漢威聯合 (HON) 2006 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Norcross Safety Products LLC and Safety Products Holdings, Inc. third-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 Tuesday, November 14th, 2006.

I would now like to turn the conference over to Mr. David Myers, Executive Vice President and Chief Financial Officer of Norcross Safety Products. Please proceed, 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 Holdings Inc., together with NSP, referred to as 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 operations 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 website at www.NSPUSA.com.

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

Thank you, David. Again, good morning. We're very pleased with our performance for the third quarter 2006. Sales were up almost 20% and totaled $142 million. More importantly, adjusted EBITDA increased at both NSP and the Company by approximately 24% over the same period of the prior year and totaled approximately $21 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 21%. Once again, we saw good growth in each of our major geographies. In addition, we have seen double-digit growth in the Fibre-Metal business pro forma as if we had owned the business January 1, 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're seeing strong interest from our current customers for the high-end Fibre-Metal products.

Also, we're well into the physical moves of the Fibre-Metal production from their Pennsylvania facility to both our Cranston, Rhode Island and our Mexicali, Mexico facilities. These moves, together with the consolidation of some of their smaller distribution centers, are progressing nicely.

In September 2006, we purchased New England Overshoe Company, also known as NEOS. NEOS designs and markets a unique line of overshoe products and recently introduced a unique product to be used in the meat and food processing industry, which we feel will be a good addition to our existing product offering for that market.

NEOS is currently based in Vermont [and] New Hampshire. During the first quarter of 2007, we will relocate and integrate their operation into our existing facility in Rock Island, Illinois.

In the fire service segment, sales continued to grow slightly in the third quarter. However, the increase was attributed to the acquisition of American Firewear. Bookings, on the other hand, are down in excess of 20% when compared to the third quarter of 2005. This is due in part to customers delaying their orders as a result of the delay and the release of funding for government grants to firefighters together with the delayed issuance of the new NFPA standard.

The delay in grants are exacerbated by the fact that municipalities that have applied for grants, which is much in excess of the total grant dollars to eventually be issued, are taking a wait-and-see approach. This is because if they spend their own dollars to purchase gear, they eliminate the possibility of receiving a grant for that purchase. This circumstance has the effect of delayed purchases far in excess of the grant dollars that are being delayed. We are also seeing this negative effect on purchases at other manufacturers of Fire Service equipment.

The electrical safety segment sales increase was very strong and totaled $5.7 million or 36.5% when compared to the third quarter of 2005. This growth is attributed to the acquisition of White Rubber combined with growth across all of our major product lines. We continue to bring our products into new markets as electrical safety standards get greater visibility by safety engineers in various industrial settings.

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

Thanks, Bob. As a result of the acquisition of (indiscernible) on July 19, 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 third-quarter 2006 financial results of the successor postacquisition, as compared to the combined results of third quarter 2005, the successor and predecessor. As Bob mentioned, on September 19, 2006, the Company completed the acquisition of all the issued and outstanding stock of New England Overshoe Company. The purchase price was $4.4 million, and the results of NEOS are included in our results from the date of acquisition.

Third-quarter net sales for the Company increased $23.3 million or 19.6% from $118.6 million in 2005 to $141.9 million 2006. $17.1 million of this increase was incurred in our general safety and preparedness segment, driven by incremental Fibre-Metal net sales, organic growth in our European and South African operations, favorable exchange rates, and strong growth in our North American nongovernment business.

The fire service segment increased $0.5 million due to incremental American Firewear net sales. Electrical safety segment in the quarter increased $5.7 million driven by White Rubber incremental net sales.

For the year-to-date period, net sales of the Company increased $63.3 million or 17.8% from $356.7 million in 2005 to $420 million in 2006.

Our general safety and preparedness segment increased $47.6 million, once again driven by incremental Fibre-Metal net sales, favorable exchange rates, strong organic growth in the U.S., Europe, and South African operations.

Our fire service segment increased $1.6 million as incremental American Firewear net sales were offset by postponed customer orders due in part to government grant holdups and a delay in the issuance of the new NFPA standard.

