CLEVELAND, Nov. 1 /PRNewswire-FirstCall/ -- Hawk Corporation (Amex: HWK)
announced today that net sales for the third quarter of 2005 increased by 5.7%
to $62.8 million from $59.4 million in the comparable prior year period. The
Company's net sales benefited during the quarter from continued new customer
applications and strong demand in a number of the Company's end markets,
including aerospace, heavy truck, construction and appliance.
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Income from operations in the third quarter of 2005 decreased $4.3 million
to a loss of $0.3 million compared to income of $4.0 million in the prior year
period. This loss was primarily the result of higher than anticipated
restructuring costs relating to the investment in the relocation of the
Company's new friction manufacturing facility to Oklahoma. In addition, there
have been significant costs incurred as a result of operating inefficiencies
associated with the relocation, including increased labor, benefit, training,
freight, and outsourcing costs as a result of the start-up of operations in
Oklahoma and operating both the Ohio and Oklahoma facilities during the
production transition period.
As of September 30, 2005, all production ceased at the Company's Brook
Park, Ohio facility. The Ohio facility is under contract to be sold and the
Company expects that the transaction will close before December 31, 2005. The
net proceeds from the sale are expected to approximate the book value of the
facility.
The loss from operations in the third quarter of 2005 included charges of
$2.2 million ($0.2 million of which was included in cost of sales), or $.15
per diluted share, of plant relocation restructuring costs, partially offset
by a post-retirement benefit of $0.4 million, or $.03 per diluted share, for
future medical benefit liabilities no longer owed by the Company. In the
third quarter of 2004, income from operations included restructuring costs of
$0.3 million or $.02 per diluted share. Adjusted income from operations
(Table 1) was $1.5 million, or 2.4% of net sales, in the third quarter of
2005, a decrease of 65.1%, or $2.8 million, from $4.3 million, or 7.2% of net
sales, in the comparable prior year period.
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "The third quarter move
of our Brook Park, Ohio manufacturing facility, to our new larger Oklahoma
facility online and incurred significant expenses in order to meet strong
customer demand. We expect that these costs will continue to affect us for
the balance of 2005 but the negative impact on our operating results will
lessen as we work through the start-up issues and move into 2006. With the
closure of the Ohio facility in the third quarter, we will begin to benefit
from the elimination of the redundant operating costs beginning in the fourth
quarter of this year." Mr. Weinberg continued, "While we clearly are not
satisfied with our third quarter results, we are confident that the results
from our new facility will strengthen our leadership role as a world class
supplier of friction materials to some of the world's most important
industrial manufacturers."
For the nine month period ended September 30, 2005, net sales were $205.8
million, an increase of $22.8 million, or 12.5%, from $183.0 million in the
comparable prior year period. Income from operations for the same nine month
period decreased $3.3 million, or 20.9%, to $12.5 million from $15.8 million
in the comparable 2004 period. Included in the Company's income from
operations for the nine months ended September 30, 2005 was $4.3 million of
restructuring costs related to the relocation to Oklahoma, employee medical
benefit curtailment income of $0.4 million for future medical benefit
liabilities no longer owed by the Company and $1.1 million of loan forgiveness
costs, These net non-recurring charges, when combined, account for $.32 per
diluted share. In the same nine month period of 2004, income from operations
included restructuring costs and loan forgiveness costs, when combined,
accounted for an expense representing $.09 per diluted share. Adjusted income
from operations (Table 2) was $17.4 million, or $1.15 per diluted share, in
the first nine months of 2005, an increase of 2.4%, or $0.4 million, from
$17.0 million, or $1.17 per diluted share, in the comparable prior year
period.
The Company reported a net loss of $1.7 million, or $.19 per diluted share
in the third quarter of 2005 compared to net income of $0.6 million, or $.06
per diluted share, in the comparable prior year period. In addition to the
direct restructuring costs related to the facility move, additional
significant costs, primarily reflected in cost of sales, associated with
operating inefficiencies during the production transfer and start-up of the
Oklahoma facility are included in the loss for the three months ended
September 30, 2005.
