UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2010
Commission File No. 001-13797
HAWK CORPORATION
(Exact name of Registrant as specified in its charter)
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Delaware
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34-1608156
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(State of incorporation)
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(I.R.S. Employer Identification No.)
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200 Public Square, Suite 1500, Cleveland, Ohio 44114
(Address of principal executive offices) (Zip Code)
(216) 861-3553
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such report(s)), and (2) has been
subject to such filing requirements for the past 90 days.
YES
þ
NO
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files).
YES
o
NO
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in rule 12b-2 of the Exchange Act.
(Check one):
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Large Accelerated Filer
o
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Accelerated Filer
þ
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Non-accelerated Filer
o
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Smaller Reporting Company
o
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Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the
Act: YES
o
NO
þ
As of April 30, 2010, the registrant had the following number of shares of common stock
outstanding:
Class A Common Stock, $0.01 par value: 7,815,795
Class B Common Stock, $0.01 par value: None (0)
As used in this Form 10-Q, the terms Company, Hawk, Registrant, we, us and our mean
Hawk Corporation and its consolidated subsidiaries, taken as a whole, unless the context indicates
otherwise. Except as otherwise stated, the information contained in this Form 10-Q is as of March
31, 2010.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HAWK CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share data)
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March 31
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December 31
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2010
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2009
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(Unaudited)
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(Note A)
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Assets
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Current assets:
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Cash and cash equivalents
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$
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39,211
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$
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47,206
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Short-term investments
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39,966
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35,930
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Accounts receivable, less allowance of $704 in 2010 and $985 in 2009
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33,119
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27,578
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Inventories:
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Raw materials
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5,653
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5,503
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Work-in-process
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13,142
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10,886
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Finished products
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11,098
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11,106
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Total inventories
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29,893
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27,495
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Deferred income taxes
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1,264
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1,305
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Other current assets
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4,802
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5,686
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Total current assets
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148,255
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145,200
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Property, plant and equipment:
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Land and improvements
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1,122
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1,166
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Buildings and improvements
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19,007
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19,264
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Machinery and equipment
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102,487
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102,365
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Furniture and fixtures
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8,390
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8,327
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Construction in progress
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1,449
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2,186
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132,455
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133,308
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Less accumulated depreciation
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86,755
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86,212
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Total property, plant and equipment
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45,700
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47,096
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Other assets:
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Finite-lived intangible assets
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5,876
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6,015
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Deferred income taxes
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298
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289
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Other
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6,752
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5,892
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Total other assets
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12,926
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12,196
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Total assets
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$
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206,881
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$
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204,492
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Note A:
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The consolidated balance sheet at December 31, 2009, has been derived from the audited
financial statements at that date, but does not include all of the information and footnotes
required by U.S. generally accepted accounting principles for complete financial statements. See
notes to consolidated financial statements (unaudited)
.
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3
HAWK CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share data)
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March 31
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December 31
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2010
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2009
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(Unaudited)
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(Note A)
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Liabilities and shareholders equity
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Current liabilities:
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Accounts payable
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$
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22,507
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$
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16,861
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Accrued compensation
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7,037
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7,324
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Accrued interest
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1,699
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3,385
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Accrued taxes
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968
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345
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Other accrued expenses
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4,239
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3,979
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Total current liabilities
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36,450
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31,894
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Long-term liabilities:
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Long-term debt, net of unamortized consent payment of $1,485 in 2010
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75,605
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77,090
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Deferred income taxes
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2,791
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2,873
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Pension liabilities
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2,354
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2,509
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Other accrued expenses
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13,132
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12,656
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Total long-term liabilities
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93,882
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95,128
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Shareholders equity
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Series D preferred stock, $.01 par value; an aggregate liquidation value
of $1,530, plus any unpaid dividends with 9.8% cumulative dividend
(1,530 shares authorized, issued and
outstanding)
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1
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1
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Series E preferred stock, $.01 par value; 100,000 shares authorized;
none issued or outstanding
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Class A common stock, $.01 par value; 75,000,000 shares authorized;
9,187,750 issued; 7,912,036 and 7,979,740 outstanding in 2010 and
2009, respectively
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92
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92
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Class B common stock, $.01 par value; 10,000,000 shares authorized;
none issued or outstanding
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Additional paid-in capital
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54,770
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55,323
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Retained earnings
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45,751
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42,011
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Accumulated other comprehensive loss
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(5,399
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)
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(3,281
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)
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Treasury stock, at cost, 1,275,714 and 1,208,010 shares in 2010 and
2009, respectively
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(18,666
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)
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(16,676
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)
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Total shareholders equity
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76,549
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77,470
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Total liabilities and shareholders equity
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$
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206,881
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$
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204,492
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Note A:
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The consolidated balance sheet at December 31, 2009 has been derived from the audited
financial statements at that date, but does not include all of the information and footnotes
required by U.S. generally accepted accounting principles for complete financial statements. See
notes to consolidated financial statements (unaudited)
.
|
4
HAWK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands, except per share data)
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Three Months Ended March 31
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2010
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2009
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Net sales
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$
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53,409
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$
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44,285
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Cost of sales
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36,187
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32,287
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Gross profit
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17,222
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11,998
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Operating expenses:
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Selling, technical and administrative expenses
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8,854
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7,452
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Amortization of finite-lived intangible assets
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139
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138
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Total operating expenses
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8,993
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7,590
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Income from operations
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8,229
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4,408
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Interest expense
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(1,847
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)
|
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(2,013
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)
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Interest income
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|
68
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163
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|
Other income (expense), net
|
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(532
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)
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(44
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)
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Income from continuing operations, before income taxes
|
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5,918
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2,514
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Income tax provision
|
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|
2,113
|
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|
|
930
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Income from continuing operations, after income taxes
|
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|
3,805
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|
1,584
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Loss from discontinued operations, after income tax benefit
of $15 in 2010 and $6 in 2009
|
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(28
|
)
|
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|
(10
|
)
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Net income
|
|
$
|
3,777
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|
$
|
1,574
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Earnings per share:
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Basic earnings per share:
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Income from continuing operations, after income taxes
|
|
$
|
0.47
|
|
|
$
|
0.18
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Discontinued operations, after income taxes
|
|
|
|
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|
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Net earnings per basic share
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$
|
0.47
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$
|
0.18
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Diluted earnings per share:
|
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|
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|
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Income from continuing operations, after income taxes
|
|
$
|
0.46
|
|
|
$
|
0.17
|
|
Discontinued operations, after income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per diluted share
(1)
|
|
$
|
0.45
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding basic
|
|
|
7,965
|
|
|
|
8,717
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|
|
|
|
|
|
|
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|
|
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|
|
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|
Average shares and equivalents outstanding diluted
|
|
|
8,246
|
|
|
|
8,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income available to common shareholders
|
|
$
|
3,740
|
|
|
$
|
1,537
|
|
|
|
|
|
|
|
|
|
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|
(1)
|
|
The summation to net earnings per diluted share does not mathematically work
due to rounding.
|
5
HAWK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
2010
|
|
|
2009
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,777
|
|
|
$
|
1,574
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
|
|
28
|
|
|
|
10
|
|
Depreciation and amortization
|
|
|
2,138
|
|
|
|
1,949
|
|
Deferred income taxes
|
|
|
(160
|
)
|
|
|
6
|
|
Amortization of discount on investments
|
|
|
(21
|
)
|
|
|
(78
|
)
|
(Gain) loss on sale or disposal of fixed assets
|
|
|
(3
|
)
|
|
|
19
|
|
Share based compensation
|
|
|
242
|
|
|
|
337
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(6,443
|
)
|
|
|
8,859
|
|
Inventories
|
|
|
(2,853
|
)
|
|
|
4,784
|
|
Other assets
|
|
|
(124
|
)
|
|
|
890
|
|
Accounts payable
|
|
|
6,055
|
|
|
|
(14,876
|
)
|
Accrued expenses
|
|
|
(823
|
)
|
|
|
(7,872
|
)
|
Pension accounts, net
|
|
|
73
|
|
|
|
(3,877
|
)
|
Other
|
|
|
799
|
|
|
|
710
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities of continuing operations
|
|
|
2,685
|
|
|
|
(7,565
|
)
|
Net cash used in operating activities of discontinued operations
|
|
|
(28
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of available for sale securities
|
|
|
(38,979
|
)
|
|
|
(29,986
|
)
|
Proceeds from available for sale securities
|
|
|
35,000
|
|
|
|
30,000
|
|
Purchases of property, plant and equipment
|
|
|
(1,088
|
)
|
|
|
(2,863
|
)
|
|
|
|
|
|
|
|
Net cash used in investing activities of continuing operations
|
|
|
(5,067
|
)
|
|
|
(2,849
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from stock options
|
|
|
432
|
|
|
|
343
|
|
Payment of consent fee for senior notes indenture modification
|
|
|
(1,512
|
)
|
|
|
|
|
Stock repurchase
|
|
|
(3,881
|
)
|
|
|
(4,616
|
)
|
Tax benefit from exercise of incentive stock options
|
|
|
664
|
|
|
|
|
|
Payments of preferred stock dividends
|
|
|
(37
|
)
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
Net cash used in financing activities of continuing operations
|
|
|
(4,334
|
)
|
|
|
(4,310
|
)
|
Effect of exchange rate changes on cash
|
|
|
(1,251
|
)
|
|
|
(853
|
)
|
|
|
|
|
|
|
|
Net cash used in continuing operations
|
|
|
(7,967
|
)
|
|
|
(15,577
|
)
|
Net cash used in discontinued operations
|
|
|
(28
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(7,995
|
)
|
|
|
(15,587
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
47,206
|
|
|
|
62,520
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
39,211
|
|
|
$
|
46,933
|
|
|
|
|
|
|
|
|
6
HAWK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2010
(In Thousands, except share data)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in conformity
with U.S. generally accepted accounting principles (GAAP) for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the three month period
ended March 31, 2010 are not necessarily indicative of the results that may be expected for the
full year ending December 31, 2010. For further information, refer to the consolidated financial
statements and footnotes thereto in the Form 10-K for Hawk Corporation (the Company or Hawk) for
the year ended December 31, 2009.
Hawk Corporation, through the businesses that comprise its friction products segment, designs,
engineers, manufactures and markets specialized components used in a variety of off-highway,
on-highway, industrial, aircraft, agricultural and performance applications. Friction products are
the replacement components used in brakes, clutches and transmissions to absorb vehicular energy
and dissipate it through heat and normal mechanical wear. The Companys revenue is generated
primarily in the U.S. and Italy. The Companys largest customer, Caterpillar Inc., represented
approximately 26.1% and 16.6% of consolidated net sales in the three month periods ended March 31,
2010 and March 31, 2009, respectively.