Our electrical safety standard segment for the nine-month period increased $14.1 million or 31.4% driven by incremental White Rubber net sales, new product penetration, and strong market demand.

Third-quarter gross profit for the Company increased $13 million or 34.5% from $37.8 million in 2005 to $50.8 million in 2006. Excluding the impact of lower inventory purchase accounting charges of $3 million, gross profit increased $10 million or 24.6%, and the Company's gross profit margin increased from 34.6% in 2005 to 36% in 2006.

For the year-to-date period, the Company's gross profit increased $30.6 million or 24.2%. Once again, excluding the impact of nonrecurring inventory purchase accounting charges of $2.2 million, gross profit increased $28.4 million, and the gross margin increased from 36.5% to 37.7%.

The Company's third quarter income from operations increased $24.7 million from a loss of $11.1 million in 2005 to $13.6 million in 2006. Included in third-quarter 2006 income from operations were lower inventory purchase accounting adjustments of $3 million, lower amortization expense of $1.7 million, and lower management incentive compensation charges of $16.1 million. Excluding these expenses from both 2005 and 2006, income from operations increased $3.9 million or 28.7%, and as a percentage of net sales, our margin improved from 11.3% in 2005 to 12.2% in 2006.

For the year-to-date period, income from operations increased $25.6 million. Included in the year-to-date 2006 income from operations were lower inventory purchase accounting charges of $2.2 million, incremental amortization expense of $3.5 million, and lower management incentive compensation expense charges of $15.1 million. Excluding these expenses from both periods, income from operations increased $11.8 million or 26.5%, and our operating margin improved from 12.6% in 2005 to 13.5% in 2006.

The Company's third quarter interest expense increased $2 million from $10.1 million to $12.1 million, 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 pay-in-kind notes and preferred unit dividends of $4.1 million in 2005 and non-cash charges associated with the pay-in-kind notes of $4.3 million in 2006. Cash interest expense increased from $5.2 million in 2005 to $7 million in 2006. For the year-to-date period, interest expense increased $3 million from $31.7 million to $34.7 million.

The Company's third-quarter income tax expense increased $0.9 million and for the year-to-date period, increased $0.5 million primarily due to higher domestic income tax charges.

For the third quarter, the Company's net income increased $26.3 million from a loss of $25.4 million to $0.9 million of income in 2006. For the nine month period, net income increased $27.5 million from a loss of $19.5 million to $8 million in income in 2006.

EBITDA is defined as net income less net interest expense, income taxes, depreciation, and amortization. Adjusted EBITDA is further adjusted for the inventory purchase accounting adjustments, management incentive compensation expense, and the loss on the sale of property, plant and equipment.

The Company's third quarter adjusted EBITDA increased $4 million or 23.9% from $16.9 million in 2005 to $20.9 million in 2006. Our adjusted EBITDA margin improved from 14.2% to 14.7%. For the year-to-date period, the Company's adjusted EBITDA increased $14.6 million or 27.5% from $52.9 million to $67.5 million, and our EBITDA margin improved from 14.8% to 16.1%.

At the end of the second quarter, the Company had net working capital of $153.2 million, and net cash of $12.5 million. The Company's cash flow from operations decreased $6.2 million from $20.1 million in 2005 to $13.9 million in 2006. Capital expenditures were 5.7 in 2005 and 7.7 in 2006.

At the end of the third quarter, NSP's debt balances net of cash and excluding OID premium or discount was $310.6 million and the Company's net debt balance was $460.9 million. At the end of the third quarter, in addition to the Company's $12.5 million cash balance, there was approximately $44.8 million of availability on the combined U.S.-Canadian revolving credit facilities.

Operator, at this time we would like to open up to any questions the group may have.

(OPERATOR INSTRUCTIONS). We have no questions at this time. I'll turn the call back to you.

Okay, we appreciate you guys participating. And we will be looking forward to speaking to you after the issuance of our year-end results. Thank you very much.

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