United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Period Ended March 31, 1995
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 No. 0-15760
HARDINGE BROTHERS, INC.
(Exact Name of Registrant as specified in its charter)
NEW YORK 16-0470200
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
ONE HARDINGE DRIVE, ELMIRA, NEW YORK 14902
(Address of principal executive offices) (Zip Code)
(607) 734-2281
(Registrant's telephone number, including area code)
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
At March 31, 1995, there were 990,917 Class A and 916,057 Class B shares of
common stock of the Registrant outstanding.
HARDINGE BROTHERS, INC.
AND SUBSIDIARIES
INDEX
Page
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1995 and December 31, 1994. 3
Consolidated Statements of Income and Retained Earnings for the three months ended March 31,
1995 and 1994. 5
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1995 and
1994. 6
Notes to Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 7
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 11
Signatures 12
2
Part I, Item 1.
HARDINGE BROTHERS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in Thousands)
March 31, Dec. 31,
1995 1994
(Unaudited)
Assets
Current assets:
Cash $ 2,869 $ 3,783
Accounts receivable 26,896 20,237
Notes receivable 5,442 4,935
Inventories 54,079 50,698
Deferred income taxes 981 981
Prepaid expenses 863 630
Total current assets 91,130 81,264
Property, plant and equipment:
Property, plant and equipment 76,829 76,078
Less accumulated depreciation 46,634 45,812
30,195 30,266
Other assets:
Notes receivable 8,899 7,744
Deferred income taxes 1,373 1,439
Other 894 1,013
11,166 10,196
Total assets $132,491 $121,726
See accompanying notes.
3
HARDINGE BROTHERS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets--Continued
(Dollars in Thousands)
March 31, Dec. 31,
1995 1994
(Unaudited)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 10,472 $ 9,415
Notes payable to bank 3,500 3,500
Accrued expenses 5,672 4,571
Accrued pension plan expense 514 339
Dividends payable 959
Accrued income taxes 1,714 1,246
Current portion long-term debt 714 714
Total current liabilities 22,586 20,744
Other liabilities:
Long-term debt 21,245 15,164
Employee stock ownership plan obligation 100 150
Accrued pension plan expense 1,101 1,055
Accrued postretirement benefits 4,864 4,837
27,310 21,206
Shareholders' equity
Common stocks, $5 par value:
Class A:
Authorized shares -- 3,000,000
Issued shares at March 31, 1995 -- 1,013,412
Issued shares at December 31, 1994 -- 975,912 5,067 4,880
Class B:
Authorized shares -- 3,000,000
Issued shares at March 31, 1995 -- 922,910
Issued shares at December 31, 1994 -- 912,910 4,615 4,564
Additional paid-in capital 1,796 655
Retained earnings 77,633 74,853
Treasury shares (740) (361)
Cumulative foreign currency translation adjustment (1,739) (1,874)
Deferred employee benefits (4,037) (2,941)
Total shareholders' equity 82,595 79,776
Total liabilities and shareholders' equity $132,491 $121,726
See accompanying notes.
4
HARDINGE BROTHERS, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Retained Earnings (Unaudited)
(Dollars in Thousands, Except Per Share Data)
Three months ended
March 31,
1995 1994
Net sales $ 40,687 $ 27,479
Cost of sales 26,774 17,930
Gross profit 13,913 9,549
Selling, general and administrative expenses 8,415 6,572
Income from operations 5,498 2,977
Interest expense 476 371
Interest (income) (121) (134)
(Gain) on sale of assets (326)
Income before income taxes 5,469 2,740
Income taxes 2,165 1,128
Net income 3,304 1,612
Retained earnings at beginning of period 74,853 71,206
Less dividends declared 524 564
Retained earnings at end of period $ 77,633 $ 72,254
Weighted average number of common shares outstanding 1,769,835 1,750,700
Per share data:
Net Income $1.87 $.92
Dividends Declared $.30 $.30
See accompanying notes.
