UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Description of Transaction
On September 22, 2014, Hardinge Inc. (the "Company"), along with its indirect wholly-owned subsidiaries Hardinge GmbH and L. Kellenberger & Co., AG entered into an agreement (the "Agreement") to acquire certain assets and assume certain liabilities associated with a product line of grinding machine systems and applications marketed and sold under the Voumard brand (the "Voumard Business") from Peter Wolters GmbH (the "Seller"). The purchase price was EUR 1.7 million (approximately $2.2 million), before taking into account customary purchase price adjustments. Voumard is a global leader in the internal diameter ("ID") grinding market with an installed base of over 9,000 machine solutions serving more than 2,500 customers around the world.
Basis of presentation
The Company accounted for the acquisition of the Voumard Business as a business combination as prescribed in Accounting Standards Codification 805, “Business Combinations”.
The accompanying unaudited pro forma combined statements of operations for the year ending December 31, 2013 and the six month period ending June 30, 2014 are presented as if the acquisition of the Voumard Business had occurred on January 1, 2013.
These unaudited pro forma combined statements should be read in connection with (1) the Company’s historical consolidated financial statements and notes thereto filed with the U.S Securities and Exchange Commission and (2) the Abbreviated Statements of Assets Acquired and Liabilities Assumed for the Voumard Business as of June 30, 2014 (unaudited), and December 31, 2013 and Abbreviated Statements of Revenues and Direct Expenses for the six month periods ended June 30, 2014 (unaudited) and 2013 (unaudited) and for the year ended December 31, 2013 as included in Exhibit 99.1 to this Current Report on Form 8-K/A. In management’s opinion, all adjustments necessary to reflect the significant effects of these transactions have been made. These statements are based on assumptions and estimates considered appropriate by the Company’s management; however, they are unaudited and are not necessarily, and should not be assumed to be, an indication of the Company’s financial position or results of operations that would have been achieved had the acquisitions been completed as of the dates indicated or that may be achieved in the future. The unaudited pro forma combined statements of operations do not include the effects of any non-recurring costs or one-time transaction related costs. The historical financial information has been adjusted in the accompanying unaudited pro forma combined financial statements to give effect to pro forma events that are (1) directly attributable to the transaction, (2) factually supportable and (3) with respect to the unaudited pro forma combined statements of operations, are expected to have a continuing impact on the combined results.
HARDINGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 2014
(in thousands)
|
| | | | | | | | | | | | | | | | |
| | Historical | | | | | |
| | Hardinge Inc. | | Voumard Product Line | | Pro Forma Adjustments | | | Pro Forma Combined |
| | | | | | | | | |
| Assets | | | | | | | | |
|
| Cash and cash equivalents | $ | 22,290 |
| | $ | — |
| | $ | (2,287 | ) | [A] | | $ | 20,003 |
|
| Restricted cash | 3,469 |
| | — |
| | — |
| | | 3,469 |
|
| Accounts receivable, net | 55,301 |
| | — |
| | — |
| | | 55,301 |
|
| Inventories, net | 119,330 |
| | 3,026 |
| | 148 |
| [B] | | 122,504 |
|
| Other current assets | 11,731 |
| | — |
| | — |
| | | 11,731 |
|
| Total current assets | 212,121 |
| | 3,026 |
| | (2,139 | ) | | | 213,008 |
|
| | | | | | | | | |
| Property, plant and equipment, net | 71,898 |
| | 7 |
| | 269 |