For the nine months ended September 30, 2005 net income was $2.0 million,
a decrease of 48.7%, compared to $3.9 million in the comparable prior year
period. Adjusted net income (Table 3) for the nine months ended September 30,
2005, was $5.0 million, or $.52 per diluted share compared to adjusted net
income of $4.6 million, or $.51 per diluted share in the comparable 2004
period. Significant costs associated with operating inefficiencies during the
production transfer and start-up of the Oklahoma facility are included in the
Company's net income for the nine months ended September 30, 2005.
Business Segment Results
Net sales in the friction products segment for the third quarter ended
September 30, 2005 increased $3.2 million, or 8.6%, to $40.2 million from
$37.0 million in the comparable prior year period. Primary drivers of this
increase were sales from new product applications in the construction and
heavy truck markets, strong world-wide demand in the construction, aerospace
and heavy truck markets and increased sales to the aftermarket. The effect of
foreign currency exchange rates on the friction products segment's net sales
accounted for 0.3% of the 8.6% increase during the quarter. For the nine
months ended September 30, 2005, net sales in this segment were $130.2
million, an increase of 16.3%, from $112.0 million in the comparable prior
year period.
Net sales at the Company's Italian facility, on a local currency basis,
increased 13.0% in the third quarter of 2005 compared to the same period in
2004 as a result of market share gains and new product introductions in the
period. Total shipments at the Company's Chinese friction products facility
increased 41.1% in the third quarter of 2005 compared to the same period in
2004.
For the third quarter ended September 30, 2005, income from operations in
the friction products segment decreased $3.9 million to a loss of $0.4 million
from income of $3.5 million in the comparable prior year period. The decrease
was the primarily the result of restructuring costs and additional costs
incurred as a result of the start-up inefficiencies described above. For the
nine months ended September 30, 2005 income from operations in this segment
was $9.5 million, a decrease of $2.6 million, or 21.5%, from $12.1 million in
the comparable prior year period.
In the Company's precision components segment, net sales for the three
months ended September 30, 2005 were up $0.2 million, or 1.1%, to $19.1
million from $18.9 million in the comparable prior period. The segment's net
sales increases were the result of new product introductions, primarily in the
appliance market during the quarter. For the nine months ended September 30,
2005 net sales in this segment were $63.2 million, an increase of $3.9
million, or 6.6%, from $59.3 million in the comparable prior year period.
Income from operations in the precision components segment in the third
quarter of 2005 was $0.4 million, a decrease of $0.1 million, or 20.0% from
the comparable prior year period. During the third quarter of 2005, the
segment benefited from sales product mix which was offset by phase-in costs
associated with the segment's new powder metal technologies and the continued
support of its new facility in China. For the nine months ended September 30,
2005, income from operations in this segment was $2.6 million, a decrease of
$0.3 million from $2.9 million in the comparable prior year period.
In the Company's performance racing segment, net sales in the third
quarter were the same as in the prior year quarter at $3.5 million. For the
nine months ended September 30, 2005, net sales were $12.4 million, an
increase of $0.7 million, or 6.0%, from $11.7 million in the comparable prior
year period.
For the quarter ended September 30, 2005, loss from operations in the
performance racing segment was $0.3 million compared to break even results for
the comparable prior year period. For the nine months ended September 30, 2005
income from operations in this segment was $0.4 million, a decrease of $0.4
million from $0.8 million in the comparable prior year period. The third
quarter 2005 results were negatively impacted by cost increases on various
driveline components, and reserves created to reflect parts determined to be
obsolete due to rule changes in the racing circuits served by this segment.
Working Capital and Liquidity
As of September 30, 2005, working capital levels increased by $1.3 million
from December 31, 2004 levels. When compared to June 30, 2005, working
capital levels were essentially flat. The increase in working capital during
the nine moths ended September 30, 2005 was largely the result of increased
inventory requirements to support the move of production equipment to the
Company's new facility in Oklahoma. The net increase in working capital was
funded by borrowings under the Company's revolving credit facility. As of
September 30, 2005, the Company had $2.3 million outstanding under its
revolving credit facility. As of September 30, 2005, the Company has $25.2
million available for additional borrowings under its revolving credit
facility.
Business Outlook
The Company is confirming its forecast provided on September 28, 2005:
- Full year 2005 revenues are expected to be between $270 million to $273
million, representing an 11.9% to 13.2% increase over full year 2004
revenues of $241.2 million.
- Restructuring costs for the full year 2005 are estimated to be
approximately $5.5 million, of which $ 3.9 million has been incurred
as of September 30, 2005.