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been eliminated in the
accompanying financial statements.
2. Recent Accounting Developments
The following new accounting updates and guidance became effective for the Company commencing
with its first quarter of 2010:
|
|
|
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2010-06,
Improving Disclosures about Fair Value Measurements
(ASU 2010-06), which amends ASC 820,
Fair Value Measurements
(ASC 820) to add new
requirements for disclosures about significant transfers into and out of Levels 1 and 2
and separate disclosures about purchases, sales, issuances and settlements relating to
Level 3 measurements. ASU 2010-06 also clarifies existing fair value disclosures about
the level of disaggregation and about inputs and valuation techniques used to measure fair
value. Further, ASU 2010-06 amends guidance on employers disclosures about
postretirement benefit plan assets under Subtopic 20 of ASC 715,
Compensation Retirement
Benefits
(ASC 715) to require that disclosures be provided by classes of assets instead of
by major categories of assets. This ASU became effective for the Company on January 1,
2010, except for the requirement to provide Level 3 activity of purchases, sales,
issuances and settlements on a gross basis, which will be effective for the Company on
January 1, 2011. The disclosures contained within the Companys Form 10-Q for the period
ended March 31, 2010 are in compliance with the requirements of ASC 2010-06.
|
|
|
|
In December 2009, the FASB issued ASU No. 2009-16,
Accounting for Transfers of Financial
Assets
(ASU 2009-16), which became effective for the Company on January 1, 2010. Among
other things, ASU 2009-16 removes the concept of a qualifying special-purpose entity,
changes the requirements for derecognizing assets, and enhances information reported to
financial statement users by increasing the transparency of disclosures about transfers of
financial assets and an entitys continuing involvement with transferred financial assets.
This statement also clarifies the requirements for isolation and limitations on portions of
financial assets that are eligible for sale accounting. The adoption of this guidance did
not have any impact on the Companys financial position, results of operations, cash flows
or related disclosures.
|
7
The Companys management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, will have a material effect on the
accompanying financial statements.
3. Discontinued Operations
There are no remaining assets or liabilities classified as discontinued operations recorded in
the Consolidated Balance Sheets at March 31, 2010 or December 31, 2009. Through March 31, 2010,
the Company continues to make adjustments to amounts previously reported as discontinued operations
and incur legal and professional expenses associated with the finalization of legal matters and
closure of its legal presence in Mexico. This residual activity is included in the following
summary of our results of discontinued operation:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2010
|
|
|
2009
|
|
|
Loss from discontinued operations, before income taxes
|
|
$
|
(43
|
)
|
|
$
|
(16
|
)
|
Income tax benefit
|
|
|
(15
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
Loss from discontinued operations, after income taxes
|
|
$
|
(28
|
)
|
|
$
|
(10
|
)
|
|
|
|
|
|
|
|
4. Fair Value Measurements
The Company follows the fair value accounting guidance which refined the definition of fair
value, established a framework for measuring fair value, and permitted the election of fair value
measurement with unrealized gains and losses on designated items recognized in earnings at each
subsequent period for certain financial assets and liabilities. The Companys financial
instruments include cash and cash equivalents, short and long-term investments, short-term trade
receivables, short and long-term notes receivable, accounts payable and debt instruments. For
short-term instruments, other than those required to be reported at fair value on a recurring basis
and for which additional disclosures are included below, management concluded the historical
carrying value is a reasonable estimate of fair value because of the short period of time between
the origination of such instruments and their expected realization.
The Companys financial instruments are classified in their entirety based on the lowest level
of input that is significant to the fair value measurement. The three levels that may be used to
measure fair value are as follows:
Level 1
Quoted prices in active markets for identical assets or liabilities.
Level 2
Inputs other than Level 1 that are observable, either directly or indirectly, such
as quoted prices for similar assets or liabilities; quoted prices that are not active; or other
inputs that are observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities. The fair values of available for sale obligations issued by
U.S. corporations held by the Company were determined by obtaining quoted prices from nationally
recognized securities broker-dealers.
Level 3
Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
8
The following tables set forth our financial assets and liabilities that were recorded at fair
value on a recurring basis as of March 31, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
6,699
|
|
|
$
|
6,699
|
|
|
$
|
|
|
|
$
|
|
|
Commercial paper
|
|
|
38,985
|
|
|
|
|
|
|
|
38,985
|
|
|
|
|
|
Other trading
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed income fund
|
|
|
637
|
|
|
|
|
|
|
|
|
|
|
|
637
|
|
Mutual funds
|
|
|
3,319
|
|
|
|
3,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
49,640
|
|
|
$
|
10,018
|
|
|
$
|
38,985
|
|
|
$
|
637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liability
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed income fund
|
|
$
|
637
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
637
|
|
Mutual funds
|
|
|
3,319
|
|
|
|
3,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
3,956
|
|
|
$
|
3,319
|
|
|
$
|
|
|
|
$
|
637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
11,172
|
|
|
$
|
11,172
|
|
|
$
|
|
|
|
$
|
|
|
Commercial paper
|
|
|
34,977
|
|
|
|
|
|
|
|
34,977
|
|
|
|
|
|
Other trading
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed income fund
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
480
|
|
Mutual funds
|
|
|
2,538
|
|
|
|
2,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
49,167
|
|
|
$
|
13,710
|
|
|
$
|
34,977
|
|
|
$
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liability
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed income fund
|
|
$
|
480
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
480
|
|
Mutual funds
|
|
|
2,538
|
|
|
|
2,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
3,018
|
|
|
$
|
2,538
|
|
|
$
|
|
|
|
$
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Other trading assets represent assets held in a rabbi trust to fund deferred
compensation plan liabilities and are included as a component of Other long-term assets in
the Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009. The deferred
compensation plan liability is the Companys liability under its deferred compensation plan
and is included in Other long-term accrued expenses in the Consolidated Balance Sheets as
of March 31, 2010 and December 31, 2009.
|
At March 31, 2010 and December 31, 2009, a majority of the Companys financial assets have
been classified as Level 2. These assets are initially valued at the transaction price and
subsequently valued typically utilizing third party pricing services. The pricing services use
many inputs to determine value, including reportable trades, broker/dealer quotes, bids, offers,
and other industry and economic events. The Company validates the prices provided by its third
party pricing services by reviewing their pricing methods and matrices, obtaining market values
from other pricing sources, and analyzing pricing data in certain instances. Considerable judgment
is required in interpreting market data to develop estimates of fair value. Accordingly, the fair
value estimates provided herein are not necessarily indicative of the amount that the Company or
its debt holders could realize in a current market exchange. The use of different assumptions
and/or estimation methodologies may have a material effect on the estimated fair value. After
completing its validation procedures, the Company did not adjust or override any fair value
measurements provided by its pricing services at either March 31, 2010 or December 31, 2009.
During the period ended March 31, 2010, there were no transfers of financial assets between Level 1
and Level 2.
9
The fair values of the Companys money market funds and the majority of certain other trading
securities are determined based on quoted prices in active markets and have been classified as
Level 1. The trading securities are maintained for the future payments under the Companys
deferred compensation plan, which is structured as a rabbi trust. The investments are all managed
by a third party and valued based on the underlying fair value of each mutual fund held by the
trust, for which there are active quoted markets. The related deferred compensation liabilities
are valued based on the underlying investment selections held in each participants shadow account.
Investment funds held by the rabbi trust, for which there is an active quoted market, mirror the
investment options selected by participants in the deferred compensation plan. The majority of the
Companys deferred compensation liability is comprised of mutual funds and is classified as Level
1. The total net realized and unrealized gains (losses) including the gain measured using Level 3
inputs totaled $145 and ($27) for the three months ended March 31, 2010 and 2009, respectively, is
included in Other income (expense), net in the Companys Consolidated Statements of Operations.
Offsetting entries to the deferred compensation liability and compensation expense within Selling,
technical and administrative expenses, for the same amounts were also recorded during the three
months ended March 31, 2010, and 2009, respectively. The fair value of a guaranteed income fund
maintained in the rabbi trust and reported in Other trading assets in the table above, and the
related deferred compensation liability have been classified as Level 3.
Level 3 Gains and Losses
The table below sets forth a summary of changes in the fair value of the deferred compensation
plans Level 3 assets for the three months ended March 31, 2010:
|
|
|
|
|
|
|
Guaranteed
|
|
|
|
Income Fund
|
|
Balance January 1, 2010
|
|
$
|
480
|
|
Realized gains
|
|
|
3
|
|
Unrealized gains / (losses) relating to instruments still held
at reporting date
|
|
|
|
|
Purchases, sales, issuances and settlements (net)
|
|
|
154
|
|
|
|
|
|
Balance March 31, 2010
|
|
$
|
637
|
|
|
|
|
|
The deferred compensation plan has entered into an investment contract, the Guaranteed Income
Fund (fund), with Prudential Retirement Services, Inc. (Prudential). Prudential maintains the
contributions to this fund in a general account, which is credited with earnings on the underlying
investments and charged for participant withdrawals and administrative expenses.
The Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009 presents the fund
at contract value, which approximates fair value. Contract value is the amount deferred
compensation plan participants would receive if they were to initiate permitted transactions under
the terms of the plan. Contract value represents contributions made under the contract, plus
earnings and transfers in, less participant withdrawals, administrative expenses and transfers out.
Prudential is contractually obligated to repay the principal and a specified interest rate that is
guaranteed to the plan. Participants may ordinarily direct the withdrawal or transfer of all or a
portion of their investment at contract value. However, Prudential has the right to defer certain
disbursements (excluding retirement, termination, and death or disability disbursements) or
transfers from the fund when total amounts disbursed from the pool in a given calendar year exceed
10% of the total assets in that pool on January 1 of that year. The Company does not believe that
any events that would limit the deferred compensation plans ability to transact at contract value
with participants are probable of occurring.
There are no reserves against contract value for credit risk of the contract issuer or
otherwise. The average annual yield and crediting interest rate of the fund was approximately
2.97% for the trailing twelve months ended March 31, 2010. The crediting interest rate is based on
a formula agreed upon with Prudential, based on the yields of the underlying investments and
considering factors such as projected investment earnings, the current interest environment,
investment expenses, and a profit and risk component. The rate may never be less than 1.50% nor
may it be reduced by more than 2.10% during any calendar year. Interest rates are declared in
advance and guaranteed for six month periods.