| [C] | | 72,174 |
|
| Goodwill | 11,624 |
| | — |
| | — |
| | | 11,624 |
|
| Other intangible assets, net | 32,425 |
| | — |
| | 166 |
| [D] | | 32,591 |
|
| Other non-current assets | 6,543 |
| | — |
| | — |
| | | 6,543 |
|
| Total non-current assets | 122,490 |
| | 7 |
| | 435 |
| | | 122,932 |
|
| Total assets | $ | 334,611 |
| | $ | 3,033 |
| | $ | (1,704 | ) | | | $ | 335,940 |
|
| | | | | | | | | |
| Liabilities and shareholders’ equity | |
| | | | | | | |
|
| Accounts payable | $ | 27,968 |
| | $ | — |
| | $ | — |
| | | $ | 27,968 |
|
| Accrued expenses | 23,050 |
| | 638 |
| | — |
| | | 23,688 |
|
| Customer deposits | 12,287 |
| | — |
| | — |
| | | 12,287 |
|
| Accrued income taxes | 180 |
| | — |
| | — |
| | | 180 |
|
| Deferred income taxes | 2,650 |
| | — |
| | — |
| | | 2,650 |
|
| Contingent consideration | 1,500 |
| | — |
| | — |
| | | 1,500 |
|
| Current portion of long-term debt | 3,468 |
| | — |
| | — |
| | | 3,468 |
|
| Total current liabilities | 71,103 |
| | 638 |
| | — |
| | | 71,741 |
|
| | | | | | | | | |
| Long-term debt | 15,636 |
| | — |
| | — |
| | | 15,636 |
|
| Pension and postretirement liabilities | 27,778 |
| | — |
| | — |
| | | 27,778 |
|
| Deferred income taxes | 5,063 |
| | — |
| | 178 |
| [E] | | 5,241 |
|
| Other liabilities | 3,913 |
| | — |
| | — |
| | | 3,913 |
|
| Total non-current liabilities | 52,390 |
| | — |
| | 178 |
| | | 52,568 |
|
| Commitments and contingencies | | | | | | | | |
| Common stock | 128 |
| | — |
| | — |
| | | 128 |
|
| Additional paid-in capital | 120,381 |
| | — |
| | — |
| | | 120,381 |
|
| Retained earnings | 91,325 |
| | 2,395 |
| | (2,395 | ) | [F] | |
|
|
| | | | | | 513 |
| [G] | | 91,838 |
|
| Accumulated other comprehensive loss | (716 | ) | | — |
| | — |
| | | (716 | ) |
| Total shareholders’ equity | 211,118 |
| | 2,395 |
| | (1,882 | ) | | | 211,631 |
|
| Total liabilities and shareholders’ equity | $ | 334,611 |
| | $ | 3,033 |
| | $ | (1,704 | ) | | | $ | 335,940 |
|
See accompanying notes to the unaudited pro forma combined financial statements.
HARDINGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2014
(in thousands, except per share data)
|
| | | | | | | | | | | | | | | | |
| | Historical | | | | | |
| | Hardinge Inc. | | Voumard Product Line | | Pro Forma Adjustments | | | Pro Forma Combined |
| | | | | | | | | |
| Sales | $ | 149,701 |
| | $ | 3,011 |
| | $ | — |
| | | $ | 152,712 |
|
| Cost of sales | 108,520 |
| | 6,610 |
| | (58 | ) | [H] | | 115,072 |
|
| Gross profit (loss) | 41,181 |
| | (3,599 | ) | | 58 |
| | | 37,640 |
|
| | | | | | | | | |
| Selling, general and administrative expenses | 39,253 |
| | 1,552 |
| | (121 | ) | [H] | |
|
|
| | | | | | 20 |
| [I] | | 40,704 |
|
| Other expense, net | 583 |
| | 643 |
| | — |
| | | 1,226 |
|
| Income (loss) from operations | 1,345 |
| | (5,794 | ) | | 159 |
| | | (4,290 | ) |
| | | | | | | | | |
| Interest expense | 398 |
| | — |
| | — |
| | | 398 |
|
| Interest income | (32 | ) | | — |
| | — |
| | | (32 | ) |
Income (loss) from continuing operations before
income taxes | 979 |
| | (5,794 | ) | | 159 |
| | | (4,656 | ) |
| Income taxes | 301 |
| | — |
| | (4 | ) | [J] | | 297 |
|
| Net income (loss) from continuing operations | $ | 678 |
| | $ | (5,794 | ) | | $ | 163 |
| | | $ | (4,953 | ) |
| | | | | | | | | |
| Per share data: | | | | | | | | |
| | | | | | | | | |
Earnings (loss) per share from continuing operations: | | | | | | | | |
| Basic | $ | 0.05 |
| | | | | | | $ | (0.39 | ) |
| Diluted | $ | 0.05 |
| | | | | | | $ | (0.39 | ) |
| | | | | | | | | |
| Weighted average Common shares outstanding: | | | | | | | | |
| Basic | 12,607 |
| | | | | | | 12,607 |
|
| Diluted | 12,709 |
| | | | | | | 12,607 |
|
See accompanying notes to the unaudited pro forma combined financial statements.
HARDINGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013
(in thousands, except per share data)
|
| | | | | | | | | | | | | | | | |
| | Historical | | | | | |
| | Hardinge Inc. | | Voumard Product Line | | Pro Forma Adjustments | | | Pro Forma Combined |
| | | | | | | | | |
| Sales | $ | 329,459 |
| | $ | 17,080 |
| | $ | — |
| | | $ | 346,539 |
|
| Cost of sales | 236,220 |
| | 15,587 |
| | (226 | ) | [H] | | 251,581 |
|
| Gross profit | 93,239 |
| | 1,493 |
| | 226 |
| | | 94,958 |
|
| | | | | | | | | |
| Selling, general and administrative expenses | 79,533 |
| | 4,137 |
| | (433 | ) | [H] | |
|
|
| | | | | | 41 |
| [I] | | 83,278 |
|
| Impairment charge | 6,239 |
| | — |
| | — |
| | | 6,239 |
|
| Other expense (income), net | 471 |
| | (3 | ) | | (513 | ) | [G] | | (45 | ) |
| Income (loss) from operations | 6,996 |
| | (2,641 | ) | | 1,131 |
| | | 5,486 |
|
| | | | | | | | | |
| Interest expense | 1,128 |
| | — |
| | — |
| | | 1,128 |
|
| Interest income | (64 | ) | | — |
| | — |
| | | (64 | ) |
Income (loss) from continuing operations before
income taxes | 5,932 |
| | (2,641 | ) | | 1,131 |
| | | 4,422 |
|
| Income taxes | 1,537 |
| | — |
| | (7 | ) | [J] | | 1,530 |
|
| Net income (loss) from continuing operations | $ | 4,395 |
| | $ | (2,641 | ) | | $ | 1,138 |
| | | $ | 2,892 |
|
| | | | | | | | | |
| Per share data: | | | | | | | | |
| | | | | | | | | |
Earnings per share from continuing operations: | | | | | | | | |
| Basic | $ | 0.37 |
| | | | | | | $ | 0.25 |
|
| Diluted | $ | 0.37 |
| | | | | | | $ | 0.24 |
|
| | | | | | | | | |
| Weighted average Common shares outstanding: | | | | | | | | |
| Basic | 11,801 |
| | | | | | | 11,801 |
|
| Diluted | 11,891 |
| | | | | | | 11,891 |
|
See accompanying notes to the unaudited pro forma combined financial statements.
HARDINGE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1: BASIS OF UNAUDITED PRO FORMA PRESENTATION
On September 22, 2014, Hardinge Inc. (the "Company"), along with its indirect wholly-owned subsidiaries Hardinge GmbH and L. Kellenberger & Co., AG acquired certain assets and assumed certain liabilities associated with a product line of grinding machine systems and applications marketed and sold under the Voumard brand (the "Voumard Business") from Peter Wolters GmbH. The purchase price was EUR 1.7 million (approximately $2.2 million), before taking into account customary purchase price adjustments. The acquisition of Voumard expands the Company's product offerings to include internal diameter ("ID") cylindrical grinding solutions, which are a complement to the existing grinding product lines offered by the Company. The acquisition was funded with cash and has been included in the MMS business segment. Voumard is a global leader in the ID grinding market with an installed base of over 9,000 machine solutions serving more than 2,500 customers around the world. The results of operations of Voumard have been included in the consolidated financial statements from the date of acquisition.
The unaudited pro forma combined financial information of the Company gives effect to the acquisition of the Voumard Business (the "Acquisition") as if it had occurred (i) on June 30, 2014 for the purposes of the unaudited pro forma combined balance sheet as of June 30, 2014 and (ii) on January 1, 2013 for the purposes of the unaudited pro forma combined statements of operations for the year ended December 31, 2013 and for the six months ended June 30, 2014. Certain amounts from the historical financial statements of the Voumard Business have been reclassified to conform to the Company’s presentation.
All balance sheet accounts of functional currency subsidiaries are translated to United States Dollars ("USD") at the fiscal period-end exchange rate, and income and expense accounts are translated to USD using average rates in effect for each respective period. The purchase price allocation disclosed in Note 2. "Purchase Price Allocation" to these financial statements is translated to USD at the agreed upon rate per the Asset Purchase Agreement at the date of the acquisition.
