Hawk Announces 2009 Third Quarter Results

CLEVELAND, Nov. 9 /PRNewswire-FirstCall/ -- Hawk Corporation (NYSE Amex: HWK) announced today that sales for the third quarter ended September 30, 2009 were $43.5 million, a decrease of $30.7 million or 41.4%, from $74.2 million in the comparable prior year quarter. Net sales for the nine months ended September 30, 2009 were $126.8 million, a decrease of 40.1%, from $211.8 million in the comparable prior year period. The economic downturn was the principal driver of the revenue decline. Despite this downturn, the Company has continued to receive new business awards from new and existing customers, which the Company expects will result in future sales gains as the economy recovers. Total sales were up 11.3% in the third quarter of 2009 when compared to the second quarter of 2009, as a result of sales increases at all of its global facilities.

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Income from operations for the third quarter ended September 30, 2009 was $6.1 million, a decrease of $9.5 million, or 60.9%, from $15.6 million in the prior year period. The decrease in income from operations during the quarter was impacted primarily by the sales volume decrease and to a lesser extent, foreign currency exchange rates. This decline was partially offset by reductions in incentive compensation expense, stringent cost controls during the quarter and product mix.

For the nine month period ended September 30, 2009, the Company reported income from operations of $11.8 million, a decrease of $21.9 million, or 65.0%, from $33.7 million in the comparable prior year period primarily caused by sales volumes declines and to a lesser extent, foreign currency exchange rates. This decline was partially offset by reductions in incentive compensation expense, stringent cost controls, pricing actions and product mix. During the nine months ended September 30, 2009, the Company reduced its global labor force by approximately 16% in addition to lesser reduction taken in the last quarter of 2008.

For the third quarter 2009, the Company reported net income of $3.8 million, or $0.45 per diluted share, a decrease of $6.5 million compared to net income of $10.3 million, or $1.09 per diluted share, in the third quarter of 2008. During the third quarter of 2009, the Company reported other income of $1.5 million ($0.9 million after tax), or $0.12 per diluted share related to its decision to accept cash from its partner in lieu of its obligation to develop a potential new product for the Company. The Company decided that the funds could earn a higher return deployed on other projects. During the third quarter of 2008, the Company reported other income of $1.3 million ($0.9 million after tax), or $0.09 per diluted share, as a result of a similar decision. For the nine months ended September 30, 2009, the Company reported net income of $4.8 million, or $0.55 per diluted share, compared to $18.4 million, or $1.95 per diluted share, during the comparable prior year period.

Ronald E. Weinberg, Hawk's Chairman and CEO, said, "Despite the softness caused by the economic recession, I am pleased with our performance. We have been awarded a steady stream of additional new business during the period and have been successful in controlling costs without diminishing the competitive momentum of our business. During the third quarter, we began to see the very early stages of a recovery in a number of our end-markets. Our sales in the third quarter were up 11.3% compared to the second quarter of 2009. We reacted quickly to the downturn and enacted cost reductions beginning in the fourth quarter of 2008, and expect that a number of these reductions will provide a benefit to our earnings power as the economy continues to improve." Mr. Weinberg continued, "Our balance sheet remains strong with approximately $86 million in cash and short-term investment as of September 30, 2009. This amount of cash demonstrates a level of financial stability to our customers, suppliers and lenders and allows us to be more proactive in gaining market share and actively reviewing our options for potential acquisitions."

Working Capital and Liquidity

Cash and short-term investments increased $7.6 million to $86.3 million as of September 30, 2009, compared to $78.7 million as of June 30, 2009. At September 30, 2009, working capital decreased by $8.1 million to $117.9 million from $126.0 million at December 31, 2008. The decrease in working capital was largely the result of decreased accounts receivable and inventory levels partially offset by reductions in accounts payable at September 30, 2009. As a result of the emphasis on working capital reductions and in spite of the economic downturn, cash flow from operations remained positive at $10.2 million for the nine months ended September 30, 2009, compared to $13.8 million for the period ended September 30, 2008.

Mr. Weinberg continued, "We were pleased to have been able to increase our cash balances by $7.6 million from June 30, 2009 and to further reduce inventory levels by an additional $1.7 million during the same period. Our receivables continue to be of excellent quality."

At September 30, 2009, the Company had no borrowings under its global bank facilities, and $18.8 million was available for borrowings under these facilities.

During the nine months ended September 30, 2009, the Company spent $6.9 million on capital expenditures, compared to $9.2 million during the comparable period of 2008. Depreciation was $5.3 million for the nine months ended September 30, 2009 compared to $5.0 million for the nine months ended September 30, 2008.