10
Long-Term Financial Instruments
The carrying value and the fair value as determined by a third-party pricing service of
non-current financial liabilities that qualify as financial instruments are reported in the table
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
Long-term financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
(1)
|
|
$
|
75,605
|
|
|
$
|
77,090
|
|
|
$
|
77,090
|
|
|
$
|
76,994
|
|
|
|
|
(1)
|
|
Long-term debt as reported on the Consolidated Balance Sheet as of March 31, 2010
includes $1,485 of unamortized consent payments, which is a accounted for as a debt
valuation account.
|
5. Investments
The Company determines the appropriate classification of its investments at the time of
purchase and reevaluates such designation as of each balance sheet date. At both March 31, 2010
and December 31, 2009, the Company accounted for all of its short-term investments as
available-for-sale. Available-for-sale securities are reported at fair value with unrealized
holding gains and losses, net of tax, included in Accumulated other comprehensive loss in the
Consolidated Balance Sheets. The amortized cost of debt securities in this category is adjusted
for the amortization of any discount or premium to maturity computed under the effective interest
method. Dividend and interest income, including the amortization of any discount or premium, as
well as realized gains or losses, are included in Interest income in the Consolidated Statements of
Operations. Both the cost of any security sold and the amount reclassified out of Accumulated
other comprehensive (loss) income into earnings is based on the specific identification method.
The following is a summary of the Companys available-for-sale securities as of March 31, 2010
and December 31, 2009, by contractual maturity dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Gross Unrealized
|
|
|
Estimated Fair Value
|
|
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
(Net Carrying Amount)
|
|
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt securities due in
one year or less
|
|
$
|
39,971
|
|
|
$
|
|
|
|
$
|
(5
|
)
|
|
$
|
39,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt securities due in
one year or less
|
|
$
|
35,941
|
|
|
$
|
|
|
|
$
|
(11
|
)
|
|
$
|
35,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010, unrealized losses on available-for-sale securities of $5 ($3 net of tax)
compared to unrealized losses on available-for-sale securities of $11 ($7 net of tax) at December
31, 2009 are included in Accumulated other comprehensive loss in the accompanying Consolidated
Balance Sheets. Unrealized gains of $6 ($4 net of tax) and unrealized losses $69 ($44 net of tax)
were reclassified out of Accumulated other comprehensive (loss) income and into earnings during the
three months ended March 31, 2010 and 2009, respectively.
At March 31, 2010, the Company had three investments with an amortized cost totaling $38,990
that were in an unrealized loss position totaling $5 and the Company determined that the gross
unrealized loss on these investments is temporary in nature. The gross unrealized loss on these
investments was due to changes in interest rates and, at March 31, 2010, the Company had both the
intent and ability to hold these investments through their maturity dates in the second quarter of
2010, at which time it expects to receive the full maturity value of $39,000.
At December 31, 2009, the Company had three investments with an amortized cost totaling
$34,988 that were in an unrealized loss position totaling $11 and the Company determined that the
gross unrealized loss on these investments was temporary in nature. During the first quarter of
2010, the Company received the full maturity value of $35,000 on these investments.
11
6. Financing Arrangements
On February 8, 2010, the Company announced that it was soliciting consents from holders of
$75,740 of its senior notes to effect an amendment to the indenture governing the senior notes.
The amendment allows the Company to repurchase up to $20,000 of its outstanding common stock. The
consent solicitation provided for the payment of a consent fee for valid consents received by the
Company by 5:00 p.m. on February 22, 2010. As of that date $75,585 of the senior notes consented
and a fee of $1,512 was paid to the consenting senior note holders. The consent fee is accounted
for as a debt valuation account and is being amortized over the remaining life of the senior notes
as interest expense. As of March 31, 2010, $1,485 of the consent fee remains to be amortized. On
February 23, 2010, the Company entered into a supplemental indenture to allow for the stock
repurchase.
On
May 3, 2010, the Company reached an agreement to purchase an
aggregate of $2,500 of its senior notes in the open market. Funding
will take place on or about May 6, 2010.
7. Comprehensive Income (Loss)
Comprehensive income (loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
2010
|
|
|
2009
|
|
Net income
|
|
$
|
3,777
|
|
|
$
|
1,574
|
|
Amortization of prior service cost and net loss, net of tax
|
|
|
159
|
|
|
|
399
|
|
Unrealized gain (loss) on available for sale securities, net of tax
|
|
|
4
|
|
|
|
(23
|
)
|
Foreign currency translation loss
|
|
|
(2,281
|
)
|
|
|
(2,539
|
)
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
1,659
|
|
|
$
|
(589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Stock Compensation Plan
The Companys Amended and Restated 2000 Long Term Incentive Plan (Plan), provides for the
granting of up to 1,315,000 shares of common stock of the Company in the form of stock options,
restricted stock awards, stock appreciation rights (SARs) and performance-based awards. The Plan
had 499,483 shares available for grants as of March 31, 2010. Options generally vest over a five
year period after the grant date and expire no more than ten years after the grant date.
Stock Options
The Company recognized $161 and $287 of compensation expense for the three month periods ended
March 31, 2010 and 2009, respectively. Net cash proceeds from the exercise of stock options were
$434 and $343 for the three month periods ended March 31, 2010 and 2009, respectively, and the
intrinsic value of stock options exercised was $1,897 and $221 for the three months ended March 31,
2010 and 2009, respectively. As of March 31, 2010, there was $869 of total unrecognized
compensation cost related to the non-vested share-based compensation arrangements under the
Companys stock compensation plans. The remaining cost is expected to be recognized over the next
2.2 years. The Company classifies its stock option expense principally in Selling, technical and
administrative expenses in its Consolidated Statements of Operations.
12
Stock-based option activity during the three months ended March 31, 2010, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining Contract
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Options outstanding at January 1, 2010
|
|
|
729,179
|
|
|
$
|
8.72
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(115,959
|
)
|
|
|
3.74
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2010
|
|
|
613,220
|
|
|
$
|
9.66
|
|
|
5.1 yrs.
|
|
|
$
|
6,033
|
|
|
Exercisable at March 31, 2010
|
|
|
417,819
|
|
|
$
|
6.87
|
|
|
3.7 yrs.
|
|
|
$
|
5,277
|
|
There were no options granted during the three months ended March 31, 2010.
The aggregate intrinsic value in the table above represents the total pre-tax difference
between the $19.50 closing price of shares of common stock of the Company on March 31, 2010, over
the exercise price of the stock option, multiplied by the number of options outstanding and
exercisable. The aggregate intrinsic value is not recorded for financial accounting purposes and
the value changes based on the daily changes in the fair market value of the Companys shares of
common stock.
Restricted Stock
On February 18, 2010, under the Companys Plan, 10,000 shares of service-vested restricted
common stock awards were issued to certain employees of the Company. These restricted stock awards
vest in equal one-fifth installments on February 18, 2010, 2011, 2012, 2013, and 2014.
Additionally, the Company paid the taxes due on the taxable portion of the award on behalf of the
employees. Compensation expense on these awards was recognized from the date of grant through the
end of the vesting period on a straight-line basis. The fair value of this restricted stock award
was measured using the closing price of the Companys common stock at the date of grant of $18.71
per share. The Company recorded $41 of compensation expense for the vested restricted stock awards
and $135 for the income tax gross-up paid on behalf of the participants within Selling, technical,
and administrative expense in its Consolidated Statement of Operations for the three-month period
ending March 31, 2010. As of March 31, 2010, there were 8,000 shares of restricted stock
outstanding and unvested. As of March 31, 2010, the remaining unrecognized compensation cost
related to the unvested restricted stock awards was $146, which is expected to be recognized over
the remaining vesting period of 3.9 years.
The following table summarizes restricted stock activity for the three months ended March 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Unvested balance as of January 1, 2010
|
|
|
|
|
|
|
|
|
Granted
|
|
|
10,000
|
|
|
$
|
187
|
|
Vested
|
|
|
(2,000
|
)
|
|
$
|
(37
|
)
|
|
|
|
|
|
|
|
Unvested balance as of March 31, 2010
|
|
|
8,000
|
|
|
$
|
150
|
|
|
|
|
|
|
|
|
The intrinsic value of the unvested restricted shares as of March 31, 2010 was $156.
9. Shareholders Equity
On November 24, 2008, the Company announced a plan, approved by the Board of Directors, to
repurchase up to $15,000 of its Class A common stock in the open market, through privately
negotiated transactions or otherwise in accordance with securities laws and regulations. In the
first quarter of 2010, the Company purchased $317 of its common stock under the plan; as of January
11, 2010, $15,000 had been spent by the Company to repurchase 1,090,271 shares of its Class A common
stock at market prices and the plan expired.
13
On February 19, 2010, the Companys Board of Directors approved a plan to repurchase up to
$25,000 of its shares of Class A common stock in the open market, through privately negotiated
transactions, through a trading plan satisfying the safe harbor provisions of Rule 10b5-1 and Rule
10b-18 under the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise in
accordance with securities laws and regulations (the new plan). On February 23, 2010, the Company
entered into a supplemental indenture to its senior notes which allows for a repurchase of up to
$20,000 of the Companys common stock. As of March 31, 2010, the provisions of the indenture and
supplemental indenture allow the Company to purchase up to the board-approved plan amount of
$25,000 of its common stock based on a covenant formula applicable to stock repurchases including
the recent amendment. The provisions of the Companys credit facility also allow for the purchase
of up to the board-approved plan amount of $25,000. Through March 31, 2010, the Company purchased
$3,564 of its common stock under the new plan.
Under the provisions of the new plan, pursuant to a stock purchase agreement dated March 16,
2010, the Company purchased 132,192 of Class A common shares at a price of $20.08 per share from
Norman C. Harbert, a related party, for an aggregate purchase price of $2,654.
10. Employee Benefits
A summary of the components of net periodic benefit cost of the Companys defined benefit
pension plans for the periods presented in the Consolidated Statements of Operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
2010
|
|
|
2009
|
|
Components of net periodic pension cost:
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
108
|
|
|
$
|
83
|
|
Interest cost
|
|
|
459
|
|
|
|
453
|
|
Expected return on plan assets
|
|
|
(597
|
)
|
|
|
(439
|
)
|
Amortization of prior service cost
|
|
|
60
|
|
|
|
60
|
|
Recognized net actuarial loss
|
|
|
188
|
|
|
|
339
|
|
|
|
|
|
|
|
|
Net periodic pension cost of defined benefit plans
|
|
$
|
218
|
|
|
$
|
496
|
|
|
|
|
|
|
|
|
The Company contributed $140 in cash in the first quarter of 2010 to fund its defined benefit
pension plans for the 2009 plan year based on the contribution expectation calculated by its third
party actuaries, and anticipates contributing an additional $1,649 in cash during the remainder of
2010 for both the 2010 and 2009 plan years, for total cash contributions of $1,789.
