FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 000-15760
Hardinge Inc.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
New York 16-0470200
Hardinge Inc.
One Hardinge Drive
Elmira, NY 14902
(607) 734-2281
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
As of March 31, 1997 there were 6,504,498 shares of Common Stock
of the Registrant outstanding.
HARDINGE INC. AND SUBSIDIARIES
INDEX
Part I Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996. 3
Consolidated Statements of Income and Retained
Earnings for the three months ended March 31, 1997
and 1996. 5
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1997 and 1996. 6
Notes to Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
Part II Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Default upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
PART I, ITEM I.
HARDINGE INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in Thousands)
Mar. 31, Dec. 31,
1997 1996
-------------------------------
(Unaudited)
Assets
Current assets:
Cash $ 1,321 $ 2,636
Accounts receivable 44,025 41,150
Notes receivable 6,447 5,070
Inventories 92,312 99,906
Deferred income taxes 2,158 2,158
Prepaid expenses 1,128 1,656
-------------------------------
Total current assets 147,391 152,576
Property, plant and equipment:
Property, plant and equipment 117,051 117,606
Less accumulated depreciation 55,264 53,716
-------------------------------
61,787 63,890
Other assets:
Notes receivable 10,690 11,791
Deferred income taxes 651 651
Other 259 254
-------------------------------
11,600 12,696
-------------------------------
Total assets $220,778 $229,162
===============================
See accompanying notes.
HARDINGE INC. AND SUBSIDIARIES
Consolidated Balance Sheets--Continued
(Dollars In Thousands)
Mar. 31, Dec. 31,
1997 1996
--------------------------
(Unaudited)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 13,060 $ 12,067
Notes payable to bank 2,889 10,950
Accrued expenses 8,445 10,676
Accrued income taxes 3,016 1,017
Deferred income taxes 943 896
Current portion long-term debt 714 714
--------------------------
Total current liabilities 29,067 36,320
Other liabilities:
Long-term debt 34,938 37,156
Accrued pension plan expense 1,485 1,485
Deferred income taxes 1,538 1,657
Accrued postretirement benefits 5,109 4,999
--------------------------
43,070 45,297
Shareholders' equity
Preferred stock, Series A, par value $.01:
Authorized - 2,000,000; issued - none
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued shares - 6,511,703 65 65
Additional paid-in capital 57,974 57,027
Retained earnings 101,901 99,622
Treasury shares (208) (343)
Cumulative foreign currency translation adjustment (5,439) (3,731)
Deferred employee benefits (5,652) (5,095)
--------------------------
Total shareholders' equity 148,641 147,545
--------------------------
Total liabilities and shareholders' equity $220,778 $229,162
==========================
See accompanying notes.
HARDINGE INC AND SUBSIDIARIES
Consolidated Statements of Income and Retained Earnings (Unaudited)
(In Thousands, Except Per Share Data)
Three months ended
March 31,
1997 1996
----------------------------
Net Sales $60,056 $59,622
Cost of sales 39,878 40,290
----------------------------
Gross profit 20,178 19,332
Selling, general and
administrative expenses 11,804 11,570
Unusual expense 1,960
----------------------------
Income from operations 6,414 7,762
Interest expense 691 522
Interest (income) (166) (215)
----------------------------
Income before income taxes 5,889 7,455
Income taxes 2,375 2,985
----------------------------
Net income 3,514 4,470
Retained earnings at beginning of period 99,622 86,666
Less dividends declared 1,235 1,101
============================
Retained earnings at end of period $101,901 $90,035
============================
Weighted average number
of common shares outstanding 6,225 6,199
============================
Per share data:
Net Income $ .56 $ .72
============================
Dividends Declared $ .19 $ .17
============================
See accompanying notes.
HARDINGE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
Three Months Ended
March 31,
1997 1996
-----------------------------
Net cash provided by (used in) operating activities $10,276 ($ 1,664)
Investing activities:
Capital expenditures (744) (996)
-----------------------------
Net cash (used in) investing activities (744) (996)
Financing activities:
(Decrease) in short-term notes payable to bank (7,485) (1,728)
(Decrease) increase in long-term debt (2,218) 6,011
Sale of treasury stock 137 171
Dividends paid (1,235) (1,099)
-----------------------------
Net cash (used in) provided by financing activities (10,801) 3,355
Effect of exchange rate changes on cash (46) 6
=============================
Net (decrease) increase in cash ($ 1,315) $701
=============================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
1997, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report for the year ended December 31, 1996.
NOTE B--INVENTORIES
Inventories are summarized as follows (dollars in thousands):
March 31, December 31,
1997 1996
Finished products $ 34,927 $ 34,461
Work-in-process 31,236 35,479
Raw materials and purchased components 26,149 29,966
---------- ----------
$ 92,312 $ 99,906
========== =========
NOTE C--UNUSUAL EXPENSE
1997's first quarter included a one-time charge of $1,960,000 (approximately
$1,200,000 after tax, or $.20 per share). This non-recurrung charge involves
outside costs incurred in connection with a major acquisition that the Company
carried into the final stages of the due diligence process but decided not to
complete.
