CLEVELAND, Nov. 6 /PRNewswire-FirstCall/ -- Hawk Corporation
(NYSE Alternext US: HWK) announced today that net sales from continuing
operations for the third quarter ended September 30, 2008, increased by 44.1%
to a record $74.2 million from $51.5 million in the comparable prior year
period. The Company's third quarter 2008 net sales benefited from strong
customer demand in all of its end markets, new product introductions and
pricing actions pursuant to the terms of long-term agreements as well as, to
offset raw material cost increases, and favorable foreign currency exchange
rates. The Company experienced strong sales growth from all of its facilities
in the third quarter of 2008. Net sales for the nine months ended September
30, 2008, were $211.8 million, an increase of 31.6%, from $161.0 million in
the comparable prior year period.
(Logo: http://www.newscom.com/cgi-bin/prnh/20001129/HWKLOGO )
Income from operations for the third quarter ended September 30, 2008, was
$15.6 million, an increase of $11.0 million, or 239.1%, from $4.6 million in
the prior year period. Income from operations benefited from the impact of
sales volume increases, a FIFO inventory pricing benefit arising from the sale
of our first in, lower priced inventory, pricing actions, continued
implementation of the Company's lean manufacturing process improvement
initiatives, product mix and foreign currency exchange rates. The increase
during the third quarter of 2008 compared to the same period of 2007 was
partially offset by increases in raw material costs and increases in employee
compensation and variable incentive compensation expenses during the quarter.
For the nine month period ended September 30, 2008, the Company reported
income from operations of $33.7 million, an increase of $18.7 million, or
124.7%, from $15.0 million in the comparable prior year period.
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "We are pleased with
our third quarter 2008 results as we were able to achieve record sales, income
from operations and net income. However, because of the disruptions in the
financial and commodity markets, we find conditions in most of our global
markets to remain difficult to predict for the remainder of the year and into
2009."
Mr. Weinberg continued, "Relative to the economy as a whole, Hawk
benefited from a number of factors in achieving our third quarter and year to
date results. We serve a variety of markets on a global basis, many of which
have been strong this year. Additionally, we continue implementation of lean
manufacturing and localization of our supply chain and production processes.
We are currently monitoring the uncertainty in the financial and commodity
markets and its potential effect on Hawk and our customers, but we remain
dedicated to managing our business for the long-term and utilizing our strong
cash position to our benefit. As of September 30, 2008, our cash and
investment portfolio totaled $87.1 million."
For the quarter ended September 30, 2008, the Company reported income from
continuing operations, after income taxes, of $10.3 million, or $1.09 per
diluted share, an improvement of $8.4 million or 442.1%, compared to $1.9
million, or $0.20 per diluted share, for the quarter ended September 30, 2007.
For the nine months ended September 30, 2008, the Company reported net income
from continuing operations, after income taxes of $20.3 million, or $2.15 per
diluted share, an improvement of $14.5 million, or 250.0%, compared to net
income from continuing operations, after income taxes of $5.8 million, or
$0.61 per diluted share, in the comparable prior year period.
For the third quarter of 2008, the Company reported net income of $10.3
million, or $1.09 per diluted share, an increase of $8.6 million, or 505.9%,
compared to net income of $1.7 million, or $0.18 per diluted share, in the
third quarter of 2007. For the nine months ended September 30, 2008, the
Company reported net income of $18.4 million, or $1.95 per diluted share, an
increase of 10.8%, compared to $16.6 million or $1.76 per diluted share during
the comparable prior year period. The nine month period ended September 30,
2007, included a gain (net of tax) on the sale of our precision components
segment of $11.8 million.
Working Capital and Liquidity
------------------------------
At September 30, 2008, working capital increased by $15.3 million to
$128.5 million from $113.2 million at December 31, 2007. The increase in
working capital was largely the result of increased accounts receivable and
inventory levels at September 30, 2008, resulting from sales increases during
the period. Cash and short-term investments were up $6.0 million to $87.1
million as of September 30, 2008, compared to December 31, 2007.
As of September 30, 2008, the Company had no borrowings under its
revolving credit facility and $21.9 million was available for additional
borrowings under that facility based on its eligible collateral.
The Company's total debt of $87.1 million is comprised of senior notes
that mature in November 2014.
During the nine months ended September 30, 2008, the Company spent $9.2
million on capital expenditures compared to $5.8 million during the comparable
period of 2007. Depreciation and amortization was $5.8 million during the
nine month period ended September 30, 2008, compared to $5.9 million in the
comparable period of 2007.
Business Outlook
-----------------
Based on the record revenues reported in the first nine-months of 2008,
and our current expectation for the fourth quarter, the Company is increasing
its net sales guidance for the full year 2008 to approximately $270.0 million
from its previous guidance range of between $250.0 million and $260.0 million.
This revised guidance represents an increase of approximately 25.1% compared
to full year 2007 net sales of $215.9 million. This revised guidance
anticipates 2008 fourth quarter net sales of approximately between $58.0
million to $58.5 million, an increase of approximately between 5.6% to 6.6%
compared to net sales for the fourth quarter of 2007 of $54.9 million.
Historically the Company's fourth quarter revenues are impacted by the reduced
number of working days surrounding the holiday season, and a holdback on the
receipt of shipments by our customers as they affect working capital levels at
year end. The Company anticipates that the impact of the working capital
fluctuations may be more significant than in past years given the current
economic climate.