General
The unaudited pro forma adjustments reflecting the Acquisition are based on certain estimates and assumptions. The unaudited pro forma adjustments may be revised as additional information becomes available. The actual adjustments and the allocation of the final purchase price will depend on a number of factors, including but not limited to additional financial information available at such time. Therefore, the actual adjustments will differ from the unaudited pro forma adjustments and it is possible that the differences may be material. The Company’s management believes that its assumptions provide a reasonable basis for presenting all of the significant effects of the transactions contemplated and that the unaudited pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma combined financial information.
The unaudited pro forma financial information does not include potential financial benefits or expenses from operating expense efficiencies or revenue enhancements arising from the Acquisition. Additionally, the Company incurred transaction related costs of approximately $0.1 million associated with the Acquisition, which are not reflected in the unaudited pro forma combined statements of operations for the periods presented.
The unaudited pro forma combined financial information are not intended to reflect the results of operations or the financial position that would have resulted had the Acquisition been effected on the dates indicated and if the Company and the Voumard Business had been managed on a consolidated basis. The unaudited pro forma financial information should be read in conjunction with the historical financial statements of the Company included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 and the historical abbreviated financial statements of the Voumard Business included as Exhibit 99.1 to this amended current report on Form 8-K.
HARDINGE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS, CONTINUED
NOTE 2: PURCHASE PRICE ALLOCATION
In accordance with the acquisition method of accounting, the acquired net assets of the Voumard Business were recorded at preliminary fair value at the date of acquisition. The identifiable intangible assets acquired, which primarily consists of drawings of $0.1 million, were valued using a cost approach. The purchase price allocation is preliminary pending the finalization of the fair values of the net assets acquired, and will be finalized no later than one year from the date of the transaction. The preliminary fair values of the acquired assets and liabilities exceeded the purchase price of Voumard, resulting in a gain on the purchase of $0.5 million.
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed in the Voumard acquisition at the date of acquisition (in thousands):
|
| | | |
| | September 22, 2014 |
| Assets Acquired | |
| Inventories | $ | 2,984 |
|
| Property, plant and equipment | 259 |
|
| Drawings, customer lists, and other intangible assets | 131 |
|
| Total assets acquired | 3,374 |
|
| Liabilities Assumed | |
| Warranties | 600 |
|
| Deferred tax liability | 162 |
|
| Net assets acquired | 2,612 |
|
| Total purchase price | 2,150 |
|
| Bargain purchase gain | $ | (462 | ) |
HARDINGE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS, CONTINUED
NOTE 3: PRO FORMA ADJUSTMENTS
Pro forma adjustments included in the unaudited pro forma combined financial statements are as follows:
|
| | |
| [A] | | To record consideration paid for the acquisition of the Voumard Business. |
| | | |
| [B] | | To adjust inventories to estimated fair market value for the Voumard Business. |
| | | |
| [C] | | To record the preliminary estimate of the fair value of machinery & equipment for the acquired Voumard Business. |
| | | |
| [D] | | To record the fair value of identifiable intangible assets acquired, primarily customer lists and technology. |
| | | |
| [E] | | To record an estimated deferred income tax liability related to the fair value adjustments associated with the acquisition of the Voumard Business. |
| | | |
| [F] | | To eliminate the equity of the acquired Voumard Business. |
| | | |
| [G] | | To record the bargain purchase gain associated with the transaction. |
| | | |
| [H] | | The historical Voumard statements of revenues and direct expenses include allocated depreciation for shared assets that were not included in the transaction. Accordingly, the depreciation expense has been decreased to reflect the depreciation for only the acquired assets. This reduction is offset in part by an increase in depreciation expense related to the step up in estimated fair value of machinery and equipment acquired over an estimated average useful life of three years. |
| | | |
| [I] | | To record amortization expense related to the estimated fair value of identifiable intangible assets acquired, amortized over an estimated average useful life of three years. |
| | | |
| [J] | | To record income tax expense of the pro forma adjustments based upon statutory rates of the Company in effect during the periods presented. |
There were no transactions between Hardinge Inc. and the Voumard Business for the periods presented.
