漢威聯合 (HON) 2006 Q2 法說會逐字稿

Welcome to the Norcross Safety Products LLC and Safety Products Holdings, Inc. second-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, Monday, August 14, 2006. I would now like to turn the conference ever to David Myers, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you. 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, and tend, 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 Holdings, Inc., together with NSP, we referred to as the Company. We invite you to see the discussion of forward-looking statements and management's discussion and analysis of financial conditions and results of operation section of the Company's NNSP 10-Ks for the year ended December 31, 2005 as filed on March 27, 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. In addition, 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 19, 2005, the assets and liabilities were revalued as required by purchase accounting. As a result, the preacquisition financial statements are not comparable in certain respects.

On today's call we will be discussing the second-quarter 2006 financial results of the successor, postacquisition, as compared to the predecessor, preacquisition. In June, 2006 the Company completed the acquisition of the White Rubber Corporation for approximately $22 million. In February of 2006 the Company completed the acquisition of American Firewear for approximately $4.5 million. And in November 2005 the Company acquired Fibre-Metal Products for approximately $69 million. At this time I'd like to turn it over to Bob Peterson, President and CEO, for some overall comments.

Thank you, David, and good morning. Once again we are very pleased with our performance for the second quarter of 2006. Sales were up almost 15.3% and totaled $136.2 million and more importantly adjusted EBITDA increased at both NSP and the Company by approximately 25% over the same period of the prior year and totaled $22.7 million. David will be commenting on the details supporting each of these numbers shortly, but before David begins, I'd like to make a couple of brief comments.

In our general safety and preparedness segment, we experienced total sales growth of 17.3%, and once again we saw good growth in each of our major geographies. However, in North America this increase was offset by a decrease in government contract shipments of $2.5 million. In addition, we have seen good sales growth in fiber metal business pro forma as if we had owned the business July 1st, 2005.

We continue to see broad-based product sales strength in this segment driven by our product bundling efforts and the introduction of new products. Our integration efforts in the sales and marketing of the Fibre-Metal Products through the traditional north distribution network is being very well-received, and we are seeing strong interest from our current customers for the high-end Fibre-Metal Products. Also we have begun the physical moves of the Fibre-Metal production from their Pennsylvania facility to both our Cranston, Rhode Island, and our Mexicali, Mexico, facility. These moves, together with the consolidation of some of their smaller distribution centers, are progressing nicely.

In the fire service segment, sales continue to grow slightly in the second-quarter. However, the increase was attributed to the acquisition of American Firewear. And although the bookings increased approximately 18% in the second quarter, they are approximately flat for the first six months of 2006. This is due in part to customers delaying their orders as a result of the delay in the funding for the government grants for firefighters, together with the delay in the issuance of the new NFPA standard.

Also as we mentioned on the first quarter call, we purchased American Firewear. This small bolt-on acquisition brought us a small -- a strong player in firefighter gloves, hoods, and search and rescue clothing. Additionally, during the first half of 2006, we significantly expanded the production capacity in American Firewear to allow us to in-source our manufacturing activities that we were previously having done on the outside. This expansion has resulted in some startup and inefficiency cost during the first half of 2006.

The electrical safety segment sales increase was very strong and totaled $4 million, or 26.5% when compared to the second quarter of 2005. This growth is across all major product lines, combined with continued growth from our new product introduction. We continue to bring our products into new markets as electrical safety standards get greater visibility by safety engineers in various industrial settings.

In addition, we acquired White Rubber during the quarter which contributed $1.6 million to the sales growth in the second-quarter. White Rubber has a similar product profile, W.H. Salisbury Business, but in some product lines, their offering is much deeper than ours. For example, their voltage detector and meter product line is much broader and deeper than ours, allowing us to now have a more complete line. This similarity in product lines will allow us to transfer some of their manufactured products into our existing plants which in some cases are much more automated, such as our glove production line. And with that, I will turn it over to David for some more detailed comments.

Thank you, Bob. Sales for the second quarter increased $18.1 million, or 15.3% from $118.1 million in 2005 to $136.2 million in 2006. $14 million of this increase was in the general safety and preparedness segment, and it grew from incremental Fibre-Metal net sales, combined international growth, and favorable exchange rates.

In our fire service segment, net sales increased $0.1 million as incremental American Firewear net sales were partially offset by postponed customer orders due to government grants holdups and the delay in the issuance of the new NFPA standard.

Electrical safety segment grew $4 million, or 26.5%, driven by incremental White Rubber net sales and continued new product penetration and strong market demand. For the six-month period, the Company's sales increased $40.1 million, or 16.8%, from $238 million in 2005 to $278 million in 2006.

