"We've reached an inflection point as we've begun to emerge from the trauma of the last two to three years," Weinberg says. "I've had to make some hard decisions."
Hawk, which manufactures friction materials used in brakes, clutches and transmissions, as well as powdered metals used in numerous industrial applications, recently moved from the New York Stock Exchange to the American Stock Exchange and announced a strategic repositioning action plan. Hawk will move its Brook Park production facility out of state, pulling 200 jobs from the region, and sell the company's Motor and Tex Racing business units.
It's all been done with one goal in mind, says Weinberg.
"These moves will position Hawk to put our full force and effort into carrying out the long-term strategic initiatives of our Friction Products and Precision Components segments. Each are leaders in their field and will be the key to reinvigorated growth as the economy improves."
Weinberg is so confident that Hawk's two-unit focus is the best solution that in the fourth quarter of 2003, he decided to take pre-tax write-downs of $6.3 million connected with the closure of its Brook Park facility and the discontinued operations of the company's motor segment, difficult decisions that caused the company to report a loss rather than a profit to end the year.
With 1,700 employees worldwide, Hawk reported year-end revenue of $202.6 million, a 9 percent increase over 2002. Smart Business sat down with Weinberg to discuss survival during a manufacturing recession, innovation and how to make the hard choices.
It's been a tough economic climate for manufacturers. How has Hawk weathered the storm?
We're at the tail end of a very difficult three-year period, and as I look at where we've been and what we're doing, it's an interesting juncture. We had great growth during the '90s -- in the double digits -- and we responded well after 9/11.
During the late '90s, we perceived that the boom was not going to continue forever, so we were fairly cautious about our acquisitions. We never paid more than five or six times EBITDA dollar. And, we had a $50 million unused bank line going into 2000. The plan was, when things got difficult for the rest of the world, to have some liquidity.
Then 9/11 happened. The management team responded very fast. As the economy sunk lower, everybody in management, 35 people, took a salary cut. I went off payroll completely for six months. It made a good statement of leadership, and we came through relatively unscathed, where a lot of industrial manufacturers were hurting.
We managed our balance sheet very aggressively, watching our working capital closely. And we repositioned our liabilities on our balance sheet and did an exchange on our high-interest notes. We also watched our projects and tried not to take on more projects than we had the working capital to do.
Was this the impetus for the company's recently announced focus on key core parts of the business -- friction products and powdered metals?
We had to get stuff behind us, and that meant addressing some of the divisions that don't have the strength that they should. So we announced we were selling our Hawk Motor segment, which makes components for motors, and we're examining the alternatives for Tex Racing, which makes transmissions for NASCAR race cars. That will probably be sold as well. That puts the focus on Friction Products and Powdered Metals, which is now called Hawk Precision Components Group (HPCG).
We have a broader mandate now because we have another technology in HPCG, metal injection molding, where you use metal particles and make parts quicker with high precision, such as making parts for pacemakers.
It's a very good business, growing as fast as any of our divisions. And, the markets it serves are attractive -- medical and high-tech. They also have strong positions worldwide. We're on Boeing airplanes, sell to Parker Hannifin and are installed on military aircraft.
What does that do for your R&D?
We are at the cutting edge of friction technology. The company just produced a brake material for mining trucks that will last four times longer than the existing material, and we're starting shipments to Caterpillar now. On the powdered metal side, we've been making many technological advancements.
It's a much more efficient process because you're forming the product out of powder without having to machine or mold it. We're also getting more involved with the aftermarket. We're already in the fleet business and in street performance because we manufacture braking material for auto racing.
The good news is that our brand name is getting recognized.
You moved to the AMEX at the beginning of the year. A lot of small and mid-cap public companies are going private because of the cost of remaining public. Did you consider this option as well?
Yes, we considered it. But we rejected it because we didn't see the right way to pull it off right now. I can understand why some companies are doing it; being public has gotten very expensive. Also, I've been adding to my ownership position within the company the last few years, so that's a dedication of the stock.
The AMEX has been a good place for us -- there are many companies there our size. And, our stock is doing well for a couple reasons. One, the recession is coming to an end. Second, small cap stocks are the last to benefit from a recovery. And finally, we come up on a lot of profiles (people's lists) because we have strong management positions of ownership. That shows we care about shareholder value.
Also, we're making hard decisions that people can appreciate. Our revenues are heading in the right direction, we're winning customers and building market share. Put those together and you can see why we're starting to expand into the aftermarket business. There's been a bit of pain in the short run but we're moving past that.
Talk about the hard choices you've made, such as moving the Brook Park facility, which will take 200 jobs out of Northeast Ohio.
One of our core values is integrity. You can't B.S. yourself. I talk to our people all the time about being realistic and candid, so when there's a problem, I face it and try to solve it.
There were tough choices, but our corporate culture made it easier. One of them was to focus on the two larger divisions. The upside is we have greater opportunities. The other is we had to take writeoffs of $5.1 million. That was a hard decision. I would have rather been announcing that we're buying 20 companies.
The other thing was that we announced we're looking at moving that plant in Brook Park. It's particularly hard for me because I live in and like Cleveland. But I realize that we've got to do what's in the best interest of the company. If we can locate ourselves in an area where we have business incentives and a climate to be successful, we need to do that.
We've pretty much made the decision that the plant will be moved. We're talking to Oklahoma and have a letter of intent with them (nonbinding). I wish Ohio would replicate the business climate that's been developed in some other states. I don't like to close a plant. But there will be opportunities for people to apply to work in Oklahoma.
The good news is that I have a management team proven by fire. The guys we've got now are battle hardened and know how to work through difficult issues. How to reach: Hawk Corp., (216) 861-3553