Hawk Reports Third Quarter Profit of $1.2 Million, or $0.14 Per Share
2 November 1999
Hawk Reports Third Quarter Profit of $1.2 Million, or $0.14 Per Share; Announces Acquisition of Quarter Master Industries, Inc.
CLEVELAND, Nov. 2 -- Hawk Corporation today
reported a 5 percent increase in third quarter sales to $45.6 million, and net
income of $1.2 million or $0.14 per diluted share. This compares with sales
of $43.4 million and net income of $2.9 million, or $0.32 per diluted share,
in the third quarter of 1998.
Third quarter operating earnings were negatively affected by ongoing
softness in the agricultural and construction markets served by the Company's
friction and powder metal divisions. This market softness contributed to
reduced sales of higher-margin friction products and underutilization of
manufacturing capacity, which resulted in lower operating margins.
Overall, third quarter earnings were positively affected by $0.7 million,
or $0.08 per diluted share, from the collection of a contingent receivable
relating to the purchase of S.K. Wellman in 1995, the sale of the Company's
LaVergne, Tennessee facility, and a reduction in the Company's effective tax
rate due to various state tax credits. In the third quarter of 1999, the
Company's effective tax rate was 23 percent compared with 42 percent in the
previous year.
For the first nine months of 1999, the Company achieved record sales of
$140.8 million, an increase of 1 percent over sales of $140.1 million during
the comparable nine months of 1998. Net income for the first nine months of
1999 was $5.7 million, or $0.63 per diluted share, down 11 percent from
$6.4 million, or $0.82 per diluted share, in the comparable period last year.
Excluding an extraordinary charge of $3.1 million taken in 1998, net income
for the nine months ended September 30, 1998, would have been $9.3 million, or
$1.23 per share.
"As we announced in late September, net income for the third quarter was
negatively impacted by continued softness in the worldwide demand for our
friction and powder metal products, primarily demand for agricultural and
construction products," said Jeffrey H. Berlin, president and chief operating
officer. "In order to respond to the lower demand, we continue to implement
process improvement projects and other initiatives to lower costs throughout
the organization."
Sales of friction product components were $24.7 million in the third
quarter of 1999, compared with $25.4 million in the third quarter of 1998, a
decline of 3 percent. In the first nine months of 1999, sales of friction
product components were $75.8 million, an 11 percent decline from sales of
$85.5 million in the comparable period of 1998. The decline in this segment
was impacted primarily by the worldwide downturn in agriculture markets and in
the mining and forestry segments of the construction markets. In addition,
shipments in the aerospace friction market in the first nine months of 1999
were approximately 7 percent below record levels achieved in the first nine
months of 1998.
Sales of powder metal components were $16.3 million in the third quarter
of 1999, a 22 percent increase from sales of $13.4 million in the comparable
quarter of 1998. In the first nine months of 1999, sales of powder metal
components grew 28 percent to $50.9 million from sales of $39.8 million in the
same period last year. The acquisitions of Clearfield Powdered Metals, Inc.
and Allegheny Powder Metallurgy, Inc. were the primary drivers behind the
sales increase. This growth occurred despite the previously announced
reduction in powder metal sales from the Company's Sinterloy subsidiary and
softness in the agriculture and construction markets served by the Company's
powder metal segment.
"The long-term outlook for the powder metal industry continues to be
positive as new applications continue to evolve," Berlin said. "Hawk's powder
metal group has become a one-stop source for customers seeking powder metal
components. We will continue to make investments in our powder metal business
to expand our capabilities as new powder metal applications are developed,
provide greater capacity, sell to additional markets and customers, and
increase production efficiency."
"The impact of the slowdown in demand for our friction and powder metal
products has been longer lasting and much more severe than we had initially
expected. As we previously announced, we expect the softness in the
agriculture and construction markets to continue through 1999 and into 2000.
Nonetheless, we continue to have confidence in our long-term strategy for
growth via acquisitions, new product applications and international marketing
efforts. We will also continue to pursue new customers and markets more
aggressively," Berlin said.
The Company also announced today that it has acquired Quarter Master
Industries, Inc. ("Quarter Master"), a manufacturer of premium branded clutch
assemblies for high performance automotive racing, including National
Association for Stock Car Auto Racing (NASCAR) and Indy Racing League (IRL).