Driven by the record net sales provided by our current net sales
expectations, the Company is also increasing its full year 2008 income from
operations guidance to a revised estimate of between $38.0 million and $39.0
million from its previous guidance range of between $28.0 million and $30.0
million. This revised range represents an increase of between 94.9% and
100.0% compared to 2007 income from operations of $19.5 million. The revised
full year guidance reflects the Company's expectation for fourth quarter
income from operations of between $4.3 million and $5.3 million, which
includes the effect of higher cost inventory on the Company's operating
results.
Given the uncertainty in today's economic climate the Company is assessing
its current capital expenditure plans. Although we anticipate maintaining
progress on our key initiatives with respect to increased capacity and lean
manufacturing, we will be carefully scrutinizing expenditures and their
timing. Consequently, we have lowered our expectation for full year capital
spending to be approximately between $16.0 million and $18.0 million from our
previous guidance of $20.0 million.
Based on our updated financial guidance that affects the relative
profitability between our domestic and international operations, the Company's
effective tax rate continues to decline. The Company is now expecting its
fourth quarter 2008 effective tax rate to be 36.7% resulting in a full year
effective tax rate of 34.7%.
The Company
------------
Hawk Corporation 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.
Headquartered in Cleveland, Ohio, Hawk has approximately 1,200 employees at 14
manufacturing, research, sales and international rep offices and
administrative sites in 8 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
sell its remaining performance racing segment company on a timely basis or at
terms favorable to the Company; the Company's ability to execute its business
plan to meet its sales, operating income and capital expenditure guidance; the
costs and outcome; the costs and outcome of the ongoing SEC and DOJ
investigations; decisions by the Company regarding the use of proceeds from
the sale of its precision components segment, including acquisition and
organic growth opportunities; the impact on the Company's gross profit margins
as a result of changes in product mix; the Company's vulnerability to adverse
general economic and industry conditions and competition; the effect of any
interruption in the Company's supply of raw materials or a substantial
increase in the price of raw materials; work stoppages by union employees;
ongoing capital expenditures and investment in research and development;
compliance with government regulations; compliance with environmental and
health and safety laws and regulations; 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; reliance for a
significant portion of the Company's total revenues on a limited number of
large organizations and the continuity of business relationships with major
customers; the loss of key personnel; and control by existing preferred
stockholders.
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, 2007, 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 (www.hawkcorp.com) on Thursday, November
6, 2008 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 Nine Months Ended
September 30 September 30
2008 2007 2008 2007
----- ----- ----- -----
Net sales $74,181 $51,490 $211,761 $161,007
Cost of sales 49,070 39,775 148,140 121,822
------- ------ ------- -------
Gross profit 25,111 11,715 63,621 39,185
Operating expenses:
Selling, technical and
administrative expenses 9,332 6,983 29,426 23,612
Amortization of finite-lived
intangible assets 139 182 451 545
------- ------ ------- -------
Total operating expenses 9,471 7,165 29,877 24,157
------- ------ ------- -------
Income from operations 15,640 4,550 33,744 15,028
Interest expense (2,013) (2,265) (6,041) (7,376)
Interest income 488 1,053 1,679 2,894
Other income (expense), net 1,198 (501) 1,552 (435)
------- ------ ------- -------
Income from continuing
operations, before income taxes 15,313 2,837 30,934 10,111
Income tax provision 5,016 910 10,632 4,341
------- ------ ------- -------
Income from continuing
operations, after income taxes 10,297 1,927 20,302 5,770
(Loss) income from discontinued
operations, after income taxes (41) (266) (1,883) 10,794
------- ------ ------- -------
Net income $10,256 $1,661 $18,419 $16,564
======= ====== ======= =======
Diluted earnings per share:
Income from continuing
operations, after income taxes $1.09 $0.20 $2.15 $0.61
Discontinued operations, after
income taxes - (0.02) (0.20) 1.15
------- ------ ------- -------
Net earnings per diluted share $1.09 $0.18 $1.95 $1.76
======= ====== ======= =======
Average shares and equivalents
outstanding - diluted 9,403 9,356 9,375 9,368
======= ====== ======= =======
HAWK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(In thousands)
September 30 December 31
2008 2007
ASSETS
Current assets:
Cash and cash equivalents $42,258 $21,992
Marketable securities 44,848 58,999
Accounts receivable, net 50,392 37,486
Inventories 42,229 36,719
Deferred income taxes 1,000 1,355
Other current assets 4,753 4,766
Current assets of discontinued
operations 2,793 5,509
------- -------
Total current assets 188,273 166,826
Property, plant and equipment, net 44,239 39,575
Other intangible assets 6,706 7,157
Other assets 5,001 5,176
Long-term assets of discontinued
operations - 1,170
------- -------
Total assets $244,219 $219,904
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $32,644 $30,325
Other accrued expenses 26,625 21,434
Current portion of long-term debt - 59
Current liabilities of discontinued
operations 457 1,740
------- -------
Total current liabilities 59,726 53,558
Long-term debt 87,090 87,090
Deferred income taxes 701 922
Other liabilities 11,545 11,010
Shareholders' equity 85,157 67,324
------- -------
Total liabilities and shareholders'
equity $244,219 $219,904
======= =======