11. Income Taxes
The effective income tax rate from continuing operations for the three months ended March 31,
2010, was 35.7%, compared to 37.0% for the three months ended March 31, 2009. The Companys
effective rate differs from the U.S. statutory rate of 35.0% primarily as a result of the impact of
non-deductible expenses on the Companys worldwide taxes.
The total amount of unrecognized tax benefits as of March 31, 2010, was $1,152 (including $249
of accrued interest and penalties), the recognition of which would have had an effect of $1,015 on
the continuing operations effective tax rate. The Company believes it is reasonably possible that
the unrecognized tax benefit may be reduced by $727 in the next twelve months for audit settlements
and for issues that lapse due to statutes.
The Company files income tax returns in the U.S. federal jurisdiction and various state and
foreign jurisdictions. The Company is no longer subject to U.S. federal, state and local, or
non-U.S. income tax examinations by tax authorities for years before 2002. The Company is
currently under examination for the tax years 2007 and 2008 by U.S. federal income tax authorities
and for tax year 2006 by Italian income tax authorities. Both audits have been tentatively
completed. The Company feels it has adequately provided reserves for the audit issues raised. The
years 2003 2009 are open years available for examination by various state, local and foreign tax
authorities.
14
12. Earnings Per Share
Basic and diluted earnings per share are computed as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
2010
|
|
|
2009
|
|
Income from continuing operations, after income taxes
|
|
$
|
3,805
|
|
|
$
|
1,584
|
|
Less: Preferred stock dividends
|
|
|
37
|
|
|
|
37
|
|
|
|
|
|
|
|
|
Income from continuing operations, after income taxes
available to common shareholders
|
|
$
|
3,768
|
|
|
$
|
1,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,777
|
|
|
$
|
1,574
|
|
Less: Preferred stock dividends
|
|
|
37
|
|
|
|
37
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
3,740
|
|
|
$
|
1,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
(in thousands)
:
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
7,965
|
|
|
|
8,717
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
7,965
|
|
|
|
8,717
|
|
Dilutive effect of stock options
|
|
|
281
|
|
|
|
279
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
8,246
|
|
|
|
8,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic earnings from continuing operations, after
income taxes
|
|
$
|
0.47
|
|
|
$
|
0.18
|
|
Discontinued operations, after income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per basic share
|
|
$
|
0.47
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings from continuing operations, after
income taxes
|
|
$
|
0.46
|
|
|
$
|
0.17
|
|
Discontinued operations, after income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per diluted share
(1)
|
|
$
|
0.45
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The summation to net earnings per diluted share does not mathematically work
due to rounding.
|
A weighted average of 178,346 and 251,044 options were not included in the calculation of
diluted weighted shares outstanding because they were anti-dilutive for the three months ended
March 31, 2010 and 2009, respectively.
On February 18, 2010, the Company issued 10,000 shares of common stock from treasury to
certain employees as a restricted stock award under the Companys Amended and Restated 2000 Long
Term Incentive Plan. These awarded shares are included in the basic and diluted weighted average
shares outstanding from the period of time outstanding. 20% of these awarded shares vested
immediately and the remaining shares vest ratably over the next four years from the grant date. No
forfeitures are anticipated over the vesting period. All restricted shares include the right to
vote and the right to receive cash and stock dividends.
15
13. Supplemental Guarantor Information
Each of the Guarantor Subsidiaries has fully and unconditionally guaranteed, on a joint and
several basis, to pay principal, premium, and interest with respect to the Companys senior notes.
The Guarantor Subsidiaries are direct or indirect wholly-owned subsidiaries of the Company.
The following supplemental consolidating condensed financial statements present:
|
|
|
Consolidating condensed Balance Sheets as of March 31, 2010 and December 31, 2009,
consolidating condensed Statements of Operations for the three months ended March 31, 2010
and 2009 and consolidating condensed Statements of Cash Flows for the three months ended
March 31, 2010 and 2009.
|
|
|
|
Hawk Corporation (Parent) combined Guarantor Subsidiaries and combined Non-Guarantor
Subsidiaries consisting of the Companys subsidiaries in Italy, Canada and China with their
investments in subsidiaries accounted for using the equity method.
|
|
|
|
Elimination entries necessary to consolidate the financial statements of the Parent and
all of its subsidiaries.
|
The Company does not believe that separate financial statements of the Guarantor Subsidiaries
provide material additional information to investors. Therefore, separate financial statements and
other disclosures concerning the Guarantor Subsidiaries are not presented. The Companys bank
facility contains covenants with respect to the Company and its subsidiaries that, among other
things, would prohibit the payment of dividends to the Company by the subsidiaries (including
Guarantor Subsidiaries) in the event of a default under the terms of the bank facility. The
indenture governing the senior notes permits the payment of dividends to the Company by the
subsidiaries (including Guarantor Subsidiaries) provided that no event of default has occurred
under the terms of the indenture of the senior notes.
16
Supplemental Consolidating Condensed
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
|
|
|
|
|
Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(dollars in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,026
|
|
|
$
|
28
|
|
|
$
|
24,157
|
|
|
$
|
|
|
|
$
|
39,211
|
|
Short-term investments
|
|
|
38,984
|
|
|
|
|
|
|
|
982
|
|
|
|
|
|
|
|
39,966
|
|
Accounts receivable, net
|
|
|
|
|
|
|
15,613
|
|
|
|
17,506
|
|
|
|
|
|
|
|
33,119
|
|
Inventories, net
|
|
|
|
|
|
|
19,848
|
|
|
|
10,294
|
|
|
|
(249
|
)
|
|
|
29,893
|
|
Deferred income taxes
|
|
|
512
|
|
|
|
|
|
|
|
752
|
|
|
|
|
|
|
|
1,264
|
|
Other current assets
|
|
|
2,612
|
|
|
|
504
|
|
|
|
1,686
|
|
|
|
|
|
|
|
4,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
57,134
|
|
|
|
35,993
|
|
|
|
55,377
|
|
|
|
(249
|
)
|
|
|
148,255
|
|
Investment in subsidiaries
|
|
|
55,184
|
|
|
|
|
|
|
|
|
|
|
|
(55,184
|
)
|
|
|
|
|
Inter-company advances, net
|
|
|
|
|
|
|
2,783
|
|
|
|
(2,783
|
)
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
33,763
|
|
|
|
11,937
|
|
|
|
|
|
|
|
45,700
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets
|
|
|
|
|
|
|
5,876
|
|
|
|
|
|
|
|
|
|
|
|
5,876
|
|
Other
|
|
|
6,752
|
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
|
7,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
6,752
|
|
|
|
5,876
|
|
|
|
298
|
|
|
|
|
|
|
|
12,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
119,070
|
|
|
$
|
78,415
|
|
|
$
|
64,829
|
|
|
$
|
(55,433
|
)
|
|
$
|
206,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
51
|
|
|
$
|
12,777
|
|
|
$
|
9,679
|
|
|
$
|
|
|
|
$
|
22,507
|
|
Accrued compensation
|
|
|
2,295
|
|
|
|
2,431
|
|
|
|
2,311
|
|
|
|
|
|
|
|
7,037
|
|
Accrued interest
|
|
|
1,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,699
|
|
Accrued taxes
|
|
|
170
|
|
|
|
24
|
|
|
|
797
|
|
|
|
(23
|
)
|
|
|
968
|
|
Other accrued expenses
|
|
|
1,789
|
|
|
|
2,128
|
|
|
|
310
|
|
|
|
12
|
|
|
|
4,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
6,004
|
|
|
|
17,360
|
|
|
|
13,097
|
|
|
|
(11
|
)
|
|
|
36,450
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net
|
|
|
75,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,605
|
|
Deferred income taxes
|
|
|
2,448
|
|
|
|
|
|
|
|
343
|
|
|
|
|
|
|
|
2,791
|
|
Other
|
|
|
5,228
|
|
|
|
6,442
|
|
|
|
3,816
|
|
|
|
|
|
|
|
15,486
|
|
Inter-company advances, net
|
|
|
(46,764
|
)
|
|
|
38,283
|
|
|
|
8,719
|
|
|
|
(238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
36,517
|
|
|
|
44,725
|
|
|
|
12,878
|
|
|
|
(238
|
)
|
|
|
93,882
|
|
Shareholders equity
|
|
|
76,549
|
|
|
|
16,330
|
|
|
|
38,854
|
|
|
|
(55,184
|
)
|
|
|
76,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders
equity
|
|
$
|
119,070
|
|
|
$
|
78,415
|
|
|
$
|
64,829
|
|
|
$
|
(55,433
|
)
|
|
$
|
206,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Supplemental Consolidating Condensed
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(dollars in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
24,182
|
|
|
$
|
11
|
|
|
$
|
23,013
|
|
|
$
|
|
|
|
$
|
47,206
|
|
Short-term investments
|
|
|
34,977
|
|
|
|
|
|
|
|
953
|
|
|
|
|
|
|
|
35,930
|
|
Accounts receivable, net
|
|
|
|
|
|
|
12,520
|
|
|
|
15,058
|
|
|
|
|
|
|
|
27,578
|
|
Inventories, net
|
|
|
|
|
|
|
16,714
|
|
|
|
11,025
|
|
|
|
(244
|
)
|
|
|
27,495
|
|
Deferred income taxes
|
|
|
511
|
|
|
|
|
|
|
|
794
|
|
|
|
|
|
|
|
1,305
|
|
Other current assets
|
|
|
3,704
|
|
|
|
723
|
|
|
|
1,259
|
|
|
|
|
|
|
|
5,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
63,374
|
|
|
|
29,968
|
|
|
|
52,102
|
|
|
|
(244
|
)
|
|
|
145,200
|
|
Investment in subsidiaries
|
|
|
49,927
|
|
|
|
|
|
|
|
|
|
|
|
(49,927
|
)
|
|
|
|
|
Inter-company advances, net
|
|
|
|
|
|
|
2,738
|
|
|
|
(2,738
|
)
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
34,728
|
|
|
|
12,368
|
|
|
|
|
|
|
|
47,096
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets
|
|
|
|
|
|
|
6,015
|
|
|
|
|
|
|
|
|
|
|
|
6,015
|
|
Other
|
|
|
5,892
|
|
|
|
|
|
|
|
289
|
|
|
|
|
|
|
|
6,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
5,892
|
|
|
|
6,015
|
|
|
|
289
|
|
|
|
|
|
|
|
12,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
119,193
|
|
|
$
|
73,449
|
|
|
$
|
62,021
|
|
|
$
|
(50,171
|
)
|
|
$
|
204,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
46
|
|
|
$
|
9,696
|
|
|
$
|
7,119
|
