Hawk Corporation announced today that net sales for the year ended
December 31, 2007 increased by 7.9% to a record $228.7 million from
$212.0 million in the comparable prior year period. The Company's 2007
net sales benefited from strong economic conditions in most of its end
markets, pricing actions, new product introductions and favorable
foreign currency exchange rates. The effect of foreign currency exchange
rates accounted for 3.2% of the total net sales increase of 7.9% during
2007. Net sales for the fourth quarter of 2007 increased by $4.4
million, or 8.3%, to $57.2 million from $52.8 million in the comparable
prior year.
Income from operations for the 2007 full year was $18.6 million, an
increase of $8.7 million, or 87.9%, from $9.9 million in the prior year.
Income from operations benefited from volume related absorption of fixed
overhead, continued pricing actions and a continuation of the Company's
lean manufacturing philosophies. This increase was partially offset by
legal fees associated with the previously announced SEC and DOJ
investigations and the Company's variable incentive compensation program
during 2007 compared to 2006.
Income from operations in the fourth quarter of 2007 was $3.7 million
compared to a loss from operations of $0.1 million in the comparable
prior year period. The fourth quarter of 2006 benefited from the effect
of a retroactive contractual sales price increase which did not, as was
not expected to, reoccur in the fourth quarter of 2007. Also included in
the 2006 fourth quarter results was a $4.5 million non-cash goodwill
impairment charge in the Company's performance racing segment. Adjusted
income from operations before consideration of this charge as well as a
one time retroactive price increase in certain product lines was $4.3
million in the fourth quarter of 2006 (Table 2).
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "The year 2007 was a
rewarding one for Hawk Corporation as we began to recognize the benefits
of our operational excellence efforts. First, our Tulsa friction
products facility is operating at levels comparable to our other
domestic facilities. The facility is profitable and we are now working
on lean manufacturing techniques to further enhance its operating
margins. We will be working on further increasing efficiencies during
2008 at all of our operating facilities which should provide
opportunities for additional margin enhancement." Mr. Weinberg
continued, "Second, we made a strategic decision to focus our corporate
resources on the friction products business. We successfully completed
the sale of our precision components segment in February 2007 and enjoy
the benefits of a strong cash position as we look to pursue acquisitions
and an enhanced capital expenditure program to further add to
shareholder value. Hawk is a world leader in the friction materials
marketplace and with our strong balance sheet, we anticipate future
opportunities for strategic acquisitions and continued new product
introductions. Our geographic expansion continued in 2007 as we extended
our sales presence in South and Latin America, Russia and India while
continuing our sales growth in the U.S., Europe and China."
For the year ended December 31, 2007, the Company reported net income
from continuing operations of $7.2 million, or $.75 per diluted share,
an improvement of $9.2 million, compared to a net loss from continuing
operations of $2.0 million, or a loss of $.22 per diluted share, in the
comparable prior year period.
For the twelve months ended December 31, 2007, the Company reported net
income of $17.3 million, or $1.83 per diluted share, an increase of
$14.3 million, or 476.7%, compared to $3.0 million, or $0.30 per diluted
share in the comparable prior year period.
Business Segment Results
In 2007, the friction products segment achieved record net sales of
$215.9 million, an increase of $16.0 million, or 8.0%, from $199.9
million in the comparable prior year period. Primary drivers of the
sales increase included strong worldwide demand in the construction and
mining, aircraft and defense, agriculture, specialty friction and
performance automotive markets, customer price increases, new business
awards and the strength of the Euro during 2007. As previously
disclosed, sales to the heavy truck market declined in 2007 compared to
2006 due to the impact of the implementation of new emission control
standards in January 2007. The Company's Italian and Chinese operations
experienced strong sales growth during 2007 compared to 2006, increasing
to 36.8% of the Company's total net sales in 2007 compared to 30.4% of
net sales in 2006. For the fourth quarter 2007, net sales in this
segment were $54.9 million, up 8.7%, from $50.5 million in the
comparable prior year period.
For the year ended December 31, 2007, income from operations in the
friction products segment increased to $20.0 million from $16.3 million,
or 22.7%, compared to the twelve months ended December 31, 2006. The
increase in income from operations was driven by margin improvement from
volume related absorption of fixed overhead, continued pricing actions
and operational improvements at our domestic facilities, particularly
the Company's Tulsaplant. This increase was partially offset by legal
expenses associated with the SEC and DOJ investigations and increased
incentive compensation expenses during 2007 compared to 2006. In the
fourth quarter of 2007, income from operations was $4.5 million compared
to income from operations of $4.9 million in the comparable prior year
period. The fourth quarter of 2006 benefited from the effect of a
retroactive contractual sales price increase which did not, as was not
expected to, reoccur in the fourth quarter of 2007.
