漢威聯合 (HON) 2006 Q1 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. first quarter 2006 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 Friday, May 12th, 2006.

It is now my pleasure to turn the conference call over to David Myers, Executive Vice President and Chief Financial Officer of Norcross Safety Products. Please go ahead, sir.

Thank you, and good morning.

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, 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, Inc., together with NSP, the Company.

We invite you to see the discussion of forward-looking statements and Management’s discussion and analysis of financial condition and results of operation section of the Company’s and NSP’s 10-Ks for the year ended December 31st, 2005 as filed on March 27th, 2006, 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 web site at www.nspusa.com.

As a result of the acquisition by Odyssey of 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 first quarter 2006 financial results of the successor, post-acquisition, as compared to the predecessor, pre-acquisition.

On February 2nd, 2006 the Company completed the acquisition of American Firewear for a purchase price of $5.5 million, comprised of $4.5 million cash and a $1 million subordinated seller note.

In November, 2005 the Company completed the acquisition of Fibre-Metal for approximately $68 million. The results of both American Firewear and Fibre-Metal are included in our results of operations from the date of each acquisition.

At this time, I’d like to turn it over to Bob Peterson for some overall comments.

Thank you, David.

Again, good morning and welcome. We are very pleased with our performance for the first quarter of 2006. Sales were up almost 18 percent and totaled 142 million. More importantly, adjusted EBITDA increased at both NSP and the Company by approximately 33 percent over the same period of the prior year and totaled approximately 24 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.

In our general safety and preparedness segment we experienced total sales growth of 20 percent. And, once again, we saw good growth in each of our major geographies, combined with the growth from the Fibre-Metal acquisition. We continue to see broad based product sales strength in this segment, driven by our product bundling efforts in the introduction of new products.

Also, as we mentioned on our yearend call, we are now well into our integration efforts in the sales and marketing of the Fibre-Metal products through the traditional Nor distribution network, and what we are seeing is a strong interest is our current customers for the high-end products Fibre-Metal brought us, together with the judicion of the 100-year-old brand, and in addition we are signing up Fibre-Metal customers to begin carrying the Nor product line.

Also, as I mentioned on our yearend call, now with the approval of our ER-2000 CBRN emergency escape respirator we are beginning to see some bid activity for potentially large orders.

In the fire service segment, although sales continued to grow in the first quarter, bookings trailed the prior year. In part, this is due to timing of some large orders that we received in the first quarter of 2005, and the delay in receiving anticipated military orders in 2006.

Also, as we mentioned on our yearend call, we have purchased American Firewear. This small bolt-on acquisition brought us a strong player in firefighter gloves, hoods, and search-and-rescue clothing.

Additionally, during the first quarter we began actively relocating American Firewear’s [GNA] function into our Dayton Facility, while beginning to expand production capacity at the American Firewear Facility to allow us to in-source some manufacturing activities that we were previously having done on the outside.

The electrical segment safety sales increased very strong and totaled 4.4 million or 31 percent when compared to the first quarter of 2005. This growth is across all 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 sites.

And, with that, I will turn it over to David for some detailed comments.

Thanks, Bob.

Net sales for the Company increased 22 million or 18.3 percent from 119.9 million in 2005 to 241.9 million in 2006. 16.5 million of this growth was in our general safety and preparedness segment, driven by incremental Fibre-Metal net sales and organic growth in both our North American and International operations.

In our fire service segment net sales increased 1.1 million, in part due to the incremental sales from American Firewear. Electrical safety segment grew 31.1 percent or 4.4 million reflecting continued strong market demand.

Gross profit for the Company increased 9.4 million or 21.2 percent. Excluding the impact of nonrecurring inventory purchase accounting charges of .7 million our gross profit actually increased 10.1 million, and our gross margin improved from 37 percent in 2005 to 38.4 percent in 2006. The majority of the increase in gross profit was on our general safety and preparedness segment, driven by higher net sales of 16.5 million.

The Company’s operating expenses increased 8.6 million from 28.9 million 2005 to 37.5 million in 2006. Included in the 2006 operating expenses were 2.6 million of incremental amortization expense associated with purchase accounting and .8 million of non-cash management incentive compensation expense associated with the Company’s equity option plan. Excluding these above expenses, operating expenses increased 5.2 million, and as a percentage of sales was relatively consistent at 24.1 percent in 2005 and 24.0 percent in 2006.

The Company’s income from operations increased .8 million from 15.5 million in 2005 to 16.3 million in 2006. Excluding the inventory purchase accounting charges incremental amortization expense in the non-cash management incentive compensation charges, income from operations increased 4.9 million or 31.6 percent, and as a percentage of net sales improved from 12.9 percent in 2005 to 14.4 percent in 2006.

