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 June 30, 1996
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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
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HARDINGE INC.
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(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 June 30, 1996, there were 6,471,388 shares of Common Stock of the
Registrant outstanding.
1
HARDINGE INC. AND SUBSIDIARIES
INDEX
Part I Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1996 and
December 31, 1995. 3
Consolidated Statements of Income and Retained
Earnings for the three months ended June 30, 1996 and
1995, and the six months ended June 30, 1996 and 1995. 5
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 1996 and 1995. 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 11
Signatures 12
2
Part I, Item 1.
HARDINGE INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in Thousands)
June 30, Dec. 31,
1996 1995
----------- ---------
(Unaudited)
Assets
Current assets:
Cash $ 4,733 $ 5,120
Accounts receivable 42,163 41,095
Notes receivable 6,451 5,053
Inventories 92,775 84,968
Deferred income taxes 2,574 2,585
Prepaid expenses 1,824 1,332
-------- ---------
Total current assets 150,520 140,153
Property, plant and equipment:
Property, plant and equipment 113,801 109,320
Less accumulated depreciation 52,170 49,716
-------- ---------
61,631 59,604
Other assets:
Notes receivable 11,599 10,936
Other 195 163
-------- ---------
11,794 11,099
-------- ---------
Total assets $223,945 $210,856
======== =========
See accompanying notes.
3
HARDINGE INC. AND SUBSIDIARIES
Consolidated Balance Sheets - Continued
(Dollars in Thousands)
June 30, Dec. 31,
1996 1995
----------- -----------
(Unaudited)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 13,113 $ 18,409
Notes payable to bank 10,270 10,504
Accrued expenses 11,697 9,297
Accrued pension plan expense 470 126
Accrued income taxes 1,547 1,323
Current portion long-term debt 714 714
--------- ---------
Total current liabilities 37,811 40,373
Other liabilities:
Long-term debt 36,731 27,100
Accrued pension plan expense 1,133 1,087
Deferred income taxes 1,056 1,200
Accrued postretirement benefits 5,062 4,993
--------- ---------
43,982 34,380
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 - 6,476,703 65 65
Additional paid-in capital 56,917 56,323
Retained earnings 93,258 86,666
Treasury shares (139) (2,599)
Cumulative foreign currency translation adjustment (2,898) (1,728)
Deferred employee benefits (5,051) (2,624)
--------- ---------
Total shareholders' equity 142,152 136,103
--------- ---------
Total liabilities and shareholders' equity $223,945 $210,856
========= =========
See accompanying notes.
4
HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Income and Retained Earnings (Unaudited)
(In Thousands, Except Per Share Data)
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
------- ------- -------- --------
Net Sales $55,266 $41,501 $114,888 $82,188
Cost of sales 36,789 27,294 77,079 54,068
------- ------- ------- --------
Gross profit 18,477 14,207 37,809 28,120
Selling, general and administrative expenses 10,946 8,406 22,516 16,821
------- ------- ------- --------
Income from operations 7,531 5,801 15,293 11,299
Interest expense 675 497 1,197 973
Interest (income) (167) (175) (382) (296)
(Gain) on sale of asset (326)
------- ------- ------- --------
Income before income taxes 7,023 5,479 14,478 10,948
Income taxes 2,703 2,204 5,688 4,369
------- ------- ------- --------
Net income 4,320 3,275 8,790 6,579
Retained earnings at beginning of period 90,035 77,633 86,666 74,853
Less dividends declared 1,097 1,547 2,198 2,071
------- ------- ------- --------
Retained earnings at end of period $93,258 $79,361 $ 93,258 $79,361
======= ======= ======= ========
Weighted average number of common shares
outstanding 6,228 4,349 6,228 3,941
======= ======= ======= ========
Per share data:
Net Income $ .69 $ .75 $ 1.41 $ 1.67
======= ======= ======= ========
Dividends Declared $ .17 $ .30 $ .34 $ .45
======= ======= ======= ========
See accompanying notes.
5
HARDINGE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
Six Months Ended June 30,
1996 1995
-------- -------
Net cash (used in) operating activities ($2,398) ($8,981)
Investing activities:
Capital expenditures (6,384) (3,059)
Proceeds from sale of assets 24 497
------- -------
Net cash (used in) investing activities (6,360) (2,562)
Financing activities:
Increase (decrease) in short-term notes payable to bank 364 (3,500)
Increase (decrease) in long-term debt 10,036 (11,426)
Sale (purchase) of treasury stock 171 (317)
Dividends paid (2,199) (2,062)
Proceeds from public stock offering 43,457
------- -------
Net cash provided by financing activities 8,372 26,152
Effect of exchange rate changes on cash (1) 97
------- -------
Net (decrease) increase in cash ($ 387) $14,706
======= =======
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
HARDINGE INC. AND SUBSIDIARIES
June 30, 1996
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 and six month periods ended June 30, 1996, are not necessarily
indicative of the results that may be expected for the year ended December
31, 1996. 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, 1995.