In the Company's performance racing segment, net sales for the year
ended December 31, 2007 were $12.8 million, an increase of $0.7 million
or 5.8%, from $12.1 million in the comparable prior year period. The
performance racing segment is comprised of two businesses, Quarter
Master Industries, which manufactures racing clutches, and Tex Racing,
which manufactures racing transmissions and drivelines. The increase in
net sales was primarily attributable to sales into the "Car of Tomorrow"
concept car introduced by NASCAR for the 2007 race season. During the
fourth quarter of 2007, net sales were $2.4 million, an increase of $0.2
million, or 9.1%, from $2.2 million in the comparable prior year period.
For the year ended December 31, 2007, loss from operations in the
performance racing segment was $1.4 million compared to a loss from
operations of $6.4 million for the comparable prior year period. In the
fourth quarter of 2006, the segment recognized a non-cash charge of $4.5
million for the impairment of its remaining goodwill. Adjusted loss from
operations before consideration of this charge was $1.9 million for the
full year 2006 (Table 1). During the fourth quarter of 2007, the loss
from operations was $0.8 million compared to a loss from operations of
$5.1 million in the comparable prior year period. For the fourth quarter
of 2006, the adjusted loss from operations in this segment was $0.6
million Table 2).
Working Capital and Liquidity
As a result of the sale of the precision components segment in February
2007 and cash generated from the Company's operations during the year,
71.5% of the Company's net working capital at December 31, 2007,
consisted of cash, cash equivalents and marketable securities. At
December 31, 2007, working capital decreased by $2.5 million from
December 31, 2006. The decrease in working capital was largely the
result of increased payable levels to meet first quarter 2008 customer
demands and higher incentive compensation accruals partially offset by
higher accounts receivable levels as a result of increased sales volumes
in the friction products segment during the last half of 2007.
Total debt outstanding, including current portion, decreased $24.1
million, to $87.1 million at December 31, 2007, compared to $111.2
million at December 31, 2006. The decrease was primarily the result of
the cash proceeds from the sale of the precision components sale that
were used to repay a portion of the senior notes. As of December 31,
2007, the Company had no borrowings under its revolving credit facility
and $17.9 million available for additional borrowings under that
facility based on its eligible collateral as of December 31, 2007.
Stock Repurchase Program
The Company's Board of Directors approved a stock repurchase program
pursuant to which the Company is authorized to purchase up to $4.0
million of its outstanding shares of common stock as allowed under its
current senior note indenture and credit facility. Such repurchases may
occur from time to time in the open market, in negotiated transactions,
or otherwise in accordance with securities laws and regulations. The
timing and amount of any repurchases is determined by the Company's
management, based on its evaluation of market conditions, share price
and other factors. As of December 31, 2007 the Company had repurchased
$3.7 million of its common stock.
Business Outlook
Based on the Company's current view of the markets it serves, it
believes that its 2008 net sales will increase between 7.1% and 9.3% to
between $245.0 million and $250.0 million compared to 2007 net sales of
$228.7 million. The Company anticipates continued strength in the
majority of the markets it serves in 2008 based on general market
conditions and its expanded sales initiatives in Asia, Russia and India.
The Company expects the truck market to recover modestly coming off of a
soft 2007 year which was affected by reduced sales due to the large
volume of new truck sales in advance of the emission standards change at
the end of 2006. Its construction and mining and agriculture markets
continue to be strong. The Company expects to benefit in North America
as a result of the recently enacted tax relief measures which should
result in increased equipment purchases, and worldwide the Company
expects to benefit due to the overall strength in commodities and
infrastructure needs. The Company anticipates that its aircraft market
will show modest growth in 2007.
The Company expects that its margins will benefit from the incremental
sales volume and continued emphasis on improving its operational
efficiency both domestically and abroad. Partially offsetting this
improvement will be inflationary pressures. Although the Company
believes that through fixed price contracts it has protection in 2008
against commodity pricing fluctuations on many critical raw material
components consumed in its manufacturing process, it is experiencing
increases in the cost of steel that leave it exposed to market
conditions. The Company may be able to pass some of these price
increases through to its customers, but cannot guarantee that it will be
successful in passing these cost increases to its customers or that it
will be able to increase prices in a timely fashion.
As the Company continues to expand its operations and puts into effect
its strategic initiatives, it anticipates hiring additional engineering,
sales and operational expertise that require an investment in these
areas as compared to 2007.
The Company expects its income from operations to increase 7.5% to 18.3%
to a range of $20.0 million to $22.0 million from $18.6 million in 2007.
The Company believes its 2008 effective tax rate will be in a range
similar to its 2007 effective tax rate of 43.4%.
The Company continues to explore options to utilize its current cash
holdings, including acquisitions, although it cannot predict the timing
of any potential acquisition or the impact that it may have on its
earnings.
The Company anticipates accelerating its investment rate on internal
projects. The Company's capital expenditure budget for 2008 is $15.0
million and will be used primarily to increase capacity, to continue its
lean manufacturing projects, and for equipment expenditures for its fuel
cell and carbon composite product line initiatives. The Company expects
depreciation and amortization expense to be approximately $8.0 million
in 2008.
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 1,150
employees at 13 manufacturing, research, sales and administrative sites
in 7 countries
Source: Hawk Corporation Press
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