CLEVELAND, Nov. 3 /PRNewswire-FirstCall/ -- Hawk Corporation (NYSE: HWK)
announced today net income of $.01 per diluted share for the third quarter of
2003, compared to a loss of $.04 per diluted share in the comparable prior
year period. The Company also reported that net sales for the third quarter
of 2003 increased by 4.5% to $51.6 million from $49.4 million in the
comparable prior year period. Eliminating the effect of foreign currency
exchange rates would have caused net sales in the third quarter of 2003 to
increase by 2.0%.
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Income from operations increased $0.7 million or 31.8%, to $2.9 million,
in the third quarter of 2003, compared to $2.2 million in the comparable prior
year period. As a percent of net sales, income from operations increased to
5.6% in the third quarter of 2003 from 4.5% in the comparable period of 2002.
The increase in operating income was achieved despite continued losses from
the Company's motor segment which produces rotors for electric motors.
Contributing to the increase in operating income were sales volume
improvements, manufacturing process cost reductions through the use of Six
Sigma initiatives and control of administrative expenses for the period.
Ronald E. Weinberg, Hawk's Chairman, Chief Executive Officer and
President, said, "We are especially pleased with the strength shown in our
friction business, especially in its new product introductions, and feel that
the economy is starting to show signs of life. Despite recently announced
impressive overall economic statistics, we have yet to see a broad organic
recovery across our business lines. Our revenue gains during 2003 were
largely the result of winning new product applications, resulting in market
share gains, with both our existing as well as new customers and increases in
our global revenue base. We expect our offshore manufacturing to take on
greater significance in the future as we begin shipments of powder metal
components from our Chinese facility during the fourth quarter of this year,
and continue to grow friction products shipments from there as well.
"We have leveraged these revenue gains into improved operating margins as
a result of Six Sigma programs, global sourcing and continued cost control
initiatives during this period. The improved operating results, combined with
a focus on working capital management, allowed us to reduce our total debt by
$15.3 million since year-end 2002, resulting in an improved liquidity position
as of September 30, 2003."
For the nine month period ended September 30, 2003, net sales were
$166.1 million, an increase of $16.5 million or 11.0%, from $149.6 million in
the comparable prior year period. Increases were posted in the friction,
performance racing and motors segments of the business offsetting a decline in
the precision components business. Eliminating the effect of foreign currency
exchange rates would have caused net sales in the nine month period ended
September 30, 2003 to increase by 8.1%. Income from operations for the same
nine month period increased $2.8 million, or 41.8%, to $9.5 million from
$6.7 million in the comparable prior period. As a percent of net sales,
income from operations increased to 5.7% for the first nine months of 2003
compared to 4.5% in the comparable period of 2002.
Business Segment Results
In the friction segment, third quarter net sales increased $2.7 million or
10.0%, to $29.7 million from $27.0 million in the year-ago period.
Eliminating the effect of foreign currency exchange rates would have caused
the friction segment's net sales in the third quarter of 2003 to increase by
5.6%. Primary drivers of the sales increase were new product introductions,
resulting in market share gains to customers in the construction and
agriculture markets, increased sales to the aftermarket and fleet markets, and
increased sales from the Company's Italian and Chinese facilities. These
increases were partially offset by sales declines in the quarter to the
aerospace market, which we anticipated and had forecast, as well as the
Company's previously announced exit from the automotive stamping market in
June 2003.
The Company's global business programs continue to benefit from new
product introductions. Net sales at the Company's Italian facility, on a
local currency basis, increased 30.4% in the third quarter of 2003 compared to
the same period in 2002, while net sales at the Company's Chinese facility
increased 50.0% during the same period.
Net sales in the friction segment for the nine month period ended
September 30, 2003 increased 15.8% to $92.9 million from $80.2 million in the
comparable prior year period. Sales benefited from growth at the segment's
foreign facilities, new product introductions and continued market share gains
during the period in spite of sluggish economic conditions in most of the
markets served by the segment. Eliminating the effect of foreign currency
exchange rates would have caused the friction segment's net sales for the nine
months ended September 30, 2003 to increase by 10.4%
Income from operations in the friction segment during the third quarter of
2003 was $3.0 million, an increase of $1.3 million, or 76.5%, from
$1.7 million in the comparable prior year period. The increase was primarily
the result of the sales increase, production efficiencies, global sourcing
programs and cost control initiatives. For the nine month period ended
September 30, 2003, income from operations increased $4.1 million, or 74.6%,
to $9.6 million from $5.5 million in the comparable prior year period.
