漢威聯合 (HON) 2005 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Norcross Safety Products, LLC and Safety Products Holding, Inc. year-end financial results conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded Thursday, March 23rd, 2006. It is now my pleasure to turn the conference call over to Mr. David Myers, Junior, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you and welcome to the year-end 2005 NSP conference call. We would like to advise you that today's call will contain forward-looking statements. Forward-looking statements include but are not limited to statements regarding future events, plans, goals, objectives and expectations. The words anticipate, believe, estimate, expect, plan, intend, likely, will and should and similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from those expressed or implied in the forward-looking statements.

On today's call we will be discussing the results of both Norcross Safety Products, LLC, NSP, and the consolidated results of the parent, Safety Products Holding Increase. -- together with NSP, we will refer to as the Company. We invite you to see discussion of forward-looking statements contained in Management's Discussion and Analysis of Financial Conditions and Results of Operations section of NSP's 10-K for the year ended December 31st, 2004, as filed on March 25th, 2005, and Safety Products Holding's S-4, as filed on December 15, 2005, for a more detailed discussion of certain factors that could cause our actual results to differ materially from those included in the forward-looking statements.

A copy of our press release and a reconciliation of EBITDA can be found on our website at www.nspusa.com.

As a result of the acquisition by Odyssey on July 19th, 2005, the assets and liabilities were revalued as required by purchase accounting. As a result, the pre-acquisition financial statements are not comparable in certain respects. On today's call we will be discussing the 2005 results of the predecessor, pre-acquisition and successor, post-acquisition, on a combined basis for ease of comparability to 2004 results.

As previously disclosed in November 2005, the Company completed the acquisition of Fibre-Metal. The purchase price of 68.7 million including .7 million of acquisition costs was financed through 65 million of additional term borrowings and existing cash on the balance sheet. The results of Fibre-Metal are included in our results from the date of acquisition.

At this time I would like to turn it over to Bob Peterson for some opening comments.

Thank you, David. We are very pleased with our performance for the year ended December 31st, 2005. Sales were up almost 10% and totaled 481 million; and, more importantly, adjusted EBITDA increased at both NSP and the Company by approximately 10% over the prior year and totaled approximately 70 million.

David will be commenting on the details supporting each of these numbers shortly. But before David begins I would like to make a couple of brief comments. First, 2005 marks another year where NSP saw solid organic growth in sales in each of our operating segments together with an increase in EBITDA in each segment. In our general, safety and preparedness segment we saw good growth in each of our major geographies, although a decrease of 10 million in shipments to the US government mitigated our growth in the US.

We continue to see broad-based product sale strength in this segment, driven by our product bundling efforts and the introduction of new products. Also, as we mentioned in our third-quarter call, we purchased Fibre-Metal in November of 2005. Fibre-Metal is a leading manufacturer of head and face protection products. Their products include hardhats, welding helmets and face shields. We are now well into our integration efforts in the sales and marketing of Fibre-Metal Products through the traditional NOR distribution network. What we're seeing is a strong interest from our current customers, for the high-end products, Fibre-Metal brought us, together with the tradition of their 100-year-old brand.

Also, between September 2005 and February 2006 we received NIOSH approval for our new CBRN, which is an acronym for chemical, biological, radiological and nuclear mask. And also our ER-2000 CBRN emergency escape respirator. Both of these products are highly-engineered products that we will begin to market aggressively into the preparedness market. These products, together with our new powered-air respirator product that I mentioned on our third-quarter call, continue to broaden and strengthen our respiratory product line, where we are recognized as a leading player.

In the fire service segment, sales continue to be strong as we promote and market our head-to-toe ensemble. Sales increased 11.5% in 2005 when compared to 2004. This increase is even more notable when you take into account the fact that in 2004 we shipped $9 million to Iraq that needed to be replaced by domestic demand in 2005.

In February 2006 we purchased American Firewear. This is a small, bolt-on acquisition which brought us a strong player in firefighter gloves, hoods and search and rescue clothing. Additionally, this acquisition will allow us to in-source some manufacturing activities that we were previously having done on the outside.

The electrical safety segment's bookings for 2005 were very strong, boasting an increase of 25% when compared to 2004. This growth is across all our major product lines combined with continued growth from our new product introductions. We continue to bring our products into new markets as electrical safety standards get greater visibility by safety engineers in various industrial settings.

In summary, we have seen organic growth in each of our business segments throughout all of 2005. And with that, I'll turn it over to David for some detailed comments.

For the year, net sales for the Company increased 42.6 million or 9.7%, from 438.5 million in 2004 to 481.1 million in 2005. 24 million of this increase occurred in our general safety and preparedness segment, driven by overall organic growth in our Canadian, European and South African operations, favorable exchange rates and incremental Fibre-Metal net sales.

In the fire service segment, net sales increased 9 million or 11.5%, reflecting continued strong market demand.

In our electrical safety segment net sales increased 9.6 million or 18.8%, reflecting new product penetration and strong demand. Both the general safety and preparedness and electrical safety segments, realized increased net sales from the recent hurricane activity in the Gulf Coast region.