NOTE D--EARNINGS PER SHARE AND WEIGHTED SHARES OUTSTANDING
Earnings per share are calculated using a monthly weighted average shares
outstanding and include common stock equivalents related to restricted stock.
PART I, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following are management's comments relating to significant changes
in the results of operations for the three month periods ended March 31, 1997
and 1996 and in the Company's financial condition during the three month period
ended March 31, 1997.
Results of Operations
Net Sales. Net sales for the quarter ended March 31, 1997 increased to
$60,056,000 compared to $59,622,000 in the first quarter of 1996. U.S. sales
increased by $7,390,000 or 20.2% over the quarter ended March 31, 1996,
primarily as a result of strong deliveries to the auto industry. International
sales other than in Europe increased by $1,094,000 as well. A softening in our
European markets, however, partially offset these increases, as European sales
declined by $8,050,000, or 44.4%, to $10,066,000.
Sales of machines accounted for $41,859,000 of net sales for the first
quarter of 1997, representing an increase of $3,160,000 or 8.2% over the same
1996 period. Sales of non-machine products and services in the first quarter of
1997 decreased by $2,726,000 to $18,197,000, a decline of 13.0% from 1996's
first quarter.
Our backlog of orders at March 31, 1997 increased slightly from a
year ago, despite a decrease in new orders from the auto industry during the
first quarter of 1997. Domestic demand continues stable across a wide customer
base.
Gross Profit. Gross margin, as a percentage of sales, was 33.6% in the
first quarter of 1997, compared to 32.4% for the same period in 1996. Typically,
a higher percentage of the Company's domestic sales are made through direct
sales organizations as opposed to the more heavily discounted distributor based
distribution channels which are more prevalent in Europe and other international
markets. Thus, the higher proportion of domestic sales in the first quarter of
1997 compared to 1996 is a primary contributor to this improvement in margin
percentage.
Selling, General, and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses, at 19.7% of sales in the first quarter of
1997, remained relatively flat to the 19.4% experienced in the same period of
1996.
Unusual Expense. 1997's first quarter included a one-time charge of
$1,960,000 (approximately $1,200,000 after tax, or $.20 per share). This
non-recurring charge involves outside costs incurred in connection with a major
acquisition that the Company carried into the final stages of the due diligence
process but decided not to complete.
Income from Operations. Income from operations as a percentage of net
sales decreased in the three month period ended March 31, 1997 to 10.7% from the
13.0% earned for the same period in 1996. The decrease is attributable to the
unusual expense described above. Excluding this one-time charge, income from
operations as a percentage of net sales for the first quarter of 1997 would have
been 13.9%, an increase of nearly one percent over 1996. This increase is a
result of the relative improvement in gross margin while holding SG&A expenses
at a constant rate.
Interest Expense and Income. Interest expense increased to $691,000 in
the first quarter of 1997, from $522,000 in the same 1996 period. While
outstanding debt at March 31, 1997 was down by $10,300,000 from the prior March
31st, average outstanding debt for the first quarter of 1997 exceeded the same
quarter a year earlier by approximately 17%. Additionally, an increase in
average borrowing rates contributed to higher interest cost in the first quarter
of 1997. Interest income, earned primarily on customer notes, remained fairly
constant over the two periods.
Income Taxes. The provisions for income taxes as a percentage of
net income were approximately 40% in both the first quarter of 1997 and 1996.
Net Income. Net income for the first quarter of 1997 was $3,514,000 or
$.56 per share compared to $4,470,000 or $.72 per share for the first quarter of
1996. Net income for the first quarter of 1997 was reduced by $1,200,000 or $.20
per share as a result of the one-time charge related to the acquisition efforts
described above. Excluding that charge, net income increased by 5.5% over the
first quarter of 1996 as a result of higher volume and the improvement in gross
margin percentage.
Adoption of Financial Accounting Standards Board Statement No. 128. In
February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement No. 128 on the
calculation of both primary and fully diluted earnings per share for the
quarters ended March 31, 1997 and 1996 is not expected to be material.
Quarterly Information
The following table sets forth certain quarterly financial data for
each of the periods indicated.