Business Outlook

The Company remains vigilant in controlling its operating expenses in response to economic conditions while at the same time investing globally in its technology and sales efforts. A slight improvement in demand is being experienced, and a portion of the direct workforce has been recalled. Management believes the earnings benefit of this in the fourth quarter will be tempered by expected product mix changes and the possibility that customers will push shipments into the first quarter of 2010 in order to control their own inventory levels. As a result of this combination of factors, the Company is refining its range for operating income for the year to between $15.0 million and $17.0 million from its previously issued range of $14.0 million and $18.0 million.

The Company's previously provided capital spending guidance for 2009 remains unchanged at a range of between $8.0 and $10.0 million. Given the actual results through September 30, 2009 and the Company's forecasted mix of domestic and foreign earnings in the remainder of 2009, the Company is revising its effective tax rate to 36.0% from its previous guidance of 39.9%.

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. The Company also manufactures fuel cell components. Headquartered in Cleveland, Ohio, Hawk has approximately 930 employees at 12 manufacturing, research, sales and international rep offices and administrative sites in 7 countries.

Forward-Looking Statements

This press release includes forward-looking statements concerning sales, operating earnings and effective tax rates. 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 effect of regional and global economic and industrial market conditions including our expectations concerning their impact on the markets we serve; the effect of conditions in the financial and credit markets and their impact on the Company and our customers and suppliers; the impact of the Company's cost reduction initiatives; the Company's ability to execute its business plan to meet its sales, operating income, cash flow and capital expenditure guidance; the costs and outcome of the ongoing SEC and DOJ investigations; the impact on the Company's gross profit margins as a result of changes in product mix; the Company's vulnerability to 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 on the Company's non-U.S. sales; 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, 2008, 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 Monday, November 9, 2009 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 is online at: http://www.hawkcorp.com/

                                 HAWK CORPORATION
                  CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
                       (In thousands, except per share data)

                                 Three Months Ended  Nine Months Ended
                                    September 30        September 30
                                  ----------------   -----------------
                                    2009     2008      2009      2008
                                    ----     ----      ----      ----
    Net sales                     $43,452  $74,181  $126,814  $211,761
    Cost of sales                  29,883   49,070    92,856   148,140
                                   ------   ------    ------   -------
    Gross profit                   13,569   25,111    33,958    63,621

    Operating expenses:
      Selling, technical and
       administrative expenses      7,305    9,332    21,764    29,426
      Amortization of finite-
       lived intangible assets        138      139       415       451
                                      ---      ---       ---       ---
    Total operating expenses        7,443    9,471    22,179    29,877
                                    -----    -----    ------    ------
    Income from operations          6,126   15,640    11,779    33,744

    Interest expense               (2,048)  (2,013)   (6,078)   (6,041)
    Interest income                   125      488       394     1,679
    Other income, net               1,583    1,198     1,706     1,552
                                    -----    -----     -----     -----
    Income from continuing
     operations, before income
     taxes                          5,786   15,313     7,801    30,934

    Income tax provision            2,003    5,016     2,806    10,632
                                    -----    -----     -----    ------

    Income from continuing
     operations, after income
     taxes                          3,783   10,297     4,995    20,302
    Loss from discontinued
     operations, after income
     taxes                            (13)     (41)     (187)   (1,883)
                                      ---      ---      ----    ------

    Net income                     $3,770  $10,256    $4,808   $18,419
                                   ======  =======    ======   =======

      Diluted earnings per share:
        Income from continuing
         operations, after income
         taxes                      $0.45    $1.09     $0.57     $2.15
        Discontinued
         operations, after
         income taxes                   -        -     (0.02)    (0.20)
                                      ---      ---     -----     -----
      Net earnings per diluted
       share                        $0.45    $1.09     $0.55     $1.95
                                    =====    =====     =====     =====

    Average shares and
     equivalents outstanding -
     diluted                        8,315    9,403     8,566     9,375
                                    =====    =====     =====     =====



                               HAWK CORPORATION
                 CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
                                (In thousands)

                                                  September 30 December 31
                                                      2009        2008
                                                      ----        ----

    ASSETS
    Current assets:
      Cash and cash equivalents                     $52,350     $62,520
      Short-term investments                         33,911      30,774
      Accounts receivable, net                       28,022      38,569
      Inventories                                    28,558      41,377
      Deferred income taxes                             382         414
      Other current assets                            4,956       5,521
                                                      -----       -----
    Total current assets                            148,179     179,175
    Property, plant and equipment, net               48,667      47,498
    Other intangible assets                           6,153       6,568
    Other assets                                      8,126       6,751
                                                      -----       -----
    Total assets                                   $211,125    $239,992
                                                   ========    ========

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
      Accounts payable                              $14,763     $30,207
      Other accrued expenses                         15,489      23,010
                                                     ------      ------
    Total current liabilities                        30,252      53,217
    Long-term debt                                   87,090      87,090
    Deferred income taxes                               350         338
    Other liabilities                                18,901      21,956
    Shareholders' equity                             74,532      77,391
                                                     ------      ------
    Total liabilities and shareholders' equity     $211,125    $239,992
                                                   ========    ========