EX-99.2 6 exhibit99_2.htm UNAUDITED FINANCIALS Unaudited Financials
EXHIBIT 99.2
 
HAWK CORPORATION
Pro Forma Condensed Consolidated Balance Sheet
September 30, 2006

(In Thousands)
       
Pro Forma Adjustments
      
   
September 30, 2006 (Unaudited)
  
Deconsolidate HPCG(1)
  
Sale of HPCG(2)
  
Pro Forma Consolidated (Unaudited)
  
ASSETS
                  
Current assets
                  
Cash and cash equivalents
  
$
5,893
  
$
(83
)
$
88,924
  
$
94,734
  
Accounts receivable, net
    
48,506
   
(12,641
)
        
35,865
 
Inventories
    
50,475
   
(10,034
)
        
40,441
 
Taxes receivable
    
42
               
42
 
Deferred income taxes
    
4,546
         
(859
)
  
3,687
 
Other current assets
    
5,245
   
(1,281
)
        
3,964
 
Assets of discontinued operations
    
3,980
               
3,980
 
Total current assets
    
118,687
   
(24,039
)
  
88,065
   
182,713
 
                           
Investment in HPCG
          
71,564
   
(71,564
)
  
-
 
Property, plant and equipment, net
    
70,826
   
(33,076
)
        
37,750
 
                           
Goodwill
    
32,495
   
(28,030
)
        
4,465
 
Finite-lived intangible assets
    
8,056
   
(55
)
        
8,001
 
Deferred income taxes
    
916
         
(451
)
  
465
 
Other assets
    
7,728
   
-
         
7,728
 
     
49,195
   
(28,085
)
  
(451
)
  
20,659
 
Total assets
  
$
238,708
  
$
(13,636
)
$
16,050
  
$
241,122
  
                           
                           
LIABILITIES AND SHAREHOLDERS’ EQUITY
                          
Current liabilities
                          
Accounts payable
  
$
31,785
  
$
(9,107
)
      
$
22,678
  
Other accrued expenses
    
23,524
   
(3,805
)
$
975
    
20,694
 
Short-term debt
    
1,146
   
-
         
1,146
 
Current portion of long-term debt
    
247
   
(121
)
        
126
 
Liabilities of discontinued operations
    
2,693
               
2,693
 
Total current liabilities
    
59,395
   
(13,033
)
  
975
   
47,337
 
                           
Long-term debt
    
117,321
   
(603
)
        
116,718
 
Deferred income taxes
    
1,026
               
1,026
 
Pension liabilities
    
10,554
               
10,554
 
Other
    
3,580
               
3,580
 
Shareholders’ equity
    
46,832
   
-
   
15,075
   
61,907
 
                           
Total liabilities and shareholders’ equity
  
$
238,708
  
$
(13,636
)
$
16,050
  
$
241,122
  
 
 
See accompanying notes to Pro Forma Condensed Consolidated Balance Sheet
 
 
HAWK CORPORATION
Pro Forma Consolidated Statement of Operations
Nine Months ended September 30, 2006 (Unaudited)

(In Thousands)
       
Pro Forma Adjustments
      
   
September 30, 2006 Consolidated
  
Deconsolidate HPCG (1)
  
Interest Income on Investment of Net Cash Proceeds
  
Pro Forma September 30, 2006
  
Net sales
  
$
228,375
  
$
(69,106
)
$
-
  
$
159,269
  
Cost of sales
    
180,114
   
(56,319
)
  
-
   
123,795
 
Gross profit
    
48,261
   
(12,787
)
  
-
   
35,474
 
                           
Operating expenses:
                          
Selling, technical and administrative expenses
    
31,898
   
(6,579
)
  
-
   
25,319
 
Amortization of finite-lived intangible assets
    
379
   
(8
)
  
-
   
371
 
Total operating expenses
    
32,277
   
(6,587
)
  
-
   
25,690
 
Income from operations
    
15,984
   
(6,200
)
  
-
   
9,784
 
                           
Interest expense (2)
    
(8,508
)
  
14
   
-
   
(8,494
)
Interest income (3)
    
63
   
(2
)
  
3,335
   
3,396
 
Other income (expense), net
    
132
   
(41
)
  
-
   
91
 
Income from continuing operations, before income taxes
    
7,671
   
(6,229
)
  
3,335
   
4,777
 
                           
Income tax provision (benefit)(4)
    
3,820
   
(2,398
)
  
1,284
   
2,706
 
                           
Income from continuing operations, after income taxes
    
3,851
   
(3,831
)
  
2,051
   
2,070
 
Income from discontinued operations, net of tax
   
562
   
-
   
-
   
562
 
                           
Net income
  
$
4,413
  
$
(3,831
)
$
2,051
  
$
2,632
  
                           
Earnings per share:
                          
Basic earnings per share:
                          
Earnings from continuing operations, after income taxes
  
$
0.42
              
$
0.22
  
Discontinued operations
    
0.06
               
0.06
 
Net earnings per basic share
  
$
0.48
              
$
0.28
  
                           
Diluted earnings per share:
                          
Earnings from continuing operations, after income taxes
  
$
0.39
              
$
0.21
  
Discontinued operations
    
0.06
               
0.06
 
Net earnings per diluted share
  
$
0.45
              
$
0.27
  
                           
Average shares outstanding - basic
    
8,988
               
8,988
 
                           
Average shares and equivalents outstanding - diluted
    
9,518
               
9,518
 
 
See accompanying notes to Pro Forma Consolidated Statements of Operations
HAWK CORPORATION
Pro Forma Consolidated Statement of Operations
Year ended December 31, 2005 (Unaudited)