5
HARDINGE BROTHERS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
Three months ended
March 31,
1995 1994
Net cash (used in) provided by operating activities ($ 4,471) $ 4,798
Investing activities:
Capital expenditures (1,141) (749)
Proceeds from sale of assets 447 205
Net cash (used in) investing activities (694) (544)
Financing activities:
(Decrease) in short-term notes payable to bank (438)
Increase (decrease) in long-term debt 6,080 (2,500)
(Purchase) sale of treasury stock (379) 37
Dividends paid (1,483) (1,316)
Net cash provided by (used in) financing activities 4,218 (4,217)
Effect of exchange rate changes on cash 33 (91)
Net (decrease) in cash ($ 914) ($ 54)
6
HARDINGE BROTHERS, INC. AND SUBSIDIARIES
March 31, 1995
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,
1995 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1995. 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, 1994.
NOTE B--INVENTORIES
Inventories are summarized as follows (dollars in thousands):
March 31, December 31,
1995 1994
Finished products $ 18,176 $ 20,024
Work-in-process 23,447 19,439
Raw materials and purchased components 12,456 11,235
$54,079 $ 50,698
NOTE C--SUBSEQUENT EVENTS
In connection with a proposed public offering, the Board of Directors, on April
4, 1995, approved amendments to the Company's Restated Certificate of
Incorporation ("Certificate"). The amendments include (a) authorization of a
new class of Preferred Stock consisting of 2,000,000 shares; (b) converting
each Class A common share into 2.00 shares of a new single class of Common
Stock, representing a 2-for-1 stock split and each Class B common share into
2.05 shares of a new single class of Common Stock, representing a 2.05-for-1
stock split; and (c) increasing the number of shares of Common Stock the
Company is authorized to issue from 6,000,000 to 20,000,000 shares and reducing
the par value of all Common Stock from $5 to $0.01 per share. Such amendments
must be approved by the Company's shareholders at its annual meeting on May 16,
1995, which approval (in the case of clauses (b) and (c)) will be conditioned
upon the approval by the Board of Directors, or a committee thereof, just prior
to the effective date of a registration statement, of the final terms of an
underwriting agreement with respect to the proposed public offering. Promptly
following approval of the underwriting agreement, an amendment to the Company's
Certificate will be filed with the Secretary of State of the State of New York.
7
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, 1995 and 1994
and in the Company's financial condition during the three month period ended
March 31, 1995.
Results of Operations
Net Sales. Net sales increased 48.1% to $40,687,000 in the first quarter of
1995 from $27,479,000 in the same quarter of 1994. Unit volumes increased for
most of the Company's machine tool lines, as a result of initial shipments of
its vertical CNC lathes and machining center and continued increases in sales
of its Conquest T42 CNC lathe line and other horizontal CNC lathes,
particularly to the automobile industry. Lathes and other machine tool
equipment accounted for $24,584,000 of the Company's net sales in the first
quarter of 1995, an increase of 58.6% from $15,496,000 in the same quarter of
1994. Net sales of non-machine products and services increased 34.4% to
$16,103,000 in the first quarter of 1995 from $11,983,000 in the same period of
1994.
The Company experienced improvements in all of its significant geographical
markets. The largest amount of the increase came in the U.S. market, where net
sales increased 43.5% to $33,090,000 in the first quarter of 1995 from
$23,065,000 in the same period of 1994. Net sales in Western European markets,
primarily the United Kingdom, increased 56.0% to $4,369,000 in the first
quarter of 1995 from $2,801,000 in the same period of 1994. Net sales in the
Company's other foreign markets increased 100.1% to $3,228,000 in the first
quarter of 1995 from $1,613,000 in the same quarter of 1994, with the increases
primarily occurring in Canada and China.
Gross Profit. Gross profit increased 45.7% to $13,913,000 in the first quarter
of 1995 from $9,549,000 in the same period of 1994. Gross margin was 34.2% in
the first quarter of 1995 compared to 34.8% in the same period of 1994. Gross
margin declined slightly as a result of startup costs of the production of its
vertical CNC lathes and machining center, and as a result of the higher
percentage of net sales in its machine tool equipment lines, which have
traditionally provided lower margins than its non-machine products and
services. The decrease in gross margin was partially offset by the Company's
ability to spread its overhead costs over a larger number of units sold.