|
|
$
|
|
|
|
$
|
16,861
|
|
Accrued compensation
|
|
|
2,455
|
|
|
|
2,599
|
|
|
|
2,270
|
|
|
|
|
|
|
|
7,324
|
|
Accrued interest
|
|
|
3,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,385
|
|
Accrued taxes
|
|
|
|
|
|
|
56
|
|
|
|
345
|
|
|
|
(56
|
)
|
|
|
345
|
|
Other accrued expenses
|
|
|
1,804
|
|
|
|
1,870
|
|
|
|
292
|
|
|
|
13
|
|
|
|
3,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
7,690
|
|
|
|
14,221
|
|
|
|
10,026
|
|
|
|
(43
|
)
|
|
|
31,894
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
77,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,090
|
|
Deferred income taxes
|
|
|
2,508
|
|
|
|
|
|
|
|
365
|
|
|
|
|
|
|
|
2,873
|
|
Other
|
|
|
4,499
|
|
|
|
6,534
|
|
|
|
4,132
|
|
|
|
|
|
|
|
15,165
|
|
Inter-company advances, net
|
|
|
(50,064
|
)
|
|
|
42,346
|
|
|
|
7,919
|
|
|
|
(201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
34,033
|
|
|
|
48,880
|
|
|
|
12,416
|
|
|
|
(201
|
)
|
|
|
95,128
|
|
Shareholders equity
|
|
|
77,470
|
|
|
|
10,348
|
|
|
|
39,579
|
|
|
|
(49,927
|
)
|
|
|
77,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders
equity
|
|
$
|
119,193
|
|
|
$
|
73,449
|
|
|
$
|
62,021
|
|
|
$
|
(50,171
|
)
|
|
$
|
204,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Supplemental Consolidating Condensed
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
|
|
|
$
|
36,235
|
|
|
$
|
18,598
|
|
|
$
|
(1,424
|
)
|
|
$
|
53,409
|
|
Cost of sales
|
|
|
|
|
|
|
22,785
|
|
|
|
14,826
|
|
|
|
(1,424
|
)
|
|
|
36,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
13,450
|
|
|
|
3,772
|
|
|
|
|
|
|
|
17,222
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, technical and administrative expenses
|
|
|
|
|
|
|
7,340
|
|
|
|
1,514
|
|
|
|
|
|
|
|
8,854
|
|
Amortization of intangibles
|
|
|
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
|
|
|
|
7,479
|
|
|
|
1,514
|
|
|
|
|
|
|
|
8,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
5,971
|
|
|
|
2,258
|
|
|
|
|
|
|
|
8,229
|
|
Interest (expense) income, net
|
|
|
|
|
|
|
(1,819
|
)
|
|
|
40
|
|
|
|
|
|
|
|
(1,779
|
)
|
Income from equity investee
|
|
|
3,777
|
|
|
|
1,562
|
|
|
|
|
|
|
|
(5,339
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
(429
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
(532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, before
income taxes
|
|
|
3,777
|
|
|
|
5,285
|
|
|
|
2,195
|
|
|
|
(5,339
|
)
|
|
|
5,918
|
|
Income tax provision
|
|
|
|
|
|
|
1,480
|
|
|
|
633
|
|
|
|
|
|
|
|
2,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, after
income taxes
|
|
|
3,777
|
|
|
|
3,805
|
|
|
|
1,562
|
|
|
|
(5,339
|
)
|
|
|
3,805
|
|
Discontinued operations, after income taxes
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,777
|
|
|
$
|
3,777
|
|
|
$
|
1,562
|
|
|
$
|
(5,339
|
)
|
|
$
|
3,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Supplemental Consolidating Condensed
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
|
|
|
$
|
31,706
|
|
|
$
|
13,391
|
|
|
$
|
(812
|
)
|
|
$
|
44,285
|
|
Cost of sales
|
|
|
|
|
|
|
21,047
|
|
|
|
12,052
|
|
|
|
(812
|
)
|
|
|
32,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
10,659
|
|
|
|
1,339
|
|
|
|
|
|
|
|
11,998
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, technical and administrative expenses
|
|
|
|
|
|
|
6,235
|
|
|
|
1,217
|
|
|
|
|
|
|
|
7,452
|
|
Amortization of intangibles
|
|
|
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
|
|
|
|
6,373
|
|
|
|
1,217
|
|
|
|
|
|
|
|
7,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
4,286
|
|
|
|
122
|
|
|
|
|
|
|
|
4,408
|
|
Interest (expense) income, net
|
|
|
|
|
|
|
(1,945
|
)
|
|
|
95
|
|
|
|
|
|
|
|
(1,850
|
)
|
Income from equity investee
|
|
|
1,574
|
|
|
|
(92
|
)
|
|
|
|
|
|
|
(1,482
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
(5
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, before
income taxes
|
|
|
1,574
|
|
|
|
2,244
|
|
|
|
178
|
|
|
|
(1,482
|
)
|
|
|
2,514
|
|
Income tax provision
|
|
|
|
|
|
|
660
|
|
|
|
270
|
|
|
|
|
|
|
|
930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, after
income taxes
|
|
|
1,574
|
|
|
|
1,584
|
|
|
|
(92
|
)
|
|
|
(1,482
|
)
|
|
|
1,584
|
|
Discontinued operations, after income taxes
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,574
|
|
|
$
|
1,574
|
|
|
$
|
(92
|
)
|
|
$
|
(1,482
|
)
|
|
$
|
1,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Supplemental Consolidating Condensed
Cash Flows Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(dollars in thousands)
|
|
Net cash (used in) provided by operating
activities of continuing operations
|
|
$
|
(843
|
)
|
|
$
|
268
|
|
|
$
|
3,260
|
|
|
$
|
|
|
|
$
|
2,685
|
|
Net cash used in operating
activities of discontinued operations
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available for sale securities
|
|
|
(38,979
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,979
|
)
|
Proceeds from available for sale securities
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
Purchases of property, plant and equipment
|
|
|
|
|
|
|
(223
|
)
|
|
|
(865
|
)
|
|
|
|
|
|
|
(1,088
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities of continuing operations
|
|
|
(3,979
|
)
|
|
|
(223
|
)
|
|
|
(865
|
)
|
|
|
|
|
|
|
(5,067
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock options
|
|
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
432
|
|
Stock repurchase
|
|
|
(3,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,881
|
)
|
Payment of consent fee for senior
notes indenture modification
|
|
|
(1,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,512
|
)
|
Tax benefit from exercise of incentive stock
options
|
|
|
664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
664
|
|
Payments of preferred stock dividend
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities of continuing operations
|
|
|
(4,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,334
|
)
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
|
|
|
|
(1,251
|
)
|
|
|
|
|
|
|
(1,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by continuing
operations
|
|
|
(9,156
|
)
|
|
|
45
|
|
|
|
1,144
|
|
|
|
|
|
|
|
(7,967
|
)
|
Net cash used by discontinued
operations
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash
equivalents
|
|
|
(9,156
|
)
|
|
|
17
|
|
|
|
1,144
|
|
|
|
|
|
|
|
(7,995
|
)
|
Cash and cash equivalents at beginning of
period
|
|
|
24,182
|
|
|
|
11
|
|
|
|
23,013
|
|
|
|
|
|
|
|
47,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
15,026
|
|
|
$
|
28
|
|
|
$
|
24,157
|
|
|
$
|
|
|
|
$
|
39,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Supplemental Consolidating Condensed
Cash Flows Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net cash (used in) provided by operating
activities of continuing operations
|
|
$
|
(11,892
|
)
|
|
$
|
2,505
|
|
|
$
|
1,822
|
|
|
$
|
|
|
|
$
|
(7,565
|
)
|
Net cash used in operating
activities of discontinued operations
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available for sale securities
|
|
|
(29,986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,986
|
)
|
Proceeds from available for sale securities
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
Purchases of property, plant and equipment
|
|
|
|
|
|
|
(2,492
|
)
|
|
|
(371
|
)
|
|
|
|
|
|
|
(2,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities of continuing operations
|
|
|
14
|
|
|
|
(2,492
|
)
|
|
|
(371
|
)
|
|
|
|
|
|
|
(2,849
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock options
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
343
|
|
Stock repurchase
|
|
|
(4,616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,616
|
)
|
Payments of preferred stock dividend
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities of continuing operations
|
|
|
(4,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,310
|
)
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
|
|
|
|
(853
|
)
|
|
|
|
|
|
|
(853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by continuing
operations
|
|
|
(16,188
|
)
|
|
|
13
|
|
|
|
598
|
|
|
|
|
|
|
|
(15,577
|
)
|
Net cash used in discontinued
operations
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash
equivalents
|
|
|
(16,188
|
)
|
|
|
3
|
|
|
|
598
|
|
|
|
|
|
|
|
(15,587
|
)
|
Cash and cash equivalents at beginning of
period
|
|
|
45,241
|
|
|
|
32
|
|
|
|
17,247
|
|
|
|
|
|
|
|
62,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
29,053
|
|
|
$
|
35
|
|
|
$
|
17,845
|
|
|
$
|
|
|
|
$
|
46,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
ITEM 2.
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
|
You should read this discussion in conjunction with the consolidated financial statements,
notes and tables included in Part I, Item 1 of this Form 10-Q. Statements that are not historical
facts, including statements about our confidence in our prospects and strategies and our
expectations about growth of existing markets and our ability to expand into new markets, to
identify and acquire complementary businesses and to attract new sources of financing, are
forward-looking statements that involve risks and uncertainties. In addition to statements that
are forward-looking by reason of context, the words believe, expect, anticipate, intend,
designed, goal, objective, optimistic, will and other similar expressions identify
forward-looking statements. In light of the risks and uncertainties inherent in all future
projections, the inclusion of the forward-looking statements should not be regarded as a guarantee
of performance. Although we believe that our plans, objectives, intentions and expenditures
reflected in our forward-looking statements are reasonable, we can give no assurance that our
plans, objectives, intentions and expectations will be achieved. Our forward-looking statements
are made based on expectations and beliefs concerning future events affecting us and are subject to
uncertainties, risks and factors relating to our operations and business environments, all of which
are difficult to predict and many of which are beyond our control, that could cause our actual
results to differ materially from those matters expressed or implied by our forward-looking
statements.