- Full year 2005 income from operations is expected to be between $15.3
million and $15.6 million, or a 9.8% to 11.6% decrease from full year
2004 results of $17.3 million.
- Adjusting for anticipated restructuring and other non-recurring costs,
full year 2005 adjusted income from operations (Table 4) is expected to
be between $21.5 million and $21.8 million, or a 17.7% to 20.5%
increase over full year 2004 adjusted operating income of $18.1
million.
- Net income is expected to be between $.15 and $.18 per diluted share
for 2005. Adjusting for the restructuring costs and other non-
recurring costs, the Company expects full year 2005 adjusted net income
(Table 5) to be in a range of $.55 to $.58 per diluted share.
The Company will issue its full year 2006 guidance on December 15, 2005.
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 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 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: higher than anticipated
costs related to the relocation of the friction products segment facility; 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
commence production 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; 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 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; 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
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, November 1,
2005 at 1:00 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 Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Net sales $62,808 $59,367 $205,753 $183,038
Cost of sales 52,952 45,728 159,693 137,914
Gross profit 9,856 13,639 46,060 45,124
Selling, technical and
administrative expenses 8,429 9,181 29,568 28,313
Restructuring costs 1,977 286 3,880 507
Employee benefit curtailment
income (424) (424)
Amortization of intangibles 184 184 552 550
Total expenses 10,166 9,651 33,576 29,370
(Loss) income from
operations (310) 3,988 12,484 15,754
Interest expense (2,625) (2,610) (7,866) (7,687)
Interest income 6 8 21 33
Other (expense) income, net (51) (101) (307) (620)
(Loss) income from continuing
operations before income
taxes (2,980) 1,285 4,332 7,480
Income tax (benefit)
provision (1,273) 234 2,501 3,207
(Loss) income from continuing
operations (1,707) 1,051 1,831 4,273
Income (loss) from
discontinued operations,
net of tax 14 (424) 125 (415)
Net (loss) income $(1,693) $627 $1,956 $3,858
Diluted earnings per share:
(Loss) earnings from
continuing operations $(.19) $.11 $.19 $.47
Discontinued operations,
net of tax .00 (.05) .01 (.05)
(Loss) earnings per
diluted share $(.19) $.06 $.20 $.42
Diluted shares outstanding 8,880 9,148 9,345 8,904
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Segment data:
Net sales
Friction products $40,192 $36,982 $130,205 $111,993
Precision components 19,134 18,902 63,146 59,341
Performance racing 3,482 3,483 12,402 11,704
Total $62,808 $59,367 $205,753 $183,038
Gross profit
Friction products $6,262 $9,345 $30,988 $29,172
Precision components 3,096 3,562 12,162 12,876
Performance racing 498 732 2,910 3,076
Total $9,856 $13,639 $46,060 $45,124
Depreciation and
amortization:
Friction products $1,681 $1,617 $5,196 $5,085
Precision components 1,014 934 3,053 2,805
Performance racing 58 45 170 154
Total $2,753 $2,596 $8,419 $8,044
Income from operations:
Friction products $(404) $3,513 $9,480 $12,096
Precision components 380 493 2,589 2,900
Performance racing (286) (18) 415 758
Total $(310) $3,988 $12,484 $15,754
Adjusted income from
operations (tables
1 and 2):
Friction products $1,389 $3,799 $13,937 $12,992
Precision components 380 493 3,032 3,200
Performance racing (286) (18) 479 801
Total $1,483 $4,274 $17,448 $16,993
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 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
September 30,
Income (loss)
from operations, Adjusted
as reported Restructuring Other income from
(GAAP) costs(1) costs(2) operations
2005 2004 2005 2004 2005 2004 2005 2004
Friction products $(404) $3,513 $2,217 $286 $(424) $1,389 $3,799
Precision components 380 493 380 493
Performance racing (286) (18) (286) (18)
Total pre-tax $(310) $3,988 $2,217 $286 $(424) $1,483 $4,274
After tax $1,363 $176 $(261) $912 $2,629
Per diluted share $.15 $.02 $(.03) $.10 $.30
Operating margin (0.5%) 6.7% 2.4% 7.2%
(1) Restructuring costs in this table for the third quarter ended
September 30, 2005 include $0.2 million classified in the Company's
Consolidated Statement of Income as Cost of sales items.