Three Months Ended
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1996 1996 1996 1996 1997
--------------------------------------------------------------
(in thousands, except per share data)
--------------------------------------------------------------
Net Sales $ 59,622 $ 55,266 $ 47,577 $57,830 $60,056
Gross Profit 19,332 18,477 17,103 20,119 20,178
SG&A expense 11,570 10,946 10,849 11,693 11,804
Unusual expense 1,960
Income from
operations 7,762 7,531 6,254 8,426 6,414
Net income 4,470 4,320 3,435 5,063 3,514
Net income per share .72 .69 .56 .82 .56
Weighted average
shares outstanding 6,199 6,228 6,189 6,204 6,225
Liquidity and Capital Resources
Hardinge's current ratio at March 31, 1997 was 5.07:1 compared to
4.20:1 at December 31, 1996. Current assets decreased by $5,185,000 during the
first three months of 1997 primarily due to a reduction in inventory of
$7,594,000 resulting from deliveries during the quarter of large orders for the
automotive industry. Likewise, an offsetting increase in accounts receivable of
$2,875,000 attributable in part to those same deliveries accounts for the
majority of the remaining change in current assets. A decrease of $7,253,000 in
current liabilities during the quarter is mainly attributable to the significant
reduction in current borrowing resulting from these lower working capital
requirements.
In the first three months of 1997, operating activities generated
$10,276,000 of cash, while operating activities in the same period of 1996 used
$1,664,000 of cash. This large increase was primarily a result of the reduced
working capital requirements previously discussed. The major financing activity
during the first quarter of 1997 was the large repayment of short and long-term
debt of $9,703,000, while debt was increased by $4,283,000 during the first
quarter of 1996. Additional cash was required during both periods to fund
capital expenditures and dividend payments.
Hardinge provides long-term financing for the purchase of its equipment
by qualified customers. We periodically sell portfolios of our customer notes to
financial institutions in order to reduce debt and finance current operations.
Our customer financing program has an impact on our month-to-month borrowings,
but it has had little long-term impact on our working capital because of the
ability to sell the underlying notes. We sold $7,463,000 and $7,067,000 of
customer notes in the first three months of 1997 and 1996, respectively.
Hardinge maintains revolving loan agreements with several U.S. banks
providing for unsecured borrowing up to $50,000,000 on a revolving basis,
$30,000,000 through August 1, 1997 and $20,000,000 through November 1, 1999. At
those times, the outstanding amounts convert, at the Company's option, to term
loans payable quarterly over four years through 2001 and 2003, respectively.
These facilities, along with other short term credit agreements, provide for
immediate access of up to $55,000,000. At March 31, 1997, outstanding borrowings
under these arrangements totaled $20,791,000.
In March, 1996, we completed negotiations with a syndication of banks
on a long term note agreement for $17,750,000. The proceeds were used to pay
down the amount on the revolving loan agreement which had originally been used
to finance the acquisition of Kellenberger. Quarterly interest payments began in
1996, and principal payments begin in 1998. The agreement contains financial
covenants consistent with the revolving loan agreements.
We believe that currently available funds and credit facilities,
along with internally generated funds, will provide sufficient financial
resources for ongoing operations.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On April 14, 1997 Hardinge completed a stock purchase agreement
under which it acquired 100% of the outstanding shares of Hansvedt Industries,
Inc., an Urbana, Illilois-based manufacturer of electrical discharge machines
(EDM) and related equipment. Electrical discharge machines are used to produce
complex metal parts through a process of erosion with electricity using either a
cutting wire or electrode. Hansvedt Industries, which was privately held and is
the largest U.S. manufacturer of EDM equipment, had 1996 revenues of $8,000,000
and has 75 employees. The acquisition was financed using Hardinge's existing
credit lines.
At its meeting on April 22, 1997, our Board of Directors declared a
dividend of $.19 per share payable on June 10, 1997, to shareholders of record
on May 30, 1997.
This report contains statements of a forward-looking nature
relating to the financial performance of Hardinge Inc. Such statements are based
upon information known to management at this time. The Company cautions that
such statements necessarily involve risk, because actual results could differ
materially from those projected. Among the many factors that could cause actual
results to differ from those set forth in the forward-looking statements are
changes in general economic conditions in the U.S. or internationally, actions
taken by customers or competitors, the receipt of more or fewer orders than
expected, and changes in the cost of materials. The Company undertakes no
obligation to revise its forward-looking statements if unanticipated events
alter their accuracy.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
10.1 Employment Agreement with Joesph P. Colvin, effective
January 1, 1997.
10.2 Employment Agreement with J. Patrick Ervin, effective
January 1, 1997.
10.3 Employment Agreement with Richard L. Simons, effective
January 1, 1997.
10.4 Employment Agreement with Daniel P. Soroka, effective
January 1, 1997.
27. Financial Data Schedule.
B. Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HARDINGE INC.
By: /s/ Robert E. Agan
Robert E. Agan
Chairman of the Board and Chief Executive Officer
Date: May 13, 1997
By: /s/ J. Allan Krul
J. Allan Krul
President and Chief Operating Officer
Date: May 13, 1997
By: /s/ Malcolm L. Gibson
Malcolm L. Gibson
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: May 13, 1997
By: /s/ Richard L. Simons
Richard L. Simons
Vice President - Finance (Principal Accounting Officer)
Date: May 13, 1997