In addition to clutch assemblies, Quarter Master manufactures and sells other
precision engineered components, including gears, bearings, driveshafts,
bellhousings and starters. Hawk will finance the transaction with available
cash. Terms of the transaction were not disclosed. Quarter Master, located
in Lake Zurich, Illinois, was founded in 1960. In 1998, Quarter Master had
sales of $3.6 million. Edgar O. Stoffels, Jr. will continue as president of
Quarter Master under Hawk's ownership.
"Before becoming part of Hawk, Quarter Master was a customer of ours for
15 years. Through the years, we have gotten to know Ed Stoffels and his
management team. Quarter Master's expertise in the design and manufacture of
clutch systems will provide us with a platform for future growth in several of
our key markets. This acquisition fits our strategy of expanding our market
position in high performance products. It gives us an opportunity to combine
our friction material expertise with clutch system design." Berlin said.
Hawk Corporation, based in Cleveland, is a leading worldwide supplier of
friction products for brakes, clutches and transmissions used in airplanes,
trucks, construction equipment, farm tractors and recreational vehicles. Hawk
also is a leading supplier of powder metal components for industrial
applications, including pump, motor and transmission elements; gears; pistons;
and anti-lock brake sensor rings. The Company also designs and manufactures
die-cast aluminum rotors for small electric motors used in appliances,
business equipment and exhaust fans.
This press release includes forward-looking statements that involve risks
and uncertainties. These risks and uncertainties include, but are not limited
to: changes in agricultural and construction market conditions, as well as
conditions in the other end markets served by the Company; the Company's
ability to integrate the operations of Quartermaster; the effect of any future
acquisitions by the Company; the effect of competition by manufacturers using
new or different technologies; the continuity of business relationships with
major customers; the effect of product mix on margins; and the ability of the
Company's 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, 1998 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.
Hawk Corporation financial results and news releases are available on-line
at: http://www.hawkcorp.com .
HAWK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in Thousands, Except Per Share Data)
Nine Months Ended Three Months Ended
September 30, September 30,
1999 1998 1999 1998
Net sales $140,781 $140,120 $45,626 $43,401
Cost of sales 103,264 94,985 34,938 29,607
Gross profit 37,517 45,135 10,688 13,794
Selling, technical and
administrative expenses 19,597 17,213 6,548 5,632
Amortization of intangibles 2,816 2,648 957 880
Total expenses 22,413 19,861 7,505 6,512
Income from operations 15,104 25,274 3,183 7,282
Interest expense 7,095 9,531 2,296 2,406
Interest income (399) (741) (266) (250)
Other (income) expense, net (780) 19 (451) 2
Income before income taxes
and extraordinary charges 9,188 16,465 1,604 5,124
Income taxes 3,512 7,003 369 2,176
Income before
extraordinary charges 5,676 9,462 1,235 2,948
Extraordinary loss from
retirement of debt and
write-off of deferred
financing costs, relating
to IPO, net of income taxes -- 3,079 -- --
Net income $5,676 $6,383 $1,235 $2,948
Earnings per share:
Basic:
Earnings before
extraordinary charges $.64 $1.32 $.14 $.32
Extraordinary charges -- (.44) -- --
Basic earnings per share $.64 $.88 $.14 $.32
Diluted:
Earnings before
extraordinary charges $.63 $1.23 $.14 $.32
Extraordinary charges -- (.41) -- --
Diluted earnings per share $.63 $.82 $.14 $.32
HAWK CORPORATION
CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in Thousands)
September 30, December 31,
1999 1998
ASSETS
Current assets
Cash and cash equivalents $2,935 $14,317
Accounts receivable 30,724 25,056
Inventories 25,701 25,139
Deferred income taxes and
other current assets 5,535 6,840
Total current assets 64,895 71,352
Property, plant and equipment, net 70,109 64,319
Intangible assets 65,923 60,604
Other assets 3,886 7,171
Total assets $204,813 $203,446
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $11,463 $10,590
Short-term borrowings 1,020 1,019
Other accrued expenses 13,426 13,710
Current portion of long-term debt 7,177 6,181
Total current liabilities 33,086 31,500
Long-term debt 94,280 96,366
Deferred income taxes 9,165 9,251
Other 1,895 1,914
Shareholders' equity 66,387 64,415
Total liabilities and
shareholders' equity $204,813 $203,446