(2) Other costs include loan forgiveness costs and employee benefit
curtailment costs.
Table 2
Adjusted income from operations
Nine months ended
September 30,
Income from
operations, Adjusted
as reported Restructuring Other income from
(GAAP) costs(1) costs(2) operations
2005 2004 2005 2004 2005 2004 2005 2004
Friction
products $9,480 $12,096 $4,288 $507 $169 $389 $13,937 $12,992
Precision
components 2,589 2,900 443 300 3,032 3,200
Performance racing 415 758 64 43 479 801
Total pre-tax $12,484 $15,754 $4,288 $507 $676 $732 $17,448 $16,993
After tax $2,637 $312 $416 $450 $10,731 $10,451
Per diluted share $.28 $.04 $.04 $.05 $1.15 $1.17
Operating margin 6.1% 8.6% 8.5% 9.3%
(1) Restructuring costs in this table for the nine months ended September
30, 2005 include $0.4 million classified in the Company's Consolidated
Statement of Income as Cost of sales items.
(2) Other costs include loan forgiveness costs and employee benefit
curtailment costs.
Table 3
Adjusted net income
Nine months ended
September 30,
Net income,
as reported Restructuring
(GAAP) costs, Other costs, Adjusted
net of tax (1) net of tax(2) net income
2005 2004 2005 2004 2005 2004 2005 2004
Total $1,956 $3,853 $2,637 $312 $417 $450 $5,009 $4,615
Per diluted share $.20 $.42 $.28 $.04 $.04 $.05 $.52 $.51
(1) Restructuring costs in this table for the nine months ended September
30, 2005 include $0.4 million classified in the Company's
Consolidated Statement of Income as Cost of sales items.
(2) Other costs include loan forgiveness costs and employee benefit
curtailment costs.
Table 4
Forecasted adjusted income from operations
Twelve months ended
December 31, 2005
Forecasted
income from Forecasted
operations, Restructuring Other costs adjusted income
per guidance costs (1) from operations
(GAAP)
Low range of
guidance $15,300 $5,500 $676 $21,476
High range of
guidance $15,600 $5,500 $676 $21,776
(1) Other costs include loan forgiveness costs and employee benefit
curtailment costs.
Table 5
Forecasted adjusted net income
Twelve Months ended
December 31, 2005
Forecasted Restructuring Other Forecasted
net income, costs, net costs, net adjusted net
per guidance of tax of tax (1) income
(GAAP)
Low range of
guidance $1,400 $3,383 $417 $5,200
Per diluted
share $.15 $.36 $.04 $.55
High range of
guidance $1,690 $3,383 $417 $5,490
Per diluted
share $.18 $.36 $.04 $.58
Diluted shares
outstanding 9,400 9,400
(1) Other costs include loan forgiveness costs and employee benefit
curtailment costs.
HAWK CORPORATION
CONSOLIDATED BALANCE SHEET (Unaudited)
(in thousands)
September 30, December 31,
2005 2004
ASSETS
Current assets
Cash and cash equivalents $6,027 $6,785
Accounts receivable 39,896 39,044
Inventories 45,872 41,550
Taxes receivable 373 373
Deferred tax asset 4,151 4,583
Other current assets 3,801 3,460
Shareholder notes 600
Assets of discontinued
operations 4,065 4,499
Total current assets 104,185 100,894
Property, plant and equipment,
net 70,430 70,028
Goodwill 32,495 32,495
Other intangible assets 8,619 9,170
Asset held for sale 1,623
Other assets 7,672 8,279
Total assets $225,024 $220,866
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $28,056 $25,554
Other accrued expenses 17,979 18,277
Short-term debt 1,004 980
Current portion of long-term
debt 332 639
Liabilities of discontinued
operations 4,382 4,297
Total current liabilities 51,753 49,747
Long-term debt 113,486 111,402
Deferred income taxes 3,362 3,631
Other 10,398 11,059
Shareholders' equity 46,025 45,027
Total liabilities and
shareholders' equity $225,024 $220,866
SOURCE Hawk Corporation
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CONTACT:
Joseph J. Levanduski, CFO, or Thomas A.
Gilbride, Vice President - Finance, +1-216-861-3553, of Hawk
Corporation; or Investor Relations, John Baldissera of BPC
Financial Marketing, +1-800-368-1217
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