When considering these risk factors, you should keep in mind the cautionary statements
elsewhere in this report and the documents incorporated by reference. New risks and uncertainties
arise from time to time, and we cannot predict those events or how they may affect us. We assume
no obligation to update any forward-looking statements or risk factor after the date of this report
as a result of new information, future events or developments, except as required by the federal
securities law.
Recent Events
|
|
|
On March 23, 2010, President Obama signed into law the Patient Protection and Affordable
Care Act (the Act), and on March 30, 2010 signed the Health Care and Education
Reconciliation Act of 2010, which makes various amendments to certain aspects of the Act
(collectively, the Acts). The Acts are a comprehensive health care reform bill that includes
revenue-raising provisions for nearly $400 billion over ten years through tax increases on
high-income individuals, excise taxes on high-cost group health plans, and new fees on
selected health-care-related industries. Effective for tax years beginning after December 31,
2012, the Acts eliminate the tax deduction for the portion of the prescription drug costs for
which an employer receives a Medicare Part D federal subsidy (i.e. it reduces a companys tax
deduction). Although we do provide retiree medical benefits that include prescription drug
coverage for a small group of former employees, we do not receive a federal subsidy nor do we
have any deferred tax assets associated with such deductible temporary differences. As a
result, this portion of the Acts had no impact on our results for the period ended March 31,
2010.
|
|
|
|
|
On May 3, 2010, we reached
an agreement to purchase
an aggregate of $2.5 million of our senior notes in the open
market. Funding will take place on or about May 6, 2010.
|
Friction Products Information
Through our various subsidiaries, we operate in one reportable segment: friction products. Our
results of operations are affected by a variety of factors, including but not limited to, global
economic conditions, manufacturing efficiency, customer demand for our products, competition, raw
material pricing and availability, our ability to pass increases in raw material prices through to
our customers, labor relations with our employees and political conditions in the countries in
which we operate. We sell a wide range of products that have a correspondingly wide range of gross
margins. Our consolidated gross margin is affected by product mix, selling prices, material and
labor costs, as well as our ability to absorb overhead costs resulting from fluctuations in demand
for our products.
23
We believe that, based on net sales, we are one of the top worldwide manufacturers of friction
products used in off-highway, on-highway, industrial, agricultural, performance and aircraft
applications. Our friction products business manufactures parts and components made from
proprietary formulations of composite materials, primarily consisting of metal powders and
synthetic and natural fibers. Friction products are used in brakes, clutches and transmissions to
absorb vehicular energy and dissipate it through heat and normal mechanical wear. Our friction
products include parts for brakes, clutches and transmissions used in construction and mining
vehicles, agricultural vehicles, military vehicles,
trucks, motorcycles and race cars, and brake parts for landing systems used in commercial and
general aviation. We believe we are:
|
|
|
a leading domestic and international supplier of brake and clutch friction materials
for construction and mining equipment, agricultural equipment and trucks,
|
|
|
|
the leading North American independent supplier of metallic friction materials for
braking systems for new and existing series of many commercial and military aircraft
models, including Boeing, EADS, Lockheed and United Technologies, as well as the Canadair
regional jet series,
|
|
|
|
the largest supplier of metallic friction materials for the general aviation market,
including numerous new and existing series of Cessna, Hawker, Lear and Pilatus aircrafts,
and
|
|
|
|
a leading domestic supplier of friction materials into performance, defense and
specialty markets such as military vehicles, motorcycles, race cars, performance
automobiles, and ATVs.
|
In our fuel cell component business we believe we are:
|
|
|
a leading supplier of critical stack components used in the manufacture of phosphoric
acid fuel cells. The fuel cells which use our stack components have a major presence in
the on-site stationary fuel cell market.
|
Critical Accounting Policies
The following discussion of our financial position and results of operations is based on the
consolidated financial statements included in this Form 10-Q, which have been prepared in
accordance with U.S. generally accepted accounting principles. Some of our accounting policies
require the application of significant judgment by us in the preparation of our consolidated
financial statements. In applying these policies, we use our best judgment to determine the
underlying assumptions that are used in calculating the estimates that affect the reported values
on our financial statements. On an ongoing basis, we evaluate our estimates and judgments based on
historical experience and various other factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different assumptions or
conditions.
We review our financial reporting and disclosure practices and accounting policies quarterly
to ensure that they provide accurate and transparent information relative to the current economic
and business environment. We base our estimates and assumptions on historical experience and other
factors that we consider relevant. If these estimates differ materially from actual results, the
impact on our consolidated financial statements may be material. However, historically our
estimates have not been materially different from actual results. During the first quarter of
2010, there have been no significant changes to the critical accounting policies that we disclosed
in Managements Discussion and Analysis of Financial Position and Results of Operations on our 2009
Form 10-K filed with the Securities and Exchange Commission (SEC) on March 10, 2010.
24
Recent Accounting Pronouncements
The following new accounting updates and guidance became effective for us commencing with our
first fiscal quarter of 2010:
|
|
|
In January 2010, the FASB issued ASU 2010-06, which amends ASC 820 to add new
requirements for disclosures about transfers into and out of Levels 1 and 2 and separate
disclosures about purchases, sales, issuances and settlements relating to Level 3
measurements. ASU 2010-06 also clarifies existing fair value disclosures about the level
of disaggregation and about inputs and valuation techniques used to measure fair value.
Further, ASU 2010-06 amends guidance on employers disclosures about postretirement
benefit plan assets under ASC 715 to require that disclosures be provided by classes of
assets instead of by major categories of assets. This ASU became effective for us on
January 1, 2010, except for the requirement to provide Level 3 activity of purchases,
sales, issuances and settlements on a gross basis, which will be effective for us on
January 1, 2011. The disclosures contained within our Form 10-Q for the period ended
March 31, 2010 are in compliance with the requirements of ASC 2010-06.
|
|
|
|
In December 2009, the FASB issued ASU 2009-16, which became effective for us on January
1, 2010. Among other things, ASU 2009-16 removes the concept of a qualifying
special-purpose entity, changes the requirements for derecognizing assets, and enhances
information reported to financial statement users by increasing the transparency of
disclosures about transfers of financial assets and an entitys continuing involvement
with transferred financial assets. This statement also clarifies the requirements for
isolation and limitations on portions of financial assets that are eligible for sale
accounting. The adoption of this guidance did not have an impact on our financial
position, results of operations, cash flows or related disclosures.
|
Our management does not believe that any other recently issued, but not yet effective,
accounting standards, if currently adopted, will have a material effect on the accompanying
financial statements.
25
First Quarter of 2010 Compared to the First Quarter of 2009
The following tables show our net sales by principal market and geographic location for the
three months ended March 31, 2010 and 2009:
Sales by Principal Markets
Three Months Ended March 31
|
|
|
|
|
|
|
|
|
|
|
% of Sales
|
|
Market
|
|
2010
|
|
|
2009
|
|
Construction and Mining
|
|
|
46.5
|
%
|
|
|
36.3
|
%
|
Aircraft and Defense
|
|
|
17.8
|
%
|
|
|
30.3
|
%
|
Agriculture
|
|
|
15.1
|
%
|
|
|
15.9
|
%
|
Truck
|
|
|
8.8
|
%
|
|
|
8.6
|
%
|
Performance Friction
|
|
|
6.0
|
%
|
|
|
5.7
|
%
|
Specialty Friction
|
|
|
2.9
|
%
|
|
|
2.6
|
%
|
Alternative Energy
|
|
|
2.9
|
%
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
Sales by Geographic Location of our Manufacturing Facilities
Three Months Ended March 31
|
|
|
|
|
|
|
|
|
|
|
% of Sales
|
|
Location
|
|
2010
|
|
|
2009
|
|
United States
|
|
|
68.9
|
%
|
|
|
72.1
|
%
|
Italy
|
|
|
26.1
|
%
|
|
|
24.1
|
%
|
Other foreign
|
|
|
5.0
|
%
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
26
The following table summarizes our results of operations for the three months ended March 31,
2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
2010
|
|
|
Sales
|
|
|
2009
|
|
|
Sales
|
|
|
|
(dollars in millions)
|
|
Net sales
|
|
$
|
53.4
|
|
|
|
100.0
|
%
|
|
$
|
44.3
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
$
|
36.2
|
|
|
|
67.8
|
%
|
|
$
|
32.3
|
|
|
|
72.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
17.2
|
|
|
|
32.2
|
%
|
|
$
|
12.0
|
|
|
|
27.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, technical and administrative expenses
|
|
$
|
8.9
|
|
|
|
16.7
|
%
|
|
$
|
7.5
|
|
|
|
16.9
|
%
|
Income from operations
|
|
$
|
8.2
|
|
|
|
15.4
|
%
|
|
$
|
4.4
|
|
|
|
9.9
|
%
|
Interest expense
|
|
$
|
(1.8
|
)
|
|
|
-3.4
|
%
|
|
$
|
(2.0
|
)
|
|
|
-4.5
|
%
|
Interest income
|
|
$
|
0.1
|
|
|
|
0.2
|
%
|
|
$
|
0.2
|
|
|
|
0.5
|
%
|
Other income (expense), net
|
|
$
|
(0.5
|
)
|
|
|
-0.9
|
%
|
|
$
|
|
|
|
|
0.0
|
%
|
Income tax provision
|
|
$
|
2.1
|
|
|
|
3.9
|
%
|
|
$
|
0.9
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, after income taxes
|
|
$
|
3.8
|
|
|
|
7.1
|
%
|
|
$
|
1.6
|
|
|
|
3.6
|
%
|
Discontinued operations, net of tax
|
|
$
|
|
|
|
|
0.0
|
%
|
|
$
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3.8
|
|
|
|
7.1
|
%
|
|
$
|
1.6
|
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales.
Our net sales for the first quarter of 2010 were $53.4 million, an increase
of $9.1 million, or 20.5%, from the same period in 2009. Sales increases during the period
resulted primarily from volume increases to customers in our construction and mining end-markets.
Of our total sales increase of 20.5% in the first quarter of 2010, volume represented approximately
21.4 of the total percentage point increase, favorable foreign currency exchange rates represented
1.5 of the total percentage point increase and pricing accounted for a reduction of approximately
2.4 to the total percentage point change.