NOTE B--INVENTORIES
Inventories are summarized as follows (dollars in thousands):
June 30, December 31,
1996 1995
-------- ------------
Finished products $ 33,971 $ 29,231
Work-in-process 27,995 29,083
Raw materials and purchased components 30,809 26,654
-------- --------
$ 92,775 $ 84,968
======== ========
NOTE C--CHANGES IN SHAREHOLDERS' EQUITY
In June 1995, the Company issued 2,540,000 shares of its common stock at
$19.00 per share in a public common stock offering. Proceeds from the
offering, net of commissions and expenses, were $43,457,000. The proceeds
were used to reduce the Company's debt, fund building expansion, and fund
working capital growth.
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.
Second quarter and year to date 1995 averages have been calculated treating
the 2,250,000 shares sold in the public offering as outstanding for the month
of June. The 290,000 shares sold upon exercise of the over-allotment option
were not included since they were not issued until the end of June 1995.
NOTE E--DIVIDENDS DECLARED
Dividends declared for the first half of 1995 include the dividends paid
for March and June 1995, and the dividend payable for September of 1995.
Dividends declared for the first half of 1996 include only dividends paid for
March and June 1996.
NOTE F--ACQUISITION
On November 29, 1995, the Company acquired 100% of the outstanding stock
of L. Kellenberger & Co. AG and subsidiary ("Kellenberger"), a St. Gallen,
Switzerland based manufacturer of grinding machines.
The acquisition was accounted for as a purchase. The three month period
and six month period ended June 30, 1996 results of operations of
Kellenberger are included in the consolidated financial statements of the
Company.
NOTE G--DEBT
In March, 1996 Hardinge entered into a seven-year $17,750,000 unsecured
credit agreement with a syndication of banks. The proceeds were applied to
pay down amounts on the Company's revolving loan agreement which had been
used to finance the acquisition of Kellenberger. This agreement calls for
variable quarterly interest payments based upon the London Interbank Offered
Rates plus additional basis points based upon attaining certain financial
ratios. Principal payments begin in May, 1998 and will be made in equal
quarterly payments through 2003. Hardinge
7
also entered into a cross-currency interest rate swap agreement with a major
international bank related to this borrowing. The swap agreement effectively
changes the dollar principal payment commitment to a commitment to pay
21,000,000 Swiss Francs over the same period, the effect of which is to hedge
exchange rate fluctuations on the Kellenberger equity purchased in November,
1995. The swap agreement also effectively changes the Company's variable
interest rate exposure to a fixed rate of 4.49%.
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 and six month periods ended
June 30, 1996 and 1995 and in the Company's financial condition during the
six month period ended June 30, 1996.
Results of Operations
Net Sales. Net sales for the quarter ended June 30, 1996 increased by 33%
to $55,266,000 from $41,501,000 in the same 1995 period. Year to date sales
of $114,888,000 for the first six months of 1996 represent a 39.8% increase
over the $82,188,000 net sales for the same 1995 period.
Sales of machines accounted for $35,974,000 of net sales for the second
quarter of 1996, representing a 38.4% increase from the same 1995 period.
Year to date June 30, 1996 sales in the same product grouping accounted for
$74,739,000 or a 47.2% increase over the $50,771,000 in the same 1995 period.
Sales of non-machine products and services in the second quarter of 1996
increased to $19,292,000, a 24.4% increase over the levels in the same 1995
period, while year to date sales of this product group increased to
$40,149,000, a 27.0% increase over the previous year.
Machine shipments accounted for 65.1% of total net sales for the second
quarter and first half of 1996. In 1995, sales of this product group
accounted for 63.1% and 61.8% of second quarter and first half total net
sales. Sales by our Kellenberger subsidiary, acquired in late 1995, were an
important contributor to the increase in machine sales. The proportion of
Kellenberger's machine sales, as compared to non-machine products, is higher
than our traditional relationships.