In the Company's precision components segment, net sales decreased 7.4% to
$15.0 million in the third quarter of 2003 from $16.2 million in the
comparable prior year period. The decrease during the quarter was driven by
the decline in the automotive market as a result of the reduced automotive
production during the third quarter. Net sales for the nine month period
ended September 30, 2003 were up $0.3 million, or 0.6%, to $50.7 million from
$50.4 million in the comparable prior year period.
The Company's precision components segment continues with its advanced
material and technology development initiative. During the quarter, the first
piece of equipment relating to the new initiative was installed at the
Company's Illinois facility and a second piece of equipment will be installed
at one of the Company's Pennsylvania facilities in December. The Company
expects precision components segment sales to benefit from these new
initiatives beginning in 2004. The Company continues to experience broader
acceptance of its powder metal MIM (metal injection molding) technology, with
MIM sales increasing 35.5% in the third quarter of 2003 compared to the same
period in 2002.
Income from operations in the precision components segment in the third
quarter of 2003 was $0.5 million compared to $1.0 million during the
comparable quarter of 2002, a decline of $0.5 million or 50.0%. This decrease
was primarily due to volume declines and product mix. During the third
quarter of 2003, the segment continued to incur expenses for the start-up of
its powder metal production capabilities in China. The segment expects to
begin shipments from this facility during the fourth quarter of 2003. For the
nine month period ended September 30, 2003, income from operations decreased
14.3% to $1.8 million from $2.1 million in the comparable prior year period.
Net sales in the Company's performance racing segment, which consists of
racing clutches and drive train components, increased 14.3%, to $3.2 million
in the third quarter of 2003 compared to $2.8 million in the comparable
quarter of 2002. Net sales for the nine month period ended September 30, 2003
increased 4.0% to $10.5 million from $10.1 million in the comparable period.
Income from operations in the performance racing segment in the third
quarter of 2003 was $0.2 million compared to $0.3 million in the third quarter
of 2002. For the nine month period ended September 30, 2003, income from
operations was $0.8 million compared to $1.1 million in the comparable period
of 2002.
In the Company's motor segment, third quarter 2003 net sales increased
$0.3 million or 8.8%, to $3.7 million from $3.4 million in the year-ago
period. Excluding the portion of revenue represented by zero margin
lamination components, net sales for the quarter were down 2.9%. These
components, which are integral to the production of the segment's primary
product, were historically provided by the Company's customers and not
included in the sales price of the finished product. During the latter half of
2002, the Company's motor segment began purchasing these components and
selling them to a number of its customers at cost.
Net sales for the nine month period ended September 30, 2003 increased
$3.1 million or 34.8%, to $12.0 million from $8.9 million in the comparable
prior year period. Excluding the portion of revenue represented by zero
margin lamination components, net sales for the nine month period were up
9.1%.
Losses from operations in the motor segment during the third quarter of
2003 and 2002 were $0.8 million. While the Company is still experiencing
operating losses in this segment as a result of continued production
inefficiencies, it reported an improvement in operating results of
$0.5 million or 38.5%, when compared to the second quarter of 2003. For the
nine month period ended September 30, 2003, the loss from operations in the
motor segment was $2.7 million compared to $2.0 million in the comparable
period of 2002.
Business Outlook
"Through the nine month period, our sales results have exceeded
expectations. The primary drivers of these gains were new product
introductions, increased market share and sales growth at our facilities in
Italy and China. As we enter the fourth quarter of 2003, we are particularly
pleased with the pace of new customer acquisition and new product
introductions which will strongly position us for 2004," said Mr. Weinberg.
"We still expect to achieve full year sales growth of approximately 10% for
the full year of 2003. In addition, with the help of its worldwide workforce,
the Company remains committed to continuing its trend of operating margin
improvement throughout the organization."