Because of hedging transactions and a lower level of discounts, the drop in the
value of the dollar against the Japanese yen did not have a significant impact
on the quarter-to-quarter comparison of gross margin.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses increased 28.0% to $8,415,000 in the first
quarter of 1995 from $6,572,000 in the same period of 1994, primarily as a
result of a $600,000 increase in sales commissions resulting from increased net
sales and an increase of $410,000 in advertising and trade show expenses in the
first quarter of 1995. SG&A decreased as a percent of net sales to 20.7% in the
first quarter of 1995 from 24.0% in the same period of 1994, largely as a
result of the Company's strategy of controlling SG&A expenses in a period of
sales growth.
Income from Operations. Income from operations increased 84.6% to $5,498,000 in
the first quarter of 1995 from $2,977,000 for the same period of 1994. Income
from operations as a percentage of net sales increased to 13.5% in the first
quarter of 1995 from 10.8% in the same period of 1994.
Interest Expense. Interest expense increased 28.3% to $476,000 in the first
quarter of 1995 from $371,000 in the same period of 1994, due to an increase in
average interest rates on the Company's outstanding borrowings and an increase
in average monthly borrowings between the two periods.
Interest Income. Interest income, primarily consisting of interest on customer
notes receivable, was $121,000 in the first quarter of 1995 and remained fairly
constant from the same period of 1994.
Gain on Sale of Assets. Results for the first quarter of 1995 included a gain
of $326,000 (approximately $198,000 on an after-tax basis) on the sale of a
building in Los Angeles. The Company's sales and demonstration office formerly
located there has been relocated to a leased facility.
Income Taxes. The provision for income taxes was $2,165,000 in the first
quarter of 1995 compared to $1,128,000 in the same period of 1994. The
Company's tax rate decreased to 39.6% of pre-tax income in the first quarter of
1995 from 41.2% in the same quarter of 1994. The 1995 tax rate was favorably
impacted by profits in the Company's Western European operations for which no
tax provision was recorded because of the availability of net operating loss
carryforwards.
8
Net Income. Net income increased to $3,304,000 in the first quarter of 1995
from $1,612,000 in the same period of 1994, as a result of the factors
discussed above. Geographically, operations in North America showed significant
improvements, with net income increasing from $1,654,000 in the first quarter
of 1994 to $2,931,000 in the same period of 1995, while operations in Western
Europe recovered from a net loss of ($86,000) in the first quarter of 1994 to a
net income of $277,000 in the same period of 1995.
Quarterly Information
The following table sets forth certain quarterly financial data for each of the
periods indicated.
Three Months Ended
March 31, June 30, Sept. 30, Dec. 31, March 31,
1994 1994 1994 1994 1995
(in thousands, except per share data)
Net sales $27,479 $29,023 $29,449 $31,385 $40,687
Gross profit 9,549 10,010 10,394 10,446 13,913
Income from operations 2,977 3,358 2,975 3,207 5,498
Net income 1,612 1,819 1,608 1,680 3,304
Net income per share .92 1.04 .91 .94 1.87
The Company's sales generally have not been subject to significant seasonal
variation. However, the Company's quarterly results are subject to significant
fluctuation based on the timing of its shipments of machine tools, which are
largely dependent upon customer delivery requirements. Traditionally, the
Company has experienced reduced activity during the third quarter of the year,
largely as a result of vacations scheduled at its customers' plants and the
Company's policy of closing its facilities during the first two weeks of July.
As a result, the Company's third-quarter net sales, income from operations and
net income typically have been the lowest of any quarter during the year.
However, certain large shipments in the third quarter of 1994 substantially
offset the effects of the two-week July shutdown.
The Company experienced a significant increase in orders during the first
quarter of 1995. However, the Company currently does not expect an unusually
high level of shipments in the second or third quarter of 1995. Accordingly,
the Company expects that its net sales, income from operations, net income and
net income per share in the second quarter of 1995 will be lower than in the
first quarter, although they are expected to compare favorably with the same
quarter of 1994. Similarly, the Company believes that its results in the third
quarter of 1995 may not exceed its results for the same quarter of 1994, and,
as a result of the issuance of additional shares of Common Stock in this
offering, net income per share in the 1995 period is expected to be
substantially lower than in the comparable 1994 period.