Geographically, the largest amount of sales increase came from European
markets, where net sales tripled from the level of sales in the same periods
of 1995 to $15,379,000 in the second quarter and to $33,495,000 in the six
month period ended on June 30, 1996 . Approximately two-thirds of the
increase in European sales in the second quarter and year to date came as a
result of the Kellenberger acquisition. Also, sales of other Hardinge
products increased, especially in France and England. Shipments in our United
States markets remained relatively flat compared to last year, with a small
3.5% increase coming primarily from sales of Kellenberger machines.
Gross Profit. Gross margin, as a percentage of sales, was 33.4% in the
second quarter and 32.9% in the first half of 1996. During the same periods
of 1995, we achieved slightly higher percentages of 34.2% in both periods.
The majority of the reduction is the result of changes in product mix. Sales
in the machine product group traditionally have generated lower gross margins
than the non-machine products and services group. Therefore, overall gross
margin, as a percentage of sales, is negatively affected when sales in the
machine product group increase as a proportion of total net sales, as it has
in the first half of 1996.
Selling, General, and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses decreased as a percent of net sales to 19.8%
and 19.6% in the first quarter and first half of 1996, respectively, compared
to 20.3% and 20.5% in the same periods of 1995. The reduction in percentage
results from the fixed portion of these expenses being compared to a higher
sales volume. The addition of Kellenberger's expenses was the most
significant factor in increasing the amount of expense from year to year.
Income from Operations. Income from operations as a percentage of net
sales decreased slightly in the three and six month periods ended June 30,
1996, to 13.6% and 13.3%, respectively, from the same 1995 periods, which
were 14.0% and 13.7%, respectively. This decrease was primarily the result of
the decrease in gross margin percentages.
8
Interest Expense. Interest expense increased to $675,000 in the second
quarter of 1996 from $497,000 in the same 1995 period. Interest expense
increased in the first half of 1996 to $1,197,000 compared to $973,000 in the
same 1995 period. Higher average borrowings in 1996 resulted from borrowings to
fund the acquisition of Kellenberger and increases in working capital caused the
majority of these increases.
Interest Income. Interest income remained fairly constant in the
comparative periods of 1996 and 1995, with the majority of this category
coming from interest on financing of customer purchases.
Gain on Sale of Assets. Results for the first half of 1995 included a gain
of $326,000 (approximately $198,000 on an after-tax basis) on the sale of a
branch office building.
Income Taxes. The provision for income taxes as a percentage of net income
was 38.5% and 39.3%, for the second quarter and first half of 1996,
respectively, compared to 40.2% and 39.9% for the same 1995 periods. The 1996
consolidated tax rates were lower due to profits in our foreign operations
where effective tax rates are slightly lower than in the United States.
Net Income. Net income for the second quarter of 1996 was $4,320,000, an
increase of $1,045,000 or 31.9% from the same 1995 period. Year to date 1996
net income was $8,790,000, an increase of 33.6% or $2,211,000 from the same
1995 period. These increases represent an accumulation of the factors
discussed above. Geographically, results of operations in Western Europe have
improved significantly on higher sales, while performance in North America
continues to provide the large base of profitable operations.
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, June 30,
1995 1995 1995 1995 1996 1996
--------- -------- --------- -------- --------- --------
(in thousands, except per share data)
-------------------------------------------------------------------------------
Net Sales $ 40,687 $ 41,501 $ 42,217 $ 56,181 $ 59,622 $ 55,266
Gross Profit 13,913 14,207 14,439 18,052 19,332 18,477
Income from operations 5,498 5,801 4,949 8,287 7,762 7,531
Net income 3,304 3,275 3,182 5,084 4,470 4,320
Net income per share .92 .75 .52 .82 .72 .69
Weighted average shares outstanding 3,584 4,349 6,176 6,217 6,199 6,228
Liquidity and Capital Resources
Hardinge's current ratio at June 30, 1996 was 3.98:1 compared to 3.47:1 at
December 31, 1995. Current assets increased by $10,367,000 during the first
half of 1996 as we increased our work in process and finished goods inventory
prior to the launch of our newest product, the Cobra[trademark] CNC lathe.
Also, there has been an increase in inventory caused by work in process for
large orders which will have significant turnkey work done on them and will
not be completed and shipped until the fourth quarter.
In the first half of 1996, operating activities used $2,398,000 of cash,
while operating activities in the first half of 1995 used $8,981,000 of cash.
Operating activities used cash in these periods, notwithstanding the
Company's improved net income, primarily because of the increases in accounts
receivable and inventory. During these periods, we have also required cash
for capital expenditures and dividend payments in our investing and financing
activities. We have used the cash flow from income and our revolving credit
facility to finance these 1996 increases in expenditures.