(In Thousands)
       
Pro Forma Adjustments
    
   
December 31, 2005 Consolidated
  
Deconsolidate HPCG (1)
  
Interest Income on Investment of Net Cash Proceeds
  
Pro Forma December 31, 2005
  
Net sales
  
$
265,434
  
$
(83,576
)
$
-
  
$
181,858
  
Cost of sales
    
213,013
   
(67,816
)
  
-
   
145,197
 
Gross profit
    
52,421
   
(15,760
)
  
-
   
36,661
 
                           
Operating expenses:
                          
Selling, technical and administrative expenses
    
37,874
   
(8,922
)
  
-
   
28,952
 
Restructuring
    
4,962
   
-
         
4,962
 
Employee benefit curtailment (income)
    
(424
)
  
-
         
(424
)
Amortization of finite-lived intangible assets
    
734
   
(10
)
  
-
   
724
 
Total operating expenses
    
43,146
   
(8,932
)
  
-
   
34,214
 
Income from operations
    
9,275
   
(6,828
)
  
-
   
2,447
 
                           
Interest expense (2)
    
(10,588
)
  
26
   
-
   
(10,562
)
Interest income (3)
    
40
   
-
   
4,446
   
4,486
 
Other income (expense), net
    
98
   
2
   
-
   
100
 
Loss from continuing operations, before income taxes
    
(1,175
)
  
(6,800
)
  
4,446
   
(3,529
)
                           
Income tax provision (benefit) (4)
    
201
   
(2,618
)
  
1,712
   
(705
)
                           
Loss from continuing operations, after income taxes
    
(1,376
)
  
(4,182
)
  
2,734
   
(2,824
)
Income from discontinued operations, net of tax
   
32
   
-
   
-
   
32
 
                           
Net loss
  
$
(1,344
)
$
(4,182
)
$
2,734
  
$
(2,792
)
                           
Loss per share:
                          
Basic loss per share:
                          
Loss from continuing operations, after income taxes
  
$
(0.17
)
            
$
(0.34
)
Discontinued operations
    
-
               
-
 
Net loss per basic share
  
$
(0.17
)
            
$
(0.34
)
                           
Diluted loss per share:
                          
Loss from continuing operations, after income taxes
  
$
(0.17
)
            
$
(0.34
)
Discontinued operations
    
-
               
-
 
Net loss per diluted share
  
$
(0.17
)
            
$
(0.34
)
                           
Average shares outstanding - basic
    
8,869
               
8,869
 
                           
Average shares and equivalents outstanding - diluted
    
8,869
               
8,869
 
 
See accompanying notes to Pro Forma Consolidated Statements of Operations
 
 
Hawk Corporation
Notes to Pro Forma Condensed Consolidated Balance Sheet
(Unaudited)

(1)  
Reflects the deconsolidation of the assets and liabilities of the precision components segment of Hawk that have been sold to PCG Holdings. Net equity (including intercompany payables and intercompany debt) of the precision components segment is included in the line item “Investment in HPCG.”

(2)  
Reflects the sale of the precision components segment of Hawk assuming the sale occured on September 30, 2006, including:

a.  
Net cash received of $88,924, equal to gross proceeds on the sale of $94,157, decreased by funded debt, assumed liabilities, and preliminary sales price adjustments for net working capital and other closing adjustments of $3,033, and less $2,200 for estimated legal and professional fees related to the sale,

b.  
A pretax gain of $17,360 and related tax expense of $2,285, for an after-tax gain of $15,075. The pro forma gain and tax information was developed by comparing the net cash received at February 2, 2007 to the balance sheet at September 30, 2006, and

c.  
Income tax expense of $2,285, equal to the sum of (i) income tax currently payable of $975 and (ii) $1,310 of deferred tax expense (reducing current deferred tax assets by $859 and reducing long-term deferred tax assets by $451) related to the utilization of net operating loss carryforwards and the reversal of net deferred tax liabilities associated with sold assets and liabilities.

The proceeds included in the pro forma condensed consolidated balance sheet are equal to the amount of cash received on the closing date, including an estimate of net working capital as of that date. No later than 90 days after the closing date, the purchase price will be adjusted to reflect the actual net working capital at the closing date. Any adjustments to proceeds along with other changes in the balance sheet from September 30, 2006 through the closing date will change the actual gain to be recorded in the first quarter of 2007.
 
 

Hawk Corporation
Notes to Pro Forma Consolidated Statements of Operations
(Unaudited)
 
(1)  
Reflects the deconsolidation of revenues and expenses of the precision components segment of Hawk for the year ended December 31, 2005 and the nine months ended September 30, 2006, assuming the sale of the precision components segment occurred on January 1, 2005. Administrative expenses historically allocated to the precision components segment that will be retained by Hawk are not included in the precision components elimination.

(2)  
The elimination of interest expense reflects interest on debt assumed by PCG Holdings.

(3)  
Interest income on the net cash received of $88,924 is calculated at an assumed annual investment rate of return of 5% for the year ended December 31, 2005 and the nine months ended September 30, 2006.

(4)  
Reflects an effective tax rate of 38.5% on all Pro Forma adjustments.