Liquidity and Capital Resources
The Company's current ratio at March 31, 1995 was 4.03:1 compared to 3.92:1 at
December 31, 1994. In the first quarter of 1995, current assets increased by
$9,866,000, with an increase of $6,659,000 in accounts receivable, primarily in
receivables from customers in the automobile industry. Inventories increased by
$3,381,000 reflecting the start-up of production of the Company's new vertical
CNC lathes and vertical CNC machining center and higher production levels.
Current liabilities increased by $1,842,000 as accounts payable increased with
the higher level of inventory purchases.
In the first quarter of 1995, operating activities used $4,471,000 of cash,
while operating activities provided $4,798,000 of cash in the same quarter of
1994. Operating activities used cash in the 1995 period, notwithstanding the
Company's improved net income, primarily because of the increase in accounts
receivable and inventories, as well as an increase in customer notes, which
were partially offset by increases in accrued expenses and accounts payable.
The Company reduced its sales of customer notes during the first quarter of
1995 compared to the level of sales it completed during 1994. Operating
activities provided cash in the first quarter of 1994, primarily because
accounts receivable and inventories remained relatively flat, sales of customer
notes reduced notes receivable and accrued expenses increased. In its investing
and financing activities, the Company requires cash primarily for capital
expenditures and dividend payments. In the first quarter of 1995, the Company
used its cash flow from operations and additional long-term borrowings under
its revolving credit facility to finance the increase in current assets, its
capital expenditures program and dividend payments. In the 1994 period, cash
provided by operations funded its capital expenditures and dividend payments,
as well as a reduction in its long-term and short-term debt.
As is common in its industry, the Company provides long-term financing for the
purchase of its equipment by qualified customers. The Company regards this
program as an important part of its marketing efforts, particularly
9
to independent machine shops. Customer financing is offered for a term of up to
seven years, with the Company retaining a security interest in the purchased
equipment. In response to competitive pressures, the Company occasionally
offers this financing at below market interest rates or with deferred payment
terms. The present value of the difference between the actual interest charged
on customer notes for periods during which finance charges are waived or
reduced and the estimated rate at which the notes could be sold to financial
institutions is accounted for as a reduction of the Company's net sales. The
amount of these charges has not been material. In the event of a customer
default and foreclosure, it is the practice of the Company to recondition and
resell the equipment. It has been the Company's experience that such equipment
resales have realized the approximate remaining contract value.
In order to reduce its debt and finance its current operations, the Company
has, for many years, periodically sold a substantial portion of its underlying
customer notes receivable to various financial institutions. In the first
quarter of 1995, the Company sold $3,000,000 of customer notes compared to
$9,100,000 sold during the first quarter of the prior year. In these sales of
customer notes, recourse against the Company from customer defaults is limited
to 10% of the then outstanding balance thereof. The 10% portion of customer
notes retained by the Company, as well as all customer notes that have not been
sold by the Company, are included in notes receivable in its consolidated
balance sheet. Although the Company has no formal arrangements with financial
institutions to purchase its customer notes receivable, it has not experienced
difficulty in arranging such sales. While the Company's customer financing
program has an impact on its month-to-month borrowings from time to time, it
has had little long- term impact on its working capital because of the sales of
the underlying customer notes receivable. The amount of long-term customer
notes receivable held by the Company increased to $8,899,000 at March 31, 1995
from $7,744,000 at December 31, 1994.
In April 1995, the Company began construction of three additions to its
manufacturing facility, which, when completed, will increase its machine making
capacity by approximately 25%. Construction is expected to be completed by
early 1996. The Company estimates that the cost of these additions, together
with the necessary machinery and equipment, will be $15,000,000, all or most of
which will be funded with a portion of the proceeds of the public offering
referred to below. The Company expects to spend approximately $12,000,000 of
this amount during 1995 and the balance in 1996. The Company currently
estimates that other capital expenditures will total $3,000,000 in 1995,
$1,141,000 of which was spent during the first quarter of the year. These other
capital expenditures will primarily be made to improve operating efficiencies
at the Elmira manufacturing facility.