Our sales to the construction and mining market, our largest, were up 54.6% in the first
quarter of 2010 compared to the first quarter of 2009 as a result of an expansion of activity
primarily in the mining market as customers replenished inventory levels. Sales to our agriculture
market were up 14.0% in the first quarter of 2010 compared to the first quarter of 2009, primarily
as a result of improved market conditions, especially in the United States and Europe. Sales to
our truck market increased 23.9% in the first quarter of 2010 compared to the first quarter of
2009, due to increased freight volumes being shipped with existing vehicles. Sales in our friction
direct aftermarket that we service through the VelveTouch
®
and Hawk
Performance
®
brand names increased 10.5% in the first quarter of 2010 compared to the
first quarter of 2009. In addition, sales of our performance automotive brake product, which are
part of this market, were up 28.4% in the first quarter of 2010 compared to the first quarter of
2009, primarily as a result of new product introductions. Although a small percentage of our total
net sales, sales to the alternative energy market were up 460.7% in the first quarter of 2010
compared to the first quarter of 2009 as shipments of units in this product line continued to
increase. Our aircraft and defense markets were down 29.1% in the first quarter of 2010 compared
to the first quarter of 2009 due to a decrease in demand in our defense market offset by a modest
increase in our aircraft market.
Net sales from our foreign facilities represented 31.1% of our total net sales in the first
quarter of 2010 compared to 27.9% for the comparable period of 2009. The increase in our foreign
facility revenues as a percent of total revenues was due primarily to the improvements in the end
markets that we serve in the European and Asian markets. Sales at our Italian operation, on a
local currency basis, were up 24.0% in the first quarter of 2010 compared to the first quarter of
2009, and sales at our Chinese operation, on a local currency basis, were up 94.3% in the first
quarter of 2010, primarily due to improvements in the construction and agriculture markets served
by those facilities.
27
Cost of Sales.
Cost of sales was $36.2 million in the first quarter of 2010, an increase of
$3.9 million, or 12.1%, compared to cost of sales of $32.3 million in the first quarter of 2009.
As a percent of sales, our cost of sales represented 67.8% of our net sales in the first quarter of
2010 compared to 72.9% of net sales in the first quarter of 2009. The decrease in our cost of
sales percentage was driven primarily by the positive impact that higher production volumes in the
first quarter of 2010 had on our absorption of manufacturing costs, by overall cost improvements,
and offset somewhat by unfavorable product mix. Of our total cost of sales increase of 12.1% in
2010, the impact of our increased sales volumes represented approximately 18.7 percentage points,
an unfavorable shift in product mix represented 10.2 percentage points, and the effect of foreign
currency exchange rates accounted for 2.0 percentage points. Offsetting these components, our
higher absorption of manufacturing overhead and overall cost improvements favorably impacted
the total cost of sales increase by approximately 18.8 percentage points.
Selling, Technical
and Administrative Expenses.
Selling, technical and administrative (ST&A)
expenses increased $1.4 million, or 18.7%, to $8.9 million in the first quarter of 2010
from $7.5
million during the first quarter of 2009. As a percentage of net sales, ST&A was 16.7% in the
first quarter of 2010 compared to 16.9% in the first quarter of 2009. The decrease in ST&A as a
percentage of net sales primarily resulted from our continued successful efforts to control
discretionary and personnel costs in 2010. Of our total ST&A increase of 18.7%, higher
incentive compensation expense as a result of our improved profitability level in the first quarter of 2010
compared to the first quarter of 2009 represented approximately 19.0 percentage points. We
also
experienced an increase in our legal and professional expenses, primarily related to our Italian
tax audit which has been tentatively completed, representing approximately 3.4 percentage points of
the total increase. These components of the total ST&A change were offset by lower overall
compensation and benefits expense which favorably impacted the total ST&A increase by approximately
1.8 percentage points.
In addition, we spent $1.1 million, or 2.0% of our net sales, on product research and
development in the first quarter of 2010, compared to $1.2 million or 2.7%, of our net sales for
the first quarter of 2009.
Interest Expense.
Interest expense decreased slightly to $1.8 million in the first quarter of
2010 from $2.0 million in the first quarter of 2009 due to our purchase of $10.0 million of our
senior notes on the open market in November 2009. These repurchased notes are being held by us in
treasury, which reduced our fixed interest expense for 2010 as compared to 2009. We did not have
any borrowings under our variable rate domestic or Italian bank facilities in the first quarter of
2010 or 2009. Included as a component of Interest expense in our Consolidated Statements of
Operations is the amortization of deferred financing costs for both 2010 and 2009 and the
amortization of the consent fee for the three months ended March 31, 2010.
Interest Income
. We invested our excess cash in various short-term interest bearing
investments. Interest income was $0.1 million in the first quarter of 2010 compared to $0.2
million during the first quarter of 2009. The decrease was the result of lower invested cash
balances during the first quarter of 2010 compared to the first quarter of 2009, and lower
effective interest rates on our investments in the first quarter of 2010 compared to rates
available to us in the first quarter of 2009.
Other Income (Expense), Net
. Other expense was $0.5 million in the first quarter of 2010
compared to zero reported in the first quarter of 2009. The components of Other income (expense),
net for the three months ended March 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
Components of Other income (expense), net
|
|
|
|
|
|
|
|
|
Net realized and unrealized trading gains (losses)
|
|
$
|
0.1
|
|
|
$
|
|
|
Foreign currency transaction gains (losses)
|
|
$
|
(0.1
|
)
|
|
$
|
|
|
Senior notes consent solicitation third-party expenses
|
|
$
|
(0.6
|
)
|
|
$
|
|
|
Other
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
Total Other income (expense), net
|
|
$
|
(0.6
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
Income Taxes.
We recorded a tax provision from our continuing operations of $2.1 million for
the quarter ended March 31, 2010, compared to a tax provision of $0.9 million in the first quarter
of 2009. Our effective rate of 35.7% in the first quarter of 2010 differs from the current U.S.
statutory rate of 35.0% primarily as a result of the impact of non-deductible expenses on our
worldwide taxes.
28
Liquidity, Capital Resources and Cash Flows
Current economic and market conditions have placed significant constraints on the ability of
many companies to access capital in the debt and equity markets. However, our access to capital
resources that provide liquidity generally has not been materially affected by the current credit
environment. We are not aware of any material trend, event or capital commitment which would
potentially adversely affect our liquidity. In the event such a trend develops, we believe that
our net cash and short-term investment position, coupled with our availability under our bank
facilities, will continue
to be sufficient to support our operations and internal growth needs, to pay interest on our
indebtedness and to fund anticipated capital expenditures for the next twelve months.
Current market conditions also raise increased concerns that our customers, suppliers and
subcontractors may find it difficult to access credit to support their operations. Customer or
supplier bankruptcies, delays in their ability to obtain financing, or the inability to obtain
financing could adversely affect our cash flow or results of operations. To date, we have not been
materially adversely affected by customer, supplier or subcontractor credit problems or
bankruptcies. We continue to monitor and take measures to limit our credit exposure.
The following selected measures of liquidity, capital resources and cash flows outline various
metrics that are reviewed by our management and are provided to our shareholders to enhance the
understanding of our business:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
(dollars in millions)
|
|
LIQUIDITY
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
39.2
|
|
|
$
|
47.2
|
|
Short-term investments
|
|
$
|
40.0
|
|
|
$
|
35.9
|
|
Working capital
(1)
|
|
$
|
111.8
|
|
|
$
|
113.3
|
|
Current ratio
(2)
|
|
|
4.1 to 1.0
|
|
|
|
4.6 to 1.0
|
|
Net debt as a % of capitalization
(3) (4)
|
|
|
N/A
|
|
|
|
N/A
|
|
Average number of days sales in accounts receivable
|
|
|
67 days
|
|
|
58 days
|
|
Average number of days sales in inventory
|
|
85 days
|
|
|
80 days
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(dollars in millions)
|
|
CASH FLOWS
|
|
|
|
|
|
|
|
|
Cash provided by operating activities of continuing operations
|
|
$
|
2.7
|
|
|
$
|
(7.6
|
)
|
Cash used in investing activities of continuing operations
|
|
|
(5.1
|
)
|
|
|
(2.8
|
)
|
Cash used in financing activities of continuing operations
|
|
|
(4.3
|
)
|
|
|
(4.3
|
)
|
Effect of exchange rates on cash
|
|
|
(1.3
|
)
|
|
|
(0.9
|
)
|
Cash (used in) provided by discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
$
|
(8.0
|
)
|
|
$
|
(15.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Working capital is defined as total current assets minus total current liabilities.
|
|
(2)
|
|
Current ratio is defined as total current assets divided by total current
liabilities.
|
|
(3)
|
|
Net debt is defined as gross long-term debt, including current portion, and
short-term borrowings, less cash and short-term investments. Capitalization is defined
as net debt plus shareholders equity.
|
|
(4)
|
|
We have zero net debt at March 31, 2010 and December 31, 2009 because our cash,
cash equivalents and short-term investments were $2.1 million and $6.1 million greater
than gross total debt, respectively.
|
Cash and cash equivalents decreased $8.0 million to $39.2 million as of March 31, 2010, from
$47.2 million at December 31, 2009. Short-term investments increased $4.1 million at March 31,
2010 from the December 31, 2009 balance. The net decrease in cash and cash equivalents and
short-term investments of $3.9 million in the first quarter of 2010 was driven primarily by our
payments of bi-annual interest on our senior notes and annual incentive compensation, which had
been accrued in our 2009 annual reporting period. In the first quarter of 2010, we also made a
$1.5 million payment to consenting senior note holders to allow for additional stock repurchases.
In addition, we repurchased $3.9 million of our common stock pursuant to our stock repurchase
programs. These uses of cash were partially offset by our positive cash generated from operating
activities in 2010.
29
In assessing liquidity, we review certain working capital measurements. At March 31, 2010,
our working capital was $111.8 million, a decrease of $1.5 million from December 31, 2009. The
decrease in working capital in the first quarter of 2010 was primarily due to a decrease in our
overall cash and equivalents and short-term investments position experienced during the period for
the reasons noted above. Our accounts receivable and inventory levels are reviewed through the
computation of days sales outstanding and inventory turnover. Days sales in accounts receivable
was 67 days
at March 31, 2010, compared to 58 days at December 31, 2009, primarily due to our overall
increase in sales volumes in the first quarter of 2010 compared to the fourth quarter of 2009. We
have not experienced any significant change in accounts receivable collectability, and continue to
monitor the financial situation of our major customers. Days sales in inventory was 85 days at
March 31, 2010, compared to 80 days at December 31, 2009, primarily resulting from increased
inventory levels to support our higher sales volumes. We continue to focus on controlling overall
inventory levels while maintaining levels sufficient to meet current customer demands.