Gross profit for the Company increased 12.9 million or 8.2%. Excluding the impact of nonrecurring inventory purchase accounting charges of 5.6 million, gross profit increased 18.5 million or 11.8%, and our gross margin improved from 35.7% in 2004 to 36.4% in 2005. The Company's operating expenses increased 34.1 million from 105.4 million in 2004 to 139.5 million in 2005. Included in 2005 operating expenses were $7 million of incremental amortization expense associated with purchase accounting and 16.4 million of management incentive compensation expense associated with the Odyssey acquisition.

The 2004 operating expenses included 0.6 million of expenses associated with exploring strategic alternatives. Excluding the above-mentioned charges, operating expenses increased 11.3 million or 10.8% and as a percent of net sales were 23.9% in 2004 and 24.2% in 2005.

The Company's income from operations decreased 21.2 million. Excluding the 5.6 million of inventory purchase accounting charges, 7 million of incremental amortization expense and 16.4 million of management incentive compensation expense, income from operations increased 7.2 million or 13.9% and as a percent of net sales increased from 11.8% in 2004 to 12.3% in 2005.

NSP's 2005 interest expense increased from 22.4 million in 2004 to 22.6 million in 2005, primarily due to higher debt balances associated with the Fibre-Metal acquisition. Cash interest expense was 21.5 million in 2005 and 20.6 million in 2004. The Company's interest expense increased 6.2 million from 36 million in 2004 to 42.2 million in 2005, primarily due to increased interest expense associated with the issuance of the pay-in-kind notes and higher debt balances associated with the Fibre-Metal acquisition. Included in interest expense were non-cash charges associated with the pay in kind notes and preferred unit dividends of 13.5 million in 2004 and 18 million in 2005.

In the third quarter of 2005 the Company incurred seller transaction costs of 4.7 million. These expenses were paid by the selling shareholders of NSP Holdings LLC. The Company's 2005 other net decreased 0.8 million from 1.5 million in expense in 2004 to 0.7 million of expense in 2005, primarily due to a $0.9 million loss recorded on the sale of plant, property and equipment in 2004.

The Company's income tax expense decreased 0.6 million in 2005. As a result of the above, NSP's net income decreased 19.9 million, and the Company's net income decreased 29.8 million.

EBITDA is defined as net income plus net interest expense, income taxes and depreciation and amortization. Adjusted EBITDA is further adjusted for the strategic alternatives charge of 0.6 million and the loss of sale of plant, property and equipment of 0.9 million in 2004 and the 2005 charges consisting of the inventory purchase accounting adjustments, the management incentive compensation expense and the Company's seller transaction cost. NSP's adjusted EBITDA increased $6 million or 9.4% from 64.4 million in 2004 to 70.4 million in 2005. The adjusted EBITDA margin was relatively constant at 14.7% in 2004 and 14.6% in 2005. The Company's adjusted EBITDA increased 6.6 million or 10.4%, and the adjusted EBITDA margin improved from 14.5% in 2004 to 14.6% in 2005.

At the end of the year the Company had net working capital of 131.8 million and cash of $20.8 million. The Company's cash flow from operation improved $16.4 million from 29.9 million in 2004 to 46.3 million in 2005. Capital expenditures are 6.4 million in 2004 and 9.3 million in 2005. At the end of the year, NSP's net debt balance -- net debt defined as excluding cash or being net of cash and excluding the OID discount and premium, was 284.5 and the Company's net debt balance was 422.8 million.

At the end of the year, in addition to the Company's 20.8 million in cash, there was approximately 47.4 million of availability on the combined US/Canadian revolver.

At this time I would like to open it up for questions anyone may have.

(OPERATOR INSTRUCTIONS). [Michel Aliba] with [Kathmann] Asset Management.

Can you speak to what you guys are thinking in terms of CapEx for this year?

It should be over the prior-year level, primarily due to the full-year impact of the Fibre-Metal acquisition.

And in terms of just thinking about expenses, there sounds like there were some one-time noises in terms of like SOx and a few other issues. Can you give us a sense what you are thinking going forward, some sort of level we can think about a run rate for expenses?

The EBITDA, backing into it that way, the operating expenses?

Yes, in terms of like some of this G&A and related expenses seem to be a little bit higher due to legal and SOx. I just wanted to think about what's the right number going forward.

I would not consider the SOx compliance costs as one-time unless they discontinue our requirement. We are striving to be compliant. But I would not consider that one-time, and I would consider the existing run rate as a good indicator.

So, like for the year around 45 million for G&A is probably a good number to use for '06?

I have to get back to you on that one. I don't have that readily available.

(OPERATOR INSTRUCTIONS). Mr. Myers, there seem to be no further questions or comments from the audio. At this time I will turn the call back to you. Please continue with your presentation or closing remarks.

Well, thank you very much for listening. And we look forward to you, after the release of our March 2006 results. Thank you much.

Thank you.

Ladies and gentlemen, that does conclude our call for today. We thank you for your participation and ask that you all please disconnect your lines. Have a great day, everyone.