The Board of Directors' practice has been to pay five dividends in respect of
each year--four quarterly dividends during the year and a fifth "extra"
dividend in January of the following year. The Board has determined to
discontinue the payment of a fifth dividend subject to completion of the public
offering. The Company paid total dividends of $1,483,000 during the first
quarter of 1995.
The Company entered into a revolving credit facility with three banks in 1994,
which provides for the borrowing of up to $30,000,000 on a revolving basis
through August 1, 1997, at which time all outstanding borrowings will convert
to a term loan payable in 16 equal quarterly installments through 2001. Under
the revolving credit agreement, the Company is required to comply with certain
financial covenants with respect to the minimum level of current assets over
current liabilities, minimum tangible net worth, maximum level of debt and the
ratio of total liabilities to tangible net worth. The revolving credit facility
and other formal and informal domestic and foreign revolving credit
arrangements permitted total borrowings of $35,000,000 at March 31, 1995. At
March 31, 1995, outstanding borrowings under these arrangements totaled
$17,602,000. Management believes that the currently available credit facilities
and internally generated funds, together with the net proceeds to be received
by the Company in the offering, will provide sufficient financial resources for
ongoing operations for at least the next two years.
The Company is filing an amended registration statement with the Securities and
Exchange Commission covering the public offering by Hardinge of 2,250,000
shares of its Common Stock and the secondary offering by one of its
shareholders of an additional 32,000 shares of Common Stock. The registration
statement also covers an additional 342,300 shares, which will be subject to an
over-allotment option to be granted by Hardinge to the underwriters. The
offering is conditioned upon, among other things, the conversion of the
Company's existing Class A and Class B Common Stock into a new single class of
Common Stock, as discussed below. The offering is expected to be completed in
June 1995. The net proceeds of the offering will be used to repay indebtedness
and to pay for all or most of the cost of the planned expansion of the
Company's Elmira manufacturing facility. If the offering is not completed, the
Company expects to pay for the Elmira expansion from its cash flow and
additional borrowings under its revolving credit facility.
10
Subsequent Events
In connection with the proposed public offering, the Board of Directors has
approved amendments to the Company's Certificate. The amendments include (a)
authorization of a new class of Preferred Stock consisting of 2,000,000 shares;
(b) converting each Class A common share into 2.00 shares of a new single class
of Common Stock, representing a 2-for-1 stock split and each Class B common
share into 2.05 shares of a new single class of Common Stock, representing a
2.05-for-1 stock split; and (c) increasing the number of shares of Common Stock
the Company is authorized to issue from 6,000,000 to 20,000,000 shares and
reducing the par value of all Common Stock from $5 to $0.01 per share. Such
amendments must be approved by the Company's shareholders at its annual meeting
on May 16, 1995, which approval (in the case of clauses (b) and (c)) will be
conditioned upon the approval by the Board of Directors, or a committee
thereof, just prior to the effective date of a registration statement, of the
final terms of an underwriting agreement with respect to the proposed public
offering. Promptly following approval of the underwriting agreement, an
amendment to the Company's Certificate will be filed with the Secretary of
State of the State of New York.
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
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Current Report on Form 8-K, dated February 28, 1995, filed in connection
with a media release announcing audited financial results for the year ended
December 31, 1994.
(b) Current Report on Form 8-K, dated March 21, 1995, filed in connection with
a media release announcing the Company's intent to propose to its shareholders,
at the next Annual Meeting, a series of amendments to its Certificate of
Incorporation which, among other things, would create a new single class of
stock to facilitate a public offering which may occur prior to the 1996 Annual
Meeting.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the Report to be signed on its behalf by the
undersigned, there unto duly authorized.
HARDINGE BROTHERS, INC.
/s/ Robert E. Agan
Robert E. Agan
President and Chief Executive Officer
/s/ Malcolm L. Gibson
Malcolm L. Gibson
Senior Vice President and Chief Financial Officer, Assistant Secretary
(Principal Financial Officer)
/s/ Richard L. Simons
Richard L. Simons
Controller
(Principal Accounting Officer)
DATE: May 11, 1995
12