At March 31, 2010, our current ratio was 4.1, a decrease from the current ratio of 4.6 at
December 31, 2009. The reduction in the current ratio in the first quarter of 2010 was due
primarily to the increase in accounts payable resulting from increased spending levels for
inventory and expense items to levels commensurate with our increased current business demands.
Operating Activities
Our ability to generate cash from internal operations may be affected by general economic,
financial, competitive, legislative and regulatory factors beyond our control. Generally, our cash
flow from operations fluctuates due to various factors, including customer order patterns,
fluctuations in working capital requirements, the amounts of payments of incentive compensation and
profit sharing payments, changes in customer and supplier credit policies, and changes in customer
payment patterns.
Cash provided by our operating activities from continuing operations through the first quarter
of 2010 was $2.7 million, compared to cash used in operating activities of $7.6 million in the
first quarter of 2009. We experienced higher levels of sales through the first quarter of 2010
compared to the same period in 2009 due to the impact of the moderate economic recovery, which
necessitated increased purchases of inventories and service supplies, resulting in higher accounts
payable at March 31, 2010, generating cash of $6.1 million in the period. Offsetting this source
of operating cash flows were increased levels of accounts receivable and inventory, which are uses
of operating cash flow.
Investing Activities
Our investing activities from continuing operations used $5.1 million and $2.8 million,
respectively, in the three months ended March 31, 2010 and 2009. Net short-term investment
purchases and sales through the first quarter of 2010 used cash of $4.0 million compared to no cash
impact in the 2009 period.
We used $1.1 million and $2.9 million for the purchase of property, plant and equipment in the
three months ended March 31, 2010 and 2009, respectively. The principal sources of financing for
these capital expenditures were existing cash and internally generated funds. We continue to
anticipate capital expenditures in 2010 in the range of $8.0 million to $10.0 million. Our
management critically evaluates all proposed capital expenditures and requires that each project
maximizes shareholders value, and in doing so supports our business needs and long-term strategic
plans.
Financing Activities
Cash used in financing activities was $4.3 million in both the first quarters of 2010 and
2009. We used $3.9 million and $4.6 million to repurchase shares of our common stock pursuant to
our stock repurchase programs in the periods ended March 31, 2010, and 2009, respectively. At
March 31, 2010, the approximate dollar value of shares that may be purchased under our stock
repurchase program was $21.4 million.
We received cash proceeds from the exercise of stock options of $0.4 million and $0.3 million
in the first quarter of 2010 and 2009, respectively.
During the first quarter of 2010, we solicited consents from holders of our non-affiliated
senior notes to amend the indenture governing our senior notes to permit an extension of our stock
repurchase program. In connection with this consent solicitation, we paid a $1.5 million fee to
consenting senior note holders, which will be amortized to interest expense over the remaining life
of our senior notes. Also during the first quarter of 2010, we recognized a tax benefit from the
exercise of incentive stock options of $0.7 million.
30
Contractual Obligations and Other Commercial Commitments
There have been no material changes to the table presented in our Annual Report on Form 10-K
for the year ended December 31, 2009. The table excludes our liability for unrecognized tax
benefits, which totaled $1.2 million at both
March 31, 2010 and December 31, 2009, since we cannot predict with reasonable reliability the
timing of cash settlements with the respective taxing authorities.
Debt
The following table summarizes the components of our indebtedness:
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(dollars in millions)
|
|
Senior notes
|
|
$
|
77.1
|
|
|
$
|
77.1
|
|
Unamortized consent payment
|
|
$
|
(1.5
|
)
|
|
$
|
|
|
Bank facilities (domestic and foreign)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
75.6
|
|
|
$
|
77.1
|
|
|
|
|
|
|
|
|
On March 31, 2010,
we had no borrowings under our credit facilities, and $18.5 million was available under our domestic
revolving credit facility based on eligible collateral. Additionally, we had $3.1 million available
to borrow under our foreign short-term line of credit.
As of March 31, 2010 and December 31, 2009, we were in compliance with the provisions of all
of our debt instruments. We are not aware of any business or economic trends affecting our
business that would cause us to become non-compliant with the provisions of our debt instruments
during the next twelve months.
|
|
|
ITEM 3.
|
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
There have been no material changes in our exposure to market risk since December 31, 2009.
See Item 7A in our
Form 10-K
for the year ended December 31, 2009, filed with the SEC on March 10,
2010.
|
|
|
ITEM 4.
|
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures
. As of March 31, 2010, we evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as such term is
defined in Rule 13a-15(e) of the Exchange Act. The evaluation was carried out under the supervision
of and with the participation of our management, including our principal executive officer and
principal financial and accounting officer. Based on this evaluation, our Chief Executive Officer
and interim Chief Accounting Officer each concluded that as of the end of the period covered by
this report, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
. There have been no changes in our
internal control over financial reporting during the quarter ended March 31, 2010 that have
materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
31
PART II
|
|
|
ITEM 1.
|
|
LEGAL PROCEEDINGS
|
We are involved in lawsuits that have arisen in the ordinary course of our business. We are
contesting each of these lawsuits vigorously and believe we have defenses to the allegations that
have been asserted. We are not aware of any material legal proceedings instituted against us
during the first quarter of 2010 or of any material developments in any of the legal proceedings
previously disclosed in our Form 10-K for the year ended December 31, 2009 filed with the SEC on
March 10, 2010, except as set forth below.
|
|
|
As previously disclosed, on October 16, 2007, a lawsuit captioned Paul Mickle v. Wellman
Products Group, LLC, Case No. CJ 2007 06914 was filed in the District Court for Tulsa
County, Oklahoma. Mr. Mickle alleges violation of wage and hour laws by one of our
subsidiaries, Wellman Products Group, Inc. (Wellman). The case purports to be a class
action on behalf of Mr. Mickle and other allegedly similarly situated employees. The
plaintiffs have been granted their Motion for Class Certification. We disagreed with the
class certification and filed an appeal on January 7, 2010. As of April 12, 2010, all
briefing for our appeal was complete, and we continue to vigorously contest this lawsuit.
|
In our opinion, the outcome of these lawsuits will not have a material adverse effect on our
financial position, results of operations or cash flows, except as described in our Form 10-K for
the year ended December 31, 2009 filed with the SEC on March 10, 2010.
We have no material changes to the risk factors previously disclosed in our Form 10-K for the
year ended December 31, 2009 filed with the SEC on March 10, 2010, other than as noted below.
The recently enacted federal healthcare legislation could impact the healthcare benefits required
to be provided by us and cause our compensation and administrative costs to increase, potentially
reducing our net income and adversely affecting our cash flows.
The recently enacted federal healthcare legislation contains provisions that could materially
impact our future healthcare and administrative costs. Although we cannot yet determine the
legislations ultimate impact on us, the new law could increase our compensation and administrative
compliance costs which would reduce our net income and adversely impact our cash flows.
Any currently proposed or to-be-proposed U.S. or foreign legislation concerning climate change or a
publicly perceived risk associated with climate change could potentially negatively impact our
financial position, results of operations or cash flows.
Changing environmental and energy laws and regulations, including those relating to climate
change and greenhouse gas emissions, new interpretations of existing laws and regulations,
increased governmental enforcement or other developments in the United States and foreign countries
where we operate could result in increased operating and capital expenditure costs for us. To the
extent these new laws or regulations cause changes in the supply, demand or available sources of
energy that we need to operate our facilities or affect the availability or costs of raw materials
we use in our operations, our financial position, results of operations or cash flows could be
negatively impacted.
32
|
|
|
ITEM 2.
|
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
The following table provides information about purchases by Hawk of equity securities
registered under the Securities Exchange Act of 1934 during the three months ended March 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Approximate Dollar
|
|
|
|
Total Number
|
|
|
|
|
|
|
Part of Publicly
|
|
|
Value of Shares That may
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
Announced Plans or
|
|
|
yet be Purchased Under
|
|
Period
|
|
Purchased
|
|
|
Paid per Share
|
|
|
Programs
(1) (2) (3)
|
|
|
the Plans or Programs
(1)
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/1/10 to 1/31/10
|
|
|
17,360
|
|
|
$
|
18.26
|
|
|
|
1,090,271
|
|
|
$
|
0.0 million
|
|
2/1/10 to 2/28/10
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
25.0 million
|
|
3/1/10 to 3/31/10
|
|
|
178,423
|
|
|
$
|
19.97
|
|
|
|
178,423
|
|
|
$
|
21.4 million
|
|
|
|
|
(1)
|
|
On November 24, 2008, we announced a plan, approved by our Board of Directors, to
repurchase up to $15.0 million of our shares of Class A common stock in the open market,
through privately negotiated transactions or otherwise, in accordance with securities laws
and regulations (the plan). Share repurchases under the plan were completed in January
2010.
|
|
(2)
|
|
On February 19, 2010, our Board of Directors approved a plan to repurchase up to $25.0
million of our shares of Class A common stock in the open market, through privately
negotiated transactions or otherwise, in accordance with securities laws and regulations
(the new plan). After March 31, 2010, the approximate value of additional shares that could
be repurchased pursuant to the new plan was $21.4 million; however, under the terms of the
senior notes indenture, we are limited to repurchasing an approximate value of $20.1 million
of additional shares based on our cumulative net income through March 31, 2010. The new
plan expires when the aggregate repurchase price limit is met, unless terminated earlier by
our Board of Directors.
|
|
(3)
|
|
Under the provisions of the new plan, pursuant to a stock purchase agreement dated March
16, 2010, we purchased 132,192 of our Class A common shares at a price of $20.08 per share
from Norman C. Harbert, a related party, for an aggregate purchase price of $2.7 million.
|
|
|
|
ITEM 3.
|
|
DEFAULTS UPON SENIOR SECURITIES
|
None
ITEM 4.
Reserved
|
|
|
ITEM 5.
|
|
OTHER INFORMATION
|
None
33
|
|
|
|
|
31.1*
|
|
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
31.2*
|
|
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
32.1*
|
|
Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
32.2*
|
|
Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
*
|
|
Filed or Furnished herewith
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
HAWK CORPORATION
|
|
Date: May 4, 2010
|
By:
|
/s/ RONALD E. WEINBERG
|
|
|
|
Ronald E. Weinberg
|
|
|
|
Chairman of the Board and Chief Executive Officer
(principal executive officer)
|
|
|
|
|
Date: May 4, 2010
|
By:
|
/s/ JOHN T. BRONSTRUP
|
|
|
|
John T. Bronstrup
|
|
|
|
interim Chief Accounting Officer
(principal financial and accounting officer)
|
|
34
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