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 and recreational vehicles. Through its
precision components group, the Company is a leading supplier of powder metal
and metal injected molded components for industrial applications, including
pump, motor and transmission elements, gears, pistons and anti-lock sensor
rings. The Company's performance automotive group manufactures clutches and
gearboxes for motorsport applications and performance automotive markets. The
Company's motor group designs and manufactures die-cast aluminum rotors for
fractional and subfractional electric motors used in appliances, business
equipment and HVAC systems. Headquartered in Cleveland, Ohio, Hawk has
approximately 1,700 employees and 17 manufacturing, research and
administrative sites in five countries.
Forward-Looking Statements
This press release includes forward-looking statements concerning the full
year of 2003 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 of the Company to meet the existing terms of its credit facilities,
including the numerous financial covenants and other restrictions; the effect
of general economic and industry conditions and competition; the ability of
the Company to begin generating profits from its facilities in Mexico and
China and to turn a profit at the start-up operations at Hawk MIM; as the
Company continues to expand internationally, the effect of changes in
international laws and regulations and currency exchange rates; the effect of
competition by manufacturers using new or different technologies; the ability
of the Company to successfully negotiate new agreements with its unions as
they come due; the effect of any interruption in the Company's supply of raw
materials or a substantial increase in the price of raw materials; the
continuity of business relationships with major customers; and the ability of
the Company's aircraft component products to meet stringent Federal Aviation
Administration criteria and testing requirements. 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, 2002, 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 4,
2003 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 Company's web site.
HAWK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Net sales $51,554 $49,447 $166,072 $149,599
Cost of sales 40,277 39,200 129,663 116,946
Gross profit 11,277 10,247 36,409 32,653
Selling, technical and
administrative expenses 8,198 7,845 26,338 25,339
Amortization of
intangibles 193 195 582 612
Total expenses 8,391 8,040 26,920 25,951
Income from operations 2,886 2,207 9,489 6,702
Interest expense, net (2,585) (2,506) (8,039) (7,377)
Exchange Offer costs (818) (818)
Other income (expense),
net 102 (341) 120 (636)
Income (loss) before
income taxes 403 (1,458) 1,570 (2,129)
Income tax provision
(benefit) 320 (1,181) 899 (1,492)
Net income (loss) before
cumulative effect of
change in accounting
principle 83 (277) 671 (637)
Cumulative effect of
change in accounting
principle,
net of tax of $4,253 (17,200)
Net income (loss) $83 $(277) $671 $(17,837)
Basic earnings (loss)
per share:
Earnings (loss) before
cumulative effect
of change in
accounting principle $.01 $(.04) $.07 $(.09)
Cumulative effect of
change in accounting
principle, net of tax (2.01)
Net income (loss) per
basic share $.01 $(.04) $.07 $(2.10)
Diluted earnings (loss)
per share:
Earnings (loss) before
cumulative effect of
change in accounting
principle $.01 $(.04) $.07 $(.09)
Cumulative effect of
change in accounting
principle, net of tax (2.01)
Net income (loss) per
diluted share $.01 $(.04) $.07 $(2.10)
Other Data:
Depreciation $2,697 $2,872 $8,108 $8,409
HAWK CORPORATION
CONSOLIDATED BALANCE SHEET (Unaudited)
(In Thousands)
September 30, December 31,
2003 2002
ASSETS
Current assets
Cash and cash equivalents $3,124 $1,702
Accounts receivable 36,223 32,761
Inventories 33,281 33,261
Deferred income taxes and other current assets 5,249 9,074
Total current assets 77,877 76,798
Property, plant and equipment, net 65,628 67,892
Goodwill 32,495 32,495
Other intangible assets 10,121 10,701
Other assets 5,420 5,982
Total assets $191,541 $193,868
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $23,063 $17,851
Short term borrowings 3,119
Other accrued expenses 15,671 9,474
Bank facility 19,795 36,327
Current portion of long-term debt 1,974 3,103
Total current liabilities 63,622 66,755
Long-term debt 68,722 69,523
Deferred income taxes 5,271 6,233
Other 6,968 6,523
Shareholders' equity 46,958 44,834
Total liabilities and shareholders' equity $191,541 $193,868
SOURCE Hawk Corporation
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CONTACT:
Ronald E. Weinberg, Chairman, CEO and
President, or Thomas A. Gilbride, Vice President - Finance, both
of Hawk Corporation, +1-216-861-3553
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