NSP’s interest expense increased from 5.6 million in 2005 to 6.5 million in 2006, primarily due to higher debt balances associated with the Fibre-Metal acquisition. The Company’s interest expense increased .5 million from 10.7 million in 2005 to 11.2 million in 2006 primarily due to, once again, incremental debt balances for the Fibre-Metal acquisition, offset by a decrease in the preferred unit dividends. Cash interest expense was 5.1 million in 2005 and 6.4 million in 2006.

As a result of the above, NSP’s net income decreased 1.5 million, and the Company’s net income increased .5 million.

EBITDA is defined as net income less net interest expense, income taxes, and depreciation and amortization. Adjusted EBITDA is further adjusted for non-cash charges related to Management incentive compensation associated with the option plan, inventory purchase accounting adjustments, and the gain on sale of property, plant, and equipment.

NSP’s adjusted EBITDA increased 5.9 million or 32.7 percent from 18.1 million in 2005, to 24 million in 2006. Our adjusted EBITDA margin improved from 15.1 percent to 16.9 percent. The Company’s adjusted EBITDA increased 6 million or 33.4 percent and the EBITDA margin improved from 15 percent in 2005 to 16.9 percent in 2006.

At the end of the first quarter the Company had net working capital of 141.5 million and cash of 11.9 million. The Company’s cash flow used in operations increased .1 million from 2.4 million used in 2005 to 2.5 million used in 2006.

The Company’s capital expenditures were 1.3 million in 2005 and 2.3 million in 2006. At the end of the quarter NSP’s net debt balance, net debt defined as net of cash and excluding OID premium or discount, was 294.4 million, and the Company’s net balance was 436.2 million.

In addition to the Company’s 11.9 million cash balance there was approximately 47.7 million of availability on the combined U.S., Canadian revolving facilities.

At this time, Operator, I’d like to turn it over to any questions the group may have.

[OPERATOR INSTRUCTIONS.]

And our first question comes from the line of Phil Volpicelli of CIBC. Please proceed with our question.

Thank you very much. Nice quarter, guys.

Thanks, Phil.

Just wondering if you guys could go through what the proforma sales and EBITDA would be if you included Fibre-Metal and American Firewear for a full 12 months? Do you have that data?

You know, I really – not with me, Phil, right now. I believe it’s in the – we’ll be filing the 10-Q here shortly today and we’ll have some better information in there about it.

Okay, all right. That’s helpful.

And then, just in terms of what’s going on in your industry, clearly, Europe bought [Premiere] bought [Arrow] recently for a very nice multiple. Any comments that you guys might have about seeking IPOs? Possible sales or acquisition of the Company?

As we sit here today, Phil, no. Obviously, we just traded with Odyssey in July of ’05, and we’re very focused on growing the business, both organically and through bolt-on acquisitions.

Okay.

Of which we’ve done two, so far.

Right. And then, finally, historic I guess for the past couple of quarters the Government has become less clear in terms of their ordering patterns, has that changed, or has that improved at all?

Actually, no. I mean when we used to talk about it on both the footwear side and the hand protection side. And what has happened, and I will tell you on the hand protection side we have delivered all of the production under the contract, I believe, as of April of 2006.

The Government indicated that they weren’t sure if they wanted to issue a ‘keep warm’ contract, which basically pays us to keep the people in place and the technology to create gloves, potentially give us a minimum sustaining contract, where they actually get product, and the last, which has just been verbal, nothing written from them, they may actually issue a contract in October.

But I have to be frank, those types of discussions seem to change with the weather, so they don’t give us a good view. We have shut-down that facility as of April, and we’ll see if we restart it or not based on their needs.

On the footwear side, it’s a little different, although we have delivered under the only remaining contract we have, they have indicated they have a strong need for the product. They’re potentially issuing an interim contract to us with a contract that we’ve been on that they expect to let sometime in the June to August timeframe. So, it’s a little different on the footwear in that they’re indicating strong demand but unclear as to timing.

Okay. Do you have a sense of what the impact on the hand protection side might be? What was the total size of that contract that’s now no longer?

You know, I don’t have that directly in front of me, but, I’ll be frank, it’s been winding down, I think it peaked probably in 2004, came down in 2005, and it was not particularly material in 2006, both in our budget and comparative to the prior year. But all of that degradation has been offset by organic growth in what I’ll define a little bit more as our core business of the general preparedness in safety.

Okay, great. Thanks, guys. Continued good luck.

Thank you.

[OPERATOR INSTRUCTIONS.]

Mr. Myers, we have no more questions on the phone line. I will now turn the call back to you.

Well, thank you very much for participating, and we look forward to speaking to you after the release of our second quarter results. Thank you.

Thank you. And, ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask you to please disconnect your lines, and have a great day.