Hardinge provides long-term financing for the purchase of its equipment by
qualified customers. We regard this program as an important part of our
marketing efforts. Customer financing is offered for a term of up to seven
years, with Hardinge retaining a security interest in the purchased
equipment. In the event of a customer default and foreclosure, we recondition
and resell the equipment and have historically realized the approximate
remaining contract value.
9
We periodically sell portfolios of our customer notes to financial
institutions in order to reduce debt and finance current operations. We sold
$15,000,000 of customer notes in the first half of 1996, compared to $7,700,000
during the same period of 1995. Recourse against Hardinge from customer defaults
is limited to 10% of the outstanding balance of each portfolio of notes sold,
and is effected in the form of a hold back of funds at the time of the sale. The
hold back portion of customer notes and any notes that have not been sold are
included in notes receivable in the consolidated balance sheet.
Although Hardinge has no formal arrangements with financial institutions
who might purchase its customer notes, we have not experienced difficulty in
arranging such sales. 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.
Capital expenditures in the first half of 1996 were approximately
$6,384,000. We completed the expansion of the Elmira manufacturing facility
and the related equipment is operational. We anticipate capital expenditures
will total approximately $10,000,000 during 1996, which includes further
expenditures to improve productivity and distribution efforts.
Hardinge maintains a loan agreement with two banks which provides for
borrowing up to $30,000,000 on a revolving basis through August 1, 1997. At
that time, the outstanding amounts convert to a term loan payable quarterly
over four years through 2001. This facility, along with other short term
credit agreements, provide for immediate access of up to $45,000,000. At June
30, 1996, outstanding borrowings under these arrangements totaled
$17,900,000. We currently have commitment from a bank to increase our
revolving loan agreement to $50,000,000. We anticipate completing the
negotiation of terms and execution of final documents during the second half
of 1996. The increase will provide us with further flexibility in financing
our world-wide operations. We believe that the currently available funds and
credit facilities, along with internally generated funds, will provide
sufficient financial resources for ongoing operations.
In March, 1996, we completed negotiations with a syndication of banks on a
long term credit 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
begin in 1996, and principal payments begin in 1998. The agreement contains
financial covenants consistent with the revolving loan agreement.
10
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security-Holders
The 1996 Annual Meeting of Shareholders of Hardinge Inc. was held on April
23.
A total of 6,153,036 of the Company's shares were present or represented
by proxy at the meeting. This represented more than 95% of the Company's
shares outstanding.
The two Class I directors named below were elected to serve two-year terms
and the Class III director named below was elected to serve a one-year term.
Votes Votes
for Withheld
--------- --------
Class I Directors:
Robert E. Agan 6,146,956 6,080
Richard J.Cole 6,144,817 8,219
Class III Director:
Douglas A. Greenlee 6,146,495 6,541
John W. Bennett, James L. Flynn, E. Martin Gibson, J. Philip Hunter and
Eve L. Menger continue as Directors of the Company.
The proposal to adopt the Hardinge Inc. 1996 Incentive Stock Plan was
approved with 4,877,844 shares voting for, 1,143,910 shares voting against,
48,318 shares abstaining and 82,964 non-votes.
The election of Ernst & Young LLP as the Company's independent accountants
was ratified, with 6,141,785 shares voting for, 5,255 shares voting against
and 5,996 shares abstaining.
No other matters were presented for vote at that meeting.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
A. Exhibits
See the Exhibit Index which is located on page 13.
B. Reports on Form 8-K
None
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, thereunto duly authorized.
HARDINGE INC.
/s/ Robert E. Agan
-----------------------------------------------
Robert E. Agan
Chairman of the Board, President
and Chief Executive Officer
/s/ Malcolm L. Gibson
-----------------------------------------------
Malcolm L. Gibson
Senior Vice President,
Chief Financial Officer and Assistant Secretary
(Principal Financial Officer)
/s/ Richard L. Simons
-----------------------------------------------
Richard L. Simons
Controller
(Principal Accounting Officer)
DATE: August 13, 1996
12
HARDINGE INC.
Exhibit Index
These exhibits are numbered in accordance with Exhibit Table I of Item 601
of Regulation S-K.
Exhibit # Description
- ------------ -------------------------------------------------
10 The Hardinge Inc. 1996 Incentive Stock Plan as
adopted by shareholders at the April 23, 1996
Annual Meeting.
23 Registrant's proxy statement dated March 15, 1996,
filed with the Securities and Exchange Commission
as a definitive proxy statement on March 15, 1996,
is incorporated herein by reference.
27 Financial Data Schedule
13