Our general safety and preparedness segment grew $30.5 million, or 18.6%. Our fire service segment grew 2.6%, or $1.2 million, and our electrical safety segment grew $8.4 million, or 28.8%. The Company's second-quarter gross profit increased $8.2 million, or 18.5%, from $44.7 million to $52.9 million. The Company's gross margin increased from 37.8% to 38.8% in 2006.

For the year-to-date period, the Company's gross profit increased $17.6 million, or 19.8%, from $89 million to $106.6 million. Excluding the impact of nonrecurring inventory purchase accounting charges of .7, gross profit increased $18.3 million, or 20.6%, and the gross margin increased from 37.4% to 38.6% in 2006.

The Company's second-quarter operating expenses increased $8 million, from $20.8 million in 2005 to $36.8 million in 2006. Included in operating expenses were $2.6 million of incremental amortization expense associated with purchase accounting and $.3 million of charges related to non-cash management incentive compensation. Excluding these charges, operating expenses were 25% of sales in 2006 and 24.4% in 2005.

On the year-to-date basis, operating expenses increased $16.6 million from $57.7 million to $74.3 million. Included in operating expenses were $5.2 million of incremental amortization expense and $1.1 million of non-cash management incentive compensation. Excluding these charges, operating expenses as a percent of sales were relatively consistent at 24.4% in 2006 and 24.2% in 2005.

The Company's second-quarter income from operations increased $.3 million from $15.8 million to $16.1 million. Included in the second-quarter 2006 income from operations were incremental amortization expense of $2.6 million and $.3 million of non-cash management incentive compensation charges. Excluding these charges, income from operations increased $3.2 million, or 20%, and as a percent of net sales was 13.4% in 2005 and 14.0% in 2006.

For the year-to-date period, income from operations increased $1 million to $32.3 million. Excluding the incremental amortization expense of $5.2 million, non-cash management incentive charges of $1.1 million and $.7 million charge related to purchase accounting, income from operations increased $8 million, or 25.7%, and as a percentage of net sales improved from 13.2% to 14.2%.

The Company's second-quarter interest expense increased $.5 million from $10.9 million in 2005 to $11.4 million in 2006, primarily due to higher debt balances associated with the Fibre-Metal and White Rubber acquisitions. Included in interest expense were non-cash charges associated with the pit notes and preferred unit dividends of $5.1 million in 2005 and $4.0 million in 2006. Cash interest expense increased from $5.2 million in 2005 to $6.5 million in 2006.

Year-to-date interest expense increased $1 million from $21.7 million to $22.7 million. Cash interest expense for the six-month period increased from $10.3 million to $12.9 million. The Company's second-quarter net income increased $.8 million, or 27.9%, and for the year-to-date period net income increased $1.3 million from $5.9 million in 2005 to $7.2 million in 2006.

EBITDA is defined as net income plus net interest expense, income taxes, depreciation, amortization. Adjusted EBITDA is further adjusted to exclude inventory purchase accounting adjustments, non-cash management incentive compensation charges, and the gain on the sale of property, plant and equipment. The Company's second-quarter adjusted EBITDA increased $4.5 million from $18.1 million in 2005 to $22.7 million in 2006. Adjusted EBITDA margin improved from 15.4% to 16.7%.

For the six-month period adjusted EBITDA increased $10.5 million and the margin improved from 15.2% in 2005 to 16.8% in 2006. At the end of the second-quarter, NSP had networking capital of $141.6 million and cash of $9.1 million, and the Company had networking capital of $147.5 and cash of $9.7 million. The Company's cash flow from operations decreased $9.5 million for the period, primarily due to higher receivable and inventory levels, in part due to the increase in net sales. The Company's capital expenditures were $3.5 million in 2005 and $4.8 million in 2006.

At the end of the second-quarter NSP's net debt balance, net of cash and excluding OID premium discount, was $311.2 million, and the Company's net debt was $457.1 million. At the end of the second-quarter, in addition to the Company's $9.7 million cash balance, there was approximately $46.6 million of availability on the combined U.S. and Canadian revolving facility. Operator, at this time I would like to open it up for questions the audience may have.

(OPERATOR INSTRUCTIONS) Brian Goldman from Goldman Sachs.

Great quarter. Just a question on the inventory. It looks like it went up a little bit in the quarter, if you could just talk about that?

Yes, Brian, I think they got a couple of issues here. One, obviously, is the higher foreign exchange levels; two, we are building for some plant consolidations, so hopefully we'll see that come down in the third and fourth quarters because we need to build in advance of moving plants. And those are the two largest drivers, in addition to the sales volume increased.

Okay, great. Thanks, guys.

(OPERATOR INSTRUCTIONS) Mr. Myers, there seem to be no further questions at this time. I will turn the call back to you.

Thank you for participating, and we look forward to speaking to you after the third quarter. Thanks a lot.

Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.