimination of the
redundant costs of the Brook Park facility beginning in the fourth quarter as
it ceases production by mid-October. The Brook Park facility is under
contract to be sold in December 2005.
"While we are clearly not satisfied with the extra costs and time involved
with the Tulsa move, we are confident that the facility will provide us with
the expected cost savings and expanded capacity as we move into 2006. We have
always viewed the cost of this move as an investment in Hawk's long term
future and nothing in the additional expenses we have encountered has changed
our expectations of the benefits of this strategy," stated Mr. Weinberg.
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 motor sport applications and
performance automotive markets. Headquartered in Cleveland, Ohio, Hawk has
approximately 1,700 employees at 17 manufacturing, research, sales and
administrative sites in 6 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: the ability to hire and
train qualified people at the Company's new friction products facility; the
ability to transfer production to the new facility and reach satisfactory
production levels at the new facility without causing customer delays or
dissatisfaction; the ability to achieve the projected cost savings at the new
facility, including whether the cost savings can be achieved in a timely
manner; higher than currently anticipated costs related to the relocation of
the friction products segment facility; 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 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 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 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;
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 this
release can be accessed via the investor relations page on Hawk Corporation's
web site (http://www.hawkcorp.com) on Wednesday, September 28, 2005 at 9:30 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.
SOURCE Hawk Corporation
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Related links:
http://www.hawkcorp.com
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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
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